FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

[ X ]QUARTERLY] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1998

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

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

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

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

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

Number of shares outstanding of each of the issuer's classes of common stock
at April 30,July 31, 1998:
CMS Energy Corporation:
CMS Energy Common Stock, $.01 par value 101,337,341101,838,224
CMS Energy Class G Common Stock, no par value 8,315,5478,355,817
Consumers Energy Company, $10 par value, privately
held by CMS Energy84,108,789Energy 84,108,789

CMS Energy Corporation
and
Consumers Energy Company

Quarterly reports on Form 10-Q to the Securities and Exchange
Commission
for the Quarter Ended March 31,June 30, 1998

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

TABLE OF CONTENTS

Page
Glossary .............................................................. 3
PART I:
CMS Energy Corporation
Management's Discussion and Analysis ..........................6
Consolidated Statements of Income ............................23
Consolidated Balance Sheets ..................................25
Consolidated Statements of Cash Flows ........................27
Consolidated Statements of Common Stockholders' Equity .......28
Condensed Notes to Consolidated Financial Statements .........29
Report of Independent Public Accountants .....................44
Consumers Energy Company
Management's Discussion and Analysis .........................45
Consolidated Statements of Income ............................57
Consolidated Statements of Cash Flows ........................58
Consolidated Balance Sheets ..................................59
Consolidated Statements of Common Stockholder's Equity .......61
Condensed Notes to Consolidated Financial Statements .........62
Report of Independent Public Accountants .....................72
Quantitative and Qualitative Disclosures about Market Risk....73
PART II:
Item 1. Legal Proceedings .................................73
Item 6. Exhibits and Reports on Form 8-K ..................74
Signatures .............................................................75

GLOSSARY

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

ABATE . . . . . . . . . . . . . . . . . . . Association of Businesses
Advocating Tariff Equity
ALJ . . . . . . . . . . . . . . . . . . . . Administrative Law Judge
Ames. . . . . . . . . . . 3
PART I:
CMS Energy Corporation
Management's Discussion and Analysis . . . . . . . . . . . . . . . 8
Consolidated Statements of Income. . . . . . . . . . . . . . . . . 23
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . 27
Consolidated Statements of Common Stockholders' Equity . . . . . . 28
Condensed Notes to Consolidated Financial Statements . . . . . . . 29
Report of Independent Public Accountants . . . . . . . . . . . . . 47
Consumers Energy Company
Management's Discussion and Analysis . . . . . . . . . . . . . . . 48
Consolidated Statements of Income. . . . . . . . . . . . . . . . . 57
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . 58
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . 59
Consolidated Statements of Common Stockholder's Equity . . . . . . 61
Condensed Notes to Consolidated Financial Statements . . . . . . . 62
Report of Independent Public Accountants . . . . . . . . . . . . . 72
Quantitative and Qualitative Disclosures about Market Risk . . . . . 73
PART II:
Item 1.. . . . . . . . . . . . . . . . . . . . . . Legal Proceedings 73
Item 6.. . . . . . . . . . . . . . .Exhibits and Reports on Form 8-K 74
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

GLOSSARY

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

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

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

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

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

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

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

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

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

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

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

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

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

Natural Gas Act. . . . . . . . . Federal Natural Gas Act
NGL. . . . . . . . . . . . . . . Federal Natural Gas Act
NRCgas liquids
Nitrotec . . . . . . . . . . . . Nitrotec Corporation, a propriety gas
technology company in which CMS Gas
Transmission owns an equity interest
NRC. . . . . . . . . . . . . . . Nuclear Regulatory Commission

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

Palisades . . . . . .Palisades. . . . . . . . . . . . Palisades nuclear power plant, owned by
Consumers
PCBs. . . . . .PCBs . . . . . . . . . . . . . . Poly chlorinated biphenyls
Pension Plan. . . . . .Plan . . . . . . . . . . The trusteed, non-
contributory,non-contributory, defined
benefit pension plan of Consumers and
CMS Energy
PPA . . . . . .PPA. . . . . . . . . . . . . . . The Power Purchase Agreement between
Consumers and the MCV Partnership with a
35-
year35-year term commencing in March 1990
ppm . . . . . .ppm. . . . . . . . . . . . . . . Parts per million
PSCR. . . . . .PSCR . . . . . . . . . . . . . . Power supply cost recovery
PUHCA . . . . . .PUHCA. . . . . . . . . . . . . . Public Utility Holding Company Act of
1935

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

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

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

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

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

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

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CMS Energy Corporation
Management's Discussion and Analysis

The MD&A of this Form 10-Q should be read along with the MD&A and
other parts of CMS Energy's 1997 Form 10-K.10-K and the restated
financial information in a Form 8-K dated July 30, 1998. This MD&A
also refers to, and in some sections specifically incorporates by
reference from, CMS Energy's Condensed Notes to Consolidated
Financial Statements and should be read in conjunction with such
Statements and Notes. This report contains forward-
lookingforward-looking
statements, as defined by the Private Securities Litigation Reform
Act of 1995, that include without limitation, discussions as to
expectations, beliefs, plans, objectives and future financial
performance, or assumptions underlying or concerning matters
discussed in this report. Refer to the Forward-Looking Information
section of this MD&A for some important factors that could cause
actual results or outcomes to differ materially from those
addressed in the forward-looking discussions.

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

RESULTS OF OPERATIONS

CMS Energy Consolidated Earnings

In Millions, Except Per Share Amounts
March 31June 30 1998 19971997(b) Change
- --------------------------------------------------------------
(a)------- ------ -------

Three months ended
Consolidated Net Income $ 8365 $ 8447 $ (1)18
Net Income Attributable
to Common Stocks:
CMS Energy 74 75 (1)64 45 19
Class G 9 9 -1 2 (1)
Earnings Per Average Common Share:
CMS Energy
Basic .73 .79 (.06).63 .48 .15
Diluted .72 .78 (.06).62 .48 .14
Class G
Basic and Diluted 1.09 1.18 (.09).12 .16 (.04)

Six months ended (a)
Consolidated Net Income $153 $125 $ 28
Net Income Attributable to
Common Stocks:
CMS Energy 143 114 29
Class G 10 11 (1)
Earnings Per Average Common Share:
CMS Energy
Basic 1.42 1.21 .21
Diluted 1.39 1.20 .19
Class G
Basic and Diluted 1.20 1.34 (.14)

Twelve months ended (a)
Consolidated Net Income $272 $218 $ 54
Net Income Attributable to
Common Stocks:
CMS Energy 258 206 52
Class G 14 12 2
Earnings Per Average Common Share:
CMS Energy
Basic 2.60 2.19 .41
Diluted 2.57 2.18 .39
Class G
Basic and Diluted 1.71 1.52 .19
====== ===== =====

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

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

The combined effects of the changes in accounting for oil and gas
investments resulted in decreases to net income of $7 million ($.07
per share), $13 million ($.13 per share) and $22 million ($.24 per
share) for the three months, six months and twelve months ended
Consolidated Net Income $ 267 $ 236 $ 31
Net Income AttributableJune 30, 1997, respectively. The following discussion of earnings
variations compares the results of this year's periods to Common Stocks:
CMS Energy 252 225 27
Class G 15 11 4
Earnings Per Average
Common Share:
CMS Energy
Basic 2.57 2.41 .16
Diluted 2.55 2.39 .16
Class G
Basic and Diluted 1.76 1.53 .23
===============================================================the
restated results of last year's periods.

CMS Energy's earnings for the firstsecond quarter of 1998 decreasedincreased from
the comparable period in 1997 as a result of (1) an increase in
earnings from international independent power production plant
operations and from the MCV Partnership and a gain on the sale of
a biomass project power purchase agreement, and (2) lower operating
expenses, higher oil volumes and gas prices, partially offset by
lower oil prices in the oil and gas exploration and production
business. Partially offsetting these increases were (1) lower
earnings from the international energy distribution business due to
losses incurred in new project investments and higher operating
expenses and (2) increased interest on long-term debt due to higher
amounts of debt outstanding.

CMS Energy's earnings for the six months ended June 30, 1998
increased from the comparable period in 1997 as a result of (1)
Consumers' one-time change in accounting for the recognition of
property tax expense from a calendar-year basis to a fiscal-year
basis which resulted in a benefit of $66 million ($43 million
after-tax), (2) Consumers' increased electric sales partially
offset by increased operating and maintenance expenses, (3) a gain
on the sale of Petal Gas Storage Company by the gas transmission,
storage and processing business, (4) increased income from the
international independent power production business and from the
MCV Partnership, and a gain on the sale of a biomass project power
purchase agreement, and (5) lower oil and gas exploration and
production operating expenses. Partially offsetting these
increases were (1) Consumers' decreased gas deliveries due to
record warm 1998 temperatures, (2) lower gas production,
lower oil prices and a write down of the value of Colombia oil reserves in
the oil and gas exploration and production business, (3) an increased provision for
underrecoveries under the PPA of $37 million ($24 million after-tax)
due to higher than expected plant availability of the MCV
Facility, (3) lower earnings from international energy distribution
businesses and (4) increased interest on long-term debt due to
higher amounts of debt outstanding. For further information on
past and future underrecoveries under the PPA, see Power Purchases
from the MCV Partnership in Note 2. Partially
offsetting these decreases, were (1) Consumers' one-time change in
accounting for the recognition of property tax expense from a calendar
year basis to a fiscal year basis which resulted in a benefit of $66
million ($43 million after-tax), (2) Consumers' increased electric sales
along with reduced purchased power costs, (3) a gain on the sale of Petal
Gas Storage Company by the gas transmission, storage and processing
business, and (4) increased income from the international independent
power production business and improved earnings from the MCV Partnership,.

The increase in consolidated net income for the twelve months ended
June 30, 1998 compared to the same period in 1997 period reflects (1)
Consumers' change in accounting for property taxes as discussed
above and a $9 million adjustment of Consumers' prior years'
income taxes associated with non-taxable earnings on nuclear
decommissioning trust funds, (2) Consumers' increased revenues from
Consumers' transmission of electricity for others,electric
sales partially offset by increased operating and maintenance
expenses, (3) increased incomean increase in international plants earnings and
operating fees from the internationalindependent power production business,
(4) increased incomeearnings from the internationalMCV Partnership, and a gain on the
sale of a biomass project power purchase agreement, (4) a gain on
the sale of Petal Gas Storage Company and a gain on the sale of
Australian gas reserves in the gas transmission, storage and
processing business and (5) improved earnings from the MCV Partnership. In addition, the
improved net income for the twelve months ended 1998 reflects the (6)an increase in oil production and
recognition of a gain on the sale of CMS NOMECO's entire interest
in oil and gas properties in Yemen, (7) an industry expertise service fee in
connection with the Loy Yang A acquisition, and (8) an adjustment of
Consumers' prior years' income taxes associated with non-taxable earnings
on nuclear decommissioning trust funds of $9 million.Yemen. Partially offsetting these
increases were the (1) recognition of Consumers' after-
taxafter-tax loss
associated with the underrecovery of power costs under the PPA as
discussed above, (2) Consumers' decreased electric revenues because of
special contract discounts negotiated with large industrial customers, (3)
Consumers' decreased gas deliveries due to
warmer weather during the first quarterhalf of 1998 and (4) lower gas production and(3) lower oil and gas prices
and a write down of the value of Colombia oil reserves
in the oil and gas exploration and production business.business, (4) a
scheduled decrease in the industry expertise service fee income
earned in connection with Loy Yang and (5) increased interest on
long-term debt due to higher amounts of debt outstanding.

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

Consumers' Electric Business Unit Results of Operations

Electric Pretax Operating Income:
In Millions
Three Months Six Months Twelve Months
Ended March 31June 30 Ended March 31June 30 Ended June 30
Change Compared to Prior Year 1998 vs 1997 1998 vs 1997 - --------------------------------------------------------------------------1998 vs 1997
----------- -------------- ------------

Sales (including special
contract discounts) $ 65 $ 14
Rate increases and other
regulatory issues (2)12 $ 12
Other non-commodity revenue 1 (1) -
Operations and maintenance 9 361 10 35
General taxes and depreciation (-) (17)(4) (5) (18)
----- ----- -----
Total change $ 133 $ 32
==========================================================================16 $ 29
===== ===== =====

Electric Deliveries: Total electric deliveries increased 6.58.0
percent for the three months ended March 31,June 30, 1998 over the same
period in 1997. The increase includes a 2.9 percent increase in
deliveries to ultimate customers, primarily within the commercial
and industrial classes, and a 5.1 percent increase in intersystem
and wholesale customer deliveries. For the six months ended
June 30, 1998, total electric deliveries increased 7.2 percent over
the comparable 1997 period. Deliveries to ultimate customers increased 1.2 percent. Reduced sales to residential and
commercial customers were
more than offset byup 2.1 percent, mainly from increased sales and deliveries to commercial and
industrial customers.classes, with the remaining 5.1 percent attributable to
an increase in sales between utility systems and wholesale
deliveries. For the twelve months ended June 30, 1998, total
electric deliveries increased 3.85.3 percent over the comparable 1997
period. The increase is primarily attributable to an increase in
intersystem salesdeliveries and a 1.3 percent increase in sales and deliveries to
ultimate customers, primarily within the industrial class.

Power Costs:

In Millions
March 31June 30 1998 1997 Change
- ---------------------------------------------------------------------------- ----- -----
Three months ended $ 312 $ 270 $ 282 $(12)42
Six months ended 583 552 31
Twelve months ended 1,128 1,110 18
========================================================================

Although sales increased for the three months ended March 31, 1998
compared to the same period in 1997, power costs for the period decreased.
This decrease results from increased internal generation and reduced power
purchases from outside sources.1,170 1,119 51
===== ===== =====

Power costs increased for all the twelve
monthsreported periods ended June 30,
1998 compared to 1997. Both internal generation and power
purchases from outside sources increased during this periodthese periods to
meet the increased sales demand.

Consumers' Electric Business Unit Operating Issues:

Power PurchasesUncertainties: CMS Energy's financial position may be affected by
a number of trends or uncertainties that have had, or CMS Energy
reasonably expects will have a materially favorable or unfavorable
impact on net sales, revenues, or income from the MCV Partnership: In 1992, Consumers recognized a
loss for the present value of the estimated future underrecoveries of
power purchasescontinuing electric
operations. Such uncertainties are: 1) environmental liabilities
arising from the MCV Partnership. The after-tax cash
underrecoveries are currently based on the assumption that the MCV
Facility will be availablecompliance with various federal, state and local
environmental laws and regulations, including potential liability
or expenses relating to generate electricity 91.5 percent of the
time over its expected life. For the first three months of 1998, the MCV
Facility was available 99 percent of the time, resulting in after-tax cash
underrecoveries of $11 million. Consumers believes it will continue to
experience after-tax cash underrecoveries associated with the PPA in
amounts as those shown below. For further information, see Power
Purchases from the MCV Partnership in Note 2.

In Millions
1998 1999 2000 2001 2002
- --------------------------------------------------------------------------
Estimated cash under-
recoveries, net of tax $28 $22 $21 $20 $19
==========================================================================

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

Electric Rate Proceedings: In 1996, the MPSC issued a final order
authorizing Consumers to recover costs associated with the purchase of an
additional 325 MW of MCV Facility capacity and to accelerate recovery of
its nuclear plant investment. To implement the accelerated recovery, the
order requires an increase in annual nuclear plant depreciation expense by
$18 million with a corresponding decrease in fossil-fueled generating
plant depreciation expense. The order also established an experimental
direct-access program. For further information on these issues, see the
Electric Business Outlook section of this MD&A and Note 2.

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

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

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

On April 24, 1998 a planned refueling and maintenance outage of forty to
fifty days began at Palisades. Consumers will replace a total of sixty
nuclear fuel assemblies in the plant's reactor during the outage.

Big Rock is being decommissioned. It was closed permanently on August 29,
1997 because management determined that it would be uneconomical to
operate in an increasingly competitive environment. See the Electric
Environmental Matters section of this MD&A for further information on
decommissioning Big Rock and Note 8 on nuclear matters.

Electric Environmental Matters: The Clean Air Act contains significant
environmental provisions specific to utilities. During the past few
years, Consumers incurred $46 million in capital expenditures to meet the
Clean Air Act's requirements. Consumers believes it may incur an
additional $26 million in capital expenditures by the year 2000 to comply
with sulfur dioxide and nitrogen oxide emission limits established by the
EPA under the Clean Air Act's Acid Rain Program.

Consumers currently operates within all Clean Air Act requirements and
meets current emission limits. The EPA, however, recently revised the
national air quality standards, which may further limit small particulate
and ozone related emissions, and proposed that the State of Michigan
impose additional nitrogen oxide limits on fossil-fueled emitters, such as
Consumers' generating units. It is unlikely that the State of Michigan
will establish Consumers' emissions reduction target until mid-to-late
1999. Until this target is established, the estimated cost of compliance
is subject to significant revision. The preliminary estimate of capital
costs to reduce nitrogen oxide related emissions for Consumers' fossil-
fueled generating units is approximately $210 million, plus an additional
amount totaling $10 million per year for operation and maintenance costs.
Consumers may need an equivalent amount to comply with the new small
particulate standards. The State of Michigan has objected to the extent
of the proposed EPA emission reductions. If the State of Michigan's
position were to be adopted by the EPA, costs could be less than the
current estimated amounts. Consumers supports the bipartisan effort in the
U.S. Congress to delay implementation of the revised standards until the
relationship between the new standards and health improvements is
established scientifically.

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

Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Many other creditworthy,
potentially responsibleSuperfund; 2) capital expenditures
for compliance with the Clean Air Act; 3) suits by various parties with substantial assets also cooperate
with respect to the individual sites. Based on current information,
management believes it is unlikely that CMS Energy's liability at any of
the known Superfund sites, individually or in total, will have a material
adverse effect on its financial position, liquidity or results of
operations.

While decommissioning Big Rock, Consumers found that some areas of the
plant have coatings that contain both metals and PCBs. Consumers does not
believe that any facility in the United States currently accepts the
radioactive portion of that waste. The cost of removal and disposal is
currently unknown. These costs would constitute part of the cost to
decommission the plant, and will be paid from the decommissioning fund.
Consumers is studying the extent of the contamination and reviewing
options. For further information regarding these and other environmental
matters, see Electric Environmental Matters in Note 7.

Stray Voltage: Various parties have sued Consumers
relating to the effect of so-called stray voltage on certain
livestock. In December 1997, the
Michigan Supreme Court remanded for further proceedings a 1994 Michigan
trial court decision that refused to allow the claims of over 200 named
plaintiffs to be joined in a single action. The Michigan Supreme Court
allowed each case that was not previously refiled to go forward
separately. Consumers filed a motion for reconsideration with the
Michigan Supreme Court, which was denied. As a result, 21 individual
plaintiffs have re-filed their claims with the trial court. Consumers
intends to vigorously defend these cases, but is unable to predict the
outcome. As of March 31, 1998, Consumers had 6 individual stray voltage
lawsuits, unrelated to the cases above, awaiting trial court action, down
from 12 lawsuits as reported at year end 1997. For further information
regarding Stray Voltage, see the Other section in Note 7.

Other: In October 1997,livestock; 4) suits by two independent power producers sued Consumers
and CMS Energy in a federal court alleging
antitrust violations and economic losses due to special electric
contracts signed by ConsumersConsumers; 5) cost recovery relating to the MCV
Facility, nuclear plant investments and an experimental direct-access
program; 6) electric industry restructuring; 7) after-tax
cash underrecoveries associated with large customers. The plaintiffs claim damagespower purchases from the MCV
Partnership; and 8) Big Rock decommissioning issues and ongoing
issues relating to the storage of $100 million (which a
court can treble in antitrust cases as providedspent fuel and the operating life
of Palisades. For detailed information about these trends or
uncertainties see Note 2, "Consumers' Electric Business Unit
Contingencies-Electric Environmental Matters", "Consumers' Electric
Business Unit Contingencies-Stray Voltage", "Consumers' Electric
Business Unit Contingencies-Anti-Trust", "Other Consumers' Electric
Business Unit Uncertainties-Power Purchases from the MCV
Partnership", "Consumers' Electric Business Unit Rate Matters-
Electric Restructuring", "Consumers' Electric Business Unit Rate
Matters-Electric Proceedings" and " Other Consumers' Electric
Business Unit Uncertainties-Nuclear Matters", incorporated by
law). The parties are
awaiting the court's decision onreference herein.

For information about Consumers' electricity option contracts, see
Note 5, "Risk Management Activities and CMS Energy's motion for
summary judgment and/or dismissal of the complaint. CMS Energy believes
the lawsuit is without merit and will vigorously defend against it, but
cannot predict the outcome of this matter. For further information
regarding this antitrust litigation, see Item 3, Legal Proceedings.Derivatives Transactions-Commodity
Price Hedges", incorporated by reference herein.

Consumers Gas Group Results of Operations

Gas Pretax Operating Income:Operation
In Millions
Three Months Six Months Twelve Months
Ended March 31June 30 Ended March 31June 30 Ended June 30
Change Compared to Prior Year 1998 vs 1997 1998 vs 1997 - -----------------------------------------------------------------1998 vs 1997
------------- ----------- -----------
Sales $ (13) $ (13)(5) $(18) $(21)
Gas wholesale and
retail service activities - (3) (11)(6)
Operations and maintenance (8) 11(1) (9) 6
General taxes, depreciation
and other 4 4 5
----- ----- -----
Total change $(24) $ (13)(2) $(26) $(16)
===== ===== =====

Gas Deliveries: System deliveries for the three month period ended
March
31,June 30, 1998, including miscellaneous transportation, totaled 14661
bcf, a decrease of 2215 bcf or 1319 percent compared to the three month
period ended March 31,June 30, 1997. Deliveries for the six month period
ended June 30, 1998, including miscellaneous transportation,
totaled 208 bcf, a decrease of 37 bcf or 15 percent compared to the
six month period ended June 30, 1997. For the twelve month period
ended March 31,June 30, 1998, deliveries including miscellaneous
transportation, totaled 399383 bcf, a decrease of 3241 bcf or 710 percent
compared to the twelve month period ended March 31,June 30, 1997. The
decreased deliveries for three month, six month and twelve month
periods ended reflect warmer temperatures primarily for the first
quarter of 1998.

Cost of Gas Sold:

In Millions
March 31June 30 1998 1997 Change
- ---------------------------------------------------------------------------- ----- -----

Three months ended $264 $314 $(50)$ 74 $118 $ (44)
Six Months ended 338 432 (94)
Twelve months ended 645 718 (73)
========================================================================600 729 (129)
===== ===== =====

The cost decreases for the three month, six month and twelve month
periods ended March 31,June 30, 1998 were the result of decreased sales and
lower gas costs reflecting warmer temperatures during the winter
heating seasons.

Consumers Gas Group Operating Issues:

Gas Rate Proceedings: Consumers entered intoUncertainties: CMS Energy's financial position may be affected by
a special natural gas
transportation contract in response to a customer's proposal to bypass
Consumers' system in favornumber of a competitive alternative. In 1995, the
MPSC approved the contract. The MPSC stated, however,trends or uncertainties that Consumers'
shareholders must bear the revenue shortfall created by the difference
between the contract's discounted rate and the floor price of an MPSC-
authorized gas transportation rate. In 1995, Consumers filed an appeal
with the Court of Appeals claiming that the MPSC decision denies Consumers
the opportunity to earn its authorized rate of return and is therefore
unconstitutional. In October 1997, the Court of Appeals issued an opinion
affirming the MPSC's order. The Court of Appeals denied Consumers'
subsequent request for a rehearing of that opinion. In March 1998,
Consumers filed an application for leave to appeal with the Michigan
Supreme Court. For further information on Gas Proceedings, see the Gas
Business Outlook section of this MD&A and Note 3.

Restructuring: In December 1997, the MPSC approved Consumers' application
to implement a statewide three-year experimental gas transportation pilot
program, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. As of
May 8, 1998, more than 7,500 customers chose alternative gas suppliers,
representing approximately 10 bcf of gas load. Of these alternative gas
suppliers, one was ahave had, or CMS Energy
affiliate. The program is voluntary for
naturalreasonably expects will have, a materially favorable or unfavorable
impact on net sales or revenues or income from continuing gas
customers. Customers choosing to remain as sales customers of
Consumers will not see a rate change in their natural gas rates. To
minimize the risk of exposure to higher gas costs, Consumers currently has
contracts in place at known prices covering a significant portion of its
requirements through the year 2000. ABATE, the Attorney General and other
parties filed claims of appeal of the MPSC's order with the Court of
Appeals. For further information, see Note 3.

