As filed with the Securities and Exchange Commission on February 15, 1995
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________

CMS ENERGY CORPORATION CMS ENERGY MICHIGAN LIMITED PARTNERSHIP
(Exact name of registrant as (Exact name of co-registrant as
specified in its charter) specified in its charter)

Michigan Michigan
(State or other jurisdiction (State or other jurisdiction of
incorporation or organization) incorporation or organization)

38-2726431 38-3220537
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)

Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313) 436-9261
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

___________________
Alan M. Wright
Senior Vice President and Chief Financial Officer
Fairlane Plaza South, Suite 900
330 Town Center Drive
Dearborn, Michigan 48126
313-436-9560
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
___________________
It is respectfully requested that the Commission send copies
of all notices, orders and communications to:

David J. Boyd, Esq. Steven R. Loeshelle, Esq.
Sidley & Austin Reid & Priest LLP
One First National Plaza 40 West 57th Street
Chicago, Illinois 60603 New York, New York 10019
___________________

Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as determined by
market and other conditions.
___________________

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [x]

CALCULATION OF REGISTRATION FEE

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Title of each class Amount Proposed Proposed Amount of
of securities to be to be maximum offering maximum aggregate registration
registered registered (1) price per share (1)(2) offering price(1)(2) fee(1)
- ------------------------------------------------------------------------------------------------------------------------------------

CMS Energy Corporation
Senior Debt Securities
Subordinated Debt Securities
CMS Energy Common Stock,
par value $.01 per share
Class G Common Stock, no par value
Preferred Stock, par value $.01 per share
Guarantee with respect to
CMS Energy Michigan Limited Partnership
Preferred Securities
CMS Energy Michigan Limited Partnership
Preferred Securities

Total $200,000,000 100% $200,000,000 $68,966
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(1) There are being registered hereunder such presently indeterminate principal
amount or number of Debt Securities (which may be senior or subordinated),
shares of Preferred Stock, shares of Class G Common Stock and shares of
Common Stock of CMS Energy Corporation and Preferred Securities of CMS
Energy Michigan Limited Partnership with an aggregate initial offering
price not to exceed $200,000,000, plus (i) an indeterminate number of
shares of CMS Energy Common Stock as may be issued upon conversion of Debt
Securities or Preferred Stock of CMS Energy Corporation or Preferred
Securities of CMS Energy Michigan Limited Partnership, (ii) an
indeterminate amount of Subordinated Debt Securities of CMS Energy
Corporation with an aggregate principal amount not to exceed $200,000,000
as may be distributed upon a dissolution of CMS Energy Michigan Limited
Partnership and (iii) a Payment and Guarantee Agreement of CMS Energy to be
delivered in connection with CMS Energy Michigan Limited Partnership
Preferred Securities for which, in each case, no separate consideration
will be received. Pursuant to Rule 457(o) under the Securities Act of 1933
which permits the registration fee to be calculated on the basis of the
maximum offering price of all the securities listed, the table does not
specify by each class information as to the amount to be registered,
proposed maximum offering price per unit or proposed maximum aggregate
offering price.
(2) Estimated solely for the purpose of calculating the registration fee.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE

This Registration Statement contains the following prospectuses: (i)
"base" prospectus (the "Base Prospectus") to be used in connection with the
offer and sale of debt securities, common stock and/or preferred stock of CMS
Energy Corporation ("CMS Energy") and preferred securities of CMS Energy
Michigan Limited Partnership ("CMS Energy Michigan"), a limited partnership in
which CMS Energy is the general partner; and (ii) a prospectus to be used in
connection with any offer and sale of a class of common stock of CMS Energy
which will be designated as Class G Common Stock (the "Class G Prospectus").

The Base Prospectus will be used for the offer and sale of all securities,
other than the Class G Common Stock, registered pursuant to this Registration
Statement, in addition to a prospectus supplement relating to the specific
security or securities to be offered and sold. Only the Class G Prospectus
will be used with respect to the offer and sale of the Class G Common Stock.
CMS Energy plans to consummate, from time to time, transactions involving the
sale of securities registered pursuant to this Registration Statement, provided
that the proceeds therefrom will not exceed an aggregate of $200,000,000. No
decisions have been made as to which securities will be issued or the timing or
size of any offering of such securities. Such determinations will be made from
time to time in the light of market and other conditions.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY __, 1995
$200,000,000

CMS ENERGY CORPORATION
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
AND
CMS ENERGY MICHIGAN
PREFERRED SECURITIES

CMS Energy Corporation, a Michigan corporation ("CMS Energy"), may offer,
from time to time, its (i) unsecured senior debt securities (the "Senior Debt
Securities") consisting of debentures, notes or other unsecured evidence of
indebtedness, (ii) unsecured subordinated debt securities (the "Subordinated
Debt Securities," and together with Senior Debt Securities, the "Debt
Securities") consisting of debentures, notes and other unsecured evidence of
indebtedness, (iii) shares of Common Stock, par value $.01 per share (the "CMS
Energy Common Stock"), (iv) Preferred Stock, par value $.01 per share ("CMS
Energy Preferred Stock"), or any combination of the foregoing, in each case in
amounts, at prices and on terms to be determined at or prior to the time of
sale. See "Description of Securities."

CMS Energy Michigan Limited Partnership ("CMS Energy Michigan"), a
Michigan special purpose limited partnership in which CMS Energy is the general
partner, may also offer, from time to time, its preferred securities ("CMS
Energy Michigan Preferred Securities"), representing limited partner interests
in one or more series, in amounts, at prices and on terms to be determined at
or prior to the time of sale. CMS Energy Michigan will lend the proceeds of
the sale of the Preferred Securities to CMS Energy in return for Subordinated
Debt Securities in aggregate principal amount equal to the aggregate
liquidation preference of such Preferred Securities, bearing interest at an
annual rate equal to the annual dividend rate of such Preferred Securities and
having certain redemption terms which correspond to the redemption terms for
the Preferred Securities. The Subordinated Debt Securities will rank
subordinate in right of payment to all Senior Indebtedness (as defined herein)
of CMS Energy. The payment of periodic cash distributions ("dividends") and
payments on liquidation or redemption with respect to the Preferred Securities,
to the extent of funds held by CMS Energy Michigan and legally available
therefor, are guaranteed under a Payment and Guarantee Agreement (the
"Guarantee") of CMS Energy. CMS Energy's obligations under the Guarantee are
subordinate and junior in right of payment to all other liabilities of CMS
Energy and pari passu with the most senior preferred stock issued by CMS
Energy. The Subordinated Debt Securities subsequently may be distributed pro
rata to holders of CMS Energy Michigan Preferred Securities in connection with
the dissolution of CMS Energy Michigan upon the occurrence of certain events as
may be described in an accompanying Prospectus Supplement (a "Prospectus
Supplement").

Specific terms of the particular Debt Securities, Common Stock, CMS Energy
Preferred Stock and CMS Energy Michigan Preferred Securities in respect of
which this Prospectus is being delivered (the "Offered Securities") will be set
forth in an accompanying Prospectus Supplement or Supplements, together with
the terms of the offering of the Offered Securities, the initial price thereof
and the net proceeds from the sale thereof. The Prospectus Supplement will set
forth with regard to the particular Offered Securities, without limitation, the
following: (i) in the case of Debt Securities, the designation, aggregate
principal amount, denomination, maturity, any exchange, conversion, redemption
or sinking fund provisions, provisions for redemption at the option of the
holder, interest rate (which may be fixed or variable), the time and method of
calculating interest payments, the right of CMS Energy, if any, to defer
payment of interest on the Debt Securities and the maximum length of such
deferral period, any listing on a securities exchange and other specific terms
of the offering; (ii) in the case of CMS Energy Common Stock, the number of
shares, public offering price and other specific terms of the offering; and
(iii) in the case of CMS Energy Preferred Stock and CMS Energy Michigan
Preferred Securities, the designation, number of shares, liquidation preference
per security, initial public offering price, any listing on a securities
exchange, dividend rate (or method of calculation thereof), dates on which
dividends shall be payable and dates from which dividends shall accrue, any
voting rights, any redemption, exchange, conversion or sinking fund provisions
and any other rights, preferences, privileges, limitations or restrictions
relating to the CMS Energy Preferred
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Stock or the CMS Energy Michigan Preferred Securities, as the case may be, of a
specific series and, in the case of CMS Energy Michigan Preferred Securities,
the terms upon which the proceeds of the sale of the CMS Energy Michigan
Preferred Securities will be loaned to CMS Energy. The offering price to the
public of the Offered Securities will be limited to $200,000,000 in the
aggregate.

The outstanding CMS Energy Common Stock is traded on the New York Stock
Exchange, Inc. ("NYSE"). See "Description of Securities--Capital
Stock--Dividend and Price Range of CMS Energy Common Stock." The CMS Energy
Common Stock sold pursuant to a Prospectus Supplement accompanying this
Prospectus will also be listed for trading on the NYSE, subject to official
notice of issuance.

____________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

____________________

CMS Energy intends to sell the Offered Securities through underwriters,
dealers, agents or directly to a limited number of purchasers. The names of,
and the principal amounts to be purchased by or through underwriters, dealers
or agents, if any, the compensation of such persons and other special terms in
connection with the offering and sale of such Offered Securities will be set
forth in the related Prospectus Supplement. See "Plan of Distribution" herein.

This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.

____________________

The date of this Prospectus is _______________, 1995.

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NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND
ANY INFORMATION OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CMS ENERGY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH THEY RELATE OR AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED OR INCORPORATED HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.

AVAILABLE INFORMATION

CMS Energy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Information, as of particular dates, concerning
CMS Energy's directors and officers, their remuneration, the principal holders
of CMS Energy's securities and any material interest of such persons in
transactions with CMS Energy is disclosed in proxy statements distributed to
shareholders of CMS Energy and filed with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 500 West Madison Street, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
outstanding shares of Common Stock of CMS Energy are listed on the NYSE and
reports, proxy statements and other information concerning CMS Energy may also
be inspected and copied at the offices of such exchange at 20 Broad Street, New
York, New York 10005.

____________________

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by CMS Energy with the Commission (File No.
1-9513) pursuant to the Exchange Act are hereby incorporated by reference in
this Prospectus and shall be deemed to be a part hereof: (i) CMS Energy's
Annual Report on Form 10-K for the year ended December 31, 1993; (ii) CMS's
Energy's Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, June 30 and September 30, 1994; and (iii) CMS Energy's Current Reports on
Forms 8-K dated March 4, March 29, August 18, October 5 and November 21, 1994
and January 10 and February 2, 1995.

All documents subsequently filed by CMS Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act and prior to the termination of the
offering made by this Prospectus (the "Offering") shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof from
the date of filing of such documents (such documents, and the documents
enumerated above, being hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

CMS Energy undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents referred to above which
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to CMS Energy Corporation at its principal executive offices located at
Fairlane Plaza South, Suite 1100, 330 Town Center Drive, Dearborn, Michigan
48126, Attention: Office of the Secretary, telephone: (313) 436-9261.

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Certain information contained in this Prospectus summarizes, is based
upon, or refers to information and financial statements contained in one or
more Incorporated Documents; accordingly, such information contained herein is
qualified in its entirety by reference to such documents and should be read in
conjunction therewith. ______________

CMS ENERGY

CMS Energy, incorporated in 1987, is the parent holding company of
Consumers Power Company ("Consumers") and CMS Enterprises Company
("Enterprises"). Consumers, a combination electric and gas utility company
serving most of Michigan's Lower Peninsula, is CMS Energy's largest subsidiary.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non-utility energy-related
businesses including: (i) oil and gas exploration and production, (ii)
development and operation of independent power production facilities, (iii) gas
marketing services to end-users and (iv) transmission and storage of natural
gas.

CMS Energy conducts its principal operations through the following five
business segments: (i) electric utility operations; (ii) natural gas utility
operations; (iii) oil and gas exploration and production operations; (iv)
independent power production; and (v) gas transmission and marketing.
Consumers or Consumers' subsidiaries are engaged in two segments: electric
operations and gas operations. Consumers' electric and gas businesses are
principally regulated utility operations.

CMS Energy's 1993 consolidated operating revenue was $3,482 million. This
consolidated operating revenue was derived from Consumers' sales of electric
energy (approximately 60% or $2,077 million), Consumers' gas operations
(approximately 33% or $1,160 million), oil and gas exploration and production
activities (approximately 2% or $77 million), independent power production
activities (approximately 1% or $21 million) and gas transmission and marketing
(approximately 4% or $142 million). Consumers' consolidated operations in the
electric and gas utility businesses account for the major share of CMS Energy's
total assets, revenue and income. CMS Energy's share of 1993 unconsolidated
non-utility generation and gas transmission revenue was $337 million.

Consumers is a public utility serving almost six million of Michigan's
nine million residents in all of the 68 counties in Michigan's Lower Peninsula.
Industries in Consumers' service area include automotive, metal, chemical, food
and wood products and a diversified group of other industries. Consumers' 1993
consolidated operating revenue of $3,243 million was derived approximately 64%
($2,077 million) from its electric utility business and approximately 36%
($1,160 million) from its gas utility business. Consumers' rates and certain
other aspects of its business are subject to the jurisdiction of the Michigan
Public Service Commission (the "MPSC") and the Federal Energy Regulatory
Commission.

CMS ENERGY MICHIGAN LIMITED PARTNERSHIP

CMS Energy Michigan is a limited partnership formed under the laws of the
State of Michigan. CMS Energy Michigan exists for the sole purpose of issuing
its limited partnership interests and investing the net proceeds thereof in the
Subordinated Debt Securities. CMS Energy is the sole general partner in CMS
Energy Michigan (the "General Partner"). CMS Energy Finance Corporation, a
Michigan corporation and wholly-owned indirect subsidiary of CMS Energy ("CMS
Finance"), is, as of the date hereof, the sole limited partner in CMS Energy
Michigan. Upon the issuance of CMS Energy Michigan Preferred Securities, which
securities represent limited partner interests in CMS Energy Michigan, holders
of the CMS Energy Michigan Preferred Securities will be limited partners in CMS
Energy Michigan and CMS Finance will withdraw as a limited partner. CMS Energy
will make capital contributions from time to time to the extent required so
that the total contributions made by the General Partner, as general partner,
shall at all times be at least equal to ____%. CMS Energy Michigan is managed
by the General Partner and exists for the sole purpose of issuing its
partnership interests and lending the proceeds thereof to CMS Energy, such
loans to be evidenced by Subordinated Debt Securities of CMS Energy. The
rights and obligations of CMS Energy, as General Partner, and the limited
partners of CMS Energy Michigan will be governed by the Michigan Revised
Uniform Limited Partnership Act and by an Amended and Restated Limited
Partnership Agreement of CMS Energy Michigan (the "Partnership Agreement")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus is a part. CMS Energy Michigan has a term of
approximately 99 years, unless earlier dissolved. CMS Energy Michigan's
registered office in

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the State of Michigan is Fairlane Plaza South, Suite 1100, 330 Town Center
Drive, Dearborn, Michigan 48126, telephone number: (313) 436-9200. All of CMS
Energy Michigan's business and affairs will be conducted by CMS Energy, as the
sole general partner. The principal place of business of CMS Energy Michigan is
c/o CMS Energy Corporation, Fairlane Plaza South, Suite 1100, 330 Town Center
Drive, Dearborn, Michigan 48126, telephone number: (313) 436-9200.

USE OF PROCEEDS

CMS Energy Michigan will loan to CMS Energy all proceeds received by CMS
Energy Michigan from the sale of its CMS Energy Michigan Preferred Securities.
As will be more specifically set forth in the applicable Prospectus Supplement,
CMS Energy will use such borrowed amounts and the net proceeds from the sale of
the Debt Securities, CMS Energy Common Stock and the CMS Energy Preferred Stock
offered hereby to invest in the businesses of CMS Energy and for its general
corporate purposes. Initially such borrowed amounts and net proceeds will be
used to repay a portion of the debt of CMS Energy currently outstanding at
rates of interest ranging from __% to __% and maturing from ___ to ___.

RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

The ratios of earnings to fixed charges and the ratios of earnings to
fixed charges and preferred stock dividends, for the twelve months ended
September 30, 1994 and each of the years ended December 31, 1989 through 1993
are as follows:

TWELVE MONTHS
ENDED ----------------------------------------------------
SEPTEMBER 30, 1994 1993 1992 1991 1990 1989
------------------ ---- ---- ---- ---- ----

RATIO OF
EARNINGS TO
FIXED CHARGES 2.13 1.92 --(1) --(2)(3) --(4) 1.84

RATIO OF
EARNINGS TO
FIXED CHARGES
AND PREFERRED
STOCK DIVIDENDS 1.96 1.83 --(1) --(2)(3) --(4) 1.76
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(1) For the year ended December 31, 1992, fixed charges exceeded earnings by
$441 million. Earnings as defined include a $520 million pre-tax loss on
the settlement of MCV Power Purchases, $(15) million for potential
customer refunds and other reserves related to 1992 but recorded in 1991,
and $6 million relating to CMS Generation Company's reduction in its
investment in The Oxford Energy Company. The ratio of earnings to fixed
charges and the ratio of earnings to fixed charges and preferred stock
dividends would have been 1.34 and 1.30, respectively, excluding these
amounts.
(2) Excludes an extraordinary after-tax loss of $14 million.
(3) For the year ended December 31, 1991, fixed charges exceeded earnings by
$356 million. Earnings as defined include pre-tax losses of $398 million
for write-downs and reserve amounts related to Consumers' abandonment of
the construction of a nuclear generating station in Midland, Michigan
("Midland Construction"), $76 million for potential customer refunds and
other reserves, and $51 million relating to CMS Generation Company's
reduction in its investment in The Oxford Energy Company. The ratio of
earnings to fixed charges and the ratio of earnings to fixed charges and
preferred stock dividends would have been 1.48 and 1.45, respectively,
excluding these amounts.
(4) For the year ended December 31, 1990, fixed charges exceeded earnings by
$500 million. Earnings as defined include pre-tax losses of $847 million
for write-downs and reserve amounts related to the abandonment of the
Midland Construction. The ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred stock dividends would
have been 2.01 and 1.96, respectively, excluding these amounts.

For the purpose of computing such ratios, earnings represent net income
before income taxes, net interest charges and the estimated interest portion of
lease rentals.

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DESCRIPTION OF SECURITIES

DEBT SECURITIES

The Senior Debt Securities will be issued under an Indenture, as amended
and supplemented (the "Senior Debt Indenture"), between CMS Energy and NBD
Bank, N.A., as Trustee (the "Senior Debt Trustee"), and the Subordinated Debt
Securities will be issued under an Indenture (the "Subordinated Debt
Indenture"), between CMS Energy and The Chase Manhattan Bank, N.A., as Trustee
(the "Subordinated Debt Trustee"). The descriptions of the provisions of the
Debt Securities, the Senior Debt Indenture and the Subordinated Debt Indenture
contained herein are brief summaries of such provisions and do not purport to
be complete. The forms of the Senior Debt Indenture and the Subordinated Debt
Indenture are filed as exhibits to the Registration Statement of which this
Prospectus is a part, and reference is made thereto for the respective
definitive provisions of such Indentures. The descriptions herein are
qualified in their entirety by such reference. Certain capitalized terms used
herein shall have the meanings respectively set forth in the respective
Indentures.

GENERAL

CMS Energy will offer under this Prospectus unsecured Debt Securities, any
of which may be issued as: (a) Senior Debt Securities; or (b) Subordinated
Debt Securities. The terms of any Debt Securities may or may not restrict the
issuance by CMS Energy or its subsidiaries of additional indebtedness which is
secured, unsecured, senior, pari passu or subordinated to such Debt Securities.

CMS Energy is a holding company and its assets consist primarily of
investment in its subsidiaries. The Debt Securities will be obligations
exclusively of CMS Energy. CMS Energy's ability to service its indebtedness,
including the Debt Securities, is dependent primarily upon the earnings of its
subsidiaries and the distribution or other payment of such earnings to CMS
Energy in the form of dividends, loans or advances, and repayment of loans and
advances from CMS Energy. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the Debt Securities or to make any funds available therefor,
whether by dividends, loans or other payments. See "Primary Source of Funds of
CMS Energy; Restrictions on Sources of Dividends" below.

A substantial portion of the consolidated liabilities of CMS Energy have
been incurred by its subsidiaries. Therefore, CMS Energy's rights and the
rights of its creditors, including holders of Debt Securities, to participate
in the distribution of assets of any subsidiary upon the latter's liquidation
or reorganization will be subject to prior claims of the subsidiary's
creditors, including trade creditors, except to the extent that CMS Energy may
itself be a creditor with recognized claims against the subsidiary (in which
case the claims of CMS Energy would still be subject to the prior claims of any
secured creditor of such subsidiary and of any holder of indebtedness of such
subsidiary that is senior to that held by CMS Energy). As of September 30,
1994, CMS Energy's subsidiaries had total indebtedness for borrowed money
(excluding intercompany indebtedness) of approximately $2.2 billion.

The applicable Prospectus Supplement will set forth the following terms
relating to the Debt Securities offered thereby (the "Offered Debt
Securities"): (1) the specific designation of the Offered Debt Securities and
whether such Offered Debt Securities are Senior Debt Securities or Subordinated
Debt Securities; (2) any limit on the aggregate principal amount of the Offered
Debt Securities; (3) the date or dates, if any (and whether fixed or
extendible), on which the Offered Debt Securities will mature; (4) the rate or
rates per annum (which may be fixed or variable) at which the Offered Debt
Securities will bear interest, if any, the date or dates on which any such
interest will be payable and the regular record dates for any interest payable
on the Offered Debt Securities; (5) the place or places where the principal of
and any interest on the Offered Debt Securities shall be payable and where such
Offered Securities may be surrendered for registration of transfer or exchange;
(6) any provisions relating to the issuance of the Offered Debt Securities at
an original issue discount; (7) the option, if any, of CMS Energy to redeem the
Offered Debt Securities and the periods within which or the dates on which, the
prices at which and the terms and conditions upon which, such Offered Debt
Securities may be redeemed, in whole or in part, upon the exercise of such
option; (8) the obligation, if any of CMS Energy to redeem such Offered Debt
Securities pursuant to any sinking fund or other mandatory redemption
provisions or at the option of the holder and the periods within which or the
dates on which, the prices at which and the terms and conditions upon which
such Offered Debt Securities will be redeemed, in whole or in part, pursuant to
such obligation; (9) the obligation, if any, of CMS Energy to permit the
conversion of the Offered Debt Securities into CMS Energy

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Common Stock, and the terms and conditions upon which such conversion shall be
effected; (10) the denominations in which such Offered Debt Securities will be
issued and whether the Offered Debt Securities will be issuable in registered
form or bearer form or both, and, if issuable in bearer form, the restrictions
as to the offer, sale and delivery of the Offered Debt Securities in bearer
form and as to exchanges between registered and bearer form; (11) whether the
Offered Debt Securities will be issuable in the form of one or more temporary
or permanent global securities and, if so, the identity of the depository for
such global securities; (12) whether and under what circumstances CMS Energy
will pay additional amounts with respect to the Offered Debt Securities to a
non-United States Person (as defined in such Prospectus Supplement) on account
of any tax, assessment or governmental charge withheld or deducted and, if so,
whether CMS Energy will have the option to redeem such Offered Debt Securities
rather than pay such additional amounts; (13) any provisions which could afford
holders of the Offered Debt Securities protection in the event of a highly
leveraged transaction involving CMS Energy; and (14) any other terms of the
Offered Debt Securities not inconsistent with the Indenture, including
covenants and events of default relating solely to the Offered Debt Securities.
Debt Securities may be issued at a substantial discount from the stated
principal amount thereof ("Original Issue Discount Securities"). United States
federal income tax consequences and other special considerations applicable
thereto or to other Offered Debt Securities offered and sold at par which are
treated as having been issued at a discount for United State federal income tax
purposes will be described in the Prospectus Supplement relating thereto.

CONCERNING THE TRUSTEES

Each of NBD Bank, N.A., the Trustee under the Senior Debt Indenture, and
The Chase Manhattan Bank, N.A., the Trustee under the Subordinated Debt
Indenture, is one of a number of banks with which CMS Energy and its
subsidiaries maintain ordinary banking relationships, including credit
facilities. The Chase Manhattan Bank, N.A., is the trustee under the GTN
Indenture (as defined herein).

SENIOR DEBT SECURITIES

General. The Senior Debt Securities will be issuable under the Senior
Debt Indenture. The Senior Debt Indenture does not limit the aggregate
principal amount of Senior Debt Securities which may be issued thereunder.
Senior Debt Securities may be issued under the Senior Debt Indenture from time
to time in one or more series. Each series of Senior Debt Securities shall
mature on a date not less than 9 months nor more than 40 years after the date
of issuance. Capitalized terms used in this section "Senior Debt Securities"
and not otherwise specifically defined in this Prospectus shall have the
meanings respectively set forth in the Senior Debt Indenture.

Exchange and Transfer. Senior Debt Securities may be presented for
exchange and registered Senior Debt Securities may be presented for
registration of transfer at the offices and subject to the restrictions set
forth therein and in the applicable Prospectus Supplement without service
charge, but upon payment of any taxes or other governmental charges due in
connection therewith, subject to any applicable limitations contained in the
Senior Debt Indenture. Senior Debt Securities in bearer form and the coupons
appertaining thereto, if any, will be transferable by delivery.

Payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of the principal of and the premium and interest, if any,
on all Senior Debt Securities in registered form will be made at the office or
agency of the Senior Debt Trustee in the Borough of Manhattan, the City of New
York, except that, at the option of CMS Energy, payment of any interest may be
made (i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer to an
account maintained by the person entitled thereto as specified in the Security
Register. Unless otherwise indicated in the applicable Prospectus Supplement,
payment of any interest due on Senior Debt Securities in registered form will
be made to the Persons in whose name such Senior Debt Securities are registered
at the close of business on the Record Date for such interest payments.

Events of Default. The occurrence of any of the following events with
respect to the Senior Debt Securities of any series will constitute an "Event
of Default" with respect to the Senior Debt Securities of such series: (a)
default for 30 days in the payment of any interest on any of the Senior Debt
Securities of such series; (b) default in the payment when due of any of the
principal of or the premium, if any, on any of the Senior Debt Securities of
such series, whether at maturity, upon redemption, acceleration or otherwise;
(c) default in the deposit or payment of any sinking fund or analogous payment
in respect of any Senior Debt Securities of such series; (d) default for 60
days by CMS Energy in the observance or performance of any other covenant or
agreement contained in the Senior Debt Indenture relating to the Senior Debt
Securities of such series after written notice thereof as provided in the
Senior Debt Indenture; (e) certain

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events of bankruptcy, insolvency or reorganization relating to CMS Energy; (f)
entry of final judgments against CMS Energy or Consumers aggregating in excess
of $25,000,000 which remain undischarged or unbonded for 60 days; or (g) a
default resulting in the acceleration of indebtedness in excess of $25,000,000,
which acceleration has not been rescinded or annulled within 10 days after
notice of such default. Additional Events of Default may be prescribed for the
benefit of the Holders of a particular series of Senior Debt Securities and
will be described in the Prospectus Supplement relating to such Senior Debt
Securities.

If an Event of Default on any series of Senior Debt Securities shall have
occurred and be continuing, either the Senior Debt Trustee or the Holders of
not less than 25% in aggregate principal amount of the Senior Debt Securities
of such series then Outstanding may declare the principal of all Senior Debt
Securities of such series and the interest, if any, accrued thereon to be due
and payable immediately.

Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Senior Debt Securities of all such affected
series then Outstanding shall have been cured or waived as provided in the
Senior Debt Indenture by the Holders of a majority in aggregate principal
amount of the Senior Debt Securities of the affected series then Outstanding.

Reference is made to the Prospectus Supplement relating to any series of
Original Issue Discount Securities for the particular provisions relating to
the acceleration of a portion of the principal amount thereof upon the
occurrence and continuance of an Event of Default with respect thereto.

The Senior Debt Indenture provides that, subject to the duty of the Senior
Debt Trustee to act with the requisite standard of care in case a default with
respect to a series of Senior Debt Securities shall have occurred and be
continuing, the Senior Debt Trustee will be under no obligation to exercise any
of its rights or powers under the Senior Debt Indenture at the request, order
or direction of the Holders of the Senior Debt Securities, unless such Holders
shall have offered to the Senior Debt Trustee reasonable indemnity. Subject to
such provisions for indemnity and certain other limitations contained in the
Senior Debt Indenture, the Holders of a majority in aggregate principal amount
of the Senior Debt Securities of each affected series then Outstanding (voting
as one class) will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Senior Debt Trustee,
or exercising any trust or power conferred on the Senior Debt Trustee, with
respect to the Senior Debt Securities of such affected series.

The Senior Debt Indenture provides that no Holder of Senior Debt
Securities may institute any action against CMS Energy under the Senior Debt
Indenture (except actions for payment of overdue principal, premium or
interest) unless such Holder previously shall have given to the Senior Debt
Trustee written notice of default and continuance thereof and unless the
Holders of not less than 25% in aggregate principal amount of the Senior Debt
Securities of the affected series then Outstanding (voting as one class) shall
have requested the Senior Debt Trustee to institute such action and shall have
offered the Senior Debt Trustee reasonable indemnity, the Senior Debt Trustee
shall not have instituted such action within 60 days of such request and the
Senior Debt Trustee shall not have received direction inconsistent with such
request by the Holders of a majority in aggregate principal amount of the
Senior Debt Securities of the affected series then Outstanding (voting as one
class).

The Senior Debt Indenture requires CMS Energy to furnish to the Senior
Debt Trustee annually a statement as to CMS Energy's compliance with all
conditions and covenants under the Senior Debt Indenture. The Senior Debt
Indenture provides that the Senior Debt Trustee may withhold notice to the
Holders of the Senior Debt Securities of any series of any default affecting
such series (except defaults as to payment of principal, premium or interest on
the Senior Debt Securities of such series) if it considers such withholding to
be in the interests of the Holders of the Senior Debt Securities of such
series.

Consolidation, Merger or Sale of Assets. The Senior Debt Indenture
provides that CMS Energy may consolidate with or merge into, or sell, lease or
convey its property as an entirety or substantially as an entirety to, any
other corporation if such corporation assumes the obligations of CMS Energy
under the Senior Debt Securities and the Senior Debt Indenture and is organized
and existing under the laws of the United States of America, any state thereof
or the District of Columbia.

Modification of the Senior Debt Indenture. The Senior Debt Indenture
permits CMS Energy and the Senior Debt Trustee to enter into supplemental
indentures thereto without the consent of the Holders of the Senior Debt
Securities to:

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(a) secure the Senior Debt Securities of one or more series, (b) evidence the
assumption by a successor corporation of the obligations of CMS Energy under
the Senior Debt Indenture and the Senior Debt Securities then Outstanding, (c)
add covenants for the protection of the Holders of the Senior Debt Securities,
(d) cure any ambiguity or correct any inconsistency in the Senior Debt
Indenture, (e) establish the form and terms of any series of securities under
the Senior Debt Indenture and (f) evidence the acceptance of appointment by a
successor Senior Debt Trustee.

The Senior Debt Indenture also permits CMS Energy and the Senior Debt
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Senior Debt Securities of all series then
Outstanding and affected (voting as one class), to add any provisions to, or
change in any manner or eliminate any of the provisions of, the Senior Debt
Indenture or modify in any manner the rights of the Holders of the Senior Debt
Securities of each such affected series; provided, however, that CMS Energy and
the Senior Debt Trustee may not, without the consent of the Holder of each Debt
Security then outstanding and affected thereby: (a) change the time of payment
of the principal (or any installment) of any Debt Security, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce the amount payable on any Original Issue Discount
Securities upon acceleration or provable in bankruptcy, or impair the right to
institute suit for the enforcement of any payment on any Debt Security when
due; or (b) reduce the percentage in principal amount of the Senior Debt
Securities of the affected series, the consent of whose Holders is required for
any such modification or for any waiver provided for in the Senior Debt
Indenture.

