UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2010~~2011


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

For the transition period from to


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

1-9513	CMS ENERGY CORPORATION	38-2726431
	(A Michigan Corporation)
	One Energy Plaza, Jackson, Michigan 49201
	(517) 788-0550


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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

CMS Energy Corporation: Yesþ NooConsumers Energy Company: Yesþ Noo

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

CMS Energy Corporation: Yesþ NooConsumers Energy Company: Yesþ Noo

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

CMS Energy Corporation:


Large accelerated filerþ	Accelerated filero	~~Accelerated~~Non-Accelerated filero	~~Non-Accelerated filer~~Smaller reporting companyo
		(Do not check if a smaller reporting company)	~~Smaller reporting company~~o

Consumers Energy Company:


Large accelerated filero	Accelerated filero	~~Accelerated~~Non-Accelerated fileroþ	Smaller reporting company~~Non-Accelerated filer~~þo
		(Do not check if a smaller reporting company)	~~Smaller reporting company~~o

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

CMS Energy Corporation: Yeso NoþConsumers Energy Company: Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at July ~~16, 2010:~~

~~CMS Energy Corporation:~~14, 2011:


CMS Energy Corporation:

CMS Energy Common Stock, $0.01 par value			~~230,179,070~~

(including 1,568,145 shares owned by Consumers Energy Company)253,356,241

Consumers Energy Company:


Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation			84,108,789

GLOSSARY

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


2008 Energy ~~Legislation~~Law		Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524

~~2009~~2010 Form 10-K		Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010

~~ALJ~~ABATE		~~Administrative Law Judge~~Association of Businesses Advocating Tariff Equity

~~AOC~~		~~Administrative Order on Consent~~

~~AOCL~~		~~Accumulated Other Comprehensive Loss~~

~~ASU~~		~~FASB Accounting Standards Update~~

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

bcf		Billion cubic feet of gas

~~Beeland~~		~~Beeland Group LLC, a wholly owned subsidiary of CMS Land~~

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

CAIR		The Clean Air Interstate Rule

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

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

CCB		Coal combustion by-product

CEO		Chief Executive Officer

CFO		Chief Financial Officer

~~Chrysler~~		~~Chrysler LLC, a non-affiliated company~~

CKD		Cement kiln dust

Clean Air Act		Federal Clean Air Act, as amended

Clean Water Act		Federal Water Pollution Control Act, as amended

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

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

~~CMS Energy Common Stock or common stock~~		~~Common stock of CMS Energy, par value $0.01 per share~~

~~CMS Energy Trust I~~		~~A VIE and a wholly owned business trust formed for the sole purpose of issuing preferred securities and lending the proceeds to CMS Energy~~

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

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


Exchange Act		Securities Exchange Act of 1934, as amended

~~FASB~~		~~Financial Accounting Standards Board~~

FDIC		Federal Deposit Insurance Corporation

FERC		The Federal Energy Regulatory Commission

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

FMB		First mortgage bond

FOV		Finding of Violation

FTR		Financial transmission right

GAAP		U.S. Generally Accepted Accounting Principles

GCR		Gas cost recovery

~~Genesee~~		~~Genesee Power Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest~~

GM		~~General Motors Corporation, a non-affiliated company~~

~~Grayling~~		~~Grayling Generating Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest~~

GWh		Gigawatt-hour (a unit of energy equal to one million ~~kilowatt-hours)~~kWh)

~~HYDRA-CO~~Health Care Acts		~~HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises~~Comprehensive health care reform enacted in March 2010, comprising the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act

~~IPP~~		~~Independent power producer or independent power production~~

IRS		Internal Revenue Service

ISFSI		Independent spent fuel storage installation

~~ITC~~		~~Income tax credit~~

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

~~LIBOR~~		~~The London Interbank Offered Rate~~


MDL		A pending multi-district litigation case in Nevada

~~MDNRE~~		Michigan Department of Natural Resources and Environment, which, effective January 17, 2010, is the successor to the Michigan Department of Environmental Quality and the Michigan Department of Natural Resources

MGP		Manufactured gas plant

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

MISO		The Midwest Independent Transmission System Operator, Inc.

MPSC		Michigan Public Service Commission

MW		Megawatt (a unit of power equal to one million watts)

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

~~NAV~~		~~Net asset value~~

~~NOMECO~~		~~CMS NOMECO Oil & Gas Co., a former wholly owned subsidiary of CMS Enterprises~~

NOV		Notice of Violation

NPDES		National Pollutant Discharge Elimination System

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

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

NYMEX		~~The~~ New York Mercantile Exchange

OPEB		Postretirement benefit plans other than pensions

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

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

PCB		Polychlorinated biphenyl

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

~~PFD~~		~~Proposal for decision~~

PPA		Power purchase agreement

PSCR		Power supply cost recovery

PSD		Prevention of Significant Deterioration


SERP		Supplemental Executive Retirement Plan

~~SFAS~~Smart Grid		~~Statement~~Consumers’ grid modernization project, which includes the installation of ~~Financial Accounting Standards~~smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing information technology system to manage the data and enable changes to key business processes

Superfund		Comprehensive Environmental Response, Compensation and Liability Act

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

~~T.E.S. Filer City~~		~~T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest~~

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

~~Trunkline~~		~~Trunkline Gas Company, LLC, a former wholly owned subsidiary of CMS Panhandle Holding, LLC~~

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

~~TSU~~		~~Texas Southern University, a non-affiliated entity~~

~~Union~~		~~Utility Workers Union of America, AFL-CIO~~

U.S.		United States

~~VIE~~XBRL		~~Variable interest entity~~eXtensible Business Reporting Language

FILING FORMAT

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

This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A included in the ~~2009~~2010 Form 10-K.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-Q and other written and oral statements that CMS Energy and Consumers make may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include CMS Energy’s and Consumers’ inability to predict or control the following, all of which are potentially significant:

	•		the price of CMS Energy ~~Common Stock,~~common stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry;

	•		the impact of the ~~troubled~~ economy, particularly in Michigan, and ~~the risk of~~potential future volatility in the financial and credit markets on CMS ~~Energy, Consumers,~~Energy’s, Consumers’, or any of their ~~affiliates, including their:~~affiliates’:

	•■		revenues;

	•■		capital expenditure programs and related earnings growth;

	•■		ability to collect accounts receivable from customers;

	•■		cost of capital and availability of capital; and

	•■		Pension Plan and postretirement benefit plans assets and required contributions;

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

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

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

	•		~~population decline in the geographic areas where CMS Energy~~national, regional, and ~~Consumers conduct business;~~local economic, competitive, and regulatory policies, conditions, and developments;

	•		changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s and Consumers’ businesses or financial results, including the impact of any future regulations or ~~laws~~lawsuits regarding:

	•■		carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system;

	•■		criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air ~~pollutants;~~pollutants, including impacts of CSAPR and MACT;

	•■		CCBs;

	•■		PCBs;

	•■		cooling water intake or discharge from power plants or other industrial equipment;

	•■		limitations on the use or construction of coal-fueled electric power plants;

	•■		nuclear-related regulation;

	■		renewable portfolio standards and energy efficiency mandates;

	■		energy-related derivatives and hedges under the Dodd-Frank Act; and

	•■		any other potential legislative changes, including changes to the ten-percent ROA limit;

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

	•		potentially adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including ~~but not limited to~~ those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;

	•		potentially adverse or delayed regulatory treatment or permitting decisions concerning significant matters affecting CMS Energy or Consumers that are or could come before the MDEQ and/or EPA, including Bay Harbor;

	•		potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are ~~presently~~ or ~~potentially~~could come before the MPSC, including:

~~sufficient and timely recovery of:~~

■

sufficient and timely recovery of:

	•▪		environmental and safety-related expenditures for coal-fueled plants and other utility properties;

	•▪		power supply and natural gas supply costs;

	•▪		operating and maintenance expenses;

	•▪		additional utility rate-based investments;

	•▪		costs associated with the proposed retirement and decommissioning of facilities;

	•		~~development costs of the proposed coal-fueled plant;~~

	•▪		MISO energy and transmission costs; ~~and~~

	•▪		costs associated with energy efficiency investments and state or federally mandated renewable resource standards; and

	▪		Smart Grid program costs;

	•■		actions of regulators with respect to expenditures subject to tracking mechanisms;

	•■		actions of regulators to prevent or curtail shutoffs for non-paying customers;

	•■		actions of regulators with respect to ~~the implementation of the “pilot”~~Consumers’ pilot electric and gas decoupling mechanism and an uncollectible expense tracking mechanism described in the November 2009 MPSC electric rate case order and the “pilot” decoupling mechanism described in the May 2010 MPSC gas rate case order;mechanisms;

	•■		regulatory orders preventing or curtailing rights to self-implement rate requests;

	•■		regulatory orders potentially requiring a refund of previously self-implemented rates; ~~and~~

	•■		implementation of new energy legislation or revisions of existing regulations; and

	■		regulatory treatment of the DOE settlement;

	•		potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times;

	•		loss of customer ~~load~~demand for electric generation supply to alternative energy suppliers;

	•		~~potentially adverse regulatory treatment concerning significant matters affecting CMS Energy or Consumers that are presently before the MDNRE, including Bay Harbor;~~

	•		the ability of Consumers to recover its regulatory assets in full and in a timely manner;

	•		the effectiveness of ~~the~~Consumers’ electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues;

	•		the ~~ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE;~~

	•		~~the~~ impact of ~~expanded~~ enforcement powers and investigation activities at FERC;

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

	•		effects of weather conditions, such as unseasonably warm weather during the winter, on sales;

	•		the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates;

	•		the credit ratings of CMS Energy or Consumers;

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

	•		potential effects of ~~financial reform legislation~~the Dodd-Frank Act and related regulations on CMS Energy and Consumers, including regulation of ~~energy derivatives and~~ financial institutions such as ~~EnerBank;~~EnerBank, whistleblower rules, and shareholder activity that is permitted or may be permitted under the Act;

	•		disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers, and the ability of Consumers to recover the costs of any such insurance from customers;

	•		changes in energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energy’s and Consumers’ cash flows and working capital;

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

	•		changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program;

	•		costs and availability of personnel, equipment, and materials for operating and maintaining existing facilities;

	•		factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission and distribution or gas pipeline system constraints;

	•		potential disruption or interruption of facilities or operations due to accidents, war, cyber-attacks, or terrorism, and the ability to obtain or maintain insurance coverage for these events;

	•		the impact of an accident, explosion, or other physical disaster involving Consumers’ gas pipelines, gas storage fields, overhead or underground electrical lines, or other utility infrastructure;

	•		CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of scheduled or unscheduled generation or gas compression outages;

	•		technological developments in energy production, delivery, usage, and storage;

	•		achievement of capital expenditure and operating expense goals, including the ~~2010~~2011 capital expenditures forecast;

	•		the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections;

	•		potential effects of ~~new federal health care legislation~~the Health Care Acts on ~~current~~existing or future health care costs;

	•		~~the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures;~~

	•		~~CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages;~~

	•		adverse outcomes regarding tax positions;

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

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

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

	•		changes in financial or regulatory accounting principles or ~~policies, including possible changes to rules involving fair value accounting;~~policies;

	•		new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements;

CMS Energy Corporation
Consumers Energy Company

MANAGEMENT’S DISCUSSION AND ANALYSIS

This MD&A is a combined report of CMS Energy and Consumers. ~~It has been prepared in accordance with the instructions to Form 10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction with MD&A contained in the 2009 Form 10-K.~~

EXECUTIVE OVERVIEW

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

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

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

	•		regulation and regulatory matters;

	•		economic conditions;

	•		weather;

	•		energy commodity prices;

	•		interest rates; and

	•		CMS Energy’s and Consumers’ ~~securities~~securities’ credit ratings.

During the past several years, CMS Energy’s “Growing Forward” business strategy has emphasized ~~improving its consolidated balance sheet~~the key elements depicted below:

Safe, excellent operations

The safety and ~~maintaining focus on its core strength, which is Consumers’ utility~~security of employees, customers, and the general public remain a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and ~~service.~~culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. From 2007 to 2010, Consumers achieved a 63 percent reduction in the annual number of recordable safety incidents.

Customer Value

Consumers is undertaking a number of initiatives that reflect its intensified customer focus. Consumers’ ~~forecast calls for~~planned investments in reliability are aimed at improving safety, reducing customer outage frequency, reducing repetitive outages, and increasing customer satisfaction. Consumers’ productivity improvements are expected to help keep annual base rate increases (excluding PSCR and GCR charges) at or below the average rate of inflation. Consumers considers these and other aspects of its customer value initiative to be important to its success.

Utility Investment

Consumers expects to make capital investments of ~~about $7~~$6.5 billion ~~from 2010 through 2014,~~over the next five years, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy ~~efficiency;~~efficiency, demand ~~management;~~management, expanded use of renewable ~~energy;~~energy, development of new power ~~plants;~~plants, pursuit of additional PPAs to complement existing generating ~~sources;~~sources, potential retirement or mothballing of older generating ~~units;~~units, and continued operation of ~~others.~~other existing units.

~~In May 2010, Consumers announced plans to defer the development~~Renewable energy projects are a major component of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession in Michigan, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers has not set a timetable for a future decision about the project.

Consumers’ planned capital ~~investments continue to include renewable energy projects.~~investments. Consumers expects to spend ~~$650~~$600 million on renewable energy investments from 2011 through ~~2014.~~2015. The 2008 Energy ~~Legislation~~Law requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and it includes requirements for specific capacity additions. Consumers has historically included renewable resources as part of its portfolio, with about five percent of its present power supply coming from such renewable sources as hydroelectric, landfill gas, biomass, and wind. In ~~compliance with this legislation, Consumers filed a~~May 2011, the MPSC issued an order approving Consumers’ amended renewable energy plan, with slight modifications. The amended plan reduces the ~~MPSC in February 2009 outlining its plans to build or contract for additional~~ renewable energy ~~capacity. At~~surcharge billed to customers in the ~~same time, Consumers filed~~future by an annual amount of $54 million. The reduction is a result of lower-than-anticipated costs to comply with the renewable energy ~~optimization plan, also called for~~requirements prescribed by the 2008 Energy ~~Legislation, under which~~Law.

In February 2011, Consumers and Detroit Edison together announced an $800 million maintenance and upgrade project at their jointly owned Ludington pumped-storage plant. The project, scheduled to begin in 2013 and extend through 2019, is expected to increase the capacity of Ludington by 16 percent, from its present level of 1,872 MW to about 2,172 MW, and increase the plant’s efficiency by five percent. Consumers expects its share of the project cost to total $400 million.

Consumers’ Smart Grid program, with a total project capital cost of $750 million, also represents a major capital investment. The deployment, planned for mid-2012, will ~~promote energy efficiency~~include advanced metering infrastructure. Consumers has spent $97 million through 2010 on its Smart Grid program, and ~~provide incentives~~expects to ~~reduce customer usage. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.~~

Consumers also intends to make a significant capital investment in its smart grid program, which will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers plans to followspend an additional $267 million, following a phased ~~implementation~~ approach, from 2011 through 2015.

Two additional major investment areas for Consumers are environmental spending and reliability improvements. Consumers expects its environmental investments to ~~conduct an operational pilot of the smart grid technology~~total $1.4 billion and its investments in ~~2011.~~system reliability to total $1.2 billion through 2015.

Regulation

Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC. In February 2010, the MPSC issued an order requiring that Consumers refund to customers $86 million collected during a rate freeze from 2001 to 2003; the MPSC determined that these funds should have been placed in a decommissioning trust fund. Consumers has filed an appeal of this order. In May 2010, the MPSC issued a gas rate order authorizing Consumers to increase its gas rates by $66 million based on an authorized return on equity of 10.55 percent. The order also adopts a revenue decoupling mechanism. Further, in July 2010, Consumers self-implemented an electric rate increase in the annual amount of $150 million, subject to refund with interest. In its July 2010 order allowing Consumers to self-implement this increase, the MPSC expressed concern about utilities repeatedly self-implementing rate increases over short time periods,Recent important regulatory events and ~~before the return of previous overcollections of self-implemented rate increases.~~

The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from alternative electric suppliers. The 2008 Energy Legislation limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase the percentage from ten percent to 25 percent. At June 30, 2010, electric deliveries under the ROA program were at the ten percent limit.

Another area of importance for CMS Energy and Consumers is environmental regulation. There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with fossil-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in December 2009, the EPA issued an endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA also issued an Advance Notice of Proposed Rulemaking in April 2010, indicating that it is considering a variety of regulatory actions with respect to PCBs. In June 2010, the EPA proposed a range of alternatives for regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. In July 2010, the EPA released a proposed rule that would replace CAIR. CMS Energy and Consumersdevelopments are ~~monitoring these developments for potential effects on their plans and operations.~~

~~CMS Energy will continue to focus its strategy on:~~summarized below.

	•		~~investing~~2010 Gas Rate Case:In August 2010, Consumers filed an application with the MPSC seeking an annual gas rate increase of $55 million, based on an 11 percent authorized return on equity. In January 2011, Consumers filed support for a self-implemented annual gas rate increase of $48 million. In February, Consumers reduced the proposed self-implemented increase to $29 million. The MPSC then issued an order delaying Consumers’ self-implementation. The MPSC approved a partial settlement agreement in ~~Consumers’ utility system;~~May, authorizing a $31 million annual gas rate increase, based on a 10.5 percent authorized return on equity. Matters not yet addressed in this case include the decoupling mechanism, the Smart Grid program, and contributions to the low-income and energy efficiency fund.

	•		~~growing earnings~~Electric Revenue Decoupling Mechanism:Consumers’ 2009 electric rate case order authorized an electric revenue decoupling mechanism, subject to certain conditions. This decoupling mechanism, which was extended in the 2010 electric rate case order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and ~~operating cash flow while controlling operating and fuel costs; and~~conservation. In March 2011, Consumers filed its first reconciliation of the electric decoupling mechanism, requesting recovery of $27 million from customers for the period December 2009 through November 2010.

	•		~~maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.~~2011 Electric Rate Case:In June 2011, Consumers filed a new general electric rate case seeking a $195 million revenue increase, based on a 10.7 percent authorized return on equity.

~~In executing this strategy,~~Environmental regulation is another area of importance for CMS Energy and Consumers, ~~will need~~and they are monitoring numerous legislative and regulatory initiatives to ~~overcome a Michigan economy that has been impacted adversely by the uncertainty in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler,~~regulate greenhouse gases, as well as related litigation. The EPA has taken steps to regulate greenhouse gases under the Clean Air Act and is expected to issue final new source performance standards in May 2012 addressing greenhouse gas emissions from fossil-fueled electric generating units. The EPA is also expected to propose guidelines for states to regulate greenhouse gas emissions from existing sources.

During 2010, the EPA issued various proposals for regulating PCBs, CCBs, sulfur dioxide, and nitrogen oxides. Additionally, in March 2011, the EPA proposed a hazardous air pollutant rule that would establish MACT emission standards for mercury and other hazardous air pollutants. Under the proposed rule, some coal-fueled electric generating units would require additional controls for hazardous air pollutants. Also in March 2011, the EPA issued a proposed rule to regulate existing electric generating plant cooling water intake systems. In July 2011, the EPA finalized the CSAPR, which requires Michigan and 26 other states to improve air quality by ~~high unemployment rates. The financial market crisis, the effects of~~reducing power plant emissions that allegedly contribute to ground-level ozone and fine particle pollution in other downwind states. This rule, which ~~became evident in a global economic downturn~~replaces CAIR, mandates emission reductions beginning in 2008, continues to result in a negative economic outlook in the near term. A range of possible outcomes exists due to the uncertain progress of economic recovery in Consumers’ service territory. Pressure on regulators to limit rate increases can be expected to mount if Michigan’s economy remains sluggish. Consumers expects that the electric and gas “pilot” decoupling mechanisms and the uncollectible expense tracking mechanism for electric customers adopted in recent MPSC rate orders will mitigate partially the impacts of these economic conditions on the electric and gas utilities. While2012. CMS Energy and Consumers ~~believe~~are monitoring the MACT emission standards developments for potential effects on their operations and assessing the impact and cost of complying with the CSAPR.

Financial Performance in 2011 and Beyond

For the three months ended June 30, 2011, CMS Energy’s net income available to common stockholders was $100 million, and diluted earnings per share were $0.38. This compares with net income available to common stockholders of $80 million and diluted earnings per share of $0.32 for the three months ended June 30, 2010. For the six months ended June 30, 2011, CMS Energy’s net income available to common stockholders was $235 million, and diluted earnings per share were $0.90. This compares with net income available to common stockholders of $165 million and diluted earnings per share of $0.67 for the six months ended June 30, 2010. Among the factors contributing to CMS Energy’s improved

performance for both the three months and the six months ended June 30, 2011 were benefits from electric and gas rate orders and increased gas deliveries, offset partially by decreased electric delivery revenues and higher depreciation, property taxes, and distribution and service restoration costs. A tax benefit resulting from the enactment of the MCIT in May 2011 was offset by the absence, in 2011, of an insurance settlement recovery recorded in 2010.

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

CMS Energy believes that economic conditions in Michigan have improved. Although Michigan’s economy continues to be affected by the recession and its impact on the state’s automotive industry, by high unemployment rates, and by a modestly shrinking population, there are indications that the recession has eased in Michigan. Consumers expects its electric sales to increase by about 1.7 percent annually through 2016, driven largely by the continued rise in industrial production. Consumers is projecting that its gas sales will decline by about one percent annually through 2016, due largely to energy efficiency and conservation.

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

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

1415

In Millions (except for per share amounts)
Six months ended June 30 2010 2009 Change

Net Income Available to Common Stockholders $ 165 $ 145 $ 20

Basic Earnings Per Share $ 0.72 $ 0.64 $ 0.08
Diluted Earnings Per Share $ 0.67 $ 0.62 $ 0.05

In Millions
Six months ended June 30 2010 2009 Change

Electric Utility $ 127 $ 106 $ 21
Gas Utility 67 64 3
Enterprises 42 (12 ) 54
Corporate Interest and Other (54 ) (37 ) (17 )
Discontinued Operations (17 ) 24 (41 )

Net Income Available to Common Stockholders $ 165 $ 145 $ 20

~~For the~~and six months ended June 30, 2010, net income available to common stockholders was $165 million, compared with $145 million for 2009. Specific after-tax changes to net income available to common stockholders for the six months ended June 30, 20102011 versus ~~2009 are:~~2010:

2010 over/(under) 2009
(In Millions)

• increase in electric and gas revenues at Consumers due to rate orders, including the impacts of the decoupling mechanisms $ 55
• insurance settlement related to a previously sold investment 30
• absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009 22
• other net increase at Consumers due to lower service restoration costs, outage costs, and other operating expenses 21
• other net increases, primarily higher mark-to-market gains and increased power demand at the enterprises segment 8
• increase in electric revenues due to weather 7
• absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation (31 )
• decrease in electric and gas revenue due to unfavorable sales mix and economic conditions (23 )
• decrease in gas revenue due to weather (22 )
• absence of a gain on the retirement of debt recorded in 2009 (18 )
• other net decreases, primarily from tax adjustments and impairments related to discontinued operations (15 )
• decrease at Consumers due to costs associated with the voluntary separation plan (7 )
• other net decreases at Consumers, primarily higher depreciation expense and sales and use tax (7 )

Total change $ 20


In Millions
	2011 better/(worse) than 2010
	Three Months Ended								Six Months Ended
	June 30								June 30

Electric and gas rate orders			$	29							$	52
Gas sales
Weather	$	7							$	23
Deliveries and decoupling benefit		4		11						12		35


Electric sales and decoupling				(13	)							(4	)
Distribution and service restoration costs				(13	)							(21	)
Other, mainly depreciation and property tax				(11	)	$	3					(19	)	$	43


Subsidiary earnings of enterprises segment							(1	)							(7	)
Other, mainly lower corporate interest expense							1								7

2010 insurance settlement recovery				(31	)							(31	)
MCIT enactment				32								32
Voluntary separation plan cost in 2010				—								7
Other, mainly tax adjustments related to previously sold businesses				16			17					19			27

Total change						$	20							$	70

Power supply costs and related revenue:For the ~~three months ended June 30, 2010, PSCR revenue decreased $1 million compared with 2009, due to a decrease in wholesale fuel recovery revenue.~~

~~For the~~ six months ended June 30, ~~2010,~~2011, PSCR revenue ~~decreased $11~~increased $10 million compared with ~~2009, reflecting an order received from~~2010. This increase was due to the ~~MPSC that disallowed recovery~~absence, in 2011, of a disallowance in 2010 of certain power supply costs in Consumers’ 2007 PSCR reconciliation case.