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

Gas Environmental Matters: Consumers expects that it will ultimately
incur investigation and remedial actionoperations. Such uncertainties are: 1) potential environmental
costs at a number of sites including some thatsites formerly housedhousing
manufactured gas plant facilities.
Consumers estimates its costs relatedfacilities; 2) ongoing litigation relating
to investigationa pricing dispute with gas producers; and remedial action
at $48 million to $98 million. This estimate is based on undiscounted
1998 costs. Any significant change in assumptions, such as remediation
technique, nature and extent of contamination and regulatory requirements,
could affect the estimate of investigation and remedial action costs for
the sites.3) a statewide
experimental gas transportation pilot program. For furtherdetailed
information regarding environmental matters,about these uncertainties see Note 7.2, "Consumers' Gas
Group Contingencies-Gas Environmental Matters", "Consumers' Gas
Group Matters-GCR Matters", and "Consumers' Gas Group Matters-Gas
Restructuring", incorporated by reference herein.

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

Independent Power Production Results of Operations

Pretax Operating Income: The improved earnings in the independent power
production business demonstrates the successful strategy to search for
global opportunities. Pretax operating income for the three
months ended March 31,June 30, 1998 increased $6$25 million (55(100 percent) over
the comparable period in 1997. This increase primarily reflects
increased operating income from international plants earnings and
fees, increased earnings from the MCV Partnership, lower net
operating expenses and a $12 million gain on the sale of a biomass
project power purchase agreement. Pretax operating income for the
six months ended June 30, 1998 increased $31 million (89 percent)
over the comparable period in 1997, primarily reflecting an
increase in international plants earnings and operating fees,
increased earnings from the MCV Partnership and lower net
operating expenses.a $12 million gain
on the sale of a biomass project power purchase agreement. Pretax
operating income for the twelve months ended March 31,June 30, 1998
increased $30$57 million (43(81 percent) from the comparable period in
1997, primarily reflecting increased operating income resulting
from increased international earnings, higher electricity sales byconstruction management fees
earned in connection with Jorf Lasfar, increased earnings from the
MCV Facility,Partnership and a $12 million gain on the sale of a biomass
project power purchase agreement, partially offset by lower
industry expertise service fee income earned in connection with the Loy
Yang transaction in 1997.

Independent Power Production Operating Issues

Contracts to sell 11 percent of Loy Yang's capacity will expire during
1998. Although Loy Yang will make attempts to replace these contracts at
comparable prices, there is no assurance that the new contracts will be at
the same price. CMS Generation does not currently expect to incur
significant capital costs, if any, at its power facilities to comply with
current environmental regulatory standards.Yang.

Oil and Gas Exploration and Production Results of Operations

Pretax Operating Income: Pretax operating income for the three
months ended March 31,June 30, 1998 decreased $17increased $4 million (133 percent) from
the comparable period in 1997. This decreaseincrease is the result of
higher oil production, higher gas prices and decreased exploration
expenses, partially offset by sharply lower oil pricesprices. Pretax
operating income for the six months ended June 30, 1998 increased
$6 million (200 percent) over the comparable period in 1997 due to
lower exploration expenses, increased oil production and a write
down of the value of Columbia oil reserveshigher gas
prices, partially offset by higherreduced oil production.prices. Pretax operating
income for the twelve months ended March 31,
1998 decreased $6June 30,1998 increased $14
million (78 percent) from the comparable period in 1997, primarily
due to increased oil production, lower oilexploration expenses and gas prices and gas production, a write down of the
value of Colombia oil reserves and higher operating expenses partially
offset by a
gain on the sale of CMS NOMECO's entire interest in oil and gas
properties in Yemen.Yemen, partially offset by sharply lower oil prices
and decreased gas production.

CMS NOMECO changed its method of accounting effective January 1,
1998 for oil and gas operations from the full cost method to the
successful efforts method. CMS NOMECO believes that the successful
efforts method will minimize asset write-offs caused by periodic
price swings, which may not be representive of overall or long-term
markets, and will allow its results of operations to be more easily
compared to other oil and gas companies. Nitrotec Corporation, in
which CMS Gas Transmission has an equity investment, also elected
to convert effective January 1, 1998 from the full cost method of
accounting to the successful efforts method of accounting. All
prior period financial statements have been restated to conform
with successful efforts accounting. The effect, after tax, of the
change in accounting method as of December 31, 1997, was a
reduction to retained earnings of $175 million for CMS NOMECO and
$15 million for CMS Gas Transmission, primarily attributable to a
decrease in net plant and property and deferred tax liability of
$270 million and $95 million, respectively, for CMS NOMECO and a
$15 million decrease in CMS Gas Transmission's equity investment in
Nitrotec Corporation. The combined effects of the changes in
accounting method resulted in an increase in net income of $5
million ($.06 per share) for the three months ended March 31, 1998,
and a decrease of $6 million ($.06 per share) for the three months
ended March 31, 1997; see Note 6.

Natural Gas Transmission, Storage and Processing Results of Operations

Pretax Operating Income: Similar to the independent power production
business, CMS Energy's natural gas transmission, storage and processing
business earnings reflect the ability to acquire and develop major
projects worldwide. Pretax operating income for the three
months ended March 31,June 30, 1998 increased $4$2 million (45(29 percent) over
the comparable period in 1997. The increase1997, primarily reflectsas a result of a gain on
the sale of Australian gas reserves, lower operating expenses and
higher earnings from domestic and international operations. Pretax
operating income for the six months ended June 30, 1998 increased
$6 million (38 percent) over the comparable 1997 period primarily
reflecting a gain in the first quarter of 1998 on the sale of Petal
Gas Storage Company, a gain on the sale of Australian gas reserves,
and lower operating expenses, partially offset by a gain in the
first quarter of 1997 on the sale of a portion of the Ames gas
gathering system. Pretax operating income for the twelve months
ended March 31,June 30, 1998 increased $8$9 million (26(38 percent) over the
comparable period in 1997, reflecting a gain on the sale of Petal
Gas Storage Company, income
attributable toa gain on the sale of Australian pipeline acquired in 1997,gas reserves,
and incomeincreased earnings attributable to domestic and other international
operations.

Marketing, Services and Trading Results of Operations

Pretax Operating Income: CMS MST sells natural gas, electricityMST's 1998 results compared to prior
year reflect management's substantial and continued commitment of
resources to develop and capture the opening of the electric and
energy management services to commercial and industrial customers in the
United States and Canada and plans to expand operations worldwide. CMS
MST also markets oil and natural gas liquids through a partnership.
Pretax operating incomemarkets.

Wholesale electric marketing volumes reached 3,384,000 MW for the
threesix months ended March 31,June 30, 1998 decreased $2 million fromcompared to none for the comparable
period in 1997. The decrease is
a result of natural gas prices that impacted CMS MST's ability to achieve
positive margins on fixed price sales and the expected costs of
positioning CMS MST for future growth, partially offset by higher gas and
electric volumes. Pretax operating income for the twelve months
ended March 31,June 30, 1998 decreased $7$8 million from the comparable period
in 1997, primarily reflecting lower gas margins. Despite the decreased earnings, CMS MST
continuesmargins and higher costs
reflecting management's continuing commitment to position itself for future growth in the newelectric
and energy world.management growth. Gas marketed for end users totaled
91156 bcf and 3379 bcf for the threesix months ended March 31,June 30, 1998 and 1997,
respectively. Wholesale electric
marketing, a new marketing activityEnergy management service revenues for CMS MST in the first quarter ofsix
months ended June 30, 1998 totaled 1,349,000 MW. CMS MST completedincreased 80 percent over 169 energy management
services projects resulting in $1.3 million in revenues in the first
quarter of 1998.comparable
1997 period.

Market Risk Information

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

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

Interest Rate Risk: Management uses a combination of fixed-rate
and variable-rate debt to reduce interest rate exposure. Interest
rate swaps and rate locks may be used to adjust exposure when
deemed appropriate, based upon market conditions. These strategies
attempt to provide and maintain the lowest cost of capital. The
carrying amount of long-term debt (including current maturities)
was $ 3.8$4.4 billion at March 31,June 30, 1998 with a fair value (including
current maturities) of $3.8$4.4 billion. The fair value of
CMS Energy's financial derivative instruments at March 31,June 30, 1998,
with a notional amount of $795$803 million, was $4$2 million,
representing the amount that CMS Energy would have paid to
terminate these agreements on March 31,June 30, 1998. In accordance with SEC
disclosure requirements, CMS Energy performed a sensitivity
analysis. The analysis assesses the potential loss in fair value,
cash flows and earnings based upon hypothetical increases and
decreases in market interest rates. A hypothetical 10 percent
adverse shift in market rates in the near term would not have a
material impact on CMS Energy's consolidated financial position,
results of operations or cash flows as of March 31,June 30, 1998.

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

For a discussion of accounting policies related to derivative
transactions, see Note 6.5.

CAPITAL RESOURCES AND LIQUIDITY

Cash Position, Investing and Financing

CMS Energy's primary ongoing source of operating cash is dividends
from subsidiaries. In Aprilthe second quarter of 1998, Consumers declaredpaid
a $50 million common dividend to CMS Energy. In July 1998,
Consumers declared a $44 million common dividend to be paid to CMS Energy in
MayAugust 1998. In the first quarter of 1998, Enterprises paid
common dividends and other distributions of $34 million to
CMS Energy. CMS Energy's consolidated operating cash requirements
are further met by its operating and financing activities.

Operating Activities: CMS Energy's consolidated net cash provided
by operating activities is derived mainly from the sale and
transportation of natural gas by Consumers; the generation,
transmission, and sale of electricity by Consumers; the sale of oil
and natural gas by CMS NOMECO; the transportation, storage and
processing of natural gas by CMS Gas Transmission; and the
production and sale of electricity by other affiliates.
Consolidated cash from operations totaled $249$309 million and $379$358
million for the first threesix months of 1998 and 1997, respectively.
The $130$49 million decrease resulted primarily from a decrease of $75$47
million in Consumers' sale of accounts receivable and a $29 million
net decrease reflecting the cumulative effect of anthe accounting
change for property taxes and the
loss on power purchasesan increased provision for
underrecoveries under the PPA, both of which are noncash items.
These decreases were partially offset by increases in consolidated
net income and deferred income taxes. CMS Energy uses its
operating cash primarily to expand its international businesses, to
maintain and expand electric and gas systems of Consumers, to
retire portions of its long-term debt and to pay dividends.

Investing Activities: CMS Energy's consolidated net cash used in
investing activities totaled $246$467 million and $157$912 million for the
first threesix months of 1998 and 1997, respectively. The increasedecrease of
$89$445 million primarily reflects increaseddecreased investments in
international projects. CMS Energy's 1998 expenditures for its
utility and international businesses were $81$181 million and $166$292
million, respectively, compared to $82$171 million and $67$711 million,
respectively, during 1997.

Financing Activities: CMS Energy's consolidated net cash provided
by (used in )
financing activities totaled $2$319 million and ($221)$549 million for
the first threesix months of 1998 and 1997, respectively. The increasedecrease
of $223$230 million in net cash provided by financing activities
resulted from an $800 million increase in the issuance of
$719 million of new
securities (see table below) and a $108 million
decrease, offset by increases in the reduction of notes payable, offset by the retirement of
$369 million
of bonds and other long-term debt ($427 million) and a $295 million increase
in the repayment
of bank loans.loans ($552 million).

In Millions
Distribution/ Principal Use of
Month Issued Maturity Interest Rate Amount Use of Proceeds
- ----------------------------------------------------------------------------------- --------- ------------ ------- ---------------
CMS Energy
GTNs
Series D (1) (1) 6.8% (1) $ 64104 General corporate
purposes

Extendible Tenor
Rate Adjusted
Securities January 2005 7.0% 180 Pay down
borrowings

-----

$244--------
$284

Consumers
Senior Notes (2) February 2008 6.375% $250 Pay down
First
Mortgage
Bonds

Senior Notes (2) March 2018 6.875% 225 Pay down
First
Mortgage
Bonds

------
Total through March 31, 1998 $719

Senior Notes (2) May 2008 6.2% $250(3) 250 Pay down
First
Mortgage
Bonds and
Long-Term
Bank Debt

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

Long-Term Bank Debt May2001-2003May 2001-2003 6.05%(3)(5) 225 Pay down
Long-Term
Bank Debt

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

Total through May 31,June 30, 1998 $1,194
==========================================================================$1,434

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

As of March 31,June 30, 1998, CMS Energy had an aggregate $163$302 million in
securities registered for future issuance and sale. CMS Energy
also has Senior Credit Facilities, unsecured lines of credit and
letters of credit as sources of funds needed to fulfill, in whole
or in part, material commitments for capital expenditures. For
furtherdetailed information, on the filingsee "Short-Term and Long-Term Financing, and
Capitalization-CMS Energy" in Note 3, incorporated by reference
herein.

Consumers has FERC authorization to issue securities and
guarantees. Consumers has a credit facility, lines of registration statementscredit and
a trade receivable sale program in place as anticipated sources of
funds needed to fulfill, in whole or in part, material commitments
for security
offeringscapital expenditures as of June 30, 1998. For detailed
information, see "Short-Term and Long-Term Financings, and
Capitalization-Consumers" in Note 4.3, incorporated by reference
herein.

In the first quarter ofFebruary and May 1998, CMS Energy declared and paid $30$61 million
in cash dividends to holders of CMS Energy Common Stock and $3$5
million in cash dividends to holders of Class G Common Stock. In
AprilJuly 1998, the Board of Directors declared a quarterly dividenddividends of
$.30$.33 per share on CMS Energy Common Stock and $.31$.325 per share on
Class G Common Stock, payable in MayAugust 1998. This represents an
increase in the annualized dividend on CMS Energy Stock to $1.32
per share from the previous amount of $1.20 per share (a 10 percent
increase), and an increase in the annualized dividend on Class G
Common Stock to $1.30 per share from the previous dividend of $1.24
per share (a 4.8 percent increase).

Other Investing and Financing Matters: At March 31,June 30, 1998, the book
value per share of CMS Energy Common Stock and Class G Common Stock
was $19.34$17.57 and $11.24,$10.92, respectively.

CMS Energy's $1.125 billion Senior Credit Facilities consist of a $400
million 364-day revolving credit facility, a $600 million three-year
revolving credit facility and a five-year $125 million term loan facility.
Additionally, CMS Energy has unsecured lines of credit and letters of
credit in an aggregate amount of $161 million. These credit facilities
are available to finance working capital requirements and to pay for
capital expenditures between long-term financings. At March 31, 1998, the
total amount utilized under the Senior Credit Facilities was $222 million,
including $52 million of contingent obligations, and under the unsecured
lines of credit and letters of credit was $107 million.

CMS Energy has a bank commitment through JuneDecember 1998 to enter
into a $580$600 million credit agreement to fund investments in power
projects.

During the first quarter ofCMS Energy's $400 million, 364-day revolving credit facility
expired June 30, 1998, and was not renewed.

On August 3, 1998, CMS Energy initiatedannounced the execution of a merger
agreement with Continental Natural Gas, Inc. ("CNGL"), a $185
million (assets) energy company engaged in gathering, processing,
purchasing and completed an
offer to exchange up to $300marketing natural gas and natural gas liquids in
Oklahoma and Texas. Approximately $65 million of its privately placed 7.375CMS Energy Common
Stock will be issued to acquire 100 percent Senior Unsecured Notes due 2000, Series A for 7.375 percent Senior
Unsecured Notes due 2000, Series B that have been registered with the SEC.
For further information on the exchange offer see Note 4.

At April 15, 1998, Consumers had remaining FERC authorization to: 1)
issue or guarantee up to $900of CNGL's common stock
and approximately $90 million of short-term securities,
outstanding at any one time, through 1998; 2) guarantee, through 1999, upCNGL debt will be assumed in the
transaction, which is intended to $25 millionbe accounted for as a pooling of
interests. The merger agreement is subject to ratification by the
holders of a majority of CNGL's common stock and certain regulatory
filings. The transaction is expected to close in loans made by others, to residentsthe fourth
quarter of Michigan for
making energy-related home improvements; and 3) issue long-term securities
with maturities up to 30 years, through November 1998, up to $401 million
and $300 million for refinancing purposes and for general corporate
purposes, respectively. In May 1998, Consumers used $475 million of FERC
authorization by issuing the following long-term debt: 1) $250 million in
senior notes; and 2) $225 million for a long-term bank loan.

Additionally, in May 1998, Consumers requested authorization to issue from
July 1998 through June 2000, up to $950 million of long-term securities
for refinancing or refunding purposes and $200 million for general
corporate purposes. This authorization would replace and supersede any
remaining authorization previously granted to issue long-term securities,
except for the $25 million in loan guarantees discussed above.

Consumers also has in place a $500 million trade receivables sale program.
At March 31, 1998, $160 million in receivables remained available for sale
under the program.1998.

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

Capital Expenditures

Looking forward, CMS Energy estimates that capital expenditures,
including new lease commitments and investments in partnerships and
unconsolidated subsidiaries, will total $3.7$3.8 billion over the next
three years. Cash generated by operations is expected to satisfy
a substantial portion of these capital expenditures. Nevertheless,
CMS Energy will continue to evaluate capital markets in 1998 as a
potential source of financing its subsidiaries' investing
activities. CMS Energy estimates capital expenditures by business
segment over the next three years as follows:

In Millions
Years Ended December 31 1998 1999 2000
- ----------------------------------------------------------------------------- ----- -----

Consumers electric operations (a) (b) $ 320 $ 265 $ 255
Consumers gas operations (a) 115 115 115
Independent power production 368398 469 400
Oil and gas exploration and production 110 160 175
Natural gas transmission and storage 210241 61 100
International energy distribution 142141 125 100
Marketing, services and trading 7050 25 30
------ ------ ------

$1,335----- ----- -----

$1,375 $1,220 $1,175
====== ====== =========== ===== =====

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

(b) These amounts do not include preliminary estimates for capital
expenditures possibly required to comply with recently revised
national air quality standards under the Clean Air Act. For
further information see Electric Utility Operating Issues - Electric Environmental Matters
above and Note 7.2.

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

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

OUTLOOK

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

International Operations Outlook

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

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

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

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

Consumers' Electric Business Unit Outlook

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

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

FERC Orders 888 and 889, as amended, require utilities to provide
direct access to the interstate transmission grid for wholesale
transactions. Consumers and Detroit Edison disagree on the effect
of the orders on the Michigan Electric Power Coordination Center
pool. Consumers proposes to maintain the benefits of the pool,
through at least December 2000, while Detroit Edison has given notice
of early termination. Consumers expects FERC to rule on this issue in
1998.contends that
the pool agreement should be terminated immediately. Among
Consumers' alternatives in the event of the pool being terminated
would be joining an independent system operator. FERC has
indicated this preference for structuring the operations of the
electric transmission grid.

In June 1997 the MPSC issued an order proposing that beginning January 1,
1998 Consumers transmit and distribute energy on behalf of competing power
suppliers to serve retail customers. Subsequent to the June 1997 order,
the MPSC issued orders in October 1997 and in January and February 1998.
Ultimately, the MPSC allowed Consumers: 1) to recover Transition Costs of
$1.755 billion through a charge to all direct-access customers until the
end of the transition period in 2007, subject to an adjustment through a
true-up mechanism; 2) to commence the phase-in of direct access in March
1998; 3) to suspend the power supply cost recovery clause; and 4) the MPSC
order allows all customers to be free to choose power suppliers on January
1, 2002. See Note 2 for further information regarding the effect of the
PSCR suspension on the recovery of MCV Facility capacity charges. The
orders also confirm the MPSC's belief that Securitization may be a
beneficial mechanism for recovery of Transition Costs while recognizing
that Securitization requires state legislation to occur. Consumers
believes that the Transition Cost surcharge will apply to all customers
beginning in 2002. The recovery of prudent costs of implementing a
direct-access program, estimated at an additional $200 million, would be
reviewed for prudenceAs discussed in the annual true-up proceedingForm 10-K, several orders were issued and
stranded cost
adjusted appropriately. Nuclear decommissioning costs will also continue
to be collected through a separate surcharge to all customers. Consumers
expects Michigan legislative consideration of the entire subject of
electric industry restructuring in 1998. To be acceptable to Consumers,
the legislation would have to provide for full recovery of Transition
Costs. Consumers expects the legislature to review all of the policy
choices made by the MPSC during the restructuring proceedings to assure
that they are in accord with those that the legislature believes should be
paramount.

There are numerous appeals are pending at the Court of Appeals relating to
the MPSC's restructuring orders, including appeals by Consumers and Detroit
Edison. Consumers believes that the MPSC lacks statutory authority to
mandate industry restructuring, and its appeal is limited to this
jurisdictional issue. Consumers has filed an application for leave to
appeal with the Michigan Supreme Court, which, if granted, would bypass
the Court of Appeals, and thereby achieve an earlier resolution of the matter.

As directed inelectric utility industry since June 1997.
Consumers cannot predict the MPSC's February 1998 order, Consumers submittedoutcome or timing of these matters.
For material changes relating to the MPSC its draft planrestructuring of the electric
utility industry see "Electric Business Unit Rate Matters -
Electric Restructuring" in April 1998 for implementing retail open access.
The primary issues addressed in the proposed plan are: 1) the
implementation schedule; 2) the retail open access service options
available to customers and suppliers; 3) the process and requirements for
customers and others to obtain retail open access service; and 4) the
roles and responsibilities for Consumers, customers and suppliers. Under
the proposed schedule in the draft plan, Consumers will allocate 750 MW of
electric capacity for retail open access to customers. In 1998, 300 MW of
retail open access for bidding will be open, and an additional 150 MW will
open for each year from 1999 to 2001. This plan supports the previous
order regarding the phase-in process. Due to the time required to provide
an opportunity for interested parties and the MPSC to review the plan,
Consumers does not believe retail open access will commence prior to the
fourth quarter of 1998. For further information regarding restructuring,
see Note 3.2, incorporated by reference
herein.

Electric Application of SFAS 71: Consumers applies the utility
accounting standard, SFAS 71, that recognizes the economic effects
of rate regulation and, accordingly, has recorded regulatory assets
and liabilities related to the generation, transmission and
distribution operations of its business in its financial
statements. Consumers believes that the generation segment of its
business is still subject to rate regulation based upon its present
obligation to continue providing generation service to its
customers, and the lack of definitive deregulation orders. If rate
recovery of generation-related costs becomes unlikely or uncertain,
whether due to competition or regulatory action, this accounting
standard may no longer apply to the generation segment of
Consumers' business. According to Emerging Issues Task Force Issue
97-4, Deregulation of the Pricing of Electricity - Issues Related
to the Application of FASB Statements No. 71 and 101, Consumers can
continue to carry its generation-
relatedgeneration-related regulatory assets or
liabilities for the part of the business being deregulated if
deregulatory legislation or an MPSC rate order allows the
collection of cash flows from its regulated transmission and
distribution customers to recover these specific costs or settle
obligations. Because the February 1998 MPSC order allows Consumers
to fully recover its transition costs, Consumers believes that even
if it was to discontinue application of SFAS 71 for the generation
segment of its business, its regulatory assets, including those
related to generation, are probable of future recovery from the
regulated portion of the business. At March 31,June 30, 1998, Consumers had
$268$261 million of generation-
relatedgeneration-related net regulatory assets recorded
on its balance sheet, and a net investment in generation facilities
of $1.4$1.3 billion included in electric plant and property. For
further information regarding this issue,electric restructuring, see
the
Electric Business Outlook - Restructuring,"Restructuring" above.

ConsumersConsumers' Gas Group Outlook

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

In 1997, LIHEAP provided approximately $64 million in heating
assistance to about 312,000 Michigan households, with approximately
13 percent of the funds going to Consumers' customers. Congress
provided approximately $54 million in funding for Michigan for
1998. In June 1998, the House Labor, Health and Human Services
Appropriations Subcommittee voted to propose elimination of LIHEAP
for fiscal year 1999. In July 1998, the full Committee accepted
the subcommittee proposal (which eliminates LIHEAP). The full
House of Representatives is expected to vote on this bill before
October 1, 1998. Many interested parties, including the Senate
Labor and Human Resources Committee, are working to restore funding
for the program; however, Consumers cannot predict the legislative
outcome of funding for this program.

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

OTHER MATTERS

New Accounting Standards

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

Computer Modifications forFor Year 2000

CMS Energy and its subsidiaries useuses software and related technologies throughout its
businesses that the year 2000 date change will affect and, if
uncorrected, could cause CMS Energy to, among other things, issue
inaccurate bills, report inaccurate data, or incur generating plant
outages. In 1995, CMS Energy began modification ofmodifying its own computer
software systems by dividing programs requiring modification
between critical and noncritical programs. All necessaryessential program
modifications are expected to be completed by the year 2000. CMS
Energy devoted significant internal and external resources to these
modifications. It will expense anticipated spending for these
modifications as incurred, while capitalizing and amortizing the
costs for new software over the software's useful life. CMS Energy
does not expect that the cost of these modifications will
materially affect its financial position, liquidity or results of
operations. There can be no guarantee, however, that these costs,
plans or time estimates will be achieved, and actual results could
differ materially. Specific factors that may cause such material
differences include, but are not limited to, the availability of
personnel trained in this area, the ability to locate and correct
all relevant computer code, and the year 2000 readiness of CMS
Energy's vendors, large customers and other third parties with whom
it does business.