Prior to the acceleration of the maturity of any Debt Security, the
Holders of a majority in aggregate principal amount of the Senior Debt
Securities of all series at the time Outstanding with respect to which a
default or an Event of Default shall have occurred and be continuing (voting as
one class) may on behalf of the Holders of all such affected Senior Debt
Securities waive any past default or Event of Default and its consequences,
except a default or an Event of Default in respect of a covenant or provision
of the Senior Debt Indenture or of any Debt Security which cannot be modified
or amended without the consent of the Holder of each Debt Security affected.

Defeasance and Discharge. The Senior Debt Indenture provides that, at the
option of CMS Energy: (a) CMS Energy will be discharged from any and all
obligations in respect of the Senior Debt Securities of a particular series
then Outstanding (except for certain obligations to register the transfer of or
exchange the Senior Debt Securities of such series, to replace stolen, lost or
mutilated Senior Debt Securities of such series, to maintain paying agencies
and to maintain the trust described below), or (b) CMS Energy need not comply
with certain restrictive covenants of the Senior Debt Indenture (including
those described under "Consolidation, Merger or Sale of Assets"), in each case
if CMS Energy irrevocably deposits in trust with the Senior Debt Trustee money,
and/or securities backed by the full faith and credit of the United States
which, through the payment of the principal thereof and the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of and premium, if any, and interest on the Senior Debt
Securities of such series on the stated maturity of such Senior Debt Securities
(which may include one or more redemption dates designated by CMS Energy) in
accordance with the terms thereof. To exercise such option, CMS Energy is
required, among other things, to deliver to the Senior Debt Trustee an opinion
of independent counsel to the effect that the exercise of such option would not
cause the Holders of the Senior Debt Securities of such series to recognize
income, gain or loss for United States Federal income tax purposes as a result
of such defeasance, and such Holders will be subject to United States Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred, and, in the case
of a discharge as described in clause (a) of the preceding sentence, such
opinion is to be accompanied by a private letter ruling to the same effect
received from the Internal Revenue Service, a revenue ruling to such effect
pertaining to a comparable form of transaction published by the Internal
Revenue Service or appropriate evidence that since the date of the Senior Debt
Indenture there has been a change in the applicable Federal income tax law.

In the event CMS Energy exercises its option to terminate its obligations
with respect to the Senior Debt Securities of any series as described in the
preceding paragraph and the Senior Debt Securities of such series are
thereafter declared due and payable because of the occurrence of any Event of
Default other than an Event of Default caused by failing to comply with the
covenants which are defeased, and the amount of money and securities on deposit
with the Senior Debt Trustee would be insufficient to pay amounts due on the
Senior Debt Securities of such series at the time of their accelerated
maturity, CMS Energy would remain liable for such amounts.

CMS Energy may also obtain a discharge of the Senior Debt Indenture with
respect to all Senior Debt Securities then Outstanding (except for certain
obligations to register the transfer of or exchange such Senior Debt Securities
to

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replace stolen, lost or mutilated Senior Debt Securities, to maintain paying
agencies and to maintain the trust described below) by irrevocably depositing
in trust with the Senior Debt Trustee money, and/or securities backed by the
full faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any and interest on the Senior Debt Securities on the stated maturities
thereof (including one or more redemption dates), provided that such Senior
Debt Securities are by their terms due and payable, or are to be called for
redemption, within one year.

It is possible that for federal income tax purposes any deposit contemplated in
the preceding paragraph could be treated as a taxable exchange of the related
Senior Debt Securities for an issue of obligations of the trust or a direct
interest in the cash and securities held in the trust. In that case, Holders
of such Senior Debt Securities would recognize gain or loss as if the trust
obligations or the cash or securities deposited, as the case may be, had
actually been received by them in exchange for their Senior Debt Securities.
Such gain or loss may be capital in nature to holders for whom the Senior Debt
Securities are held as capital assets subject to the possible application of
the market discount rules and other limitations. After such a taxable
exchange, Holders would be required to include in income a share of the
income, gain or loss of the trust or the income from the securities held in
trust, as the case may be. The amount so required to be included in income
could be different from the amount that would be includible in the absence of
such deposit. Prospective investors are urged to consult their own tax
advisors as to the specific consequences to them of such deposit.

SUBORDINATED DEBT SECURITIES

General. The Subordinated Debt Securities will be issuable under the
Subordinated Debt Indenture. The Subordinated Debt Indenture does not limit
the aggregate principal amount of Subordinated Debt Securities which may be
issued thereunder. Subordinated Debt Securities may be issued under the
Subordinated Debt Indenture from time to time in one or more
series. Capitalized terms used in this section "Subordinated Debt Securities"
and not otherwise specifically defined in this Prospectus shall have the
meanings respectively set forth in the Subordinated Debt Indenture.

Exchange and Transfer. Subordinated Debt Securities may be presented
for exchange and registered Subordinated Debt Securities may be presented for
registration of transfer at the offices and subject to the restrictions set
forth therein and in the applicable Prospectus Supplement without service
charge, but upon payment of any taxes or other governmental charges due in
connection therewith, subject to any applicable limitations contained in the
Subordinated Debt Indenture. Subordinated Debt Securities in bearer form and
the coupons appertaining thereto, if any, will be transferable by delivery.

Payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of the principal of and the premium and interest, if any,
on all Subordinated Debt Securities (other than a Registered Global Security)
in registered form will be made at the office or agency of the Subordinated
Debt Trustee in the Borough of Manhattan, the City of New York, except that, at
the option of CMS Energy, payment of any interest may be made (i) by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register or (ii) by wire transfer to an account
maintained by the person entitled thereto as specified in the Security
Register. Unless otherwise indicated in the applicable Prospectus Supplement,
payment of any interest due on Subordinated Debt Securities in registered form
will be made to the Persons in whose name such Subordinated Debt Securities are
registered at the close of business on the Record Date for such interest
payments.

Events of Default. The occurrence of any of the following events with
respect to the Subordinated Debt Securities of any series will constitute an
"Event of Default" with respect to the Subordinated Debt Securities of such
series: (a) default for 30 days in the payment of any interest on any of the
Subordinated Debt Securities of such series, however, if CMS Energy is
permitted by the terms of the Subordinated Debt Securities, of the applicable
series to defer the payment in question, the date on which such payment is due
and payable shall be the date on which CMS Energy is required to make payment
following such deferral, if such deferral has been elected pursuant to the
terms of the Subordinated Debt Securities; (b) default in the payment when due
of any of the principal of or the premium, if any, on any of the Subordinated
Debt Securities of such series, whether at maturity, upon redemption,
acceleration or otherwise, however, if CMS Energy is permitted by the terms of
the Subordinated Debt Securities, of the applicable series to defer the payment
in question, the date on which such payment is due and payable shall be the
date on which CMS Energy is required to make payment following such deferral,
if such deferral has been elected pursuant to the terms of the Subordinated
Debt Securities; (c) default in the deposit or payment of any sinking fund or
analogous payment in respect of any Subordinated Debt Securities of such
series; (d) default for 60 days by CMS Energy in the observance or

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performance of any other covenant or agreement contained in the Subordinated
Debt Indenture relating to the Subordinated Debt Securities of such series
after written notice thereof as provided in the Subordinated Debt Indenture;
(e) certain events of bankruptcy, insolvency or reorganization relating to CMS
Energy; (f) entry of final judgments against CMS Energy or Consumers
aggregating in excess of $25,000,000 which remain undischarged or unbonded for
60 days; or (g) a default resulting in the acceleration of indebtedness in
excess of $25,000,000, which acceleration has not been rescinded or annulled
within 10 days after notice of such default. Additional Events of Default may
be prescribed for the benefit of the Holders of a particular series of
Subordinated Debt Securities and will be described in the Prospectus Supplement
relating to such Subordinated Debt Securities.

If an Event of Default on any series of Subordinated Debt Securities shall
have occurred and be continuing, either the Subordinated Debt Trustee or the
Holders of not less than 25% in aggregate principal amount of the Subordinated
Debt Securities of such series then Outstanding may declare the principal of
all Subordinated Debt Securities of such series and the interest, if any,
accrued thereon to be due and payable immediately.

Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Subordinated Debt Securities of all such
affected series then Outstanding shall have been cured or waived as provided in
the Subordinated Debt Indenture by the Holders of a majority in aggregate
principal amount of the Subordinated Debt Securities of the affected series
then Outstanding.

The Subordinated Debt Indenture provides that, subject to the duty of the
Subordinated Debt Trustee to act with the requisite standard of care in case a
default with respect to a series of Subordinated Debt Securities shall have
occurred and be continuing, the Subordinated Debt Trustee will be under no
obligation to exercise any of its rights or powers under the Subordinated Debt
Indenture at the request, order or direction of the Holders of the Subordinated
Debt Securities, unless such Holders shall have offered to the Subordinated
Debt Trustee reasonable indemnity. Subject to such provisions for indemnity
and certain other limitations contained in the Subordinated Debt Indenture, the
Holders of a majority in aggregate principal amount of the Subordinated Debt
Securities of each affected series then Outstanding (voting as one class) will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Subordinated Debt Trustee, or
exercising any trust or power conferred on the Subordinated Debt Trustee, with
respect to the Subordinated Debt Securities of such affected series.

The Subordinated Debt Indenture provides that no Holder of Subordinated
Debt Securities may institute any action against CMS Energy under the
Subordinated Debt Indenture (except actions for payment of overdue principal,
premium or interest) unless such Holder previously shall have given to the
Subordinated Debt Trustee written notice of default and continuance thereof and
unless the Holders of not less than 25% in aggregate principal amount of the
Subordinated Debt Securities of the affected series then Outstanding (voting as
one class) shall have requested the Subordinated Debt Trustee to institute such
action and shall have offered the Subordinated Debt Trustee reasonable
indemnity, the Subordinated Debt Trustee shall not have instituted such action
within 60 days of such request and the Subordinated Debt Trustee shall not have
received direction inconsistent with such request by the Holders of a majority
in aggregate principal amount of the Subordinated Debt Securities of the
affected series then Outstanding (voting as one class).

The Subordinated Debt Indenture requires CMS Energy to furnish to the
Subordinated Debt Trustee annually a statement as to CMS Energy's compliance
with all conditions and covenants under the Subordinated Debt Indenture. The
Subordinated Debt Indenture provides that the Subordinated Debt Trustee may
withhold notice to the Holders of the Subordinated Debt Securities of any
series of any default affecting such series (except defaults as to payment of
principal, premium or interest on the Subordinated Debt Securities of such
series) if it considers such withholding to be in the interests of the Holders
of the Subordinated Debt Securities of such series.

Subordination. The Subordinated Debt Indenture provides (and each holder
of Subordinated Debt Securities by acceptance thereof agrees) that the
Subordinated Debt Securities will be subordinated in right of payment to the
prior payment in full of all Senior Indebtedness of CMS Energy and pari passu
with CMS Energy's trade creditors. No payment on account of principal of,
premium, if any, or interest on the Subordinated Debt Securities and no
acquisition of, or

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payment on account of any sinking fund for, the Subordinated Debt Securities
may be made unless full payment of amounts then due for principal, premium, if
any, and interest then due on all Senior Indebtedness by reason of the maturity
thereof (by lapse of time, acceleration or otherwise) has been made or duly
provided for in cash or in a manner satisfactory to the Holders of such Senior
Indebtedness. In addition, the Subordinated Debt Indenture provides that if a
default has occurred giving the holders of such Senior Indebtedness the right
to accelerate the maturity thereof, or an event has occurred which, with the
giving of notice, or lapse of time, or both, would constitute such an event of
default, then unless and until such event shall have been cured or waived or
shall have ceased to exist, no payment on account of principal, premium, if
any, or interest on the Subordinated Debt Securities and no acquisition of, or
payment on account of a sinking fund for, the Subordinated Debt Securities may
be made. CMS Energy shall give prompt written notice to the Subordinated Debt
Trustee of any default under any Senior Indebtedness or under any agreement
pursuant to which Senior Indebtedness may have been issued. The Subordinated
Debt Indenture provisions described in this paragraph, however, do not prevent
CMS Energy from making a sinking fund payment with Subordinated Debt Securities
acquired prior to the maturity of Senior Indebtedness or, in the case of
default, prior to such default and notice thereof. Upon any distribution of its
assets in connection with any dissolution, winding up, liquidation or
reorganization of CMS Energy, whether voluntary or involuntary, in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise, all Senior Indebtedness must be paid in full before the
Holders of the Subordinated Debt Securities are entitled to any payments
whatsoever. Any payment or distribution, whether in cash, securities or other
property, which would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Subordinated Debt Securities shall be
paid or delivered directly to the holders of such Senior Indebtedness (or their
representative or trustee) in accordance with the priorities then existing
among such holders until all Senior Indebtedness shall have been paid in full
before any payment or distribution is made to the holders of Subordinated Debt
Securities. In the event that notwithstanding such subordination
provisions,any payment or distribution of assets of any kind or character is
made on the Subordinated Debt Securities before all Senior Indebtedness is paid
in full, the Subordinated Debt Trustee or the holders of Subordinated Debt
Securities receiving such payment will be required to pay over such payment or
distribution to the holders of such Senior Indebtedness. The rights of the
holders of the Subordinated Debt Securities will be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Subordinated
Debt Securities are paid in full. As a result of these subordination
provisions, in the event of CMS Energy's insolvency, holders of the
Subordinated Debt Securities may recover ratably less than senior creditors of
CMS Energy.

"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date of execution of
the Subordinated Debt Indenture or thereafter incurred, created or
assumed: (i) indebtedness of CMS Energy for money borrowed by CMS Energy
(including purchase money obligations) or evidenced by debentures (other
than the Subordinated Debt Securities), notes, bankers' acceptances or
other corporate debt securities or similar instruments issued by CMS
Energy; (ii) obligations with respect to letters of credit; (iii) all
indebtedness of others of the type referred to in the preceding clauses
(i) and (ii) assumed by or guaranteed in any manner by CMS Energy or in
effect guaranteed by CMS Energy; or (iv) renewals, extensions or
refundings of any of the indebtedness referred to in the preceding clauses
(i), (ii) and (iii) unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the
instrument creating or evidencing the same or the assumption or guarantee
of the same, or pursuant to which the same is outstanding, such
indebtedness or such renewal, extension or refunding thereof is not
superior in right of payment to the Subordinated Debt Securities.

The Subordinated Debt Indenture does not limit the aggregate amount of
Senior Indebtedness that may be issued. As of September 30, 1994, Senior
Indebtedness of CMS Energy aggregated approximately $539 million.

Consolidation, Merger or Sale of Assets. The Subordinated Debt Indenture
provides that CMS Energy may consolidate with or merge into, or sell, lease or
convey its property as an entirety or substantially as an entirety to, any
other corporation if such corporation assumes the obligations of CMS Energy
under the Subordinated Debt Securities and the Subordinated Debt Indenture and
is organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia.

Modification of the Subordinated Debt Indenture. The Subordinated Debt
Indenture permits CMS Energy and the Subordinated Debt Trustee to enter into
supplemental indentures thereto without the consent of the Holders of the
Subordinated Debt Securities to: (a) secure the Subordinated Debt Securities
of one or more series, (b) evidence the assumption by a successor corporation
of the obligations of CMS Energy under the Subordinated Debt Indenture and the

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Subordinated Debt Securities then Outstanding, (c) add covenants for the
protection of the Holders of the Subordinated Debt Securities, (d) cure any
ambiguity or correct any inconsistency in the Subordinated Debt Indenture, (e)
establish the form and terms of any series of securities under the Subordinated
Debt Indenture and (f) evidence the acceptance of appointment by a successor
Subordinated Debt Trustee.

The Subordinated Debt Indenture also permits CMS Energy and the
Subordinated Debt Trustee, with the consent of the Holders of not less than a
majority in aggregate principal amount of the Subordinated Debt Securities of
all series then Outstanding and affected (voting as one class), to add any
provisions to, or change in any manner or eliminate any of the provisions of,
the Subordinated Debt Indenture or modify in any manner the rights of the
Holders of the Subordinated Debt Securities of each such affected series;
provided, however, that CMS Energy and the Subordinated Debt Trustee may not,
without the consent of the Holder of each Debt Security then outstanding and
affected thereby: (a) change the time of payment of the principal (or any
installment) of any Debt Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce
the amount payable on any Original Issue Discount Securities upon acceleration
or provable in bankruptcy, or impair the right to institute suit for the
enforcement of any payment on any Debt Security when due; or (b) reduce the
percentage in principal amount of the Subordinated Debt Securities of the
affected series, the consent of whose Holders is required for any such
modification or for any waiver provided for in the Subordinated Debt Indenture.

Prior to the acceleration of the maturity of any Debt Security, the
Holders of a majority in aggregate principal amount of the Subordinated Debt
Securities of all series at the time Outstanding with respect to which a
default or an Event of Default shall have occurred and be continuing (voting as
one class) may on behalf of the Holders of all such affected Subordinated Debt
Securities waive any past default or Event of Default and its consequences,
except a default or an Event of Default in respect of a covenant or provision
of the Subordinated Debt Indenture or of any Debt Security which cannot be
modified or amended without the consent of the Holder of each Debt Security
affected.

Defeasance and Discharge. The Subordinated Debt Indenture provides that,
at the option of CMS Energy: (a) CMS Energy will be discharged from any and
all obligations in respect of the Subordinated Debt Securities of a particular
series then Outstanding (except for certain obligations to register the
transfer of or exchange the Subordinated Debt Securities of such series, to
replace stolen, lost or mutilated Subordinated Debt Securities of such series,
to maintain paying agencies and to maintain the trust described below), or (b)
CMS Energy need not comply with certain restrictive covenants of the
Subordinated Debt Indenture (including those described under "Consolidation,
Merger or Sale of Assets"), in each case if CMS Energy irrevocably deposits in
trust with the Subordinated Debt Trustee money, and/or securities backed by the
full faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any, and interest on the Subordinated Debt Securities of such series on the
stated maturity of such Subordinated Debt Securities (which may include one or
more redemption dates designated by CMS Energy) in accordance with the terms
thereof. To exercise such option, CMS Energy is required, among other things,
to deliver to the Subordinated Debt Trustee an opinion of independent counsel
to the effect that the exercise of such option would not cause the Holders of
the Subordinated Debt Securities of such series to recognize income, gain or
loss for United States Federal income tax purposes as a result of such
defeasance, and such Holders will be subject to United States Federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred, and, in the case of a
discharge as described in clause (a) of the preceding sentence, such opinion is
to be accompanied by a private letter ruling to the same effect received from
the Internal Revenue Service, a revenue ruling to such effect pertaining to a
comparable form of transaction published by the Internal Revenue Service or
appropriate evidence that since the date of the Subordinated Debt Indenture
there has been a change in the applicable Federal income tax law.

In the event CMS Energy exercises its option to terminate its obligations
with respect to the Subordinated Debt Securities of any series as described in
the preceding paragraph and the Subordinated Debt Securities of such series are
thereafter declared due and payable because of the occurrence of any Event of
Default other than an Event of Default caused by failing to comply with the
covenants which are defeased, and the amount of money and securities on deposit
with the Subordinated Debt Trustee would be insufficient to pay amounts due on
the Subordinated Debt Securities of such series at the time of their
accelerated maturity, CMS Energy would remain liable for such amounts.

CMS Energy may also obtain a discharge of the Subordinated Debt Indenture
with respect to all Subordinated Debt Securities then Outstanding (except for
certain obligations to register the transfer of or exchange such Subordinated

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17

Debt Securities to replace stolen, lost or mutilated Subordinated Debt
Securities, to maintain paying agencies and to maintain the trust described
below) by irrevocably depositing in trust with the Subordinated Debt Trustee
money, and/or securities backed by the full faith and credit of the United
States which, through the payment of the principal thereof and the interest
thereon in accordance with their terms, will provide money in an amount
sufficient to pay all the principal of and premium, if any and interest on the
Subordinated Debt Securities on the stated maturities thereof (including one or
more redemption dates), provided that such Subordinated Debt Securities are by
their terms due and payable, or are to be called for redemption, within one
year.

It is possible that for federal income tax purposes any deposit
contemplated in the preceding paragraph could be treated as a taxable exchange
of the related Subordinated Debt Securities for an issue of obligations of the
trust or a direct interest in the cash and securities held in the trust. In
that case, Holders of such Subordinated Debt Securities would recognize gain or
loss as if the trust obligations or the cash or securities deposited, as the
case may be, had actually been received by them in exchange for their
Subordinated Debt Securities. Such gain or loss may be capital in nature to
holders for whom the Subordinated Debt Securities are held as capital assets
subject to the possible application of the market discount rules and other
limitations. After such a taxable exchange, Holders would be required to
include in income a share of the income, gain or loss of the trust or the
income from the securities held in trust, as the case may be. The amount so
required to be included in income could be different from the amount that would
be includible in the absence of such deposit. Prospective investors are urged
to consult their own tax advisors as to the specific consequences to them of
such deposit.

CAPITAL STOCK

GENERAL

The Articles of Incorporation of CMS Energy, as amended (the "Articles of
Incorporation"), currently authorize 255 million shares of capital stock, of
which 250 million are shares of CMS Energy Common Stock, par value $0.01 per
share, and five million are shares of CMS Energy Preferred Stock, par value
$.01 per share. At February 10, 1995, there were outstanding 86,562,096 shares
of CMS Energy Common Stock; no shares of CMS Energy Preferred Stock are issued
or outstanding. The outstanding shares of the CMS Energy Common Stock are
fully paid and nonassessable and the CMS Energy Common Stock offered hereby,
when issued and paid for, will be fully paid and nonassessable.

On February 14, 1994, CMS Energy mailed proxy statements to its
shareholders seeking their approval to amend (the "Charter Amendment") its
Articles of Incorporation to (1) authorize 60 million shares, no par value, of
a new class of Common Stock of CMS Energy designated Class G Common Stock
("Class G Common Stock") and (2) to increase the authorized number of shares of
CMS Energy Preferred Stock to 10 million. The CMS Energy Common Stock and the
Class G Common Stock are together referred to herein as the "Common Stock."
The Charter Amendment will not become effective until CMS Energy files a
Certificate of Amendment (the "Certificate of Amendment") relating thereto with
the Michigan Department of Commerce. The proposed new class of Common Stock is
intended to reflect the separate performance of the gas distribution, storage
and transportation businesses conducted by Consumers and Michigan Gas Storage,
a subsidiary of Consumers (such businesses, collectively, will be attributed to
the "Consumers Gas Group"). Effective January 1, 1995, the management and
operations of the Consumers Gas Group were reorganized as a business unit
separate from the electric utility operations of the Consumers. The
reorganization is intended to sharpen management focus, improve efficiency and
accountability in both business segments and better position Consumers for
growth in the gas market and to meet increased competition in the electric
power market. The existing CMS Energy Common Stock will continue to be
outstanding and, if and after any shares of Class G Common Stock are issued by
CMS Energy, will reflect the performance of all of the businesses of CMS Energy
and its subsidiaries, including the business of the Consumers Gas Group, except
for the interest in the Consumers Gas Group attributable to the outstanding
shares of the Class G Common Stock. As of the date of this Prospectus, the
shareholders of CMS Energy have not yet approved the Charter Amendment
proposal. Following approval of the Charter Amendment proposal by the
shareholders, and after the Registration Statement of which this Prospectus is
a part has become effective, CMS Energy may, subject to prevailing market and
other conditions, offer shares of Class G Common Stock for sale for cash in an
initial public offering. The net proceeds of such offering would be invested
in the businesses of CMS Energy and used for its general corporate purposes.
Initially, such proceeds will be used to repay a portion of the debt of CMS
Energy (none of which is attributable to the Consumers Gas Group). The timing
and size of such public offering and the price at which such shares would be
sold would be determined by the Board of Directors without further approval of
the shareholders.

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18

CMS ENERGY COMMON STOCK

The following outline of certain rights of the holders of Common Stock
does not purport to be complete and is qualified in its entirety by express
reference to Article III of the Articles of Incorporation, the Certificate of
Amendment, the Senior Debt Indenture, Article VII of the Credit Agreement dated
as of July 29, 1994 (the "Credit Facility") among CMS Energy, Citibank, N.A.
and Union Bank as co-agents and certain banks named therein, Article 3 of CMS
Energy's Indenture dated as of January 15, 1994 (the "GTN Indenture") to The
Chase Manhattan Bank, N.A., as Trustee, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.

The shares of CMS Energy Common Stock may be issued from time to time as
the Board of Directors shall determine for such consideration as shall be fixed
by the Board of Directors. Except as otherwise set forth in this Prospectus or
the accompanying Prospectus Supplement, each share of CMS Energy Common Stock
of CMS Energy shall be equal to every other share of said stock in every
respect.

Dividend Rights. The holders of the CMS Energy Common Stock are entitled
to receive dividends when and as declared by the Board of Directors of the CMS
Energy out of funds legally available therefor, subject to the terms of any CMS
Energy Preferred Stock which may in the future be issued and at the time be
outstanding.

Voting Rights. Each holder of CMS Energy Common Stock is entitled to one
vote for each share of CMS Energy Common Stock held by such holder on each
matter voted upon by the shareholders. Such right to vote is not cumulative.
A majority of the votes cast by the holders of shares entitled to vote thereon
is sufficient for the adoption of any question presented, except that certain
provisions of the Articles of Incorporation relating to special shareholder
meetings, the removal, indemnification and liability of the Board of Directors
and the requirements for amending these provisions may not be amended, altered,
changed or repealed unless such amendment, alteration, change or repeal is
approved by the affirmative vote of at least 75% of the outstanding shares
entitled to vote thereon.

Preemptive Rights. Holders of CMS Energy Common Stock have no preemptive
rights to subscribe for or purchase any additional shares of the capital stock
of CMS Energy of any class now or hereafter authorized, or any CMS Energy
Preferred Stock or other securities or other right or option convertible into
or exchangeable for or entitling the holder or owner to subscribe for or
purchase any shares of capital stock.

Liquidation Rights. The Board of Directors shall determine the rights, if
any, of the holders of CMS Energy Common Stock upon the voluntary or
involuntary liquidation, merger, consolidation, distribution or sale of assets,
dissolution or winding up of CMS Energy.

Because CMS Energy has subsidiaries which have debt obligations and other
liabilities of their own, CMS Energy's rights and the rights of its creditors
and its stockholders to participate in the assets of any subsidiary upon the
latter's liquidation or recapitalization will be subject to prior claims of the
subsidiary's creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary.

Transfer Agent and Registrar. CMS Energy Common Stock is transferable at
Consumers Power Company, 212 W. Michigan Avenue, Jackson, MI 49201. The
registrar for CMS Energy Common Stock is Consumers Power Company.

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19

COMPARISON OF RIGHTS AND LIMITATIONS OF CMS ENERGY COMMON STOCK AND CLASS G
COMMON STOCK

The following is a summary description and a comparison of the rights and
limitations appertaining to the CMS Energy Common Stock and the Class G Common
Stock before the issuance and sale in an initial public offering of the Class G
Common Stock, after filing and effectiveness of the Certificate of Amendment,
and after such issuance. The Class G Common Stock is intended to reflect the
separate performance of the Consumers Gas Group and, after the initial public
offering of the Class G Common Stock, the CMS Energy Common Stock is intended
to reflect the performance of all businesses of CMS Energy and its
subsidiaries, including the businesses of the Consumers Gas Group, except for
the interest in the Consumers Gas Group attributable to the outstanding shares
of Class G Common Stock.

Before Issuance Of
Class G Common Stock After Issuance Of Class G Common Stock
-------------------- --------------------------------------

Class G
CMS Energy Common Stock CMS Energy Common Stock Common Stock
----------------------- ----------------------- ------------

VOTING RIGHTS: One vote per share The holders of CMS Energy The holders of Class G
Common Stock will vote with the Common Stock will vote
holders of Class G Common Stock with the holders of CMS
as a single class, except on Energy Common Stock as a
matters which would be required single class, except on
by law or the Articles of matters which would
Incorporation to be voted on by be required by law or the
The CMS Energy Common Articles of Incorporation
Stock will have one vote per share. to be voted on by class.
The Class G Common Stock
will have one vote per share.

DIVIDENDS: On November 22, 1994, CMS On November 22, 1994, CMS Dividends on the Class G
Energy paid a dividend Energy paid a dividend of Common Stock will be paid
of $.21 per share (an annual $.21 per share (an annual at the discretion of the
rate of $.84 per share) rate of $.84 per share) on Board of Directors based
on the CMS Energy Common the CMS Energy Common Stock. primarily upon the
Stock. Dividends are The issuance of the Class G earnings and financial
payable out of the assets Common Stock is not expected condition of the
of CMS Energy legally to change the rate at which Consumers Gas Group, and,
available therefor. dividends will be paid on the to a lesser extent, CMS
CMS Energy Common Stock. Energy as a whole.
See also "--Capital Future dividends on the CMS Dividends will be payable
Stock--Restrictions on Energy Common Stock will be out of the lesser of (i)
Payment of Dividends by paid at the discretion of the the assets of CMS Energy
CMS Energy" and "-- Board of Directors based legally available
Primary Source of Funds primarily upon the earnings therefor and (ii) the
of CMS Energy; and financial condition of Available Class G
Restrictions on Sources CMS Energy, including the Dividend Amount (as
of Dividends." Consumers Gas Group, except defined in the
for the interest in the Certificate of
Consumers Gas Group Amendment).
attributable to the outstanding
shares of the Dividends with respect to
Class G Common Stock, and the Class G Common Stock
other factors. Dividends are expected to be paid
will be payable out of the commensurate with
assets of CMS Energy legally dividend practices of
available therefor. comparable publicly-held local
natural gas distribution
CMS Energy, in the sole companies generally.
discretion of its Board of Management believes that such
Directors, could pay practices currently are
dividends exclusively to the to pay out from 70% to
holders of CMS Energy Common 85% of annual earnings
Stock, exclusively to the available for dividends
holders of Class G Common on common stock.
Stock, or to the holders of
both of such classes in equal CMS Energy, in the sole
or unequal amounts. It is discretion of its Board
the Board of Directors' of Directors, could pay
current intention that the dividends exclusively to the
declaration or payment of

-16-

Before Issuance Of
Class G Common Stock After Issuance Of Class G Common Stock
-------------------- --------------------------------------

Class G
CMS Energy Common Stock CMS Energy Common Stock Common Stock
----------------------- ----------------------- ------------

dividends with respect to the holders of CMS Energy
Class G Common Stock shall Common Stock, exclusively
not be reduced, suspended or to the holders of Class G
eliminated as a result of Common Stock, or to the
factors arising out of or holders of both of such
relating to the electric classes in equal or
utility business or the unequal amounts. It is
non-utility businesses of CMS the Board of Directors'
Energy unless such factors current intention that
also require, in the Board of the declaration or
Directors' sole discretion, payment of dividends with
the omission of the respect to the Class G
declaration or reduction in Common Stock shall not be
payment of dividends on both reduced, suspended or
the CMS Energy Common Stock eliminated as a result of
and the Class G Common Stock. factors arising out of or
relating to the electric
See also "--Capital Stock-- utility business or the
Restrictions on Payment of non-utility businesses of
Dividends by CMS Energy" and CMS Energy unless such factors
"--Primary Source of Funds of also require, in the
CMS Energy; Restrictions on Board of Directors' sole
Sources of Dividends." discretion, the omission
of the declaration or
reduction in payment of
dividends on both the
CMS Energy Common
Stock and the Class G
Common Stock.

See also "--Capital Stock
--Restrictions on Payment
of Dividends by CMS Energy"
and "-- Primary Source
of Funds of CMS Energy;
Restrictions on Sources of
Dividends."

EXCHANGES: None. None. CMS Energy may exchange the
Class G Common Stock for a
proportionate number of
shares of a subsidiary
that holds all the assets and
liabilities attributed to the
Consumers Gas Group,
and no other assets and
liabilities.