Other income, net of expenses:For the three months ended June 30, ~~2010,~~2011, other income decreased $5 million compared with ~~2009,~~2010, and for the six months ended June 30, ~~2010,~~2011, other income decreased $8$7 million compared with ~~2009.~~2010. These decreases were due primarily to a reduction in interest income recorded onas a result of the declining balance of certain regulatory ~~assets and the absence in 2010 of a gain recognized on a sale of land in 2009.~~assets.

Maintenance and other operating expenses:For the three months ended June 30, ~~2010,~~2011, maintenance and other operating expenses ~~increased $28~~decreased $15 million compared with ~~2009. The increase~~2010. This variance was due primarily to the absence, in 2011, of $26 million of ~~higher~~ retirement ~~benefits~~benefit expenses ~~which~~that were recovered in revenue in 2010, ~~and an $8 million increase associated with the energy optimization program. Also contributing to the increase was $6 million in uncollectible accounts expense. These increases were~~ offset partially by a $5$9 million ~~reduction in expenses for forestry and tree-trimming services and a $7 million decrease~~increase in service restoration ~~expenses, health care costs, and other net operating expenses.~~costs.

For the six months ended June 30, ~~2010,~~2011, maintenance and other operating expenses ~~increased $34~~decreased $1 million compared with ~~2009.~~2010. The ~~increase was due to~~absence, in 2011, of $26 million of ~~higher~~ retirement ~~benefits~~benefit expenses ~~which~~that were recovered in revenue in 2010 ~~a $14 million increase associated with the energy optimization program,~~ and ~~an $8 million increase in uncollectible accounts expense. Also contributing to the increase was~~ $6 million of voluntary separation plan expenses incurred in ~~2010. These increases were~~2010 was offset ~~partially~~largely by $22 million of higher service restoration costs, caused by a $7series of unusually severe

storms, and $9 million ~~reduction in expenses for~~of higher forestry and tree-trimming ~~services~~costs, plant maintenance, and ~~a $13 million decrease in service restoration expenses, health care costs, and~~ other ~~net~~ operating expenses.

Depreciation and amortization:For the three months ended June 30, ~~2010,~~2011, depreciation and amortization expense ~~increased $11~~decreased $10 million compared with ~~2009,~~2010, and for the six months ended June 30, ~~2010,~~2011, depreciation and amortization expense ~~increased $12~~decreased $24 million compared with ~~2009,~~2010. These decreases were due to lower amortization expense on certain regulatory assets, offset partially by higher depreciation expense from increased plant in ~~service and higher amortization expense on certain regulatory assets.~~

~~General taxes:~~For the three months ended June 30, 2010, general taxes decreased $2 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” This decrease was offset partially by increased property taxes, reflecting higher capital spending.service.

Interest charges:For the three months ended June 30, ~~2010,~~2011, interest charges ~~increased $4~~decreased $8 million compared with ~~2009. The increase~~2010, and for the six months ended June 30, 2011, interest charges decreased $9 million compared with 2010. These decreases resulted primarily from the absence, in 2011, of interest ~~related to the State of Michigan’s~~expense on a Michigan use tax ~~assessment, discussed~~assessment.

Income taxes:For the three months ended June 30, 2011, income taxes decreased $2 million compared with 2010, reflecting lower electric utility earnings. For the six months ended June 30, 2011, income taxes increased $11 million compared with 2010, reflecting higher electric utility earnings.

Consumers’ Gas Utility Results of Operations


In Millions
June 30	2011		2010		Change

Net Income Available to Common Stockholders
Three months ended	$	5	$	1	$	4
Six months ended		93		67		26


In Millions
	Three Months Ended			Six Months Ended
Reasons for the change:	June 30, 2011 vs. 2010			June 30, 2011 vs. 2010

Gas deliveries and rate increases	$	19		$	52
Other income, net of expense		(2	)		(4	)
Maintenance and other operating expenses		(7	)		5
Depreciation and amortization		(2	)		(5	)
General taxes		(4	)		(6	)
Interest charges		3			3
Income taxes		(3	)		(19	)

Total change	$	4		$	26

Gas deliveries and rate increases:For the three months ended June 30, 2011, gas delivery revenues increased $19 million compared with 2010. This increase reflected higher customer usage, of which $11 million was due to colder weather in ~~Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies,” offset partially by lower debt levels~~2011. Gas deliveries, including miscellaneous transportation to end-use customers, were 45.6 bcf in 2011, an increase of 8.8 bcf, or 23.9 percent, compared with 2010.

For the six months ended June 30, ~~2010, interest charges~~2011, gas delivery revenues increased $6$52 million compared with ~~2009. The~~2010. This increase ~~resulted from interest related to the State~~reflected higher customer usage, of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” Also contributing to the increase was additional interest incurred as a result of an order received from the MPSC that disallowed recovery of certain power supply costs in Consumers’ 2007 PSCR reconciliation case. These increases were offset partially by lower debt levels in 2010.

~~Income taxes:~~~~For each of the three and six months ended June 30, 2010, income taxes increased $9~~which $37 million ~~compared with 2009, due to higher electric utility earnings in 2010.~~

~~Consumers’ Gas Utility Results of Operations~~

In Millions
June 30 2010 2009 Change

Net Income Available to Common Stockholders:
Three months ended $ 1 $ 5 $ (4 )
Six months ended $ 67 $ 64 $ 3

Three Months Ended Six Months Ended
Reasons for the change: June 30, 2010 vs. 2009 June 30, 2010 vs. 2009

Gas deliveries and rate increase $ (2 ) $ 19
Other income, net of expenses 2 4
Maintenance and other operating expenses (3 ) (9 )
Depreciation and amortization — (1 )
General taxes 3 2
Interest charges (5 ) (7 )
Income taxes 1 (5 )

Total change $ (4 ) $ 3

~~Gas deliveries and rate increase:~~~~For the three months ended June 30, 2010, gas delivery revenues decreased $2 million compared with 2009. The decrease~~ was due to lower deliveries of $9 million, which included the impact of milder weather. This decrease was offset partially by $1 million of additional revenue from the May 2010 rate order and a $6 million increasecolder weather in ~~surcharge revenues related to the energy optimization program.~~2011. Gas deliveries, including miscellaneous transportation to end-use customers, were ~~36.8~~179.5 bcf ~~a decrease~~in 2011, an increase of ~~4.0~~23.6 bcf, or ~~9.8~~15.1 percent, compared with ~~2009.~~

For the six months ended June 30, 2010, gas delivery revenues increased $19 million compared with 2009. The increase resulted from $28 million of additional revenue from the May 2010 rate order and $8 million from a favorable sales mix. Additionally, surcharge revenues were $16 million higher in 2010, due to a $13 million increase related to the energy optimization program and $3 million from the collection of regulatory assets related to retirement benefits. These increases were offset partially by lower deliveries of $33 million due to milder weather. Gas deliveries, including miscellaneous transportation to end-use customers, were 155.9 bcf, a decrease of 15.6 bcf or 9.1 percent compared with 2009.

~~Other income, net of expenses:~~For the three months ended June 30, 2010, other income increased $2 million compared with 2009, and for the six months ended June 30, 2010, other income increased $4 million compared with 2009. These increases were due to increased interest income related to secured borrowing agreements.2010.

Maintenance and other operating expenses:For the three months ended June 30, ~~2010,~~2011, maintenance and other operating expenses increased $3$7 million compared with 2009. The increase was due to additional expenses of $6 million related to the energy optimization program and a $3 million increase in uncollectible accounts expense. These increases were offset partially by a $6 million reduction in health care costs and other net operating expenses.

~~For the six months ended June 30,~~ 2010, maintenance and other operating expenses increased $9 million compared with 2009. The increase was due to additional expenses of $13 million related to the energy optimization program, $4 million of voluntary separation plan expenses, and higher expenses of $3 million associated with retirement benefits, which were recovered in revenue in 2010. These increases were offset partially by lower uncollectible accounts expense of $3 million and an $8 million reduction in health care costs and other net operating expenses.

~~Depreciation and amortization:~~~~For the six months ended June 30, 2010, depreciation and amortization expense increased $1 million compared with 2009,~~ due primarily to ~~an increase in plant in service.~~

~~General taxes:~~For the three months ended June 30, 2010, general taxes decreased $3 million compared with 2009, resulting from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencieshigher transmission and ~~Commitments, “Consumers’ Other Contingencies.”~~distribution operating expenses.

For the six months ended June 30, ~~2010, general taxes~~2011, maintenance and other operating expenses decreased $2 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” This decrease was offset partially by increased property taxes, reflecting higher capital spending.

~~Interest charges:~~~~For the three months ended June 30, 2010, interest charges increased~~ $5 million compared with ~~2009, and for the six months ended June 30,~~ 2010, ~~interest charges increased $7 million compared with 2009,~~ due primarily to ~~interest related to~~ the ~~State~~absence, in 2011, of ~~Michigan’s use tax assessment, discussed~~voluntary separation plan expenses incurred in ~~Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.”~~2010.

CASH POSITION, INVESTING, AND FINANCING

At June 30, 2011, CMS Energy had $994 million of consolidated cash and cash equivalents and $29 million of restricted cash and cash equivalents. At June 30, 2011, Consumers had $766 million of consolidated cash and cash equivalents and $28 million of restricted cash and cash equivalents.

Operating Activities

Presented in the following table are specific components of net cash provided by operating activities for the six months ended June 30, 2011 and 2010:


In Millions
Six Months Ended June 30	2011			2010			Change

CMS Energy, including Consumers
Net income	$	236		$	172		$	64
Non-cash transactions¹		480			539			(59	)

	$	716		$	711		$	5
Sale of gas purchased in the prior year		514			474			40
Purchase of gas in the current year		(293	)		(274	)		(19	)
Accounts receivable sales, net		—			(50	)		50
Change in other core working capital²		232			299			(67	)
Postretirement benefits contributions		(39	)		(153	)		114
Other changes in assets and liabilities, net		86			41			45

Net cash provided by operating activities	$	1,216		$	1,048		$	168

Consumers
Net income	$	245		$	195		$	50
Non-cash transactions¹		473			398			75

	$	718		$	593		$	125
Sale of gas purchased in the prior year		514			474			40
Purchase of gas in the current year		(293	)		(274	)		(19	)
Accounts receivable sales, net		—			(50	)		50
Change in other core working capital²		230			300			(70	)
Postretirement benefits contributions		(37	)		(143	)		106
Other changes in assets and liabilities, net		113			83			30

Net cash provided by operating activities	$	1,245		$	983		$	262


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

²		Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable.

For the six months ended June 30, 2011, net cash provided by operating activities at CMS Energy increased $168 million compared with ~~2009.~~2010. The ~~decrease~~increase was due primarily to the absence of Pension Plan contributions in 2011 and increased collections of accounts receivable.

For the six months ended June 30, 2011, net cash provided by operating activities at Consumers increased $262 million compared with 2010. The increase was due primarily to higher net income, the absence of Pension Plan contributions in 2011, and increased collections of accounts receivable.

Investing Activities

Presented in the following table are specific components of net cash used in investing activities for the six months ended June 30, 2011 and 2010:


In Millions
Six Months Ended June 30	2011			2010			Change

CMS Energy, including Consumers
Capital expenditures	$	(399	)	$	(424	)	$	25
Cash effect of deconsolidation of partnerships		—			(10	)		10
Costs to retire property and other		(72	)		(56	)		(16	)

Net cash used in investing activities	$	(471	)	$	(490	)	$	19

Consumers
Capital expenditures	$	(394	)	$	(423	)	$	29
Costs to retire property and other		(51	)		(21	)		(30	)

Net cash used in investing activities	$	(445	)	$	(444	)	$	(1	)

For the six months ended June 30, 2011, net cash used in investing activities decreased $19 million at CMS Energy compared with 2010. This variance was due primarily to a ~~$28 million gain recognized~~decrease in ~~2009 on~~capital expenditures and the ~~expiration~~absence, in 2011, of ~~an indemnity provided in connection with a 2007 asset sale,~~ the ~~recognition~~cash effect of deconsolidating certain partnerships in 2010, offset partially by other investing activities, including CMS Energy’s contribution of ~~$10~~$27 million to its SERP fund.

For the six months ended June 30, 2011, net cash used in ~~additional tax expense resulting~~investing activities increased $1 million at Consumers compared with 2010. A decrease in capital expenditures was offset largely by other investing activities, including Consumers’ contribution of $20 million to its SERP fund.

Financing Activities

Presented in the following table are specific components of net cash used in financing activities for the six months ended June 30, 2011 and 2010:


In Millions
Six Months Ended June 30	2011			2010			Change

CMS Energy, including Consumers
Issuance of FMBs, convertible senior notes, senior notes, and other debt	$	396		$	366		$	30
Retirement of long-term debt		(292	)		(352	)		60
Common stock issued		22			5			17
Payment of common stock dividends		(106	)		(69	)		(37	)
Other financing activities		(20	)		(61	)		41

Net cash used in financing activities	$	—		$	(111	)	$	111

Consumers
Retirement of debt and other debt maturity payments	$	(18	)	$	(327	)	$	309
Payments of common stock dividends		(196	)		(168	)		(28	)
Stockholder’s contribution from CMS Energy		125			250			(125	)
Other financing activities		(16	)		(13	)		(3	)

Net cash used in financing activities	$	(105	)	$	(258	)	$	153

For the six months ended June 30, 2011, net cash used in financing activities at CMS Energy decreased $111 million compared to 2010. The change was due primarily to an increase in net proceeds from ~~an IRS audit adjustment related~~borrowings and common stock issued by CMS Energy in 2011.

For the six months ended June 30, 2011, net cash used in financing activities at Consumers decreased $153 million compared with 2010. The change was due primarily to a ~~2003 asset sale, and~~decrease in debt retirements, offset partially by a ~~$3 million increase~~decrease in ~~a liability for a 2007 asset sale indemnity.~~stockholder’s contribution from CMS Energy.

CAPITAL RESOURCES AND LIQUIDITY

CMS Energy uses dividends from its subsidiaries and external financing and capital transactions to invest in its utility and non-utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends may be restricted by certain terms included in its articles of incorporation, by provisions under the Federal Power Act and the Natural Gas Act, and by FERC requirements. For additional details on Consumers’ dividend restrictions, see Note 5, Financings, “Dividend Restrictions.” For the six months ended June 30, 2011, Consumers paid $196 million in common stock dividends to CMS Energy.

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

CMS Energy’s and Consumers’ access to the financial and capital markets depends on their credit ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets and, barring major market dislocations or disruptions, they expect to continue to have such access. If access to these markets were to become diminished or otherwise restricted, however, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. CMS Energy and Consumers also had the following secured revolving credit facilities available at June 30, 2011:


In Millions
	Amount of		Amount		Letters of Credit		Amount		Expiration
	Facility		Borrowed		Outstanding		Available		Date

CMS Energy
Revolving credit facility¹	$	550	$	—	$	3	$	547	March 2016

Consumers
Revolving credit facility^2,3	$	500	$	—	$	189	$	311	March 2016
Revolving credit facility³		150		—		—		150	August 2013


¹		On March 31, 2011, CMS Energy entered into a $550 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces CMS Energy’s revolving credit facility that was set to expire in 2012. Obligations under this facility are secured by Consumers common stock.

²		On March 31, 2011, Consumers entered into a $500 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces Consumers’ revolving credit facility that was set to expire in 2012.

³		Obligations under this facility are secured by FMBs of Consumers.

CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ revolving accounts receivable sales program, which allows it to transfer up to $250 million of accounts receivable as a secured borrowing. At June 30, 2011, $250 million of accounts receivable were eligible for transfer under this program.

CMS Energy’s $550 million revolving credit agreement specifies a maximum debt-to-EBITDA ratio, as defined therein. Consumers’ $500 million revolving credit agreement specifies a maximum debt-to-capital ratio, as defined therein. CMS Energy and Consumers were each in compliance with these limits as of June 30, 2011, as presented in the following table:

Ratio at

Revolving Credit Agreement

Description

Maximum Limit

June 30, 2011

CMS Energy

$550 million revolving credit agreement

Debt to EBITDA

6.0 to 1.0

4.80 to 1.0

Consumers

$500 million revolving credit agreement

Debt to Capital

0.65 to 1.0

0.50 to 1.0

Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing ~~opportunities, if needed. Recent major financing transactions~~ and ~~commitments are as follows:~~

	•		~~In January 2010, CMS Energy issued $300 million of 6.25 percent senior notes due 2020;~~

	•		In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040; and

	•		~~In June 2010, CMS Energy’s $239 million of 4.50 percent preferred stock and $139 million of 3.375 percent senior notes became convertible at the holders’ option for the third quarter of 2010.~~

~~Despite present market volatility, CMS Energy and Consumers expect to continue to have access to the financial and capital markets. Recent and upcoming credit renewals and maturities are as follows:~~

	•		~~In February 2010, Consumers renewed its accounts receivable sales program through February 2011;~~

	•		~~Consumers’ tax-exempt pollution control revenue bond maturities were $58 million in June 2010;~~

	•		~~Consumers’ $150 million revolving credit facility is planned for renewal in August 2010;~~

	•		~~Consumers’ $30 million Letter of Credit Reimbursement Agreement is planned for renewal in November 2010;~~

	•		~~Consumers’ FMBs maturities were $250 million in May 2010 and are $300 million in 2012;~~

	•		~~Consumers’ $500 million revolving credit facility is planned for renewal prior to its expiration in 2012;~~

	•		~~CMS Energy’s senior notes maturities are $67 million in August 2010, $214 million in 2011, and $150 million in 2012; and~~

	•		~~CMS Energy’s $550 million revolving credit facility is planned for renewal prior to its expiration in 2012.~~

refinancing opportunities. CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will be sufficient to ~~meet cash requirements. If access to the capital markets were to become diminished or otherwise restricted, CMS Energy~~fund their contractual obligations for 2011 and ~~Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 5, Financings.~~

~~Cash Position, Investing, and Financing~~

At June 30, 2010, CMS Energy had $558 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents. At June 30, 2010, Consumers had $342 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents.

CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $168 million in common stock dividends to CMS Energy for the six months ended June 30, 2010. For details on dividend restrictions, see Note 5, Financings.

~~Operating Activities:~~~~Specific components of net cash provided by operating activities for the six months ended June 30, 2010 and 2009 were:~~

In Millions
Six months ended June 30 2010 2009 Change

CMS Energy, including Consumers

•     Net income
$ 172 $ 154 $ 18
•     Non-cash transactions (a)
539 436 103

$ 711 $ 590 $ 121
•     Sale of gas purchased in the prior year
474 576 (102 )
•     Purchase of gas in the current year
(274 ) (293 ) 19
•     Accounts receivable sales, net
(50 ) (170 ) 120
•     Change in other core working capital (b)
299 243 56
•     Other changes in assets and liabilities, net
(112 ) (146 ) 34

Net cash provided by operating activities $ 1,048 $ 800 $ 248

Consumers

•     Net income
$ 195 $ 171 $ 24
•     Non-cash transactions (a)
398 447 (49 )

$ 593 $ 618 $ (25 )
•     Sale of gas purchased in the prior year
474 576 (102 )
•     Purchase of gas in the current year
(274 ) (293 ) 19
•     Accounts receivable sales, net
(50 ) (170 ) 120
•     Change in other core working capital (b)
300 247 53
•     Other changes in assets and liabilities, net
(60 ) (125 ) 65

Net cash provided by operating activities $ 983 $ 853 $ 130


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

~~(b)~~		~~Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable.~~

For the six months ended June 30, 2010, net cash provided by operating activities at CMS Energy increased $248 million compared with 2009. The increase was due to higher net income, net of non-cash transactions, at the enterprises segment and to changes affecting Consumers’ cash provided by operating activities described in the following paragraph.

For the six months ended June 30, 2010, net cash provided by operating activities at Consumers increased $130 million compared with 2009. The increase was due primarily to higher accounts receivable collections from customers in 2010.

~~Investing Activities:~~~~Specific components of cash used in investing activities for the six months ended June 30, 2010 and 2009 were:~~

In Millions
Six months ended June 30 2010 2009 Change

CMS Energy, including Consumers

•          Capital expenditures
$ (424 ) $ (409 ) $ (15 )
•          Cash effect of deconsolidation of partnerships
(10 ) — (10 )
•          Costs to retire property and other
(56 ) (24 ) (32 )

Net cash used in investing activities $ (490 ) $ (433 ) $ (57 )

Consumers

•          Capital expenditures
$ (423 ) $ (404 ) $ (19 )
•          Costs to retire property and other
(21 ) (16 ) (5 )

Net cash used in investing activities $ (444 ) $ (420 ) $ (24 )

For the six months ended June 30, 2010, net cash used in investing activities at CMS Energy increased $57 million compared with 2009. For the six months ended June 30, 2010, net cash used in investing activities at Consumers increased $24 million compared with 2009. Both increases reflect higher capital expenditures at Consumers.beyond.

~~Financing Activities:~~~~Specific components of net cash (used in) provided by financing activities for the six months ended June 30, 2010 and 2009 were:~~

In Millions
Six months ended June 30 2010 2009 Change

CMS Energy, including Consumers

•          Issuance of FMBs, convertible senior notes, senior notes, and other debt
$ 421 $ 1,062 $ (641 )
•          Retirement of debt and other debt maturity payments
(407 ) (528 ) 121
•          Payments of common and preferred stock dividends
(74 ) (63 ) (11 )
•          Other financing activities
(51 ) (26 ) (25 )

Net cash (used in) provided by financing activities $ (111 ) $ 445 $ (556 )

Consumers

•          Issuance of FMBs
$ — $ 500 $ (500 )
•          Retirement of debt and other debt maturity payments
(327 ) (218 ) (109 )
•          Stockholder’s contribution
250 100 150
•          Payments of common and preferred stock dividends
(169 ) (131 ) (38 )
•          Other financing activities
(12 ) (16 ) 4

Net cash (used in) provided by financing activities $ (258 ) $ 235 $ (493 )

For the six months ended June 30, 2010, net cash used in financing activities at CMS Energy totaled $111 million, and for the six months ended June 30, 2009, net cash provided by financing activities totaled $445 million. The $556 million change was due primarily to a decrease in net proceeds from borrowing.

For the six months ended June 30, 2010, net cash used in financing activities at Consumers totaled $258 million, and for the six months ended June 30, 2009, net cash provided by financing activities totaled $235 million. The $493 million change was due primarily to debt maturities and a decrease in net proceeds from borrowings, offset partially by a stockholder’s contribution from CMS Energy.

~~For additional details on long-term debt activity, see Note 5, Financings.~~

~~Retirement Benefits~~

~~The following table provides the most recent estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and cash contributions for the next three years.~~

In Millions
Pension Cost OPEB Cost Pension Contribution OPEB Contribution

CMS Energy, including Consumers

2010 $ 107 $ 61 $ 100 $ 71
2011 114 51 89 61
2012 110 48 142 51

Consumers

2010 $ 104 $ 63 $ 97 $ 70
2011 111 53 86 60
2012 107 50 137 50

In March 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers. Actual future pension cost and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan participants.

In April 2010, Consumers reached an agreement with the Union on a new five-year contract for Union members. The agreement changed postretirement health benefits under the OPEB plan for qualifying retired employees. As a result, CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010.

~~For additional details on retirement benefits, see Note 9, Retirement Benefits.~~

~~Obligations And Commitments~~

~~Revolving Credit Facilities:~~~~For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 5, Financings.~~

~~Dividend Restrictions:~~~~For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 5, Financings.~~

Off-Balance-Sheet Arrangements

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

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OUTLOOK

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

Consumers’ Electric Utility Business Outlook and Uncertainties

Balanced Energy Initiative:Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet ~~its projected~~the short-term and long-term ~~electric power requirements~~energy needs of its customers through:

	•		energy efficiency;

	•		demand management;

	•		expanded use of renewable energy;

	•		development of new power ~~plants and~~ plants;

	•		pursuit of additional PPAs to complement existing generating sources;

	•		continued operation of existing units; and

	•		potential retirement or mothballing of older generating units.

In ~~May~~ 2010, Consumers announced plans to defer the development of its proposed ~~830 MW~~830-MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers ~~will monitor~~has been monitoring customer demand, fuel and power prices, and other market conditions, ~~but~~and has not set a timetable for a future decision about the project. Although the likelihood that the plant will be constructed has diminished significantly, in July 2011 the MDEQ granted Consumers an extension of the project’s air permit. Consumers’ alternatives to constructing the proposed coal-fueled plant include constructing new gas-fueled generation, relying ~~upon~~on additional market purchases, ~~as well as~~and continued operation of several existing generating ~~units; however, Consumers continues to believe that new clean coal generating capacity will be in the long-term best interests of its customers as part of a balanced energy portfolio.~~units.