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

Foreign Currency Translation:Translation

CMS Energy adjusts common stockholders' equity to reflect foreign
currency translation adjustments for the operation of long-term
investments in foreign countries. As of March 31,June 30, 1998 the
cumulative foreign currency translation adjustment was $94$123 million
relating primarily to the U.S. and Australian dollar exchange rate
fluctuations related to Loy Yang. CMS EnergyAlthough management currently
believes that the Australian economy is stable and does not expect
currency exchange rate fluctuations over the long term to
materially adversely affect CMS Energy's financial position,
liquidity or results of operations.

FORWARD-LOOKING INFORMATIONoperations, CMS Energy has hedged its
exposure to the Australian dollar. CMS Energy uses forward
exchange contracts and collared options to hedge certain
receivables, payables, long-term debt and equity value relating to
foreign investments. The notional amount of the outstanding
foreign exchange contracts was $595 million at June 30, 1998, which
includes $550 million for Australian foreign exchange contracts.

Forward-Looking Information

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

Some important factors that could cause actual results or outcomes
to differ materially from those discussedare set forth in the forward-looking statements
include prevailing governmental policiesCMS Energy's 1997 Form 10-K,
"Management's Discussion and regulatory actions (including
those of FERC and the MPSC) with respect to rates, proposed electric and
natural gas industries restructuring, change in industry and rate
structure, operation of a nuclear power facility, acquisition and disposal
of assets and facilities, operation and construction of plant facilities,
operation and construction of natural gas pipeline and storage facilities,
recovery of the cost of purchased power or natural gas, decommissioning
costs, and present or prospective wholesale and retail competition, among
other important factors. The business and profitability of CMS Energy are
also influenced by economic and geographic factors, including political
and economic risks, changes in environmental laws and policies, weather
conditions, competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy, inflation or
deflation, capital market conditions, and the ability to secure agreement
in pending negotiations, among other important factors. All such factors
are difficult to predict, contain uncertainties that may materially affect
actual results, and may be beyond the control of CMS Energy.Analysis, Forward-Looking
Information."

(This page intentionally left blank)

CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)

Three Months Ended Six Months Ended Twelve Months Ended
March 31June 30 1998 19971997* 1998 19971997* 1998 1997*
In Millions, Except Per Share Amounts
Operating Revenue
Electric utility $ 612649 $ 620 $2,507 $2,474598 $1,261 $1,218 $2,558 $2,492
Gas utility 429 498 1,135 1,231170 220 599 718 1,085 1,242
Independent power production 44 29 183 14375 42 119 71 216 105
Natural gas transmission, storage and processing 22 26 49 52 93 82
Oil and gas exploration and production 12 17 88 116
Natural gas transmission, storage and processing 27 26 103 7619 20 31 37 87 147
Marketing, services and trading 247 99 840 286196 114 443 213 922 339
Other 3 6 10 191 2 4 8 9 18
------ ------ ------ ------ 1,374 1,295 4,866 4,345------ ------
1,132 1,022 2,506 2,317 4,970 4,425
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 71 69 300 29285 75 164 149 334 311
Purchased power - related parties 145 151 594144 146 290 297 592 600
Purchased and interchange power 54 62 234 21888 53 142 115 270 226
Cost of gas sold 463 398 1,375 984182 223 645 621 1,335 1,042
Other 215 169 775 735248 172 460 348 853 747
------ ------ ------ ------ 948 849 3,278 2,829------ ------
747 669 1,701 1,530 3,384 2,926
Maintenance 3742 41 170 17979 82 171 182
Depreciation, depletion and amortization 143 131 489 448107 106 235 234 468 446
General taxes 59 61 209 20448 48 106 109 208 206
------ ------ ------ ------ 1,187 1,082 4,146 3,660------ ------
944 864 2,121 1,955 4,231 3,760
------ ------ ------ ------ ------ ------
Pretax Operating Income (Loss)
Electric utility 119 106 444 412107 104 226 210 448 419
Gas utility 54 78 13021 23 75 101 127 143
Independent power production 50 25 66 35 127 70
Natural gas transmission, storage and processing 9 7 22 16 10 102 7233 24
Oil and gas exploration and production (8)7 3 9 33 39
Natural gas transmission, storage and processing 13 9 37 293 32 18
Marketing, services and trading (1)1 - - 1 (7) -1
Other (6) - (19)(7) (4) (13) (4) (21) (10)
------ ------ ------ ------ 187 213 720 685------ ------
188 158 385 362 739 665
------ ------ ------ ------ ------ ------
Other Income (Deductions)
Loss on MCV power purchases - - (37) - (37) -
Accretion income 1 2 23 4 7 9
Accretion expense (4) (5)(4) (8) (9) (17) (19)(17)
Other, net 3 1 1 (1)6 2 2 -
------ ------ ------ ------ ------ ------
- (1) (36) (2) (46) (11)(3) (45) (8)
------ ------ ------ ------ ------ ------
Fixed Charges
Interest on long-term debt 76 60 289 23378 67 154 127 300 241
Other interest 13 12 11 51 4325 22 52 46
Capitalized interest (5) (3) (19)(7) (4) (11) (6) (18) (9)
Preferred dividends 5 7 2310 14 21 28
Preferred securities distributions 8 2 24 83 16 5 29 9
------ ------ ------ ------ 96 77 368 303------ ------
97 85 194 162 384 315
------ ------ ------ ------ ------ ------
Income Before Income Taxes 55 134 306 37191 72 155 197 310 342

Income Taxes 15 50 82 13526 25 45 72 81 124
------ ------ ------ ------ ------ ------
Consolidated Net Income before cumulative
effect of change in accounting principle 40 84 224 23665 47 110 125 229 218
Cumulative effect of change in accounting
for property taxes, net of $23 tax (Note 1) - - 43 - 43 -
------ ------ ------ ------ ------ ------
Consolidated Net Income $ 8365 $ 8447 $ 267153 $ 236125 $ 272 $ 218
====== ====== ====== ====== ====== ======

Three Months Ended Six Months Ended Twelve Months Ended
March 31June 30 1998 19971997* 1998 19971997* 1998 1997*
In Millions, Except Per Share Amounts

Net Income Attributable to Common Stocks
CMS Energy $ 7464 $ 7545 $ 252143 $ 225114 $ 258 $ 206
Class G $ 91 $ 92 $ 1510 $ 11 $ 14 $ 12
------ ------ ------ ------ ------ ------
Average Common Shares Outstanding
CMS Energy 101 95 98 93101 95 99 94
Class G 8 8 8 8 8 8
------ ------ ------ ------ ------ ------
Basic Earnings Per Average Common Share
CMS Energy $ .33 $ .79 $ 2.17 $ 2.41
Before Change in Accounting Principle
CMS Energy $ .63 $ .48 $ 1.02 $ 1.21 $ 2.20 $ 2.19
Class G $ .73.12 $ 1.18.16 $ 1.40.84 $ 1.531.34 $ 1.35 $ 1.52
------ ------ ------ ------ ------ ------
Cumulative Effect of Change in Accounting
Principle, Net of Tax, Per Average
Common Share
CMS Energy $ - $ - $ .40 $ - $ .40 $ -
Common Share Class G $ - $ - $ .36 $ - $ .36 $ -
------ ------ ------ ------ ------ ------
Basic Earnings Per Average Common Share
CMS Energy $ .73.63 $ .79.48 $ 2.571.42 $ 2.411.21 $ 2.60 $ 2.19
Class G $ 1.09.12 $ 1.18.16 $ 1.761.20 $ 1.531.34 $ 1.71 $ 1.52
------ ------ ------ ------ ------ ------
Diluted Earnings Per Average Common Share
CMS Energy $ .72.62 $ .78.48 $ 2.551.39 $ 2.391.20 $ 2.57 $ 2.18
Class G $ 1.09.12 $ 1.18.16 $ 1.761.20 $ 1.531.34 $ 1.71 $ 1.52
------ ------ ------ ------ ------ ------
Dividends Declared Per Common Share
CMS Energy $ .30 $ .27 $ 1.14.60 $ 1.05.54 $ 1.20 $ 1.08
Class G $ .31 $ .295 $1.225 $ 1.165.62 $ .59 $ 1.24 $ 1.18
------ ------ ------ ------ ------ ------

* Restated, see Note 1.

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

CMS Energy Corporation
Consolidated Balance Sheets

ASSETS March 31 March 31June 30 June 30
1998 December 31 19971997*
(Unaudited) 19971997* (Unaudited)
In Millions

Plant and Property (At Cost)
Electric $ 6,5476,579 $ 6,491 $ 6,4126,467
Gas 2,5312,478 2,528 2,3742,467
Oil and gas properties (full-cost(successful efforts method) 1,274 1,257 1,1541,280 1,237 1,179
Other 171 168 9599
------- ------- -------
10,523 10,444 10,03510,508 10,424 10,212
Less accumulated depreciation, depletion and amortization 5,416 5,270 4,9915,667 5,541 5,381
------- ------- -------
5,107 5,174 5,0444,841 4,883 4,831
Construction work-in-progress 272307 261 235281
------- ------- -------
5,379 5,435 5,2795,148 5,144 5,112
------- ------- -------
Investments
Independent power production 884 791 325890 792 846
Natural gas transmission, storage and processing 279 256 235305 241 224
International energy distribution 266259 255 65
First Midland Limited Partnership (Note 2) 244247 242 235237
Midland Cogeneration Venture Limited Partnership (Note 2) 179189 171 140148
Other 42 4836 45 23
------- ------- -------
1,894 1,763 1,0231,926 1,746 1,543
------- ------- -------
Current Assets
Cash and temporary cash investments at cost, which approximates market 72 67 57230 69 53
Accounts receivable and accrued revenue, less allowances
of $7, $7 and $9, respectively (Note 4) 472 476 3003) 509 495 353
Inventories at average cost
Gas in underground storage 79178 197 51125
Materials and supplies 90 85 89 87 95
Generating plant fuel stock 39 35 4435 28
Deferred income taxes 282 38 4228
Prepayments and other 248 240 185214 235 133
------- ------- -------
1,028 1,138 7681,257 1,156 815
------- ------- -------
Non-current Assets
Nuclear decommissioning trust funds 518521 486 401443
Postretirement benefits 396389 404 427419
Abandoned Midland Project 8883 93 108103
Other 478 474 396534 479 429
------- ------- -------
1,480 1,457 1,3321,527 1,462 1,394
------- ------- -------
Total Assets $ 9,7819,858 $ 9,7939,508 $ 8,4028,864
======= ======= =======

STOCKHOLDERS' INVESTMENT AND LIABILITIES March 31 March 31June 30 June 30
1998 December 31 19971997*
(Unaudited) 19971997* (Unaudited)
In Millions

Capitalization
Common stockholders' equity $ 2,0521,877 $ 1,9771,787 $ 1,7751,635
Preferred stock of subsidiary 238 238 356
Company-obligated mandatorily redeemable Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 120 -
Company-obligated convertible Trust Preferred Securities of
CMS Energy Trust I (b) 173 173 -173
Long-term debt 3,7554,294 3,272 2,6293,077
Non-current portion of capital leases 7478 75 9989
------- ------- -------
6,512 5,955 4,9596,880 5,765 5,430
------- ------- -------

Current Liabilities
Current portion of long-term debt and capital leases 318126 643 668690
Notes payable 245255 382 88246
Accounts payable 330302 398 322286
Accrued taxes 235160 272 228191
Accounts payable - related parties 82114 80 65
Accrued interest 56 51 4950
Power purchases (Note 2) 47 47 47
Accrued refunds 11 12 67
Other 182178 190 189171
------- ------- -------
1,5061,249 2,075 1,6621,753
------- ------- -------

Non-current Liabilities
Deferred income taxes 717 743 689693 648 599
Postretirement benefits 510504 514 529524
Power purchases (Note 2) 157146 133 167157
Deferred investment tax credit 148146 151 158156
Regulatory liabilities for income taxes, net 6159 54 7581
Other 170181 168 163164
------- ------- -------
1,763 1,763 1,7811,729 1,668 1,681
------- ------- -------

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

Total Stockholders' Investment and Liabilities $ 9,7819,858 $ 9,7939,508 $ 8,4028,864
======= ======= =======

(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36 percent
subordinated deferrable interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company
Financing II is $124 million principal amount of 8.20 percent subordinated deferrable interest notes due 2027 from
Consumers.
For further discussion, see Note 4 to the Consolidated Financial Statements.
(b) As described in Note 4, theThe primary asset of CMS Energy Trust I is $178 million principal amount of 7.75 percent convertible subordinated
debentures due 2027 from CMS Energy.

* Restated, see Note 1.

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

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

ThreeSix Months Ended Twelve Months Ended
March 31June 30 1998 19971997* 1998 19971997*
In Millions

Cash Flows from Operating Activities
Consolidated net income $ 83153 $ 84125 $ 267272 $ 236218
Adjustments to reconcile net income
to net cash provided by
operating activities
Depreciation, depletion and
amortization (includes nuclear
decommissioning of $13, $13,$25, $24,
$50 and $48,$49, respectively) 143 131 489 448235 234 468 446
Deferred income taxes and
investment tax credit 84 16 92 43
Loss on MCV power purchases 37 - 37 -
Capital lease and debt discount
amortization 11 8 47 4029 22 51 41
Accretion expense 4 58 9 17 1917
Accretion income - abandoned
Midland project (2) (2)(3) (4) (7) (9)
Cumulative effect of accounting
change for property taxes (66) - (66) -
MCV power purchases (17) (15) (65) (66)
Undistributed earnings of related
parties (17) (13) (68) (56)
Deferred income taxes and investment tax credit (12)(34) (20) (72) (40)
Power purchases (32) (30) (64) (66)
Other 3 18 43
Other (8) (6) (16) 8(1) 16
Changes in other assets and
liabilities 93 184 (126) 28(105) 12 (152) (138)
------ ------ ------ ------
Net cash provided by operating
activities 249 379 527 691309 358 575 528
------ ------ ------ ------
Cash Flows from Investing Activities
Capital expenditures (excludes assets
placed under capital lease) (128) (132) (707) (681)(289) (342) (625) (745)
Investments in partnerships and
unconsolidated subsidiaries (112) (12) (930) (104)(162) (534) (458) (564)
Cost to retire property, net (17) (4) (41) (28)(44) (11) (61) (31)
Investments in nuclear decommissioning
trust funds (13) (13)(25) (24) (50) (48)(49)
Other (4) (9) (9) -
Deferred demand-side management costs - - -(42) (14) (43) (4)
Proceeds from sale of property 2868 13 64 92104 77
Proceeds from nuclear decommissioning
trust funds 27 - 27 -
------ ------ ------ ------
Net cash used in investing
activities (246) (157) (1,673) (773)(467) (912) (1,106) (1,316)
------ ------ ------ ------
Cash Flows from Financing Activities
Proceeds from bank loans, notes
and bonds 850 70 1,994 1641,554 581 2,187 629
Issuance of common stock 20 17 227 10430 30 224 109
Repayment of bank loans (574) (22) (581) (31)
Retirement of bonds and other
long-term debt (369) - (890) (37)
Repayment of bank loans (322) (27) (324) (38)(476) (49) (948) (86)
Increase (decrease) in notes payable, net (137) (245) 157 50(127) (87) 9 138
Payment of common stock dividends (33) (28) (124) (107)(66) (56) (129) (111)
Payment of capital lease obligations (7) (8) (43) (38)(22) (21) (45) (39)
Proceeds from preferred securities - 173 113 173
Retirement of common stock - - (2) (1)
Retirement of preferred stock - - (120) -
Retirement of common stock - - (2) (1)
Proceeds from preferred securities - - 286 -
----------- ------ ------ ------
Net cash provided by (used in) financing
activities 2 (221) 1,161 97319 549 708 781
------ ------ ------ ------
Net Increase (Decrease) in Cash and
Temporary Cash Investments 5 1 15 15161 (5) 177 (7)
Cash and Temporary Cash Investments,
Beginning of Period 67 56 57 4269 58 53 60
------ ------ ------ ------
Cash and Temporary Cash Investments,
End of Period $ 72230 $ 5753 $ 72230 $ 5753
====== ====== ====== ======

Other cash flow activities and non-cash
investing and financing activities were:
Cash transactions
Interest paid (net of amounts
capitalized) $ 160 $ 135 $ 318 $ 267
Income taxes paid (net of refunds) 31 46 52 83
Non-cash transactions
Nuclear fuel placed under capital lease $ 15 $ 3 $ 16 $ 31
Other assets placed under capital leases 7 3 10 5
====== ====== ====== ======

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

*Restated, see Note 1.

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

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

Three Months Ended TwelveEndedSix Months EndedTwelve Months Ended
March 31June 30 1998 19971997* 1998 19971997* 1998 1997*
In Millions

Common Stock
At beginning and end
of period $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
------ ------ ------ ------ ------ ------
Other Paid-in Capital
At beginning of period 2,287 2,062 2,267 2,045 2,062 1,9592,075 1,967
Common stock reacquired - - - - (2) (1)
Common stock issued:
CMS Energy 18 16 219 999 12 27 28 216 104
Class G 1 1 3 2 1 8 5
------ ------ ------ ------ ------ ------
At end of period 2,287 2,062 2,287 2,0622,297 2,075 2,297 2,075 2,297 2,075
------ ------ ------ ------ ------ ------
Revaluation Capital
At beginning of period (3) (6) (6) (6) (6) (8)
Change in unrealized
investment-gain
(loss) (a) 3(3) - 3- - - 2
------ ------ ------ ------- ----- ------
At end of period (3) (6) (3)(6) (6) (6) (6) (6)
------ ------ ------ ------- ----- ------
Foreign Currency Translation
At beginning of period (94) - (96) - - -
Change in foreign currency
translation (a) 2(29) - (94)(27) - (123) -
------ ------ ------ ------ ------ ------
At end of period (94)(123) - (94)(123) - (123) -
------ ------ ------ ------ ------ ------
Retained Earnings (Deficit)
At beginning of period (189) (338) (282) (411)(324) (454) (379) (504) (435) (542)
Consolidated net income (a) 83 84 267 23665 47 153 125 272 218
Common stock dividends declared:
CMS Energy (30)(31) (26) (113) (98)(61) (52) (118) (102)
Class G (3) (2) (2) (5) (4) (11) (9)
------ ------ ------ ------- ----- ------
At end of period (139) (282) (139) (282)(292) (435) (292) (435) (292) (435)
------ ------ ------ ------- ----- ------
Total Common Stockholders'
Equity $2,052 $1,775 $2,052 $1,775$1,877 $1,635 $1,877 $1,635 $1,877 $1,635
====== ====== ====== ===== ====== ======

(a) Disclosure of Comprehensive Income:
Revaluation capital
Unrealized investment-gain,investment-
gain(loss), net of tax
of
$(1)$2, $-, $-, $(2)$-, $- and
$-$(1), respectively $ 3(3) $ - $ 3- $ - $ - $ 2
Foreign currency
translation 2(29) - (94)(27) - (123) -
Consolidated net income 83 84 267 23665 47 153 125 272 218
------ ------ ------ ------ ----- ----- ----- -----------
Total Consolidated
Comprehensive Income $ 8833 $ 8447 $ 176126 $ 238125 $ 149 $ 220
====== ====== ====== ======= ===== ===== ===== ===========

* Restated, see Note 1.

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

CMS Energy Corporation
Condensed Notes to Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed Notes
should be read along with the Consolidated Financial Statements and Notes
contained in the 1997 Form 10-K and the restated financial information
in a Form 8-K dated July 30, 1998 of CMS Energy Corporation, which
includesinclude the ReportReports of Independent Public Accountants. Certain prior
year amounts have been reclassified to conform with the presentation in
the current year. In the opinion of management, the unaudited
information herein reflects all adjustments necessary to assure the fair
presentation of financial position, results of operations and cash flows
for the periods presented.

1: Corporate Structure, basisBasis of presentationPresentation And ChangeChanges of
Significant Accounting Policies

Corporate Structure and Basis of Presentation

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

CMS Energy uses the equity method of accounting for investments in
companies and partnerships where it has more than a 20 percent but
less than a majority ownership interest and includes these results
in operating income. For the three, six and twelve month periods
ended March 31,June 30, 1998, undistributed equity earnings were $17
million, $34 million and $68$72 million, respectively, and $13$9 million,
$20 million and $56$40 million for the three, six and twelve month
periods ended March 31,June 30, 1997.

Foreign currency translation adjustments relating to the operation
of CMS Energy's long-term investments in foreign countries are
included in common stockholders' equity. As of March 31,June 30, 1998 the
cumulative foreign currency translation adjustment was $94$123 million
relating primarily to the U.S. and Australian dollar exchange rate
fluctuations related to Loy Yang.

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

Change in Method of Accounting for Property Taxes

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

2: The Midland Cogeneration Venture

The MCV Partnership, which leasesChange in Method of Accounting For Investments in Oil and operates the MCV Facility,
contractedGas Properties

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

Summarized Statements of Income for CMS Midland and CMS Holdings:

In Millions
Three Months Ended Twelve Months Ended
March 31 1998 1997 1998 1997
- ----------------------------------------------------------------------

Pretax operating income $10 $ 8 $47 $46
Income taxes and other 3 2 14 14
---- ---- ---- ----

Net income $ 7 $ 6 $33 $32
==== ==== ==== ====

Power Purchases from the MCV Partnership: After September 2007, pursuant
to the terms of the PPA and related undertakings, Consumers will only be
required to pay the MCV Partnership the capacity charge and energy charge
amounts authorized for recovery from electric customers by the MPSC.
Currently, Consumers' annual obligation to purchase capacity from the MCV
Partnership is 1,240 MW through the termination of the PPA in 2025. The
PPA provides that Consumers is to pay the MCV Partnership a minimum
levelized average capacity charge of 3.77 cents per kWh, a fixed energy
charge, and a variable energy charge based primarily on Consumers' average
cost of coal consumed. The MPSC has, since January 1, 1993, permitted
Consumers to recover capacity charges averaging 3.62 cents per kWh for 915
MW, plus a substantial portion of the fixed and variable energy charges.
Beginning January 1, 1996, the MPSC has also permitted Consumers to
recover capacity charges for the remaining 325 MW of MCV Facility
contract capacity. The order approving such recovery indicated that the
recoverable capacity charge for the 325 MW would gradually increase from
an initial average charge of 2.86 cents per kWh to an average charge of
3.62 cents per kWh over the 1996-2004 time period. Because the MPSC
allowed Consumers to suspend the PSCR process as part of the electric
industry restructuring order (see Note 3), Consumers expects to recover a
portion of the future increases in approved capacity charges through an
adjustment to the frozen PSCR charge.

Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA. At March 31, 1998
and December 31,1997, the after-tax present value of the PPA liability
totaled $133 million and $117 million, respectively. The increase in the
liability since December 31, 1997 reflects an additional $37 million
accrual ($24 million after-tax) for higher than anticipated MCV Facility
availability levels experienced in prior periods and an after-tax
accretion expense of $3 million, partially offset by after-tax cash
underrecoveries of $11 million. The undiscounted after-tax amount
associated with the liability totaled $182 million at March 31, 1998. The
after-tax cash underrecoveries are currently based on the assumption that
the MCV Facility will be available to generate electricity 91.5 percent of
the time over its expected life. For the first three months of 1998 the
MCV Facility was available 99 percent of the time, resulting in $5 million
over anticipated after-tax cash underrecoveries. Consumers believes it
will continue to experience after-tax cash underrecoveries associated with
the PPA in amounts as those shown below.

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

Estimated cash under
recoveries, net of tax $28 $22 $21 $20 $19
==================================================================

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

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

3: Rate Matters

Electric Proceedings: In 1996, the MPSC issued a final order that
authorized Consumers to recover costs associated with the purchase of the
additional 325 MW of MCV Facility capacity (see Note 2) and to accelerate
recovery of its nuclear plant investment by increasing prospective annual
nuclear plant depreciation expense by $18 million, with a corresponding
decrease in fossil-fueled generating plant depreciation expense. It also
established an experimental direct-access program. Customers having a
maximum demand of at least 2 MW are eligible to purchase generation
services directly from any eligible third-party power supplier and
Consumers would transmit the power for a fee. The program is limited to
650 MW of load, of which 100 MW is available solely to direct-access
customers for at least 18 months. The Commissions' order allowed existing
special contracts to fill 410 MW of the load. The remaining 140 MW of the
650 MW load could be filled by either special contracts or direct access
loads. The load was filled by new special contracts signed subsequent to
the order. According to the MPSC order, Consumers held a lottery in April
1997 to select the customers to purchase 100 MW by direct access. Direct
access for a portion of this 100 MW began in late 1997. Consumers expects
the remaining amount of direct access to begin in 1998.