If CMS Energy transfers
all or substantially all
of the properties and
assets attributed to the
Consumers Gas Group, CMS
Energy is required,
subject to certain
exceptions and
conditions, to exchange
each outstanding share of
Class G Common Stock for
a number of shares of CMS
Energy Common Stock
having a Fair Market
Value (defined in the
Certificate of Amendment)
equal to 110% of the Fair

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Before Issuance Of
Class G Common Stock After Issuance Of Class G Common Stock
-------------------- --------------------------------------

Class G
CMS Energy Common Stock CMS Energy Common Stock Common Stock
----------------------- ----------------------- ------------

Market Value of one share
of Class G Common Stock.

CMS Energy may, in the
sole discretion of the
Board of Directors, at
any time, exchange each
outstanding share of
Class G Common Stock for
a number of shares of CMS
Energy Common Stock
having a Fair Market
Value equal to 115% of
the Fair Market Value of
one share of Class G
Common Stock.

LIQUIDATION: In the event of the In the event of the In the event of the
liquidation of CMS liquidation of CMS Energy, liquidation of CMS
Energy, the holders of each outstanding share of CMS Energy, each outstanding
CMS Energy Common Stock Energy Common Stock will be share of Class G Common
will receive the assets, entitled to a portion of the Stock will be entitled to
if any, remaining for assets remaining for a portion of the assets
distribution to common distribution to holders of remaining for
shareholders. Common Stock equal to the distribution to holders
amount of such assets divided of Common Stock equal to
by the total number of shares the amount of such assets
of CMS Energy Common Stock divided by the total
and Class G Common Stock then number of shares of CMS
outstanding. Energy Common Stock and
Class G Common Stock then
outstanding.

Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class,
would be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other corporation if such merger
or consolidation would adversely affect the powers or special rights of such
class of stock, and to authorize any amendment to the Articles of Incorporation
that would increase or decrease the aggregate number of authorized shares of
such class or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. The Articles of
Incorporation also provide that unless the vote or consent of a greater number
of shares shall then be required by law, the approval of the holders of a
majority of the outstanding shares of either class of Common Stock, voting as a
separate class, will be necessary for authorizing, effecting or validating the
merger or consolidation of CMS Energy into or with any other corporation if
such merger or consolidation would adversely affect the powers or special
rights of such class of Common Stock, either directly by amendment to the
Articles of Incorporation or indirectly by requiring the holders of such class
to accept or retain, in such merger or consolidation, anything other than (i)
shares of such class or (ii) shares of the surviving or resulting corporation,
having, in either case, powers and special rights identical to those of such
class prior to such merger or consolidation. In the event that there is more
than one class of Common Stock, the effect of these provisions may be to permit
the holders of a majority of the outstanding shares of either class of Common
Stock to block any such merger or amendment which would adversely affect the
powers or special rights of holders of such class of Common Stock.

CMS ENERGY PREFERRED STOCK

The shares of CMS Energy Preferred Stock may be issued from time to time
in one or more series with such relative rights and preferences of the shares
of any such series as may be determined by the Board of Directors. The Board
of Directors is authorized to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of CMS Energy Preferred
Stock, the designation, powers, preferences and relative, participating,
optional and other rights, and the qualifications, limitations and restrictions
thereof, if any, of such series, including, but without limiting the generality
of the foregoing, the following:

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22

(a) The rate of dividend, if any;

(b) The price at and the terms and conditions upon which shares may
be redeemed;

(c) The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding up of CMS Energy;

(d) Sinking fund or redemption or purchase provisions, if any, to be
provided for shares of the series;

(e) The terms and conditions upon which shares may be converted into
shares of other series or other capital stock, if issued with the
privilege of conversion; and

(f) The voting rights in the event of default in the payment of
dividends or under such other circumstances and upon such conditions as
the Board of Directors may determine.

The specific terms of CMS Energy Preferred Stock will be described in
the Prospectus Supplement relating thereto.

Unless otherwise provided in a Prospectus Supplement, no holder of any
shares of any series of CMS Energy Preferred Stock shall be entitled to vote in
the election of directors or in respect of any other matter except as may be
required by the Michigan Business Corporation Act, as amended.

Unless otherwise provided in a Prospectus Supplement, holders of CMS
Energy Preferred Stock will not have any preemptive rights to subscribe for or
purchase any additional shares of the capital stock of CMS Energy of any class
now or hereafter authorized, or any CMS Energy Preferred Stock or other
securities or other right or option convertible into or exchangeable for or
entitling the holder or owner to subscribe for or purchase any shares of
capital stock. The future issuance of CMS Energy Preferred Stock may have the
effect of delaying, deterring or preventing a change in control of CMS Energy.

RESTRICTIONS ON PAYMENT OF DIVIDENDS BY CMS ENERGY

Dividends on capital stock of CMS Energy are limited by Michigan law to
legally available assets of CMS Energy. Distributions on Common Stock may be
subject to the rights of the holders, if any, of the CMS Energy Preferred
Stock.

There are restrictions on CMS Energy's ability to pay dividends contained
in its Credit Facility, the Senior Debt Indenture and the GTN Indenture.

The Credit Facility provides that CMS Energy will not, and will not permit
certain of its subsidiaries, directly or indirectly, to (i) declare or pay any
cash dividend or distribution on the capital stock of CMS Energy or such
subsidiaries, or (ii) purchase, redeem, retire or otherwise acquire for value
any such capital stock (a "Restricted Payment"), unless: (1) no event of
default under the Credit Facility, or event that with the lapse of time or
giving of notice would constitute such an event of default, has occurred and is
continuing, and (2) after giving effect to any such Restricted Payment, the
aggregate amount of all such Restricted Payments since September 30, 1993 shall
not have exceeded the sum of: (a) $120,000,000, (b) 100% of CMS Energy's
consolidated net income (as defined in the Senior Debt Indenture) since
September 30, 1993 to the end of the most recent fiscal quarter ending at least
45 days prior to the

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23

date of such Restricted Payment (or, in case such sum shall be a deficit, minus
100% of the deficit), and (c) any net proceeds (as defined in the Senior Debt
Indenture) received by CMS Energy for the issuance or sale of its capital stock
subsequent to September 30, 1993. At September 30, 1994, CMS Energy could pay
cash dividends of $377 million pursuant to this restriction.

The First and Second Supplemental Indentures to the Senior Debt Indenture,
pursuant to which CMS Energy's Series A Senior Deferred Coupon Notes due
October 1, 1997 and Series B Senior Deferred Coupon Notes due October 1, 1999
were issued, provide that so long as any of such Notes are outstanding, CMS
Energy will not, and will not permit certain of its subsidiaries, directly or
indirectly, to make a Restricted Payment, unless: (1) no event of default
under the Senior Debt Indenture, or event that with the lapse of time or giving
of notice would constitute such an event of default, has occurred and is
continuing, and (2) after giving effect to any such Restricted Payment, the
aggregate amount of all such Restricted Payments since September 30, 1992 shall
not have exceed the sum of: (a) $40,000,000, (b) 100% of CMS Energy's
consolidated net income (as defined in the Senior Debt Indenture) since
September 30, 1992 to end of the most recent fiscal quarter ending at least 45
days prior to the date of such Restricted Payment (or, in case such sum shall
be a deficit, minus 100% of the deficit), and (c) any net proceeds (as defined
in the Senior Debt Indenture) received by CMS Energy for the issuance or sale
of its capital stock subsequent to September 15, 1992. At September 30, 1994,
CMS Energy could pay cash dividends of $382 million pursuant to this
restriction.

The GTN Indenture provides that, so long as any of the General Term Notes,
Series A ("GTNs") issued thereunder are outstanding and are rated below BBB- by
Standard & Poor's or by Duff & Phelps, CMS Energy will not, and will not permit
certain of its subsidiaries, directly or indirectly, to make any Restricted
Payments, if at any time CMS Energy or such subsidiary makes such Restricted
Payment: (1) an Event of Default (as defined in the GTN Indenture), or an
event that with the lapse of time or the giving of notice or both would
constitute such an Event of Default, has occurred and is continuing (or would
result therefrom), or (2) the aggregate amount of such Restricted Payment and
all other Restricted Payments made since September 30, 1993, would exceed the
sum of: (a) $120,000,000 plus 100% of consolidated net income from September
30, 1993 to the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such sum shall be a
deficit, minus 100% of the deficit) and (b) the aggregate net proceeds received
by CMS Energy from the issue or sale of or contribution with respect to its
capital stock after September 30, 1993. At September 30, 1994, CMS Energy
could pay cash dividends of $377 million pursuant to this restriction.

The foregoing provisions do not prohibit: (i) dividends or other
distributions paid by CMS Energy in respect of the capital stock issued in
connection with the acquisition of any business or assets by CMS Energy where
such payments are payable solely from the net earnings of such business or
assets; (ii) any purchase or redemption of capital stock made by exchange for,
or out of the proceeds of the substantially concurrent sale of, capital stock;
(iii) dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividends would have complied with the
aforementioned limitations; or (iv) payments pursuant to the tax sharing
agreement among CMS Energy and its subsidiaries.

In addition, Michigan law prohibits payment of a dividend if, after giving
it effect, CMS Energy would not be able to pay its debts as they become due in
the usual course of business, or its total assets would be less than the sum of
its total liabilities plus, unless the articles permit otherwise, the amount
that would be needed, if CMS Energy were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. CMS Energy's net assets available for payment of dividends under
the Michigan Business Corporation Act at September 30, 1994 were $392 million.

DIVIDENDS AND PRICE RANGE OF CMS ENERGY COMMON STOCK

CMS Energy has paid dividends on its outstanding CMS Energy Common Stock
each year since its inception except 1987 and 1988. At December 31, 1994,
there were approximately 63,646 CMS Energy Common Stock shareholders of record.
Future dividends will depend upon CMS Energy's earnings, financial condition
and other factors. Reference is made to "Description of Capital
Stock--Restrictions on Payment of Dividends by CMS Energy" and "Primary Source
of Funds of CMS Energy; Restrictions on Sources of Dividends" regarding
limitations upon payment of dividends on the capital stock of CMS Energy.

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24

The following table indicates the high and low sales prices of the CMS
Energy Common Stock for the calendar quarters indicated as reported in The Wall
Street Journal under "New York Stock Exchange Composite Transactions," and the
quarterly cash dividends declared per share of CMS Energy Common Stock, for the
calendar quarters indicated.

Price Range
----------------------
Year High Low Dividend
- ---- ---- --- --------

1991: First Quarter . . . . . . . . . . . . . . . . . . $33 $26 1/2 $.12
Second Quarter . . . . . . . . . . . . . . . . . 30 3/4 23 3/4 .12
Third Quarter . . . . . . . . . . . . . . . . . . 25 7/8 18 .12
Fourth Quarter . . . . . . . . . . . . . . . . . 19 3/4 16 5/8 .12
1992: First Quarter . . . . . . . . . . . . . . . . . . 22 3/4 17 7/8 .12
Second Quarter . . . . . . . . . . . . . . . . . 21 7/8 14 7/8 .12
Third Quarter . . . . . . . . . . . . . . . . . . 17 1/2 15 1/4 .12
Fourth Quarter . . . . . . . . . . . . . . . . . 18 3/8 16 3/4 .12
1993: First Quarter . . . . . . . . . . . . . . . . . . 20 7/8 17 7/8 .12
Second Quarter . . . . . . . . . . . . . . . . . 25 1/2 19 1/2 .12
Third Quarter . . . . . . . . . . . . . . . . . . 27 1/2 24 7/8 .18
Fourth Quarter . . . . . . . . . . . . . . . . . 27 1/8 23 .18
1994: First Quarter . . . . . . . . . . . . . . . . . . 25 21 1/8 .18
Second Quarter . . . . . . . . . . . . . . . . . 22 7/8 19 5/8 .18
Third Quarter . . . . . . . . . . . . . . . . . . 23 3/8 20 5/8 .21
Fourth Quarter . . . . . . . . . . . . . . . . . 23 1/4 20 7/8 .21
1995: First Quarter (through February 10) . . . . . . . 24 5/8 22 3/4 .21

The last reported sale price of the CMS Energy Common Stock on
February 10, 1995, on the NYSE was $24 1/4.

PRIMARY SOURCE OF FUNDS OF CMS ENERGY;
RESTRICTIONS ON SOURCES OF DIVIDENDS

The ability of CMS Energy to pay (i) dividends on its capital stock
and (ii) its indebtedness, including the Debt Securities, depends and will
depend substantially upon timely receipt of sufficient dividends or other
distributions from its subsidiaries, in particular Consumers. Consumers'
ability to pay dividends on its common stock depends upon its revenues,
earnings and other factors. Consumers' revenues and earnings will depend
substantially upon rates authorized by the MPSC.

Consumers' ability to pay dividends is restricted by its Mortgage
Indenture and its Articles of Incorporation (the "Articles"). The Mortgage
Indenture provides that Consumers can only pay dividends on its common stock
out of retained earnings accumulated subsequent to September 30, 1945, provided
that upon such payment, there shall remain of such retained earnings an amount
equivalent to any deficiency in maintenance and replacement expenditures as
compared with maintenance and replacement requirements since December 31, 1945.
Because of restrictions in its Articles and Mortgage Indenture, Consumers was
prohibited from paying dividends on its common stock from June 1991 to December
31, 1992. However, as of December 31, 1992, Consumers effected a
quasi-reorganization in which Consumers' accumulated deficit of $574 million
was eliminated against other paid-in capital. With the accumulated deficit
eliminated, Consumers satisfied the requirements under its Mortgage Indenture
and resumed paying dividends on its common stock in May 1993.

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Stock do not have preference as to the payment of dividends and as to assets.
Second, dividend payments during the 12 month period ending with the month the
proposed payment is to be paid are limited to: (i) 50% of net income available
for the payment of dividends during the base period (hereinafter defined) if
the ratio of common stock and surplus to total capitalization and surplus for
12 consecutive calendar months within the 14 calendar months immediately
preceding the proposed dividend payment (the "base period"), adjusted to
reflect the proposed dividend, is less than 20%; and (ii) 75% of net income
available for the payment of dividends during the base period if the ratio of
common stock and surplus to total capitalization and surplus for the base
period, adjusted to reflect the proposed dividend, is at least 20% but less
than 25%.

Consumers' Articles also prohibit the payment of cash dividends on its
common stock if Consumers is in arrears on preferred stock dividend payments.

In addition, Michigan law prohibits payment of a dividend if, after
giving it effect, Consumers would not be able to pay its debts as they become
due in the usual course of business, or its total assets would be less than the
sum of its total liabilities plus, unless the articles permit otherwise, the
amount that would be needed, if Consumers were to be dissolved at the time of
the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Consumers' net assets available for payment of dividends under
the Michigan Business Corporation Act at December 31, 1994 were $1,353 million.

Under the most restrictive of these conditions, at December 31, 1994,
$___ million of Consumers' retained earnings were available to pay cash
dividends on its common stock. Currently it is Consumers' policy to pay annual
dividends equal to 80% of its annual consolidated net income. Consumers' Board
of Directors reserves the right to change this policy at any time.

Consumers paid dividends on its common stock of $16.0 million on
February 22, 1994, of $65.6 million on May 20, 1994, $31.0 million on August
19, 1994, $36.0 million on November 4, 1994 and $27.4 million on December 20,
1994.

CMS ENERGY MICHIGAN PREFERRED SECURITIES

CMS Energy Michigan may issue, from time to time, CMS Energy Michigan
Preferred Securities, in one or more series, having terms described in the
Prospectus Supplement relating thereto. The limited partnership agreement of
CMS Energy Michigan will be amended and restated (as so amended and restated,
the "Limited Partnership Agreement") to authorize the establishment of one or
more series of CMS Energy Michigan Preferred Securities, having such terms,
including dividends, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or such restrictions as shall be
set forth therein or otherwise established by the General Partner pursuant
thereto. Reference is made to the Prospectus Supplement relating to the CMS
Energy Michigan Preferred Securities of a particular series for specific terms,
including (i) the distinctive designation of such series which shall
distinguish it from other series; (ii) the number of CMS Energy Michigan
Preferred Securities included in such series, which number may be increased or
decreased from time to time unless otherwise provided by the General Partner in
creating the series; (iii) the annual dividend rate (or method of determining
such rate) for CMS Energy Michigan Preferred Securities of such series and the
date or dates upon which such dividends shall be payable, provided, however,
dividends on any series of CMS Energy Michigan Preferred Securities shall be
payable on a monthly basis to holders of such series of CMS Energy Michigan
Preferred Securities as of a record date in each month during which such series
of CMS Energy Michigan Preferred Securities are outstanding; (iv) whether
dividends on CMS Energy Michigan Preferred Securities of such series shall be
cumulative, and, in the case of CMS Energy Michigan Preferred Securities of any
series having cumulative dividend rights, the date or dates or method of
determining the date or dates from which dividends on CMS Energy Michigan
Preferred Securities of such series shall be cumulative; (v) the amount or
amounts which shall be paid out of the assets of CMS Energy Michigan to the
holders of CMS Energy Michigan Preferred Securities of such series upon
voluntary or involuntary dissolution, winding-up or termination of CMS Energy
Michigan; (vi) the price or prices at which, the period or periods within which
and the terms and conditions upon which CMS Energy Michigan Preferred
Securities of such series may be redeemed or purchased, in whole or in part, at
the option of CMS Energy Michigan

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26

or the General Partner; (vii) the obligation, if any, of CMS Energy Michigan to
purchase or redeem CMS Energy Michigan Preferred Securities of such series
pursuant to a sinking fund or otherwise and the price or prices at which, the
period or periods within which and the terms and conditions upon which CMS
Energy Michigan Preferred Securities of such series shall be purchased or
redeemed, in whole or in part, pursuant to such obligation; (viii) the period
or periods within which and the terms and conditions, if any, including the
price or prices or the rate or rates of conversion or exchange and the terms
and conditions of any adjustments thereof, upon which the CMS Energy Michigan
Preferred Securities of such series shall be convertible or exchangeable at the
option of the holder of the Partnership Preferred Security, or CMS Energy
Michigan, into any other securities or other property or cash or into any other
series of CMS Energy Michigan Preferred Securities; (ix) the voting rights, if
any, of CMS Energy Michigan Preferred Securities of such series in addition to
those required by law or set forth in the Limited Partnership Agreement, and
any requirement for the approval by the holders of CMS Energy Michigan
Preferred Securities, or of CMS Energy Michigan Preferred Securities of one or
more series, or of both, as a condition to specified action or amendments to
the Limited Partnership Agreement; (x) the additional amounts, if any, which
CMS Energy Michigan will pay as a distribution as necessary in order that the
net amounts received by holders of CMS Energy Michigan Preferred Securities of
such series after withholding or deduction of certain taxes, duties,
assessments or governmental charges will equal the amount which would have been
receivable in respect of such CMS Energy Michigan Preferred Securities in the
absence of such withholding or deduction; and (xi) any other relative rights,
powers, preferences, privileges, limitations or restrictions of CMS Energy
Michigan Preferred Securities of the series not inconsistent with the Limited
Partnership Agreement or with applicable law. All CMS Energy Michigan
Preferred Securities offered hereby will be guaranteed by CMS Energy to the
limited extent set forth below under "Description of the Guarantee." Any
applicable federal income tax considerations applicable to any offering of CMS
Energy Michigan Preferred Securities will be described in the Prospectus
Supplement relating thereto. Unless otherwise provided in a Prospectus
Supplement, the aggregate number of CMS Energy Michigan Preferred Securities
which CMS Energy Michigan shall have authority to issue is unlimited.

DESCRIPTION OF THE GUARANTEE

Set forth below is a summary of information concerning the Guarantee
which will be executed and delivered by CMS Energy for the benefit of the
holders, from time to time, of each series of CMS Energy Michigan Preferred
Securities. The summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the Guarantee, which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.

GENERAL

CMS Energy will irrevocably and unconditionally agree, to the extent
set forth herein, to pay in full, to the holders of the CMS Energy Michigan
Preferred Securities of each series, the Guarantee Payments (as defined below),
as and when due, regardless of any defense, right of set-off or counterclaim
which CMS Energy may have or assert against CMS Energy Michigan. The following
payments with respect to any series of CMS Energy Michigan Preferred Securities
to the extent not paid by CMS Energy Michigan (the "Guarantee Payments") will
be subject to the Guarantee (without duplication): (i) any accrued and unpaid
dividends which are required to be paid on the CMS Energy Michigan Preferred
Securities of such series, to the extent CMS Energy Michigan shall have funds
on hand sufficient to make such payment and funds legally available therefor as
determined by the General Partner, (ii) the redemption price, including all
accrued and unpaid dividends (the "Redemption Price"), payable out of funds
legally available therefor as determined by the General Partner with respect to
any CMS Energy Michigan Preferred Securities called for redemption by CMS
Energy Michigan and (iii) upon a liquidation of CMS Energy Michigan, the lesser
of (a) the aggregate of the liquidation preference and all accrued and unpaid
dividends on the CMS Energy Michigan Preferred Securities of such series to the
date of payment and (b) the amount of assets of CMS Energy Michigan remaining
available for distribution to holders of CMS Energy Michigan Preferred
Securities of such series in liquidation of CMS Energy Michigan. CMS Energy's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by CMS Energy to the holders of CMS Energy Michigan
Preferred Securities or by causing CMS Energy Michigan to pay such amounts to
such holders.

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27

CERTAIN COVENANTS OF CMS ENERGY

In the Guarantee, CMS Energy will covenant that, so long as any CMS
Energy Michigan Preferred Securities remain outstanding, CMS Energy will not
declare or pay any dividend on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock if at such time
CMS Energy is in default with respect to its payment or other obligations under
the Guarantee or there shall have occurred any event that, with the giving of
notice or lapse of time or both, would constitute an Event of Default under the
Subordinated Debt Indenture.

AMENDMENTS AND ASSIGNMENT

Except with respect to any changes which do not adversely affect the
rights of holders of CMS Energy Michigan Preferred Securities (in which case no
vote will be required), the Guarantee may be changed only with the prior
approval of the holders of not less than 66 2/3% in liquidation preference of
the outstanding CMS Energy Michigan Preferred Securities. All guarantees and
agreements contained in the Guarantee shall bind the successors, assignees,
receivers, trustees and representatives of CMS Energy and shall inure to the
benefit of the holders of the CMS Energy Michigan Preferred Securities then
outstanding.

TERMINATION OF THE GUARANTEE

The Guarantee will terminate and be of no further force and effect as
to the CMS Energy Michigan Preferred Securities of any series upon full payment
of the Redemption Price of all CMS Energy Michigan Preferred Securities of such
series and will terminate completely upon full payment of the amounts payable
upon liquidation of CMS Energy Michigan. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of CMS Energy Michigan Preferred Securities of any series must restore payment
of any sums paid under such series of CMS Energy Michigan Preferred Securities
or the Guarantee.

STATUS OF THE GUARANTEE

The Guarantee will constitute an unsecured obligation of CMS Energy
and will rank (i) subordinate and junior in right of payment to all other
liabilities of CMS Energy (including the Subordinated Debentures), except those
made pari passu by their terms (ii) pari passu with the most senior preferred
or preference stock now or hereafter issued by CMS Energy and with any
guarantee now or hereafter entered into by CMS Energy in respect of any
preferred or preference stock of any affiliate of CMS Energy and (iii) senior
to Common Stock of CMS Energy. The Limited Partnership Agreement provides that
each holder of CMS Energy Michigan Preferred Securities by acceptance thereof
agrees to the subordination provisions and other terms of the Guarantee.

The Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the guarantee
without first instituting a legal proceeding against any other person or
entity). The Guarantee will be deposited with the General Partner to be held
for the benefit of the holders of each series of CMS Energy Michigan Preferred
Securities. In the event of the appointment of a Special Representative to,
among other things, enforce the Guarantee, the Special Representative may take
possession of the Guarantee for such purpose. If no Special Representative has
been appointed to enforce the Guarantee, the General Partner has the right to
enforce the Guarantee on behalf of the holders of each series of CMS Energy
Michigan Preferred Securities. The holders of not less than 10% in aggregate
liquidation preference of the CMS Energy Michigan Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available in respect of the Guarantee, including the giving of
directions to the General Partner or the Special Representative, as the case
may be. If the General Partner or the Special Representative fails to enforce
the Guarantee as provided above, any holder of CMS Energy Michigan Preferred
Securities may institute a legal proceeding directly against the Guarantor to
enforce its rights under the Guarantee, without first instituting a legal
proceeding against CMS Energy Michigan or any other person or entity. The
Guarantee will not be discharged except by payment of the Guarantee Payments in
full and by complete performance of all obligations under the Guarantee.

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GOVERNING LAW

The Guarantee will be governed by and construed in accordance with the
laws of the State of Michigan.

LEGAL OPINIONS

Opinions as to the legality of the securities offered hereby will be
rendered for CMS Energy and CMS Energy Michigan by Denise M. Sturdy, Assistant
General Counsel for CMS Energy. Certain legal matters with respect to Offered
Securities will be passed upon by Sidley & Austin, Chicago, Illinois, counsel
to CMS Energy and CMS Energy Michigan, and by Reid & Priest LLP, New York, New
York, counsel for any underwriters, dealers or agents who will be named in the
related Prospectus Supplement.

EXPERTS

The consolidated financial statements and schedules of CMS Energy as
of December 31, 1993 and 1992, and for each of the three years in the period
ended December 31, 1993 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports. Reference is made to said
reports which include an explanatory paragraph with respect to the change in
the method of accounting for income taxes in 1992 as discussed in Note 6 to the
consolidated financial statements and with respect to the change in the method
of accounting for postretirement benefits other than pensions in 1992 as
discussed in Note 10 to the consolidated financial statements.

With respect to the unaudited interim consolidated financial
information for the periods ended March 31, June 30 and September 30, 1994 and
1993, Arthur Andersen LLP has applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report thereon states that they did not audit and they did not express
an opinion on that interim consolidated financial information. Accordingly,
the degree of reliance on their report on that information should be restricted
in light of the limited nature of the review procedures applied. In addition,
the accountants are not subject to the liability provisions of Section 11 of
the Securities Act of 1933, as amended ("Securities Act"), for their report on
the unaudited interim consolidated financial information because that report is
not a "report" or "part" of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.

Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.

PLAN OF DISTRIBUTION

CMS and/or CMS Energy Michigan may sell the Offered Securities (i)
through the solicitation of proposals of underwriters or dealers to purchase
the Offered Securities; (ii) through underwriters or dealers on a negotiated
basis, (iii) directly to a limited number of purchasers or to a single
purchaser; or (iv) through agents. The Prospectus Supplement with respect to
any Offered Securities will set forth the terms of such offering, including the
name or names of any underwriters, dealers or agents; the purchase price of the
Offered Securities and the proceeds to CMS and/or CMS Energy Michigan from such
sale; any underwriting discounts and commissions and other items constituting
underwriters' compensation; any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers and any securities
exchange on which such Offered Securities may be listed. Any initial public
offering price, discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.

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29

If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Offered Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Offered
Securities will be named in the Prospectus Supplement relating to such offering
and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such Prospectus Supplement.
Unless otherwise set forth in the Prospectus Supplement relating thereto, the
obligations of the underwriters to purchase the Offered Securities will be
subject to certain conditions precedent, and the underwriters will be obligated
to purchase all the Offered Securities if any are purchased.

If dealers are utilized in the sale of Offered Securities, CMS and/or
CMS Energy Michigan will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public
at varying prices to be determined by such dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.

The Offered Securities may be sold directly by CMS and/or CMS Energy
Michigan or through agents designated by CMS and/or CMS Energy Michigan from
time to time. Any agent involved in the offer or sale of the Offered
Securities in respect to which this Prospectus is delivered will be named, and
any commissions payable by CMS and/or CMS Energy Michigan to such agent will be
set forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.

The Offered Securities may be sold directly by CMS and/or CMS Energy
Michigan to institutional investors or others, who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any
resale thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.

If so indicated in the Prospectus Supplement, CMS and/or CMS Energy
Michigan will authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase Offered Securities from CMS and/or
CMS Energy Michigan at the public offering price set forth in the Prospectus
Supplement pursuant to delayed delivery contracts providing for payment and
delivery on a specified date in the future. Such contracts will be subject
only to those conditions set forth in the Prospectus Supplement, and the
Prospectus Supplement will set forth the commission payable for solicitation of
such contracts.

Agents, dealers and underwriters may be entitled under agreements with
CMS and/or CMS Energy Michigan to indemnification by CMS and/or CMS Energy
Michigan against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which such agents,
dealers or underwriters may be required to make in respect thereof. Agents,
dealers and underwriters may be customers of, engage in transactions with, or
perform services for CMS and/or CMS Energy Michigan in the ordinary course of
business.

The Offered Securities may or may not be listed on a national
securities exchange. Reference is made to the Prospectus Supplement with
regard to such matter. No assurance can be given that there will be a market
for any of the Offered Securities.

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30
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.

PROSPECTUS (Subject to Completion)
Issued February __, 1995

_______________ SHARES

CMS Energy Corporation
Class G Common Stock

All of the shares of CMS Energy Corporation Class G Common Stock ("Class G
Common Stock") offered hereby are being sold by CMS Energy Corporation ("CMS
Energy"). Prior to this offering, there has been no public market for the
Class G Common Stock. It is currently estimated that the initial public
offering price per share will be between $_______ and $________. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price.

The Class G Common Stock is Common Stock of CMS Energy and is intended to
reflect the separate performance of the natural gas distribution, storage and
transportation businesses conducted by Consumers Power Company ("Consumers")
and Michigan Gas Storage Company ("MGS") (such businesses, collectively, will
be attributed to the "Consumers Gas Group"). Consumers is a direct subsidiary
of CMS Energy and MGS is a wholly-owned direct subsidiary of Consumers. The
Class G Common Stock is one of two classes of the Common Stock of CMS Energy,
the other being CMS Energy Corporation Common Stock ("CMS Energy Common
Stock").

Dividends on the Class G Common Stock will be paid at the discretion of
the Board of Directors of CMS Energy ("Board of Directors") based primarily
upon the earnings and financial condition of the Consumers Gas Group, and, to a
lesser extent, CMS Energy as a whole. Dividends will be payable out of the
lesser of (i) the assets of CMS Energy legally available therefor and (ii) the
Available Class G Dividend Amount. Dividends with respect to the Class G
Common Stock are expected to be paid commensurate with dividend practices of
comparable publicly-held local natural gas distribution companies generally.
Management believes that such practices currently are to pay out from 70% to
85% of annual earnings available for dividends on common stock. Consistent
with this policy, if _______________ shares of the Class G Common Stock
representing 100% of the equity attributed to the Consumers Gas Group had been
outstanding during all of 1994, CMS Energy would have paid a dividend at an
annual rate ranging from $______ per share to $______ per share on the Class G
Common Stock.

In the event of a disposition by CMS Energy of all or substantially all of
the properties and assets attributed to the Consumers Gas Group, CMS Energy is
required to exchange for each outstanding share of Class G Common Stock a
number of shares of CMS Energy Common Stock having a Fair Market Value equal to
110% of the Fair Market Value of one share of Class G Common Stock. CMS Energy
may, in the sole discretion of the Board of Directors, at any time exchange for
each outstanding share of Class G Common Stock a number of shares of CMS Energy
Common Stock having a Fair Market Value equal to 115% of the Fair Market Value
of one share of Class G Common Stock. See "Description of Class G Common
Stock."

Application will be made to list the Class G Common Stock on the New York
Stock Exchange, Inc. under the symbol "CPG."

SEE "FACTORS TO CONSIDER" FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
31

__________________

PRICE $ PER SHARE

__________________

Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) CMS Energy (2)
-------- --------------- --------------

Per Share.................. $ $ $
Total (3).................. $ $ $

(1) CMS Energy has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting expenses payable by CMS Energy estimated at $________.

(3) CMS Energy has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of _00,000
additional shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to CMS Energy will be
$__________, $___________ and $__________, respectively. See
"Underwriters."

_______________________________

The shares of Class G Common Stock are offered, subject to prior sale,
when, as and if accepted by the Underwriters named herein and subject to
approval of certain legal matters by Reid & Priest LLP, counsel for the
Underwriters. It is expected that the delivery of the shares will be made on
or about _______________, 1995, at the office of
__________________________________ New York, New York, against payment therefor
in New York funds.