Renewable Energy Plan:Consumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy ~~Legislation.~~Law. This ~~legislation~~law requires Consumers to obtain RECs in an amount equal to at least ten percent of its electric sales volume (estimated to be ~~3.6~~3.5 million RECs annually) by 2015. RECs represent proof that the associated electricity was generated from a renewable energy resource. The ~~legislation~~law also requires Consumers to obtain 500 MW of capacity from renewable energy resources by 2015, either through generation resources owned by Consumers or through agreements to purchase capacity from other parties.

Under its renewable energy plan, Consumers expects to secure its ~~required RECs~~renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years. ~~Presently, Consumers generates and purchases 1.6 million RECs per year, which represent 40~~At June 30, 2011, the combination of these sources represented 84 percent of ~~its long-term~~Consumers’ 2015 REC ~~needs.~~requirement.

To meet its renewable capacity requirements, Consumers expects to add more than 500 MW of owned or contracted renewable capacity by 2015. Through June 2011, Consumers has contracted for the purchase of 296 MW of nameplate capacity from renewable energy suppliers, which represents 59 percent of the 2015 renewable capacity requirement.

Consumers has secured more than ~~75,000~~81,000 acres of land easements in Michigan’s Huron, Mason, ~~Huron,~~ and Tuscola Counties for the potential development of wind generation, and is ~~presently~~now collecting wind speed and other meteorological data at those sites. Consumers has entered into construction and supply contracts as well as a contract to purchase wind turbine generators for the construction of a ~~100 MW~~100-MW wind ~~farm~~park in Mason County, the Lake Winds Energy Park, which Consumers expects to be operational in late 2012. In July 2011, the Mason County Planning Commission voted in favor of granting a special

In June 2010, Consumers executed agreements with four renewable energy suppliers for the purchase of 243 MW of capacity, which will generate an estimated 20 percent of Consumers’ long-term REC needs. In its July 2010 order, the MPSC approved these agreements, granting Consumers’ request to recover the full costs of these contracts from its customers. Various parties have made claims concerning certain aspects of Consumers’ decision to enter into these renewable energy contracts. Consumers plans to defend its actions.

Electric Customer Deliveries and Revenue:Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from economic and financial instability in the automotive and real estate sectors.

Consumers believes economic conditions have improved, and expects weather-adjusted electric deliveries to increase in ~~2010~~2011 by two percent compared with 2009. Consumers’ outlook for 2010 includes continuing growth in deliveries to its largest customer, which produces energy-related components. Consumers has a long-term contract with this customer to provide electricity at a discounted rate for economic development purposes. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 2010 to be at a similar level to 2009. Consumers’ outlook reflects the impact of reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of Michigan’s economic conditions.2010.

Consumers expects ~~economic conditions to stabilize by the end of 2010, resulting in annual~~average electric delivery growth of about ~~one~~1.7 percent ~~on average through 2014.~~annually over the next five years. This increase reflects growth in electric ~~deliveries~~demand, offset partially by the predicted effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will depend on:

	•		energy conservation measures and results of energy efficiency programs;

	•		fluctuations in weather; and

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

~~In its~~A decoupling mechanism was authorized by the MPSC in Consumers’ 2009 electric rate case order, ~~the MPSC authorized Consumers to adopt a “pilot” decoupling mechanism. This mechanism,~~ subject to certain conditions, and extended in the 2010 electric rate case order. It allows Consumers to adjust future electric rates to ~~collect or refund~~compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and conservation. This mechanism reduces the ~~change in marginal revenue by class arising from the difference between the level~~volatility of average sales per customer adopted in the order and actual average sales per customer. The MPSC’s order also adopted an uncollectible expense tracking mechanism, which allows future rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense. Consumers expects these mechanisms to reduce volatility ofConsumers’ electric utility revenue.

Electric ROA:The Customer Choice Act allows all of Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy ~~Legislation limits~~Law revised the Customer Choice Act by limiting alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At June 30, ~~2010,~~2011, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing ~~781~~796 MW of generation service to ROA customers. Based on 2010 weather-adjusted retail sales, Consumers expects 2011 electric deliveries under the ROA program to be at a similar level to 2010.

Electric Transmission:In ~~May~~July 2011, FERC issued an order in a rulemaking proceeding concerning regional electric transmission planning and cost allocations. In a related matter, in July 2010, MISO filed a ~~bill was introduced to~~tariff revision with FERC proposing a cost allocation methodology for a new category of transmission projects. In December 2010, FERC approved MISO’s cost allocation proposal. Under this tariff revision, the cost of these new transmission projects will be spread proportionally across the Midwest Energy Market. Consumers believes that Michigan customers will bear additional costs under MISO’s tariff without receiving comparable benefits from these projects. In January 2011, Consumers, along with the Michigan ~~Senate~~Attorney General, ABATE, Detroit Edison, the Michigan Municipal Electric Association, and ~~House of Representatives that would increase from ten percent~~the Michigan Public Power Agency, filed a protest and request for rehearing with FERC, opposing the allocation methodology in the MISO tariff revision. Consumers expects to ~~25 percent~~continue to recover transmission expenses, including those associated with the ~~proportion of an~~MISO tariff revision, through the PSCR process.

Electric Rate Matters:Rate matters are critical to Consumers’ electric ~~utility’s sales for which service may be provided by an alternative~~utility business. For details on Consumers’ electric ~~supplier. Consumers is unable to predict the outcome of the proposed legislation.~~rate cases, PSCR, electric revenue decoupling mechanism, uncollectible expense tracking mechanism, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning, renewable energy plan, energy optimization plan, and electric depreciation, see Note 4, Regulatory Matters, “Consumers’ Electric Utility.”

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Electric Environmental Estimates:Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers continues to focus on complying with the Clean Air Act, Clean Water Act, and numerous state and federal environmental ~~regulations. Consumers~~regulations, and estimates that it will incur expenditures of ~~$2.2~~$1.6 billion from ~~2010~~2011 through ~~2017~~2018 to comply with these regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters:

Clean Air Interstate Rule/Cross-State Air Pollution Rule:~~At this time, CAIR remains in effect, pending EPA revision due to a~~In December 2008, a court ~~decision.~~decision remanded CAIR back to the EPA. Until the EPA finalized a new rule, CAIR remained in effect. In July ~~2010,~~2011, the EPA released CSAPR, a ~~proposed~~final replacement rule for CAIR, which requires Michigan and 26 other states to improve air quality by reducing power plant emissions that ~~would replace CAIR.~~allegedly contribute to ground-level ozone and fine particle pollution in other downwind states. This rule mandates emission reductions beginning in 2012. Consumers is ~~examining~~analyzing this ~~proposed~~final rule ~~and~~to assess its ~~potential effects~~impact on Consumers’ ~~fleet. The~~operations.

Electric Generating Unit MACT:In March 2011, the EPA will accept comments on the proposal for 60 days following its publication in the Federal Register before publishing a final rule. In addition, Consumers is monitoring legislative initiatives in the U.S. Senate, which may lead to an alternative to the revised CAIR. Meanwhile, Consumers’ strategy to comply with CAIR involves the installation of state-of-the-artproposed MACT emission ~~control equipment.~~

~~Federal Hazardous Air Pollutant Regulation:~~~~The EPA has initiated the development of a revised rule~~standards for electric generating ~~unit hazardous air pollutants, such as mercury,~~units, based on Section 112 of the Clean Air Act. ~~Consumers will have a better understanding of the potential impact of~~Under the proposed rule, ~~upon its release, which is expected in 2010.~~some coal-fueled electric generating units would require additional controls for hazardous air pollutants. Existing sources must meet the standards generally within three years of issuance of the final rule. The final rule is expected to be issued in November 2011.

Presently, Consumers’ strategy to comply with CSAPR, and with MACT in its present form, involves the installation of state-of-the-art emission control equipment; however, Consumers continues to evaluate CSAPR and MACT standards in conjunction with other EPA rulemakings. These rules could result in additional or accelerated environmental compliance costs related to Consumers’ fossil-fueled power plants and the retirement or mothballing of some or all of Consumers’ older, smaller generating units.

Greenhouse Gases:~~In June 2009,~~There are numerous legislative and regulatory initiatives at the ~~U.S. House of Representatives passed~~state, regional, and national levels that involve the ~~American Clean Energy and Security Act, which would require reductions in emissions~~regulation of greenhouse ~~gases, including carbon dioxide. The bill proposes to reduce carbon dioxide~~gases. Consumers monitors and ~~other~~comments on these initiatives and also follows litigation involving greenhouse gas emissions, relative to 2005 levels, by three percent by 2012, 17 percent by 2020, and 42 percent by 2030. The bill also contains provisions for the direct granting of substantial free greenhouse gas emission allowances to load-serving entities, which would mitigate some of the price impact to Consumers’ customers.gases. Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to predict the form and timing of any final ~~bill is difficult to predict.~~legislation.

In ~~December~~ 2009, ~~the EPA issued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been challenged in~~ the U.S. Court of Appeals for the ~~D.C.~~Second Circuit issued a decision that allowed states and private plaintiffs to bring lawsuits in the federal courts against utilities and others based on common law nuisance theories that challenged the defendants’ greenhouse gas emissions. This decision potentially allowed federal judges to impose caps on such emissions on a case-by-case basis without reference to any legislatively created standards. A group of utilities filed a petition with the U.S. Supreme Court, seeking review of the U.S. Court of Appeals decision. In June 2011, the U.S. Supreme Court reversed the decision of the U.S. Court of Appeals for the Second Circuit, agreeing with the position taken by ~~numerous parties,~~ the ~~EPA determined~~utility industry that ~~current and projected atmospheric concentrations of six greenhouse gases threaten~~ the ~~public health and welfare of current and future generations. The finding alone does not impose~~Clean Air Act displaces any ~~standard or regulation on industry, but it is a precursor for finalizing proposed emissions standards. In April 2010, the EPA issued its final rule that regulates~~common law actions to force greenhouse gas emissions reductions from ~~motor vehicles under Section 202 of the Clean Air Act. This final action renders carbon dioxide and other greenhouse gases “regulated air pollutants” under the Clean Air Act.~~fossil-based power plants.

In ~~May~~ 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule. The final rule, which numerous parties have challenged in the U.S. Court of Appeals for the D.C. Circuit, sets limits for greenhouse gas emissions that define when permits are required for new and existing industrial facilities under ~~New Source Review~~NSR PSD and Title V Operating Permit programs. The EPA issued revised guidance on this rule in March 2011. Consumers does not expect that the rule will require it to incur significant expenditures for efficiency upgrades for modified or new facilities.

~~These~~In December 2010, the EPA entered into a settlement agreement with certain states and environmental groups that puts it on a path to issue proposed new source performance standards in September 2011. This proposal will address greenhouse gas emissions for new fossil-fueled electric generating units and major modifications under Section 111(b) of the Clean Air Act. The EPA is expected to promulgate final standards by May 2012. On the same schedule, the EPA is expected to propose emissions guidelines for

the states to regulate greenhouse gas emissions from existing sources under Section 111(d) of the Clean Air Act. Under the expected schedule, states will need to submit plans to the EPA within nine months of issuance of the final rule and guidelines. Consumers will continue to monitor this settlement and any proposed new source performance standards regulations.

In March 2011, the EPA issued a final rule that extends to September 30, 2011 the deadline for reporting 2010 greenhouse gas emissions data under the Greenhouse Gas Reporting Program. The original deadline was March 31, 2011. Consumers is prepared to comply with the final rule.

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

Coal Combustion By-Products:In June 2010, the EPA proposed rules regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. Michigan already regulates CCBs as low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCBs, including regulation as either a non-hazardous waste or a hazardous waste. If coal ash were regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing coal ash disposal areas could be closed and costly alternative arrangements for coal ash disposal could be required if the upgrades to hazardous waste landfill standards are economically prohibitive. Consumers is unable to predict accurately the ~~full~~ impacts from this wide range of possible outcomes, but significant expenditures are likely.

Water:In ~~2004,~~March 2011, the EPA issued ~~rules that govern~~a proposed rule to regulate existing electric generating plant cooling water intake systems. ~~These rules require a significant reduction~~Consumers is evaluating this proposed rule and its potential impacts on Consumers’ plants. A final rule is expected in the number of fish harmed by cooling water intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA has announced plans to issue a revised draft rule this year.July 2012.

Advance Notice of Proposed Rulemaking on PCBs:In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking, indicating that it is considering a variety of regulatory actions with respect to PCBs. One proposal aims to phase out equipment containing PCBs by 2025. Another proposal eliminates an exemption for small equipment containing PCBs. ~~Utilities~~Consumers could incur substantial costs associated with the regulation of PCBs due to ~~the widespread use~~prior installation of electrical equipment potentially containing PCBs.

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

~~Electric Transmission:~~In June 2010, FERC issued a Notice of Proposed Rulemaking to establish a closer link between regional electric transmission planning and cost allocations to ensure the construction of required transmission facilities. In a related matter, MISO filed a tariff revision with the FERC in July 2010, proposing a cost allocation methodology for new transmission projects. Consumers is unable to predict the financial impact or outcome of either of these proposals.

~~Electric Rate Matters:~~Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ PSCR, electric rate cases, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning proceedings, electric depreciation cases, renewable energy plan, and energy optimization plan, see Note 4, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”

Consumers’ Gas Utility Business Outlook and Uncertainties

Gas Deliveries:Consumers ~~expects 2010 weather-adjusted gas deliveries to decline by one percent compared with 2009, due to continuing conservation and overall~~believes economic conditions in ~~Michigan. In addition, Consumers~~Michigan have improved, and expects weather-adjusted gas deliveries to ~~decline an average of~~increase in 2011 by two percent compared with 2010. Over the next five years, Consumers expects average gas deliveries to decline about one percent annually, ~~from 2011 through 2015, which includes expected~~reflecting the predicted effects of energy efficiency ~~programs.~~programs and continued conservation. Actual delivery levels from year to year may vary from this trend due to:

	•		fluctuations in weather;

	•		use by ~~IPPs;~~independent power producers;

	•		availability and development of renewable energy sources;

	•		changes in gas prices;

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


	•		the price of competing energy sources or fuels; and

	•		energy efficiency and conservation.

~~In its~~A decoupling mechanism was authorized by the MPSC in Consumers’ 2009 gas rate case order, ~~the MPSC authorized Consumers to adopt a decoupling mechanism. This mechanism,~~ subject to certain ~~conditions,~~conditions. It allows Consumers to adjust future gas rates to ~~collect or refund the change~~compensate for changes in ~~marginal revenue~~sales volumes by class arising from the difference between ~~base~~the level of average sales per customer ~~established~~adopted in the order and actual average weather-adjusted sales per customer. The mechanism does not provide rate adjustments for changes in sales volumes arising from weather fluctuations. This mechanism mitigates the impacts of energy efficiency programs, conservation, and changes in economic conditions on its gas revenue.

Gas Rate Matters:Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas rate case and GCR, see Note 4, Regulatory Matters, “Consumers’ Gas Utility.”

Gas Pipeline Safety:In response to the natural gas pipeline explosion that occurred in San Bruno, California in September 2010 and other recent events, the U.S. House of Representatives and the U.S. Senate have proposed bills stipulating stricter regulation of natural gas pipelines nationwide. These proposed bills affect both transmission and distribution pipelines. The proposed bills contain provisions mandating:

	•		the installation of automatic shutoff equipment in high consequence areas;

	•		redefinition of “high consequence areas”;

	•		increased civil penalties;

	•		prescribed notification and on-site incident response times;

	•		plans for safe management and replacement of cast iron pipelines;

	•		consideration of seismic activity;

	•		verification of maximum allowable operating pressure of all pipelines; and

	•		certain disclosures to homeowners and regulatory agencies.

Consumers continues to comply with laws and regulations governing natural gas pipeline safety. If these proposed laws are put into effect, Consumers could incur significant additional costs related to its natural gas pipeline safety programs. Consumers expects ~~this mechanism~~that it would be able to ~~reduce volatility~~recover the costs in rates, consistent with the recovery of ~~gas utility revenue.~~other reasonable costs of complying with laws and regulations.

Gas Environmental Estimates:Consumers expects to incur ~~investigation and remedial action~~response activity costs at a number of sites, including 23 former MGP sites. For additional details, see Note 3, Contingencies and Commitments, “Consumers’ Gas Utility Contingencies — Gas Environmental Matters.”

~~Gas Rate Matters:~~Consumers’ Other Outlook and Uncertainties~~Rate matters~~

Smart Grid:Consumers’ grid modernization effort continues to move forward. The foundation of this effort is the installation of advanced metering and the infrastructure to support it. The installation will include smart meters that are ~~critical~~capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ ~~gas utility business. For details on Consumers’ GCR, gas rate case,~~existing information technology systems to manage the data and ~~gas depreciation case, see Note 4, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”~~enable changes to key business processes. Consumers expects to experience operational benefits upon the installation of smart meters. Smart meters are also intended to allow customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in lower peak capacity requirements. Due to this system’s complexity and the relative immaturity of the technology, Consumers intends to continue its phased implementation approach. In mid-2012, Consumers plans to begin a larger-scale deployment to expand testing of the operations and systems of the selected advanced metering infrastructure network communications vendor.

Enterprises Outlook and Uncertainties

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

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

	•		indemnity and environmental remediation obligations at Bay Harbor;

	•		the outcome of certain legal proceedings;

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

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

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

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

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

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

Other Outlook and Uncertainties

~~Smart Grid:~~EnerBank:~~Consumers’ development~~EnerBank, a wholly owned subsidiary of CMS Capital, is a ~~smart grid continues to move forward. The foundation~~Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. EnerBank represented one percent of the smart grid program is an advanced metering infrastructure. The program will include smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing systems to manage the data and enable changes to key business processes. It is intended to allow customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in lower peak capacity requirements. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach and intends to begin deployment of meters in late 2011.

~~Health Care Reform:~~The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. This legislation resulted in a $3 million increase to CMS Energy’s ~~tax expense~~net assets at June 30, 2011, and two percent of CMS Energy’s net income available to common stockholders for the six months ended June 30, 2011. The carrying value of EnerBank’s loan portfolio was $398 million at June 30, 2011. Its loan portfolio was funded primarily by deposit liabilities of $385 million. Twelve-month rolling average default rates on loans held by EnerBank have declined from 1.4 percent at December 31, 2010 ~~and it had no effect on Consumers’ net income. For additional details, see Note 10, Income Taxes.~~

~~Union Contract:~~~~In April 2010,~~to 1.1 percent at June 30, 2011. EnerBank expects the ~~Union ratified a new five-year agreement with Consumers for operating, maintenance, and construction employees. Consumers’ previous Union agreement was~~rate of loan defaults to ~~expire in June 2010.~~level out at about 1.0 percent. CMS Energy is required to ensure that EnerBank remains well capitalized.

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

CMS Energy Corporation

Consolidated Statements of Income
(Unaudited)


In Millions	In Millions													In Millions
		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
June 30		2010			2009			2010			2009				2011			2010			2011			2010


Operating Revenue		$	1,340		$	1,225		$	3,307		$	3,329			$	1,364		$	1,340		$	3,419		$	3,307

Operating Expenses
Fuel for electric generation			151			118			289			253				153			151			305			289
Purchased and interchange power			314			282			592			571				303			314			603		��	592
Purchased power — related parties			21			—			42			—				20			21			41			42
Cost of gas sold			178			208			956			1,171				220			178			988			956
Maintenance and other operating expenses			296			306			571			575				288			296			567			571
Depreciation and amortization			131			121			303			294				122			131			284			303
General taxes			41			48			107			113				51			41			118			107
Insurance settlement			(50	)		—			(50	)		—				—			(50	)		—			(50	)
Gain on asset sales, net			(4	)		(8	)		(4	)		(8	)			—			(4	)		—			(4	)

Total operating expenses			1,078			1,075			2,806			2,969				1,157			1,078			2,906			2,806


Operating Income			262			150			501			360				207			262			513			501

Other Income (Expense)
Interest and dividends			4			4			9			8
Interest income																2			4			4			9
Allowance for equity funds used during construction			2			2			3			3				2			2			3			3
Income (loss) from equity method investees			2			—			5			(1	)
Income from equity method investees																2			2			6			5
Other income			9			39			18			51				5			9			9			18
Other expense			(3	)		(3	)		(5	)		(5	)			(3	)		(3	)		(5	)		(5	)

Total other income (expense)			14			42			30			56
Total other income																8			14			17			30


Interest Charges
Interest on long-term debt			98			98			196			190				99			98			199			196
Other interest			20			8			28			16
Other interest expense																6			20			12			28
Allowance for borrowed funds used during construction			(1	)		(1	)		(2	)		(2	)			(1	)		(1	)		(2	)		(2	)

Total interest charges			117			105			222			204				104			117			209			222


Income Before Income Taxes			159			87			309			212				111			159			321			309
Income Tax Expense			59			32			120			82				10			59			87			120


Income From Continuing Operations			100			55			189			130				101			100			234			189
Income (Loss) From Discontinued Operations, Net of Tax Expense of $6, $17, $5 and $16			(16	)		25			(17	)		24
Income (Loss) From Discontinued Operations, Net of Tax Expense of $ —, $6, $1, and $5																—			(16	)		2			(17	)


Net Income			84			80			172			154				101			84			236			172
Income Attributable to Noncontrolling Interests			2			2			2			3				1			2			1			2


Net Income Attributable to CMS Energy			82			78			170			151				100			82			235			170
Preferred Stock Dividends			2			3			5			6				—			2			—			5


Net Income Available to Common Stockholders		$	80		$	75		$	165		$	145			$	100		$	80		$	235		$	165


In Millions, Except Per Share Amounts	In Millions, Except Per Share Amounts											In Millions, Except Per Share Amounts
		Three Months Ended					Six Months Ended						Three Months Ended					Six Months Ended
June 30		2010			2009		2010			2009			2011		2010			2011		2010


Net Income Attributable to Common Stockholders
Amounts Attributable to Continuing Operations		$	96		$	50	$	182		$	121		$	100	$	96		$	233	$	182
Amounts Attributable to Discontinued Operations			(16	)		25		(17	)		24			—		(16	)		2		(17	)

Net Income Available to Common Stockholders		$	80		$	75	$	165		$	145		$	100	$	80		$	235	$	165


Income Attributable to Noncontrolling Interests
Amounts Attributable to Continuing Operations		$	2		$	2	$	2		$	3		$	1	$	2		$	1	$	2
Amounts Attributable to Discontinued Operations			—			—		—			—			—		—			—		—

Income Attributable to Noncontrolling Interests		$	2		$	2	$	2		$	3		$	1	$	2		$	1	$	2


Basic Earnings Per Average Common Share
Basic Earnings from Continuing Operations		$	0.42		$	0.22	$	0.80		$	0.53		$	0.40	$	0.42		$	0.93	$	0.80
Basic Earnings (Loss) from Discontinued Operations			(0.07	)		0.11		(0.08	)		0.11			—		(0.07	)		0.01		(0.08	)

Basic Earnings Attributable to Common Stock		$	0.35		$	0.33	$	0.72		$	0.64		$	0.40	$	0.35		$	0.94	$	0.72


Diluted Earnings Per Average Common Share
Diluted Earnings from Continuing Operations		$	0.39		$	0.21	$	0.74		$	0.52		$	0.38	$	0.39		$	0.89	$	0.74
Diluted Earnings (Loss) from Discontinued Operations			(0.07	)		0.11		(0.07	)		0.10			—		(0.07	)		0.01		(0.07	)

Diluted Earnings Attributable to Common Stock		$	0.32		$	0.32	$	0.67		$	0.62		$	0.38	$	0.32		$	0.90	$	0.67


Dividends Declared Per Common Share		$	0.15		$	0.125	$	0.30		$	0.25		$	0.21	$	0.15		$	0.42	$	0.30

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)


In Millions	In Millions							In Millions
Six Months Ended June 30		2010			2009
Six Months ended June 30									2011			2010


Cash Flows from Operating Activities
Net Income		$	172		$	154			$	236		$	172
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			303			294				284			303
Deferred income taxes and investment tax credit			107			94				74			107
Postretirement benefits expense			88			91				83			88
Allowance for equity funds used during construction			(3	)		(3	)
Capital lease and other amortization			20			19
Bad debt expense			32			34
Gain on expiration of indemnification			—			(50	)
Gain on extinguishment of long-term debt, related parties			—			(28	)
Other non-cash operating activities			(8	)		(15	)			39			41
Postretirement benefits contributions			(153	)		(232	)			(39	)		(153	)
Changes in other assets and liabilities:
Decrease in accounts receivable, notes receivable, and accrued revenue			178			115				215			178
Decrease in accrued power supply revenue			22			5				15			22
Decrease in inventories			230			267				204			230
Increase (decrease) in accounts payable			41			(26	)
Increase in accounts payable										34			41
Decrease in accrued expenses			(51	)		(5	)			(36	)		(51	)
Decrease in other current and non-current assets			88			104				71			88
Decrease in other current and non-current liabilities			(18	)		(18	)
Increase (decrease) in other current and non-current liabilities										36			(18	)