In January 1998, the Court of Appeals affirmed an MPSC conclusion that the
MPSC has statutory authority to authorize an experimental electric retail
wheeling program. By its terms, no retail wheeling has yet occurred
pursuant to that program. Consumers filed with the Michigan Supreme Court
seeking leave to appeal that ruling.

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

Subsequentfrom the
full cost method to the June 1997 order,successful efforts method of accounting for
its investments in oil and gas properties. CMS NOMECO believes
this accounting change will more accurately present the MPSC issued ordersresults of
its exploration and development activities and minimize asset
write-offs caused by periodic price swings, which may not be
representative of overall or long-term markets. In addition, the
FASB has stated a preference for the use of successful efforts
accounting. Nitrotec Corporation, in October 1997
and inwhich CMS Gas Transmission
has an equity investment, also elected to convert effective January
and February 1998. Ultimately,1, 1998 from the MPSC allowed Consumers:
1)full cost method of accounting to recover Transition Coststhe successful
efforts method of $1.755 billion through a chargeaccounting. Accordingly, all prior period
financial statements have been restated to all
direct-access customers until the endconform with successful
efforts accounting. The effect, after tax, of the transition period in 2007,
subject to an adjustment through a true-up mechanism; 2) to commence the
phase-in of direct access in March 1998; 3) to suspend the power supply
cost recovery clause; and 4) the MPSC order allows all customers to be
free to choose power suppliers on January 1, 2002. See Note 2 for further
information regarding the effect of the PSCR suspension on the recovery of
MCV Facility capacity charges. The orders also confirm the MPSC's belief
that Securitization may be a beneficial mechanism for recovery of
Transition Costs while recognizing that Securitization requires state
legislation to occur. Consumers believes that the Transition Cost
surcharge will apply to all customers beginning in 2002. The recovery of
prudent costs of implementing a direct-access program, estimated at an
additional $200 million, would be reviewed for prudence in the annual
true-up proceeding and stranded cost adjusted appropriately. Nuclear
decommissioning costs will also continue to be collected through a
separate surcharge to all customers. Consumers expects Michigan
legislative consideration of the entire subject of electric industry
restructuring in 1998. To be acceptable to Consumers, the legislation
would have to provide for full recovery of Transition Costs. Consumers
expects the legislature to review all of the policy choices made by the
MPSC during the restructuring proceedings to assure that they are in
accord with those that the legislature believes should be paramount.

There are numerous appeals pending at the Court of Appeals relating to the
MPSC's restructuring orders, including appeals by Consumers and Detroit
Edison. Consumers believes that the MPSC lacks statutory authority to
mandate industry restructuring, and its appeal is limited to this
jurisdictional issue. Consumers has filed an application for leave to
appeal with the Michigan Supreme Court, which, if granted, would bypass
the Court of Appeals, and thereby achieve an earlier resolution of the
matter.

As directed in the MPSC's February 1998 order, Consumers submitted to the
MPSC its draft plan in April 1998 for implementing retail open access.
The primary issues addressed in the proposed plan are: 1) the
implementation schedule; 2) the retail open access service options
available to customers and suppliers; 3) the process and requirements for
customers and others to obtain retail open access service; and 4) the
roles and responsibilities for Consumers, customers and suppliers. Under
the proposed schedule in the draft plan, Consumers will allocate 750 MW of
electric capacity for retail open access to customers. In 1998, 300 MW of
retail open access for bidding will be open, and an additional 150 MW will
open for each year from 1999 to 2001. This plan supports the previous
order regarding the phase-in process. Due to the time required to provide
an opportunity for interested parties and the MPSC to review the plan,
Consumers does not believe retail open access will commence prior to the
fourth quarter of 1998. For further information see Electric Business
Outlook - Application of SFAS 71 in the MD&A.

Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas transportation pilot
program. Consumers' expanded experimental program will extend over a
three-year period, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Participating customers
will be selected on a first-come, first-served basis, up to a limit of
100,000 customers on April 1, 1998. As of May 8, 1998 approximately 7,500
customers chose alternative gas suppliers, representing approximately 10
bcf of gas load. Of these alternative gas suppliers, one was a CMS Energy
affiliate. Up to 100,000 more customers will be added on April 1 of each
of the next two years. Customers choosing to remain as sales customers of
Consumers will not see a rate change in
their natural gas rates. The
order allowing the implementationaccounting method as of this program: 1) suspends Consumers'
gas cost recovery clause, effective April 1, 1998 for a three-year period,
establishing a gas commodity cost at a fixed rate of $2.84 per mcf; 2)
establishes an earnings sharing mechanism that will provide for refunds to
customers if Consumers' earnings during the three year term of the program
exceed certain pre-determined levels; and 3) establishes a gas
transportation code of conduct that addresses concerns about the
relationship between Consumers and marketers, including its affiliated
marketers. This experimental program will allow competing gas suppliers,
including marketers and brokers, to market natural gas to a large number
of retail customers in direct competition with Consumers. In January 1998,
the Attorney General, ABATE and other parties filed claims of appeal
regarding the program with the Court of Appeals. To minimize the risk of
exposure to higher gas costs, Consumers currently has contracts in place
at known prices covering 75 percent of its 1998 requirements, 35 percent
of its 1999 requirements and 25 percent of its 2000 requirements.
Additional forward coverage is currently under review.

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

Resolution of the issues discussed in this Note is not expected to
materially affect CMS Energy's financial position, liquidity or results of
operations.

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

CMS Energy: CMS Energy's $1.125 billion Senior Credit Facilities consist
of a $400 million 364-day revolving credit facility, a $600 million three-
year revolving credit facility and a five-year $125 million term loan
facility. Additionally, CMS Energy has unsecured lines of credit and
letters of credit in an aggregate amount of $161 million. At March 31,
1998, the total amount utilized under the Senior Credit Facilities was
$222 million, including $52 million of contingent obligations, and under
the unsecured lines of credit and letters of credit was $107 million.

At March 31, 1998 CMS Energy has $138 million of Series A GTNs, $125
million of Series B GTNs, $150 million of Series C GTNs, and $142 million
of Series D GTNs issued and outstanding with weighted average interest
rates of 7.7 percent, 7.9 percent, 7.7 percent, and 7.1 percent,
respectively.

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

In January 1998, CMS Energy announced the commencement of an offer to
exchange up to $300 million of its 7.375 percent Senior Unsecured Notes
due 2000, Series A for 7.375 percent Senior Unsecured Notes due 2000,
Series B that have been registered with the SEC. Other than their
registration, the terms of the Series B Notes are substantially similar to
the Series A (except that the Series B do not have transfer restrictions).
CMS Energy completed the exchange in February 1998.

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

Consumers: At April 15, 1998, Consumers had remaining FERC
authorization to: 1) issue or guarantee up to $900 million of short-term
securities, outstanding at any one time, through 1998; 2) guarantee,
through 1999, up to $25 million in loans made by others, to residents of
Michigan for making energy-related home improvements; and 3) issue long-
term securities with maturities up to 30 years, through November 1998, up
to $401 million and $300 million for refinancing purposes and for general
corporate purposes, respectively. In May 1998, Consumers used $475
million of FERC authorization by issuing the following long-term debt: 1)
$250 million in senior notes; and 2) $225 million for a long-term bank
loan.

Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million. These facilities are available
to finance seasonal working capital requirements and to pay for capital
expenditures between long-term financings. At March 31, 1998, a total of
$245 million was outstanding at a weighted average interest rate of 6.2
percent, compared with $88 million outstanding at March 31, 1997, at a
weighted average interest rate of 6.8 percent. In January 1998, Consumers
entered into interest rate swaps totaling $300 million. These swap
arrangements have had an immaterial effect on interest expense.

Consumers also has in place a $500 million trade receivables sale program.
At March 31, 1998 and 1997, receivables sold under the program totaled
$340 million and $398 million, respectively. Accounts receivable and
accrued revenue in the Consolidated Balance Sheets have been reduced to
reflect receivables sold.

In 1996, 4 million shares of 8.36 percent Trust Preferred Securities were
issued and sold through Consumers Power Company Financing I, a wholly
owned business trust consolidated with Consumers. Net proceeds from the
sale totaled $97 million. In 1997, 4.8 million shares of 8.2 percent
Trust Preferred Securities were issued and sold through Consumers Energy
Company Financing II, a wholly owned business trust consolidated with
Consumers. Net proceeds from the sale totaled $116 million. Consumers
formed both trusts for the sole purpose of issuing the tax deductible
Trust Preferred Securities. Consumers' obligations with respect to the
Trust Preferred Securities under the notes, under the indenture through
which Consumers issued the notes, under Consumers' guarantee of the Trust
Preferred Securities, and under the declaration by the trusts, taken
together, constitute a full and unconditional guarantee by Consumers of
the trusts' obligations under the Trust Preferred Securities. For
additional information, see footnote (a) on the Consolidated Balance
Sheets.

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

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

Senior
Notes (a) February 2008 6.375 $250 Pay down
First Mortgage
Bonds
Senior
Notes (a) March 2018 6.875 225 Pay down
First Mortgage
Bonds
Senior
Notes (a) May 2008 6.2 250 Pay down
First Mortgage
Bonds and
Long-Term
Bank Debt
Long-Term
Bank Debt May2001-2003 6.05 (b) 225 Pay down
Long-Term
Bank Debt
and general
corporate
purposes
-----

Total $950
=====

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

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

First Mortgage Bonds February 1998 8.75 $248
Long-Term Bank Debt February 1998-1999 6.4 (a) 50
First Mortgage Bonds March 2001-2002 7.5 119
First Mortgage Bonds April 2023 7.375 36
-----

Total $453
=====

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

Consumers had an unsecured, variable rate long-term bank loan with an
outstanding balance at March 31, 1998a reduction to
retained earnings of $175 million for CMS NOMECO and 1997$15 million
for CMS Gas Transmission, primarily attributable to a decrease in
net plant and property and deferred tax liability of $350$270 million
and $400$95 million, respectively. At March 31, 1998respectively, for CMS NOMECO and 1997 the loan carried a weighted average interest rate of 6.3 percent and 6.0 percent,
respectively. In May 1998, Consumers refinanced this term loan with a new
$225$15 million
unsecured long-term loan, and issued $250 million of senior
notes due 2008, at an interest rate of 6.2 percent to cover the remaining
$125 million refinancing.decrease in CMS Gas Transmission's equity investment in Nitrotec
Corporation. The balancecombined effects of the new senior notes, $125
million, is to be used to retire first mortgage bonds and for general
corporate purposes.

Under the provisions of its Articles of Incorporation at March 31, 1998,
Consumers had $302 million of unrestricted retained earnings available to
pay common dividends. In January 1998, Consumers declaredchanges in accounting
method resulted in an $80 million
common dividend paidincrease in February 1998.

5: Earnings Per Share and Dividends

Earnings per share attributable to Common Stock for the three and twelve
month periods ended March 31, 1998 reflect the performance of the
Consumers Gas Group. The Class G Common Stock has participated in
earnings and dividends from its original issue date in July 1995. The
allocation of earnings attributable to each class of common stock and the
related amounts per share are computed by considering the weighted average
number of shares outstanding.

Earnings attributable to the Outstanding Shares are equal to Consumers Gas
Group net income multiplied by a fraction; the numerator is the weighted
average number of Outstanding Shares during the period and the denominator
is the weighted average number of Outstanding Shares and Retained Interest
Shares during the period. The earnings attributable to Class G Common
Stock on a$5 million ($.06
per share basisshare) for the three months ended March 31, 1998, and 1997 are based on 25.16 percent and 24.29 percent, respectively, of thea
decrease in net income of Consumers Gas Group.

Computation of Earnings Per Share:

In Millions, Except Per Share Amounts
Three Months Ended Twelve Months Ended
1998 1997 1998 1997
- ---------------------------------------------------------------------
(a) (a)
Net Income Applicable to
Basic and Diluted EPS
Consolidated Net Income $ 83 $ 84 $267 $236
Net Income Attributable
to Common Stocks:
CMS Energy - Basic EPS $ 74 $ 75 $252 $225
Add conversion of
7.75% Trust Preferred
Securities (net of tax) 2 - 7 -
---- ---- ---- ----

CMS Energy - Diluted EPS $ 76 $ 75 $259 $225
===== ===== ===== =====

Class G:
Basic and Diluted EPS $ 9 $ 9 $ 15 $ 11
===== ===== ===== =====

Average Common Shares
Outstanding Applicable
to Basic and Diluted EPS
CMS Energy:
Average
Shares - Basic 100.9 94.9 97.6 93.3
Add conversion of
7.75% Trust
Preferred Securities 4.2 - 3.3 -
Options-Treasury
Shares .6 .3 .4 .3
----- ----- ----- -----

Average
Shares - Diluted 105.7 95.2 101.3 93.6
===== ===== ===== =====

Class G:
Average Shares
Basic and Diluted 8.2 7.9 8.1 7.8
===== ===== ===== =====

Earnings Per Average
Common Share
CMS Energy:
Basic $ .73 $ .79 $ 2.58 $ 2.41
Diluted $ .72 $ .78 $ 2.56 $ 2.40
Class G:
Basic and Diluted $ 1.09 $ 1.18 $ 1.76 $ 1.53
=======================================================================

(a) Includes the cumulative effect of an accounting change which increased
net income attributible to CMS Energy Common Stock $43$6 million ($.40.06 per share - basicshare) for the three
months ended March 31,1997; see Note 6. For the three, six and
diluted) and Class G Common Stock $12 million ($.36 per
share - basic and diluted).

In February 1998, CMS Energy declared and paid dividendstwelve months ended June 30, 1997, the combined effects of $.30 per share
on CMS Energy Common Stock and $.31 per share on Class G Common Stock. In
April 1998, the Board of Directors declared a quarterly dividend of $.30
per share on CMS Energy Common Stock and $.31 per share on Class G Common
Stock to be paid in May 1998.

6: Risk Management Activities and Derivatives Transactions

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

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

Commodity Price Hedges: CMS Energy accounts for its commodity price
derivatives as hedges, as defined above, and as such, defers any changes
in market value and gains and losses resulting from settlements until the
hedged transaction is complete. If there was a loss of correlation
between the
changes in (1) the market valueaccounting method resulted in decreases to net income of
the commodity price
contracts$7 million ($.07 per share), $13 million ($.13 per share), and (2) the market price ultimately received for the hedged
item,$22
million ($.24 per share), respectively.

Oil and the impact was material, the open commodity price contracts
would be marked to market and gains and losses would be recognized in the
income statement currently.Gas Properties

CMS NOMECO has one arrangement which is used to fixutilizes the prices thatsuccessful efforts method of accounting for
its investments in oil and gas properties. CMS NOMECO will paycapitalizes
the costs of property acquisitions, successful exploratory wells,
all development costs, and support equipment and facilities when
incurred. It expenses unsuccessful exploratory wells when they are
determined to supply gas to the MCV for the years 2001 through
2006 by purchasing the economic equivalent of 10,000 MMBtu per day at a
fixed price, escalating at 8 percent per year thereafter, starting at
$2.82 per MMBtu in 2001. The settlement periods are each a one-year
period ending December 31, 2001 through 2006 on 3.65 million MMBtu. If
the floating price, essentially the then-current Gulf Coast spot price,
for a period is higher than the fixed price, the seller paysbe non-productive. CMS NOMECO also charges to
expense production costs, overhead, and all exploration costs other
than exploratory drilling as incurred. Depreciation, depletion and
amortization of proved oil and gas properties is determined on a
field-by-field basis using the difference, and vice versa. If a party's exposure at any time exceeds
$5 million, that party is required to obtain a letter of credit in favor
of the other party for the excess over $5 million and up to $10 million.
At March 31, 1998, a letter of credit was not posted by either party to
the agreement. As of March 31, 1998, the fair value of this contract
reflected payment due from CMS NOMECO of $11 million.

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

Interest Rates Hedges: CMS Energy and some of its subsidiaries enter into
interest rate swap agreements to exchange variable rate interest payment
obligations to fixed rate obligations without exchanging the underlying
notional amounts. These agreements convert variable rate debt to fixed
rate debt to reduce the impact of interest rate fluctuations. The
notional amounts parallel the underlying debt levels and are used to
measure interest to be paid or received and do not represent the exposure
to credit loss. The notional amount of CMS Energy's and its subsidiaries'
interest rate swaps was $795 million at March 31, 1998. The difference
between the amounts paid and received under the swaps is accrued and
recorded as an adjustment to interest expenseunit-of-production method over the
life of the hedged
agreement.

Foreign Exchange Hedges: CMS Energy uses forward exchange contracts to
hedge certain receivables, payables, and long-term debt relating to
foreign investments. The purpose of CMS Energy's foreign currency hedging
activities is to protect the company from the risk that U.S. dollar net
cash flows resulting from sales to foreign customers and purchases from
foreign suppliers and the repayment of non-U.S. dollar borrowings may be
adversely affected by changes in exchange rates. These contracts do not
subject CMS Energy to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains, respectively, on assets
and liabilities being hedged. The notional amount of the outstanding
foreign exchange contracts was $220 million at March 31, 1998.

7: Commitments andremaining proved reserves.

2: Uncertainties

Consumers' Electric Business Unit Contingencies

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

Consumers currently operates within all Clean Air Act requirements
and meets current emission limits. The Act requires the EPA to
review, periodically, the effectiveness of the national air quality
standards in preventing adverse health affects. The EPA recently
revised these standards. The revisions may further limit small
particulate and ozone related emissions. Consumers supports the
bipartisan effort in the U.S. Congress to delay implementation of
the revised standards until the relationship between the new
standards and health improvements is established scientifically.

In October 1997, pursuant to recommendations fromfollowing completion of the Ozone Transport
Assessment Group process and the requests ofby several Northeastern
states, the EPA proposed that the State of Michigan impose
additional nitrogen oxide limits on fossil-fueled emitters, such as
Consumers' generating units. The limits are an effort towould reduce statewide nitrogen
oxide emissions, by
32 percent, as early as 2002.2002, to only 32 percent of levels
allowed for the year 2000 under current regulations. The EPA is
expected to issue final regulations in the fall of 1999. The State
of Michigan will have one year to
review and challenge the proposed recommendations, and one year after thatfinal regulations are issued
to implement finalthe requirements. It is unlikely that the State of
Michigan will establish Consumers' nitrogen oxide emissions
reduction target until mid-to-late 1999. Until this target is
established, the estimated cost of compliance is subject to
significant revision.

The preliminary estimate of capital costs to reduce nitrogen oxide
related emissions for Consumers' fossil-fueled generating units is
approximately $210 million, plus an additional amount totaling $10
million per year for operation and maintenance costs. Consumers
may need an equivalent amount to comply with the new small
particulate standards. The State of Michigan has objected to the
extent of the proposed EPA emission reductions. If the State of
Michigan's position were to be adopted by the EPA, costs could be
less than the current estimated amounts.

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

Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Superfund
liability is joint and several; along with Consumers, many other
creditworthy, potentially responsible parties with substantial
assets cooperate with respect to the individual sites. Based upon
past negotiations, Consumers estimates that its share of the total
liability for the known Superfund sites will be between $3 million
and $9 million. At March 31,June 30, 1998, Consumers has accrued $3 million
for its estimated Superfund liability.

Gas Environmental Matters: UnderWhile decommissioning Big Rock, Consumers found that some areas of
the Michigan Natural Resourcesplant have coatings that contain both metals and Environmental Protection Act,PCBs.
Consumers expectsdoes not believe that itany facility in the United States
currently accepts the radioactive portion of that waste. The cost
of removal and disposal is currently unknown. These costs would
constitute part of the cost to decommission the plant, and will ultimately
incur investigation and remedial action costs at a number of sites,
including some 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. In 1998be
paid from the decommissioning fund. Consumers plans to study indoor air issues at
residences on some sites and ground water impacts or surface soil impacts
at other sites. On sites whereis studying the company has received site-wide study
plan approvals, it will continue to implement these plans. It will also
work toward closure of environmental issues at sites as studies are
completed. Data available to Consumers and its continued internal review
have resulted in an estimate for all costs related to investigation and
remedial action for all 23 sites of between $48 million and $98 million.
These estimates are based on undiscounted 1998 costs. As of March 31,
1998, Consumers has accrued a liability of $48 million and has established
a regulatory asset for approximately the same amount. Any significant
change in assumptions, such as remediation technique, nature and
extent of the contamination and legal and regulatory requirements, could affect the
estimate of remedial action costs for the sites. According to an MPSC
rate order issued in 1996, Consumers will defer and amortize, over a
period of ten years, environmental clean-up costs above the amount
currently being recovered in rates. Rate recognition of amortization
expense will not begin until after a prudence review in a general rate
case. The order authorizes current recovery of $1 million annually.
Consumers is continuing discussions with, or has initiated a lawsuit
against, certain insurance companies regarding coverage for some or all of
the costs that it may incur for these sites.

Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $1.335 billion for 1998, $1.220 billion for 1999, and
$1.175 million for 2000. For further information, see the Capital
Resources and Liquidity - Capital Expenditures in the MD&A.

Other: As of March 31, 1998, CMS Energy and Enterprises have guaranteed up
to $469 million in contingent obligations of unconsolidated affiliates and
unrelated parties.reviewing options.

Stray Voltage: Various parties have sued Consumers relating to the
effect of so-called stray voltage on certain livestock. Claimants
contend that stray voltage results when low-level electrical
currents present in grounded electrical systems are diverted from
their intended path. Consumers maintains a policy of investigating
all customer calls regarding stray voltage and working with
customers to address their concerns. It also has an ongoing
mitigation program to modify the service of all customers with
livestock.

In December 1997, the Michigan Supreme Court remanded for further
proceedings a 1994 Michigan trial court decision that refused to
allow the claims of over 200 named plaintiffs to be joined in a
single action. The trial court dismissed all of the plaintiffs
except the first-named plaintiff, allowing the others to re-file
separate actions. Of the original plaintiffs, only 49 re-filed
separate cases. All of those 49 cases have been resolved. The
Michigan Supreme Court remanded the matter, finding that the proper
remedy for misjoinder was not dismissal, but to automatically allow
each case to go forward separately. Consumers filed a motion for
reconsideration with the Michigan Supreme Court, which was denied.
As a result, 21 individual plaintiffs have re-filed their claims
with the trial court. Consumers intends to vigorously defend these
cases, but is unable to predict the outcome. As of March 31,June 30, 1998,
Consumers had 65 individual stray voltage lawsuits awaiting trial
court action, unrelated to the cases above,above. At year end 1997,
Consumers had 12 such lawsuits awaiting trial court action, down from 12 lawsuits as reported at year end
1997.action.

Anti-Trust: In October 1997, two independent power producers sued
Consumers and CMS Energy in a federal court. The suit alleges
antitrust violations relating to contracts which Consumers entered
into with some of its customers and claims relating to power
facilities. The plaintiffs claim damages of $100 million (which a
court can treble in antitrust cases as provided by law). The
parties are awaiting the court's decision on Consumers' and CMS
Energy's motion for summary judgment and/or dismissal of the
complaint. Consumers believes the lawsuit is without merit and
will vigorously defend against it, but cannot predict the outcome
of this matter.

Under agreementsConsumers' Electric Business Unit Rate Matters

Electric Proceedings: In 1996, the MPSC issued a final order that
authorized Consumers to recover costs associated with the purchase
of the additional 325 MW of MCV Facility capacity (see "Power
Purchases from the MCV Partnership" in this Note) and recover its
nuclear plant investment by increasing prospective annual nuclear
plant depreciation expense by $18 million, with a corresponding
decrease in fossil-fueled generating plant depreciation expense.
It also established an experimental direct-access program.
Customers having a maximum demand of at least 2 MW are eligible to
purchase generation services directly from any eligible third-party
power supplier and Consumers would transmit the power for a fee.
The program is limited to 650 MW of load, of which 100 MW is
available solely to direct-access customers for at least 18 months.
The Commission's order allowed existing special contracts to fill
410 MW of the load. Although the issue is still subject to MPSC
review, it is Consumers' position that the remaining 140 MW of the
650 MW load could be filled by either special contracts or direct
access loads. The load was filled by new special contracts signed
subsequent to the order. According to the MPSC order, Consumers
held a lottery in April 1997 to select the customers to purchase
100 MW by direct access. Direct access for a portion of this 100
MW began in late 1997. Consumers expects the remaining amount of
direct access to begin in 1998.

In January 1998, the Court of Appeals affirmed an MPSC conclusion
that the MPSC has statutory authority to authorize an experimental
electric retail wheeling program. By its terms, no retail wheeling
has yet occurred pursuant to that program. Consumers filed with
the Michigan Supreme Court seeking leave to appeal that ruling.