_________________, 1995
32

No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained or
incorporated by reference in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by CMS Energy or by any Underwriter. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus at any time nor any sale made hereunder
shall under any circumstances imply that the information contained or
incorporated by reference in this Prospectus is correct as of any time
subsequent to the date hereof.

TABLE OF CONTENTS

Page Page
---- ----

Incorporation of Certain CMS Energy--
Documents by Reference . . . . . . . . . Selected Consolidated
Prospectus Summary . . . . . . . . . . . . Financial Information . . . . . . . . . .
Factors to Consider . . . . . . . . . . . . CMS Energy--Unaudited Pro Forma
Use of Proceeds . . . . . . . . . . . . . . Financial Statements . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . CMS Energy--
Dividend Policy . . . . . . . . . . . . . Management's Discussion
Primary Source of Dividends and Analysis of Financial
for the Common Stock Condition and Results of Operations . . .
of CMS Energy; Restrictions Description of Capital Stock . . . . . . .
on Sources of Dividends . . . . . . . . . Certain Federal Income Tax Effects
Certain Management and Accounting of Offering . . . . . . . . . . . . . .
Policies . . . . . . . . . . . . . . . . Underwriters . . . . . . . . . . . . . . .
Business of the Legal Opinions . . . . . . . . . . . . . .
Consumers Gas Group . . . . . . . . . . . Experts . . . . . . . . . . . . . . . . . .
Consumers Gas Group--Selected Available Information . . . . . . . . . . .
Consolidated Financial and Operating Data Appendix I - Glossary . . . . . . . . . . .
Consumers Gas Group-- Unaudited Appendix II - Class G
Pro Forma Condensed Financial Common Stock Retained
Statements . . . . . . . . . . . . . . . Interest Illustrations . . . . . . . . .
Consumers Gas Group--Manage- Index to Financial Statements . . . . . .
ment's Discussion and
Analysis of Financial
Condition and Results
of Operations . . . . . . . . . . . . . .

____________________

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33

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by CMS Energy with the Securities and
Exchange Commission (the "Commission") (File No. 1-9513) pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are hereby
incorporated by reference in this Prospectus and shall be deemed to be a part
hereof: (i) CMS Energy's Annual Report on Form 10-K for the year ended
December 31, 1993; (ii) CMS's Energy's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, June 30 and September 30, 1994; and (iii) CMS
Energy's Current Reports on Forms 8-K dated March 4, March 29, August 18,
October 5 and November 21, 1994 and January 10 and February 2, 1995.

All documents subsequently filed by CMS Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act and prior to the termination of the
offering of the Class G Common Stock contemplated hereby (the "Offering") shall
be deemed to be incorporated by reference herein and shall be deemed to be a
part hereof from the date of filing of such documents (such documents, and the
documents enumerated above, being hereinafter referred to as "Incorporated
Documents"). Any statement contained in an Incorporated Document shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CLASS
G COMMON STOCK OR CMS ENERGY COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE OR CERTAIN OTHER EXCHANGES OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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34

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus and in the Incorporated Documents. As
used herein, "CMS Energy" means CMS Energy Corporation and its consolidated
subsidiaries, including the Consumers Gas Group. The description of the terms
of the Class G Common Stock in this Prospectus assumes that the Certificate of
Amendment ("Certificate of Amendment") to the Articles of Incorporation of CMS
Energy authorizing the Class G Common Stock will have been filed with the
Michigan Department of Commerce prior to the completion of the offering.
References in this Prospectus to the "Articles of Incorporation" refer to the
Articles of Incorporation of CMS Energy, as amended by such Certificate of
Amendment, unless the context requires otherwise. Unless indicated otherwise,
the information contained in this Prospectus assumes that the Underwriters do
not exercise their over-allotment option. Unless otherwise defined herein,
capitalized terms used in this Prospectus Summary have the respective meanings
ascribed to them elsewhere in this Prospectus. See "Glossary" in Appendix I.

CONSUMERS GAS GROUP

GENERAL

The businesses attributed to the Consumers Gas Group consist of the
natural gas distribution, storage and transportation businesses (collectively,
the "Gas Distribution Business") conducted by Consumers and its subsidiary,
MGS. Consumers is a subsidiary of CMS Energy. For the year ended December 31,
1994, the Gas Distribution Business conducted by the Consumers Gas Group was
the largest local natural gas distribution company in Michigan and the fifth
largest in the United States based on volumes of natural gas distributed
(excluding gas for resale). The Consumers Gas Group supplies natural gas for
heating and various other energy applications to approximately 1.4 million
residential, commercial and industrial customers in 45 of the 68 counties in
Michigan's Lower Peninsula through a distribution and transmission system
consisting of 20,768 miles of distribution mains and 1,084 miles of
transmission lines. The Consumers Gas Group also operates 14 gas storage
fields and related facilities. The related facilities have a total certified
storage capacity of approximately 359.2 billion cubic feet ("Bcf"), of which
130.0 Bcf is working gas. The Gas Distribution Business is regulated as a
public utility by the Michigan Public Service Commission ("MPSC") and the
Federal Energy Regulatory Commission ("FERC").

The operating revenues attributable to the Consumers Gas Group for the
nine months ended September 30, 1994 and the year ended December 31, 1993 were
$837 million and $1,160 million, respectively, representing 31% and 33%,
respectively, of the total consolidated operating revenues of CMS Energy for
such periods. The pretax operating income attributable to the Consumers Gas
Group for the nine months ended September 30, 1994 and the year ended December
31, 1993 were $106 million and $146 million, respectively, representing 26% and
33%, respectively, of the total consolidated pretax operating income, of CMS
Energy for such periods. The total assets attributable to the Consumers Gas
Group as of September 30, 1994 were $1,625 million representing 23% of the
consolidated total assets of CMS Energy at that date. See "Business of the
Consumers Gas Group" for a more complete description of the Gas Distribution
Business.

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35

RECENT DEVELOPMENTS

Audited financial statements and results of operations for the businesses
attributed to the Consumers Gas Group for the year ended December 31, 1994 are
not yet available. Reference is made to "Business of the Consumers Gas Group
- -- Recent Developments" for certain selected financial information at December
31, 1994 and 1993 and for the years ended on such dates for the businesses
attributed to the Consumers Gas Group. Audited financial statements and
related financial and statistical data for the businesses attributed to the
Consumers Gas Group for the year ended December 31, 1994 will be included in
this Prospectus prior to the commencement of the Offering of the Class G Common
Stock.

Reference is made to "Factors to Consider--Regulatory Considerations" for
information concerning a petition filed by Consumers on December 29, 1994 with
the MPSC for an increase in annual gas rates for the Gas Distribution Business.

COMPETITIVE ADVANTAGES

The Consumers Gas Group is well-positioned to capitalize on the
opportunities and meet the challenges of the deregulated gas market. The
Consumer Gas Group's principal competitive advantages include:

- Consistent growth. The Consumers Gas Group's gas sales for the nine
months ended September 30, 1994 and for the year ended December 31,
1993 were 173 Bcf and 244 Bcf, respectively, with a total throughput
of 225 Bcf and 315 Bcf for those periods (excluding sales to a
related partnership, Midland Cogeneration Venture Limited Partnership
("MCV Partnership")). This represents an average annual growth rate
since 1990 of approximately 3.3% (1.3% weather-adjusted). The
weather-adjusted growth is primarily attributable to an increase in
the number of customers served. Since 1990, the Consumers Gas Group
has experienced an average annual customer growth rate of 1.5%
(approximately 20,000 customers) per year. See "Business of the
Consumers Gas Group -- Customers."

- Diversity and stability of customers served. The Consumers Gas
Group's sales are derived from a diversity of customers with no
substantial dependence on a particular customer. The Consumers Gas
Group's approximately 1.4 million customers include approximately 1.3
million residential customers, 94,000 commercial customers and 8,000
industrial customers. In 1994, residential customers, the primary
component of the Consumers Gas Group's load, represented slightly
more than half of throughput, while the industrial and commercial
classes each represented about one-fourth. For the nine months ended
September 30, 1994, approximately 67.7% of the Consumers Gas Group's
revenues were derived from this relatively stable residential
customer base. The customer base of the Consumers Gas Group also
includes several of the largest manufacturing businesses in the
United States, such as Chrysler Corporation, Dow Chemical Company,
Ford Motor Company, General Motors Corporation and Upjohn Company.

- Low cost natural gas provider. As of September 30, 1994, the
Consumers Gas Group's residential customers enjoyed the lowest rates
charged by any Michigan natural gas utility and rates which are
believed to be consistently among the lowest 10% of all U.S. local
natural gas distribution companies. As of September 30, 1994, the
Consumers Gas Group's rate for residential service was $3.917/Mcf

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36

("Mcf" being a thousand cubic feet). See "Business of the Consumers
Gas Group -- Business."

- Substantial natural gas storage capacity. The 14 gas storage fields
operated by the Consumers Gas Group have 130.0 Bcf of working gas
storage. This storage capacity enabled Consumers Gas Group to
provide approximately 45.0% of its sale requirements throughout the
1993-1994 winter heating season (November 1 through March 31) and
70.0% of its January 1994 peak-day requirement from storage. These
storage facilities allow the Consumers Gas Group to lower its
peak-day entitlement from its pipeline suppliers, thereby reducing
interstate pipeline costs. See "Business of the Consumers Gas Group
-- Storage."

- Strategic location near interstate pipelines. The Consumers Gas
Group is strategically located to receive gas deliveries from several
interstate pipelines connected to the major producing regions of the
United States and Canada. ANR Pipeline Company ("ANR"), Panhandle
Eastern Pipeline Company ("Panhandle") and Trunkline Gas Company
("Trunkline") deliver gas from the U.S. Gulf Coast and the
Mid-Continent areas. Gas produced in Western Canada is delivered to
the Consumers Gas Group through several pipelines that ultimately
deliver gas to Great Lakes Gas Transmission Company, which is
connected directly to the Consumers Gas Group. See "Business of the
Consumers Gas Group -- Gas Supply."

GROWTH STRATEGIES

The Consumer Gas Group believes that if the Consumer Gas Group's
residential customer base grows at a rate of approximately 1.5% annually and
gas prices adjusted for inflation remain relatively unchanged, its annual gas
deliveries will grow to approximately 329.0 Bcf between 1994 and 1999
representing total growth over the period of 5.5%. In addition, the Consumers
Gas Group has identified the following strategies to further grow its
residential, commercial and industrial customer base:

- Increased usage by existing customers. The Consumer Gas Group
believes that there are opportunities to increase revenues from its
existing customer base. Studies conducted by the Consumers Gas Group
show that many of its existing residential and commercial customers
utilize non-gas furnaces, electric water heaters and wood burning
fireplaces for space and water heating. The Consumers Gas Group
intends to conduct marketing programs to switch these customers to
natural gas for these purposes.

- Attracting additional customers. The Consumers Gas Group plans to
attract additional customers by expanding within its existing
franchises. The Consumers Gas Group maintains franchises in eight of
the ten most populous counties in Michigan and each of these counties
has been growing. Through effective planning, the Consumers Gas
Group intends to position its system expansion to secure future
growth in these areas. The Consumers Gas Group intends to invest
$37.7 million over the three-year period ending December 31, 1998 to
construct additional gas mains. This program is designed to increase
gas usage in the Consumer Gas Group's existing service area and to
enable it to successfully compete with other local natural gas
distribution companies for new customers. Finally, there are still
significant numbers of potential gas customers who have a gas main in
front of their home or establishment and do not have installed gas

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37

service. The conversion of these customers to gas service is an
additional potential source of growth.

- Co-generation. The Consumers Gas Group believes that there is a
significant potential for development in its service area of gas
powered cogeneration projects capable of generating from 1,000 to
50,000 kilowatt ("KW") of electricity. For projects of this type the
Consumers Gas Group would have the ability to provide, in addition to
gas supply, project engineering, equipment financing, operating and
maintenance service and gas storage services.

- Industrial conversions. Conversion of industrial processes to
natural gas is also an area of expected sales growth for the
Consumers Gas Group. For example, it is expected that laws mandating
improvements in air quality will provide opportunities for converting
industrial boiler load to clean-burning natural gas, and for
additional utilization of natural gas for electric generation. The
Consumers Gas Group believes that conversion projects also provide
opportunities for project engineering, construction services,
equipment financing, gas storage and other services which it is in a
position to provide competitively.

- New technologies. The Consumers Gas Group also expects additional
growth from the development and use of Natural Gas Vehicles ("NGVs").
Pursuant to the Energy Policy Act of 1992, increasing percentages of
the federal government's automotive fleet must consist of NGVs
beginning in 1996; the federal government will be required to either
convert gasoline-fueled vehicles into NGVs or purchase NGVs. The
Consumers Gas Group believes that other automotive fleets, as well as
indoor equipment such as forklifts and sweepers, will convert to
NGVs, and thereafter certain portions of the general population may
acquire or convert their existing vehicles to NGVs. The Consumers
Gas Group estimates that each NGV represents 125 Mcf of natural gas
consumption annually, equal to the natural gas consumption of an
average single family home.

- Revenue diversification. In 1994, approximately 85% of Consumers Gas
Group's gas throughput was weather related and weather can cause
significant fluctuations in revenue. For example, unseasonably warm
weather in November and December 1994, in the service area of the
Consumers Gas Group resulted in gas sales and gas transported in the
fourth quarter of 1994 totalling 111 Bcf, a 12% decrease from the
corresponding 1993 level. Opportunities exist to diversify revenues
by (i) growing off-peak load and (ii) creating and increasing new
revenue from the sale of gas-related services and products, such as
maintenance agreements related to gas equipment (e.g. furnaces),
appliance repair and installation, sales of other equipment (e.g.
carbon monoxide detectors, water heaters) and energy optimization
services.

In total, the Consumers Gas Group expects these and related additional
efforts to add approximately 38.0 Bcf of throughput by 1999 which is equivalent
to approximately $17.2 million of additional gross margin annually (excluding
recovery of the cost of gas supplied to customers). However, actual levels of
growth in the business of the Consumers Gas Group will depend on general
economic conditions, the availability of gas supply, gas prices, alternate
energy prices and other factors, and there can be no assurance that the
Consumers Gas Group will achieve increased sales or earnings.

-7-
38

CMS ENERGY

CMS Energy, incorporated in 1987, is the parent holding company of
Consumers and CMS Enterprises Company ("Enterprises"). Consumers, a
combination electric and gas utility company serving most of Michigan's Lower
Peninsula, is CMS Energy's largest subsidiary. Consumers' customer base
includes a mix of residential, commercial and diversified industrial customers,
the largest of which is the automotive industry. Enterprises is engaged in
several non-utility energy-related businesses including: (i) oil and gas
exploration and production, (ii) development and operation of independent power
production facilities, (iii) gas marketing services to end-users and (iv)
transmission and storage of natural gas.

CMS Energy conducts its principal operations through the following five
business segments: (i) electric utility operations; (ii) natural gas utility
operations; (iii) oil and gas exploration and production operations; (iv)
independent power production; and (v) gas transmission and marketing.
Consumers or Consumers' subsidiaries are engaged in two segments: electric
operations and gas utility operations. Consumers' electric and gas businesses
are principally regulated utility operations.

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39

THE OFFERING

Class G Common Stock _______________ shares
offered by CMS Energy

Percentage of Consumers Gas Group CMS Energy is offering shares of
Equity represented by the Class G Common Stock representing
offered shares ___% of the common stockholders'
equity value attributed to the
Consumers Gas Group.

Use of Proceeds All of the net proceeds will be
invested in the businesses and
used for general corporate
purposes of CMS Energy. Initially,
such net proceeds will be used to
repay a portion of the debt of
CMS Energy (none of which is
attributable to the Consumers Gas
Group).

NYSE Application will be made to list
the Class G Common Stock on the
New York Stock Exchange, Inc.
("NYSE") under the symbol "CPG."

-9-
40

CONSUMERS GAS GROUP
SUMMARY FINANCIAL AND OPERATING DATA

The summary financial data of the Consumers Gas Group presented below for
the nine months ended September 30, 1994 and 1993 were derived from the
Consumers Gas Group Financial Statements contained elsewhere herein. The
summary financial data for each of the years in the three-year period ended
December 31, 1993 were derived from the Consumers Gas Group Financial
Statements contained elsewhere herein which have been audited by Arthur
Andersen LLP, independent public accountants. The following summary data
reflect the historical results of operations, and certain financial and
operating data of the businesses attributed to the Consumers Gas Group and
should be read in conjunction with the Consumers Gas Group Financial
Statements, "Consumers Gas Group--Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business of the Consumers Gas
Group," CMS Energy's Financial Statements and "CMS Energy--Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere herein. The summary financial data do not reflect the
effects of the capital structure that will be attributable to the Consumers Gas
Group effective upon the completion of the Offering. See "Consumers Gas
Group--Unaudited Pro Forma Condensed Financial Statements" below.

Nine Months
Ended September 30, Year Ended December 31,
------------------- ----------------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
Dollars in millions, except average sales rate

INCOME STATEMENT DATA:
Operating Revenue . . . . . . . . . $ 837 $ 809 $1,160 $1,126 $1,061
Operating Expenses . . . . . . . . 731 713 1,014 1,017 997
Pretax Operating Income . . . . . 106 96 146 109 64
Net income . . . . . . . . . . . . 45 41 66 40 1

OTHER FINANCIAL DATA:

Cash flow from operations . . . . . $ 117 $ (2) $ 80 $ 106 $ 180
Capital expenditures . . . . . . . 83 107 153 107 68
Property, plant and equipment . . 968 908 931 846 806
Total assets . . . . . . . . . . . 1,625 1,604 1,628 1,574 1,332

OPERATING DATA:

Sales and transportation
deliveries (Bcf)(a) . . . . . . 283 269 389 364 339
Customers (in thousands) . . . . . 1,428 1,406 1,423 1,402 1,382
Average sales rate ($/mcf) . . . . 4.51 4.61 4.46 4.55 4.58

(a) Excludes off-system transportation services.

-10-
41

The following table sets forth selected financial information at December
31, 1994 and 1993 and for the years ended on such dates for the businesses
attributed to the Consumers Gas Group. This information should be read in
conjunction with the Consumers Gas Group Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations set
forth elsewhere herein.

Year Ended
December 31,
---------------
1994 1993
---- ----
(unaudited)
In Millions

INCOME STATEMENT DATA:

Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,151 $1,160
Pretax Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 135 $ 146
Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94 $ 107
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53 $ 66

BALANCE SHEET DATA:

Net Plant and Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 994 $ 931
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,673 $1,628
Total Debt (excluding current maturities) . . . . . . . . . . . . . . . . . . . . . . . $ 525 $ 485
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 317 $ 288

In the opinion of the management of CMS Energy, all adjustments requires
have been recorded in order to fairly reflect the financial condition of the
Consumers Gas Group as of such dates and the results of operations of the Gas
Distribution Business for such years.

The 1994 results of operations were adversely affected by unseasonably
warm weather in November and December 1994, in the service area of the Gas
Distribution Business, resulting in gas sales and gas transported in the fourth
quarter totalling 111 Bcf, a 12 percent decrease from the corresponding 1993
level.

-11-
42

CONSUMERS GAS GROUP
SUMMARY PRO FORMA FINANCIAL DATA

The summary pro forma financial data of the Consumers Gas Group presented
below are derived from the Consumers Gas Group Unaudited Pro Forma Condensed
Financial Statements contained elsewhere herein. The unaudited pro forma
condensed statements of income for the nine months ended September 30, 1994 and
for the year ended December 31, 1993 reflects an assumed sale and issuance of
5,000,000 shares of Class G Common Stock (assumed to represent 20% of the
equity in the Consumers Gas Group) as if the sale occurred on January 1, 1993.
The net proceeds of the Offering will initially be used to retire CMS Energy
bank debt, none of which was attributable to the Consumers Gas Group.
Accordingly, other than with respect to net income and net income per share
available to outstanding Class G Common Stock shareholders, no pro forma
adjustments were necessary to the Consumers Gas Group's historical financial
statements to give effect to the transactions described above.

The summary pro forma financial data should be read in conjunction with
"Use of Proceeds," Consumers Gas Group Financial Statements, "Consumers Gas
Group -- Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business of the Consumers Gas Group," CMS Energy's
Financial Statements and "CMS Energy -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere herein. The
summary pro forma financial data are not necessarily indicative of results that
would have occurred if the transactions described above occurred or the capital
structure of the Consumers Gas Group was in effect for the periods indicated,
or of the financial condition or results of the Consumers Gas Group for any
future date or period.

NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
---------------------------- ---------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- --------- ---------- ---------
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

INCOME STATEMENT DATA:

Operating revenue . . . . . . . . . . . . . . . . 837 $837 $1,160 $1,160
Operating expenses . . . . . . . . . . . . . . . 731 731 1,014 1,014
Pretax operating income . . . . . . . . . . . . . 106 106 146 146
Net operating income . . . . . . . . . . . . . . 74 74 107 107
Net income available to CMS Energy
shareholders through Retained Interest . . . . 45 36(a) 66 53(a)
Net income available to outstanding
Class G Common Stock shareholders . . . . . . . - 9(a) - 13(a)
Net income per share available to outstanding
Class G Common Stock shareholders . . . . . . . - 1.80(a) - 2.60(a)

BALANCE SHEET DATA (AT PERIOD END):

Total assets . . . . . . . . . . . . . . . . . . 1,625 1,625 1,628 1,628
Long-term debt (excluding current maturities) . . 343 343 376 376
Notes payable . . . . . . . . . . . . . . . . . . 110 110 109 109
Other liabilities . . . . . . . . . . . . . . . . 861 861 910 910
Common stockholders' equity . . . . . . . . . . . 325 325 288 288
_____________

(a) Reflects the assumed issuance and sale of 5,000,000 shares of Class G
Common Stock in the Offering assumed to represent 20% of the rights to
the earnings of the Consumers Gas Group.

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43

CMS ENERGY
Summary Financial and Operating Data

The summary financial data of CMS Energy presented below for the nine
months ended September 30, 1994 and 1993 were derived from the CMS Energy
Consolidated Financial Statements contained elsewhere herein. The summary
financial data for each of the years in the three-year period ended December
31, 1993 were derived from the CMS Energy Consolidated Financial Statements
contained elsewhere herein which have been audited by Arthur Andersen LLP,
independent public accountants. The following summary data reflect the
historical results of operations, and certain financial and operating data of
the CMS Energy and its consolidated subsidiaries and should be read in
conjunction with the "CMS Energy's Financial Statements and "CMS Energy --
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere herein.

Nine Months Ended
September 30, Years Ended December 31,
------------------ -------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
Dollars in millions, except as noted

INCOME STATEMENT DATA:

Operating Revenue . . . . . . . . . . . . . . . . . $2,705 $2,546 $3,482 $3,146 $ 2,998
Pretax Operating Income . . . . . . . . . . . . . . $ 408 $ 351 $ 439 $ 231 $ 261
Net income (loss) . . . . . . . . . . . . . . . . . $ 148 $ 128 $ 155 $ (297) $ (276)(a)
Earnings (loss) per average common share . . . . . $ 1.73 $ 1.60 $ 1.90 $(3.72) $ (3.44)(a)
Average common shares outstanding
(in thousands) . . . . . . . . . . . . . . . . . 85,742 80,097 81,251 79,877 79,988
Cash dividends declared per common share . . . . . $ .57 $ .42 $ .60 $ .48 $ .48

BALANCE SHEET DATA:

Net plant and property . . . . . . . . . . . . . . $4,752 $4,495 $4,583 $4,326 $ 4,121
Total assets . . . . . . . . . . . . . . . . . . . $7,161 $7,035 $6,964 $6,848 $ 6,194
Long-term debt, excluding current maturities . . . $2,378 $2,621 $2,405 $2,725 $ 1,941
Notes payable . . . . . . . . . . . . . . . . . . . $ 401 $ 564 $ 259 $ 215 $ 708
Other liabilities . . . . . . . . . . . . . . . . . $3,224 $3,309 $3,315 $3,135 $ 2,962
------ ------ ------ ------ -------

Common stockholders' equity . . . . . . . . . . . . $1,085 $ 830 $ 966 $ 727 $ 1,060
====== ====== ====== ====== =======

______________________

(a) Amount in 1991 included an extraordinary loss of $14 million, after tax or
$.18 per average common share.

-13-
44

CLASS G COMMON STOCK

GENERAL

The Class G Common Stock is one of two classes of Common Stock (the
"Common Stock") of CMS Energy, the other being the CMS Energy Common Stock.
The Class G Common Stock is intended to reflect the separate performance of the
businesses attributed to the Consumers Gas Group and to provide holders with
financial returns based on the performance of the businesses attributed to the
Consumers Gas Group. The CMS Energy Common Stock is intended to reflect the
performance of all businesses conducted by CMS Energy and its subsidiaries
except for the interest in the Consumers Gas Group attributable to the
outstanding shares of Class G Common Stock, and to provide holders with
financial returns based on such performance.

Although the financial statements of the Consumers Gas Group will
separately report the assets, liabilities (including contingent liabilities)
and shareholders' equity of CMS Energy attributed to the Consumers Gas Group,
such attribution will not affect CMS Energy's legal title to such assets or
responsibility for such liabilities. Holders of Class G Common Stock will be,
and holders of CMS Energy Common Stock are, shareholders of CMS Energy, which
continues to be responsible for all of its liabilities. Financial results
arising from the business of CMS Energy (including its Retained Interest, as
defined herein, in the Consumers Gas Group) or from the business of the
Consumers Gas Group could affect the market price of both classes of Common
Stock. In addition, any net losses of CMS Energy or the Consumers Gas Group,
and dividends or distributions on, or repurchases of, either class of Common
Stock will reduce the assets of CMS Energy legally available for payment of
dividends on both classes of Common Stock. Accordingly, CMS Energy's
consolidated financial information should be read in conjunction with the
Consumers Gas Group's financial information.

DIVIDENDS AND DIVIDEND POLICY

The Class G Common Stock is intended to reflect the separate performance
of the Consumers Gas Group. Dividends on the Class G Common Stock will be paid
at the discretion of the Board of Directors based primarily upon the earnings
and financial condition of the Consumers Gas Group, and, to a lesser extent,
CMS Energy as a whole. Subject to the restrictions described below, if the
earnings and financial condition of the Consumers Gas Group permit, dividends
with respect to the Class G Common Stock are expected to be paid commensurate
with dividend practices of comparable publicly-held local natural gas
distribution companies generally. Management believes that such practices
currently are to pay out from 70% to 85% of annual earnings available for
common stock. Consistent with this policy, if _______________ shares of Class
G Common Stock representing 100% of the equity attributed to the Consumers Gas
Group had been outstanding during all of 1994, CMS Energy would have paid a
dividend at an annual rate ranging from $__________ per share to $__________per
share on the Class G Common Stock. It is the Board of Directors' current
intention that the declaration or payment of dividends with respect to the
Class G Common Stock will not be reduced, suspended or eliminated as a result
of factors arising out of or relating to the electric utility business or the
non-utility businesses of CMS Energy unless such factors also require, in the
Board of Directors' sole discretion, the omission of the declaration or
reduction in payment of dividends on both the CMS Energy Common Stock and the
Class G Common Stock. While the Board of Directors does not currently intend
to change this dividend policy, it reserves the right to do so at any time and
from time to time. Under the Articles of Incorporation and Michigan law, the
Board of Directors is not required to declare, and CMS Energy is not required
to pay, dividends in accordance with the foregoing dividend policy.

-14-
45

The ability of CMS Energy to pay dividends on its Class G Common Stock and
CMS Energy Common Stock also depends, and will depend, substantially upon
timely receipt of sufficient dividends or other distributions from its
subsidiaries, in particular Consumers. Consumers' ability to pay dividends on
its Common Stock depends on its revenues, earnings and other factors. As a
regulated entity, Consumers' rates are set by the MPSC. See "Primary Source of
Dividends for the Common Stock of CMS Energy; Restrictions on Source of
Dividends."

As of September 30, 1994, assuming the Offering had been completed at that
time, the Available Class G Dividend Amount would have been approximately $65
million (assuming a Gas Group Fraction of 20%), or approximately $_____ million
(based on a Gas Group Fraction of _____%), assuming that the Underwriters'
over-allotment option is exercised in full.

AUTHORIZED SHARES OF CLASS G COMMON STOCK

Immediately prior to the first issuance of shares of Class G Common Stock,
the Board of Directors will determine the number of the 60 million authorized
shares of Class G Common Stock which are deemed to represent 100% of the common
stockholders' equity of CMS Energy attributed to the Consumers Gas Group, and
such number will represent the initial Retained Interest Shares. The
authorized but unissued shares of Class G Common Stock in excess of (i) the
Retained Interest Shares and (ii) any outstanding shares of the Class G Common
Stock, are referred to herein as the "Additional Shares."

Assuming that 25 million Retained Interest Shares will represent 100% of
the equity attributable to the Consumers Gas Group, the following diagrams
illustrate the numbers of Retained Interest Shares and Additional Shares before
the first issuance of any shares of Class G Common Stock, and assuming an
initial public offering of five million shares of Class G Common Stock from the
Retained Interest Shares:

Before Offering After Offering
--------------- --------------

35 million Additional Shares 35 million Additional Shares

25 million Retained Interest 20 million Retained Interest
Shares Shares

5 million Outstanding Shares

Any issuance of Retained Interest Shares would reduce the percentage
interest of CMS Energy in the Consumers Gas Group.

Any issuance of Additional Shares would reduce the Retained Interest of
CMS Energy in the Consumers Gas Group and, if issued after the first issuance
of shares of Class G Common Stock, would also reduce the percentage interest of
the holders of outstanding shares of Class G Common Stock in the Consumers Gas
Group, unless such Additional Shares were issued as a dividend on such
outstanding shares of Class G Common Stock.

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46

RETAINED INTEREST; GAS GROUP FRACTION

The Retained Interest represents the portion of the common stockholders'
equity of CMS Energy attributable to the Consumers Gas Group retained by CMS
Energy and not attributable to the outstanding shares of Class G Common Stock.
The Retained Interest is represented by the Retained Interest Shares (as
defined herein). If, as assumed in the example set forth under "Authorized
Shares of Class G Common Stock" above, five million shares of Class G Common
stock are sold in the planned initial public offering, the Retained Interest of
CMS Energy would be deemed to be 20 million Retained Interest Shares of Class G
Common Stock representing 80% of the equity of the Consumers Gas Group. The
Retained Interest Shares are not deemed to be outstanding shares of Class G
Common Stock and have no voting rights.

The "Gas Group Fraction" is the percentage interest in the common
stockholders' equity attributed to the Consumers Gas Group represented by the
outstanding shares of Class G Common Stock; the balance of the equity interest
(the "Retained Interest Fraction") will be attributed to the Retained Interest.
Following the completion of the Offering, the Gas Group Fraction as a
percentage initially will be ___%. If the Underwriters' over-allotment option
is exercised in full, the Gas Group Fraction as a percentage initially will be
_____%.

CMS Energy intends to invest the net proceeds of the Offering in the
businesses and for general corporate purposes of CMS Energy. Initially, such
net proceeds will be used to repay a portion of the debt of CMS Energy (none of
which is attributable to the Consumers Gas Group). See "Use of Proceeds."
After completion of the Offering, any securities issued by CMS Energy and its
subsidiaries would be specifically attributed to and reflected in the financial
statements of the Consumers Gas Group to the extent that the Board of Directors
determines that such securities are issued for the benefit of the Consumers Gas
Group. Any cash of CMS Energy attributed to the Consumers Gas Group would be
accounted for as short-term loans unless the Board of Directors made a specific
determination that a given attribution (or type of attribution) should be
accounted for as a long-term loan or an attribution of cash of CMS Energy to
the Consumers Gas Group as an equity contribution, which would increase the
Retained Interest Shares, or cash of CMS Energy ceasing to be attributed to the
Consumers Gas Group, which would decrease the Retained Interest Shares. If the
net proceeds of an offering of Class G Common Stock were attributed to CMS
Energy's Retained Interest in the Consumers Gas Group, the Retained Interest
Shares of CMS Energy would be reduced.