Net cash provided by operating activities			1,048			800				1,216			1,048


Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)			(424	)		(409	)			(399	)		(424	)
Cost to retire property			(20	)		(25	)			(28	)		(20	)
Proceeds from sale of assets			3			7
Cash effect of deconsolidation of partnerships			(10	)		—				—			(10	)
Restricted cash and cash equivalents			(1	)		6
Other investing activities			(38	)		(12	)			(44	)		(36	)

Net cash used in investing activities			(490	)		(433	)			(471	)		(490	)


Cash Flows from Financing Activities
Proceeds from issuance of long-term debt			300			973				375			300
Proceeds from EnerBank notes, net			66			4				21			66
Issuance of common stock			5			5				22			5
Retirement of long-term debt			(352	)		(443	)			(292	)		(352	)
Payment of common stock dividends			(69	)		(57	)			(106	)		(69	)
Payment of preferred stock dividends			(5	)		(6	)			—			(5	)
Payment of capital and finance lease obligations			(12	)		(12	)			(12	)		(12	)
Other financing costs			(44	)		(19	)			(8	)		(44	)

Net cash (used in) provided by financing activities			(111	)		445
Net cash used in financing activities										—			(111	)


Net Increase in Cash and Cash Equivalents, Including Assets Held for Sale			447			812				745			447
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale			(1	)		4				2			(1	)


Net Increase in Cash and Cash Equivalents			446			816				747			446

Cash and Cash Equivalents, Beginning of Period			90			207				247			90


Cash and Cash Equivalents, End of Period		$	536		$	1,023			$	994		$	536

CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)

~~ASSETS~~


In Millions					In Millions
	In Millions					June 30		December 31
	June 30		December 31
ASSETS						2011		2010
	2010		2009

Current Assets
Cash and cash equivalents	$	536	$	90		$	994	$	247
Restricted cash and cash equivalents		22		32			29		23
Accounts receivable and accrued revenue, less allowances of $23 in 2010 and $23 in 2009		697		948
Accounts receivable and accrued revenue, less allowances of $25 in 2011 and 2010							719		981
Notes receivable		72		81			57		70
Accounts receivable — related parties							10		10
Accrued power supply revenue		26		48			—		15
Accounts receivable — related parties		8		—
Inventories at average cost
Gas in underground storage		842		1,043			720		946
Materials and supplies		104		118			106		104
Generating plant fuel stock		131		158			143		125
Deferred property taxes		127		172			133		180
Regulatory assets		19		19			8		19
Assets held for sale		2		2			—		2
Prepayments and other current assets		35		31			37		37

Total current assets		2,621		2,742			2,956		2,759


Plant, Property & Equipment (at cost)
Plant, property & equipment, gross		13,727		13,716			14,413		14,145
Less accumulated depreciation, depletion, and amortization		4,566		4,540			4,802		4,646

Plant, property & equipment, net		9,161		9,176			9,611		9,499
Construction work in progress		643		506			644		570

Total plant, property & equipment		9,804		9,682			10,255		10,069


Non-current Assets
Regulatory assets		2,085		2,291			2,050		2,093
Notes receivable, less allowances of $5 in 2010 and $6 in 2009		286		269
Accounts and notes receivable, less allowances of $5 in 2011 and 2010							398		397
Investments		52		9			52		49
Assets held for sale		6		9			—		4
Other non-current assets		197		254			234		245

Total non-current assets		2,626		2,832			2,734		2,788


Total Assets	$	15,051	$	15,256		$	15,945	$	15,616

~~LIABILITIES AND EQUITY~~


In Millions							In Millions
	In Millions							June 30			December 31
	June 30			December 31
LIABILITIES AND EQUITY								2011			2010
	2010			2009

Current Liabilities
Current portion of long-term debt, capital and finance lease obligations	$	653		$	694			$	1,123		$	750
Notes payable		—			40
Accounts payable		451			509				444			492
Accounts payable — related parties									8			9
Accrued rate refunds		12			21				43			19
Accounts payable — related parties		9			—
Accrued interest		101			96				107			102
Accrued taxes		230			283				239			302
Deferred income taxes		51			43				154			180
Regulatory liabilities		111			145				1			22
Liabilities held for sale		1			—				—			1
Other current liabilities		117			123				122			144

Total current liabilities		1,736			1,954				2,241			2,021


Non-current Liabilities
Long-term debt		5,883			5,895				6,184			6,448
Non-current portion of capital and finance lease obligations		196			197				177			188
Regulatory liabilities		1,943			1,991				1,860			1,988
Postretirement benefits		1,276			1,460				1,136			1,135
Asset retirement obligations		235			229				252			245
Deferred investment tax credit		49			51				47			49
Deferred income taxes		444			231				768			438
Other non-current liabilities		296			310				278			267

Total non-current liabilities		10,322			10,364				10,702			10,758


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

Equity
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 228.3 shares in 2010 and 227.9 shares in 2009		2			2
Common stock, authorized 350.0 shares; outstanding 251.8 shares in 2011 and 249.6 shares in 2010									3			2
Other paid-in capital		4,569			4,560				4,621			4,588
Accumulated other comprehensive loss		(31	)		(33	)			(38	)		(40	)
Accumulated deficit		(1,831	)		(1,927	)			(1,628	)		(1,757	)

Total common stockholders’ equity		2,709			2,602				2,958			2,793
Preferred stock		239			239
Noncontrolling interests		45			97				44			44

Total equity		2,993			2,938				3,002			2,837


Total Liabilities and Equity	$	15,051		$	15,256			$	15,945		$	15,616

CMS Energy Corporation
Consolidated Statements of Changes in Equity
(Unaudited)


	In Millions
In Millions													In Millions
	Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
June 30	2010			2009			2010			2009				2011			2010			2011			2010


Common Stock
At beginning and end of period	$	2		$	2		$	2		$	2
At beginning of period														$	3		$	2		$	2		$	2
Common stock issued															—			—			1			—

At end of period															3			2			3			2


Other Paid-in Capital
At beginning of period		4,564			4,538			4,560			4,533				4,599			4,564			4,588			4,560
Common stock issued		6			3			10			8				22			6			28			10
Common stock reissued															—			—			5			—
Common stock repurchased		(1	)		—			(1	)		—				—			(1	)		—			(1	)
Conversion option on convertible debt		—			11			—			11

At end of period		4,569			4,552			4,569			4,552				4,621			4,569			4,621			4,569


Accumulated Other Comprehensive Loss
Retirement benefits liability
At beginning of period		(31	)		(27	)		(32	)		(27	)			(39	)		(31	)		(39	)		(32	)
Retirement benefits liability adjustments (a)		1			—			2			—
Retirement benefits liability adjustments¹															1			1			1			2

At end of period		(30	)		(27	)		(30	)		(27	)			(38	)		(30	)		(38	)		(30	)


Investments
At beginning of period		—			(4	)		—			—				—			—			—			—
Unrealized gain on investments (a)		—			5			—			1
Unrealized gain on investments¹															1			—			1			—

At end of period		—			1			—			1				1			—			1			—


Derivative instruments
At beginning and end of period		(1	)		(1	)		(1	)		(1	)			(1	)		(1	)		(1	)		(1	)


At end of period		(31	)		(27	)		(31	)		(27	)			(38	)		(31	)		(38	)		(31	)


Accumulated Deficit
At beginning of period		(1,876	)		(1,990	)		(1,927	)		(2,031	)			(1,675	)		(1,876	)		(1,757	)		(1,927	)
Net income attributable to CMS Energy (a)		82			78			170			151
Net income attributable to CMS Energy¹															100			82			235			170
Common stock dividends declared		(35	)		(28	)		(69	)		(57	)			(53	)		(35	)		(106	)		(69	)
Preferred stock dividends declared		(2	)		(3	)		(5	)		(6	)			—			(2	)		—			(5	)

At end of period		(1,831	)		(1,943	)		(1,831	)		(1,943	)			(1,628	)		(1,831	)		(1,628	)		(1,831	)


Preferred Stock
At beginning and end of period		239			243			239			243				—			239			—			239


Noncontrolling Interests
At beginning of period		44			96			97			96				44			44			44			97
Income attributable to noncontrolling interests (a)		2			2			2			3
Income attributable to noncontrolling interests¹															1			2			1			2
Distributions and other changes in noncontrolling interests		(1	)		(3	)		(54	)		(4	)			(1	)		(1	)		(1	)		(54	)

At end of period		45			95			45			95				44			45			44			45


Total Equity	$	2,993		$	2,922		$	2,993		$	2,922			$	3,002		$	2,993		$	3,002		$	2,993

Consumers Energy Company

Consolidated Statements of Income
(Unaudited)


In Millions	In Millions													In Millions
		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
June 30		2010			2009			2010			2009				2011			2010			2011			2010


Operating Revenue		$	1,276		$	1,182		$	3,166		$	3,216			$	1,303		$	1,276		$	3,291		$	3,166

Operating Expenses
Fuel for electric generation			125			105			250			216				138			125			267			250
Purchased and interchange power			310			280			587			564				299			310			592			587
Purchased power — related parties			20			17			41			35				19			20			40			41
Cost of gas sold			163			195			909			1,131				197			163			950			909
Maintenance and other operating expenses			281			250			543			501				273			281			538			543
Depreciation and amortization			130			118			301			288				121			130			282			301
General taxes			40			46			104			107				49			40			115			104
Gain on asset sales, net			—			(3	)		—			(3	)

Total operating expenses			1,069			1,008			2,735			2,839				1,096			1,069			2,784			2,735


Operating Income			207			174			431			377				207			207			507			431

Other Income (Expense)
Interest and dividends			4			3			9			7
Interest income																2			4			4			9
Allowance for equity funds used during construction			2			2			3			3				2			2			3			3
Other income			9			9			18			21				5			9			13			18
Other expense			(3	)		(2	)		(5	)		(4	)			(3	)		(3	)		(5	)		(5	)

Total other income (expense)			12			12			25			27
Total other income																6			12			15			25


Interest Charges
Interest on long-term debt			60			65			123			124				63			60			126			123
Other interest			19			5			25			10
Other interest expense																5			19			9			25
Allowance for borrowed funds used during construction			(1	)		(1	)		(2	)		(2	)			(1	)		(1	)		(2	)		(2	)

Total interest charges			78			69			146			132				67			78			133			146


Income Before Income Taxes			141			117			310			272				146			141			389			310

Income Tax Expense			53			45			115			101				54			53			144			115


Net Income			88			72			195			171				92			88			245			195

Preferred Stock Dividends			1			—			1			1				1			1			1			1


Net Income Available to Common Stockholder		$	87		$	72		$	194		$	170			$	91		$	87		$	244		$	194

Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)


In Millions							In Millions
Six Months ended June 30								2011			2010
				In Millions
Six Months ended June 30	2010			2009

Cash Flows from Operating Activities
Net Income	$	195		$	171			$	245		$	195
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		301			288				282			301
Deferred income taxes and investment tax credit		(22	)		46				82			(22	)
Postretirement benefits expense		87			89				78			87
Allowance for equity funds used during construction		(3	)		(3	)
Capital lease and other amortization		13			13
Bad debt expense		29			30
Other non-cash operating activities		(7	)		(16	)			31			32
Postretirement benefits contributions		(143	)		(225	)			(37	)		(143	)
Changes in other assets and liabilities:
Decrease in accounts receivable, notes receivable, and accrued revenue		186			114				207			186
Decrease in accrued power supply revenue		22			5
Decrease in accrued power supply and gas revenue									15			22
Decrease in inventories		229			266				202			229
Increase (decrease) in accounts payable		35			(20	)
Increase (decrease) in accrued expenses		(13	)		4
Increase in accounts payable									42			35
Decrease in accrued expenses									(12	)		(13	)
Decrease in other current and non-current assets		92			106				68			92
Decrease in other current and non-current liabilities		(18	)		(15	)
Increase (decrease) in other current and non-current liabilities									42			(18	)

Net cash provided by operating activities		983			853				1,245			983


Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)		(423	)		(404	)			(394	)		(423	)
Cost to retire property		(21	)		(25	)			(28	)		(21	)
Proceeds from sale of assets		—			7
Restricted cash and cash equivalents		—			2
Other investing activities									(23	)		—

Net cash used in investing activities		(444	)		(420	)			(445	)		(444	)


Cash Flows from Financing Activities
Proceeds from issuance of long-term debt		—			500
Retirement of long-term debt		(327	)		(218	)			(18	)		(327	)
Payment of common stock dividends		(168	)		(130	)			(196	)		(168	)
Payment of preferred stock dividends		(1	)		(1	)			(1	)		(1	)
Stockholder’s contribution		250			100				125			250
Payment of capital and finance lease obligations		(12	)		(12	)			(12	)		(12	)
Other financing costs		—			(4	)			(3	)		—

Net cash (used in) provided by financing activities		(258	)		235
Net cash used in financing activities									(105	)		(258	)


Net Increase in Cash and Cash Equivalents		281			668				695			281

Cash and Cash Equivalents, Beginning of Period		39			69				71			39


Cash and Cash Equivalents, End of Period	$	320		$	737			$	766		$	320

Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)

~~ASSETS~~


In Millions					In Millions
			In Millions			June 30		December 31
	June 30		December 31
ASSETS						2011		2010
	2010		2009

Current Assets
Cash and cash equivalents	$	320	$	39		$	766	$	71
Restricted cash and cash equivalents		22		22			28		23
Accounts receivable and accrued revenue, less allowances of $20 in 2010 and $21 in 2009		679		935
Accounts receivable and accrued revenue, less allowances of $23 in 2011 and 2010							706		963
Notes receivable		62		79			43		55
Accrued power supply revenue		26		48			—		15
Accounts receivable — related parties		1		2			1		1
Inventories at average cost
Gas in underground storage		838		1,038			720		941
Materials and supplies		100		111			103		100
Generating plant fuel stock		130		148			141		124
Deferred property taxes		127		172			133		180
Regulatory assets		19		19			8		19
Prepayments and other current assets		26		23			30		27

Total current assets		2,350		2,636			2,679		2,519


Plant, Property & Equipment (at cost)
Plant, property & equipment, gross		13,607		13,352			14,285		14,022
Less accumulated depreciation, depletion, and amortization		4,516		4,386			4,747		4,593

Plant, property & equipment, net		9,091		8,966			9,538		9,429
Construction work in progress		643		505			640		566

Total plant, property & equipment		9,734		9,471			10,178		9,995


Non-current Assets
Regulatory assets		2,085		2,291			2,050		2,093
Accounts and notes receivable							13		22
Investments		27		29			31		34
Other non-current assets		130		195			150		176

Total non-current assets		2,242		2,515			2,244		2,325


Total Assets	$	14,326	$	14,622		$	15,101	$	14,839

~~LIABILITIES AND EQUITY~~


In Millions					In Millions
			In Millions			June 30		December 31
	June 30		December 31
LIABILITIES AND EQUITY						2011		2010
	2010		2009

Current Liabilities
Current portion of long-term debt, capital and finance lease obligations	$	61	$	365		$	362	$	61
Accounts payable		432		490			429		471
Accounts payable — related parties							11		11
Accrued rate refunds		12		21			43		19
Accounts payable — related parties		12		11
Accrued interest		68		70			75		74
Accrued taxes		273		277			163		199
Deferred income taxes		165		206			194		209
Regulatory liabilities		111		145			1		22
Other current liabilities		86		86			85		95

Total current liabilities		1,220		1,671			1,363		1,161


Non-current Liabilities
Long-term debt		4,043		4,063			4,169		4,488
Non-current portion of capital and finance lease obligations		196		197			177		188
Regulatory liabilities		1,943		1,991			1,860		1,988
Postretirement benefits		1,218		1,396			1,078		1,076
Asset retirement obligations		234		228			251		244
Deferred investment tax credit		49		51			47		49
Deferred income taxes		1,058		926			1,617		1,289
Other non-current liabilities		233		241			186		176

Total non-current liabilities		8,974		9,093			9,385		9,498


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

Equity
Common stockholder’s equity
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods		841		841			841		841
Other paid-in capital		2,832		2,582			2,957		2,832
Accumulated other comprehensive income		—		2
Retained earnings		415		389			511		463

Total common stockholder’s equity		4,088		3,814			4,309		4,136
Preferred stock		44		44			44		44

Total equity		4,132		3,858			4,353		4,180


Total Liabilities and Equity	$	14,326	$	14,622		$	15,101	$	14,839

Consumers Energy Company
Consolidated Statements of Changes in Equity
(Unaudited)


	In Millions
In Millions													In Millions
	Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
June 30	2010			2009			2010			2009				2011			2010			2011			2010


Common Stock
At beginning and end of period (a)	$	841		$	841		$	841		$	841
At beginning and end of period														$	841		$	841		$	841		$	841


Other Paid-in Capital
At beginning of period		2,782			2,482			2,582			2,482				2,957			2,782			2,832			2,582
Stockholder’s contribution		50			100			250			100				—			50			125			250

At end of period		2,832			2,582			2,832			2,582				2,957			2,832			2,957			2,832


Accumulated Other Comprehensive Income
Retirement benefits liability
At beginning and end of period		(11	)		(7	)		(11	)		(7	)
At beginning of period															(15	)		(11	)		(16	)		(11	)
Retirement benefits liability adjustments¹															—			—			1			—

At end of period															(15	)		(11	)		(15	)		(11	)


Investments
At beginning of period		12			7			13			6				15			12			16			13
Unrealized (loss) gain on investments (b)		(1	)		3			(2	)		4
Unrealized loss on investments¹															—			(1	)		(1	)		(2	)

At end of period		11			10			11			10				15			11			15			11


At end of period		—			3			—			3				—			—			—			—


Retained Earnings
At beginning of period		382			409			389			383				512			382			463			389
Net income (b)		88			72			195			171
Net income¹															92			88			245			195
Common stock dividends declared		(54	)		(58	)		(168	)		(130	)			(92	)		(54	)		(196	)		(168	)
Preferred stock dividends declared		(1	)		—			(1	)		(1	)			(1	)		(1	)		(1	)		(1	)

At end of period		415			423			415			423				511			415			511			415


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


Total Equity	$	4,132		$	3,893		$	4,132		$	3,893			$	4,353		$	4,132		$	4,353		$	4,132

CMS Energy Corporation
Consumers Energy Company

~~notes to consolidated financial statements~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

These interim ~~Consolidated Financial Statements~~consolidated financial statements have been prepared by CMS Energy and Consumers in accordance with ~~accounting principles generally accepted in the U.S.~~GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and ~~Note~~note disclosures normally included in consolidated financial statements prepared in accordance with ~~accounting principles generally accepted in the U.S.~~GAAP. CMS Energy and Consumers have reclassified certain prior period amounts to conform to the presentation in the current period. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations, and cash flows for the periods presented. The ~~Notes~~notes to ~~Consolidated Financial Statements~~the consolidated financial statements and the related ~~Consolidated Financial Statements~~consolidated financial statements should be read in conjunction with the ~~Consolidated Financial Statements~~consolidated financial statements and related ~~Notes~~notes contained in the ~~2009~~2010 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.

1: NEW ACCOUNTING STANDARDS

~~IMPLEMENTATION OF NEW ACCOUNTING STANDARDS~~New Accounting Standards Not Yet Effective

~~SFAS No. 166, Accounting for Transfers~~ASU 2011-05, Presentation of ~~Financial Assets, an amendment of FASB Statement No. 140,~~ ~~codified through~~~~ASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets:~~Comprehensive Income:This standard, ~~which was~~ effective January 1, 2012 for CMS Energy and Consumers, ~~January 1, 2010, removes~~eliminates the ~~concept~~option to report other comprehensive income and its components on the statement of a QSPE from guidance relating to transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. This standard revises and clarifies when an entity is required to derecognize a financial asset that it has transferred to another entity. It further clarifies how to measure beneficial interests received as proceedschanges in connection with a transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial asset transfer to qualify for sale accounting treatment. The standard also requires enhanced disclosures related to continuing involvement with financial assets. Under this standard, transactions entered into under Consumers’ revolving accounts receivable sales program, discussed in Note 5, Financings, are accounted for as secured borrowings rather than as sales.equity. Presently, both CMS Energy and Consumers use this option for their consolidated financial statements. Under the standard, entities will be required to present ~~outstanding amounts under~~either a single continuous statement of comprehensive income, containing both net income and components of other comprehensive income, or two separate consecutive statements. This standard will affect only the ~~program as short-term debt collateralized by accounts receivable.~~presentation of comprehensive income in CMS Energy’s and Consumers’ consolidated financial statements.

~~SFAS No. 167,~~ASU 2011-04, Amendments to ~~FASB Interpretation No. 46(R),~~~~codified through~~~~ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities:~~Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs:This standard, ~~which was~~ effective January 1, 2012 for CMS Energy and Consumers, ~~January 1, 2010, amends~~is the ~~criteria used~~result of a joint project of the Financial Accounting Standards Board and the International Accounting Standards Board. The primary objective of the standard is to determine which entity, if any, has a controlling financial interest in a VIE. It replaces the quantitative calculation of risks and rewards with a qualitative approach focused on identifying which entity (1)ensure that fair value has the ~~power~~same meaning under GAAP and International Financial Reporting Standards and to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. This standard also requires ongoing assessments of whether an entity is the primary beneficiary of a VIE. Upon implementation of thisestablish common fair value measurement guidance CMS Energy concluded that it is the primary beneficiary of CMS Energy Trust I and consolidated the trust in its consolidated financial statements on January 1, 2010. CMS Energy also concluded that it is not the primary beneficiary of T.E.S. Filer City, Grayling, or Genesee and deconsolidated these partnerships in its consolidated financial statements on January 1, 2010. CMS Energy consolidated CMS Energy Trust I at the carrying value that

~~would be recorded had this guidance been effective when CMS Energy initially became involved with CMS Energy Trust I. CMS Energy recorded its retained interest~~ in the ~~deconsolidated partnerships at~~two sets of standards. The standard does not change the ~~carrying~~overall fair value ~~that would be recorded had this guidance been effective when CMS Energy initially became involved with the partnerships.~~model in GAAP, but it amends various fair value principles and establishes additional disclosure requirements. CMS Energy and Consumers are evaluating this standard, but they do not expect it to have ~~chosen not to adjust previously reported balances. No cumulative effect adjustments were required. For additional details, see Note 11, Variable Interest Entities.~~

~~ASU No. 2010-06, Improving Disclosures about Fair Value Measurements:~~~~This standard expands the required quarterly disclosures about fair value measurements that are included in Note 2, Fair Value Measurements. The standard requires information~~a significant impact on transfers in and out of Levels 1 and 2 of the fair value hierarchy. In addition, it requires gross reporting of purchases, sales, issuances, and settlements in the reconciliation of Level 3 fair values, rather than reporting this activity as one net amount. The standard also clarifies certain existing disclosure requirements. This standard was effective for CMS Energy and Consumers January 1, 2010, except for the gross reporting of Level 3 fair value activity, which will be effective for CMS Energy and Consumers January 1, 2011. This standard does not impact CMS Energy’s or Consumers’their consolidated ~~income, cash flows, or~~ financial ~~position, and did not result in any significant changes to the fair value disclosures.~~statements.