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

Electric Restructuring: As part of ongoing proceedings relating to
CMS NOMECO's 1995 acquisitionthe restructuring of Walter
International, Inc.the electric utility industry in Michigan, in
June 1997 the MPSC issued an order proposing that beginning January
1, 1998 Consumers transmit and distribute energy on behalf of
competing power suppliers to serve retail customers. Subsequent to
the June 1997 order, the MPSC issued further restructuring orders
in October 1997 and in January and February 1998. These orders
provide for: 1) the recovery of estimated Transition Costs of
$1.755 billion through a charge to all direct-access customers
until the end of the transition period in 2007, subject to an
adjustment through a true-up mechanism; 2) the commencement of the
phase-in of direct access in 1998; 3) the suspension of the power
supply cost recovery clause; and 4) all customers to be free to
choose power suppliers on January 1, 2002. See "Other Electric
Uncertainties" below for further information regarding the effect
of the PSCR suspension on the recovery of MCV Facility capacity
charges. The orders also confirm the MPSC's belief that
Securitization may be a beneficial mechanism for recovery of
Transition Costs while recognizing that Securitization requires
state legislation to occur. Consumers believes that the Transition
Cost surcharge will apply to all customers beginning in 2002. The
recovery of prudent costs of implementing a direct-access program,
estimated at an additional $200 million, would be reviewed for
prudence and recovered via a charge approved by the MPSC. Nuclear
decommissioning costs will also continue to be collected through a
separate surcharge to all customers. Consumers expects Michigan
legislative consideration of the entire subject of electric
industry restructuring in 1998. To be acceptable to Consumers, the
legislation would have to provide for full recovery of Transition
Costs. Consumers expects the legislature to review all of the
policy choices made by the MPSC during the restructuring
proceedings to assure that they are in accord with those that the
legislature believes should be paramount.

As a result of an informal process involving consultations with
MPSC staff and other interested parties, as directed in the MPSC's
February 1998 order, Consumers submitted to the MPSC in June 1998
its plan for implementing direct access. The primary issues
addressed in the plan are: 1) the implementation schedule; 2) the
direct access service options available to customers and suppliers;
3) the process and requirements for customers and others to obtain
direct access service; and 4) the roles and responsibilities for
Consumers, customers and suppliers. Under the schedule in the
plan, Consumers will, over the 1998-2001 period, phase-in 750 MW of
electric capacity for direct access to customers. In 1998, 300 MW
of direct access for bidding will be open, and an additional 150 MW
will open for each year from 1999 to 2001. This plan is consistent
with the previous orders regarding the phase-in process. Due to
the time required for the MPSC to review the plan, Consumers does
not believe direct access will commence prior to the fourth quarter
of 1998. For further information regarding the effects of the
restructuring on accounting methods, see Consumers' Electric
Business Unit Outlook - Electric Application of SFAS 71 in the
MD&A. CMS Energy and CMS NOMECO
could become jointly and severally liable forcannot predict the recaptureoutcome or timing of "dual
consolidated losses" under Section 1503(d) of the IRC if a "triggering
event" were to occur. Potential triggering events include certain asset
or stock dispositions to unrelated parties, certain tax deconsolidations,
certain usage of the losses on a foreign tax return, and certain failures
to comply with Internal Revenue Service regulations. CMS Energy and CMS
NOMECO have no plans to effect any transaction that would be a triggering
event. The amount of the potential tax liability as of March 31, 1998,
was estimated to be up to $67 million plus interest. In connection with
the same acquisition, a subsidiary of CMS NOMECO could also be jointly and
severally liable with an unrelated party, as of March 31, 1998, for up to
$50 million of tax plus interest. In that event, CMS NOMECO has certain
indemnity rights against that unrelated party. Additionally, CMS NOMECO
and its domestic subsidiaries have incurred losses in certain foreign
countries that could be recaptured if a triggering event were to occur.
The additional tax liability as of March 31, 1998, could be up to $10
million plus interest.

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

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

8:Other Consumers' Electric Business Unit Uncertainties

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

Summarized Statements of Income for CMS Midland and CMS Holdings-

In Millions
- ----------------------------------------------------------------
Three Months Six Months Twelve Months
Ended Ended Ended
- ---------------------------------------------------- -----------
June 30 1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------
Pretax operating
income $13 $10 $23 $18 $51 $46
Income taxes and
other 4 3 7 5 16 14
- ----------------------------------------------------------------

Net income $ 9 $ 7 $16 $13 $35 $32
================================================================

Power Purchases from the MCV Partnership- After September 2007,
pursuant to the terms of the PPA and related undertakings,
Consumers will only be required to pay the MCV Partnership the
capacity charge and energy charge amounts authorized for recovery
from electric customers by the MPSC. Currently, Consumers' annual
obligation to purchase capacity from the MCV Partnership is 1,240
MW through the termination of the PPA in 2025. The PPA provides
that Consumers is to pay the MCV Partnership a minimum levelized
average capacity charge of 3.77 cents per kWh, a fixed energy
charge, and a variable energy charge based primarily on Consumers'
average cost of coal consumed. The MPSC has, since January 1,
1993, permitted Consumers to recover capacity charges averaging
3.62 cents per kWh for 915 MW, plus a substantial portion of the
fixed and variable energy charges. Beginning January 1, 1996, the
MPSC has also permitted Consumers to recover capacity charges for
the remaining 325 MW of MCV Facility contract capacity. The order
approving such recovery indicated that the recoverable capacity
charge for the 325 MW would gradually increase from an initial
average charge of 2.86 cents per kWh to an average charge of 3.62
cents per kWh over the 1996-2004 time period. Because the MPSC
allowed Consumers to suspend the PSCR process as part of the
electric industry restructuring order (see "Electric Restructuring"
in this Note), Consumers expects to recover a portion of the future
increases in approved capacity charges through an adjustment to the
frozen PSCR charge.

Consumers recognized a loss in 1992 for the present value of the
estimated future underrecoveries of power costs under the PPA. At
June 30, 1998 and December 31,1997, the after-tax present value of
the PPA liability totaled $126 million and $117 million,
respectively. The increase in the liability since December 31,
1997 reflects an additional $37 million accrual ($24 million after-tax)
for higher than anticipated MCV Facility availability levels
experienced in prior periods and an after-tax accretion expense of
$5 million, partially offset by after-tax cash underrecoveries of
$20 million. The undiscounted after-tax amount associated with the
liability totaled $176 million at June 30, 1998. The after-tax
cash underrecoveries are currently based on the assumption that the
MCV Facility will be available to generate electricity 91.5 percent
of the time over its expected life. For the first six months of
1998 the MCV Facility was available 99 percent of the time,
resulting in $11 million over anticipated after-tax cash
underrecoveries. Consumers believes it will continue to experience
after-tax cash underrecoveries associated with the PPA in amounts
as those shown below.

In Millions
1998 1999 2000 2001 2002
- ----------------------------------------------------------------
Estimated cash under-
recoveries, net of tax $34 $22 $21 $20 $19
================================================================

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

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

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

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

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

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

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

As of March 31,June 30, 1998 Consumers had loaded 13 dry storage casks with
spent nuclear fuel at Palisades. Consumers plans to load five
additional casks at Palisades in 1999 pending approval by the NRC.
In June 1997, the NRC approved Consumers' process for unloading
spent fuel from a cask at Palisades previously discovered to have
minor weld flaws. Consumers intends to transfer the spent fuel to
a new transportable cask when one is available.

A forty to fifty day planned outage at Palisades commenced on April 24,
1998 for refueling and maintenance.maintenance at Palisades was
completed June 7, 1998. Consumers will replace a total of
sixtyreplaced 60 nuclear fuel
assemblies in the plant's reactor during the outage.

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

9: Supplemental Cash Flow Information

For purposesConsumers Gas Group Contingencies

Gas Environmental Matters: Under the Michigan Natural Resources
and Environmental Protection Act, Consumers expects that it will
ultimately incur investigation and remedial action costs at a
number of sites, including some 23 sites that formerly housed
manufactured gas plant facilities, even those in which it has a
partial or no current ownership interest. In 1998 Consumers plans
to study indoor air issues at residences on some sites and ground
water impacts or surface soil impacts at other sites. On sites
where Consumers has received site-wide study plan approvals, it
will continue to implement these plans. It will also work toward
closure of environmental issues at sites as studies are completed.
Data available to Consumers and its continued internal review have
resulted in an estimate for all costs related to investigation and
remedial action for all 23 sites of between $48 million and $98
million. These estimates are based on undiscounted 1998 costs. As
of June 30,1998, Consumers has accrued a liability of $48 million
and has established a regulatory asset for approximately the same
amount. Any significant change in assumptions, such as remediation
techniques, nature and extent of contamination, and legal and
regulatory requirements, could affect the estimate of remedial
action costs for the sites. According to an MPSC rate order issued
in 1996, Consumers will defer and amortize, over a period of ten
years, environmental clean-up costs above the amount currently
being recovered in rates. Rate recognition of amortization expense
will not begin until after a prudence review in a general rate
case. The order authorizes current recovery of $1 million
annually. Consumers is continuing discussions with, or has
initiated a lawsuit against, certain insurance companies regarding
coverage for some or all of the costs that it may incur for these
sites.

Consumers Gas Group Matters

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

Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas
transportation pilot program. Consumers' expanded experimental
program will extend over a three-year period, eventually allowing
300,000 residential, commercial and industrial retail gas sales
customers to choose their gas supplier. The program is voluntary
for natural gas customers. Participating customers are being
selected on a first-come, first-served basis, up to a limit of
100,000 customers beginning April 1, 1998. As of July 23, 1998
approximately 21,800 customers chose alternative gas suppliers,
representing approximately 13 bcf of gas load. Of these
alternative gas suppliers, one was a CMS Energy affiliate. Up to
100,000 more customers may be added beginning April 1 of each of
the next two years. Customers choosing to remain as sales
customers of Consumers will not see a rate change in their natural
gas rates. The order allowing the implementation of this program:
1) suspends Consumers' gas cost recovery clause, effective April 1,
1998 for a three-year period, establishing a gas commodity cost at
a fixed rate of $2.84 per mcf; 2) establishes an earnings sharing
mechanism that will provide for refunds to customers if Consumers'
earnings during the three year term of the program exceed certain
pre-determined levels; and 3) establishes a gas transportation code
of conduct that addresses concerns about the relationship between
Consumers and marketers, including its affiliated marketers. This
experimental program will allow competing gas suppliers, including
marketers and brokers, to market natural gas to a large number of
retail customers in direct competition with Consumers. In January
1998, the Attorney General, ABATE and other parties filed claims of
appeal regarding the program with the Court of Appeals. For
further information regarding the effects of the restructuring on
accounting methods, see Consumers' Gas Group Outlook - Application
of SFAS 71 in the MD&A.

Other Uncertainities

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

Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $1.375 billion for 1998, $1.220 billion for 1999,
and $1.175 million for 2000. For further information, see the
Capital Resources and Liquidity-Capital Expenditures in the MD&A.

Other: As of June 30, 1998, CMS Energy and Enterprises have
guaranteed up to $700 million in contingent obligations of
unconsolidated affiliates and related parties.

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

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

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

CMS Energy: CMS Energy's Senior Credit Facilities consist of a
$600 million three-year revolving credit facility and a five-year
$125 million term loan facility. Additionally, CMS Energy has
unsecured lines of credit and letters of credit in an aggregate
amount of $163 million. At June 30, 1998, the total amount
utilized under the Senior Credit Facilities was $317 million,
including $47 million of contingent obligations, and under the
unsecured lines of credit and letters of credit was $8 million.

At June 30, 1998 CMS Energy has $130 million of Series A GTNs, $125
million of Series B GTNs, $150 million of Series C GTNs, and $182
million of Series D GTNs issued and outstanding with weighted
average interest rates of 7.8 percent, 7.9 percent, 7.7 percent,
and 7.0 percent, respectively.

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

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

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

Consumers: At July 1, 1998, Consumers had remaining FERC
authorization to: 1) issue or guarantee up to $900 million of
short-term securities outstanding at any one time, through June
2000; 2) guarantee, through 1999, up to $25 million in loans made
by others to residents of Michigan for making energy-related home
improvements; and 3) issue long-term securities with maturities up
to 30 years, through June 2000, up to $950 million and $200 million
for refinancing purposes and for general corporate purposes,
respectively.

Consumers has an unsecured $425 million credit facility and
unsecured lines of credit aggregating $120 million. These
facilities are available to finance seasonal working capital
requirements and to pay for capital expenditures between long-term
financings. At June 30, 1998, a total of $255 million was
outstanding at a weighted average interest rate of 6.0 percent,
compared with $241 million outstanding at June 30, 1997, at a
weighted average interest rate of 6.2 percent. In January 1998,
Consumers entered into interest rate swaps totaling $300 million.
These swap arrangements have had an immaterial effect on interest
expense.

Consumers also has in place a $500 million trade receivables sale
program. At June 30, 1998 and 1997, receivables sold under the
program totaled $236 million and $266 million, respectively.
Accounts receivable and accrued revenue in the Consolidated StatementsBalance
Sheets have been reduced to reflect receivables sold.

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

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

In Millions
Month Interest Principal Use of
Issued Maturity Rate (%) Amount Proceeds
- ---------------------------------------------------------------------
Senior
Notes (a) February 2008 6.375 $ 250 Pay down
First
Mortgage
Bonds
Senior
Notes (a) March 2018 6.875 225 Pay down
First
Mortgage
Bonds
Senior
Notes (a) May 2008 6.2 (b) 250 Pay down
First
Mortgage
Bonds
and Long-
Term Bank
Debt
Senior
Notes (a) June 2018 6.5 (c) 200 Pay down
First
Mortgage
Bonds and
general
corporate
purposes
Long-Term
Bank Debt May 2001-2003 6.05 (d) 225 Pay down
Long-Term
Bank Debt
and general
corporate
purposes
- -------------------------------------------------------------------------
Total $1,150
=========================================================================
(a) The Senior Notes are secured by Consumers First Mortgage Bonds
issued contemporaneously in a similar amount.
(b) The interest rate may be reset in 2003.
(c) The interest rate will be reset in June 2005.
(d) The interest rate is variable; weighted average interest rate
upon original issuance was 6.05 percent.

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

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

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

Total $982
==================================================================

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

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

Under the provisions of its Articles of Incorporation at June 30,
1998, Consumers had $312 million of unrestricted retained earnings
available to pay common dividends. In July 1998, Consumers
declared a $44 million common dividend to be paid in August 1998.

4: Earnings Per Share and Dividends

Earnings per share attributable to Common Stock for the three, six
and twelve month periods ended June 30, 1998 reflect the
performance of the Consumers Gas Group. The Class G Common Stock
has participated in earnings and dividends from its original maturityissue
date in July 1995. The allocation of earnings attributable to each
class of common stock and the related amounts per share are
computed by considering the weighted average number of shares
outstanding.

Earnings attributable to the Outstanding Shares are equal to
Consumers Gas Group net income multiplied by a fraction; the
numerator is the weighted average number of Outstanding Shares
during the period and the denominator is the weighted average
number of Outstanding Shares and Retained Interest Shares during
the period. The earnings attributable to Class G Common Stock on
a per share basis for the three months or lessended June 30, 1998 and 1997
are considered cash equivalents. Other cash flow activitiesbased on 25.27 percent and non-cash
investing and financing activities were:24.30 percent, respectively, of the
income of Consumers Gas Group.

Computation of Earnings Per Share:

In Millions, Except Per Share Amounts
- -----------------------------------------------------------------
Three Months Six Months Twelve Months
Ended Ended Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------
(b) (a) (b) (a) (b)
Net Income
Applicable
to Basic and
Diluted EPS
Consolidated Net
Income $ 65 $ 47 $153 $125 $272 $218
` ================================================
Net Income
Attributable to
Common Stocks:
CMS Energy -
Basic EPS $ 64 $ 45 $143 $114 $258 $206
Add conversion
of 7.75% Trust
Preferred
Securities
(net of tax) 2 - 4 - 9 -
------------------------------------------------

CMS Energy -
Diluted EPS $ 66 $ 45 $147 $114 $267 $206
================================================
Class G:
Basic and
Diluted EPS $ 1 $ 2 $ 10 $ 11 $ 14 $ 12
=================================================
Average Common
Shares Outstanding
Applicable to
Basic and
Diluted EPS
CMS Energy:
Average Shares -
Basic 101 95 101 95 99 94
Add conversion
of 7.75% Trust
Preferred
Securities 4 - 4 - 4 -
Options-Treasury
Shares 1 1 1 1 1 2
-----------------------------------------------

Average Shares
- Diluted 106 96 106 96 104 96
===============================================
Class G:
Average Shares
Basic and
Diluted 8 8 8 8 8 8
==============================================

Earnings Per
Average Common
Share
CMS Energy:
Basic $.63 $.48 $1.42 $1.21 $2.60 $2.19
Diluted $.62 $.48 $1.39 $1.20 $2.57 $2.18
Class G:
Basic
and Diluted $.12 $.16 $1.20 $1.34 $1.71 $1.52

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

(b) Restated; see Note 1.

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

5: Risk Management Activities and Derivatives Transactions

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

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

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

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

As of June 30, 1998, Consumers had recorded an asset of $4 million
to recognize its option contracts to purchase electricity from July
through September of 1998. These option contracts were entered
into to insure a reliable source of capacity to meet Consumers
customers' electricity requirements. Consumers continuously
evaluates its daily capacity needs and would sell these option
contracts, if marketable, when it has excess daily capacity. If
Consumers did not exercise these option contracts because the
additional capacity was not needed, and Consumers was unable to
sell the option contracts, Consumers' maximum exposure associated
with an adverse price change is limited to premiums paid.

CMS NOMECO has one arrangement which is used to fix the prices that
CMS NOMECO will pay to supply gas to the MCV for the years 2001
through 2006 by purchasing the economic equivalent of 10,000 MMBtu
per day at a fixed price, escalating at 8 percent per year
thereafter, starting at $2.82 per MMBtu in 2001. The settlement
periods are each a one-year period ending December 31, 2001 through
2006 on 3.65 million MMBtu. If the floating price, essentially the
then-current Gulf Coast spot price, for a period is higher than the
fixed price, the seller pays CMS NOMECO the difference, and vice
versa. If a party's exposure at any time exceeds $5 million, that
party is required to obtain a letter of credit in favor of the
other party for the excess over $5 million and up to $10 million.
At June 30, 1998, no letter of credit was posted by either party to
the agreement. As of June 30, 1998, the fair value of this
contract reflected payment due from CMS NOMECO of $12 million.

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

Interest Rates Hedges: CMS Energy and some of its subsidiaries
enter into interest rate swap agreements to exchange variable rate
interest payment obligations to fixed rate obligations without
exchanging the underlying notional amounts. These agreements
convert variable rate debt to fixed rate debt to reduce the impact
of interest rate fluctuations. The notional amounts parallel the
underlying debt levels and are used to measure interest to be paid
or received and do not represent the exposure to credit loss. The
notional amount of CMS Energy's and its subsidiaries' interest rate
swaps was $803 million at June 30, 1998. The difference between
the amounts paid and received under the swaps is accrued and
recorded as an adjustment to interest expense over the life of the
hedged agreement.

Foreign Exchange Hedges: CMS Energy uses forward exchange
contracts and collared options to hedge certain receivables,
payables, long-term debt and equity value relating to foreign
investments. The purpose of CMS Energy's foreign currency hedging
activities is to protect the company from the risk that U.S. dollar
net cash flows resulting from sales to foreign customers and
purchases from foreign suppliers and the repayment of non-U.S.
dollar borrowings as well as equity reported on the company's
balance sheet, may be adversely affected by changes in exchange
rates. These contracts do not subject CMS Energy to risk from
exchange rate movements because gains and losses on such contracts
offset losses and gains, respectively, on assets and liabilities
being hedged. The notional amount of the outstanding foreign
exchange contracts was $595 million at June 30, 1998, which
includes $550 million for Australian foreign exchange contracts.

6: Restated Financial Statements - First Quarter 1998
(Unaudited)

As a result of the change in the method of accounting for
investments in oil and gas properties as discussed in Note 1,
certain financial information from the three and twelve months
ended March 31, 1998 and 1997 has been restated as detailed below.

Income Statement Data (Unaudited)

Three Months Ended Twelve Months Ended
March 31 1998 1997 1998 1997
- ----------------------------------------------------------------

Cash transactions
Interest paid (net------------------------------------------------------------------------------
As As As As
Reported Restated Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- -------- -------- -------

Operating
Revenue $1,374 $1,374 $1,295 $1,295 $4,866 $4,860 $4,345 $4,339
Operating
Expenses 1,187 1,177 1,082 1,091 4,146 4,151 3,660 3,675
------- --------- -------- -------- --------- ------- ------- ------
Pretax
Operating
Income 187 197 213 204 720 709 685 664

Other Income
(Deductions)(36) (36) (2) (2) (46) (46) (11) (11)
Fixed Charges 96 97 77 77 368 372 303 306
Income Taxes 15 19 50 47 82 80 135 129

------ ------ -------- -------- -------- -------- ------ ------
Consolidated
Net Income
before
cumulative
effect
of amounts capitalized)change in
accounting
principle 40 45 84 78 224 211 236 218
Consolidated
Net Income $83 $88 $84 $78 $267 $254 $236 $218

Basic Earnings
Per Average
Common Share
CMS Energy $.73 $.79 $.79 $.73 $2.57 $2.45 $2.41 $2.21
Class G $1.09 $1.09 $1.18 $1.18 $1.76 $1.76 $1.53 $1.53

Diluted Earnings Per
Average Common
Share CMS
Energy $.72 $.77 $.78 $.72 $2.55 $2.44 $ 752.39 $2.21
Class G $1.09 $1.09 $1.18 $1.18 $1.76 $1.76 $1.53 $1.53

Balance Sheet Data (Unaudited)

March 31 1998 1997
- -------------------------------------------------------------------
As As
Reported Restated Reported Restated
--------- --------- -------- --------
Assets
Current Assets $1,028 $1,023 $ 63 $305 $257
Income taxes
paid (net of refunds) 19 - 86 80

Non-cash transactions
Nuclear fuel placed
under capital leases768 $ 5 $ 3 $ 6 $ 31
Other assets placed
under capital leases 2 2 7 4
======================================================================770
Plant and
Property,net 5,379 5,114 5,279 5,022
Investments 1,894 1,879 1,023 1,013
Non-current Asset 1,480 1,489 1.332 1,335
--------------------------------------------------
Total Assets $9,781 $9,505 $8,402 $8,140
====== ====== ====== ======
Liabilities and
Equity
Current
Liabilities $1,506 $1,506 $1,662 $1,662
Non-current
Liabilities 1,763 1,672 1,781 1,692
Capitalization 6,512 6,327 4,959 4,786
--------------------------------------------------
Total
Liabilities
and Equity $9,781 $9,505 $8,402 $8,140
==================================================

4447
ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To CMS Energy Corporation:

We have reviewed the accompanying consolidated balance
sheets of CMS ENERGY CORPORATION (a Michigan corporation)
and subsidiaries as of March 31,June 30, 1998 and 1997, the related
consolidated statements of income and common stockholders'
equity for the three-month, six-month, and twelve-month
periods then ended, and the related consolidated statements
of income, common stockholders' equity and cash flows for the three-monthsix-month and twelve-month periods
then ended. These financial statements are the
responsibility of the Company'scompany's management.

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

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

We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet
and consolidated statement of preferred stock of CMS Energy
Corporation and subsidiaries as of December 31, 1997, and
the related consolidated statements of income, common
stockholders' equity and cash flows for the year then ended
(not presented herein), and, in our report dated January 26,July 27,
1998, we expressed an unqualified opinion on those
statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December
31, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has
been derived.

Arthur Andersen LLP

Detroit, Michigan,
MayAugust 11, 1998.