Any issuance of shares of Class G Common Stock would dilute the relative
voting power of holders of shares of Class G Common Stock outstanding prior to
such issuance.

The Board of Directors could, in its sole discretion, determine from time
to time to cause cash or other property attributed to the Consumers Gas Group
to cease to be attributed to the Consumers Gas Group, which would decrease the
Retained Interest Shares and the Retained Interest as a percentage of the
common stockholders' equity attributed to the Consumers Gas Group, and would
increase the Gas Group Fraction. The Board of Directors could, in its sole
discretion, determine from time to time to attribute additional cash or other
property to the Consumers Gas Group, which would increase the Retained Interest
Shares and the Retained Interest as a percentage of the common stockholders'
equity attributed to the Consumers Gas Group, and decrease the Gas Group
Fraction. The Board of Directors could determine, in its sole discretion, to
make such attributions after consideration of a number of factors, including,
among others, the relative levels of internally generated cash flows of each
business of CMS Energy, the long-term business prospects for each business of
CMS Energy, including the Consumers Gas Group, the capital expenditure plans of
and the investment opportunities available to each business

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of CMS Energy and the availability, cost and time associated with alternative
financing sources. See "Certain Management and Accounting Policies--Accounting
Matters."

In the event of any dividend or other distribution on outstanding shares
of Class G Common Stock while CMS Energy has a Retained Interest, the Consumers
Gas Group's financial statements would be charged in respect of the Retained
Interest with an amount equal to the product of (i) the aggregate amount paid
in respect of such dividend or other distribution, and (ii) a fraction, the
numerator of which is the Retained Interest Shares and the denominator of which
is the total number of shares of Class G Common Stock then issued and
outstanding.

In the event that CMS Energy repurchases shares of Class G Common Stock
for consideration that is not attributed to the Consumers Gas Group, the
Retained Interest Shares and the Retained Interest as a percentage of the
common stockholders' equity attributed to the Consumers Gas Group would
increase, and the Gas Group Fraction would decrease accordingly. In the event
that CMS Energy repurchases shares of Class G Common Stock for consideration
that is attributed to the Consumers Gas Group, the Retained Interest Shares
would not change, but the Retained Interest as a percentage of the common
stockholders' equity attributed to the Consumers Gas Group would increase, and
the Gas Group Fraction would decrease accordingly. The Board of Directors
could, in its sole discretion, determine whether repurchases of Class G Common
Stock should be made with consideration attributed to the Consumers Gas Group
by considering a number of factors, including, among others, the relative
levels of internally generated cash flows of each business of CMS Energy, the
long-term business prospects for each business of CMS Energy, the capital
expenditure plans of and the investment opportunities available to each
business of CMS Energy and the availability, cost and time associated with
alternative financing sources. See "Certain Management and Accounting
Policies--Accounting Matters."

For further discussion of, and illustrations of the calculation of the
Retained Interest Fraction, the Gas Group Fraction and the Retained Interest
Shares and the effects thereon of issuances and repurchases of, and dividends
on, shares of the Class G Common Stock, and attribution of net assets to and
from the Consumers Gas Group, see "Description of Capital Stock--Retained
Interest of CMS Energy in Consumers Gas Group; Gas Group Fraction" and Appendix
II to this Prospectus.

VOTING RIGHTS

The holders of Class G Common Stock and CMS Energy Common Stock will vote
together as a single class on all matters as to which all common shareholders
are entitled to vote. On all such matters, each share of Class G Common Stock
entitles its holder to one vote, and each share of CMS Energy Common Stock will
entitle its holder to one vote.

The Articles of Incorporation also provide that unless the vote or consent
of the holders of a greater number of shares shall be required by law, the
approval of the holders of a majority of the outstanding shares of each class
of Common Stock, voting as a separate class, will be necessary for authorizing,
effecting or validating the merger or consolidation of CMS Energy into or with
any other corporation if such merger or consolidation would adversely affect
the powers or special rights of such class of stock, either directly or
indirectly. See "Description of Capital Stock -- Class G Common Stock--Voting"
and "-- CMS Energy Common Stock--Voting." If CMS Energy in any manner
subdivides (by stock split, stock dividend or otherwise) or combines (by
reverse stock split or otherwise) the outstanding shares of either Class G
Common Stock or CMS Energy Common Stock, the voting rights of CMS Energy Common
Stock relative to Class G Common Stock will be appropriately adjusted so as to
avoid any dilution in the aggregate voting power of either class of Common
Stock.

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LIQUIDATION, SUBDIVISION AND COMBINATION

In the event of liquidation, dissolution or winding up of CMS Energy, each
outstanding share of CMS Energy Common Stock and Class G Common Stock will
entitle its holder to a share of the assets of CMS Energy remaining for
distribution to holders of Common Stock equal to the amount determined by
dividing the total amount remaining for distribution by the total number of
shares of CMS Energy Common Stock and Glass G Common Stock then outstanding.

If CMS Energy in any manner subdivides (by stock split, stock dividend or
otherwise) or combines (by reverse stock split or otherwise) the outstanding
shares of either Class G Common Stock or CMS Energy Common Stock, the
liquidation rights of the holder of each share CMS Energy Common Stock relative
to the holder of each share Class G Common Stock will be appropriately adjusted
so as to avoid any dilution in the aggregate liquidation rights of the holders
of either class of Common Stock.

EXCHANGE

At any time after CMS Energy has transferred all of the assets and
liabilities attributed to the Consumers Gas Group to a subsidiary of CMS Energy
which has no other assets or liabilities, CMS Energy, in the sole discretion of
the Board of Directors, may exchange for all outstanding shares of Class G
Common Stock a number of shares of common stock of such subsidiary equal to the
Gas Group Fraction multiplied by the number of outstanding shares of common
stock of such subsidiary. CMS Energy will retain the balance of the
outstanding shares of common stock of such subsidiary, which balance will be
attributed to CMS Energy on account of its Retained Interest.

In the event of a Disposition of all or substantially all of the
properties and assets attributed to the Consumers Gas Group to any person
(other than to the holders of all outstanding shares of Class G Common Stock or
to a person in which CMS Energy, directly or indirectly, owns at least a
majority equity interest), CMS Energy is required, subject to certain
exceptions and conditions, to exchange for each outstanding share of Class G
Common Stock a number of shares of CMS Energy Common Stock having a Fair Market
Value equal to 110% of the Fair Market Value of one share of Class G Common
Stock as of the date of the first public announcement by CMS Energy of such
Disposition.

CMS Energy also may, in the sole discretion of the Board of Directors, at
any time, exchange for each outstanding share of Class G Common Stock a number
of shares of CMS Energy Common Stock having a Fair Market Value equal to 115%
of the Fair Market Value of one share of Class G Common Stock as of the first
public announcement by CMS Energy of such exchange.

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FACTORS TO CONSIDER

PAYMENT OF DIVIDENDS

CMS Energy is a legal entity separate and distinct from its various
subsidiaries. As a holding company with no significant operations of its own,
the principal sources of its funds are dividends or other distributions from
its operating subsidiaries, (principally Consumers), borrowings and sales of
equity. The ability of Consumers and other subsidiaries of CMS Energy to pay
dividends or make distributions to CMS Energy, and, accordingly, the ability of
CMS Energy to pay dividends on either class of its Common Stock will depend on
its earnings, financial requirements and contractual restrictions of
subsidiaries of CMS Energy, in particular, Consumers, and other factors. As a
regulated entity, Consumers' rates are set by the MPSC. Consumers' ability to
pay dividends is restricted by its First Mortgage Bond Indenture ("Mortgage
Indenture") and its Articles of Incorporation ("Articles"). See "Primary
Source of Dividends for the Common Stock of CMS Energy; Restrictions on Sources
of Dividends" for information concerning these restrictions. Under the most
restrictive of these conditions, at December 31, 1994, $___ million of
Consumers' retained earnings were available to pay cash dividends on its common
stock. Currently it is Consumers' policy to pay annual dividends equal to 80%
of its annual consolidated net income. Consumers Board of Directors reserves
the right to change this policy at any time. Consumers paid dividends on its
common stock of $16.0 million on February 22, 1994, $65.6 million on May 20,
1994, $31.0 million on August 19, 1994, $36.0 million on November 4, 1994, and
$27.4 million on December 20, 1994.

Dividends on the Class G Common Stock are limited by Michigan law, certain
agreements to which CMS Energy is a party and CMS Energy's Articles of
Incorporation and will be payable when, as and if declared by the Board of
Directors out of the lesser of (i) the assets of CMS Energy legally available
therefor and (ii) the Available Class G Dividend Amount. If an Offering had
been completed at September 30, 1994, the Available Class G Dividend Amount as
of such date would have been approximately $65 million, assuming a Gas Group
Fraction of 20%, (or approximately $___________ million, assuming a Gas Group
Fraction of ______%, because the Underwriters' over-allotment option is
exercised in full). Under the most restrictive contractual limitations on CMS
Energy's ability to pay dividends $377 of CMS Energy's retained earnings at
September 30, 1994, were available to pay cash dividends on its Common Stock.

Net losses of CMS Energy or the Consumers Gas Group and distributions on
either class of Common Stock will reduce the assets legally available for
payment of dividends on both classes of Common Stock. Subject to the
restrictions on the assets out of which dividends on the Common Stock may be
paid, as described below and under "Description of CMS Energy Common Stock" and
"Description of Class G Common Stock," CMS Energy, in the sole discretion of
its Board of Directors, would be able to pay dividends exclusively on either
the Class G Common Stock or the CMS Energy Common Stock, or on both, in equal
or unequal amounts, notwithstanding the respective amounts of assets or
earnings available for dividends on each class, the amounts of prior dividends
declared on each class or any other factor. Payment of dividends on either
class of Common Stock will decrease the amount of funds available under the
limitations described above for the payment of dividends on both classes of
Common Stock. It is the Board of Directors' current intention that the
declaration or payment of dividends with respect to the Class G Common Stock
will not be reduced, suspended or eliminated as a result of factors arising out
of or relating to the electric utility business or the non-utility businesses
of CMS Energy unless such factors also require, in the Board of Directors' sole
discretion, the omission of the declaration or reduction in payment of
dividends on both the CMS Energy Common Stock and the Class G Common Stock.
CMS Energy has paid cash dividends on shares of CMS Energy Common Stock since
1989.

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BUSINESS OF THE CONSUMERS GAS GROUP AND CMS ENERGY

GAS COMPETITION. Competition with respect to the Gas Distribution
Business comes primarily from alternate energy sources such as electricity
(including electricity generated and sold by Consumers), propane, and to a
lesser degree, oil and wood. Residential and commercial customers accounted
for approximately 70% and 20%, respectively, of the 1993 revenues of the
Consumers Gas Group. In most of its service territory, the Consumers Gas Group
has little direct competition with respect to its traditional utility service
to residential customers.

The Consumers Gas Group also competes in the natural gas market in its
service territory with parties (principally interstate pipeline companies)
desiring to sell or transport gas directly to the Consumers Gas Group's
industrial and commercial customers. These competitors propose to "by-pass"
the facilities of the Consumers Gas Group by offering to transport and supply
natural gas to industrial customers which are willing to build the necessary
interconnection from the customer to the competing interstate pipeline. The
Consumers Gas Group typically responds to this by-pass competition by offering
gas transportation and storage services to customers that elect to acquire
their gas supplies from some other supplier. Because earnings from the Gas
Distribution Business are not substantially dependent on gas purchased and
resold to customers, but rather on the ownership and operation of the gas
distribution, storage and transportation facilities, Consumers has not suffered
any significant losses as a result of such competition, nor is it believed that
such losses are likely to be incurred by the Consumers Gas Group.

The Consumers Gas Group competes with fuel oil suppliers in making sales
to its industrial customers.

The Consumers Gas Group will attempt to retain, and if possible expand,
the markets in which it is most vulnerable, such as the large industrial
market, through favorable rate design, business development and related
efforts. The Consumers Gas Group continues to (i) develop or promote new
sources and uses of natural gas and/or new services, rates and contracts; (ii)
purchase gas from lowest cost suppliers consistent with operating and long-term
gas supply needs; and (iii) emphasize and provide high quality services to its
customers.

Approximately 30% of the retail gas customers served by the Consumers Gas
Group are also served or capable of being served by electricity provided by
Consumers' electric utility business. Thus, for some applications (including
space heating, water heating, and powering of certain industrial processes and
household appliances) the Consumers Gas Group may compete with Consumers for
such customers. Decisions made by the management of Consumers with regard to
the services and prices charged to such customers could have an adverse effect
on the Consumers Gas Group.

REGULATORY CONSIDERATIONS. The Gas Distribution Business is subject to
the jurisdiction of the MPSC which regulates public utilities in Michigan with
respect to retail utility rates, accounting, services, certain facilities and
various other matters. MGS is regulated by the FERC.

The MPSC establishes the rates the Consumers Gas Group can charge its
customers. As a regulated company under MPSC jurisdiction, the Consumers Gas
Group may apply to the MPSC for rate increases if increased costs or other
factors warrant. Such rates typically go into effect following a contested
case proceeding before the MPSC. The MPSC attempts to conclude such
proceedings and issue a final order within 12 months from the initial filing of
the general rate case.

In July 1994 the MPSC approved an agreement between the MPSC staff and
Consumers to charge $10 million of costs for postretirement benefits against
1994 earnings. This charge against earnings will partially offset savings
related to state property taxes which have been reduced. The

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agreement was reached in response to a claim that gas utility business earnings
for 1993 were excessive. The agreement also provides for an additional $4
million of postretirement benefit costs to be charged against 1995 earnings.
As part of the agreement, Consumers filed a gas rate case on December 29, 1994.
Consumers requested an increase in its gas rates of $21 million annually. The
request, among other things, incorporates cost increases, including costs for
postretirement benefits and costs related to Consumers' former manufactured gas
plant sites. Consumers requested that the MPSC authorize a 13% return on
equity, instead of the currently authorized rate of 13.25%. A final order is
expected in late 1995. Consumers' most recent rate filing for its electric
utility business resulted in an authorized rate of return on equity of 11.75%.
No assurance can be given as to the level of rates which will be authorized by
the MPSC.

In gas rate cases the MPSC determines, among other things, an appropriate
capital structure, including equity, for the Gas Distribution Business and
approves a rate of return on such equity. Because the Gas Distribution
Business is part of Consumers, it does not have its own capital structure.
Accordingly, in the last gas rate case decided by the MPSC relating to the Gas
Distribution Business, the MPSC utilized a capital structure for rate making
purposes which is derived from the capital structure of an independent gas
distribution company which the MPSC regarded as appropriate for the Gas
Distribution Business (the "Proxy Capital Structure"). It is possible that in
current and future gas rate cases, the MPSC may use another methodology to
determine equity used for rate making purposes for the Consumers Gas Group or
otherwise select a methodology different than the Proxy Capital Structure. The
capital structure employed for ratemaking purposes directly affects the overall
rate of return of a rate regulated enterprise.

SEASONALITY AND WEATHER. A major determinant of gas usage for any period
is the weather, particularly with respect to residential and commercial
customers who use natural gas for space heating and, to a lesser extent
industrial customers. Approximately 93% of the customers of the Consumers Gas
Group are residential customers, of which 98% use natural gas for space
heating. Accordingly, the Consumers Gas Group's business is seasonal with
approximately 74% of its revenues generated in the first and fourth quarters of
each year. The heating degree days for 1993 were 7,183, approximately 1.7%
colder than the average heating degree days for the 30-year period ended
December 31, 1993 and the heating degree days for the nine months ended
September 30, 1994 were 4,965, 6.6% colder than the nine months ended September
30, 1993. However, unseasonably warm weather in November and December 1994
resulted in gas sales and gas transported in the fourth quarter of 1994
totalling 111 Bcf, a 12 percent decrease from the corresponding period of 1993.
The average heating degree days for the 30 years, 10 years and 5 years ended
December 31, 1993 were 7,060, 6,897 and 6,896, respectively. Generally,
consumption for heating purposes increases as heating degree days increase with
a corresponding improvement in results of operations of the Consumers Gas
Group. If during the heating season, the weather in the Consumers Gas Group's
service area is warmer than normal, its results of operations will be adversely
affected.

RISKS RELATED TO OTHER BUSINESSES OF CMS ENERGY. As noted herein, the
availability and amount of dividends payable with respect to the Class G Common
Stock could be adversely affected by any losses incurred in other businesses
conducted by CMS Energy, particularly the Consumers electric utility business
and the foreign oil and gas business conducted by subsidiaries of Enterprises.
For example, issues pertaining to Consumers' Power Purchase Agreement ("PPA")
with MCV Partnership could have a material adverse effect on the earnings or
financial condition of Consumers. Consumers is obligated to purchase 1,240
megawatts ("MW") in 1995 and each year thereafter through approximately 2025 of
contract electric generation capacity from the MCV Partnership under the PPA.

Since 1990, the ability of Consumers to recover from its electric rate
payers capacity and fixed-energy costs for power purchased by Consumers from
the MCV Partnership has been a

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significant issue. Effective January 1, 1993, a Settlement Order (the
"Settlement Order") issued by the MPSC allowed Consumers to recover from its
electric retail customers substantially all of the payments for Consumers
ongoing purchase of 915 MW of contract capacity from the MCV Partnership,
significantly reducing the amount of future underrecoveries for these power
costs. Claims of appeal of the Settlement Order have been filed with the
Michigan Court of Appeals (the "Court of Appeals"). Capacity and energy
purchases from the MCV Partnership above the 915 MW level can be competitively
bid into Consumers' next solicitation for power or, if necessary, utilized for
current power needs with a prudency review and a pricing recovery determination
in annual power supply cost recovery ("PSCR") cases. In either instance, the
MPSC would determine the levels of recovery from customers for the power
purchased. The Settlement Order also provides Consumers the right to remarket
all of the remaining capacity to third parties.

Prior to the Settlement Order, Consumers had recorded losses for
underrecoveries from 1990 through 1992. In December 1992, Consumers recognized
an after-tax loss of $343 million for the present value of estimated future
underrecoveries of power costs under the PPA as a result of the Settlement
Order, based on management's best estimates regarding the future availability
of the natural gas-fueled, combined cycle cogeneration facility operated by the
MCV Partnership (the "MCV Facility"), and the effect of the future wholesale
power market on the amount, timing and price at which various increments of the
capacity above the MPSC-authorized level could be resold. Except for
adjustments to the above loss to reflect the after-tax time value of money
through accretion expense, no additional losses are expected unless actual
future experience materially differs from management's estimates. The
after-tax expense for the time value of money for the $343 million loss is
estimated to be approximately $24 million in 1994, and various lower levels
thereafter, including $22 million in 1995 and $20 million in 1996. Although
the settlement losses were recorded in 1992, Consumers continues to experience
cash underrecoveries associated with the Settlement Order, which
underrecoveries amounted to $59 million in 1993, and totaled $51 million for
the first nine months in 1994. Consumers believes there is and will be a
market for the resale of capacity purchases from the MCV Partnership above the
MPSC-authorized level. If the Settlement Agreement is not upheld on appeal or
Consumers is unable to sell any capacity above the current MPSC-authorized
level, future additional after-tax losses and after-tax cash underrecoveries
could be incurred at levels which could have a material adverse effect on
Consumers' earnings and financial condition. See Note 4 to Notes to CMS
Energy's Financial Statements for further information as to the magnitude of
these potential losses and underrecoveries.

In addition, while CMS Energy believes that all of its operations are
conducted in accordance with industry and regulatory standards and that its
insurance coverages are adequate and prudent, a major failure at one of its two
nuclear electric generating stations or a material increase in the current
levels of decommissioning costs being funded by Consumers could have a material
adverse effect on its earnings and financial condition. In November 1993,
Consumers' Palisades ("Palisades") nuclear plant located near South Haven,
Michigan, returned to service following a planned refueling and maintenance
outage that had been extended due to several unanticipated repairs. The
results of a Nuclear Regulatory Commission ("NRC") review of Consumers'
performance at Palisades published shortly after the planned outage showed a
decline in performance ratings for the plant. In order to provide NRC senior
management with a more in-depth assessment of plant performance, the NRC
conducted a diagnostic evaluation inspection at Palisades. The inspection,
completed in June 1994, found certain performance, operational and management
deficiencies at Palisades. The NRC acknowledged that the new Palisades senior
management team, in place since early 1994, had recognized and begun to address
the problems at Palisades. In August 1994, Consumers filed its response to the
NRC's diagnostic evaluation report, which included both short- and long-term
enhancements planned for Palisades to improve performance. Acceptable
performance at Palisades will require continuing performance

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improvements and additional expenditures at the plant, which have been included
in Consumers' total planned levels of expenditures.

As an NRC licensee, Consumers is required to make certain calculations and
report to the NRC about the continuing ability of the Palisades reactor vessel
to withstand postulated "pressurized thermal shock" events during its remaining
license life, in light of the embrittlement of reactor vessel materials over
time due to operation in a radioactive environment. If the results of the
calculation indicate that a temperature screening criterion will be exceeded,
Consumers must determine what, if any, plant modifications are necessary to
avoid exceeding the screening criterion value. Analysis of recent data from
testing of similar materials indicates that the Palisades reactor vessel could
exceed the screening criterion prior to 2000. Consumers is also continuing to
analyze alternative means to permit continued operation of Palisades to the end
of its license life in the year 2007. Consumers cannot predict the outcome of
these efforts. It is currently estimated that expenditures for corrective
action related to this issue could total $20 million to $30 million. See Note
3 to Notes to CMS Energy's Consolidated Financial Statements.

The Incorporated Documents discuss the various regulatory, environmental,
litigation and other matters which could adversely affect Consumers' electric
business, and describe Consumers' electric business generally. The
Incorporated Documents should be reviewed by investors in connection with this
Offering.

ENVIRONMENTAL CONCERNS. The Gas Distribution Business is subject to
regulation with respect to environmental quality, including air and water
quality, zoning and other matters by various federal, state and local
authorities. The Consumers Gas Group expects that it will ultimately incur
clean-up costs at a number of sites, including some of the 23 sites that
formerly housed manufactured gas plant facilities. See "Business of the
Consumers Gas Group--Environmental Matters." Data available to Consumers and
its continued internal analysis have resulted in estimated remedial costs for
all 23 sites of between $40 million and $140 million. These estimates are
based on undiscounted 1994 costs. As of September 30, 1994, the Consumers Gas
Group had accrued a liability of $40 million, representing the minimum amount
in the range, which is reflected on the financial statements of the Consumers
Gas Group included herein. Discussions have been initiated with certain
insurance companies with regard to coverage for some or all of the costs which
may be incurred to remediate these sites and the Consumers Gas Group believes
that any uninsured costs incurred will be recoverable in rates charged to its
customers authorized by the MPSC. Accordingly, Consumers has recorded a
regulatory asset for the amount of the accrued liability. The outcome of these
matters may effect the results of operations of the Consumers Gas Group. See
"Business of the Consumers Gas Group--Environmental Matters."

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935. CMS Energy is a public
utility holding company which is exempt from registration under the Public
Utility Holding Company Act of 1935 ("PUHCA"). However, in December 1991, the
Attorney General of the State of Michigan (the "Attorney General") and Michigan
Municipal Cooperative Group (the "MMCG") asked the Commission to revoke CMS
Energy's status as an exempt holding company and to require it to register
under PUHCA. In April 1992, the MPSC filed a statement with the Commission
recommending that CMS Energy's current exemption be revoked and a new exemption
be issued conditioned upon certain reporting and operating requirements. If
CMS Energy were to lose its current exemption, it would become more heavily
regulated by the Commission; Consumers could ultimately be forced to divest
either the Gas Distribution Business of the Consumers Gas Group or Consumers'
electric utility business; and CMS Energy would be restricted from conducting
business that are not functionally related to the conduct of the utility
business as determined by the Commission. CMS Energy is opposing this request
and believes it will maintain its current exemption from registration under
PUHCA. See "Business of Consumers Gas Group--Legal

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Proceedings." In the event CMS Energy is required to divest the Gas
Distribution Business, such divestment in all likelihood would constitute a
Disposition of "substantially all of the properties and assets attributed to
the Consumers Gas Group" under the Articles of Incorporation and would require
CMS Energy to exchange for each outstanding share of Class G Common Stock a
number of shares of CMS Energy Common Stock having a Fair Market Value equal to
110% of the Fair Market Value of one share of Class G Common Stock as of the
date of the first public announcement by CMS Energy of such Disposition. See
"Description of Capital Stock--Class G Common Stock--Exchange or Redemption."

THE CLASS G COMMON STOCK

SHAREHOLDERS OF ONE COMPANY; FINANCIAL EFFECTS OF CMS ENERGY COULD AFFECT
THE CONSUMERS GAS GROUP. Notwithstanding the attribution of assets and
liabilities (including contingent liabilities), common stockholders' equity and
items of income and expense of CMS Energy to the Consumers Gas Group for the
purpose of preparing the financial statements of the Consumers Gas Group, the
change in the capital stock structure of CMS Energy will not affect CMS
Energy's title to its assets or CMS Energy's responsibility for its
liabilities. CMS Energy and its subsidiaries will each continue to be
responsible for their respective liabilities. Holders of Class G Common Stock
and CMS Energy Common Stock will be common shareholders of CMS Energy and will
be subject to all of the risks associated with an investment in CMS Energy and
all of its businesses, assets and liabilities.

Financial results arising from the businesses of CMS Energy, other than
the business of the Consumers Gas Group, that affect CMS Energy's consolidated
results of operations or financial condition could affect the financial
position of the Consumers Gas Group or the market price of the Class G Common
Stock. If any of CMS Energy's financial covenants in its debt instruments is
breached, no dividends may be paid on the Class G Common Stock. See "Dividend
Policy." Further, a similar breach by Consumers in its debt instruments would
restrict its ability to pay dividends to CMS Energy. The ability of CMS Energy
to pay dividends on its Common Stock depends substantially upon timely receipt
of sufficient dividends or other distributions from Consumers. See "Primary
Source of Dividends for the Common Stock of CMS Energy; Restrictions or Sources
of Dividends." In addition, any net losses of CMS Energy and dividends or
distributions on, or repurchases of, either class of Common Stock will reduce
the assets of CMS Energy legally available for payment of dividends on the
Class G Common Stock. Accordingly, CMS Energy's consolidated financial
information should be read in conjunction with the Consumers Gas Group's
financial information. CMS Energy will provide to holders of Class G Common
Stock separate financial statements, management's discussion and analysis of
financial condition and results of operations, business descriptions and other
information for both the Consumers Gas Group and CMS Energy and its
consolidated subsidiaries, respectively. Such financial statements would
reflect the financial position, results of operations and cash flows of the
businesses reflected therein. However, such financial statements could also
include contingent liabilities that are not separately identified with
particular business operations.

FIDUCIARY DUTIES. Although CMS Energy is aware of no precedent concerning
the manner in which Michigan law would be applied to a board of directors'
duties in the context of multiple classes of common stock with divergent
interests, CMS Energy believes that a Michigan court would hold that a board of
directors owes an equal duty to all shareholders regardless of class and does
not have separate or additional duties to any group of shareholders. That duty
requires each director to act in good faith with the care an ordinarily prudent
person in a like position would exercise under similar circumstances, and in a
manner such director reasonably believes to be in the best interests of CMS
Energy. CMS Energy believes that, under Michigan law, a good faith
determination by a disinterested and adequately informed board, or a committee
thereof, which discharges such duty, and which the directors honestly believe
is in the best interests of CMS

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Energy, would be a defense to any challenge by or on behalf of the holders of
either class of Common Stock to a Board of Directors determination that could
have a disparate effect on each class of Common Stock.

Disproportionate ownership interests of members of the Board of Directors
in one or both classes of Common Stock of CMS Energy or disparate values of the
classes of Common Stock of CMS Energy could create or appear to create
potential conflicts of interest when directors are faced with decisions that
could have different implications for different classes. Nevertheless, CMS
Energy believes that a director would be able to discharge his or her fiduciary
duties even if his or her interests in shares of the classes of Common Stock
were disproportionate and/or had disparate values. CMS Energy's stock option
plans have been amended to permit the issuance of options for, or other
incentive awards consisting of, any class of Common Stock of CMS Energy,
including the Class G Common Stock.

POTENTIAL CONFLICTS OF INTEREST. The existence of separate classes of
Common Stock could give rise to occasions when the interests of the holders of
Class G Common Stock and holders of CMS Energy Common Stock may diverge or
appear to diverge. Examples include determinations by the Board of Directors
to (i) pay or omit the payment of dividends on either class of Common Stock,
(ii) attribute the proceeds of issuances of securities of CMS Energy either to
CMS Energy or to the equity of the Consumers Gas Group, (iii) attribute
consideration to be received by common stockholders in connection with a merger
or consolidation including CMS Energy to either or both classes of Common
Stock, (iv) exchange CMS Energy Common Stock for all outstanding Class G Common
Stock at a premium, (v) approve dispositions of assets of CMS Energy
attributable to the Consumers Gas Group and (vi) make operational and financial
decisions with respect to either CMS Energy or the Consumers Gas Group that
could be considered to be detrimental to the other. Each of the foregoing
potential conflicts of interest is discussed below.

No Assurance of Payment of Dividends. CMS Energy is a legal
entity separate and distinct from its various subsidiaries. As a
holding company with no significant operations of its own, the
principal sources of its funds are dividends or other distributions
from its operating subsidiaries (principally Consumers), borrowings
and sales of equity. The ability of Consumers and other subsidiaries
of CMS Energy to pay dividends or make distributions to CMS Energy
and, accordingly, the ability of CMS Energy to pay dividends on either
class of its Common Stock will depend on the earnings, financial
requirements and contractual restrictions of the subsidiaries of CMS
Energy, in particular Consumers, and other factors. Consumers'
ability to pay dividends is restricted by Michigan law, its First
Mortgage Bond Indenture and its Articles of Incorporation. See
"Primary Source of Dividends for the Common Stock of CMS Energy;
Restrictions on Source of Dividends" for information concerning these
restrictions. Under the most restrictive of these conditions, at
December 31, 1994, $___ million of Consumers' retained earnings were
available to pay cash dividends on its Common Stock. Consumers paid
dividends on its common stock of $16.0 million on February 22, 1994,
$65.6 million on May 20, 1994, $31.0 million on August 19, 1994, $36.0
million on November 4, 1994 and $27.4 million on December 20, 1994.

Dividends on the Common Stock will be limited by Michigan law,
certain agreements to which CMS Energy is a party and CMS Energy's
Articles of Incorporation and will be payable when, as and if declared
by the Board of Directors out of legally available assets of CMS
Energy. See "Dividend Policy" for information concerning certain
contractual limitations on the payment of dividends on the Common
Stock. Under the most restrictive of these limitations, at September
30, 1994 $377 million was available to pay cash dividends on the
Common Stock of CMS Energy.

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Net losses of CMS Energy or the businesses attributed to the
Consumers Gas Group and distributions on either class of Common Stock
will reduce the assets legally available for payment of dividends on
both classes of Common Stock. Subject to the restrictions on the
assets out of which dividends on the Common Stock may be paid, as
described under "Dividend Policy," and to the express terms of any
Preferred Stock, CMS Energy would be able, in the sole discretion of
its Board of Directors, to declare and pay dividends exclusively on
either the Class G Common Stock or the CMS Energy Common Stock, or on
both, in equal or unequal amounts, notwithstanding the respective
amounts of assets available for dividends on each class, the amounts
of prior dividends declared on each class or any other factor. It is
the Board of Directors' current intention that the declaration or
payment of dividends with respect to the Class G Common Stock shall
not be reduced, suspended or eliminated as a result of factors arising
out of or relating to the electric utility business or the non-utility
businesses of CMS Energy unless such factors also require, in the
Board of Directors' sole discretion, the omission of the declaration
or reduction in payment of dividends on both the Class G Common Stock
and the CMS Energy Common Stock. Payment of dividends on either class
of Common Stock will decrease the amount of funds available under the
limitations described above for the payment of dividends on both
classes of Common Stock. CMS Energy has paid cash dividends on shares
of CMS Energy Common Stock since 1989.