2: FAIR VALUE MEASUREMENTS

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

~~The~~Presented in the following table ~~summarizes,~~are CMS Energy’s and Consumers’ assets and liabilities, by level within the fair value hierarchy, ~~CMS Energy’s and Consumers’ assets and liabilities~~ reported at fair value on a recurring basis at June 30, ~~2010:~~2011:


In Millions	In Millions									In Millions
		Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3

CMS Energy, including Consumers
Assets:
Assets
Cash equivalents		$	465	$	465	$	—	$	—		$	875	$	875	$	—	$	—
Restricted cash equivalents			5		5		—		—			15		15		—		—
Nonqualified deferred compensation plan assets			5		5		—		—			4		4		—		—
SERP:
Cash equivalents			2		2		—		—
SERP
Mutual fund			62		62		—		—			90		90		—		—
State and municipal bonds			28		—		28		—			26		—		26		—
Derivative instruments:
Commodity contracts (a)			5		2		3		—
Derivative instruments
Commodity contracts¹												3		—		—		3

Total		$	572	$	541	$	31	$	—
Total²											$	1,013	$	984	$	26	$	3

Liabilities
Nonqualified deferred compensation plan liabilities											$	4	$	4	$	—	$	—
Derivative instruments
Commodity contracts³												3		—		—		3

Liabilities:
Nonqualified deferred compensation plan liabilities		$	5	$	5	$	—	$	—
Derivative instruments:
Commodity contracts (b)			8		2		1		5

Total (c)		$	13	$	7	$	1	$	5
Total⁴											$	7	$	4	$	—	$	3

Consumers
Assets:
Assets
Cash equivalents		$	260	$	260	$	—	$	—		$	667	$	667	$	—	$	—
Restricted cash equivalents			5		5		—		—			14		14		—		—
CMS Energy Common Stock			27		27		—		—
CMS Energy common stock												31		31		—		—
Nonqualified deferred compensation plan assets			4		4		—		—			3		3		—		—
SERP:
Cash equivalents			1		1		—		—
SERP
Mutual fund			39		39		—		—			59		59		—		—
State and municipal bonds			17		—		17		—			17		—		17		—
Derivative instruments
Commodity contracts												3		—		—		3

Total		$	353	$	336	$	17	$	—
Total⁵											$	794	$	774	$	17	$	3


Liabilities:
Liabilities
Nonqualified deferred compensation plan liabilities		$	4	$	4	$	—	$	—		$	3	$	3	$	—	$	—

Total		$	4	$	4	$	—	$	—		$	3	$	3	$	—	$	—


In Millions	In Millions									In Millions
		Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3

CMS Energy, including Consumers
Assets:
Assets
Cash equivalents		$	57	$	57	$	—	$	—		$	183	$	183	$	—	$	—
Restricted cash equivalents			12		12		—		—			6		6		—		—
Nonqualified deferred compensation plan assets			5		5		—		—			6		6		—		—
SERP:
SERP
Cash equivalents			49		49		—		—			1		1		—		—
Mutual fund												62		62		—		—
State and municipal bonds			27		—		27		—			28		—		28		—
Derivative instruments:
Commodity contracts (a)			1		—		1		—
Derivative instruments
Commodity contracts¹												1		—		—		1

Total		$	151	$	123	$	28	$	—
Total²											$	287	$	258	$	28	$	1

Liabilities
Nonqualified deferred compensation plan liabilities											$	6	$	6	$	—	$	—
Derivative instruments
Commodity contracts³												4		—		—		4

Liabilities:
Nonqualified deferred compensation plan liabilities		$	5	$	5	$	—	$	—
Derivative instruments:
Commodity contracts (b)			9		1		1		7
Interest rate contracts			1		—		—		1

Total (c)		$	15	$	6	$	1	$	8
Total⁴											$	10	$	6	$	—	$	4

Consumers
Assets:
Assets
Cash equivalents		$	31	$	31	$	—	$	—		$	19	$	19	$	—	$	—
Restricted cash equivalents			5		5		—		—			6		6		—		—
CMS Energy Common Stock			29		29		—		—
CMS Energy common stock												34		34		—		—
Nonqualified deferred compensation plan assets			4		4		—		—			4		4		—		—
SERP:
SERP
Cash equivalents			30		30		—		—			1		1		—		—
Mutual fund												39		39		—		—
State and municipal bonds			16		—		16		—			17		—		17		—
Derivative instruments
Commodity contracts												1		—		—		1

Total		$	115	$	99	$	16	$	—
Total⁵											$	121	$	103	$	17	$	1


Liabilities:
Liabilities
Nonqualified deferred compensation plan liabilities		$	4	$	4	$	—	$	—		$	4	$	4	$	—	$	—

Total		$	4	$	4	$	—	$	—		$	4	$	4	$	—	$	—

Nonqualified Deferred Compensation Plan Assets:CMS Energy’s and Consumers’ nonqualified deferred compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily quoted ~~NAVs~~net asset values provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in ~~Other~~other non-current assets on their ~~Consolidated Balance Sheets.~~consolidated balance sheets.

SERP Assets:CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP cash equivalents consist of a money market fund with daily liquidity, which invests in state and municipal securities.

The SERP invests in a short-term, fixed-income mutual fund that holds a variety of debt securities with average maturities of one to three years. The fund invests primarily in investment-grade debt securities but, in order to achieve its investment objective, it may invest a portion of its assets in high-yield securities, foreign debt, and derivative instruments. The fair value of the fund is determined using the daily published ~~NAV,~~net asset value, which is the basis for transactions to buy or sell shares in the fund.

The SERP state and municipal bonds are investment grade securities that are valued using a matrix pricing model that incorporates Level 2 market-based information. The fair value of the bonds is derived from various observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bond ratings, and general information on market movements normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets in ~~Other~~other non-current assets on their ~~Consolidated Balance Sheets.~~consolidated balance sheets. For additional details about SERP securities, see Note 7, Financial Instruments.

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

Derivative Instruments:CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy and

Consumers have classified certain derivatives as Level 3 since the fair value measurements incorporate pricing assumptions that cannot be observed or confirmed through market transactions.

~~CMS Energy’s~~The most significant derivatives ~~include~~classified as Level 3 are an electricity sales agreement held by CMS ERM ~~that extends beyond~~and FTRs held by Consumers. At December 31, 2010 and in prior periods, for the ~~term for which~~electricity sales agreement held by CMS ERM, quoted electricity prices ~~are available. To value this~~were not available for the entire term of the agreement, ~~CMS Energy uses an internally developed model to project future prices. This method incorporates~~and a proprietary forward ~~power~~ pricing ~~curve that~~model was used to determine fair value. At June 30, 2011, quoted prices at the nearest active market were available for the entire term of the agreement. The agreement, however, remains classified as Level 3 since the pricing differential between the nearest active market in Ohio and the delivery point in Michigan cannot be confirmed with observable market transactions. There is ~~based on forward gas prices and an implied heat rate. CMS Energy also increases~~no quoted pricing information for FTRs held by Consumers. Consumers determines the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model. Since the modeling technique is significant to the overall fair value measurement, this agreement is classified as Level 3.FTRs based on Consumers’ average historical settlements.

For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for the risk of nonperformance. For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS Energy and Consumers assign to the counterparty based on an internal credit-scoring model. This model considers various inputs, including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market participants. To the extent that the internal ratings are comparable to credit ratings published by independent rating agencies, the resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings given by the independent

agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance, based on their published credit ratings. ~~Adjustments for credit risk using the approach outlined within this paragraph are not materially different from the adjustments that would result from using~~CMS Energy and Consumers monitor market conditions and may incorporate other data, such as credit default swap rates, in determining adjustments for ~~the contracts presently held.~~credit risk as warranted. For additional details about derivative contracts, see Note 8, Derivative Instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level 3 Inputs

~~The~~Presented in the following ~~table is a reconciliation~~tables are reconciliations of changes in the fair values of Level 3 assets and liabilities at CMS ~~Energy:~~Energy, which include Level 3 assets and liabilities at Consumers:

In Millions
Three months ended June 30 2010 2009

Balance at April 1 $ (3 ) $ (10 )
Total losses included in earnings (a) (1 ) —
Purchases, sales, issuances, and settlements (net) (1 ) (1 )

Balance at June 30 $ (5 ) $ (11 )

Unrealized losses included in earnings for the three months ended June 30 relating to assets and liabilities still held at June 30 (a) $ (2 ) $ (1 )


In Millions

Three Months Ended June 30	2011			2010

Balance at April 1	$	(2	)	$	(3	)
Total losses included in earnings¹		(1	)		(2	)
Total gains offset through regulatory accounting		3			1
Settlements		—			(1	)

Balance at June 30	$	—		$	(5	)

Unrealized losses included in earnings for the three months ended June 30 relating to assets and liabilities still held at June 30¹	$	—		$	(2	)

In Millions
Six months ended June 30 2010 2009

Balance at January 1 $ (8 ) $ (16 )
Total gains included in earnings (a) 3 6
Purchases, sales, issuances, and settlements (net) — (1 )

Balance at June 30 $ (5 ) $ (11 )

Unrealized gains included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 30 (a) $ 2 $ 4


In Millions

Six Months Ended June 30	2011			2010

Balance at January 1	$	(3	)	$	(8	)
Total gains included in earnings¹		—			2
Total gains offset through regulatory accounting		3			1
Settlements		—			—

Balance at June 30	$	—		$	(5	)

Unrealized gains included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 30¹	$	1		$	2


~~(a)~~¹		CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of ~~Operating Revenue~~operating revenue or ~~Maintenance~~maintenance and other operating expenses on its ~~Consolidated Statements~~consolidated statements of ~~Income.~~income.

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

In Millions

Three Months Ended June 30 2011 2010

Balance at April 1 $ — $ —
Total gains offset through regulatory accounting 3 1
Settlements — (1 )

Balance at June 30 $ 3 $ —

In Millions

Six Months Ended June 30 2011 2010

Balance at January 1 $ 1 $ —
Total gains offset through regulatory accounting 3 1
Settlements (1 ) (1 )

Balance at June 30 $ 3 $ —

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

~~The~~CMS Energy and Consumers had no nonrecurring fair value measurements during the six months ended June 30, 2011.

Presented in the following table ~~summarizes,~~are CMS Energy’s assets, by level within the fair value hierarchy, ~~CMS Energy’s assets~~ reported at fair value on a nonrecurring basis during the three months ended June 30, 2010:


In Millions	In Millions										In Millions
								Gains
		Level 1		Level 2		Level 3		(Losses)				Level 1		Level 2		Level 3		Losses

CMS Energy, including Consumers
Assets held for sale		$	—	$	—	$	7	$	(4	)		$	—	$	—	$	7	$	(4	)

CMS ~~ENERGY CONTINGENCIES~~Energy Contingencies

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

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

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

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

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

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

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

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

A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages and attorneys’ fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new complaint in the U.S. District Court for the Eastern District of Michigan. In 2010, the MDL judge issued an opinion and order granting the CMS Energy defendants’ motion to dismiss the Michigan complaint on statute-of-limitations grounds and all CMS Energy defendants have been dismissed from the Arandell (Michigan) action.

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

In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is

	•		A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages, and attorneys’ fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new Arandell case in Michigan. The CMS Energy defendants filed a motion to dismiss the new Michigan case on statute-of-limitations grounds and that motion remains pending.

	•		Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera Gas Company, was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants and 19 other non-CMS Energy companies. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

	•		In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against a number of energy companies, including CMS Energy, CMS MST, and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas ~~between January 1,~~in 2000 and ~~December 31,~~ 2001. ~~This case is part of the MDL proceeding, but is not a class action.~~

After removal to federal court, all of the ~~Learjet, Heartland, Breckenridge, both Arandell~~ cases ~~Newpage, and J.P. Morgan cases~~described above were transferred to the ~~MDL case.~~MDL. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS Energy defendants ~~remain~~remained parties. All CMS Energy defendants were dismissed from the Breckenridge case in 2009. ~~It is expected that the plaintiffs in this case will appeal this decision after all claims against defendants have been dismissed. At this time, there is no pending appeal.~~ In ~~June~~ 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage ~~case;~~case and the Arandell (Wisconsin) case was reinstated against CMS ~~ERM; and the Arandell (Wisconsin) case was consolidated with the Newpage case. These two consolidated cases remain pending only~~ERM. In July 2011, all claims against remaining CMS ~~ERM. Pending before the court~~Energy defendants in ~~all of~~ the MDL cases ~~are the defendants’ renewed motions for summary judgment~~were dismissed based on FERC ~~preemption and the plaintiffs’ motion for leave to amend their complaint to add a federal Sherman Act antitrust claim. In all but the J.P. Morgan case, there~~preemption. Appeals are ~~also pending plaintiffs’ motions for class certification. These motions are not yet decided.~~

	•		In 2005, Samuel D. Leggett, et al. v. Duke Energy Corporation, et al., a class action complaint brought on behalf of retail and business purchasers of natural gas in Tennessee, was filed in the Chancery Court of Fayette County, Tennessee. The defendants included CMS Energy, CMS MST, and CMS Field Services. In April 2010, the Tennessee Supreme Court dismissed all claims against all defendants.

	•		In 2006, CMS Energy and CMS MST were each served with a summons and complaint which named CMS Energy, CMS MST, and CMS Field Services as defendants in an action filed in Missouri state court, titled Missouri Public Service Commission v. Oneok, Inc., alleging violation of the Missouri antitrust law, fraud, and unjust enrichment. In 2009, all defendants were dismissed for lack of standing. The Missouri Court of Appeals affirmed the dismissals in late 2009. In February 2010, the plaintiff filed an application for leave to appeal with the Missouri Supreme Court, seeking to overturn the Missouri Court of Appeals decision. In April 2010, the Missouri Supreme Court granted review to hear the case. Oral argument on the appeal is scheduled for September 2010 in the Missouri Supreme Court.

possible.

These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the

amount of CMS Energy’s possible loss would be based on widely varying models previously untested in this context. ~~Defenses are being pursued vigorously, which could result in the dismissal of the cases completely, but CMS Energy is unable to predict~~If the outcome ~~of these matters. If the outcome~~after appeals is unfavorable, these cases could have a material adverse impact on CMS Energy’s liquidity, financial condition, and results of operations.

Bay Harbor:As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the ~~MDNRE,~~MDEQ, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of ~~remedial actions,~~response activities, including constructing a leachate collection system ~~at an identified seep.~~in one area where CKD-impacted groundwater was entering Little Traverse Bay. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project.

In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an ~~AOC~~Administrative Order on Consent under Superfund, and the EPA approved a Removal Action Work Plan to address contamination ~~issues at Bay Harbor.~~issues. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA agreed upon augmentation measures to address areas where pH measurements were not satisfactory. ~~The~~Several augmentation measures were implemented and completed in ~~2009.~~2009, with the remaining measure completed in 2010.

In May 2011, CMS Energy received approval from the EPA on a revised scope of remedies that CMS Energy had submitted in December 2010. CMS Energy is presently in negotiations with the MDEQ to finalize an agreement that will identify the remaining final remedies at the site. In December 2010, the MDEQ issued an NPDES permit that authorizes CMS Land to discharge treated leachate into Little Traverse Bay. This permit requires renewal every five years. Additionally, CMS Land has committed to investigate the potential for a deep injection well on the Bay Harbor site as an alternative long-term solution to the leachate disposal issue. In 2008, the ~~MDNRE~~MDEQ and the EPA granted permits for CMS Land or its ~~affiliate,~~wholly owned subsidiary, Beeland Group LLC, to construct and operate aan off-site deep injection well in Antrim County, Michigan, to dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. The legal proceeding was stayed in 2009 and can be renewed by either party at any time. CMS Land and CMS Capital continue to seek a lower cost long-term water disposal option including using deep injection wells, permitted discharge to surface water, and disposal with a local municipal water treatment facility.

Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. ~~There~~In October 2010, CMS Land and other parties received a demand for payment from the EPA in the amount of $7 million, plus interest, whereby the EPA is ~~presently one lawsuit (Jankowski v.~~seeking recovery, as allowed under Superfund, of the EPA’s response costs incurred at the Bay Harbor site. CMS ~~Energy, CMS Capital,~~Land believes that this is not a valid claim and ~~CMS Land) pending that was filed in June 2010 in Emmet County Circuit Court in Michigan relating~~intends to ~~such subjects.~~dispute it.

CMS Land and CMS Capital, the ~~MDNRE,~~MDEQ, the EPA, and other parties ~~are negotiating~~continue to negotiate the long-term remedy for the Bay Harbor ~~sites,~~site, including:

	•		~~the disposal of leachate;~~

	•		~~the capping and excavation of CKD;~~

	•		~~the location and design of collection lines and upstream diversion of water;~~

	•		~~potential flow of leachate below the collection system;~~

	•		~~applicable criteria for various substances such as mercury; and~~

	•		~~other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake.~~

the disposal of leachate;

the capping and excavation of CKD;

the location and design of collection lines and upstream water diversion systems;

application of criteria for various substances such as mercury; and

other matters that are likely to affect the scope of response activities that CMS Land and CMS Capital may be obligated to undertake.

CMS Energy has recorded a cumulative charge related to Bay Harbor of ~~$180 million.~~$223 million, which includes accretion expense. At June 30, ~~2010,~~2011, CMS Energy had a recorded liability of ~~$70~~$88 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of ~~4.32~~4.34 percent and an inflation rate of one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities ~~on June 30, 2009.~~at December 31, 2010. The undiscounted amount of the remaining obligation is ~~$91~~$109 million. CMS Energy expects to pay ~~$12~~$16 million during the remainder of ~~2010, $9~~2011, $16 million in ~~2011,~~2012, $7 million in ~~2012,~~2013, $5 million in ~~2013,~~2014, $4 million in 2015, and the remaining amount thereafter on long-term liquid disposal and operating and maintenance costs.

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

	•		~~inability to secure a suitable long-term water disposal option at a reasonable cost;~~

	•		~~further increases in water disposal costs under existing options;~~

	•		~~delays in developing a long-term water disposal option;~~

	•		~~an increase in the number of contamination areas;~~

	•		~~different remediation techniques;~~

	•		~~the nature and extent of contamination;~~

	•		~~continued inability to reach agreement with the MDNRE or the EPA over required remedial actions;~~

	•		~~delays in the receipt of requested permits;~~

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

	•		~~additional or new legal or regulatory requirements; or~~

	•		~~new or different landowner claims.~~

inability to complete the present long-term water disposal strategy at a reasonable cost;

delays in implementing the present long-term water disposal strategy;

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

an increase in the number of contamination areas;

different remediation techniques;

the nature and extent of contamination;

inability to reach agreement with the MDEQ or the EPA over additional response activities;

delays in the receipt of requested permits;

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

additional or new legal or regulatory requirements; or

new or different landowner claims.

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

~~State Street Bank and TSU Litigation:~~In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of representations and warranties and seeking $9 million plus interest from CMS Viron. During the same year, CMS Viron filed a counterclaim, as well as third-party actions against TSU, Academic Capital Group, Inc., and Academic Services, Inc. for breach of contract and fiduciary duties and conversion. In December 2009, the jury rendered a verdict in favor of CMS Viron and a final judgment was rendered on January 15, 2010 awarding CMS Viron $8 million plus prejudgment interest from TSU and another $3 million plus prejudgment interest and attorneys’ fees against Academic Capital Group, Inc. and Academic Services, Inc., collectively. This verdict is affected by an agreement under which CMS Viron agreed to pay $3 million to State Street Bank regardless of the verdict. In addition, State Street Bank agreed to assign certain rights of indemnification under a lease agreement to CMS Viron in return for a two-thirds stake in any ultimate recovery from TSU. At June 30, 2010, CMS Energy had a recorded liability of $3 million for its potential obligation related to this matter.

Equatorial Guinea Tax Claim:In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas, and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea ~~has~~ indicated in 2008 that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.

~~Marathon Indemnity Claim regarding F.T. Barr Claim:~~In 2001, F.T. Barr filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas, and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. In 2004, all parties signed a confidential settlement agreement that resolved claims between Barr and the defendants. The CMS Energy defendants reserved all defenses to any indemnity claim relating to the settlement.

In April 2009, certain Marathon entities filed a case in the U.S. District Court for the Southern District of Texas against CMS Enterprises for indemnification in connection with this matter. CMS Energy entities

5655

dispute Marathon’s claim, and are opposing it vigorously. CMS Energy entities also assert that Marathon has suffered minimal, if any, damages. CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.

~~Former NOMECO Employees’ Litigation:~~In June 2010, eight former employees of NOMECO filed a lawsuit in Ingham County Circuit Court in Michigan against CMS Energy and three Marathon entities (Richard Rulewicz, Trustee of the Richard Rulewicz Revocable Living Trust, et al. v. CMS Energy) alleging underpayment of the former employees’ overriding royalty payments related to the Alba field production in Equatorial Guinea, to which the plaintiffs claim to be entitled. CMS Oil and Gas sold its interests in the Alba field to Marathon in 2002. CMS Energy cannot predict the financial impact or outcome of this matter. CMS Energy believes that it may be entitled to full or partial indemnification from Marathon for monetary damages that may arise from this lawsuit.

~~CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES~~Consumers’ Electric Utility Contingencies

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

Cleanup and Solid Waste:Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. At June 30, ~~2010,~~2011, Consumers had a recorded liability of $1$2 million, its estimated probable NREPA liability.

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

Based on its experience, Consumers estimates that its share of the total liability for other known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At June 30, ~~2010,~~2011, Consumers had a recorded liability of $2 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable Superfund liability.

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

Ludington PCB:In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.

Electric Utility Plant Air Permit Issues and Notices of Violation:In 2007, Consumers received an NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their

their plants. Consumers responded to the information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.

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

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

At June 30, 2011, Consumers had a recorded liability of $163 million to the DOE ~~Litigation:~~to fund the disposal of spent nuclear fuel used before 1983. This balance comprised the principal amount of $44 million collected from customers for spent nuclear fuel disposal fees and $119 million of interest accrued on those collections. The liability, which was classified in long-term debt on CMS Energy’s and Consumers’ consolidated balance sheets, was to be paid to the DOE when it began to accept delivery of spent nuclear fuel. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a letter of credit to Entergy as security for this obligation.

In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.

A number of court decisions support the right of utilities to pursue damage claims in the U.S. Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. ~~If Consumers’ litigation against~~

In July 2011, Consumers entered into an agreement with the DOE ~~is successful,~~to settle its claims for $120 million. As part of this agreement, Consumers ~~plans~~settled its $163 million liability to ~~use any recoveries as reimbursement for~~ the ~~incurred~~DOE. Consumers will request that the MPSC determine the regulatory treatment of the $120 million settlement. In this filing, Consumers will propose that $85 million of the settlement should represent the recovery of its regulatory asset related to nuclear fuel storage costs ofat Big Rock. Certain other costs related to spent nuclear fuel ~~storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades~~were recovered from customers through rates, and the ~~Big Rock ISFSI did not transfer~~MPSC may determine that those amounts should be refunded to customers. If the ~~right~~MPSC concludes that Consumers may retain a portion of the settlement, Consumers will recognize that amount in earnings.

In its November 2010 electric rate order, the MPSC directed Consumers to ~~any recoveries from~~establish, within six months of the date of the order, an independent trust fund for the amount payable to the DOE. Subsequent rate orders extended this six-month deadline. Following its settlement with the DOE, ~~related~~Consumers petitioned the MPSC to ~~costs~~relieve it of ~~spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.~~

~~Nuclear Fuel Disposal Cost:~~~~Consumers has a recorded liability of $163 million for amounts it collected from customers before 1983~~the obligation to fund the ~~disposal~~trust.

As a result of ~~spent nuclear fuel. This amount, which includes interest of $119 million, is payable to~~ the DOE ~~when it begins to accept delivery~~settlement, Consumers may, under the terms of ~~spent nuclear fuel. In conjunction~~the purchase and sale agreement with ~~the sale~~Entergy, request termination of ~~Palisades and~~ the ~~Big Rock ISFSI in 2007, Consumers retained this obligation and provided a~~ letter of ~~credit to Entergy as security for this obligation.~~credit.

~~CONSUMERS’ GAS UTILITY CONTINGENCIES~~Consumers’ Gas Utility Contingencies

Gas Environmental Matters:Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site. At June 30, ~~2010,~~2011, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between ~~$33~~$28 million and ~~$48~~$43 million. Generally, Consumers has been able to recover most of its costs to date through proceeds from insurance settlements and customer rates.

At June 30, ~~2010,~~2011, Consumers had a recorded liability of ~~$33~~$28 million and a regulatory asset of ~~$61��~~$55 million that included ~~$28~~$27 million of deferred MGP expenditures. The timing of payments related to the remediation and other response activity at Consumers’ former MGP sites is uncertain. Consumers expects its remediation and other response activity costs to average $6 million annually over the next five years. Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability.

~~The~~Presented in the following table ~~provides~~is additional information regarding CMS Energy’s guarantees:



		~~Events That Would Require~~
Guarantee Description	How Guarantee Arose	Events That Would Require Performance

Indemnity obligations from asset sales and other agreements	Stock and asset ~~sales~~sale agreements	Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances

~~Surety bonds and other indemnity obligations~~	~~Normal operating activity, permits and licenses~~	~~Nonperformance~~

Guarantees and put options	Normal operating activity	Nonperformance or non-payment by a subsidiary under a related contract

Guarantees and put options	Bay Harbor remediation efforts	Owners exercising put options requiring CMS Land to purchase property

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

~~OTHER CONTINGENCIES~~Other Contingencies

Michigan Single Business Tax:The State of Michigan is finalizing its audit of CMS Energy’s and Consumers’ combined Michigan single business tax returns for 2004 through 2007. The outcome of this audit could impact CMS Energy’s and Consumers’ net income. CMS Energy and Consumers are unable to estimate any potential earnings impact.