4548

Consumers Energy Company
Management's Discussion and Analysis

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

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

Results of Operations

In Millions
March 31June 30 1998 1997 Change

---- ---- ----------- ----- -----
Three months ended $102 $ 88 $1460 $ 54 $
Six months ended 162 141 21
Twelve months ended 299 254 45305 258 47
===== ===== =====

The increase in earnings for the second quarter of 1998 compared
with the same 1997 period reflects increased electric sales and
improved operating results from the MCV Facility. These earnings
were offset by decreased gas deliveries due to warmer 1998
temperatures. The first six months of 1998 were the third warmest
since 1864. Net income available to common stockholders after the
cumulative effect of a change in accounting for property taxes was
$102$162 million for the first quarterhalf of 1998 compared to $88with $141 million
for the same 1997 period. The increase in earnings for the first
quarterhalf of 1998 reflects revised accounting to recognize property tax
expense on the fiscal year basis of the taxing units instead of on
a calendar year basis. This one-time change in accounting for
property taxes resulted in a benefit of $66 million ($43 million
after-tax). Earnings for the first quarterhalf of 1998 also reflect the
recognition of a $37 million dollar loss ($24 million after tax)
for the underrecovery of power costs under the PPA. Earnings for the first
quarter of 1998 also reflect decreased gas deliveries due to warmer 1998
temperatures and increased electric sales along with reduced purchased
power costs. For further information on past and future MCV
underrecoveries, see Power Purchases from the MCV Partnership in Note 2.
The increase
in earnings for the twelve months ended June 30, 1998 compared towith
the same 1997 period reflects the change in accounting for property
taxes implemented during Marchthe first half of 1998 as discussed above
and the one-time recognition of interest income of $7 million ($5
million after-tax) from a related party property sale. In
addition, the improved net income for the twelve months ended
June 30, 1998 reflects an adjustment of prior years' income taxes
associated with non-taxable earnings on nuclear decommissioning
trust funds of $9 million. Partially offsetting these increases
were the recognition, in Marchthe first half of 1998, of the loss
associated with the underrecovery of power costs under the PPA as
discussed above, and decreased gas deliveries due to warmer weather
during the first quarterhalf of 1998. For further information concerning
results of operations, see the Electric and Gas Utility Results of
Operations sections of this MD&A and Power Purchases from the MCV
Partnership in Note 3.

Electric Utility Results of Operations2.

ELECTRIC UTILITY RESULTS OF OPERATIONS

Electric Pretax Operating Income:

In Millions
March 31June 30 1998 1997 Change
---- --------- ----- -----

Three months ended $ 119107 $ 106 $13104 $ 3
Six months ended 226 210 16
Twelve months ended 444 412 32448 419 29
===== ===== =====

Electric pretax operating income for all the three monthsabove periods ended
March 31,June 30, 1998 benefitted from increased sales and control of
operation and maintenance costs compared to the same periodperiods in
1997. The twelve months ended 1998
also benefitted from increased sales and control of operation and
maintenance costs when compared to the 1997 period. These increases were partly offset by increased general
taxes and depreciation. The following table quantifies these
impacts on Pretax Operating Income:Income.

Total change $ 133 $ 32
==== ====16 $ 29
===== ===== =====

Electric Deliveries: Total electric deliveries increased 6.58.0
percent for the three months ended March 31,June 30, 1998 over the same
period in 1997. The increase includes a 2.9 percent increase in
deliveries to ultimate customers, primarily within the commercial
and industrial classes, and a 5.1 percent increase in sales between
utility systems and wholesale customer deliveries. For the six
months ended June 30, 1998, total electric deliveries increased 7.2
percent over the comparable 1997 period. Deliveries to ultimate
customers increased 1.2 percent. Reduced sales to residential and
commercial customers were more than offset byup 2.1 percent, mainly from increased sales and deliveries to
commercial and industrial customers.classes, with the remaining 5.1 percent
attributable to an increase in sales between utility systems and
wholesale deliveries. For the twelve months ended June 30, 1998,
total electric deliveries increased 3.85.3 percent over the comparable
1997 period. The increase is primarily attributable to an increase
in intersystem sales between utility systems deliveries and a 1.3 percent
increase in sales and deliveries to ultimate customers, primarily within the
industrial class.

Power Costs:

In Millions
March 31June 30 1998 1997 Change
------ ------ ----------- ----- -----

Three months ended $ 312 $ 270 $ 282 $(12)42
Six months ended 583 552 31
Twelve months ended 1,128 1,110 18

Electric Utility Operating Issues:

Power PurchasesUncertainties: Consumers' financial position may be affected by a
number of trends or uncertainties that have had, or Consumers
reasonably expects will have, a materially favorable or unfavorable
impact on net sales, revenues, or income from the MCV Partnership: In 1992, Consumers recognized a
loss for the present value of the estimated future underrecoveries of
power purchasescontinuing electric
operations. Such uncertainties are: 1) environmental liabilities
arising from the MCV Partnership. The after-tax cash
underrecoveries are currently based on the assumption that the MCV
Facility will be availablecompliance with various federal, state and local
environmental laws and regulations, including potential liability
or expenses relating to generate electricity 91.5 percent of the
time over its expected life. For the first three months of 1998, the MCV
Facility was available 99 percent of the time, resulting in after-tax cash
underrecoveries of $11 million. Consumers believes it will continue to
experience after-tax cash underrecoveries associated with the PPA in
amounts as those shown below. For further information, see Power
Purchases from the MCV Partnership in Note 2.

In Millions
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Estimated cash
underrecoveries,
net of tax $28 $22 $21 $20 $19

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

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

Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Many other creditworthy,
potentially responsibleSuperfund; 2) capital expenditures
for compliance with the Clean Air Act; 3) suits by various parties with substantial assets also cooperate
with respect to the individual sites. Based on current information,
management believes it is unlikely that Consumers' liability at any of the
known Superfund sites, individually or in total, will have a material
adverse effect on its financial position, liquidity or results of
operations.

Other: In October 1997,livestock; 4) suits by two independent power producers sued Consumers
and CMS Energy in a federal court alleging
antitrust violations and economic losses due to special electric
contracts signed by Consumers; 5) cost recovery relating to the MCV
Facility and nuclear plant investments and an experimental direct-access
program; 6) electric industry restructuring; 7) after-tax
cash underrecoveries associated with power purchases from the MCV
Partnership; and 8) Big Rock decommissioning issues and ongoing
issues relating to the storage of spent fuel and the operating life
of Palisades. For detailed information about these trends or
uncertainties see Note 2, Uncertainties, "Electric Contingencies-Electric
Environmental Matters," "Electric Contingencies-Stray
Voltage," "Electric Contingencies-Anti-Trust," "Electric Rate
Matters-Electric Proceedings," "Electric Rate Matters-Electric
Restructuring," "Other Electric Uncertainties-The Midland
Cogeneration Venture-Power Purchases from the MCV Partnership," and
"Other Electric Uncertainties-Nuclear Matters," incorporated by
reference herein.

Consumers uses electricity option contracts to limit its risk
associated with large customers. The plaintiffs claim damages of $100 million (which a
court can treble in antitrust cases as provided by law). The parties are
awaiting the court's decision on Consumers' and CMS Energy's motion for
summary judgment and/or dismissalelectricity price increases. It is management's
intent to take physical delivery of the complaint.commodity. As of June 30,
1998, Consumers believeshas recorded an asset of $4 million to recognize
its option contracts to purchase electricity from July through
September of 1998. These option contracts were entered into to
insure a reliable source of capacity to meet Consumers customers'
electricity requirements. Consumers continuously evaluates its
daily capacity needs and would sell these option contracts, if
marketable, when it has excess daily capacity. If Consumers did
not exercise these option contracts because the lawsuitadditional capacity
was not needed and Consumers was unable to sell the option
contracts, Consumers' maximum exposure associated with an adverse
price change is without merit and will vigorously defend against it, but
cannot predict the outcome of this matter. For further information
regarding this antitrust litigation, see Item 3, Legal Proceedings.

Gas Utility Results of Operationslimited to premiums paid.

GAS UTILITY RESULTS OF OPERATIONS

Gas Pretax Operating Income:

In Millions
March 31June 30 1998 1997 Change
---- ---- ----------- ----- -----

Three months ended $ 5421 $ 78 $(24)23 $ (2)
Six months ended 75 101 (26)
Twelve months ended 130127 143 (13)(16)

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

Gas pretax operating income decreased in both the three month, six month
and twelve month periods ended March 31,June 30, 1998, as a result of
decreasedreduced gas deliveries and wholesale services due to warmer temperatures during the winter
heating seasons. Revenues andfor wholesale services were also down
for the three monthsix and twelve month periods ended March 31,June 30, 1998 due to the
warmer temperature and the elimination of surcharges related to
past conservation programs. The decreased gas pretax operating
income for the three monthsmonth and six month periods ended March 31,June 30,
1998 reflects higher operations expense related to growth in retail
services programs and the absence of 1997 non-recurring expense
reductions for uncollectible accounts and injuries and damages
reserves. Gas pretax operating income for the twelve month period
ended March 31,June 30, 1998 benefited from lowercontrolling operations and
maintenance expenses that resultedexpenses. The benefit to gas pretax operating income
from cost controls.reduced costs in general taxes and depreciation for the three
month, six month and twelve month periods ended June 30, 1998 is
primarily a timing issue related to sales volumes. The following
table quantifies these impacts on Pretax Operating Income:Income.

In Millions
Three Months Six Months Twelve Months
Ended March 31June 30 Ended March 31June 30 Ended June 30
Change Compared to Prior Year 1998 vs 1997 1998 vs 1997 ------------ ------------1998 vs 1997
------- ------- -------
Sales $ (13) $ (13)(5) $(18) $(21)
Gas wholesale and retail
service activities - (3) (11)(6)
Operations and maintenance (8) 11
------------ ------------(1) (9) 6
General taxes, depreciation
and other 4 4 5
----- ----- -----
Total change $(24) $ (13)
============ ============(2) $(26) $(16)
===== ===== =====

Cost of Gas Sold:

In Millions
March 31June 30 1998 1997 Change
---- --------- ----- -----

Three months ended $264 $314 $(50)$ 74 $118 $ (44)
Six Months ended 338 432 (94)
Twelve months ended 645 718 (73)600 729 (129)
===== ===== =====

Gas Utility Operating Issues:

Gas Rate Proceedings:Uncertainties: Consumers' financial position may be affected by a
number of trends or uncertainties that have had, or Consumers
entered intoreasonably expects will have, a special naturalmaterially favorable or unfavorable
impact on net sales or revenues or income from continuing gas
transportation contract in response to a customer's proposal to bypass
Consumers' system in favor of a competitive alternative. In 1995, the
MPSC approved the contract. The MPSC stated, however, that Consumers'
shareholders must bear the revenue shortfall created by the difference
between the contract's discounted rate and the floor price of an MPSC-
authorized gas transportation rate. In 1995, Consumers filed an appeal
with the Court of Appeals claiming that the MPSC decision denies Consumers
the opportunity to earn its authorized rate of return and is therefore
unconstitutional. In October 1997, the Court of Appeals issued an opinion
affirming the MPSC's order. The Court of Appeals denied Consumers'
subsequent request for a rehearing of that opinion. In March 1998,
Consumers filed an application for leave to appeal with the Michigan
Supreme Court. For further information on Gas Proceedings, see the Gas
Business Outlook section of this MD&A and Note 3.

Restructuring: In December 1997, the MPSC approved Consumers' application
to implement a statewide three-year experimental gas transportation pilot
program, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. As of
May 8, 1998, more than 7,500 customers chose alternative gas suppliers,
representing approximately 10 bcf of gas load. Of these alternative gas
suppliers, one was a CMS Energy affiliate. The program is voluntary for
natural gas customers. Customers choosing to remain as sales customers of
Consumers will not see a rate change in their natural gas rates. To
minimize the risk of exposure to higher gas costs, Consumers currently has
contracts in place at known prices covering a significant portion of its
requirements through the year 2000. ABATE, the Attorney General and other
parties filed claims of appeal of the MPSC's order with the Court of
Appeals. For further information, see Note 3.

Consumers estimatesuses gas forward contracts to limit its costs relatedrisk associated
with gas price increases. It is management's intent to investigationtake
physical delivery of the commodity. For gas forward contracts,
Consumers is obligated to take physical delivery of the gas and
remedial action
at $48 millionwould incur a significant penalty for nonperformance. At June 30,
1998, Consumers had an exposure to $98 million. This estimate is based on undiscounted
1998 costs. Any significant change in assumptions, such as remediation
technique, nature and extent of contamination and regulatory requirements,
could affectgas price increases if the estimate of investigation and remedial action costscost
was to exceed $2.84 per mcf for the sites. For further information regarding environmental matters, see
Note 5.

CAPITAL RESOURCESfollowing volumes: 5 percent
of its 1998 requirements; 40 percent of its 1999 requirements; and
65 percent of its 2000 requirements. Additional forward coverage
is currently under review. The gas forward contracts currently in
place were consummated at prices less than $2.84 per mcf. The
contracts are being used to protect against gas price increases in
a three-year experimental gas program where Consumers is recovering
from its customers $2.84 per mcf of gas delivered.

Capital Resources and Liquidity

CASH POSITION, INVESTING AND LIQUIDITY

Cash Position, Investing and FinancingFINANCING

Operating Activities: Consumers derives cash from operations from the sale and
transportation of natural gas and the generation, transmission and
sale of electricity. Cash from operations totaled $287$322 million and
$368$413 million for the first threesix months of 1998 and 1997,
respectively. The $81$91 million decrease resulted primarily from a
decrease of $75$47 million in the sale of accounts receivable.receivable and to
higher summer gas inventory balances because of lower sales
resulting from warmer weather. Other items included in the income
statement but
which had no effect on cash flow were a one-time change in
accounting for property taxes resulting in a $66 million ($43
million after-tax) gain and the recognition of a $37 million loss
($24 million after-tax) for the underrecovery of power costs under
the PPA. Consumers uses operating cash primarily to maintain and
expand electric and gas systems, to retire portions of long-term
debt, and to pay dividends.

Investing Activities: Cash used in investing activities totaled
$100$(171) million and $98$(205) million for the first threesix months of 1998
and 1997, respectively. The change of $34 million was primarily
the result of receiving cash of $27 million from the sale of the
Marysville Fractionation Partnership and $27 million from the
nuclear decommissioning trust funds previously collected from
electric customers for decommissioning Big Rock, offset by the
payment of $33 million in cost of plant retired. Consumers used
the cash primarily for capital expenditures.expenditures,

Financing Activities: Cash used inprovided by financing activities
totaled $178
million and $262 millionzero for the first threesix months of 1998 and 1997,
respectively.compared to $(201)
million used in the first six months of 1997. The decreasechange of $84$201
million is primarily the result of the
retirementa net increase in cash of $418$266
million in bondsdue to refinancing and other long termissuance of Consumers' debt, andoffset
by a $59 million increase in the payment of $80 million in common stock dividend offset by a $113 million
decrease in the reduction of notes payable and the issuance of $475
million in senior notes.

Other Investing and Financing Matters: At April 15, 1998,dividends.

Consumers had
remaining FERC authorization to: 1) issue or guarantee up to $900 million
of short-term securities, outstanding at any one time, through 1998; 2)
guarantee, through 1999, up to $25 million in loans made by others, to
residents of Michigan for making energy-related home improvements; and 3)
issue long-term securities with maturities up to 30 years, through
November 1998, up to $401 million and $300 million for refinancing
purposes and for general corporate purposes, respectively. In May 1998,
Consumers used $475 million of FERC authorization by issuing the following
long-term debt: 1)issued $250 million in senior notes; and 2) $225 million for
a long-term bank loan.

Additionally,notes in May 1998 and $200
million in senior notes in June 1998. For additional information
about these offerings see "Long-Term Financings" in Note 3,
incorporated by reference herein.

Consumers requestedhas FERC authorization to issue from
July 1998 through June 2000, up to $950 million of long-term securities for refinancing or refunding purposes and
$200 million for general
corporate purposes. This authorization would replace and supersede any
remaining authorization previously granted to issue long-term securities,
except for the $25 million in loan guarantees discussed above.guarantees. Consumers has an unsecured $425 milliona credit facility, and unsecured lines of credit aggregating $120 million. These facilities are availableand
a trade receivable sale program in place as anticipated sources of
funds needed to finance seasonal working capital requirements and to payfulfill, in whole or in part, material commitments
for capital expenditures between long-term financings. At March 31, 1998, the total
available amount remaining underexpenditures. For detailed information about these
facilities was $300 million.

Consumers also hassource of funds, see "Authorization" and "Short-Term Financings" in
place a $500 million trade receivables sale program.
At March 31, 1998, $160 million in receivables remained available for sale
under the program.

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

In Millions
Month Interest Principal
Issued Maturity Rate (%) Amount Use of Proceeds
------- -------- -------- ----- --------------
Senior Notes (a) February 2008 6.375 $250 Pay down First
Mortgage Bonds
Senior Notes (a) March 2018 6.875 225 Pay down First
Mortgage Bonds
Senior Notes (a) May 2008 6.2 250 Pay down First
Mortgage Bonds
and Long-Term
Bank Debt
Long-Term
Bank Debt May 2001-2003 6.05 (b) 225 Pay down Long-
Term Bank Debt
and general
corporate
purposes
-----
Total $950
=====

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

In Millions
Month Interest Principal
Retired Maturity Rate (%) Amount
-------- -------- ----- -----------
First Mortgage Bonds February 1998 8.75 $248
Long-Term Bank Debt February 1998-1999 6.4 (a) 50
First Mortgage Bonds March 2001-2002 7.5 119
First Mortgage Bonds April 2023 7.375 36
-----
Total $453
=====
(a) The interest rate was variable; weighted average interest rate at
December 31, 1997 was 6.4 percent.

OUTLOOKNote 3.

Outlook

Capital Expenditures OutlookCAPITAL EXPENDITURES OUTLOOK

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

In Millions
Years Ended December 31 1998 1999 2000
---- ---- --------- ----- -----
Consumers
Construction $367 $358 $350
Nuclear fuel lease 54 - 1
Capital leases other
than nuclear fuel 11 19 16
Michigan Gas Storage 3 3 3
---- ---- --------- ----- -----

$435 $380 $370
---- ---- ----===== ===== =====

Electric utility operations (a)(b) $320 $265 $255
Gas utility operations (a) 115 115 115
---- ---- --------- ----- -----

$435 $380 $370
==== ==== ========= ===== =====

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

Electric Business Outlook2.

ELECTRIC BUSINESS OUTLOOK

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

FERC Orders 888 and 889, as amended, require utilities to provide
direct
accessdirect-access to the interstate transmission grid for wholesale
transactions. Consumers and Detroit Edison disagree on the effect
of the orders on the Michigan Electric Power Coordination Center
pool. Consumers proposes to maintain the benefits of the pool,
through at least December 2000, while Detroit Edison has given notice
of early termination. Consumers expects FERC to rule on this issue in
1998.contends that
the pool agreement should be terminated immediately. Among
Consumers' alternatives in the event of the pool being terminated
would be joining an independent system operator. FERC has
indicated this preference for structuring the operations of the
electric transmission grid.

As directed inelectric utility industry since June 1997.
Consumers cannot predict the MPSC's February 1998 order, Consumers submittedoutcome or timing of these matters.
For material changes relating to the MPSC its draft planrestructuring of the electric
utility industry see "Electric Rate Matters - Electric
Restructuring" in April 1998 for implementing retail open access.
The primary issues addressed in the proposed plan are: 1) the
implementation schedule; 2) the retail open access service options
available to customers and suppliers; 3) the process and requirements for
customers and others to obtain retail open access service; and 4) the
roles and responsibilities for Consumers, customers and suppliers. Under
the proposed schedule in the draft plan, Consumers will allocate 750 MW of
electric capacity for retail open access to customers. In 1998, 300 MW of
retail open access for bidding will be open, and an additional 150 MW will
open for each year from 1999 to 2001. This plan supports the previous
order regarding the phase-in process. Due to the time required to provide
an opportunity for interested parties and the MPSC to review the plan,
Consumers does not believe retail open access will commence prior to the
fourth quarter of 1998. For further information regarding restructuring,
see Note 3.2, incorporated by reference herein.

Gas Business OutlookGAS BUSINESS OUTLOOK

OTHER MATTERS

New Accounting StandardsOther Matters

NEW ACCOUNTING STANDARDS

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

COMPUTER MODIFICATIONS FOR YEAR 2000

Consumers uses software and related technologies throughout its
businesses that the year 2000 date change will affect and, if
uncorrected, could cause Consumers to, among other things, issue
inaccurate bills, report inaccurate data, or incur generating plant
outages. In 1995, Consumers began modification ofmodifying its own computer
software systems by dividing programs requiring modification
between critical and noncritical programs. All necessaryessential program
modifications are expected to be completed by the year 2000.
Consumers devoted significant internal and external resources to
these modifications. It will expense anticipated spending for
these modifications as incurred, while capitalizing and amortizing
the costs for new software over the software's useful life.
Consumers does not expect that the cost of these modifications will
materially affect its financial position, liquidity or results of
operations. DerivativesThere can be no guarantee, however, that these costs,
plans or time estimates will be achieved, and Hedgesactual results could
differ materially. Specific factors that may cause such material
differences include, but are not limited to, the availability of
personnel trained in this area, the ability to locate and correct
all relevant computer code, and the year 2000 readiness of
Consumers' vendors, large customers and other third parties with
whom it does business.

Because of the integrated nature of Consumers' business with other
energy companies, utilities, jointly owned facilities operated by
other entities, and business conducted with suppliers and large
customers, Consumers may be indirectly affected by year 2000
compliance complications. At this time, Consumers is exposedunable to
market risk associated with changes in interest
rates. Management uses a combination of fixed-rate and variable-rate debt
to reduce interest rate exposure. Interest rate swaps may be used to
adjust exposure when deemed appropriate, based upon market conditions.
Derivatives are principally used as hedges and not for trading purposes.
Duringanticipate the first quarter of 1998, trading activities were immaterial. In
the case of hedges, management believes that any losses incurred on
derivative instruments used as a hedge would be offset by the opposite
movementmagnitude of the underlying hedged item. These strategies attempt to
provide and maintain the lowest cost of capital. The fair value of
Consumers'operational or financial derivative instruments at March 31, 1998 was
immaterial. Additionally, exposure to market risk in the near term would
not have a material impact on
Consumers consolidated financial position,
results of operations or cash flows as of March 31, 1998.

For a discussion of accounting policies related to derivative
transactions, see Note 4.

FORWARD-LOOKING INFORMATIONyear 2000 issues.

Forward-Looking Information

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

Some important factors that could cause actual results or outcomes
to differ materially from those discussedare set forth in the forward-looking statements
include prevailing governmental policiesConsumers' 1997 Form 10-K,
"Management's Discussion and regulatory actions (including
those of FERC and the MPSC) with respect to rates, proposed electric and
natural gas industries restructuring, change in industry and rate
structure, operation of a nuclear power facility, acquisition and disposal
of assets and facilities, operation and construction of plant facilities,
operation and construction of natural gas pipeline and storage facilities,
recovery of the cost of purchased power or natural gas, decommissioning
costs, and present or prospective wholesale and retail competition, among
other important factors. The business and profitability of Consumers are
also influenced by economic and geographic factors, including political
and economic risks, changes in environmental laws and policies, weather
conditions, competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy, inflation or
deflation, capital market conditions, and the ability to secure agreement
in pending negotiations, among other important factors. All such factors
are difficult to predict, contain uncertainties that may materially affect
actual results, and may be beyond the control of Consumers.

Analysis, Forward-Looking
Information."