Attribution of Proceeds Upon Issuance of Securities of CMS
Energy. CMS Energy intends to invest in the businesses and for
general corporate purposes of CMS Energy. Such net proceeds will
initially be used to repay a portion of the debt of CMS Energy (none
of which is attributable to the Consumers Gas Group). In any future
offerings of securities of CMS Energy, the Board would, in its sole
discretion, determine the attribution of the net proceeds of such sale
among CMS Energy and the Consumers Gas Group. See "Description of
Capital Stock--Retained Interest of CMS Energy in Consumers Gas Group;
Gas Group Fraction."

Attribution of Proceeds of Mergers or Consolidations. The
Articles of Incorporation do not contain any provisions governing how
consideration to be received by holders of Common Stock in connection
with a merger or consolidation involving CMS Energy is to be allocated
among holders of different classes of Common Stock. In any such
merger or consolidation, the percentage of the consideration to be
allocated to holders of any class of Common Stock under the method of
allocation chosen by the Board of Directors may be materially more or
less than that which might have been allocated to such holders had the
Board of Directors chosen a different method of allocation.

Exchange of Class G Common Stock. CMS Energy could, in the
sole discretion of its Board of Directors, at any time determine to
exchange for each outstanding share of Class G Common Stock a number
of shares of CMS Energy Common Stock having a Fair Market Value equal
to 115% of the Fair Market Value of one share of Class G Common Stock
as of the date of the first public announcement by CMS Energy of such
exchange (a "15% Premium"). In addition, CMS Energy could, in the
sole discretion of its Board of Directors, at any time dispose of
substantially all of the properties or assets attributed to the
Consumers Gas Group, whereupon CMS Energy must exchange for each share
of Class G Common Stock, shares of CMS Energy Common Stock having a
Fair Market Value equal to 110% of the Fair Market Value of one share
of Class G Common Stock as of the date of the first public
announcement by CMS Energy of such disposition (a "10% Premium").
These determinations could be made at a time when either or both the
CMS Energy Common Stock and the Class G Common Stock may be considered
to be overvalued or undervalued. In addition, any such exchange at
either the 10% Premium or the 15% Premium would preclude holders of
both classes of Common Stock from retaining their

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investment in a security that is intended to reflect separately the
performance of CMS Energy, on the one hand, or Consumers Gas Group, on
the other. See "Description of Capital Stock--Class G Common
Stock--Exchange or Redemption" and "--CMS Energy Common
Stock--Exchange or Redemption" below.

Dispositions of Consumers Gas Group Assets. If the assets
attributed to the Consumers Gas Group continue to represent less than
substantially all of the properties and assets of CMS Energy, CMS
Energy could, in the sole discretion of its Board of Directors and
without shareholder approval, approve sales and other dispositions of
any amount of the properties and assets of the Consumers Gas Group
since Michigan law requires shareholder approval only for a sale or
other disposition of all or substantially all of the properties and
assets of CMS Energy not in the "usual and regular course of its
business." See "Description of Capital Stock--Class G Common
Stock--Exchange or Redemption."

Operational and Financial Decisions. The Board of Directors
could, in its sole discretion, from time to time, make operational and
financial decisions that affect disproportionately the Consumers Gas
Group and the various other businesses of CMS Energy and its
subsidiaries, such as the attribution of funds to and from the
Consumers Gas Group. Such decisions may adversely affect the ability
of CMS Energy to obtain funds sufficient to implement its growth
strategies relating to its businesses attributed to the Consumers Gas
Group.

NO ESTABLISHED MARKET FOR CLASS G COMMON STOCK; FUTURE SALES. The
Class G Common Stock is intended to reflect the performance of the businesses
attributed to the Consumers Gas Group. Since there has been no public market
for the Class G Common Stock, there can be no assurance as to the degree to
which the market price of the Class G Common Stock will reflect the performance
of the businesses attributed to the Consumers Gas Group reflected in its
financial statements or the dividend policy established by the Board of
Directors. In addition, CMS Energy cannot predict the impact on such market
price of certain terms of the Class G Common Stock, such as the ability of CMS
Energy to exchange for each share of Class G Common Stock shares of CMS Energy
Common Stock.

Although the Class G Common Stock will be listed on the NYSE, there
can be no assurance that an active public trading market for the Class G Common
Stock will develop or be sustained after the Offering. The initial public
offering price of the Class G Common Stock will be determined by negotiation
among CMS Energy and the Underwriters, and may not be indicative of the market
price of the Class G Common Stock after the Offering. For a discussion of the
factors considered in determining the initial public offering price of the
Class G Common Stock, see "Underwriters -- Pricing of the Offering."

No prediction can be made as to the effect, if any, that future
issuances or sales of shares of Class G Common Stock, or the availability of
such shares for sale, will have on the market price of the Class G Common Stock
prevailing from time to time. Nevertheless, issuances or sales of substantial
amounts of Class G Common Stock, or the perception that such issuances or sales
could occur, could adversely affect prevailing market prices of the Class G
Common Stock. Any such issuances of additional shares of Class G Common Stock
may be authorized by the Board from the unauthorized but unissued shares of
Class G Common Stock without shareholder approval. In connection with the
Offering, CMS Energy will agree that, without the prior written consent of the
Representatives, it will not offer, sell or contract to sell or otherwise
dispose of any shares of (a) Class G Common Stock or any securities (other than
CMS Energy Common Stock) convertible into or exercisable or exchangeable for
Class G Common Stock for a period of 180 days after the date of this Prospectus
or (b) CMS Energy Common Stock or any securities convertible into or
exercisable or exchangeable for CMS Common Stock for a period of 90 days after
the date

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of this Prospectus, provided that CMS Energy may, during such periods, issue
shares of Common Stock under its Dividend Reinvestment and Optional Cash
Payment Plan, Performance Incentive Stock Plan, Employee Stock Ownership Plan
and Employee Savings and Incentive Plan. See "Underwriters."

LIMITED ADDITIONAL SHAREHOLDERS RIGHTS. Holders of Class G Common
Stock will have only the rights of common shareholders of CMS Energy, and will
not be provided any rights specifically related to the Consumers Gas Group,
other than (i) the dividend provisions described under "Description of Capital
Stock--Class G Common Stock--Dividends," (ii) the redemption and exchange
provisions described under "Description of Capital Stock--Class G Common
Stock--Exchange or Redemption" and (iii) certain limited class voting rights
provided under Michigan law. See "Description of Capital Stock--Class G Common
Stock--Voting Rights."

LIMITED SEPARATE SHAREHOLDER VOTING RIGHTS; EFFECTS ON VOTING POWER.
Subject to certain limited exceptions, holders of shares of Class G Common
Stock and holders of shares of CMS Energy Common Stock would vote together as a
single class on all matters as to which common shareholders generally are
entitled to vote. Holders of each class of Common Stock will have no rights to
vote on matters as a separate class (except in certain limited circumstances as
described below under "Description of Capital Stock--Class G Common
Stock--Voting Rights"). In the absence of a separate class vote, separate
meetings for the holders of each class of Common Stock will not be held.

Each issued and outstanding share of Class G Common Stock and each
issued and outstanding share of CMS Energy Common Stock will be entitled to one
vote on each matter on which the holders of Common Stock are entitled to vote.
However, certain matters as to which the holders of Common Stock could be
entitled to vote together as a single class could involve a divergence or the
appearance of a divergence of the interests of the holders of Class G Common
Stock and holders of CMS Energy Common Stock. When a vote is taken on any
matter as to which all Common Stock is voting together as one class, the class
of Common Stock that is entitled to more than the number of votes required to
approve such matter would be in a position to control the outcome of the vote
on such matter. Upon the completion of the Offering, shares of outstanding CMS
Energy Common Stock will be entitled to a substantial majority of the total
votes to which the then outstanding Common Stock is entitled. See "Description
of Capital Stock--Class G Common Stock--Voting Rights" and "--CMS Energy Common
Stock--Voting Rights" below.

LIMITED APPROVAL RIGHTS OF FUTURE ISSUANCES OF STOCK; DILUTION. The
Articles of Incorporation provide authorization for the issuance of up to 60
million shares of Class G Common Stock. Authorized but unissued shares of
Class G Common Stock and CMS Energy Common Stock would be available for
issuance from time to time by CMS Energy at the sole discretion of the Board of
Directors for any proper corporate purpose, which could include obtaining
capital, providing compensation or benefits to employees, paying stock
dividends or acquiring companies or businesses. The approval of the holders of
Class G Common Stock would not be solicited by CMS Energy for the issuance from
the authorized but unissued shares of Common Stock of any additional shares of
Class G Common Stock or CMS Energy Common Stock (unless such approval is deemed
advisable by the Board of Directors or is required by stock exchange
regulations).

Any issuance of shares of Class G Common Stock or CMS Energy Common
Stock would dilute the relative voting power of shareholders of shares of Class
G Common Stock outstanding prior to such issuance.

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OTHER FACTORS

ATTRIBUTION OF FUNDS TO THE CONSUMERS GAS GROUP OR TO CMS ENERGY.
After the completion of the Offering, any securities issued by CMS Energy and
its subsidiaries would be specifically attributed to and reflected in the
financial statements of the Consumers Gas Group to the extent that the Board of
Directors determines that such securities are issued for the benefit of the
Consumers Gas Group. Any cash of CMS Energy attributed to the Consumers Gas
Group would be accounted for as short-term loans unless the Board of Directors
made a specific determination that a given attribution (or type of attribution)
should be accounted for as a long-term loan or an attribution of cash of CMS
Energy to the Consumers Gas Group as an equity contribution, which would
increase the Retained Interest Shares, or cash of CMS Energy ceasing to be
attributed to the Consumers Gas Group, which would decrease the Retained
Interest Shares. There are no specific criteria to determine when a cash
attribution would be classified as a long-term loan or as an equity
contribution which would change the number of Retained Interest Shares, rather
than a short-term loan. Such determination would be made by the Board of
Directors in the exercise of its business judgment at the time of such
attribution (or the first of such type of attribution) based upon all relevant
circumstances, including the financing needs and objectives of the business
attributed to Consumers Gas Group, the investment objectives of the
attribution, the availability, cost and time associated with alternative
financing sources, prevailing interest rates and general economic conditions.
Such determination would affect the amount of interest expense and interest
income reflected in the financial statements of the Consumers Gas Group if such
attribution was made as a short-term loan or long-term loan or as equity, the
amount of stockholders' equity of CMS Energy attributable to the Consumers Gas
Group and the Retained Interest of CMS Energy. See "Certain Management and
Accounting Policies -- Accounting Matters" below.

LIMITATIONS ON POTENTIAL UNSOLICITED ACQUISITIONS OF THE CONSUMERS GAS
GROUP. If the Consumers Gas Group were a stand-alone corporation, any person
interested in acquiring such corporation without negotiation with management
could seek control of the outstanding Class G Common Stock by means of a tender
offer or proxy contest. Although the Class G Common Stock is intended to
reflect the performance of the Consumers Gas Group, a person interested in
acquiring only the Consumers Gas Group without negotiation with CMS Energy's
management will still be required to seek control of the voting power
represented by all of the outstanding capital stock of CMS Energy entitled to
vote on such acquisition, including the CMS Energy Common Stock. See "Limited
Separate Shareholder Voting Rights; Effects on Voting Power" above.

RETAINED INTEREST OF CMS ENERGY IN THE CONSUMERS GAS GROUP; GAS GROUP
FRACTION. Prior to the sale or distribution of Class G Common Stock, the
Retained Interest of CMS Energy in the Consumers Gas Group would represent 100%
of the CMS Energy common stockholders' equity attributed to the Consumers Gas
Group. The number of shares of Class G Common Stock to be issued and sold in
the Offering will represent approximately ___% (assuming the Underwriters'
over-allotment option is not exercised) of the CMS Energy common stockholders'
equity attributed to the Consumers Gas Group. The shares of Class G Common
Stock to be sold in such Offering will be allocated to the Retained Interest of
CMS Energy in the Consumers Gas Group, and result in the reduction of the
Retained Interest Shares and the Retained Interest Fraction. However, (i) any
repurchase of outstanding shares of Class G Common Stock, whether or not for
the account of CMS Energy, would increase the Retained Interest Fraction and
would reduce the Gas Group Fraction accordingly and (ii) any attribution of net
assets (whether contributed or deemed to be contributed by a regulatory agency)
to the Consumers Gas Group would increase the Retained Interest Shares and
thereby increase the Retained Interest Fraction and reduce the Gas Group
Fraction accordingly. See "Class G Common Stock Retained Interest
Illustrations" attached as Appendix II hereto.

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MANAGEMENT AND ACCOUNTING POLICIES SUBJECT TO CHANGE. The Board of
Directors has adopted certain management and accounting policies and agreements
described herein with respect to dividends, the allocation of corporate
expenses, assets and liabilities (including contingent liabilities) and
inter-company transactions, any and all of which could be modified or rescinded
in the sole discretion of the Board of Directors without approval of the
shareholders, although the Board of Directors has no present intention to do
so. See "Dividend Policies" and "Certain Management and Accounting
Policies--Management Policies" and "--Accounting Matters."

The Board of Directors may also adopt additional policies depending
upon the circumstances. Any determination of the Board of Directors to modify
or rescind such policies, or to adopt additional policies, including any such
decision that would have disparate impacts upon holders of Class G Common Stock
and holders of CMS Energy Common Stock, would be made by the Board of Directors
in good faith and in the honest belief that such decision is in the best
interests of CMS Energy. Any such determination would be made in light of the
requirements imposed by the MPSC that any transactions between Consumers and
its affiliates, including CMS Energy, must be on terms comparable to
arm's-length transactions. In addition, generally accepted accounting
principles require that certain changes in accounting policy be preferable (in
accordance with such principles) to the policy previously established.

USE OF PROCEEDS

The estimated net proceeds to CMS Energy from the Offering, after
deduction of Underwriting discounts and commissions and estimated expenses,
will be $___________ million ($_________ million if the Underwriters'
over-allotment option is exercised in full). All of the net proceeds will be
invested in the businesses and used for the general corporate purposes of CMS
Energy. Initially, such proceeds will be used to repay a portion of the debt
of CMS Energy (none of which is attributable to the Consumers Gas Group)
currently outstanding at rates of interest ranging from __% to __% and maturing
from ___ to ___.

CAPITALIZATION

The following table sets forth as of September 30, 1994 (i) the
capitalization of the Consumers Gas Group, (ii) the consolidated capitalization
of CMS Energy and (iii) the consolidated capitalization of CMS Energy, as
adjusted to give effect to the Offering at an assumed initial public offering
price of $____ per share and the application of the net proceeds therefrom to
repay a portion of the debt of CMS Energy (none of which is attributable to the
Consumers Gas Group). The net proceeds of the Offering will be reflected
entirely in the financial statements of CMS Energy and will not have a pro
forma effect on the historic capitalization of the Consumers Gas Group. For
information concerning attribution of debt and equity to the Consumers Gas
Group, see "Consumers Gas Group -- Unaudited Pro Forma Condensed Financial
Statements."

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September 30, 1994
-----------------------------------------------------------------
Consumers Gas Group CMS Energy
Consolidated ------------------- ----------
- -------------
Actual Actual As Adjusted
------ ------ -----------
(Dollars in millions)

Short-term debt (including current
portion of long-term debt,
capital leases and notes
payable).........................
Long-term debt.....................
Stockholders' equity:
Preferred Stock of
Subsidiary.....................
Common stockholders' equity(a).
Total stockholders' equity..
Total capitalization...............

______________
(a) If the Underwriters' over-allotment option is exercised in full,
short-term debt, as adjusted, would be $____ million and common
stockholders' equity for CMS Energy, as adjusted, would be $____ million.

DIVIDEND POLICY

Dividends on each class of Common Stock are limited by Michigan law to
legally available assets of CMS Energy, which are determined on the basis of
the entire company. Distributions on each class of Common Stock may be subject
to the rights of the holders, if any, of the Preferred Stock of CMS Energy.
Net losses of CMS Energy or the Consumers Gas Group and distributions on either
class of Common Stock will reduce the assets of CMS Energy legally available
for payment of dividends on each class of Common Stock. Under the Articles of
Incorporation, any net losses of CMS Energy and distributions on CMS Energy
Common Stock will not reduce the assets available for declaration and payment
of dividends on the Class G Common Stock unless the legally available assets of
CMS Energy are less than the Available Class G Dividend Amount.

On November 4, 1994 CMS Energy paid a quarterly dividend of $.21 per
share (an annual rate of $.84 per share) on the CMS Energy Common Stock. The
Board of Directors currently plans for CMS Energy to continue to pay dividends
on the CMS Energy Common Stock at that rate. Future dividends, however, are
dependent on the earnings and financial condition of CMS Energy as well as
other factors.

Dividends on the Class G Common Stock are limited by the Articles of
Incorporation and will be payable when, as and if declared by the Board out of
the lesser of (i) the assets of CMS

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Energy legally available therefor and (ii) the Available Class G Dividend
Amount. Assuming the Offering had been completed at September 30, 1994, the
Available Class G Dividend Amount as of such date would have been approximately
$65 million, assuming a Gas Group Fraction of 20% (or approximately $____
million, assuming a Gas Group Fraction of ___%, assuming that the Underwriters'
overallotment option is exercised in full). Dividends on the Class G Common
Stock will be paid at the discretion of the Board of Directors based primarily
upon the earnings and financial condition of the Consumers Gas Group, and, to a
lesser extent, CMS Energy as a whole. Subject to the restrictions described
below, if the earnings and financial condition of the Consumers Gas Group
permit, dividends with respect to the Class G Common Stock are expected to be
paid commensurate with dividend practices of comparable publicly-held local
natural gas distribution companies generally. Management believes that such
practices currently are to pay out from 70% to 85% of annual earnings available
for common stock. Consistent with this policy, if ___ million shares of Class
G Common Stock representing 100% of the equity attributed to the Consumers Gas
Group had been outstanding during all of 1994, CMS Energy would have paid a
dividend at an annual rate ranging from $____ per share to $____ per share on
the Class G Common Stock. While the Board of Directors does not currently
intend to change this dividend policy, it reserves the right to do so at any
time and from time to time. Under the Articles of Incorporation and Michigan
law, the Board of Directors is not required to declare, and CMS Energy is not
required to pay, dividends in accordance with the foregoing dividend policy.

In making its dividend decisions with respect to the Class G Common
Stock, the Board of Directors will rely on the financial statements of the
Consumers Gas Group, as well as, to a lesser extent, the consolidated financial
statements of CMS Energy. The method of calculating earnings per share for the
Class G Common Stock will reflect the intent of the Board of Directors that the
separately reported assets and earnings of the Consumers Gas Group be the basis
for determining dividends to be paid on the Class G Common Stock, although
liquidation rights of the Class G Common Stock and legally available assets of
CMS Energy will be based on different factors.

Subject to the restrictions on the assets out of which dividends on the
Common Stock may be paid, as described below and under "Description of Capital
Stock--Class G Common Stock" and "--CMS Energy Common Stock," CMS Energy, in
the sole discretion of its Board of Directors, would be able to pay dividends
exclusively on either the Class G Common Stock or the CMS Energy Common Stock,
or on both, in equal or unequal amounts, notwithstanding the respective amounts
of assets or earnings available for dividends on each class, the amounts of
prior dividends declared on each class or any other factor. It is the Board of
Directors' current intention that the declaration or payment of dividends with
respect to the Class G Common Stock will not be reduced suspended or eliminated
as a result of factors arising out of or relating to the electric utility
business or the non-utility businesses of CMS Energy unless such factors also
require, in the Board of Directors' sole discretion, the omission of the
declaration or reduction in payment of dividends on both the CMS Energy Common
Stock and the Class G Common Stock. CMS Energy has paid cash dividends on
shares of CMS Energy Common Stock since 1989.

There are restrictions on CMS Energy's ability to pay dividends contained
in its Credit Agreement dated as of July 29, 1994 (the "Credit Facility") with
Citibank, N.A. and Union Bank as co-agents and certain banks named therein, CMS
Energy's Indenture dated as of September 15, 1992, as supplemented (the
"Indenture"), to NBD Bank, N.A., as Trustee, and CMS Energy's Indenture dated
as of January 15, 1994 (the "GTN Indenture") to The Chase Manhattan Bank, N.A.,
as Trustee.

The Credit Facility provides that CMS Energy will not, and will not
permit certain of its subsidiaries, directly or indirectly, to (i) declare or
pay any dividend or distribution on the capital stock of CMS Energy, or (ii)
purchase, redeem, retire or otherwise acquire for value any such capital stock
(a "Restricted Payment"), unless: (1) no event of default under the Credit
Facility, or

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event that with the lapse of time or giving of notice would constitute such an
event of default, has occurred and is continuing, and (2) after giving effect
to any such Restricted Payment, the aggregate amount of all such Restricted
Payments since September 30, 1993 shall not have exceeded the sum of: (a)
$120,000,000, (b) 100% of CMS Energy's consolidated net income (as defined in
the Indenture) since September 30, 1993 to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such sum shall be a deficit, minus 100% of the deficit), and (c)
any net proceeds (as defined in the Indenture) received by CMS Energy for the
issuance or sale of its capital stock subsequent to September 30, 1993. At
September 30, 1994, CMS Energy could pay cash dividends of $377 million
pursuant to this restriction.

The Indenture provides that CMS Energy will not, and will not permit
certain of its subsidiaries, directly or indirectly, to make a Restricted
Payment, unless: (1) no event of default under the Indenture, or event that
with the lapse of time or giving of notice would constitute such an event of
default, has occurred and is continuing, and (2) after giving effect to any
such Restricted Payment, the aggregate amount of all such Restricted Payments
since September 30, 1992 shall not have exceeded the sum of: (a) $40,000,000,
(b) 100% of CMS Energy's consolidated net income (as defined in the Indenture)
since September 30, 1992 to end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or, in case such
sum shall be a deficit, minus 100% of the deficit), and (c) any net proceeds
(as defined in the Indenture) received by CMS Energy for the issuance or sale
of its capital stock subsequent to September 15, 1992. At September 30, 1994,
CMS Energy could pay cash dividends of $382 million pursuant to this
restriction.

The GTN Indenture provides that, so long as any of the General Term
Notes, Series A ("GTNs") issued thereunder are outstanding and are rated below
BBB- by Standard & Poor's or by Duff & Phelps, CMS Energy will not, and will
not permit certain of its subsidiaries, directly or indirectly, to make any
Restricted Payments, if at any time CMS Energy or such subsidiary makes such
Restricted Payment: (1) an Event of Default (as defined in the GTN Indenture),
or an event that with the lapse of time or the giving of notice or both would
constitute such an Event of Default, has occurred and is continuing (or would
result therefrom), or (2) the aggregate amount of such Restricted Payment and
all other Restricted Payments made since September 30, 1993, would exceed the
sum of: (a) $120,000,000 plus 100% of consolidated net income from September
30, 1993 to the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such sum shall be a
deficit, minus 100% of the deficit) and (b) the aggregate net proceeds received
by CMS Energy from the issue or sale of or contribution with respect to its
capital stock after September 30, 1993. At September 30, 1994, CMS Energy
could pay cash dividends of $377 million pursuant to this restriction.

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In addition, Michigan law prohibits payment of a dividend if, after
giving it effect, CMS Energy would not be able to pay its debts as they become
due in the usual course of business, or its total assets would be less than the
sum of its total liabilities plus, unless the articles permit otherwise, the
amount that would be needed, if CMS Energy were to be dissolved at the time of
the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. CMS Energy's net assets available for payment of dividends under
the Michigan Business Corporation Act at September 30, 1994 were $392 million.

PRIMARY SOURCE OF DIVIDENDS FOR THE COMMON STOCK
OF CMS ENERGY; RESTRICTIONS ON SOURCES OF DIVIDENDS

The ability of CMS Energy to pay dividends on its Class G Common Stock
and CMS Energy Common Stock depends and will depend substantially upon timely
receipt of sufficient dividends or other distributions from its subsidiaries,
in particular Consumers. Consumers' ability to pay dividends on its Common
Stock depends on its revenues, earnings and other factors. As a regulated
entity, Consumers' rates are set by the MPSC.

Consumers' ability to pay dividends is restricted by its Mortgage
Indenture and its Articles. The Mortgage Indenture provides that Consumers can
only pay dividends on its common stock out of retained earnings accumulated
subsequent to September 30, 1945, provided that upon such payment, there shall
remain of such retained earnings an amount equivalent to any deficiency in
maintenance and replacement expenditures as compared with maintenance and
replacement requirements since December 31, 1945. Because of restrictions in
its Articles and Mortgage Indenture, Consumers was prohibited from paying
dividends on its common stock from June 1991 to December 31, 1992. However, as
of December 31, 1992, Consumers effected a quasi-reorganization in which
Consumers' accumulated deficit of $574 million was eliminated against other
paid-in capital. With the accumulated deficit eliminated, Consumers satisfied
the requirements under its Mortgage Indenture and resumed paying dividends on
its common stock in May 1993.

Consumers' Articles also provide two restrictions on its payment of
dividends on its common stock. First, prior to the payment of any common stock
dividend, Consumers must reserve retained earnings after giving effect to such
dividend payment of at least (i) $7.50 per share on all then outstanding shares
of its Preferred Stock, (ii) in respect to its Class A Preferred Stock, 7.5% of
the aggregate amount established by its Board of Directors to be payable on the
shares of each series thereof in the event of involuntary liquidation of
Consumers, and (iii) $7.50 per share on all then outstanding shares of all
other stock over which its Preferred Stock and Class A Preferred Stock do not
have preference as to the payment of dividends and as to assets. Second,
dividend payments during the 12-month period ending with the month the proposed
payment is to be paid are limited to: (i) 50% of net income available for the
payment of dividends during the base period (hereinafter defined) if the ratio
of common stock and surplus to total capitalization and surplus for 12
consecutive calendar months within the 14 calendar months immediately preceding
the proposed dividend payment (the "base period"), adjusted to reflect the
proposed dividend, is less than 20%; and (ii) 75% of net income available for
the payment of dividends during the base period if the ratio of common stock
and surplus to total capitalization and surplus for the base period, adjusted
to reflect the proposed dividend, is at least 20% but less than 25%.

Consumers' Articles also prohibit the payment of cash dividends on its
common stock if Consumers is in arrears on preferred stock dividend payments.

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Under the most restrictive of these conditions, at December 31, 1994,
$___ million of Consumers' retained earnings were available to pay cash
dividends on its common stock. Currently it is Consumers' policy to pay annual
dividends equal to 80% of its annual consolidated net income. Consumers Board
of Directors reserves the right to change this policy at any time.

Consumers paid dividends on its Common Stock of $16.0 million on February
22, 1994, $65.6 million on May 20, 1994, $31.0 million on August 19, 1994,
$36.0 million on November 4, 1994, and $27.4 million on December 20, 1994.

CERTAIN MANAGEMENT AND ACCOUNTING POLICIES

MANAGEMENT PERSONNEL

The following have been selected to be the senior management team for the
Consumers Gas Group:

PAUL A. ELBERT, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER,
CONSUMERS GAS GROUP. Since July 1991, Mr. Elbert has been the senior vice
president for energy distribution for Consumers. From 1988 to June 1991 he was
vice president for marketing, rates and wholesale power transactions.

PAUL N. PREKETES, VICE PRESIDENT--GAS OPERATIONS, CONSUMERS GAS GROUP.
Mr. Preketes became Region General Manager of Consumers' Metro Region in 1991.
In that capacity he oversaw natural gas operations for more than 750,000
customers in parts of Oakland, Wayne, Macomb, Livingston and Washtenaw counties
in Michigan's Lower Peninsula.

JOHN E. MANCZAK, VICE PRESIDENT--GAS MARKETING AND PRICING, CONSUMERS GAS
GROUP. Mr. Manczak assumed his current position with the Consumers Gas Group
in November 1994. Prior to joining the Consumers Gas Group, Mr. Manczak was
the President of Michigan Gas Utilities division of UtiliCorp United.

EDGAR L. DOSS, EXECUTIVE MANAGER--GAS SUPPLY & TRANSMISSION, CONSUMERS
GAS GROUP. Since July 1991, Mr. Doss has been the General Manager of the
Northwestern region of Consumers, which served the western and northern lower
Peninsula of Michigan consisting of 550,000 electric utility customers and
30,000 natural gas utility customers. Prior to such time, Mr. Doss served as
the General Manager for the Detroit Metro region.

JEFFREY R. HINKLE, DIRECTOR--GAS BUSINESS SUPPORT, CONSUMERS GAS GROUP.
Mr. Hinkle has been Consumers' Director of Marketing Services since October
1990 and served in Consumers' marketing department since 1990. Prior to that
time he held positions in Management and Budget and Corporation Performance
Analysis.

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CERTAIN MANAGEMENT POLICIES

CMS Energy has adopted formally certain policies with respect to the
Consumers Gas Group. Such policies include, without limitation, its intention
to: (i) attribute assets, liabilities and expenses between the Consumers Gas
Group and CMS Energy only on an arm's-length basis and (ii) attribute proceeds
generated by sale of shares of Class G Common Stock (other than Retained
Interest Shares) and securities convertible into Class G Common Stock as assets
attributable to the Consumers Gas Group, and apply such proceeds to acquire
assets or reduce liabilities attributable to the Consumers Gas Group. These
policies could be modified or rescinded by action of the Board of Directors, or
the Board of Directors could adopt additional policies, without approval of the
shareholders.

ACCOUNTING MATTERS

CMS Energy will prepare Consumers Gas Group financial statements in
accordance with generally accepted accounting principles. The consolidated
financial statements of CMS Energy will reflect all of its assets, liabilities
and transactions, including those attributable to the Consumers Gas Group. The
financial statements of the Consumers Gas Group will reflect the financial
position, results of operations and cash flows of the businesses attributable
to the Consumers Gas Group, including the effects of dividends and other
distributions on the Class G Common Stock. Consistent with the Articles of
Incorporation and related policies, such financial statements will also include
portions of certain corporate assets and liabilities (including contingent
liabilities) attributed to the Consumers Gas Group. Principal corporate
activities which will be attributed to the Consumers Gas Group and which will
be reflected in such financial statements include financial activities,
allocation of corporate general and administrative costs, common stock
transactions and income taxes.

Consumers is a regulated utility. Accordingly, the majority of the
accounting allocation policies have a long-standing basis and have historically
been used in proceedings conducted before the MPSC. The financial statements
for the Consumers Gas Group have been prepared based upon consistent methods
that management believes are reasonable and appropriate to reflect the
financial position, results of operations and cash flows of the businesses
attributed to the Consumer Gas Group. Where appropriate, the financial
statements reflect the assets, liabilities, revenues and expenses directly
related to the Consumers Gas Group. However, in instances where common
accounts (containing both electric and gas activities) were not readily
attributable to a single business segment, management attributed portions of
such accounts to the Consumers Gas Group's financial statements based on
certain measures of business activities, such as gas revenues, salaries,
operating and maintenance expenditures, number of gas customers in relationship
to total utility customers and/or functional use surveys. Management believes
that the attributions are reasonable.

Notwithstanding the attribution of corporate assets and liabilities to
the Consumers Gas Group for the purpose of preparing financial statements, the
completion of the Offering contemplated hereby will not result in any transfer
of assets or liabilities of CMS Energy. CMS Energy will continue to be
responsible for all of its liabilities (including contingent liabilities) and
will continue to prepare consolidated financial statements.

Cash management and allocation of principal corporate activities are
based upon methods that management of CMS Energy believes to be reasonable and
are reflected in CMS Energy's consolidated financial statements, as follows:

(i) Financings by Consumers, whether through the issuance of First
Mortgage Bonds or Preferred Stock of Consumers or otherwise will be
allocated based upon the

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relative book values at the time of such financings of the assets
comprising the businesses attributable to the Consumers Gas Group and the
businesses not so attributed. The proportionate amount of obligations
and net proceeds resulting from such financing will be reflected in the
financial statements of the Consumers Gas Group.