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

4: ~~UTILITY RATE~~REGULATORY MATTERS

Rate matters are critical to Consumers. Depending upon the specific issues, the outcomes of ~~specific~~ rate cases and proceedings could have a material adverse effect on CMS Energy’s and Consumers’ ~~cash flows~~liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.

~~CONSUMERS’ ELECTRIC UTILITY RATE MATTERS~~Consumers’ Electric Utility

Electric Rate Cases:The MPSC, in its 2010 electric rate case order, authorized Consumers to increase its rates by $146 million annually, $4 million less than the rate increase self-implemented by Consumers in July 2010. In June 2011, the MPSC approved a settlement agreement, finding that no refund of self-implemented rates to customers is required.

PSCR ~~Reconciliations~~Plan:In September 2010, Consumers submitted its 2011 PSCR plan to the MPSC. In accordance with its proposed plan, Consumers self-implemented the 2011 PSCR charge beginning in January 2011.

PSCR Reconciliation: ~~The~~Presented in the following table ~~summarizes~~is the PSCR reconciliation filing pending with the MPSC:

~~PSCR Cost of~~

PSCR Year

Date Filed

Net Underrecovery

PSCR Cost of Power Sold

~~2009~~2010

March ~~2010~~2011

$39 15 million ~~(a)~~

$~~1.6~~ 1.7 billion


~~(a)~~		In 2005, the MPSC approved an economic development discount for a large industrial customer to promote long-term investments in the industrial infrastructure of Michigan. It was determined in the November 2009 electric rate case order that recovery of this discount should be provided through the electric general rates that Consumers self-implemented in May 2009. That order, however, did not address the recovery of the power-supply component of the discount provided from January 2009 through self-implementation, which totaled $4 million. Consumers has requested recovery of this amount through its 2009 PSCR reconciliation.

In ~~March 2010,~~June 2011, the MPSC issued an order inapproving Consumers’ 2007 PSCR reconciliation, disallowing PSCR recovery of $3 million of economic development discounts and $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell plant. The MPSC approved the 20072009 PSCR reconciliation, as modified by the order, and authorized Consumers to include an underrecovery of ~~$21~~$31 million in its 2008 PSCR plan. In April 2010, Consumers filed for a rehearing in its 2007 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of a $2 million economic development discount provided in 2007 to a large industrial customer. In June 2010, the MPSC denied Consumers’ petition for rehearing. In July 2010, Consumers filed a claim for appeal with the Michigan Court of Appeals regarding the MPSC’s decision to disallow recovery of the economic development discount. Consumers cannot predict the outcome of this proceeding.

In June 2010, the MPSC issued an order in Consumers’ 2008 PSCR reconciliation, disallowing the PSCR recovery of a $3 million economic development discount. The MPSC approved the 2008 PSCR reconciliation, as modified by the order, and authorized Consumers to include an overrecovery of $14 million in its 2009 PSCR reconciliation. In July 2010, Consumers filed for a rehearing in its 2008 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of the $3 million economic development discount. Consumers cannot predict the outcome of this proceeding.

~~PSCR Plan~~~~: In September 2009, Consumers submitted its~~ 2010 PSCR Plan to the MPSC. Using the maximum PSCR factor proposed in its plan, Consumers self-implemented the 2010 PSCR charge beginning in January 2010. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of this proceeding.reconciliation.

Electric ~~Rate Cases:~~Revenue Decoupling Mechanism:~~The MPSC, through a final order and rehearing in~~ Consumers’ 2009 electric rate case ~~directed Consumers~~order authorized an electric revenue decoupling mechanism, subject to ~~refund to customers the difference between the rates it self-implemented in May 2009 and the rates authorized~~certain conditions. This decoupling mechanism, which was extended in the ~~order, plus interest, subject to a reconciliation proceeding. In February~~ 2010 Consumers filed an application for the refund of $12 million to its customers beginning in September 2010. In May 2010, the MPSC Staff recommended a refund of $32 million. In June 2010, Consumers revised its proposed refund to $15 million. The MPSC issued an order in June 2010 that dispenses with the need for the ALJ’s PFD in this case, which will expedite the refund Consumers must make to its customers.

~~The MPSC’s order in Consumers’ 2009~~ electric rate case ~~also adopted a “pilot” decoupling mechanism~~order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and ~~an uncollectible expense tracking mechanism.~~conservation. Various parties have filed appeals concerning ~~aspects~~the electric decoupling mechanism.

In March 2011, Consumers filed its first reconciliation of the electric revenue decoupling mechanism with the MPSC, requesting recovery of $27 million from customers for the period December 2009 through November 2010. Other parties are opposing this recovery.

At June 30, 2011, Consumers had a $58 million non-current regulatory asset recorded for electric decoupling, which included the $27 million balance referred to above.

Uncollectible Expense Tracking Mechanism:In March 2011, Consumers filed its reconciliation of the uncollectible expense tracking mechanism with the MPSC, requesting recovery of $3 million from customers for November 2009 through November 2010, the entire period of the tracker. The uncollectible expense tracking mechanism, authorized by the MPSC in its November 2009 electric rate order, ~~including both~~allowed future rates to be adjusted to collect or refund 80 percent of ~~these ratemaking mechanisms. Two~~the difference between the level of electric uncollectible expense included in rates and actual uncollectible expense. During 2009, various parties ~~also seek to have~~filed appeals concerning the ~~Michigan Supreme Court hear these appeals directly. Consumers cannot predict~~uncollectible expense tracking mechanism. In its 2010 electric rate order, the ~~outcome~~MPSC terminated the uncollectible expense tracking mechanism as of ~~these proceedings.~~November 2010.

6160

In January 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $178 million based on an 11 percent authorized return on equity. The filing requested authority to recover new investments in system reliability, environmental compliance, and technology advancements. In June 2010, the MPSC Staff recommended a revenue increase of $90 million, based on a 10.35 percent return on equity. The MPSC Staff also recommended an additional revenue increase of $25 million (not included in the table below) if the MPSC denies Consumers’ request for a tracking mechanism for an economic development discount provided to a large industrial customer. In July 2010, Consumers self-implemented an annual electric rate increase of $150 million, subject to refund with interest. The $28 million reduction from Consumers’ requested rate increase reflects Consumers’ attempt to be responsive to concerns raised by the MPSC Staff and other intervenors, and to balance the need for investment in improved infrastructure to support economic recovery in Michigan and the resulting rate impacts on customers. The following table details the components of Consumers’ self-implemented electric rate increase and the increase recommended by the MPSC Staff:

In Millions
Increase
Consumers’ Recommended
Self-Implemented by the
Components of the increase in revenue Increase MPSC Staff Difference

Investment in rate base $ 106 $ 80 $ (26 )
Recovery of operating and maintenance costs 21 25 4
Return on equity 18 (19 ) (37 )
Impact of sales declines 5 4 (1 )

Total $ 150 $ 90 $ (60 )

In its July 2010 order allowing Consumers to self-implement this increase, the MPSC expressed concern about utilities repeatedly self-implementing rate increases over short time periods, and before the return of previous overcollections of self-implemented rate increases. Consumers cannot predict the financial impact or outcome of this electric rate case.

Electric Operation and Maintenance Expenditures Show-Cause Order:In ~~December~~ 2005, ~~the MPSC authorized Consumers to increase its electric rates. In the same order,~~ the MPSC ordered Consumers to spend certain amounts on future tree-trimming and line-clearing activities, as well as on the operation and maintenance of Consumers’ fossil-fueled power plants. At that time, the MPSC also ordered Consumers to establish mechanisms to track these expenditures and stated that the rate increase was subject to refund with interest if the specified amounts were not spent on these activities.

In ~~October~~ 2009, the MPSC issued a show-cause order alleging that, in 2007, Consumers spent $14 million less on forestry and fossil-fueled plant operation and maintenance activity than the amount ordered by the MPSC and that Consumers ~~has~~had not refunded this amount to customers. The order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005 order and subjected to applicable sanctions, and why the refunds required by that order have not yet occurred. Consumers’ response indicated that the total amount it spent on forestry and fossil-fueled plant operation and maintenance activity for the years 2006 through 2009 exceeded the total amounts included in rates for these activities.

In ~~March 2010,~~June 2011, the MPSC ~~Staff requested~~found that ~~the MPSC find~~ Consumers ~~in violation of~~violated the ~~December~~ 2005 order, ~~and~~but that customers were not affected significantly by the violation. The MPSC ~~order~~levied a $65,200 penalty on Consumers, to refund $27 million for failure to meet annual spending requirements during 2007 and 2008. Consumers filed a response, stating that it would be unreasonable and unlawful to order a refund of this amount and that Consumers’ expenditures were consistent with the MPSC’s orders. In March 2010, the ALJ’s PFD found Consumers’ expenditures to be prudent and that Consumers did not violate the December 2005 order. The ALJ recommended that the

~~MPSC find~~but concluded that no ~~violation of the December 2005 order occurred and that no refunds be made to customers. Consumers cannot predict the outcome of this proceeding.~~refund was required.

Big Rock Decommissioning:The MPSC and FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to 2000, Consumers stopped funding a Big Rock trust fund because the collection period for an MPSC-authorized decommissioning surcharge ~~expired on that date.~~expired. The level of funds provided by the trust fell short of the amount needed to complete decommissioning and Consumers provided $44 million of corporate contributions for decommissioning costs.

In an order issued in February 2010, the MPSC concluded that ~~decommissioning surcharges~~certain revenues collected during a statutory rate freeze from 2001 through 2003 should have been deposited in ~~the~~a decommissioning trust fund. The MPSC agreed that Consumers was entitled to ~~a recovery of the~~recover $44 million of decommissioning ~~shortfall,~~costs, but concluded that Consumers had collected this amount previously through the ~~decommissioning surcharge~~rates in effect during the rate freeze. In April 2010, the MPSC ordered Consumers to refund $85 million of revenue collected in excess of decommissioning costs plus ~~interest, over seven months beginning~~interest. Consumers completed this refund in ~~July 2010.~~January 2011. Consumers filed an appeal with the Michigan Court of Appeals in March 2010 to dispute the MPSC’s conclusion that the collections received during the rate freeze should be subject to refund. ~~At June 30, 2010, Consumers had an $86 million regulatory liability recorded on its Consolidated Balance Sheets for this refund. Consumers cannot predict the outcome of this proceeding.~~

Consumers ~~has~~ paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and ~~has~~ incurred $55 million for nuclear fuel storage costs as a result of the DOE’s failure to accept spent nuclear fuel. ~~Consumers is seeking recovery of these costs from the DOE.~~ At June 30, ~~2010,~~2011, Consumers had an $85 million regulatory asset recorded on its ~~Consolidated Balance Sheets~~consolidated balance sheets for these costs. In July 2011, Consumers entered into a settlement agreement with the DOE related to the DOE’s failure to accept spent nuclear fuel. For further information, see Note 3, Contingencies and Commitments, “Nuclear Matters.”

Renewable Energy Plan:In 2010, Consumers filed with the MPSC its first annual report and reconciliation for its renewable energy plan, requesting approval of Consumers’ reconciliation of renewable energy plan costs for 2009. In June 2011, the Administrative Law Judge issued a proposal for decision, recommending that the MPSC issue an order finding that Consumers met its 2009 renewable portfolio standards and that actual 2009 renewable energy expenses and revenues fell within MPSC-authorized levels. The Administrative Law Judge also recommended, however, that the MPSC exclude from recovery through the renewable surcharge $3 million of capital expenditures, along with related carrying costs, that Consumers incurred prior to enactment of the 2008 Energy Law.

In May 2011, the MPSC issued an order approving Consumers’ amended renewable energy plan, with slight modifications. The amended plan reduces the renewable energy surcharge billed to customers by an annual amount of $54 million. The reduction is a result of lower-than-anticipated costs to comply with the renewable energy requirements prescribed by the 2008 Energy Law.

Consumers filed its second annual report and reconciliation with the MPSC in June 2011, requesting approval of its reconciliation of renewable energy plan costs for 2010.

Energy Optimization Plan:In May 2011, the MPSC issued an order approving Consumers’ reconciliation of energy optimization plan costs for 2009. The MPSC also authorized Consumers to collect $6 million from customers as an incentive payment for exceeding savings targets under both its

gas and electric energy optimization plans during 2009. Consumers will collect the incentive over 12 months beginning June 2011.

In April 2011, Consumers filed with the MPSC its second annual report and reconciliation for its energy optimization plan, requesting approval of Consumers’ reconciliation of energy optimization plan costs for 2010. Consumers also requested approval to collect $8 million from customers as an incentive payment for exceeding savings targets under both its gas and electric energy optimization plans during 2010.

Electric Depreciation:In February 2010, Consumers filed an electric depreciation case related to its wholly owned electric utility property. As ordered by the MPSC, Consumers prepared a traditional cost-of-removal study, which supported a $46 million increase in annual depreciation expense. In June 2011, the MPSC approved a settlement agreement in this electric depreciation case, authorizing a $19 million increase in annual depreciation expense. The new depreciation rates will go into effect with a final order in Consumers’ next electric rate case.

Also in February 2010, Consumers filed an electric depreciation case for Ludington, the ~~pumped storage~~pumped-storage plant jointly owned by Consumers and Detroit Edison. This case, filed jointly with Detroit Edison, requests an increase in annual depreciation expense. Consumers’ share of this increase is $9 million annually. ~~Consumers cannot predict the financial impact or outcome of these proceedings.~~

Consumers’ Gas Utility

~~Renewable Energy Plan:~~Gas Rate Case:In ~~June~~August 2010, Consumers filed ~~its first annual report and reconciliation for its renewable energy plan~~an application with the MPSC ~~requesting approval~~seeking an annual increase in revenue of ~~Consumers’ reconciliation of renewable energy plan costs~~$55 million based on an 11 percent authorized return on equity. The filing requested recovery for ~~2009.~~investments made to enhance safety, system reliability, and operational efficiencies that improve service to customers.

~~Energy Optimization Plan:~~~~In April 2010,~~ Consumers filed ~~its first annual report~~testimony and ~~reconciliation for its energy optimization plan~~exhibits with the MPSC ~~requesting approval~~in January 2011, supporting a self-implemented annual gas rate increase of $48 million, subject to refund with interest. In February, Consumers filed a letter with the MPSC reducing the proposed self-implemented increase to $29 million. The MPSC then issued an order delaying Consumers’ ~~reconciliation of~~self-implementation in order to give other parties to the proceeding an opportunity to respond to Consumers’ revised self-implementation filing.

In May 2011, the MPSC approved a partial settlement agreement authorizing Consumers to increase its rates by $31 million annually, based on a 10.5 percent authorized return on equity. Matters not yet addressed in this case include the decoupling mechanism, the Smart Grid program, and contributions to the low-income and energy ~~optimization plan costs for 2009. Consumers also requested approval~~efficiency fund. Presented in the following table are the components of the collection of a $6 million incentive payment for both its gas and electric energy optimization plans. During 2009, Consumers achieved 134 percent of its electric savings target and 132 percent of its gas savings target. These achievements qualify Consumers to earn the maximum incentive allowedrate increase authorized by the MPSC ~~which is calculated as 15 percent of Consumers’ investment in energy savings.~~and the rate increase originally requested by Consumers:


In Millions
				Increase Originally
	Increase Authorized			Requested by
Components of the increase in revenue	by the MPSC			Consumers		Difference

Investment in rate base	$	29		$	30	$	(1	)
Impact of sales declines		15			4		11
Recovery of operating and maintenance costs		2			16		(14	)
Cost of capital		(15	)		5		(20	)

Total	$	31		$	55	$	(24	)

6362

~~CONSUMERS’ GAS UTILITY RATE MATTERS~~

Gas Cost Recovery:The GCR process is designed to allow Consumers to recover all of its purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its GCR billing factor monthly in order to minimize the overrecovery or underrecovery amount in the annual GCR reconciliation.

GCR Plan:In December 2010, Consumers submitted its 2011-2012 GCR plan to the MPSC. In accordance with its proposed plan, Consumers self-implemented the 2011-2012 GCR charge beginning in April 2011.

GCR Reconciliations: ~~The~~Presented in the following table ~~summarizes~~are the GCR reconciliation filings pending with the MPSC:

~~GCR Cost of~~

GCR Year

Date Filed

Net ~~(Under)/~~Overrecovery

GCR Cost of Gas Sold

~~2008-2009~~

~~June 2009~~

~~$(15) million~~

~~$1.8 billion~~

2009-2010

June 2010

$ 1 million

$1.3 billion

2010-2011

June 2011

6 million

1.2 billion

~~GCR Plans:~~~~In March 2010, the MPSC authorized Consumers to implement its 2009-2010 base GCR factor and generally approved Consumers’ plan with minor adjustments to Consumers’ current purchasing guidelines.~~

In December 2009, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2010-2011 GCR plan year. In April 2010, Consumers self-implemented its filed GCR plan. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.

~~Gas Rate Case:~~In May 2009, Consumers filed an application with the MPSC seeking an annual increase in revenue of $114 million based on an 11 percent authorized return on equity. The filing requested authorization to implement an uncollectible expense tracking mechanism, Pension Plan and OPEB equalization mechanisms, as well as a revenue decoupling mechanism.

In November 2009, Consumers self-implemented a gas rate increase in the annual amount of $89 million. In May 2010, the MPSC issued its order in this case, authorizing Consumers to increase its rates by $66 million based on an authorized return on equity of 10.55 percent. The following table details the components of Consumers’ self-implemented gas rate increase and the increase authorized by the MPSC:

In Millions
Consumers’ Increase
Self-Implemented Authorized by
Components of the increase in revenue Increase the MPSC Difference

Impact of sales declines $ 41 $ 28 $ (13 )
Investment in rate base 23 27 4
Recovery of operating and maintenance costs 17 13 (4 )
Return on equity 8 (2 ) (10 )

Total $ 89 $ 66 $ (23 )

The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in November 2009 and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. At June 30, 2010, CMS Energy and Consumers had a recorded regulatory liability of $15 million related to this refund. CMS Energy and Consumers determined that the portion of the refund that was specifically identifiable with the first quarter of 2010 was not material and, accordingly, did not revise those financial statements.

The May 2010 order also adopts a revenue decoupling mechanism, effective June 1, 2010, which, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between base sales per customer established in the order and weather-adjusted sales per customer. The order denied Consumers’ request to implement a gas uncollectible expense tracking mechanism and Pension Plan and OPEB equalization mechanisms.

~~Gas Depreciation:~~In September 2009, the MPSC ordered Consumers to adopt certain standard retirement units by January 1, 2010. Consumers estimates that the use of these standard retirement units will increase maintenance expense, and recovery of that expense, by $10 million annually. In May 2010, as ordered by the MPSC, Consumers implemented the new standard retirement units concurrently with the final rates approved in its gas rate case.

5: FINANCINGS

~~The~~Presented in the following table is a summary of ~~significant~~major long-term debt transactions during the six months ended June 30, ~~2010:~~2011:

Principal Interest
(in millions) Rate Issue/Retirement Date Maturity Date

Debt Issuances:

CMS Energy

Senior notes $ 300 6.25 % January 2010 February 2020

Debt Retirements:

Consumers

FMBs $ 250 4.00 % May 2010 May 2010
Tax-exempt pollution control revenue bonds 58 Various June 2010 June 2010

Principal

Issue/Retirement

(In Millions)

Interest Rate

Date

Maturity Date

Debt Issuances

CMS Energy

Senior Notes

250

2.75

May 2011

May 2014

Consumers

Tax-exempt bonds¹

Variable

May 2011

April 2018

Tax-exempt bonds¹

Variable

May 2011

April 2035

Total

353

Debt Retirements

Consumers

Tax-exempt bonds¹

Variable

May 2011

April 2018

Tax-exempt bonds¹

Variable

May 2011

April 2035

Total

103

In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040.


¹		In May 2011, Consumers utilized the Michigan Strategic Fund for the issuance of $68 million and $35 million of tax-exempt Michigan Strategic Fund Variable Rate Limited Obligation Revenue Bonds. The initial interest rate, which resets weekly, was 0.26 percent for the $68 million bond issuance and 0.28 percent for the $35 million bond issuance. The bonds, which are backed by letters of credit and collateralized by FMBs, are subject to optional tender by the holders that would result in remarketing. Consumers used the proceeds to redeem $103 million of tax-exempt bonds in May 2011.

Revolving Credit Facilities:The following secured revolving credit facilities with banks were available at June 30, ~~2010:~~2011:

In Millions
Letters of
Amount of Amount Credit Amount
Company Expiration Date Facility Borrowed Outstanding Available

CMS Energy (a) April 2, 2012 $ 550 $ — $ 3 $ 547
Consumers March 30, 2012 500 — 335 165
Consumers (b) November 30, 2010 30 — 30 —
Consumers August 17, 2010 150 — — 150


In Millions
	Amount of		Amount		Letters of Credit		Amount
Expiration Date	Facility		Borrowed		Outstanding		Available

CMS Energy
March 31, 2016¹	$	550	$	—	$	3	$	547

Consumers
March 31, 2016^{2, 3}	$	500	$	—	$	189	$	311
August 9, 2013³		150		—		—		150
September 21, 2011⁴		30		—		30		—

~~Effective January 1, 2010,~~ These transactions ~~entered into under this program~~ are accounted for as short-term secured ~~borrowings rather than as sales. For additional details, see Note 1, New Accounting Standards.~~borrowings. At June 30, ~~2010,~~2011, $250 million of accounts receivable were eligible for transfer, and no accounts receivable had been transferred under the program.

~~Consumers’ average short-term borrowings during~~ During the six months ended June 30, ~~2010, totaled $1 million, with a weighted average annual interest rate of 0.2 percent.~~2011, Consumers had no borrowings under this program.

Contingently Convertible Securities:~~At June 30, 2010,~~Presented in the following table are the significant terms of CMS Energy’s contingently convertible securities ~~were as follows:~~at June 30, 2011:

Outstanding Adjusted Adjusted
Security Maturity (In Millions) Conversion Price Trigger Price

4.50% preferred stock (a) — $ 239 $ 8.96 $ 10.75
3.375% senior notes (a) 2023 139 9.67 11.60
2.875% senior notes 2024 288 13.36 16.03
5.50% senior notes 2029 173 14.46 18.80


~~(a)~~		During 20 of the last 30 trading days ended June 30, 2010, the adjusted trigger prices were met for these securities and, as a result, the securities are convertible at the option of the security holders for the three months ending September 30, 2010.



			Outstanding		Adjusted		Adjusted
Security	Maturity		(In Millions)		Conversion Price		Trigger Price

2.875% senior notes		2024	$	288	$	12.81	$	15.37
5.50% senior notes		2029		172		14.26		18.54

During 20 of the last 30 trading days ended June 30, 2011, the adjusted trigger-price contingencies were met for both series of the contingently convertible senior notes, and as a result, the senior notes are convertible at the option of the security holders for the three months ending September 30, 2011.

Presented in the following table are details about conversions of contingently convertible securities during the six months ended June 30, ~~2010, no other trigger price contingencies were met that would have allowed the holders of the convertible securities to convert the securities to cash and equity.~~2011:

In July 2010, 250,000 shares of 4.50 percent preferred stock and $8 million principal amount of 3.375 percent senior notes were tendered for conversion. The average conversion price per share, number of common shares to be issued, and cash to be paid on settlement are not yet determinable.

3.375% contingently

Principal

Conversion Value

Common

Cash Paid on

convertible senior notes

Conversion

Converted

per $1,000 of

Stock Issued

Settlement

due 2023

Date

(In Millions)

principal

on Settlement

(In Millions)

Voluntary conversion

January 2011

1,994.21

197,472

Dividend Restrictions:Under provisions of CMS Energy’s senior notes indenture, at June 30, ~~2010,~~2011, payment of common stock dividends by CMS Energy was limited to ~~$879 million.~~$1.1 billion.

Under the provisions of its articles of incorporation, at June 30, ~~2010,~~2011, Consumers had ~~$356~~$452 million of unrestricted retained earnings available to pay common stock dividends to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.

For the six months ended June 30 ~~2010,~~2011, CMS Energy received ~~$168~~$196 million of common stock dividends from Consumers.

6664

Issuance of Common Stock:On June 15, 2011, CMS Energy entered into a continuous equity offering program under which CMS Energy may sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $50 million. In June 2011, under this program, CMS Energy issued 762,925 shares of common stock at an average price of $19.66 per share, resulting in net proceeds of $15 million.