(This page intentionally left blank)

Consumers Energy Company
Consolidated Statements of Income
(Unaudited)

Three Months Ended Six Months Ended Twelve Months Ended
March 31June 30 1998 1997 1998 1997 1998 1997
In Millions
Operating Revenue
Electric $ 612649 $ 620 $2,507 $2,474598 $1,261 $1,218 $2,558 $2,492
Gas 429 498 1,135 1,231170 220 599 718 1,085 1,242
Other 13 11 9 51 4923 20 53 50
------ ------ ------ ------ 1,052 1,127 3,693 3,754------ ------
832 829 1,883 1,956 3,696 3,784
------ ------ ------ ------ ------ ------
Operating Expenses
Operation
Fuel for electric generation 80 71 69 300 292151 140 308 293
Purchased power - related parties 145 151 594144 146 290 297 592 600
Purchased and interchange power 54 62 234 21888 53 142 115 270 226
Cost of gas sold 264 314 645 71874 118 338 432 600 729
Other 133 130 131 262 260 544 583573
------ ------ ------ ------ 667 726 2,317 2,411------ ------
516 519 1,183 1,244 2,314 2,421
Maintenance 37 40 166 17442 41 78 80 168 178
Depreciation, depletion and
amortization 110 111 389 37488 87 198 199 390 379
General taxes 55 57 198 19245 45 100 103 197 196
------ ------ ------ ------ 869 934 3,070 3,151------ ------
691 692 1,559 1,626 3,069 3,174
------ ------ ------ ------ ------ ------
Pretax Operating Income
Electric 119 106 444 412107 104 226 210 448 419
Gas 54 78 13021 23 75 101 127 143
Other 13 10 9 4923 19 52 48
------ ------ ------ ------ 183 193 623 603------ ------
141 137 324 330 627 610
------ ------ ------ ------ ------ ------
Other Income (Deductions)
Loss on MCV power purchases - - (37) - (37) -
Dividends and interest from affiliates 4 4 238 9 22 17
Accretion income 1 2 23 4 7 9
Accretion expense (4) (5)(4) (8) (9) (17) (19)(17)
Other, net 1 1- - 2 - 1 (4)
------ ------ ------ ------ (34)------ ------
1 2 (23) 3(32) 4 (24) 5
------ ------ ------ ------ ------ ------
Interest Charges
Interest on long-term debt 34 35 35 68 69 137 138139
Other interest 10 8 38 317 19 16 39 32
Capitalized interest - - - - (1) (1)
------ ------ ------ ------ 44------ ------
43 174 16842 87 85 175 170
------ ------ ------ ------ ------ ------

Net Income Before Income Taxes 105 152 426 43899 97 205 249 428 445
Income Taxes 36 55 133 14830 34 67 90 129 151
------ ------ ------ ------ ------ ------
Net Income before cumulative
effect of change
in accounting principle 69 97 293 29063 138 159 299 294

Cumulative effect of change
in accounting for
property taxes, net
of $23 tax (Note 1) - - 43 - 43 -
------ ------ ------ ------ ------ ------
Net Income 112 97 336 29069 63 181 159 342 294
Preferred Stock Dividends 5 7 2310 14 21 28
Preferred Securities Distributions 54 2 149 4 16 8
------ ------ ------ ------ ------ ------

Net Income Available to Common Stockholder $ 10260 $ 8854 $ 299162 $ 254141 $ 305 $ 258
====== ====== ====== ====== ====== ======

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

Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)

ThreeSix Months Ended Twelve Months Ended
March 31June 30 1998 1997 1998 1997
------ ------ ------ ------
In Millions

Cash Flows from Operating Activities
Net income $ 112181 $ 97159 $ 336342 $ 290294
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation, depletion and amortization
(includes nuclear decommissioning of
$13, $13, $50$25, $24,$50 and $48,$49, respectively) 110 111 389 374198 199 390 379
Loss on MCV power purchases 37 - 37 -
Capital lease and other amortization 8 8 43 39
Accretion expense 4 5 17 19
Accretion income - abandoned Midland project (2) (2) (7) (9)21 21 44 40
Deferred income taxes and investment
tax credit (10)27 16 24 39
Accretion expense 8 9 17 17
Accretion income - 3 46abandoned
Midland project (3) (4) (7) (9)
Undistributed earnings of related parties (11) (9) (48)) (46)(24) (20) (50) (50)
Cumulative effect of accounting change (66) - (66) -
MCV power purchases (17) (15) (65)(32) (30) (64) (66)
Other 2 1 5 3
Changes in other assets and liabilities 120 172 34 80(25) 63 - (12)
------ ------ ------ ------

Net cash provided by operating
activities 287 368 678 730322 413 667 632
------ ------ ------ ------

Cash Flows from Investing Activities
Capital expenditures (excludes assets
placed under capital lease) (74) (77) (357) (404)(159) (165) (355) (391)
Cost to retire property, net (17) (4) (41) (28)(44) (11) (61) (31)
Investments in nuclear decommissioning trust funds (13) (13)(25) (24) (50) (48)(49)
Proceeds from nuclear decommissioning trust funds 27 - 27 -
Proceeds from the sale of Marysville
Fractionation Partnership 27 - 27 -
Other 4 (4)3 (5) 54 (4)
Deferred demand-side management costs - - - (4)(6)
------ ------ ------ ------

Net cash used in investing activities (100) (98) (394) (488)(171) (205) (358) (477)
------ ------ ------ ------

Cash Flows from Financing Activities
Proceeds from senior notes 469914 - 469914 -
Retirement of bonds and other long-term debt (418)(622) - (470)(673) (37)
Payment of common stock dividends (129) (70) (278) (195)
Increase (decrease) in notes payable, net (132) (245) 157 50
Payment of common stock dividends (80) - (298) (200)(122) (92) 14 133
Payment of capital lease obligations (7) (8) (43) (38)(22) (21) (46) (39)
Payment of preferred stock dividends (5) (7) (27)(10) (14) (25) (28)
Preferred securities distributions (5) (2) (14)(9) (4) (16) (8)
Retirement of preferred stock - - (120)(118) -
Proceeds from preferred securities - - 116 -
Contribution from (return of equity to) stockholder - - (50) -
Proceeds from bank loans - - - 23
------ ------ ------ ------

Net cash used inprovided by (used in)
financing activities (178) (262) (280) (238)- (201) (162) (151)
------ ------ ------ ------

Net Increase (Decrease) in Cash and Temporary Cash Investments 9 8 4151 7 147 4

Cash and Temporary Cash Investments, Beginning of Period 7 4 12 811 7
------ ------ ------ ------

Cash and Temporary Cash Investments, End of Period $ 16158 $ 1211 $ 158 $ 11
====== ====== ====== ======

Other cash flow activities and non-cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized) $ 83 $ 82 $ 166 $ 127
Income taxes paid (net of refunds) 79 82 113 167
Non-cash transactions
Nuclear fuel placed under capital lease $ 15 $ 3 $ 16 $ 1231
Other assets placed under capital leases 7 3 10 5

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

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

Consumers Energy Company
Consolidated Balance Sheets

ASSETS March 31 March 31June 30 June 30
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions

Plant (At original cost)
Electric $6,547$6,579 $6,491 $6,412$6,467
Gas 2,3462,307 2,322 2,2422,270
Other 23 24 24 2625
------ ------ ------
8,9178,909 8,837 8,6808,762
Less accumulated depreciation, depletion
and amortization 4,7224,707 4,603 4,3784,490
------ ------ ------
4,1954,202 4,234 4,3024,272
Construction work-in-progress 144166 145 114119
------ ------ ------
4,3394,368 4,379 4,4164,391
------ ------ ------

Investments
Stock of affiliates 287 278 295278 302
First Midland Limited Partnership (Note 2) 244247 242 235237
Midland Cogeneration Venture Limited
Partnership (Note 2) 179189 171 140148
Other - 7 7 910
------ ------ ------
717714 698 679697
------ ------ ------

Current Assets
Cash and temporary cash investments at cost,
which approximates market 16158 7 1211
Accounts receivable and accrued revenue,
less allowances of $6,$5, $6 and $8,
respectively (Note 4) 523) 76 82 6180
Accounts receivable - related parties 71 62 6287
Inventories at average cost
Gas in underground storage 79178 197 51125
Materials and supplies 64 63 7263 75
Generating plant fuel stock 39 35 4435 28
Postretirement benefits 25 25 25
Deferred income taxes 13- 22 2114
Prepayments and other 182148 161 13278
------ ------ ------
541754 654 480523
------ ------ ------

Non-current Assets
Nuclear decommissioning trust funds 518521 486 401443
Postretirement benefits 395388 404 427419
Abandoned Midland Project 8883 93 108103
Other 248 235 235 239240
------ ------ ------
1,2361,240 1,218 1,1751,205
------ ------ ------

Total Assets $6,833$7,076 $6,949 $6,750$6,816
====== ====== ======

STOCKHOLDERS' INVESTMENT AND LIABILITIES June 30 June 30
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions

Capitalization
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in capital 452 452 504
Revaluation capital 59 58 41
Retained earnings since December 31, 1992 396 363 368
------ ------ ------
1,748 1,714 1,754
Preferred stock 238 238 356
Company-obligated mandatorily redeemable
preferred securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 120 -
Long-term debt 2,159 1,369 1,612
Non-current portion of capital leases 77 74 88
------ ------ ------
4,442 3,615 3,910
------ ------ ------

Current Liabilities
Current portion of long-term debt and capital leases 94 579 390
Notes payable 255 377 241
Accrued taxes 154 244 154
Accounts payable 150 171 149
Accounts payable - related parties 76 79 70
Power purchases (Note 2) 47 47 47
Accrued interest 31 32 32
Deferred income taxes 12 - -
Accrued refunds 11 12 7
Other 139 136 131
------ ------ ------
969 1,677 1,221
------ ------ ------

Non-current Liabilities
Deferred income taxes 680 688 642
Postretirement benefits 474 489 501
Power purchases (Note 2) 146 133 157
Deferred investment tax credit 144 149 154
Regulatory liabilities for income taxes, net 59 54 81
Other 162 144 150
------ ------ ------
1,665 1,657 1,685
------ ------ ------
Commitments and Contingencies (Notes 2)

Total Stockholders' Investment and Liabilities $7,076 $6,949 $6,816
====== ====== ======
/TABLE
60

STOCKHOLDERS' INVESTMENT AND LIABILITIES March 31 March 31
1998 December 31 1997
(Unaudited) 1997 (Unaudited)
In Millions

Capitalization
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in capital 452 452 504
Revaluation capital 65 58 36
Retained earnings since December 31, 1992 385 363 385
------ ------ ------
1,743 1,714 1,766
Preferred stock 238 238 356
Company-obligated mandatorily redeemable preferred securities of:
Consumers Power Company Financing I (a) 100 100 100
Consumers Energy Company Financing II (a) 120 120 -
Long-term debt 1,722 1,369 1,652
Non-current portion of capital leases 73 74 97
------ ------ ------
3,996 3,615 3,971
------ ------ ------
Current Liabilities
Current portion of long-term debt and capital leases 284 579 348
Notes payable 245 377 88
Accrued taxes 232 244 190
Accounts payable 128 171 164
Accounts payable - related parties 82 79 70
Power purchases (Note 2) 47 47 47
Accrued interest 20 32 25
Accrued refunds 11 12 6
Other 132 136 147
------ ------ ------
1,181 1,677 1,085
------ ------ ------
Non-current Liabilities
Deferred income taxes 668 688 633
Postretirement benefits 480 489 508
Power purchases (Note 2) 157 133 167
Deferred investment tax credit 147 149 157
Regulatory liabilities for income taxes, net 61 54 75
Other 143 144 154
------ ------ ------
1,656 1,657 1,694
------ ------ ------
Commitments and Contingencies (Notes 2, 3, 5 and 6)

Total Stockholders' Investment and Liabilities $6,833 $6,949 $6,750
====== ====== ======

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

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

Consumers Energy Company
Consolidated Statements of Common Stockholder's Equity
(Unaudited)

Three Months Ended Twelve Months Ended
March 31 1998 1997 1998 1997
In Millions

Common Stock
At beginning and end of period $ 841 $ 841 $ 841 $ 841
------ ------ ------ ------
Other Paid-in Capital
At beginning of period 452 504 504 504
Preferred stock required - - (2) -
Return of stockholder's contribution - - (50) -
------ ------ ------ ------
At end of period 452 504 452 504
------ ------ ------ ------
Revaluation Capital
At beginning of period 58 37 36 29
Change in unrealized investment-gain (loss) (a) 7 (1) 29 7
------ ------ ------ ------
At end of period 65 36 65 36
------ ------ ------ ------
Retained Earnings
At beginning of period 363 297 385 331
Net income (a) 112 97 336 290
Common stock dividends declared (80) - (299) (200)
Preferred stock dividends declared (5) (7) (23) (28)
Preferred securities distributions (5) (2) (14) (8)
------ ------ ------ ------
At end of period 385 385 385 385
------ ------ ------ ------
Total Common Stockholder's Equity $1,743 $1,766 $1,743 $1,766
====== ====== ====== ======

(a) Disclosure of Comprehensive Income:
Revaluation capital
Unrealized investment-gain (loss), net of tax of
$4, $(1), $16 and $4, respectively $ 7 $ (1) $ 29 $ 7
Net income 112 97 336 290
---- ---- ---- ----
Total Comprehensive Income $119 $ 96 $365 $297
==== ==== ==== ====

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

62 Consumers Energy Company Condensed Notes toFinancing II is $124
million principal amount of 8.20% subordinated deferrable interest notes due 2027 from Consumers.
The accompanying condensed notes are an integral part of these statements.
61

Consumers Energy Company
Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed Notes
should be read along with the Consolidated Financial Statements and Notes
contained in the Consumers 1997 10-K that includes the Report of
Independent Public Accountants. In the opinion of management, the
unaudited information herein reflects all adjustments necessary to assure
the fair presentation of financial position, results of operations and
cash flows for the periods presented.

1: Corporate Structure And Change of Significant Accounting Policies

Corporate Structure

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

Implementation of New Accounting Standard

In 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income. This statement, which is effective
for 1998 financial statement reporting, establishes standards for
reporting and display of comprehensive income and its components. Equity
adjustments related to unrealized investment gains and losses (net of
tax), along with consolidated net income, comprise comprehensive income.

Change in Method of Accounting for Property Taxes

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

2: The Midland Cogeneration Venture

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

Summarized Statements of Income for CMS Midland and CMS Holdings:

In
MillionsCommon Stockholder's Equity
(Unaudited)

Three Months Ended Six Months Ended Twelve Months Ended
March 31June 30 1998 1997 1998 1997 ----- ----- ----- -----
Pretax operating income $101998 1997
In Millions

Common Stock
At beginning and end of period $ 8 $47 $46
Income taxes and other 3 2 14 14841 $ 841 $ 841 $ 841 $ 841 $ 841
------ ------ ------ ------ ------ ------
Other Paid-in Capital
At beginning of period 452 504 452 504 504 504
Preferred stock reacquired - - - - (2) -
Return of stockholder's
contribution - - - - (50) -
------ ------ ------ ------ ------ ------
At end of period 452 504 452 504 452 504
------ ------ ------ ------ ------ ------

Revaluation Capital
At beginning of period 65 36 58 37 41 31
Change in unrealized investment -
gain (loss) (a) (6) 5 1 4 18 10
------ ------ ------ ------ ------ ------
At end of period 59 41 59 41 59 41
------ ------ ------ ------ ------ ------

Retained Earnings
At beginning of period 385 384 363 297 368 305
Net income $ 7 $ 6 $33 $32

Power Purchases from the MCV Partnership: After September 2007, pursuant
to the terms(a) 69 63 181 159 342 294
Common stock dividends declared (49) (70) (129) (70) (277) (195)
Preferred stock dividends declared (5) (7) (10(10) (14) (21) (28)
Preferred securities distributions (4) (2) (9) (4) (16) (8)
------ ------ ------ ------ ------ ------
At end of the PPA and related undertakings, Consumers will only be
required to pay the MCV Partnership the capacity charge and energy charge
amounts authorized for recovery from electric customers by the MPSC.
Currently, Consumers' annual obligation to purchase capacity from the MCV
Partnership is 1,240 MW through the terminationperiod 396 368 396 368 396 368

------ ------ ------ ------ ------ ------
Total Common Stockholder's Equity $1,748 $1,754 $1,748 $1,754 $1,748 $1,754
====== ====== ====== ====== ====== ======
(a) Disclosure of the PPA in 2025. The
PPA provides that Consumers is to pay the MCV Partnership a minimum
levelized average capacity charge of 3.77 cents per kWh, a fixed energy
charge, and a variable energy charge based primarily on Consumers' average
cost of coal consumed. The MPSC has, since January 1, 1993, permitted
Consumers to recover capacity charges averaging 3.62 cents per kWh for 915
MW, plus a substantial portion of the fixed and variable energy charges.
Beginning January 1, 1996, the MPSC has also permitted Consumers to
recover capacity charges for the remaining 325 MW of MCV Facility
contract capacity. The order approving such recovery indicated that the
recoverable capacity charge for the 325 MW would gradually increase from
an initial average charge of 2.86 cents per kWh to an average charge of
3.62 cents per kWh over the 1996-2004 time period. Because the MPSC
allowed Consumers to suspend the PSCR process as part of the electric
industry restructuring order (see Note 3)Comprehensive
Income:
Revaluation capital
Unrealized investment -
gain (loss), Consumers expects to recover a
portion of the future increases in approved capacity charges through an
adjustment to the frozen PSCR charge.

In Millions
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Estimated cash
underrecoveries, net of tax $28 $22 $21 $20 $19
==== ==== ==== ==== ====

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

In February 1998, the MCV Partnership filed a claim of appeal from the
January 1998$(3), $3, $-, $2, $10
and February 1998 MPSC orders in the electric utility
industry restructuring. On the same day, the MCV Partnership filed suit
in the U.S. District Court seeking a declaration that the MPSC's failure
to provide Consumers and the MCV Partnership a certain source of recovery
of capacity payments after 2007 deprived the MCV Partnership of its rights
under the Public Utilities Regulatory Policies Act of 1978. The MCV
Partnership is seeking to prohibit the MPSC from implementing portions of
the order.

3: Rate Matters

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

Subsequent to the June 1997 order, the MPSC issued orders in October 1997
and in January and February 1998. Ultimately, the MPSC allowed Consumers:
1) to recover Transition Costs of $1.755 billion through a charge to all
direct-access customers until the end of the transition period in 2007,
subject to an adjustment through a true-up mechanism; 2) to commence the
phase-in of direct access in March 1998; 3) to suspend the power supply
cost recovery clause; and 4) the MPSC order allows all customers to be
free to choose power suppliers on January 1, 2002. See Note 2 for further
information regarding the effect of the PSCR suspension on the recovery of
MCV Facility capacity charges. The orders also confirm the MPSC's belief
that Securitization may be a beneficial mechanism for recovery of
Transition Costs while recognizing that Securitization requires state
legislation to occur. Consumers believes that the Transition Cost
surcharge will apply to all customers beginning in 2002. The recovery of
prudent costs of implementing a direct-access program, estimated at an
additional $200 million, would be reviewed for prudence in the annual
true-up proceeding and stranded cost adjusted appropriately. Nuclear
decommissioning costs will also continue to be collected through a
separate surcharge to all customers. Consumers expects Michigan
legislative consideration of the entire subject of electric industry
restructuring in 1998. To be acceptable to Consumers, the legislation
would have to provide for full recovery of Transition Costs. Consumers
expects the legislature to review all of the policy choices made by the
MPSC during the restructuring proceedings to assure that they are in
accord with those that the legislature believes should be paramount.

Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas transportation pilot
program. Consumers' expanded experimental program will extend over a
three-year period, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Participating customers
will be selected on a first-come, first-served basis, up to a limit of
100,000 customers on April 1, 1998. As of May 8, 1998 approximately 7,500
customers chose alternative gas suppliers, representing approximately 10
bcf of gas load. Of these alternative gas suppliers, one was a CMS Energy
affiliate. Up to 100,000 more customers will be added on April 1 of each
of the next two years. Customers choosing to remain as sales customers of
Consumers will not see a rate change in their natural gas rates. The
order allowing the implementation of this program: 1) suspends Consumers'
gas cost recovery clause, effective April 1, 1998 for a three-year period,
establishing a gas commodity cost at a fixed rate of $2.84 per mcf; 2)
establishes an earnings sharing mechanism that will provide for refunds to
customers if Consumers' earnings during the three year term of the program
exceed certain pre-determined levels; and 3) establishes a gas
transportation code of conduct that addresses concerns about the
relationship between Consumers and marketers, including its affiliated
marketers. This experimental program will allow competing gas suppliers,
including marketers and brokers, to market natural gas to a large number
of retail customers in direct competition with Consumers. In January 1998,
the Attorney General, ABATE and other parties filed claims of appeal
regarding the program with the Court of Appeals. To minimize the risk of
exposure to higher gas costs, Consumers currently has contracts in place
at known prices covering 75 percent of its 1998 requirements, 35 percent
of its 1999 requirements and 25 percent of its 2000 requirements.
Additional forward coverage is currently under review.

Resolution of the issues discussed in this Note is not expected to
materially affect Consumers' financial position, liquidity or results of
operations.

4: Short-Term Financings and Capitalization

Authorization: At April 15, 1998, Consumers had remaining FERC
authorization to: 1) issue or guarantee up to $900 million of short-term
securities, outstanding at any one time, through 1998; 2) guarantee,
through 1999, up to $25 million in loans made by others, to residents of
Michigan for making energy-related home improvements; and 3) issue long-
term securities with maturities up to 30 years, through November 1998, up
to $401 million and $300 million for refinancing purposes and for general
corporate purposes, respectively. In May 1998, Consumers used $475
million of FERC authorization by issuing the following long-term debt: 1)
$250 million in senior notes; and 2) $225 million for a long-term bank
loan.

Short-Term Financings: Consumers has an unsecured $425 million credit
facility and unsecured lines of credit aggregating $120 million. These
facilities are available to finance seasonal working capital requirements
and to pay for capital expenditures between long-term financings. At
March 31, 1998, a total of $245 million was outstanding at a weighted
average interest rate of 6.2 percent, compared with $88 million
outstanding at March 31, 1997, at a weighted average interest rate of 6.8
percent. In January 1998, Consumers entered into interest rate swaps
totaling $300 million. These swap arrangements have had an immaterial
effect on interest expense.

Derivatives: Consumers entered into interest rate swap agreements
(derivatives) to exchange variable rate interest payment obligations for
fixed rate obligations. These swaps attempt to reduce the impact of
interest rate fluctuations. To qualify for hedge accounting, derivatives
must meet the following criteria initially: 1) the item to be hedged
exposes the enterprise to interest rate risk; and 2) the derivative
reduces that exposure and is designated as a hedge. The hedged amounts
are used to measure interest to be paid or received and do not represent
the exposure to principal loss. Consumers accrues the difference between
the amounts paid and received under the swaps and records it as an
adjustment to interest expense over the life of the hedged agreement.

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

Capital Stock: In 1996, 4 million shares of 8.36 percent Trust Preferred
Securities were issued and sold through Consumers Power Company Financing
I, a wholly owned business trust consolidated with Consumers. Net
proceeds from the sale totaled $97 million. In 1997, 4.8 million shares
of 8.2 percent Trust Preferred Securities were issued and sold through
Consumers Energy Company Financing II, a wholly owned business trust
consolidated with Consumers. Net proceeds from the sale totaled $116
million. Consumers formed both trusts for the sole purpose of issuing the
tax deductible Trust Preferred Securities. Consumers' obligations with
respect to the Trust Preferred Securities under the notes, under the
indenture through which Consumers issued the notes, under Consumers'
guarantee of the Trust Preferred Securities, and under the declaration by
the trusts, taken together, constitute a full and unconditional guarantee
by Consumers of the trusts' obligations under the Trust Preferred
Securities. For additional information, see footnote (a) on the
Consolidated Balance Sheets.

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

In Millions
Month Interest Principal
Issued Maturity Rate (%) Amount Use of Proceeds
-------- -------- -------- -------- ---------------
Senior Notes (a) February 2008 6.375 $250 Pay down First
Mortgage Bonds
Senior Notes (a) March 2018 6.875 225 Pay down First
Mortgage Bonds
Senior Notes (a) May 2008 6.2 250 Pay down First
Mortgage Bonds and
Long-Term Bank Debt
Long-Term
Bank Debt May 2001-2003 6.05 (b) 225 Pay down Long-Term
Bank Debt and
general corporate
purposes
-----
Total $950
=====

(a) The Senior Notes are secured by Consumers First Mortgage Bonds issued
contemporaneously in a similar amount.
(b) The interest rate is variable; weighted average interest rate upon
original issuance was 6.05 percent.
The following table describes the retirements of long-term financings
which have occurred during 1998 through early May 1998.

In Millions
Month Interest Principal
Retired Maturity Rate (%) Amount
-------- --------- -------- -----------
First Mortgage Bonds February 1998 8.75 $248
Long-Term Bank Debt February 1998-1999 6.4 (a) 50
First Mortgage Bonds March 2001-2002 7.5 119
First Mortgage Bonds April 2023 7.375 36
-----
Total $453
=====

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

Consumers had an unsecured, variable rate long-term bank loan with an
outstanding balance at March 31, 1998 and 1997 of $350 million and $400
million, respectively. At March 31, 1998 and 1997 the loan carried a
weighted average interest rate of 6.3 percent and 6.0 percent,
respectively. In May 1998, Consumers refinanced this term loan with a new
$225 million unsecured long-term loan, and issued $250 million of senior
notes due 2008, at an interest rate of 6.2 percent to cover the remaining
$125 million refinancing. The balance of the new senior notes, $125
million, is to be used to retire first mortgage bonds and for general
corporate purposes.

Under the provisions of its Articles of Incorporation at March 31, 1998,
Consumers had $302 million of unrestricted retained earnings available to
pay common dividends. In January 1998, Consumers declared an $80 million
common dividend paid in February 1998.

5: Commitments and Contingencies

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

Consumers currently operates within all Clean Air Act requirements and
meets current emission limits. The Act requires the EPA to review,
periodically, the effectiveness of the national air quality standards in
preventing adverse health affects. The EPA recently revised these
standards. The revisions may further limit small particulate and ozone
related emissions. Consumers supports the bipartisan effort in the U.S.
Congress to delay implementation of the revised standards until the
relationship between the new standards and health improvements is
established scientifically.

In October 1997, pursuant to recommendations from the Ozone Transport
Assessment Group and the requests of several Northeastern states, the EPA
proposed that the State of Michigan impose additional nitrogen oxide
limits on fossil-fueled emitters, such as Consumers' generating units.
The limits are an effort to reduce statewide nitrogen oxide emissions by
32 percent, as early as 2002. The State of Michigan will have one year to
review and challenge the proposed recommendations, and one year after that
to implement final requirements. It is unlikely that the State of
Michigan will establish Consumers' nitrogen oxide emissions reduction
target until mid-to-late 1999. Until this target is established, the
estimated cost of compliance is subject to significant revision.