(ii) After the completion of the Offering, all financial impacts of
issuances of additional shares of Class G Common Stock, from the Retained
Interest, will be reflected entirely in the financial statements of CMS
Energy and not the Consumers Gas Group. All financial impacts of
issuance of authorized but unissued shares of Class G Common Stock other
than the Retained Interest Shares (the "Additional Shares"), which will
be attributed to Consumers Gas Group, will be reflected in the financial
statements of the Consumers Gas Group. Financial impacts of dividends or
other distributions on, and purchases of, shares of the Class G Common
Stock and CMS Energy Common Stock will be reflected in the financial
statements of the Consumers Gas Group and CMS Energy, respectively,
except that, if a Retained Interest exists at such a time, an amount that
bears the same relation to the aggregate amount of such dividend or other
distribution on outstanding shares of Class G Common Stock as the
Retained Interest Shares bears to the number of shares of Class G Common
Stock then outstanding will be reflected in the Consumers Gas Group
financial statements.

(iii) If funds were to be allocated between the Consumers Gas Group
and CMS Energy, such allocations of funds will generally be accounted for
as short-term loans at an interest rate comparable to the rate that CMS
Energy could obtain in an arm's length transaction or as an equity
contribution to, or return of capital by, the Consumers Gas Group. In
such latter event, the Retained Interest in the Consumers Gas Group would
be increased or decreased, as applicable, by the amount of such
contribution or return of capital, as a result of which (a) the Retained
Interest Shares would be increased or decreased by an amount equal to the
amount of such contribution or return of capital divided by the Fair
Market Value of a share of Class G Common Stock on the date of
contribution or return of capital and (b) the Retained Interest would be
increased or decreased and the Gas Group Fraction would be decreased or
increased accordingly. CMS Energy could determine, in the sole
discretion of its Board of Directors, to make such contribution or return
of capital after consideration of a number of factors, including, among
others, the relative levels of internally generated cash flows of each of
its businesses, the long-term business prospects for each of its
businesses, the capital expenditure plans of and the investment
opportunities available to each of its businesses, and the availability,
cost and time associated with alternative financing sources.

(iv) The balance sheet of the Consumers Gas Group will reflect any
net short-term loans to or borrowings from CMS Energy. Accordingly, the
income statement of the Consumers Gas Group will reflect interest income
or expense, as the case may be, associated with such loans or borrowings
and the statement of cash flow of the Consumers Gas Group will reflect
changes in the amounts thereof deemed outstanding. The financial
statements of CMS Energy would not be affected by such items because such
items would be eliminated in consolidation.

(v) The Consumers Gas Group financial statements will reflect the
allocation, in the sole discretion of CMS Energy, of certain management,
financial reporting, legal, human resources, treasury, investor relations
and administrative services expenses incurred by CMS Energy in connection
with the business of the Consumers Gas Group.

(vi) An amount equal to the amount of income taxes that would be
payable or income tax credits that would be receivable by the Consumers
Gas Group on a

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"stand-alone" basis, after taking into account tax deductions and credits
attributable to the Consumers Gas Group, will be charged against or
credited to the Consumers Gas Group financial statements. The Consumers
Gas Group will continue to be included in CMS Energy's consolidated
income tax returns after the Offering.

The above policies and agreements could be modified or rescinded, in the
sole discretion of the Board of Directors, without approval of shareholders,
although there is no present intention to do so. The Board of Directors could
also adopt additional policies depending upon the circumstances. Any
determination of the Board of Directors to modify or rescind such policies, to
adopt additional policies, including any such decision that could have
disparate effects upon holders of each class of common stock of CMS Energy,
would be made by the Board of Directors in accordance with its fiduciary duties
to CMS Energy. Any such determination would also be made in light of the
requirements imposed by the MPSC that any transactions between Consumers Gas
Group and its affiliates, including CMS Energy, must be on terms comparable to
arm's-length transactions. In addition, generally accepted accounting
principles require that certain changes in accounting policy be preferable (in
accordance with such principles) to the policy previously in place. See Note 2
of Notes to Financial Statements regarding the method of attribution of the
assets and liabilities of CMS Energy to the Consumers Gas Group.

BUSINESS OF THE CONSUMERS GAS GROUP

BUSINESS

The businesses attributed to the Consumers Gas Group consist of the Gas
Distribution Business conducted by Consumers and MGS. Consumers or its
predecessors has operated the Gas Distribution Business since 1886. The Gas
Distribution Business is subject to the jurisdiction of the MPSC and the FERC.
See "Regulations and Rates" below.

The Consumers Gas Group supplies natural gas for heating and various
other energy applications through a distribution and transmission system which
consisted, at September 30, 1994, of 20,768 miles of distribution mains and
1,084 miles of transmission lines including 471 miles of lines greater than
24", 250 miles of 12" line and 103 miles of 4" line. The all-time record
24-hour send-out of natural gas for the Consumers Gas Group (achieved on
January 19, 1994) was 3.1 million Mcf which is currently the peak-day
transportation and distribution capacity of the system. Deliveries of gas by
the Consumers Gas Group, (including gas from other sellers), to ultimate
customers totaled 411 Bcf for the year ended December 31, 1993 and 298 Bcf for
the nine months ended September 30, 1994. From January 1, 1990 through
September 30, 1994 deliveries of natural gas by the Consumers Gas Group have
grown at an average annual rate of 3.71%, non-weather adjusted, and 1.3%,
weather adjusted. The weather-adjusted growth is primarily attributable to an
increase in the number of customers served.

The Consumers Gas Group serves customers located in 45 of the 68 counties
in Michigan's Lower Peninsula including some of the largest metropolitan areas
in the State of Michigan, such as the suburbs of Detroit, including Warren
(population approximately 145,000), Sterling Heights (population approximately
118,000) and Livonia (population approximately 101,000), as well as Flint
(population approximately 141,000), Lansing (population approximately 127,000)
and Kalamazoo (population approximately 80,000). The Consumers Gas Group plans
to install additional gas mains to gain access to customers in the suburbs of
Detroit and Flint, Michigan. See "Growth Strategies" below.

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COMPETITIVE ADVANTAGES

The Consumers Gas Group is well-positioned to capitalize on the
opportunities and meet the challenges of the deregulated gas market. The
Consumer Gas Group's principal competitive advantages include:

- Consistent growth. The Consumers Gas Group's gas sales for the nine
months ended September 30, 1994 and for the year ended December 31,
1993 were 173 Bcf and 244 Bcf, respectively, with a total throughput
of 225 Bcf and 315 Bcf for those periods (excluding sales to MCV
Partnership). This represents an average annual growth rate since
1990 of approximately 3.3% (1.3% weather-adjusted). The
weather-adjusted growth is primarily attributable to an increase in
the number of customers served. Since 1990, the Consumers Gas Group
has experienced an average annual customer growth rate of 1.5%
(approximately 20,000 customers) per year. See "Business of the
Consumers Gas Group -- Customers."

- Diversity and stability of customers served. The Consumers Gas
Group's sales are derived from a diversity of customers with no
substantial dependence on a particular customer. The Consumers Gas
Group's approximately 1.4 million customers include approximately
1.3 million residential customers, 94,000 commercial customers and
8,000 industrial customers. In 1994, residential customers, the
primary component of the Consumers Gas Group's load, represented
slightly more than half of throughput, while the industrial and
commercial classes each represented about one-fourth. For the nine
months ended September 30, 1994, approximately 67.7% of the
Consumers Gas Group's revenues were derived from this relatively
stable residential customer base. The customer base of the
Consumers Gas Group also includes several of the largest
manufacturing businesses in the United States, such as Chrysler
Corporation, Dow Chemical Company, Ford Motor Company, General
Motors Corporation and Upjohn Company.

- Low cost natural gas provider. At September 30, 1994, the Consumers
Gas Group's residential customers enjoyed the lowest rates charged
by any Michigan natural gas utility and rates which are believed to
be consistently among the lowest 10% of all U.S. local natural gas
distribution companies. As of September 30, 1994, the Consumers Gas
Group's rate for residential service was $3.917/Mcf. See "Business
of the Consumers Gas Group -- Business."

- Substantial natural gas storage capacity. The 14 gas storage fields
operated by the Consumers Gas Group have 130.0 Bcf of working gas
storage. This storage capacity enabled Consumers Gas Group to
provide approximately 45.0% of its sale requirements throughout the
1993-1994 winter heating season (November 1 through March 31) and
70.0% of its January 1994 peak-day requirement from storage. These
facilities allow the Consumers Gas Group to lower its peak-day
entitlement from its pipeline suppliers, thereby reducing interstate
pipeline costs. See "Business of the Consumers Gas Group --
Storage."

- Strategic location near interstate pipelines. The Consumers Gas
Group is strategically located to receive gas deliveries from
several interstate pipelines connected to the major producing
regions of the United States and Canada. ANR, Panhandle and
Trunkline deliver gas from the U.S. Gulf Coast and the Mid-Continent
areas. Gas produced in Western Canada is delivered to the Consumers
Gas Group through several pipelines that ultimately deliver gas to
Great Lakes Gas

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Transmission Company, which is connected directly to the Consumers
Gas Group. See "Business of the Consumers Gas Group -- Gas Supply."

GROWTH STRATEGIES

- Increased usage by existing customers. The Consumer Gas Group
believes that there are opportunities to increase revenues from its
existing customer base. Studies conducted by the Consumers Gas
Group show that many of its existing residential and commercial
customers utilize non-gas furnaces, electric water heaters and wood
burning fireplaces for space and water heating. The Consumers Gas
Group intends to conduct marketing programs to switch these
customers to natural gas for these purposes.

- Attracting additional customers. The Consumers Gas Group plans to
attract additional customers by expanding within its existing
franchises. The Consumers Gas Group maintains franchises in eight
of the ten most populous counties in Michigan and each of these
counties has been growing. Through effective planning, the
Consumers Gas Group intends to position its system expansion to
secure future growth in these areas. The Consumers Gas Group
intends to invest $37.7 million over the three-year period ending
December 31, 1998 to construct additional gas mains. This program
is designed to increase gas usage in the Consumer Gas Group's
existing service area and to enable it to successfully compete with
other local natural gas distribution companies for new customers.
Finally, there are still significant numbers of potential gas
customers who have a gas main in front of their home or
establishment and do not have installed gas service. The conversion
of these customers to gas service is an additional potential source
of growth.

- Co-generation. The Consumers Gas Group believes that there is a
significant potential for development in its service area of gas
powered cogeneration projects capable of generating from 1,000 to
50,000 KW of electricity. For projects of this type the Consumers
Gas Group would have the ability to provide, in addition to gas
supply, project engineering, equipment financing, operating and
maintenance service and gas storage services.

- Industrial conversions. Conversion of industrial processes to
natural gas is also an area of expected sales growth for the
Consumers Gas Group. For example, it is expected that laws
mandating improvements in air quality will provide opportunities for
converting industrial boiler load to clean-burning natural gas, and
for additional utilization of natural gas for electric generation.
The Consumers Gas Group believes that conversion projects also
provide opportunities for project engineering, construction
services, equipment financing, gas storage and other services which
it is in a position to provide competitively.

- New technologies. The Consumers Gas Group also expects additional
growth from the development and use of NGVs. Pursuant to the Energy
Policy Act of 1992,

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increasing percentages of the federal government's automotive fleet
must consist of NGVs beginning in 1996; the federal government will
be required to either convert gasoline-fueled vehicles into NGVs or
purchase NGVs. The Consumers Gas Group believes that other
automotive fleets, as well as indoor equipment such as forklifts and
sweepers, will convert to NGVs, and thereafter certain portions of
the general population may acquire or convert their existing
vehicles to NGVs. The Consumers Gas Group estimates that each NGV
represents 125 Mcf of natural gas consumption annually, equal to the
natural gas consumption of an average single family home.

- Revenue diversification. In 1994, approximately 85% of Consumers
Gas Group's gas throughput was weather related and weather can cause
significant fluctuations in revenue. For example, unseasonably warm
weather in November and December 1994, in the service area of the
Consumers Gas Group resulted in gas sales and gas transported in the
fourth quarter of 1994 totalling 111 Bcf, a 12% increase from the
corresponding 1993 level. Opportunities exist to diversify revenues
by (i) growing off-peak load and (ii) creating and increasing new
revenue from the sale of gas-related services and products, such as
maintenance agreements related to gas equipment (e.g. furnaces),
appliance repair and installation, sales of other equipment (e.g.
carbon monoxide detectors, water heaters) and energy optimization
services.

In total, the Consumers Gas Group expects these and related additional
efforts to add approximately 38.0 Bcf of throughput by 1999 which is equivalent
to approximately $17.2 million of additional gross margin annually (excluding
recovery of the cost of gas supplied to customers.) However, actual levels of
growth in the business of the Consumers Gas Group will depend on general
economic conditions, the availability of gas supply, gas prices, alternate
energy prices and other factors, and there can be no assurance that the
Consumers Gas Group will achieve increased sales or earnings.

CUSTOMERS

At September 30, 1994, the Consumer Gas Group's approximately 1.4 million
customers consisted of approximately 1.3 million residential customers, 94,000
commercial customers and 8,000 industrial customers. Since 1990, the Consumers
Gas Group experienced an average annual customer growth rate of 1.5%
(approximately 20,000 customers per year). The effect on gas sales from
increases in the number of customers has been tempered by a long-term decline
of natural gas consumption per customer (9.6% for residential and 14.6% for
commercial customers since 1983), mainly due to the increased energy efficiency
of gas appliances and equipment, as well as improved usage of insulation and
other energy conservation improvements.

The customer base of the Consumers Gas Group includes several of the
largest manufacturers in the United States, such as Chrysler Corporation, Dow
Chemical Corporation, Ford Motor Company, General Motors Corporation and Upjohn
Company. In 1993, approximately 70% of the Gas Distribution Business'
revenues, and about 50% of its throughput, were derived from its relatively
stable residential customer base. Accordingly, the Consumer Gas Group's
operations are not dependent upon a single customer, or a few customers, the
loss of any one or more of which would have a material adverse effect on the
financial condition of the Consumers Gas Group.

The following tables set forth the revenues of, and volumes sold, stored
or transported by, the Consumers Gas Group for the periods indicated:

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Nine Months Years Ended
Ended September 30, December 31,
------------------- -----------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
(Dollars in Millions)

Gas Distribution Business
Revenues
Residential . . . . . . . . . . . . . $567 $553 $ 803 $ 781 $ 742
Commercial . . . . . . . . . . . . . 167 158 232 226 215
Industrial . . . . . . . . . . . . . 41 38 55 55 58
Transportation . . . . . . . . . . . 46 36 51 43 25
Other . . . . . . . . . . . . . . . . 16 24 19 21 21
--- ---- ----- ----- -----
Total . . . . . . . . . . . . . . $837 $809 $1,160 $1,126 $1,061
==== ==== ====== ====== ======

Nine Months Years Ended
Ended September 30, December 31,
------------------- -----------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Bcf)

Gas Distribution Business
Sales and Deliveries
Residential . . . . . . . . . . . . . 123 118 175 167 157
Commercial . . . . . . . . . . . . . 40 37 56 54 50
Industrial . . . . . . . . . . . . . 10 10 14 13 15
Transportation(a) . . . . . . . . . . 110 104 144 130 117
--- --- --- --- ---
Total . . . . . . . . . . . . . . 283 269 389 364 339
- ----------------- === === === === ===

(a) Excludes offsystem transportation.

A major determinant of gas usage for any period is the weather,
particularly with respect to residential and commercial customers who use
natural gas for space heating and, to a lesser extent, industrial customers.
Approximately 93% of the customers of the Consumers Gas Group are residential
customers, of which 98% use natural gas for space heating. Accordingly, the
Consumers Gas Group's business is seasonal with approximately 74% of its
revenues generated in the first and fourth quarters of each year. The heating
degree days for 1993 were 7,183, approximately 1.7% colder than the average
heating degree days for the 30-year period ended December 31, 1993 and the
heating degree days for the nine months ended September 30, 1994 were 4,965,
6.6% colder than the nine months ended September 30, 1993. The average heating
degree days for the 30 years, 10 years and 5 years ended December 31, 1993 were
7,060, 6,897 and 6,896, respectively. Generally, consumption for heating
purposes increases as heating degree days increase with a corresponding
improvement in results of operations of the Consumers Gas Group. If during the
heating season, the weather in the Consumers Gas Group's service area is warmer
than normal, its results of operations will be adversely affected.

GAS STORAGE

The 14 gas storage fields operated by Consumers Gas Group (listed below)
have an aggregate certified storage capacity of approximately 359.2 Bcf, of
which approximately 130.0 Bcf is working gas:

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Total Certified
Field Name Location Storage Capacity
---------------------------------------------------------------------------------------------------------
(Bcf)

Overisel Allegan and Ottawa Counties 64.0
Salem Allegan and Ottawa Counties 35.0
Ira St. Clair County 7.5
Lenox Macomb County 3.5
Ray Macomb County 66.0
Northville Oakland, Washtenaw and
Wayne Counties 25.8
Puttygut St. Clair County 16.6
Four Corners St. Clair County 3.8
Swan Creek St. Clair County .6
Hessen St. Clair County 18.0
Lyon-34 Oakland County 1.4
Winterfield Osceola and Clare Counties 75.0
Cranberry Lake Clare and Missaukee Counties 30.0
Riverside Missaukee County 12.0
-----
Total 359.2
=====

Eleven of these gas storage fields are owned by Consumers, and three are
currently owned by MGS. MGS also conducts certain gas transportation
operations. MGS intends to transfer the ownership of its three fields to
Consumers. Such transfers will require the approval of the FERC which may take
up to 18 months to obtain.

During the 1993-94 winter heating season (November 1 through March 31),
the maximum one-day withdrawal from the storage facilities listed above was 2.2
Bcf. This storage and deliverability capacity enabled the Gas Distribution
Business to provide approximately 45% of its 1993-94 winter heating season
requirements from storage and 70% of its January 1994 peak-day requirement from
storage. This practice allows the Gas Distribution Business to lower its
peak-day entitlement from its pipeline suppliers, thereby reducing interstate
pipeline costs.

GAS SUPPLY

In 1993, the Consumers Gas Group purchased approximately 85% of its
required gas supply for the Gas Distribution Business under long-term
contracts. Trunkline was the Consumers Gas Group's primary gas supplier
through November 1994, supplying 41% of the overall requirement in 1993. The
Consumers Gas Group's supply contract with Trunkline expired November 1, 1994;
however, firm transportation associated with this contract continues until
November 1, 2002. Of the remaining gas supply requirements of the Consumers
Gas Group purchased under long-term contracts in 1993, 15% were derived from
Michigan producers and 29% from various other producers and non-affiliated
marketing companies in the United States and Canada. The remaining 15% of the
Consumers Gas Group's 1993 gas supply requirements were met by purchases on the
spot market.

Through November 1, 1994, Trunkline was obligated to supply 325 thousand
Mcf per day to the Consumers Gas Group. This obligation has been replaced with
three, two-year contracts and four, one-year contracts with independent
producers at fixed prices for an aggregate of 255 thousand Mcf per day. The
Consumers Gas Group expects to obtain the balance of its gas supply
requirements in the spot market.

The Consumers Gas Group's other firm transportation agreements are with
Trunkline, Panhandle, ANR Pipeline Company and Great Lakes Gas Transmission
Company. These agreements are used by the Consumers

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Gas Group to transport its required gas supplies to market and to replenish its
storage fields. The other firm transportation agreement with Trunkline extends
through February 1996. Two firm transportation agreements with Panhandle both
extend through March 2000. The Consumers Gas Group has six firm transportation
agreements with ANR Pipeline Company. The first and third largest of these
contracts extend through October 2003, the second largest extends through
October 1999, and the remaining three contracts extend through December 2001
and 2002. The Consumers Gas Group's firm transportation agreement with Great
Lakes Gas Transmission Company extends through March 2004. In total, the
Consumers Gas Group's firm transportation arrangements currently amount to
almost 90% of total gas supply requirements of the Gas Distribution Business.
The balance of the required gas supply is transported under interruptible
transportation contracts. These contracts are with the same interstate
pipelines mentioned above. The amount of interruptible capacity and the
utilization thereof is primarily a function of the price for such service and
the availability and price of the spot supplies to be purchased and
transported. The Consumers Gas Group generally uses interruptible
transportation in off-peak summer months and after its firm capacity has been
fully subscribed.

The Consumers Gas Group expects to ensure the reliability of its gas
supply through long-term supply contracts, with purchases in the short-term
spot market when economically beneficial. Management believes that the
Consumers Gas Group's ability to purchase gas during the off-season and store
it in extensive underground storage facilities helps to reduce costs. See "Gas
Storage" above.

GAS COMPETITION

Competition with respect to the Gas Distribution Business comes primarily
from alternate energy sources such as electricity (including electricity
generated and sold by Consumers), propane, and to a lesser degree, oil and
wood. Residential and commercial customers accounted for approximately 70% and
20%, respectively, of the 1993 revenues of the Consumers Gas Group. In most of
its service territory, the Consumers Gas Group has little direct competition
with respect to its traditional utility service to residential customers.

The Consumers Gas Group competes with fuel oil suppliers in making sales
to its industrial customers.

The Consumers Gas Group will attempt to retain, and if possible expand,
the markets in which it is most vulnerable, such as the large industrial
market, through favorable rate design, business development and related
efforts. See "-- Growth Strategies" above. The Consumers Gas Group continues
to (i) develop or promote new sources and uses of natural gas and/or new
services, rates and contracts; (ii) purchase gas from lowest cost suppliers
consistent with operating and long-term gas supply needs; and (iii) emphasize
and provide high quality services to its customers.

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the management of Consumers with regard to the services and prices charged to
such customers could have an adverse effect on the Consumers Gas Group.

REGULATION AND RATES

The Gas Distribution Business is subject to the jurisdiction of the MPSC
which regulates public utilities in Michigan with respect to retail utility
rates, accounting, services, certain facilities and various other matters. For
information concerning pending MPSC matters related to the Gas Distribution
Business, see "Legal Proceedings" below. MGS is regulated by the FERC.

As a regulated company under MPSC jurisdiction, the Consumers Gas Group
may apply to the MPSC for rate increases if increased costs or other factors
warrant. Such rates typically go into effect following a MPSC contested case
proceeding. The MPSC attempts to conclude such proceedings and issue a final
order within 12 months from the initial filing of the general rate case.

In July 1994, the MPSC approved an agreement previously reached between
the MPSC staff and Consumers, to charge $10 million of costs for postretirement
benefits against 1994 earnings. This charge against earnings will partially
offset savings related to state property taxes which were reduced. The
agreement was reached in response to a claim that gas utility business earnings
for 1993 were excessive. The agreement also provides for an additional $4
million of postretirement benefit costs to be charged against 1995 earnings.
As part of the agreement, Consumers filed a gas rate case in December 1994.
Consumers requested an increase in its gas rates of $21 million annually. The
request, among other things, incorporates cost increases, including costs for
postretirement benefits and costs related to Consumers' former manufactured gas
plant sites. Consumers requested that the MPSC authorize a 13 percent rate of
return on equity, instead of the currently authorized rate of 13.25 percent.
Consumers expects an MPSC decision in late 1995. Consumers' most recent rate
filing for its electric utility business resulted in an authorized rate of
return on equity of 11.75%.

In gas rate cases the MPSC determines, among other things, an appropriate
capital structure, including equity, for the Gas Distribution Business and
approves a rate of return on such equity. Because the Gas Distribution
Business is part of Consumers, it does not have its own capital structure.
Accordingly, in the last gas rate case decided by the MPSC relating to the Gas
Distribution Business, the MPSC utilized a Proxy Capital Structure. It is
possible that in future gas rate cases, the MPSC may use another methodology to
determine equity used for rate making purposes for the Consumers Gas Group or
otherwise select a methodology different than the Proxy Capital Structure. The
capital structure employed for ratemaking purposes directly affects the overall
rate of return of a rate regulated enterprise.

The FERC has jurisdiction over MGS, as a natural gas company, within the
meaning of the Natural Gas Act. The FERC jurisdiction relates, among other
things, to the acquisition, operation and disposal of assets and facilities and
to service provided and rates charged. In July 1993, MGS submitted a notice of
rate change with the FERC to revise its operation and maintenance expenses for
1993 and began collecting the revised rates subject to refund and a hearing in
February 1994. In June 1994, the FERC approved a stipulation and agreement in
full settlement of the rate proceeding which provides MGS with an estimated
increase in annual revenues of $20 million.

The gas costs of the Consumers Gas Group are reviewed by the MPSC in a
two-part gas cost recovery ("GCR") process which provides both advance and
after-the-fact reviews of gas costs and supply arrangements. The MPSC allows
recovery through rates of CMS Energy's cost of gas sold if, and to the extent
that, the MPSC finds such costs reasonable and prudent on a forecasted basis.
Then, in a reconciliation after each GCR year is completed, a review of actual
gas costs and supply arrangements determines whether overcollections or
undercollections have occurred and, depending on the result, a refund or
surcharge, including interest, is ordered.

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In 1992, the FERC issued Order 636 ("Order 636") which makes a number of
significant changes to the structure of the services provided by interstate
natural gas pipelines. Order 636 requires interstate pipeline companies to
"unbundle" their sales, transportation and storage services. As a result, the
Consumers Gas Group, like other local natural gas distribution companies, has
been required to incur separate charges for firm transportation service, gas
storage services, and gas sales services provided by the interstate pipelines.
These costs were previously bundled together and charged only to firm sales
service customers. In addition, while local gas distribution companies were
obligated to retain the firm transportation obligations of their former firm
sales contracts, they were permitted to abrogate their firm gas purchase
obligations in favor of purchasing gas from one or more third party gas
suppliers. Thus, the Consumers Gas Group now has a greater direct
responsibility to plan and contract for the quantity, price, reliability and
character of the services it requires.

In addition, Order 636 authorized local natural gas distribution
companies, such as the Consumers Gas Group, to release their firm
transportation capacity on interstate pipelines on a short-term or long-term
basis to third parties, thereby enabling such local natural gas distribution
companies to minimize the cost of holding firm transportation capacity, during
periods of time when such capacity is under-utilized, by enabling them to
release the capacity for use by third parties.

Order 636 also called for the commencement of individual interstate
pipeline cases leading to implementation of restructuring for the 1993-94
winter heating season. The Gas Distribution Business is a significant
purchaser of gas from an interstate pipeline, Trunkline, and is a major
transportation customer of a number of pipelines. Through a settlement
approved by the FERC and MPSC, the Consumers Gas Group will be allowed recovery
of costs incurred in connection with the Trunkline restructuring. The effect
of the transition costs relating to Consumers' agreements with ANR and
Panhandle on the Consumer Gas Group is minimal.

One of the major effects of Order 636 was the transfer of responsibility
for acquiring gas supply from pipeline companies to the Consumers Gas Group and
other local natural gas distribution companies. The responsibility for gas
acquisition carries with it risks of price fluctuations in the market price of
gas and the obligation to make cost-effective transportation and storage
arrangements. The Gas Distribution Business requires sufficient firm
transportation capacity on interstate pipelines and sufficient storage
arrangements to meet peak day demand. To ensure this deliverability firm
transportation and storage capacity must be available on a year-round basis
and, it may be necessary to pay for peak capacity even during the summer months
when there is substantially less demand for gas to fill that capacity. The
Consumers Gas Group utilizes its substantial gas storage facilities to reduce
such costs.

Prior to Order 636, the FERC determined rates which bundled gas supply
costs in with transportation and storage delivery costs as part of its
regulation of pipeline rates. These federally-approved wholesale rates
provided a partial "safe-harbor" that restricted state commission inquiry into
purchasing practices. With increased local utility responsibility for gas
procurements as a result of Order 636, the MPSC has reviewed the gas
procurement decisions of the Consumers Gas Group and other gas utilities in
Michigan in annual GCR cases. The MPSC has not found imprudent or disallowed
for any other reason any costs incurred by the Consumers Gas Group for natural
gas purchases, transportation or storage in GCR cases after promulgation of
Order 636.

ENVIRONMENTAL MATTERS

The Gas Distribution Business is subject to regulation with respect to
environmental quality, including air and water quality, zoning and other
matters, by various federal, state and local authorities. The following
discussion relates to environmental matters which effect the Gas Distribution
Business. Therefore, the outcome of these matters may effect the results of
operations of the Consumer Gas Group. Capital expenditures for environmental
projects attributable to the Gas Distribution Business were $8 million in 1993
and are estimated to be $6 million in 1994 and $7 million in 1995.

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Under Michigan's Environmental Response Act ("Environmental Response
Act"), the Consumers Gas Group expects that it will ultimately incur clean-up
costs at a number of sites, including some of the 23 sites that formerly housed
manufactured gas plant facilities, even those in which Consumers has a partial
or no current ownership interest. Parties other than Consumers with current or
former ownership interests may also be considered liable for site
investigations and remedial actions.

The Consumers Gas Group has prepared plans for remedial
investigation/feasibility study for several of these sites to define the nature
and extent of contamination at these sites and to determine which of several
possible remedial action alternatives, including no action, may be required
under the Environmental Response Act. The Michigan Department of Natural
Resources has approved two of three plans for remedial
investigation/feasibility study submitted by the Consumers Gas Group and is
currently reviewing the third.

The preliminary findings for the first remedial investigation/feasibility
study completed in the first quarter of 1994 indicated that the expenditures
for remedial action at this site are likely to be minimal. However, the
Consumers Gas Group does not believe that a single site was representative of
all of the sites. Data available to the Consumers Gas Group and its continued
internal studies have resulted in an estimate of remedial action for all 23
sites of between $40 million and $140 million. These estimates are based on
undiscounted 1994 costs. At September 30, 1994, the Consumers Gas Group has
accrued a liability of $40 million, representing the minimum amount in the
range. Any significant change in estimating assumptions such as remediation
technique, nature and extent of contamination and regulatory requirements,
could impact the estimate of remedial costs for the sites.

The Consumers Gas Group believes that remedial costs will be recovered in
rates as the MPSC in 1993 addressed the question of recovery of investigation
and remedial costs for another Michigan gas utility as part of a gas rate case.
In that proceeding, the MPSC determined that prudent investigation and remedial
costs could be deferred and amortized over 10-year periods. In order to be
recovered in rates, prudent unamortized costs must be approved by the MPSC in a
rate case. Any costs amortized in years prior to filing a rate case may not be
recoverable. The MPSC stated that the length of the amortization period may be
reviewed from time to time, but any revisions would be prospective. The order
further provided that the prudency review would include a review of the
utility's attempts to obtain reimbursement from others. The MPSC has also
approved similar deferred accounting requests by two other Michigan utilities
relative to investigation and remediation costs. Accordingly, Consumers has
recorded a regulatory asset for the same amount as the accrued liability for
anticipated recovery of these investigation and remedial clean-up costs.

The Consumers Gas Group has initiated discussions with certain insurance
companies with regard to coverage for some or all of the costs which may be
incurred for these sites.

MGS has determined that it is liable for cleaning up contamination at its
Muskegon River Compressor Station. The estimated cost of this clean-up effort
is $2.7 million. As of December 31, 1993, this amount was accrued and recorded
as a deferred liability. A corresponding regulatory asset was established, as
MGS believes the cost of a clean-up will be collectible through utility rates.
In early 1994, MGS identified an additional compressor site which it believes
has some contamination. The investigation is in the early stages and MGS will
seek to recover these costs, as well, through utility rates, as it believes any
expenditures associated with this clean-up would be legitimate costs of doing
business. Based on information known by management, MGS believes that it is
unlikely that its liability at any of the known contamination sites will have a
material adverse effect on the financial position or results of operations of
the Consumers Gas Group.

CAPITAL EXPENDITURES

The Consumers Gas Group currently estimates capital expenditures,
including new lease commitments, will be $132 million for 1994, $125 million
for 1995 and $115 million for 1996. These estimates include an attributed
portion of Consumers' anticipated capital expenditures for common plant and
equipment of $25

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million, $14 million and $14 million for 1994, 1995 and 1996, respectively.
Management believes these estimates are reasonable.

LEGAL PROCEEDINGS

The Gas Distribution Business is subject to regulation by various federal,
state and local authorities and may be the subject of legal action by third
parties. The following discussion relates to certain legal proceedings which
affect the Gas Distribution Business. Therefore, the outcome of these
proceedings may effect the results of operations of the Consumers Gas Group.