6: EARNINGS PER SHARE — CMS ENERGY

~~The~~Presented in the following table ~~presents~~are CMS Energy’s basic and diluted EPS computations based on ~~Income~~income from ~~Continuing Operations:~~continuing operations:

In Millions, Except Per Share Amounts
Three months ended June 30 2010 2009

Income Available to Common Stockholders

Income from Continuing Operations $ 100 $ 55
Less Income Attributable to Noncontrolling Interests (2 ) (2 )
Less Preferred Dividends (2 ) (3 )

Income from Continuing Operations Available to Common Stockholders — Basic and Diluted $ 96 $ 50

Average Common Shares Outstanding

Weighted Average Shares — Basic 228.2 226.9
Add dilutive impact of Contingently Convertible Securities 19.3 7.6
Add dilutive Options and Warrants 0.1 0.1

Weighted Average Shares — Diluted 247.6 234.6
Income from Continuing Operations Per Average Common Share Available to Common Stockholders

Basic $ 0.42 $ 0.22
Diluted $ 0.39 $ 0.21


In Millions, Except Per Share Amounts
	Three Months Ended				Six Months Ended
June 30	2011		2010		2011		2010

Income Available to Common Stockholders
Income from continuing operations	$	101	$	100	$	234	$	189
Less income attributable to noncontrolling interest		1		2		1		2
Less preferred stock dividends		—		2		—		5

Income from Continuing Operations Available to Common Stockholders — Basic and Diluted	$	100	$	96	$	233	$	182

Average Common Shares Outstanding
Weighted average shares — basic		250.3		228.2		250.2		228.1
Add dilutive contingently convertible securities		11.3		19.3		11.0		19.5
Add dilutive non-vested stock awards and options		0.3		0.1		0.3		0.1

Weighted average shares — diluted		261.9		247.6		261.5		247.7

Income from Continuing Operations per Average Common Share Available to Common Stockholders
Basic	$	0.40	$	0.42	$	0.93	$	0.80
Diluted		0.38		0.39		0.89		0.74

In Millions, Except Per Share Amounts
Six months ended June 30 2010 2009

Income Available to Common Stockholders

Income from Continuing Operations $ 189 $ 130
Less Income Attributable to Noncontrolling Interests (2 ) (3 )
Less Preferred Dividends (5 ) (6 )

Income from Continuing Operations Available to Common Stockholders — Basic and Diluted $ 182 $ 121

Average Common Shares Outstanding

Weighted Average Shares — Basic 228.1 226.8
Add dilutive impact of Contingently Convertible Securities 19.5 7.2
Add dilutive Options and Warrants 0.1 0.1

Weighted Average Shares — Diluted 247.7 234.1
Income from Continuing Operations Per Average Common Share Available to Common Stockholders

Basic $ 0.80 $ 0.53
Diluted $ 0.74 $ 0.52

Contingently Convertible ~~Securities:~~Securities

When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS ~~Energy’s~~Energy common stock, exceeds the principal value of that security. ~~For additional details on contingently convertible securities, see Note 5, Financings.~~

Stock Options and ~~Warrants:~~Warrants

For ~~each of~~ the three months and six months ended June 30, ~~2010,~~2011, outstanding options to purchase ~~0.4~~0.1 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of CMS Energy common stock. These stock options have the potential to dilute EPS in the future.

Convertible Debentures

~~Convertible Debentures:~~For each of the three and six months ended June 30, ~~2010~~2011 and ~~2009, there was no impact on diluted EPS from~~2010, CMS Energy’s 7.75 percent convertible subordinated ~~debentures.~~debentures would have increased diluted earnings per share had they been included in the calculation. Using the if-converted method, the debentures would ~~have:~~have had the following impacts on the calculation of diluted EPS:

	•		increased the numerator of diluted EPS by less than $1 million for the three months ended June 30, 2010, and by $2 million for the three months ended June 30, 2009, from an assumed reduction of interest expense, net of tax;

	•		~~increased the denominator of diluted EPS by 0.7 million shares for the three months ended June 30, 2010, and by 3.6 million shares for the three months ended June 30, 2009;~~

	•		increased the numerator of diluted EPS by $1 million for the six months ended June 30, 2010, and by $4 million for the six months ended June 30, 2009, from an assumed reduction of interest expense, net of tax; and

	•		~~increased the denominator of diluted EPS by 0.7 million shares for the six months ended June 30, 2010, and by 3.9 million shares for the six months ended June 30, 2009.~~


In Millions
	Three Months Ended				Six Months Ended
June 30	2011		2010		2011		2010

Increase to numerator from assumed reduction in interest expense	$	—	$	—	$	1	$	1
Increase to denominator from assumed conversion of debentures into common shares		0.7		0.7		0.7		0.7

CMS Energy can revoke the conversion rights if certain conditions are met.

7: FINANCIAL INSTRUMENTS

The carrying amounts of CMS Energy’s and Consumers’ cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. ~~The~~Presented in the following table are the cost or carrying amounts and fair values of CMS Energy’s and Consumers’ long-term financial ~~instruments were as follows:~~instruments:


In Millions	In Millions									In Millions
		June 30, 2010				December 31, 2009					June 30, 2011				December 31, 2010
		Cost or				Cost or					Cost or				Cost or
		Carrying				Carrying					Carrying				Carrying
		Amount		Fair Value		Amount		Fair Value			Amount		Fair Value		Amount		Fair Value

CMS Energy, including Consumers
Securities held to maturity		$	4	$	5	$	4	$	4		$	7	$	7	$	5	$	6
Securities available for sale			89		90		26		27			115		116		90		90
Notes receivable, net			296		320		269		279
Long-term debt (a)			6,511		7,178		6,567		7,013
Notes receivable¹												398		417		386		407
Long-term debt²												7,283		8,074		7,174		7,861

Consumers
Securities available for sale		$	64	$	83	$	24	$	45		$	82	$	107	$	64	$	90
Long-term debt (b)			4,079		4,487		4,406		4,635
Long-term debt³												4,507		4,892		4,525		4,891

similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. ~~For~~CMS Energy includes the value of the conversion features in estimating the fair value of its convertible ~~securities, CMS Energy~~debt, and incorporates, as appropriate, information on the market prices of CMS ~~Energy’s~~Energy common stock.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At June 30, 2011 and December 31, 2010, CMS Energy’s long-term debt included ~~$240~~$103 million principal amount that was supported by third-party ~~insurance or other~~ credit enhancements. This entire principal amount was at Consumers. At December 31, 2009, CMS Energy’s long-term debt included $286 million principal amount that was supported by third-party insurance or other credit enhancements. Of this amount, $271 million principal amount was at Consumers.

~~The~~Presented in the following table ~~summarizes~~are CMS Energy’s and Consumers’ investment securities:

In Millions
June 30, 2010 December 31, 2009
Unrealized Unrealized Fair Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value

CMS Energy, including Consumers

Available for sale:
SERP:
Mutual fund $ 62 $ — $ — $ 62 $ — $ — $ — $ —
State and municipal bonds 27 1 — 28 26 1 — 27
Held to maturity:
Debt securities 4 1 — 5 4 — — 4

Consumers

Available for sale:
SERP:
Mutual fund $ 39 $ — $ — $ 39 $ — $ — $ — $ —
State and municipal bonds 17 — — 17 16 — — 16
CMS Energy Common Stock 8 19 — 27 8 21 — 29


													In Millions
	June 30, 2011								December 31, 2010
			Unrealized		Unrealized		Fair				Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value

CMS Energy, including consumers
Available for sale
SERP
Mutual fund	$	89	$	1	$	—	$	90	$	62	$	—	$	—	$	62
State and municipal bonds		26		—		—		26		28		—		—		28
Held to maturity
Debt securities		7		—		—		7		5		1		—		6

Consumers
Available for sale
SERP
Mutual fund	$	58	$	1	$	—	$	59	$	39	$	—	$	—	$	39
State and municipal bonds		17		—		—		17		17		—		—		17
CMS Energy common stock		7		24		—		31		8		26		—		34

The mutual fund classified as available for sale is a short-term, fixed-income fund. ~~Shares in this fund were acquired during~~During the six months ended June 30, ~~2010.~~2011, CMS Energy contributed $27 million to the SERP, which included a contribution of $20 million by Consumers. The contributions were used to acquire additional shares in the mutual fund. State and municipal bonds classified as available for sale consist of investment grade state and municipal bonds. Debt securities classified as held to maturity consist primarily of mortgage-backed securities held by EnerBank, as well as state and municipal bonds ~~and mortgage-backed securities~~ held by EnerBank.

~~The~~Presented in the following table ~~summarizes~~is a summary of the sales activity for CMS Energy’s and Consumers’ investment securities:


In Millions	In Millions									In Millions
		Three months ended				Six months ended					Three months ended				Six months ended
June 30		2010		2009		2010		2009			2011		2010		2011		2010

Proceeds from sales of investment securities:
CMS Energy, including Consumers		$	1	$	1	$	2	$	3
Proceeds from sales of investment securities¹											$	1	$	—	$	1	$	1

Consumers			1		1		1		2
Proceeds from sales of investment securities¹											$	—	$	—	$	1	$	—

commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as futures, options, and swaps. At June 30, ~~2010,~~2011, CMS ERM held the following derivative contracts:

a forward contract for the physical sale of ~~743~~608 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating ~~plants. CMS ERM also held~~ plants;

futures contracts through 2011 as an economic hedge of 3622 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of ~~0.5~~0.1 bcf of natural ~~gas. In its~~gas;

forward contracts to purchase 2.5 bcf and sell 4.2 bcf of natural gas through 2012 in CMS ERM’s role as a marketer of natural gas for third-party ~~producers, CMS ERM held forward~~producers; and

an option to sell 305 GWh of electricity, and as an economic hedge, contracts to purchase ~~2.4 bcf and sell 2.0~~0.4 bcf of natural gas through ~~2010 and a financial contract to sell 1.0 bcf of natural gas as an economic hedge of gas storage sales~~2011.

Presented in ~~2011. At June 30, 2010, CMS ERM held financial contracts through 2010 as an economic hedge against tolling arrangements with a purchase of 260 GWh of electricity and a sale of 1.7 bcf of gas.~~

~~At June 30, 2010 and December 31, 2009,~~ the ~~fair value of Consumers’ derivative instruments was less than $1 million. The~~ following table ~~summarizes~~are the fair values of CMS Energy’s and Consumers’ derivative instruments:

In Millions
Derivative Assets Derivative Liabilities
Fair Value Fair Value
Balance Balance
Sheet June 30, December 31, Sheet June 30, December 31,
Location 2010 2009 Location 2010 2009

CMS Energy, including Consumers

Derivatives not designated as hedging instruments:

Commodity contracts (a) Other
assets
(b) $ 5 $ 1 Other
liabilities
(c) $ 8 $ 9

Interest rate contracts (d) Other
assets — — Other
liabilities — 1

Total CMS Energy Derivatives $ 5 $ 1 $ 8 $ 10


In Millions
	Derivative Assets					Derivative Liabilities
	Balance	Fair Value at				Balance	Fair Value at
	Sheet	June 30,		December 31,		Sheet	June 30,		December 31,
	Location	2011		2010		Location	2011		2010

CMS Energy, including Consumers
Derivatives not designated as hedging instruments
Commodity contracts¹	Other assets	$	3	$	1	Other liabilities²	$	3	$	4

Consumers
Derivatives not designated as hedging instruments
Commodity contracts	Other assets	$	3	$	1	Other liabilities	$	—	$	—


~~(a)~~¹		Assets and liabilities are presented gross and exclude the impact of offsetting derivative assets and liabilities under master netting agreements, which was less than $1 million at June 30, ~~2010~~2011 and December 31, ~~2009.~~2010.

~~(b)~~		Assets exclude the impact of offsetting cash margin deposits paid by other parties to CMS ERM, which was $2 million at June 30, 2010. CMS Energy presents these assets net of these impacts on its Consolidated Balance Sheets.

~~(c)~~²		Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at June 30, ~~2010~~2011 and ~~$1 million at~~ December 31, ~~2009.~~2010. CMS Energy presents these liabilities net of these impacts on its ~~Consolidated Balance Sheets.~~

~~(d)~~		At December 31, 2009, CMS Energy’s derivatives included an interest rate collar held by Grayling as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. Effective January 1, 2010, CMS Energy deconsolidated Grayling. CMS Energy reflected its share of the loss on the interest rate collar, which was less than $1 million at June 30, 2010, in Income (loss) from equity method investees in its Consolidated Statements of Income. For additional details about the deconsolidation of Grayling, see Note 11, Variable Interest Entities.consolidated balance sheets.

Presented in the following table is the effect on CMS Energy’s and Consumers’ consolidated statements of income of their derivatives not designated as hedging instruments:


In Millions
	Amount of Gain (Loss) on Derivatives Recognized in Income
Location of Gain (Loss) on	Three Months Ended June 30						Six Months Ended June 30
Derivatives Recognized in Income	2011			2010			2011		2010

CMS Energy, including Consumers
Commodity contracts
Operating revenue	$	(1	)	$	(2	)	$	—	$	3
Fuel for electric generation		—			—			—		2
Purchased and interchange power		—			—			—		1

Total CMS Energy	$	(1	)	$	(2	)	$	—	$	6

Consumers’ gains on FTRs deferred as regulatory liabilities were $3 million for the three months ended June 30, 2011 and $1 million for the three months ended June 30, 2010. These amounts were $3 million for the six months ended June 30, 2011 and $1 million for the six months ended June 30, 2010.

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~~The following tables summarize the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated Statements of Income:~~

In Millions
Location of Gain (Loss) Amount of Gain (Loss)
on Derivatives on Derivatives
Recognized in Income Recognized in Income
Three months ended June 30 2010 2009

CMS Energy, including Consumers

Derivatives not designated as hedging instruments:

Commodity contracts Operating Revenue $ (2 ) $ (2 )
Other income 1 1

Total CMS Energy $ (1 ) $ (1 )

Consumers

Derivatives not designated as hedging instruments:

Commodity contracts Other income $ 1 $ 1

In Millions
Location of Gain (Loss) Amount of Gain (Loss)
on Derivatives on Derivatives
Recognized in Income Recognized in Income
Six months ended June 30 2010 2009

CMS Energy, including Consumers

Derivatives not designated as hedging instruments:

Commodity contracts Operating Revenue $ 3 $ 5
Fuel for electric generation 2 (2 )
Cost of gas sold — (3 )
Cost of power purchased 1 —
Other income 1 1
Foreign exchange contracts (a) Other expense — (1 )

Total CMS Energy $ 7 $ —

Consumers

Derivatives not designated as hedging instruments:

Commodity contracts Other income $ 1 $ 1


~~(a)~~		~~This derivative loss relates to a foreign-exchange forward contract that CMS Energy settled in January 2009.~~

~~At June 30, 2010, none of CMS Energy’s derivative liabilities was subject to credit-risk-related contingency features. At December 31, 2009,~~ CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were less than $1 ~~million.~~million at June 30, 2011 and were $1 million at December 31, 2010.

Credit Risk:CMS Energy’s swaps, options, and forward contracts contain credit risk, which is the risk that a counterparty will fail to meet its contractual obligations. CMS Energy reduces this risk through established policies and procedures. CMS Energy assesses credit quality by considering credit ratings, financial condition, and other available information for counterparties. A credit limit is established for each counterparty based on the evaluation of ~~their~~its credit quality. Exposure to potential loss under each contract is monitored and action is taken when appropriate.

CMS ERM enters into contracts primarily with companies in the electric and gas industry. This industry concentration may have a positive or negative impact on CMS Energy’s exposure to credit risk based on how similar changes in economic conditions, the weather, or other conditions affect these counterparties.

CMS ERM reduces its credit risk exposure by using industry-standard agreements that allow for netting positive and negative exposures associated with the same counterparty. Typically, these agreements also allow each party to demand adequate assurance of future performance from the other party, when there is reason to do so.

~~The following table illustrates CMS Energy’s exposure to potential losses at~~At June 30, ~~2010,~~2011, if ~~each counterparty~~counterparties within this industry concentration all failed to meet ~~its~~their contractual ~~obligations. This table includes~~obligations, the loss to CMS Energy on contracts accounted for as derivatives. It does not include trade accounts receivable, derivative contracts that qualify for the normal purchases and sales exception, or other contracts that CMS Energy does not account for as derivatives.

In Millions
Net Exposure Net Exposure
Exposure from from
Before Investment Investment
Collateral Grade Grade
(a) Collateral Held Net Exposure Companies Companies (%)

CMS Energy $ 3 $ 2 $ 1 $ — —


~~(a)~~		~~Exposure is reflected net of payables or derivative liabilities if netting arrangements exist.~~

derivatives would be less than $1 million.

CMS Energy does not expect a material adverse effect on its ~~Consolidated Balance Sheets~~consolidated balance sheets and ~~Consolidated Statements~~consolidated statements of ~~Income~~income as a result of counterparty nonperformance, given CMS Energy’s credit policies, current exposures, and credit reserves.

9: NOTES RECEIVABLE

EnerBank provides unsecured consumer installment loans for financing home improvements. These loans totaled $398 million, net of an allowance for loan losses of $5 million, at June 30, 2011, and $386 million, net of an allowance for loan losses of $5 million, at December 31, 2010. At June 30, 2011, $13 million of EnerBank’s loans were classified as current notes receivable and $385 million were classified as non-current notes receivable on CMS Energy’s consolidated balance sheets. At December 31, 2010, $11 million of EnerBank’s loans were classified as current notes receivable and $375 million were classified as non-current notes receivable on CMS Energy’s consolidated balance sheets.

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

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9:10: RETIREMENT BENEFITS

CMS Energy and Consumers provide ~~Pension Plan,~~pension, OPEB, and other retirement ~~benefit plans~~benefits to employees.

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


In Millions	In Millions													In Millions
		Pension													Pension
		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
June 30		2010			2009			2010			2009				2011			2010			2011			2010

CMS Energy, including Consumers
Net periodic pension cost
Service cost		$	11		$	10		$	22		$	20			$	12		$	11		$	24		$	22
Interest expense			25			24			49			48				25			25			50			49
Expected return on plan assets			(23	)		(22	)		(46	)		(43	)			(28	)		(23	)		(56	)		(46	)
Amortization of:
Net loss			13			11			26			21				15			13			31			26
Prior service cost			1			1			3			3				2			1			3			3

Net periodic cost		$	27		$	24		$	54		$	49
Regulatory adjustment			21			—			23			—
Net periodic pension cost															$	26		$	27		$	52		$	54
Regulatory adjustment¹																—			21			—			23

Net periodic cost after regulatory adjustment		$	48		$	24		$	77		$	49
Net periodic pension cost after regulatory adjustment															$	26		$	48		$	52		$	77

Consumers
Net periodic pension cost
Service cost		$	10		$	10		$	21		$	20			$	11		$	10		$	23		$	21
Interest expense			24			23			48			46				25			24			49			48
Expected return on plan assets			(22	)		(22	)		(45	)		(42	)			(28	)		(22	)		(55	)		(45	)
Amortization of:
Net loss			13			10			25			20				16			13			31			25
Prior service cost			1			2			3			3				2			1			3			3

Net periodic cost		$	26		$	23		$	52		$	47
Regulatory adjustments (a)			21			—			23			—
Net periodic pension cost															$	26		$	26		$	51		$	52
Regulatory adjustment¹																—			21			—			23

Net periodic cost after regulatory adjustment		$	47		$	23		$	75		$	47
Net periodic pension cost after regulatory adjustment															$	26		$	47		$	51		$	75


In Millions	In Millions													In Millions
		OPEB													OPEB
		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
June 30		2010			2009			2010			2009				2011			2010			2011			2010

CMS Energy, including Consumers
Net periodic OPEB cost
Service cost		$	6		$	7		$	13		$	13			$	6		$	6		$	13		$	13
Interest expense			20			20			41			40				19			20			38			41
Expected return on plan assets			(14	)		(13	)		(29	)		(26	)			(16	)		(14	)		(33	)		(29	)
Amortization of:
Net loss			8			9			16			17				8			8			16			16
Prior service credit			(5	)		(3	)		(7	)		(5	)
Prior service cost																(5	)		(5	)		(10	)		(7	)

Net periodic cost		$	15		$	20		$	34		$	39
Regulatory adjustment			6			—			7			—
Net periodic OBEB cost															$	12		$	15		$	24		$	34
Regulatory adjustment¹																—			6			—			7

Net periodic cost after regulatory adjustment		$	21		$	20		$	41		$	39
Net periodic OPEB cost after regulatory adjustment															$	12		$	21		$	24		$	41

Consumers
Net periodic OPEB cost
Service cost		$	6		$	6		$	13		$	12			$	7		$	6		$	13		$	13
Interest expense			20			19			40			39				19			20			37			40
Expected return on plan assets			(14	)		(12	)		(28	)		(24	)			(16	)		(14	)		(31	)		(28	)
Amortization of:
Net loss			8			9			16			17				8			8			16			16
Prior service credit			(4	)		(3	)		(6	)		(5	)
Prior service cost																(5	)		(4	)		(10	)		(6	)

Net periodic cost		$	16		$	19		$	35		$	39
Regulatory adjustments (a)			6			—			7			—
Net periodic OPEB cost															$	13		$	16		$	25		$	35
Regulatory adjustment¹																—			6			—			7

Net periodic cost after regulatory adjustment		$	22		$	19		$	42		$	39
Net periodic OPEB cost after regulatory adjustment															$	13		$	22		$	25		$	42

11: INCOME TAXES

~~In February 2010,~~Presented in the ~~MPSC issued an order in Consumers’ GCR case that allowed Consumers~~following table is the difference between the effective income tax rate from continuing operations, excluding noncontrolling interests, and the statutory U.S. federal income tax rate:



Six Months Ended June 30	2011			2010

CMS Energy, Including Consumers
U.S. federal income tax rate		35.0	%		35.0	%
Increase (decrease) in income taxes from:
MCIT law change, net of federal expense		(9.9	)		—
State and local income taxes, net of federal benefit		3.5			4.0
Medicare Part D exempt income, net of law change		(1.1	)		—
Income tax credit amortization		(0.6	)		(0.6	)
Other, net		0.3			0.7

Effective income tax rate		27.2	%		39.1	%

Consumers
U.S. federal income tax rate		35.0	%		35.0	%
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit		3.4			3.5
Medicare Part D exempt income, net of law change		(0.8	)		(1.0	)
Plant basis differences		0.2			—
Income tax credit amortization		(0.5	)		(0.5	)
Other, net		(0.3	)		0.1

Effective income tax rate		37.0	%		37.1	%

CMS Energy’s effective tax rate for the three months and the six months ended June 30, 2011, was materially reduced due to ~~collect~~ a one-time ~~surcharge under~~non-cash reduction in tax expense resulting from a ~~Pension Plan~~change in Michigan tax law. In May 2011, Michigan enacted the MCIT, effective January 1, 2012. The MCIT, a simplified six percent corporate income tax, will replace the MBT, which is a complex multi-part business tax. Both the MBT and ~~OPEB equalization mechanism.~~ the MCIT are income taxes for financial reporting purposes, for which deferred income tax assets and liabilities are recorded. CMS Energy and Consumers remeasured their Michigan deferred income tax assets and liabilities at June 30, 2011 to reflect this change in law. Unlike the MBT, the MCIT does not allow future tax deductions to offset the book-tax differences that existed upon enactment of the tax. Due primarily to the elimination of these future tax deductions, Consumers eliminated $134 million of net deferred tax assets associated with its utility book-tax temporary differences, recognizing a $134 million regulatory asset (not including the effects of income tax gross-ups), and in addition to the amounts related to Consumers, CMS Energy eliminated $32 million of net deferred tax liabilities associated with its non-utility book-tax temporary differences, recognizing a $32 million deferred income tax benefit.

For the six months ended June 30, 2010, ~~Consumers collected $2 million of Pension Plan and $1 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction~~CMS Energy recognized deferred tax expense of $3 million ~~of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $3 million of expense on its Consolidated Statements of Income. Thus, Consumers’ collection of~~to reflect the ~~equalization mechanism surcharge had no impact on net income for the six months ended June 30, 2010.~~

In April 2010, the MPSC issued an order in Consumers’ PSCR case that allowed Consumers to collect a one-time surcharge under a Pension Plan and OPEB equalization mechanism. For the six months ended June 30, 2010, Consumers collected $21 millionenactment of Pension Plan and $6 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction of $27 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $27 million of expense on its Consolidated Statements of Income. Thus, Consumers’ collection of the equalization mechanism surcharge had no impact on net income for the six months ended June 30, 2010.

CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010 to incorporate the effects of a new collective bargaining agreement reached between the Union and Consumers. The OPEB plan remeasurement decreased CMS Energy’s OPEB liability by $95 million, OPEB regulatory asset by $93 million, and AOCL by $2 million, and will result in a decrease in benefit costs of $14 million for 2010. The OPEB plan remeasurement decreased Consumers’ OPEB liability and OPEB regulatory asset by $93 million each, and will result in a decrease in benefit costs of $13 million for 2010. With the plan remeasurement, the discount rate was reduced from 6.0 percent at December 31, 2009 to 5.85 percent at April 30, 2010.