The preliminary estimate of capital costs to reduce nitrogen oxide related
emissions for Consumers' fossil-fueled generating units is approximately
$210 million, plus an additional amount totaling $10 million per year for
operation and maintenance costs. Consumers may need an equivalent amount
to comply with the new small particulate standards. The State of Michigan
has objected to the extent of the proposed EPA emission reductions. If
the State of Michigan's position were to be adopted by the EPA, costs
could be less than the current estimated amounts.

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

Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Superfund liability is
joint and several; along with Consumers, many other creditworthy,
potentially responsible parties with substantial assets cooperate with
respect to the individual sites. Based upon past negotiations, Consumers
estimates that its share of the total liability for the known Superfund
sites will be between $3 million and $9 million. At March 31, 1998,
Consumers has accrued $3 million for its estimated Superfund liability.

Gas Environmental Matters: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. In 1998 Consumers plans to study indoor air issues at
residences on some sites and ground water impacts or surface soil impacts
at other sites. On sites where the company has received site-wide study
plan approvals, it will continue to implement these plans. It will also
work toward closure of environmental issues at sites as studies are
completed. Data available to Consumers and its continued internal review
have resulted in an estimate for all costs related to investigation and
remedial action for all 23 sites of between $48 million and $98 million.
These estimates are based on undiscounted 1998 costs. As of March 31,
1998, Consumers has accrued a liability of $48 million and has established
a regulatory asset for approximately the same amount. Any significant
change in assumptions, such as remediation technique, nature and extent of
contamination, and legal and regulatory requirements, could affect the
estimate of remedial action costs for the sites. According to an MPSC
rate order issued in 1996, Consumers will defer and amortize, over a
period of ten years, environmental clean-up costs above the amount
currently being recovered in rates. Rate recognition of amortization
expense will not begin until after a prudence review in a general rate
case. The order authorizes current recovery of $1 million annually.
Consumers is continuing discussions with, or has initiated a lawsuit
against, certain insurance companies regarding coverage for some or all of
the costs that it may incur for these sites.

Capital Expenditures: Consumers estimates capital expenditures, including
new lease commitments, of $435 million for 1998, $380 million for 1999,
and $370 million for 2000. For further information, see the Capital
Expenditures Outlook section in the MD&A.

Other: Various parties have sued Consumers relating to the effect of
so-called stray voltage on certain livestock. Claimants contend that
stray voltage results when low-level electrical currents present in
grounded electrical systems are diverted from their intended path.
Consumers maintains a policy of investigating all customer calls regarding
stray voltage and working with customers to address their concerns. It
also has an ongoing mitigation program to modify the service of all
customers with livestock.

In December 1997, the Michigan Supreme Court remanded for further
proceedings a 1994 Michigan trial court decision that refused to allow the
claims of over 200 named plaintiffs to be joined in a single action. The
trial court dismissed all of the plaintiffs except the first-named
plaintiff, allowing the others to re-file separate actions. Of the
original plaintiffs, only 49 re-filed separate cases. All of those 49
cases have been resolved. The Michigan Supreme Court remanded the matter,
finding that the proper remedy for misjoinder was not dismissal, but to
automatically allow each case to go forward separately. Consumers filed a
motion for reconsideration with the Michigan Supreme Court, which was
denied. As a result, 21 individual plaintiffs have re-filed their claims
with the trial court. Consumers intends to vigorously defend these cases,
but is unable to predict the outcome. As of March 31, 1998, Consumers had
6 individual stray voltage lawsuits, unrelated to the cases above,
awaiting trial court action, down from 12 lawsuits as reported at year end
1997.

In October 1997, two independent power producers sued Consumers and
CMS Energy in a federal court. The suit alleges antitrust violations
relating to contracts which Consumers entered into with some of its
customers and claims relating to power facilities. The plaintiffs claim
damages of $100 million (which a court can treble in antitrust cases as
provided by law). The parties are awaiting the court's decision on
Consumers' and CMS Energy's motion for summary judgment and/or dismissal
of the complaint. Consumers believes the lawsuit is without merit and
will vigorously defend against it, but cannot predict the outcome of this
matter.

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

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

6: Nuclear Matters

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

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

As of March 31, 1998 Consumers loaded 13 dry storage casks with spent
nuclear fuel at Palisades. Consumers plans to load five additional casks
at Palisades in 1999 pending approval by the NRC. In June 1997, the NRC
approved Consumers' process for unloading spent fuel from a cask at
Palisades previously discovered to have minor weld flaws. Consumers
intends to transfer the spent fuel to a new transportable cask when one is
available.

A forty to fifty day planned outage at Palisades commenced on April 24,
1998 for refueling and maintenance. Consumers will replace a total of
sixty nuclear fuel assemblies in the plant's reactor during the outage.

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

7: Supplemental Cash Flow Information

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

In Millions
Three Months Ended Twelve Months Ended
March 31 1998 1997 1998 1997
----- ----- ----- -----
Cash transactions
Interest paid (net of
amounts capitalized)$5, respectively $ 53 $ 48 $170 $160
Income taxes paid
(net of refunds) 3 1 119 115

Non-cash transactions
Nuclear fuel placed
under capital lease(6) $ 5 $ 31 $ 64 $ 31
Other assets placed
under capital leases 2 2 7 4

ARTHUR ANDERSEN LLP

Report18 $ 10
Net income 69 63 181 159 342 294
------ ------ ------ ------ ------ ------

Total Comprehensive Income $ 63 $ 68 $ 182 $ 163 $ 360 $ 304
====== ====== ====== ====== ====== ======

The accompanying condensed notes are an integral part of Independent Public Accountants

To Consumers Energy Company:

We have reviewed the accompanying consolidated balance sheets of CONSUMERS
ENERGY COMPANY (a Michigan corporation and wholly owned subsidiary of
CMS Energy Corporation) and subsidiaries as of March 31, 1998 and 1997,
and the related consolidated statements of income, common stockholder's
equity and cash flows for the three-month and twelve-month periods then
ended. These financial statements are the responsibility of the Company's
management.

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

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

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statements of
long-term debt and preferred stock of Consumers Energy Company and
subsidiaries as of December 31, 1997, and the related consolidated
statements of income, common stockholder's equity and cash flows for the
year then ended (not presented herein), and, in our report dated January
26, 1998, we expressed an unqualified opinion on those statements. In our
opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.

Arthur Andersen LLP

Detroit, Michigan,
May 11, 1998.

Quantitative and Qualitative
Disclosures About Market Risk

CMS Energy

Quantitative and Qualitative Disclosures About Market Risk is contained in
PART I: CMS ENERGY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS which is
incorporated by reference herein.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Consumers Stray Voltage Litigation

Consumers has a number of lawsuits relating to so-called stray voltage,
which results when small electrical currents present in grounded electric
systems are diverted from their intended path. Pursuant to a December 1997
Michigan Supreme Court order that remanded for further proceedings the
March 1994 trial court decision, 165 plaintiffs were permitted to refile
individual lawsuits. Of the 165 potential plaintiffs, only 21 refiled
their claims prior to the court ordered deadline. Consumers presently
intends vigorously to defend against these lawsuits, but is unable to
predict the outcome. As of March 31, 1998, Consumers had 6 individual
stray voltage lawsuits, unrelated to the cases above, awaiting trial court
action, down from approximately 12 lawsuits at year end 1997.

CMS Energy and Consumers Antitrust Litigation

In October 1997, Indeck Energy Services, Inc., and an affiliate, Indeck
Saginaw Limited Partnership, independent power producers, filed a lawsuit
against CMS Energy and Consumers in the United States District Court for
the Eastern District of Michigan. The suit alleges antitrust violations
relating to contracts that Consumers entered into with some of its large
customers as well as allegations that Consumers used its monopoly power to
interfere with plaintiffs access to power facilities and business
opportunities. The plaintiffs claim damages of $100 million (which can be
trebled in antitrust cases as provided by law). The parties are presently
awaiting the court's written opinion on CMS Energy's and Consumers'
motions for summary judgment and or dismissal of the complaint. CMS Energy
and Consumers believe the lawsuit is entirely without merit and will
vigorously defend against it, but cannot predict the outcome of this
matter.

Consumers' Joint Lawsuit Against DOE:

Under the Nuclear Waste Policy Act of 1982, by January 31, 1998 the DOE
was required to begin accepting deliveries of spent nuclear fuel for
disposal, even if a permanent storage repository was not then operational.
Utilities, including Consumers, and their customers have been prepaying
the costs of DOE transport and disposal through fees based on electric
generation by their nuclear plants. In response to the DOE's declaration
in December 1996 that it would not begin to accept spent nuclear fuel
deliveries in 1998, Consumers, other utilities and states filed suit. The
parties sought, among other relief, an order requiring the DOE to develop
a program to begin acceptance of spent nuclear fuel by January 31, 1998.
In November 1997, the United States Court of Appeals decided that DOE
could not engage in a contract interpretation that violated the act and
that the contract between the DOE and the utilities provided a potentially
adequate remedy if the DOE failed to fulfill its obligations. In February
1998, utilities and state regulatory parties to the lawsuits filed various
motions designed to persuade the appellate court to grant further relief
against DOE. In May 1998, the court issued an order granting the motion
to consolidate the various lawsuits and denied all other motions. Further
litigation before the courts or administrative proceedings before the DOE
on this subject is likely as the utilities and their state regulatory
agencies strive to secure the benefits of the Nuclear Waste Policy Act.

Item 6. Exhibits and Reports on Form 8-K

(a) List of Exhibits

(4)(a) - Consumers: First Supplemental Indenture
dated as of May 1, 1998, between
Consumers and The Chase Manhattan
Bank, as Trustee
(4)(b) - Consumers: Seventy-second Supplemental
Indenture dated as of May 1,
1998, between Consumers and The
Chase Manhattan Bank, as Trustee
(12) - CMS Energy: Statements regarding computation
of Ratio of Earnings to Fixed
Charges
(15) - CMS Energy: Letter of Independent Public
Accountant
(18) - Consumers: Letter re change in accounting
principles
(27)(a) - CMS Energy: Financial Data Schedule
(27)(b) - Consumers: Financial Data Schedule
(99) - CMS Energy: Consumers Gas Group Financials

(b) Reports on Form 8-K

There have been no Current Reports on Form 8-K since the filing of
CMS Energy Corporation's and Consumers Energy Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
75

SIGNATURES

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

CMS ENERGY CORPORATION
(Registrant)

Dated: May 15,statements.

Consumers Energy Company
Condensed Notes to Consolidated Financial Statements

These Consolidated Financial Statements and their related Condensed
Notes should be read along with the Consolidated Financial
Statements and Notes contained in Consumers' 1997 Form 10-K that
includes the Report of Independent Public Accountants. In the
opinion of management, the unaudited information herein reflects
all adjustments necessary to assure the fair presentation of
financial position, results of operations and cash flows for the
periods presented.

1: Corporate Structure and Change of Significant Accounting
Policies

CORPORATE STRUCTURE

IMPLEMENTATION OF NEW ACCOUNTING STANDARD

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

CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES

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

2: Uncertainties

ELECTRIC CONTINGENCIES

In October 1997, following completion of the Ozone Transport
Assessment Group process and requests by several Northeastern
states, the EPA proposed that the State of Michigan impose
additional nitrogen oxide limits on fossil-fueled emitters, such as
Consumers' generating units. The limits would reduce nitrogen
oxide emissions, as early as 2002, to only 32 percent of levels
allowed for the year 2000 under current regulations. The EPA is
expected to issue final regulations in the fall of 1999. The State
of Michigan will have one year after final regulations are issued
to implement the requirements. It is unlikely that the State of
Michigan will establish Consumers' nitrogen oxide emissions
reduction target until mid-to-late 1999. Until this target is
established, the estimated cost of compliance is subject to
significant revision.

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

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

In December 1997, the Michigan Supreme Court remanded for further
proceedings a 1994 Michigan trial court decision that refused to
allow the claims of over 200 named plaintiffs to be joined in a
single action. The trial court dismissed all of the plaintiffs
except the first-named plaintiff, allowing the others to re-file
separate actions. Of the original plaintiffs, only 49 re-filed
separate cases. All of those 49 cases have been resolved. The
Michigan Supreme Court remanded the matter, finding that the proper
remedy for misjoinder was not dismissal, but to automatically allow
each case to go forward separately. Consumers filed a motion for
reconsideration with the Michigan Supreme Court, which was denied.
As a result, 21 individual plaintiffs have re-filed their claims
with the trial court. Consumers intends to vigorously defend these
cases, but is unable to predict the outcome. As of June 30, 1998,
Consumers had 5 individual stray voltage lawsuits awaiting trial
court action, unrelated to the cases above. At year end 1997,
Consumers had 12 such lawsuits awaiting trial court action.

ELECTRIC RATE MATTERS

Electric Proceedings: In 1996, the MPSC issued a final order that
authorized Consumers to recover costs associated with the purchase
of the additional 325 MW of MCV Facility capacity (see "Power
Purchases from the MCV Partnership" in this Note) and recover its
nuclear plant investment by increasing prospective annual nuclear
plant depreciation expense by $18 million, with a corresponding
decrease in fossil-fueled generating plant depreciation expense.
It also established an experimental direct-access program.
Customers having a maximum demand of at least 2 MW are eligible to
purchase generation services directly from any eligible third-party
power supplier and Consumers would transmit the power for a fee.
The program is limited to 650 MW of load, of which 100 MW is
available solely to direct-access customers for at least 18 months.
The Commission's order allowed existing special contracts to fill
410 MW of the load. Although the issue is still subject to MPSC
review, it is Consumers' position that the remaining 140 MW of the
650 MW load could be filled by either special contracts or direct-
access loads. The load was filled by new special contracts signed
subsequent to the order. According to the MPSC order, Consumers
held a lottery in April 1997 to select the customers to purchase
100 MW by direct-access. Direct-access for a portion of this 100
MW began in late 1997. Consumers expects the remaining amount of
direct-access to begin in 1998.

In January 1998, the Court of Appeals affirmed an MPSC conclusion
that the MPSC has statutory authority to authorize an experimental
electric retail wheeling program. By its terms, no retail wheeling
has yet occurred pursuant to that program. Consumers filed with
the Michigan Supreme Court seeking leave to appeal that ruling.

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

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

OTHER ELECTRIC UNCERTAINTIES

Summarized Statements of Income for CMS Midland and CMS Holdings-

In Millions
Three Months Ended Six Months Ended Twelve Months Ended
June 30 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----

Pretax operating
income $13 $10 $23 $18 $51 $46
Income taxes and
other 4 3 7 5 16 14
---- ---- ---- ---- ---- ----

Net income $ 9 $ 7 $16 $13 $35 $32
==== ==== ==== ==== ==== ====

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

Estimated cash
underrecoveries,
net of tax $34 $22 $21 $20 $19
==== ==== ==== ==== ====

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

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

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

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

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

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

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

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

Capital Expenditures: Consumers estimates electric capital
expenditures, including new lease commitments, of $320 million for
1998, $265 million for 1999, and $255 million for 2000. For
further information, see the Capital Expenditures Outlook section
in the MD&A.

GAS CONTINGENCIES

GAS RATE MATTERS

Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas
transportation pilot program. Consumers' expanded experimental
program will extend over a three-year period, eventually allowing
300,000 residential, commercial and industrial retail gas sales
customers to choose their gas supplier. The program is voluntary
for natural gas customers. Participating customers are being
selected on a first-come, first-served basis, up to a limit of
100,000 customers beginning April 1, 1998. As of July 23, 1998
approximately 21,800 customers chose alternative gas suppliers,
representing approximately 13 bcf of gas load. Of these
alternative gas suppliers, one was a CMS Energy affiliate. Up to
100,000 more customers may be added beginning April 1 of each of
the next two years. Customers choosing to remain as sales
customers of Consumers will not see a rate change in their natural
gas rates. The order allowing the implementation of this program:
1) suspends Consumers' gas cost recovery clause, effective April 1,
1998 for a three-year period, establishing a gas commodity cost at
a fixed rate of $2.84 per mcf; 2) establishes an earnings sharing
mechanism that will provide for refunds to customers if Consumers'
earnings during the three year term of the program exceed certain
pre-determined levels; and 3) establishes a gas transportation code
of conduct that addresses concerns about the relationship between
Consumers and marketers, including its affiliated marketers. This
experimental program will allow competing gas suppliers, including
marketers and brokers, to market natural gas to a large number of
retail customers in direct competition with Consumers. In January
1998, the Attorney General, ABATE and other parties filed claims of
appeal regarding the program with the Court of Appeals. At June
30, 1998, Consumers had an exposure to gas price increases if the
cost was to exceed $2.84 per mcf for the following volumes: 5
percent of its 1998 requirements; 40 percent of its 1999
requirements; and 65 percent of its 2000 requirements. Additional
forward coverage is currently under review. The forward contracts
currently in place were consummated at prices less than $2.84 per
mcf. The contracts are being used to hedge Consumers' gas
commodity cost increases in a three-year experimental gas program.
For further information regarding the effects of the restructuring
on accounting methods, see Gas Business Outlook - Application of
SFAS 71 in the MD&A.

OTHER GAS UNCERTAINTIES

Capital Expenditures: Consumers estimates gas capital
expenditures, including new lease commitments, of $115 million for
1998, $115 million for 1999, and $115 million for 2000. For
further information, see the Capital Expenditures Outlook section
in the MD&A.

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

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

3: Short-Term Financings and Capitalization

Authorization: At July 1, 1998, Consumers had remaining FERC
authorization to: 1) issue or guarantee up to $900 million of
short-term securities outstanding at any one time, through June
2000; 2) guarantee, through 1999, up to $25 million in loans made
by others to residents of Michigan for making energy-related home
improvements; and 3) issue long-term securities with maturities up
to 30 years, through June 2000, up to $950 million and $200 million
for refinancing purposes and for general corporate purposes,
respectively.

Short-Term Financings: Consumers has an unsecured $425 million
credit facility and unsecured lines of credit aggregating $120
million. These facilities are available to finance seasonal
working capital requirements and to pay for capital expenditures
between long-term financings. At June 30, 1998, a total of $255
million was outstanding at a weighted average interest rate of 6.0
percent, compared with $241 million outstanding at June 30, 1997,
at a weighted average interest rate of 6.2 percent. In January
1998, Consumers entered into interest rate swaps totaling $300
million. These swap arrangements have had an immaterial effect on
interest expense.

Consumers also has in place a $500 million trade receivables sale
program. At June 30, 1998 and 1997, receivables sold under the
program totaled $236 million and $266 million, respectively.
Accounts receivable and accrued revenue in the Consolidated Balance
Sheets have been reduced to reflect receivables sold.

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

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

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

Senior Notes (a) February 2008 6.375 $ 250 Pay down First
Mortgage Bonds
Senior Notes (a) March 2018 6.875 225 Pay down First
Mortgage Bonds
Senior Notes (a) May 2008 6.2 (b) 250 Pay down First
Mortgage Bonds
and Long-Term
Bank Debt
Senior Notes (a) June 2018 6.5 (c) 200 Pay down First
Mortgage Bonds
and general
corporate purposes
Long-Term
Bank Debt May 2001-2003 6.05 (d) 225 Pay down Long-Term
Bank Debt
and general
corporate purposes
------
Total $1,150
======

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

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

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

First Mortgage Bonds February 1998 8.75 $248
Long-Term Bank Debt February 1998 6.4 (a) 50
First Mortgage Bonds March 2001-2002 7.5 119
First Mortgage Bonds April 2023 7.375 36
First Mortgage Bonds May 1998 6.875 43
Long-Term Bank Debt May 1998-1999 6.3 (b) 350
First Mortgage Bonds July 1999 8.875 136
----
Total $982
====

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To Consumers Energy Company:

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

We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet
and consolidated statements of long-term debt and preferred
stock of Consumers Energy Company and subsidiaries as of
December 31, 1997, and the related consolidated statements
of income, common stockholder's equity and cash flows for
the year then ended (not presented herein), and, in our
report dated January 26, 1998, we expressed an unqualified
opinion on those statements. In our opinion, the
information set forth in the accompanying consolidated
balance sheet as of December 31, 1997, is fairly stated, in
all material respects, in relation to the consolidated
balance sheet from which it has been derived.

Arthur Andersen
LLP

Detroit, Michigan,
August 11, 1998.

QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

CMS Energy

Quantitative and Qualitative Disclosures About Market Risk is contained
in PART 1: CMS ENERGY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS
which is incorporated by reference herein.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of certain legal proceedings see Note 2, subsections
"Stray Voltage" and "Anti-Trust", of the Condensed Notes to the
Consolidated Financial Statements in Part I of this Report, incorporated
by reference herein. The discussion is limited to an update of
developments that have occurred in various judicial and administrative
proceedings, many of which are more fully described in CMS Energy's and
Consumers' Form 10-K for the year ended December 31, 1997, and in their
Form 10-Q for the quarter ended March 31, 1998. The Condensed Notes also
include additional information regarding various pending administrative
and judicial proceedings involving rate, operating and environmental
matters.

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

At the CMS Energy Annual Meeting of Shareholders held on May 22, 1998, the
shareholders ratified the appointment of Arthur Andersen LLP as
independent auditors of CMS Energy for the year ended December 31, 1998.
The vote was 91,399,366 shares in favor and 345,414 against, with 449,175
abstaining. The CMS Energy shareholders voted against a shareholder's
proposal to adopt a five point program addressing Consumers' operating as
a "Utility of Choice" and under "Utility of Choice" guidelines. The vote
was 2,549,545 shares in favor and 76,358,536 against, with 3,770,814
abstaining. The CMS Energy shareholders also elected all ten nominees
for the office of director. The votes for individual nominees were as
follows:

CMS ENERGY CORPORATION

Number of Votes: For Withheld Total

William T. McCormick, Jr. 91,441,628 752,327 92,193,955
John M. Deutch 91,480,907 713,048 92,193,955
James J. Duderstadt 91,464,959 728,996 92,193,955
Kathleen R. Flaherty 91,473,241 720,714 92,193,955
Victor J. Fryling 91,486,712 707,243 92,193,955
Earl D. Holton 91,501,516 692,439 92,193,955
William U. Parfet 91,453,119 740,836 92,193,955
Percy A. Pierre 91,474,471 719,484 92,193,955
Kenneth Whipple 91,497,651 696,304 92,193,955
John B. Yasinsky 91,504,196 689,759 92,193,955

Consumers did not solicit proxies for the matters submitted to votes at
the contemporaneous May 22, 1998 Consumers' Annual Meeting of
Shareholders. All 84,108,789 shares of Consumers Common Stock were voted
in favor of re-electing the above-named individuals as directors of
Consumers and in favor of ratifying the appointment of Arthur Andersen LLP
as independent auditors of Consumers for the year ended December 31, 1998.
None of the 441,599 shares of Consumers Preferred Stock were voted at the
Annual Meeting.
74

ITEM 5. OTHER INFORMATION

A shareholder who intends to submit a proposal for a vote at CMS Energy's
1999 Annual Meeting of Shareholders but which will not be included in
CMS Energy's 1999 proxy statement must send the proposal to reach
CMS Energy on or before March 6, 1999. The proposals should be addressed
to: Mr. Thomas A. McNish, Corporate Secretary, Fairlane Plaza South, Suite
1100, 330 Town Center Drive, Dearborn, Michigan 48126. Failure to timely
submit the proposal will allow management to use discretionary voting
authority when the proposal is raised at the Annual Meeting.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) LIST OF EXHIBITS

(12) - CMS Energy: Statements regarding computation of Ratio of
Earnings to Fixed Charges
(15)(a) - CMS Energy: Letter of Independent Public Accountant
(15)(b) - Consumers: Letter of Independent Public Accountant
(27)(a) - CMS Energy: Financial Data Schedule
(27)(b) - Consumers: Financial Data Schedule
(99) - CMS Energy: Consumers Gas Group Financials

(b) REPORTS ON FORM 8-K

Current Reports on Form 8-K dated June 23, 1998 and July 30, 1998 were
filed by CMS Energy covering matters pursuant to "Item 5. Other Events."

75
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: August 14, 1998 By

Alan M. Wright
Senior Vice President and
Chief Financial Officer

CONSUMERS ENERGY COMPANY

(Registrant)

Dated: August 14, 1998 By A. M. Wright____________________

Alan M. Wright
Senior Vice President,
Chief Financial Officer
and Treasurer

CONSUMERS ENERGY COMPANY
(Registrant)

Dated: May 15, 1998 By A. M. Wright ____________________

Alan M. Wright
Senior Vice President and
Chief Financial Officer