In March 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers. In February 2010, CMS Energy contributed $17 million to its SERP fund, which included a contribution of $11 million by Consumers.

~~10: INCOME TAXES~~

The actual income tax expense on income from continuing operations, excluding income attributable to noncontrolling interests, differs from the amount computed by applying the statutory U.S. federal income tax rate as follows:

In Millions
Six months ended June 30 2010 2009

CMS Energy, including Consumers

Income from continuing operations before income taxes $ 307 $ 209

Income tax expense at statutory 35% federal rate 108 73
Increase (decrease) in income taxes from:
Change in tax law, Medicare Part D subsidy 3 —
ITC amortization (2 ) (2 )
Medicare Part D exempt income (3 ) (3 )
State and local income taxes, net of federal benefit 12 13
Other, net 2 1

Income tax expense $ 120 $ 82

Effective tax rate 39.1 % 39.2 %

Consumers

Income from continuing operations before income taxes $ 310 $ 272

Income tax expense at statutory 35% federal rate 108 95
Increase (decrease) in taxes from:
ITC amortization (2 ) (2 )
Medicare Part D exempt income (3 ) (3 )
State and local income taxes, net of federal benefit 11 8
Other, net 1 3

Income tax expense $ 115 $ 101

Effective tax rate 37.1 % 37.1 %

The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care ~~Acts repeal~~Acts. The law change prospectively repealed the tax deduction for the portion of the health care costs ~~that are~~ reimbursed by the Medicare Part D subsidy. To reflect the law change, CMS Energy and Consumers decreased their deferred tax asset balances by $68 million, with CMS Energy recognizing deferred tax expense of $3 million and Consumers recognizing an increase to net regulatory tax assets of $65 million (not including the effects of ratemaking tax gross-ups). Therefore, this legislation had no effect on Consumers’ net incomesubsidy for ~~the six months ended June 30, 2010.~~taxable years beginning after December 31, 2012.

7674

~~11: VARIABLE INTEREST ENTITIES~~

Entities that are VIEs must be consolidated if the reporting entity determines that it has a controlling financial interest. The entity that is required to consolidate the VIE is called the primary beneficiary. Variable interests are contractual, ownership, or other interests in an entity that change as the fair value of the VIE’s net assets, excluding variable interests, changes. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest.

Effective January 1, 2010, the accounting standards for consolidation of VIEs were amended. The most significant amendment changed the criteria for identifying the primary beneficiary. Under the amended standard, the primary beneficiary is the entity that has both (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE.

~~As a result of adopting this amendment, effective January 1, 2010, CMS Energy has consolidated CMS Energy Trust I and deconsolidated three partnerships that it had previously consolidated.~~

CMS Energy has consolidated CMS Energy Trust I because CMS Energy is the variable interest holder that designed the entity and, through the design, has the power to direct the activities of CMS Energy Trust I that most significantly impact the trust’s economic performance. Through its guarantee, CMS Energy also has the obligation to absorb losses of CMS Energy Trust I. The sole assets of the trust consist of notes payable by CMS Energy, and the sole liabilities of the trust consist of Trust Preferred Securities. Upon consolidation, CMS Energy reduced its equity method investment by $5 million and its Long-term debt by $34 million. CMS Energy also recorded a $29 million liability for the mandatorily redeemable preferred securities issued by the trust. No gain or loss was recognized on the consolidation of CMS Energy Trust I.

CMS Energy has deconsolidated T.E.S. Filer City, Grayling, and Genesee because CMS Energy determined that power is shared among unrelated parties, and that no one party has the power to direct the activities that most significantly impact the entities’ economic performance. The partners must agree on all major decisions for each of the partnerships. As a result, CMS Energy is not the primary beneficiary of these partnerships.

~~The following table provides information about these partnerships:~~



	~~Nature of~~
~~Name (Ownership Interest)~~	~~the Entity~~	~~Financing of Partnership~~

~~T.E.S. Filer City (50%)~~	~~Coal-fueled power~~ ~~generator~~	~~Non-recourse long-term debt that matured in December 2007.~~

~~Grayling (50%)~~	~~Wood waste- fueled~~ ~~power generator~~	Sale of revenue bonds that mature in November 2012 and bear interest at variable rates. The debt is recourse to the partnership, but not the individual partners, and secured by a letter of credit equal to the outstanding balance.

~~Genesee (50%)~~	~~Wood waste- fueled~~ ~~power generator~~	~~Sale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partnership and secured by a CMS Energy guarantee capped at $3 million annually.~~

CMS Energy has operating and management contracts with Grayling and Genesee, and Consumers is the primary purchaser of power from each partnership through long-term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee, which allow these facilities to be dispatched based on the market price of wood waste. This results in fuel cost savings that each partnership shares with Consumers’ customers.

CMS Energy’s investment in these partnerships is included in Investments on the Consolidated Balance Sheets in the amount of $49 million as of June 30, 2010. The partnerships were consolidated at December 31, 2009. Total assets of the partnerships were $189 million and total liabilities were $92 million at December 31, 2009. The partnerships had third-party debt obligations totaling $70 million at December 31, 2009. Plant, property, and equipment serving as collateral for these obligations had a carrying value of $137 million at December 31, 2009. The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers, except through outstanding letters of credit of $2 million and a guarantee of $3 million annually. CMS Energy has deferred collections on certain receivables owed by Genesee. CMS Energy’s maximum exposure to loss from these receivables is $6 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.

12: REPORTABLE SEGMENTS

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

CMS Energy:

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

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

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

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

Consumers:

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

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

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

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


	In Millions
In Millions														In Millions
	Three months ended							Six months ended							Three Months Ended						Six Months Ended
June 30	2010				2009			2010			2009				2011			2010			2011			2010

Operating Revenue
CMS Energy, including Consumers
Electric utility	$	975		��	$	848		$	1,813		$	1,660			$	949		$	975		$	1,846		$	1,813
Gas utility		301				334			1,353			1,556				354			301			1,445			1,353
Enterprises		55				37			123			101				50			55			105			123
Other		9				6			18			12				11			9			23			18

Total Operating Revenue — CMS Energy	$	1,340			$	1,225		$	3,307		$	3,329			$	1,364		$	1,340		$	3,419		$	3,307

Consumers
Electric utility	$	975			$	848		$	1,813		$	1,660			$	949		$	975		$	1,846		$	1,813
Gas utility		301				334			1,353			1,556				354			301			1,445			1,353

Total Operating Revenue — Consumers	$	1,276			$	1,182		$	3,166		$	3,216			$	1,303		$	1,276		$	3,291		$	3,166

Net Income Available to Common Stockholders
CMS Energy, including Consumers
Electric utility	$	86			$	67		$	127		$	106			$	85		$	86		$	150		$	127
Gas utility		1				5			67			64				5			1			93			67
Enterprises		33				(13	)		42			(12	)			29			33			32			42
Discontinued Operations		(16	)			25			(17	)		24
Discontinued operations																—			(16	)		2			(17	)
Other		(24	)			(9	)		(54	)		(37	)			(19	)		(24	)		(42	)		(54	)

Total Net Income Available to Common Stockholders — CMS Energy	$	80			$	75		$	165		$	145			$	100		$	80		$	235		$	165

Consumers
Electric utility	$	86			$	67		$	127		$	106			$	85		$	86		$	150		$	127
Gas utility		1				5			67			64				5			1			93			67
Other																1			—			1			—

Total Net Income Available to Common Stockholder — Consumers	$	87			$	72		$	194		$	170			$	91		$	87		$	244		$	194


~~Item 3.~~		~~Quantitative and Qualitative Disclosures About Market Risk~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CMS ENERGY

There have been no material changes to market risk as previously disclosed in Part II, Item 7A. Quantitative and Qualitative Disclosures ~~about~~About Market Risk, ~~is contained~~in the 2010 Form 10-K.

CONSUMERS

There have been no material changes to market risk as previously disclosed in Part I,II, Item ~~2. MD&A, which is incorporated by reference herein.~~

~~CONSUMERS~~

7A. Quantitative and Qualitative Disclosures ~~about~~About Market Risk, ~~is contained~~ in ~~Part I, Item 2. MD&A, which is incorporated by reference herein.~~the 2010 Form 10-K.


~~Item 4.~~		~~Controls and Procedures~~

ITEM 4. CONTROLS AND PROCEDURES

CMS ENERGY

~~CMS ENERGY~~

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

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

CONSUMERS

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

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

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


~~Item 2.~~(a)		Unregistered Sales of Equity Securities ~~and Use of Proceeds~~

~~(a) Unregistered Sales of Equity Securities~~

None.

~~On June 25, 2010, CMS Energy issued 228 shares of its Common Stock and paid $5,012~~

(c)

Issuer Repurchases of Equity Securities

Presented in ~~cash in exchange for 100 shares of its 4.50 percent Cumulative Convertible Preferred Stock, Series B, tendered for conversion on June 8, 2010 in accordance with~~ the terms and provisions of the Certificate of Designation of 4.50 percent Cumulative Convertible Preferred Stock dated as of December 20, 2004, corrected February 27, 2006. Such Common Stock shares were issued based on the conversion value of $84.75 per share. The foregoing issuance, an exchange of securities with an existing shareholder, was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

~~(c) Issuer Repurchases of Equity Securities~~

~~The~~ following table ~~shows~~are CMS Energy’s repurchases of equity securities for the three months ended June 30, ~~2010:~~2011:

Total Number of Maximum Number of
Total Average Shares Purchased as Shares that May Yet
Number of Price Part of Publicly Be Purchased Under
Shares Paid per Announced Plans or Publicly Announced
Period Purchased* Share Programs Plans or Programs

April 1, 2010 to April 30, 2010 1,695 $ 16.38 — —

May 1, 2010 to May 31, 2010 — — — —

June 1, 2010 to June 30, 2010 61,496 14.32 — —

Total 63,191 $ 14.38 — —


							Maximum Number of
					Total Number of Shares		Shares that May Yet Be
	Total Number				Purchased as Part of		Purchased Under
	of Shares		Average Price		Publicly Announced		Publicly Announced
Period	Purchased¹		Paid per Share		Plans or Programs		Plans or Programs

April 1 – 30, 2011		2,292	$	19.70		—		—
May 1 – 31, 2011		—		—		—		—
June 1 – 30, 2011		3,402		19.71		—		—

Total		5,694	$	19.71		—		—


*¹		Common shares were purchased to satisfy CMS ~~Energy repurchases certain restricted~~Energy’s minimum statutory income tax withholding obligation for common shares ~~upon vesting~~that have vested under the performance incentive stock ~~plan from participants in the performance incentive stock plan, equal to its minimum statutory income tax withholding obligation.~~plan. Shares repurchased have a value based on the market price on the vesting date.


~~Item 3.~~		~~Defaults Upon Senior Securities~~

~~None.~~


~~Item 5.~~		~~Other Information~~

~~None.~~

8379

ITEM 6. EXHIBITS

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

The representations and warranties may not describe the actual state of affairs of the parties to each agreement. Additional information about CMS Energy and Consumers may be found in this filing, at www.cmsenergy.com, at www.consumersenergy.com, and through the SEC’s website at www.sec.gov.



~~3.1~~Exhibits		~~CMS Energy Bylaws, amended and restated~~	Description
4.1		—	One Hundred Fifteenth Supplemental Indenture dated as of May ~~21, 2010~~4, 2011 between Consumers and The Bank of New York Mellon, Trustee. (Exhibit ~~3.1~~4.16.18 to Form ~~8-K~~S-3 filed ~~May 26, 2010~~June 15, 2011 and incorporated herein by reference)

~~3.2~~4.2		~~Consumers Bylaws, amended and restated~~—	Twenty-Seventh Supplemental Indenture dated as of May ~~21, 2010~~12, 2011 between CMS Energy and The Bank of New York Mellon, as Trustee. (Exhibit ~~3.2~~4.1 to Form 8-K filed May ~~26, 2010~~12, 2011 and incorporated herein by reference)

10.1		~~CMS Energy’s Performance Incentive Stock Plan, effective February 3, 1988, amended and restated, effective August 1, 2010~~—
	Settlement Agreement between Consumers and United States to Resolve Claims Arising from Contract DE-CR01-83NE44374, entered into on July 11, 2011

12.1		—	Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends

12.2
~~12.2~~—		Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends

31.1
~~31.1~~—		CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2
~~31.2~~—		CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3
~~31.3~~—		Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4
~~31.4~~—		Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1
~~32.1~~—		CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2
~~32.2~~—		Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

CMS ENERGY’S AND CONSUMERS’ EXHIBIT INDEX


Exhibits				Description
10.1		—		Settlement Agreement between Consumers and United States to Resolve Claims Arising from Contract DE-CR01-83NE44374, entered into on July 11, 2011

	~~CONSUMERS ENERGY COMPANY~~ ~~(Registrant)~~
~~Dated: July 28, 2010~~	~~By:~~	~~/s/ Thomas J. Webb~~
12.1		~~Thomas J. Webb~~
—		~~Executive Vice President~~Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and ~~Chief Financial Officer~~	Combined Fixed Charges and Preferred Dividends

12.2		—		Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends

31.1		—		CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		—		CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3		—		Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4		—		Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		—		CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		—		Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS¹		—		XBRL Instance Document

101.SCH¹		—		XBRL Taxonomy Extension Schema

101.CAL¹		—		XBRL Taxonomy Extension Calculation Linkbase

101.DEF¹		—		XBRL Taxonomy Extension Definition Linkbase

101.LAB¹		—		XBRL Taxonomy Extension Labels Linkbase

101.PRE¹		—		XBRL Taxonomy Extension Presentation Linkbase


¹		In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed to be “furnished” and not “filed.” The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.”


	Page
Glossary		3
Filing Format		78
Forward-Looking Statements and Information		78

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited)
CMS Energy ~~Corporation~~		32
Consumers ~~Energy Company~~		40
Notes to the Consolidated Financial Statements		47

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosures about Market Risk		82
		78
Item 4. Controls and Procedures		8278

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		8279
Item 1A. Risk Factors		8279
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		8379
Item 3. Defaults Upon Senior Securities		8380
Item 4. Removed and Reserved		80
Item 5. Other Information		8380
Item 6. Exhibits		8481
Signatures		8682
EX-10.1
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-31.3
EX-31.4
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


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

CMS Oil and Gas		CMS Oil and Gas Company, a former wholly owned subsidiary of CMS Enterprises

~~CMS Viron~~		~~CMS Viron Corporation, a wholly owned subsidiary of CMS ERM~~

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

CSAPR		Cross-State Air Pollution Rule, finalized in July 2011, which supersedes the EPA’s proposed Clean Air Transport Rule and replaces CAIR

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

D.C.		District of Columbia

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

~~D.C.~~Dodd-Frank Act		~~District of Columbia~~Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010

DOE		U.S. Department of Energy

DOJ		U.S. Department of Justice

EBITDA		Earnings Before Interest, Taxes, Depreciation, and Amortization

EnerBank		EnerBank USA, a wholly owned subsidiary of CMS Capital

Entergy		Entergy Corporation, a non-affiliated company

EPA		U.S. Environmental Protection Agency

EPS		Earnings per share


~~QSPE~~		~~Qualifying special-purpose entity~~

REC		Renewable energy credit established under the 2008 Energy ~~Legislation~~Law

RMRR		Routine maintenance, repair, and replacement

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

SEC		U.S. Securities and Exchange Commission


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

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

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


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

~~Marathon~~MACT		~~Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a non-affiliated company~~Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source; for existing sources, MACT is the average emission limitation achieved by the best performing 12 percent of existing sources or the average limitation achieved by the best performing five sources, depending on the number of sources in the category

MBT		Michigan Business Tax

MCIT		Michigan Corporate Income Tax

MD&A		Management’s Discussion and Analysis

MDEQ		Michigan Department of Environmental Quality


	•		factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction, permitting, and government approvals;

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

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


2010 over/(under) 2009
		(In Millions)

•	insurance settlement related to a previously sold investment	$	30
•	absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009		22
•	increase in electric and gas revenues at Consumers due to rate orders, including the impacts of the decoupling mechanisms		18
•	other net increases at Consumers due to lower service restoration costs, outage costs, and other operating expenses		15
•	increase in electric revenues due to weather		11
•	absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation		(31	)
•	absence of a gain on the retirement of debt recorded in 2009		(18	)
•	other net decreases, primarily from tax adjustments and impairments related to discontinued operations		(13	)
•	decrease in gas revenue due to weather		(10	)
•	decrease in electric and gas revenues due to unfavorable sales mix and economic conditions		(10	)
•	other net decreases at Consumers, primarily higher depreciation expense and sales and use tax		(9	)

Total change		$	5


							In Millions
	Pension Cost		OPEB Cost		Pension Contribution		OPEB Contribution

CMS Energy, including Consumers
2010	$	107	$	61	$	100	$	71
2011		114		51		89		61
2012		110		48		142		51

Consumers
2010	$	104	$	63	$	97	$	70
2011		111		53		86		60
2012		107		50		137		50

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

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

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


~~(a)~~¹		This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements, which was less than $1 million at June 30, 2011.


²		At June 30, 2011, CMS Energy’s assets classified as Level 3 represented less than one percent of CMS Energy’s total assets measured at fair value.

³		This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements and ~~the $2 million impact of~~ offsetting cash margin deposits paid toby CMS ERM byto other ~~parties.~~parties, which was less than $1 million at June 30, 2011.

~~(b)~~		~~This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements.~~

~~(c)~~⁴		At June 30, ~~2010,~~2011, CMS Energy’s liabilities classified as Level 3 represented 3843 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities ~~are comprised~~consisted primarily of an electricity sales agreement held by CMS ERM.

⁵		At June 30, 2011, Consumers’ assets classified as Level 3 represented less than one percent of Consumers’ total assets measured at fair value.


~~(a)~~¹		This amount is gross and excludes the ~~$1 million~~ impact of offsetting derivative assets and liabilities under master netting ~~arrangements.~~arrangements, which was less than $1 million at December 31, 2010.


²		At December 31, 2010, CMS Energy’s assets classified as Level 3 represented less than one percent of CMS Energy’s total assets measured at fair value.

~~(b)~~³		This amount is gross and excludes the ~~$1 million~~ impact of offsetting derivative assets and liabilities under master netting arrangements and ~~the $1 million impact of~~ offsetting cash margin deposits paid by CMS ERM to other ~~parties.~~parties, which was less than $1 million at December 31, 2010.

~~(c)~~⁴		At December 31, ~~2009,~~2010, CMS Energy’s liabilities classified as Level 3 represented 5340 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities ~~are comprised~~consisted primarily of an electricity sales agreement held by CMS ERM.

⁵		At December 31, 2010, Consumers’ assets classified as Level 3 represented one percent of Consumers’ total assets measured at fair value.


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

~~(b)~~²		At June 30, ~~2010,~~2011, the carrying amount of CMS Land’s put option agreements with certain Bay Harbor property owners was $1 million. If CMS Land is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the put option agreement.


						In Millions
			Increase
	Consumers’		Recommended
	Self-Implemented		by the
Components of the increase in revenue	Increase		MPSC Staff			Difference

Investment in rate base	$	106	$	80		$	(26	)
Recovery of operating and maintenance costs		21		25			4
Return on equity		18		(19	)		(37	)
Impact of sales declines		5		4			(1	)

Total	$	150	$	90		$	(60	)


In Millions
						Letters of
		Amount of		Amount		Credit		Amount
Company	Expiration Date	Facility		Borrowed		Outstanding		Available

CMS Energy (a)	April 2, 2012	$	550	$	—	$	3	$	547
Consumers	March 30, 2012		500		—		335		165
Consumers (b)	November 30, 2010		30		—		30		—
Consumers	August 17, 2010		150		—		—		150


~~(a)~~¹		On March 31, 2011, CMS Energy entered into a $550 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces CMS Energy’s revolving credit facility that was set to expire in 2012. Obligations under this facility are secured by Consumers common stock.

		CMS Energy’s average borrowings during the six months ended June 30, ~~2010,~~2011 totaled $2$11 million, with a weighted-average annual interest rate of ~~1.0~~2.22 percent, atrepresenting LIBOR plus ~~0.75 percent.~~2.00 percent

~~(b)~~²		On March 31, 2011, Consumers entered into a $500 million secured revolving credit facility with a consortium of banks. This facility has a five-year term and replaces Consumers’ revolving credit facility that was set to expire in 2012.

³		Obligations under this facility are secured by FMBs of Consumers.

⁴		Secured revolving letter of credit facility.


In Millions, Except Per Share Amounts
Three months ended June 30	2010			2009

Income Available to Common Stockholders
Income from Continuing Operations	$	100		$	55
Less Income Attributable to Noncontrolling Interests		(2	)		(2	)
Less Preferred Dividends		(2	)		(3	)

Income from Continuing Operations Available to Common Stockholders — Basic and Diluted	$	96		$	50

Average Common Shares Outstanding
Weighted Average Shares — Basic		228.2			226.9
Add dilutive impact of Contingently Convertible Securities		19.3			7.6
Add dilutive Options and Warrants		0.1			0.1

Weighted Average Shares — Diluted		247.6			234.6
Income from Continuing Operations Per Average Common Share Available to Common Stockholders
Basic	$	0.42		$	0.22
Diluted	$	0.39		$	0.21


~~(a)~~¹		Includes current portion of notes receivable of $13 million at June 30, 2011 and $11 million at December 31, 2010.

²		Includes current portion of long-term debt of ~~$628~~$1,099 million at June 30, ~~2010~~2011 and ~~$672~~$726 million at December 31, ~~2009.~~2010.

~~(b)~~³		Includes current portion of long-term debt of ~~$36~~$338 million at June 30, ~~2010~~2011 and ~~$343~~$37 million at December 31, ~~2009.~~2010.


¹		All of the proceeds related to sales of state and municipal bonds that were held within the SERP and classified as available for sale. Realized losses on these sales were insignificant for both CMS Energy and Consumers during each period.

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

	•		~~they qualify for the normal purchases and sales exception; or~~

	•		~~there is not an active market for the commodity.~~


In Millions
	Location of Gain (Loss)	Amount of Gain (Loss)
	on Derivatives	on Derivatives
	Recognized in Income	Recognized in Income
Three months ended June 30		2010			2009

CMS Energy, including Consumers
Derivatives not designated as hedging instruments:
Commodity contracts	Operating Revenue	$	(2	)	$	(2	)
	Other income		1			1

Total CMS Energy		$	(1	)	$	(1	)

Consumers
Derivatives not designated as hedging instruments:
Commodity contracts	Other income	$	1		$	1


In Millions
	Three months			Six months
	ended			ended
June 30	2011			2011

Allowance for loan losses, at beginning of period	$	5		$	5
Charge-offs		(1	)		(2	)
Recoveries		—			—
Provision for loan losses		1			2

Allowance for loan losses, at end of period	$	5		$	5


In Millions
Past Due	Past Due		Past Due		Total				Total
30-59 Days	60-89 Days		Over 90 Days		Delinquent		Current		Outstanding

$ 1	$	1	$	—	$	2	$	396	$	398


~~(a)~~¹		Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. These regulatory adjustments were offset by surcharge revenues, resulting in no impact to net income for the periods presented.


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



					Total Number of		Maximum Number of
	Total		Average		Shares Purchased as		Shares that May Yet
	Number of		Price		Part of Publicly		Be Purchased Under
	Shares		Paid per		Announced Plans or		Publicly Announced
Period	Purchased*		Share		Programs		Plans or Programs

April 1, 2010 to April 30, 2010		1,695	$	16.38		—		—

May 1, 2010 to May 31, 2010		—		—		—		—

June 1, 2010 to June 30, 2010		61,496		14.32		—		—

Total		63,191	$	14.38		—		—


101.INS¹
101.INS*—		XBRL Instance Document

101.SCH¹
101.SCH*—		XBRL Taxonomy Extension Schema

101.CAL¹
101.CAL*—		XBRL Taxonomy Extension Calculation Linkbase

101.DEF¹
101.DEF*—		XBRL Taxonomy Extension Definition Linkbase

101.LAB¹
101.LAB*—		XBRL Taxonomy Extension Labels Linkbase

101.PRE¹
101.PRE*—		XBRL Taxonomy Extension Presentation Linkbase


			CMS ENERGY CORPORATION (Registrant)

Dated: July 28, 2011		By:	/s/ Thomas J. Webb Thomas J. Webb
			Executive Vice President and
			Chief Financial Officer

	~~CMS~~		CONSUMERS ENERGY ~~CORPORATION~~COMPANY (Registrant)

Dated: July 28, ~~2010~~2011		By:	/s/ Thomas J. Webb Thomas J. Webb
		~~Thomas J. Webb~~	Executive Vice President and
		~~Executive Vice President and~~	Chief Financial Officer