MPSC CASE NO. U-10029 - INTRASTATE GAS SUPPLY. In November 1991, the
Consumers Gas Group filed with the MPSC Case No. U-10029 seeking several kinds
of relief with respect to a contract with one of its intrastate gas suppliers,
North Michigan ("North Michigan"), including lowering a contract price. North
Michigan filed an objection with the MPSC and in July 1992 filed a collateral
case in Federal Court seeking an injunction to block the MPSC case. On April
8, 1993, the Federal Court dismissed North Michigan's suit. The U.S. Sixth
Circuit Court of Appeals ("US Court of Appeals") upheld the lower Court's
dismissal.

On February 8, 1993, the MPSC issued an order granting the Consumers Gas
Group's request to lower the price to be paid North Michigan under its
contract. In March 1993, North Michigan filed an appeal of the MPSC's February
8, 1993 order with the Court of Appeals. In July 1993, consistent with the
MPSC's February 8, 1993 Order, the Consumers Gas Group notified North Michigan
that it planned to terminate the contract in November 1993. In early October
1993, North Michigan sought to have the US Court of Appeals stay such
cancellation of the contract. The US Court of Appeals denied this request in
late October 1993 and Consumers terminated the contract effective November 1,
1993. If the MPSC order is overturned, the Consumers Gas Group would have to
pay North Michigan higher contract costs for purchases in 1993 which may not be
authorized by the MPSC for recovery from Consumers' customers. Should North
Michigan obtain a favorable decision on all of the issues on appeal, including
the Consumers Gas Group's termination of the contract in 1993, the Group's
total remaining exposure would be $24 million, for which a loss has been
accrued. The Consumers Gas Group cannot predict the outcome of this appeal.

GAS SUPPLIER DISPUTE. On September 1, 1993, the Consumers Gas Group
commenced gas purchases from Trunkline under a continuation of a prior sales
agreement at a reduced price compared to prior gas sales. Eight direct gas
suppliers of Consumers Gas Group, who had their contract price tied to the
price Consumers pays Trunkline, have claimed that the reduced Trunkline gas
cost was not a proper reference price under their contracts with Consumers.
Lawsuits were pending in which the suppliers were seeking open pricing and/or
renegotiation of the pricing provisions of their contracts. Certain of the
suppliers also alleged that, absent successful renegotiation, they had the
right to terminate their supply contracts with the Consumers Gas Group.
Subsequently, Consumers and seven of the suppliers agreed to enter into new
contracts at negotiated rates, with initial terms ranging from one to three
years. Consumers and the remaining supplier agreed to terminate their existing
contract. The Consumers Gas Group believes that the terms of such settlements
will not have a material adverse effect on it.

CMS ENERGY'S EXEMPTION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935. CMS Energy is exempt from registration under PUHCA. In December 1991,
the Attorney General and the MMCG filed a request with the Commission for the
revocation of CMS Energy's exemption. In April 1992, the MPSC filed a
statement with the Commission that recommended that the Commission impose
certain conditions on CMS Energy's exemption. CMS Energy has vigorously
opposed the proposed exemption revocation and/or modification, primarily on the
grounds that the matters complained of by the Attorney General and MMCG have
all been addressed and resolved in proceedings before other regulatory and
judicial authorities, primarily at the State level, with the Attorney General
and MMCG participating.

Should the Commission revoke CMS Energy's current exemption from
registration under PUHCA, CMS Energy could either become a registered holding
company or be granted a new exemption, possibly

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subject to conditions similar to those recommended by the MPSC. Registration
under PUHCA could require divestment by CMS Energy of either the Gas
Distribution Business or electric utility business conducted by Consumers by
some future date following registration. As a registered company, CMS Energy
could also be precluded from engaging in businesses that are not functionally
related to its utility operations; in addition, the Commission approval would
be required for the issuance of securities by CMS Energy and its subsidiaries.
If divestiture of the Gas Distribution Business or Consumer's electric utility
business ultimately were required, the effect on the Consumers Gas Group and
CMS Energy would depend on the method of divestitures and the extent of the
proceeds received, which cannot now be predicted.

CMS Energy believes it will maintain the exemption. There has been no
action taken by the Commission on this matter.

EMPLOYEES

The Consumers Gas Group had approximately 3,284 employees at December 31,
1994. This total includes approximately 1,400 full-time operating, maintenance
and construction employees who are represented by Utility Workers Union of
America (AFL-CIO) (the "Union"). A collective bargaining agreement was
negotiated between Consumers and the Union which became effective on June 1,
1992 and, by its terms, will continue in effect until June 1, 1995.

RECENT DEVELOPMENTS

Year Ended
December 31,
---------------
1994 1993
---- ----
(unaudited)
In Millions

INCOME STATEMENT DATA:

BALANCE SHEET DATA:

In the opinion of the management of CMS Energy, all adjustments
requires have been recorded in order to fairly reflect the financial condition
of the Consumers Gas Group as of such dates and the results of operations of
the Gas Distribution Business for such years.

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CONSUMERS GAS GROUP
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The selected consolidated financial data of the Consumers Gas Group
presented below for the nine months ended September 30, 1994 and 1993 were
derived from the Consumers Gas Group Financial Statements contained elsewhere
herein. The selected income statement data for each of the years in the
three-year period ended December 31, 1993 and the balance sheet data as of
December 31, 1993, 1992 and 1991 were derived from the Consumers Gas Group
Financial Statements contained elsewhere herein which have been audited by
Arthur Andersen LLP, independent public accountants. The following selected
consolidated financial and operating data reflect the results of operations and
certain financial and operating data of the businesses attributed to the
Consumers Gas Group and should be read in conjunction with "Use of Proceeds,"
Consumers Gas Group Financial Statements, "Consumers Gas Group -- Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
"Business of the Consumers Gas Group," CMS Energy's Financial Statements and
"CMS Energy -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained elsewhere herein. The pro forma net income
data reflects the sale and issuance of 5 million shares of Class G Common Stock
(representing 20% of the equity in the Consumers Gas Group) as if the sale
occurred on January 1, 1993. The net proceeds of the Offering will be used
initially to retire a portion of CMS Energy debt, none of which is attributable
to the Consumers Gas Group. Accordingly, other than with respect to net income
and earnings per share applicable to outstanding Class G Common Stock
shareholders, no pro forma adjustments were necessary to Consumers Gas Group's
historical financial statements to give effect to the transactions described
above.

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CONSUMERS GAS GROUP
SELECTED CONSOLIDATED FINANCIAL AND OPERATIONS DATA

Nine Months Ended
September 30, Years Ended December 31,
----------------- -------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
Dollars in Millions, except as noted

INCOME STATEMENT DATA:

OPERATING REVENUE . . . . . . . . . . . . . . . $ 837 $ 809 $1,160 $1,126 $1,061
------ ------ ------ ------ ------

OPERATING EXPENSES
Operation
Cost of gas sold . . . . . . . . . . . . $ 475 $ 473 $ 678 $ 673 $ 677
Other . . . . . . . . . . . . . . . . . 137 125 171 177 172
------ ------ ------ ------ ------

Total operation . . . . . . . . . . . $ 612 $ 598 $ 849 $ 850 $ 849
Maintenance . . . . . . . . . . . . . . . 29 25 38 37 27
Depreciation, depletion and amortization . 51 49 73 76 70
General taxes . . . . . . . . . . . . . . 39 41 54 54 51
------ ------ ------ ------ ------

Total operating expenses . . . . . . . $ 731 $ 713 $1,014 $1,017 $ 997
------ ------ ------ ------ ------

PRETAX OPERATING INCOME . . . . . . . . . . . . $ 106 $ 96 $ 146 $ 109 $ 64
INCOME TAXES . . . . . . . . . . . . . . . . . 32 27 39 35 2
------ ------ ------ ------ ------

NET OPERATING INCOME . . . . . . . . . . . . . $ 74 $ 69 $ 107 $ 74 $ 62
------ ------ ------ ------ ------

OTHER INCOME (DEDUCTIONS)
Other income taxes, net . . . . . . . . . $ - $ 1 $ 1 $ 1 $ (2)
Other, net . . . . . . . . . . . . . . . . (1) (2) (3) (4) 5
------ ------ ------ ------ ------

Total other income (deductions) . . . $ (1) $ (1) $ (2) $ (3) $ 3
------ ------ ------ ------ ------

FIXED CHARGES
Interest on long-term debt . . . . . . . . $ 22 $ 22 $ 31 $ 28 $ 41
Other interest . . . . . . . . . . . . . . 3 4 7 1 21
Capitalized interest . . . . . . . . . . . - - (1) - -
Preferred dividends . . . . . . . . . . . 3 1 2 2 2
------ ------ ------ ------ ------

Net fixed charges . . . . . . . . . . $ 28 $ 27 $ 39 $ 31 $ 64
------ ------ ------ ------ ------

Net Income $ 45 $ 41 $ 66 $ 40 $ 1
====== ====== ====== ====== ======

Net income applicable to outstanding
Class G common stock - Pro Forma . . . . . . . $ 9 $ 13

Earnings per share applicable to outstanding
Class G common stock - Pro Forma . . . . . . . $ 1.80 $ 2.60
------ ------

BALANCE SHEET DATA:

Net plant and property . . . . . . . . . . . . $ 968 $ 908 $ 931 $ 846 $ 806

Total assets . . . . . . . . . . . . . . . . . $1,625 $1,604 $1,628 $1,574 $1,332

Long-term debt, excluding current maturities . $ 343 $ 373 $ 376 $ 392 $ 310

Notes payable . . . . . . . . . . . . . . . . . $ 110 $ 143 $ 109 $ 23 $ 75

Other liabilities . . . . . . . . . . . . . . . $ 861 $ 888 $ 910 $ 856 $ 737

Common stockholders' equity $ 325 $ 288 $ 288 $ 269 $ 229

OTHER FINANCIAL AND OPERATING DATA:

Cash flows from operations (in millions) . . . $ 117 $ (2) $ 80 $ 106 $ 180

Sales and transportation deliveries (Bcf) (a) . 283 269 389 364 339

Customers (in thousands) . . . . . . . . . . . 1,428 1,406 1,423 1,402 1,382

Average sales rate ($/mcf) $ 4.51 $ 4.61 $ 4.46 $ 4.55 $ 4.58

_________________________________________________
(a) Excludes off-system transportation services.

CONSUMERS GAS GROUP
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

The unaudited pro forma condensed statements of income for the nine
months ended September 30, 1994 and for the year ended December 31, 1993
reflect the sale and issuance of 5 million shares of Class G Common Stock
(representing 20% of the equity in the Consumers Gas Group) as if the sale
occurred on January 1, 1993. The net proceeds of the Offering will be used to
retire CMS Energy bank debt, none of which was attributable to the Consumers
Gas Group. Accordingly, other than with respect to net income and net income
per share available to outstanding Class G Common Stock shareholders, no pro
forma adjustments were necessary to the Consumers Gas Group's historical
financial statements to give effect to the transactions described above.

The unaudited pro forma condensed financial statements should be read
in conjunction with "Use of Proceeds," Consumers Gas Group Financial
Statements, "Consumers Gas Group -- Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business of the Consumers Gas
Group," CMS Energy's Financial Statements and "CMS Energy -- Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere herein. The unaudited pro forma condensed financial
statements are not necessarily indicative of results that would have occurred
if the transactions described above occurred or the capital structure of the
Consumers Gas Group was in effect for the periods indicated, or of the
financial condition or results of the Consumers Gas Group for any future date
or period.

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83

CONSUMERS GAS GROUP
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME

Nine Months Ended September 30, 1994 Year Ended December 31, 1993
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
In Millions, Except Per Share Amounts

Operating revenue $ 837 $ 837 $1,160 $1,160
------ ------ ------ ------ ------ ------

Operating expenses
Operation
Cost of gas sold 475 475 678 678
Other 137 137 171 171
------ ------ ------ ------ ------ ------

Total operation 612 612 849 849
Maintenance 29 29 38 38
Depreciation, depletion and
amortization 51 51 73 73
General taxes 39 39 54 54
------ ------ ------ ------ ------ ------

Total operating expenses 731 731 1,014 1,014
------ ------ ------ ------ ------ ------

Pretax operating income 106 106 146 146
Income taxes 32 32 39 39
------ ------ ------ ------ ------ ------

Net operating income 74 74 107 107
------ ------ ------ ------ ------ ------

Other income (deductions) (1) (1) (2) (2)
------ ------ ------ ------ ------ ------

Fixed Charges
Interest on long-term debt 22 22 31 31
Other interest 3 3 7 7
Capitalized interest - - (1) (1)
Preferred dividends 3 3 2 2
------ ------ ------ ------ ------ ------

Net fixed charges 28 28 39 39
------ ------ ------ ------ ------ ------

Net income $ 45 $ 45 $ 66 $ 66
====== ====== ====== ====== ====== ======

Net income available to
CMS Energy shareholders
through Retained Interest $ 45 $ (9)(b) $ 36(a) $ 66 $ (13)(b) $ 53(a)
====== ======= ====== ====== ======= ======

Net income available to
Class G Common Stock
shareholders $ - $ 9(b) $ 9 $ - $ 13(b) $ 13
====== ====== ====== ====== ======= ======

Net income per share
available to Class G
Common Stock
shareholders $ - $ 1.80(a)(c) $ 1.80 $ - $ 2.60(a)(c) $ 2.60
====== ====== ====== ====== ======= ======

________________________

(a) Assumes the rights to 80% of the earnings of the Consumers Gas Group to be
retained by the holders of CMS Energy Common Stock.

(b) Assumes the rights to 20% of the earnings of the Consumers Gas Group to be
available to the holders of Class G Common Stock as a result of the
Offering.

(c) Assumes 5 million shares of Class G Common Stock outstanding which
represent 20% of the rights to the earnings of the Consumers Gas Group.

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CONSUMERS GAS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non- utility energy-related
businesses including: 1) oil and gas exploration and production, 2)
development and operation of independent power production facilities, 3) gas
marketing services to end users, and 4) storage and transmission of natural
gas.

In September 1994, management announced that Consumers is being internally
reorganized into separate electric utility and gas utility strategic business
units. The restructuring, effective January 1, 1995, while not affecting
Consumers' consolidated financial statements or corporate legal form, is
designed to sharpen management focus, improve efficiency and accountability in
both business segments and better position Consumers for growth in the gas
market and to meet increased competition in the electric power market.
Management believes that the strategic business unit structure will allow each
unit to focus more on its own profitability and growth potential, and will
ultimately, in the long term, result in lower overall costs.

CMS Energy is seeking shareholder approval to amend its Articles of
Incorporation and authorize a new class of Common Stock of CMS Energy. The new
class of Common Stock, designated Class G Common Stock, is intended to, and, if
and after any shares of Class G Common Stock are issued, will, reflect the
separate performance of the gas distribution, storage and transportation
businesses conducted by Consumers and Michigan Gas Storage (such business,
collectively, will be attributed to the Consumers Gas Group). The existing CMS
Energy Common Stock will continue to be outstanding and, if and after any
shares of Class G Common Stock are issued by CMS Energy, will be intended to
reflect the performance of all of the businesses of CMS Energy and its
subsidiaries, including the business of the Consumers Gas Group, except for the
interest in the Consumers Gas Group attributable to the outstanding shares of
the Class G Common Stock.

If the shareholders of CMS Energy approve the proposed amendment to the
Articles of Incorporation, CMS Energy may, subject to prevailing market and
other conditions, offer shares of Class G Common Stock for sale for cash in the
Offering. The net proceeds of such offering would be invested in the
businesses of CMS Energy and used for its general corporate purposes. Such net
proceeds will be used initially to repay a portion of the debt of CMS Energy
(none of which is attributable to the Consumers Gas Group). Shares of Class G
Common Stock intended to represent approximately ___ percent of the common
stockholders' equity value attributed to the Consumers Gas Group are being
offered to the public in the Offering. Additional authorized shares of Class G
Common Stock could be offered by CMS Energy in the future at the discretion of
the Board of Directors and without further shareholder approval.

Consumers is a regulated utility. Accordingly, the majority of the
accounting allocation policies described in this discussion have a long-
standing basis and have historically been used in proceedings conducted before
the MPSC. The financial statements for Consumers Gas Group have been prepared
based upon consistent methods that management believes are reasonable and
appropriate to reflect its financial position, results of operations and cash
flows. Where appropriate, the financial statements reflect the assets,
liabilities, revenues and expenses directly related to the Consumers Gas Group.
However, in instances where common accounts (containing both electric and gas
activities) were not readily attributable to a single business segment,
management allocated to the Consumers Gas Group's financial statements based on
certain measures of business activities, such as gas revenues, salaries, other
operations and maintenance ("O&M")

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expenditures, number of gas customers in relationship to total utility
customers and/or functional use surveys. Management believes the attributions
are reasonable.

Although the financial statements of Consumers Gas Group separately report
the assets, liabilities and stockholders' equity, legal title to such assets
and the responsibility for such liabilities are not separately identifiable to
a specific class of common stock. Therefore, the creditors of CMS Energy are
unaffected by the implementation of the Consumers Gas Group, because all assets
of the corporation remain available to satisfy all liabilities. The holders of
CMS Energy Common Stock and the Class G Common Stock will be subject to all
risks associated with investments in CMS Energy. Holders of Class G Common
Stock have no direct rights in the equity or assets of Consumers Gas Group, but
rather have rights in the equity and assets of CMS Energy. Accordingly, CMS
Energy's consolidated financial statements and related notes should be read in
conjunction with these financial statements.

Dividends on the Class G Common Stock will be paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
the Consumers Gas Group, and, to a lesser extent, CMS Energy as a whole.
Dividends will be payable out of the lesser of (i) the assets of CMS Energy
legally available therefor and (ii) the Available Class G Dividend Amount.

Dividends with respect to the Class G Common Stock are expected to be paid
commensurate with dividend practices of comparable publicly-held local natural
gas distribution companies generally. Management believes that such practices
currently are to pay out from 70% to 85% of annual earnings available for
dividends on common stock.

CMS Energy, in the sole discretion of its Board of Directors, could pay
dividends exclusively to the holders of CMS Energy Common Stock, exclusively to
the holders of Class G Common Stock, or to the holders of both of such classes
in equal or unequal amounts. It is the Board of Directors' current intention
that the declaration or payment of dividends with respect to the Class G Common
Stock shall not be reduced, suspended or eliminated as a result of factors
arising out of or relating to the electric utility business or the non-utility
businesses of CMS Energy unless such factors also require, in the Board of
Directors' sole discretion, the omission of the declaration or reduction in
payment of dividends on both the CMS Energy Common Stock and the Class G Common
Stock.

The availability and amount of dividends payable with respect to the Class G
Common Stock could be adversely effected by the other businesses of CMS Energy.
While CMS Energy believes that all of its operations are conducted in
accordance with industry and regulatory standards, it is possible that the
results of operations of these businesses could impact the level of, or
eliminate CMS Energy's ability to pay dividends on, the Class G Common Stock.

For further information regarding the CMS Energy stock proposal, including
additional dividend information, voting, liquidation and potential tax issues,
see Notes 2, 6 and 11 of Notes to Financial Statements of Consumers Gas Group
(hereafter referred to as the "Consumers Gas Group Notes") included elsewhere
herein.

EARNINGS

Net income for the Consumers Gas Group totaled $45 million for the nine
months ended September 30, 1994, compared to $41 million for the nine months
ended September 30, 1993. This increase reflects higher gas deliveries and
more favorable regulatory recovery of gas costs, partially offset by higher
costs related to operating and depreciation costs.

Net income for the Consumers Gas Group in 1993 totaled $66 million, compared
to $40 million in 1992 and $1 million in 1991. Improved earnings in 1993
reflect record-setting gas deliveries. For the year ended

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December 31, 1993, gas sales and transportation volumes increased 7% from the
corresponding 1992 level. Improved earnings in 1993 and 1992 reflect more
favorable regulatory recovery of gas costs.

CASH POSITION, FINANCING AND INVESTING

CMS Energy's primary ongoing source of operating cash is dividends from its
principal subsidiaries. Consumers effected a quasi-reorganization as of
December 31, 1992, which allowed it to resume paying common dividends (see Note
6 to the Financial Statements). Common dividends paid in 1993 totaled $133
million and an additional common dividend of $16 million was paid during the
first quarter of 1994 from 1993 earnings. In addition, Consumers also paid $97
million in 1994 common dividends from current year earnings. In October 1994,
Consumers declared a $36 million common stock dividend payable in November
1994. Consumers Gas Group's attributed portion of Consumers' total common
dividend payments totaled $47 million for 1993 and $30 million for the first
nine months of 1994. With the issuance of Class G Common Stock, all Consumers
Gas Group dividends will be paid to Class G Common Stock shareholders or
attributed to Retained Interest.

The Consumers Gas Group's consolidated cash requirements are met by cash
from operations and financing activities. In 1993 and 1992, the Consumers Gas
Group's cash inflow from operations was derived mainly from Consumers' sale and
transportation of natural gas. Cash from operations for 1993 primarily
reflects Consumers' record-setting gas deliveries.

During 1992, the Consumers Gas Group's cash from operations decreased as
compared to 1991 primarily due to higher operational expenditures. In 1991,
cash was generated primarily from operating activities.

Over the last three years, the Consumers Gas Group has used its consolidated
cash to fund its gas utility construction expenditures, to improve the
reliability of its gas utility transmission and distribution systems. It also
has used its cash to retire portions of long-term securities and to pay cash
dividends.

FINANCING ACTIVITIES

Consumers manages its long-term debt on a centralized consolidated basis.
During 1993, Consumers significantly reduced its future interest charges by
retiring approximately $51 million of high-cost outstanding debt and
refinancing approximately $573 million of other debt at lower interest rates.
During the first quarter of 1994, Consumers redeemed first mortgage bonds
totaling $100 million.

In March 1994, Consumers issued and sold 8 million shares of Class A
Preferred Stock (cumulative, without par value) with a stated annual dividend
rate of 8.32%. Net proceeds of $193 million from the sale are being used for
general corporate purposes, including debt retirement and improvements to
Consumers' distribution systems. The Consumers Gas Group's attributed portion
of the net proceeds totaled $42 million.

In November 1994, Consumers entered into a new $400 million unsecured,
variable rate, five-year term loan and subsequently used the proceeds to
refinance its long-term credit agreement (see Note 6 of Consumers Gas Group
Notes) and to reduce short-term borrowings.

INVESTING ACTIVITIES

Capital expenditures for the Consumers Gas Group (excluding assets placed
under capital lease) totaled $153 million, $107 million, and $68 million for
the years ended 1993, 1992, and 1991, respectively. Capital expenditures
totaled $83 million and $107 million for the nine months ended September 1994
and September 1993, respectively. These amounts primarily represent capital
investments.

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OUTLOOK

CMS Energy currently estimates that capital expenditures for the Consumers
Gas Group, including new lease commitments, will total $372 million over the
next three years.

Years Ended December 31,
------------------------------------
1994 1995 1996
---- ---- ----
In Millions

Gas utility(1) $126 $120 $107
Michigan Gas Storage 6 5 8
---- ---- ----

$132 $125 $115
==== ==== ====

(1) These estimates include an attributed portion of Consumers' anticipated
capital expenditures for common plant and equipment of $25 million, $14 million
and $14 million for 1994, 1995 and 1996, respectively.

The Consumers Gas Group expects that cash from operations and the
ability to access debt markets will provide necessary working capital and
liquidity to fund future capital expenditures, required debt payments and other
cash needs in the foreseeable future.

Consumers, which generally manages its short-term financings on a
centralized, consolidated basis, has several available sources of credit
including unsecured, committed lines of credit totaling $185 million and a $470
million working capital facility. Consumers has requested FERC authorization
to issue or guarantee up to $900 million in short-term debt through December
31, 1996. This is the same amount of short-term debt authorized through 1994.
Consumers uses short-term borrowings to finance working capital, seasonal fuel
inventory, and to pay for capital expenditures between long-term financings.
Consumers also has an agreement permitting the sales of certain accounts
receivable for up to $500 million. At September 30, 1994 and 1993, and
December 31, 1993 and 1992, the Consumers Gas Group's attributed portion of
receivables sold totaled $32 million, $25 million, $124 million and $52
million, respectively.

GAS UTILITY OPERATIONS

COMPARATIVE RESULTS OF OPERATIONS

The Gas Distribution Business is subject to the regulatory jurisdiction
of the MPSC with respect to utility rates. The earnings of the Consumers Gas
Group depend substantially upon its ability to secure timely and appropriate
rate relief for the Gas Distribution Business. Also, a major factor affecting
Consumers Gas Group's results of operations is gas usage which is impacted by
the weather, particularly with respect to residential and commercial customers
who use natural gas primarily for space heating, and, to a lesser extent,
industrial customers.

GAS PRETAX OPERATING INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1994 AND 1993: As summarized in the table below, the $10 million improvement
in 1994 gas pretax operating income compared to 1993 reflects higher gas
deliveries (both sales and transportation volumes) and the favorable resolution
of a previously recorded gas cost contingency, partially offset by higher
depreciation and gas operating costs which include $7.5 million of Statement of
Financial Accounting Standards ("SFAS") 106 costs related to the gas settlement
with the MPSC (see "Gas Utility Rates").

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regulatory recovery of gas costs related to transportation deliveries. During
1992, gas pretax operating income increased $45 million from the 1991 level,
essentially for many of the same reasons as the 1993 period.

The following table quantifies the impact of the major reasons for the changes
in gas pretax operating income for the nine months ended September 30, 1994 and
1993, and for the years ended December 31, 1993, 1992 and 1991:

Impact on Pretax Operating Income
-------------------------------------------------------------
Nine months ended Year ended Year ended
1994 compared 1993 compared 1992 compared
to 1993 to 1992 to 1991
--------------------- ---------------- -----------------
In Millions

Deliveries . . . . . . . . . . . . . . . . . . . . . $12 $17 $20
Regulatory recovery of gas costs . . . . . . . . . . 14 12 48
O&M, general taxes and depreciation . . . . . . . . . (14) 8 (23)
Other . . . . . . . . . . . . . . . . . . . . . . . . (2) - -
--- --- ---

Total Change $ 10 $37 $45
==== === ===

GAS DELIVERIES: For the nine months ended September 30, 1994, gas
sales and gas transported totaled 298 bcf, a 5.8% increase from the
corresponding 1993 level due largely to record cold winter weather. For the
year ended December 31, 1993 gas sales and gas transported totaled 411 bcf, a
6.9% increase from the corresponding 1992 period. This increase occurred in
both firm sales and transportation deliveries. For the year ended December 31,
1992, gas sales and gas transported totaled 384 bcf, a combined 6.1% increase
from 1991 deliveries.

The following table quantifies gas deliveries for the nine months ended
September 30, 1994 and 1993, and for the years ended December 31, 1993, 1992
and 1991:

Nine months ended
September 30, Years Ended December 31,
--------------- ---------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
Bcf

Gas Sales . . . . . . . . . . . . . . . . . 173 165 245 234 222
Transportation deliveries . . . . . . . . . 52 50 71 66 62
Transportation for MCV . . . . . . . . . . 58 54 73 64 55
Off-system transportation
service . . . . . . . . . . . . . . . . . 15 13 22 20 23
-- -- -- -- --

Total deliveries . . . . . . . . . . 298 282 411 384 362
=== === === === ===

COST OF GAS SOLD: The cost of gas sold for the nine months ended
September 30, 1994 increased $2 million from the corresponding 1993 level.
This increase reflects higher deliveries partially offset by lower costs per
mcf. The lower costs per mcf are due to more favorable gas contracts with
interstate suppliers, resulting from the impact of FERC Order 636, and the
termination and expiration of high-cost contracts with certain Michigan gas
producers. The moderate increase of $5 million in cost of gas sold when
comparing years ended December 31, 1993 and 1992 resulted from the net impact
of higher deliveries partially offset by gas pipeline refunds and reduced gas
purchase costs. The decrease in cost of gas sold comparing the years ended
December 31, 1992 and 1991 was $4 million.

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GAS UTILITY RATES

In July 1994, the MPSC approved an agreement previously reached between
the MPSC staff and Consumers, to charge $10 million of costs for postretirement
benefits computed under SFAS 106 against earnings over the last six months of
1994. This charge against earnings partially offset costs related to state
property taxes which have been reduced. The agreement was reached in response
to an assertion by the MPSC staff that gas utility business earnings for 1993
were in excess of the currently authorized level. The agreement also provides
for an additional $4 million of 1995-related SFAS 106 costs to be charged
against 1995 earnings instead of being deferred. As part of the agreement,
Consumers committed to file a gas rate case before December 31, 1994, that will
among other things incorporate cost increases, including costs for
postretirement benefits computed under SFAS 106, into its retail gas rates. A
final order is expected in late 1995. No assurance can be given as to the
level of rates which will be authorized by the MPSC. Consumers' gas
distribution business is currently authorized to earn a 13.25% rate of return
on equity. Consumers' most recent rate filing for its electric utility
business resulted in an authorized rate of return on equity of 11.75%. See
Note 14 of Consumers Gas Group notes for certain recent developments.

In gas rate cases the MPSC determines, among other things, an
appropriate capital structure, including equity, for the Gas Distribution
Business and approves a rate of return on such equity. Because the Gas
Distribution Business is part of Consumers, it does not have its own capital
structure. Accordingly, in the most recent gas rate case decided by the MPSC
relating to the Gas Distribution Business, the MPSC utilized a Proxy Capital
Structure. It is possible that in future gas rate cases, the MPSC may use
another methodology to determine the equity used for rate making purposes for
the Consumers Gas Group or otherwise select a methodology different than the
Proxy Capital Structure. The capital structure employed for ratemaking
purposes directly affects the overall rate of return of a rate regulated
enterprise.

A dispute involving pricing under contracts Consumers had with eight
direct gas suppliers has been resolved. The dispute revolved around whether
the price Consumers pays Trunkline for gas was the proper reference price for
these eight gas supply contracts. Consumers and seven of the suppliers have
agreed to enter into new contracts, at negotiated rates, with initial terms
ranging from one to three years. Consumers and the remaining supplier agreed
to terminate their existing contract.

In 1992, the FERC issued Order 636, which makes a number of significant
changes to the structure of the services provided by interstate natural gas
pipelines. Consumers is a significant purchaser of gas from an interstate
pipeline (Trunkline) and is a major transportation customer of a number of
pipelines. Through a settlement approved by the FERC and MPSC, Consumers will
be allowed recovery of costs incurred in connection with the Trunkline
restructuring. The effect of the transition costs relating to Consumers'
agreements with ANR and Panhandle on Consumers is minimal.

In July 1993, Michigan Gas Storage submitted a notice of rate change
with the FERC to revise its operation and maintenance expenses for 1993 and
update plant costs to reflect the addition of $27 million of new plant
additions in 1993 and began collecting the revised rates designed to provide
annual revenues of $22 million, subject to refund and a hearing in February
1994. In June 1994, the FERC approved a stipulation and agreement in full
settlement of the rate proceeding, which provides Michigan Gas Storage with
estimated annual revenues of $20 million. For further information regarding
gas utility rates, see Note 3 to Consumers Gas Group Notes.

GAS ENVIRONMENTAL MATTERS

Under Michigan's Environmental Response Act, Consumers expects that it
will ultimately incur clean-up costs at a number of sites, including some of
the 23 sites that formerly housed manufactured gas plant facilities, even those
in which it has a partial or no current ownership interest. Parties other than

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Consumers with current or former ownership interests may also be considered
liable for site investigations and remedial actions.

Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the nature
and extent of contamination at these sites and to determine which of several
possible remedial action alternatives, including no action, may be required
under the Environmental Response Act. The Michigan Department of Natural
Resources ("DNR") has approved two of three plans for remedial
investigation/feasibility studies submitted by Consumers and is currently
reviewing the third.

The findings for the first remedial investigation indicate that the
expenditures for remedial action at this site are likely to be minimal.
However, Consumers does not believe that a single site is representative of all
of the sites. Data available to Consumers and its continued internal review
have resulted in an estimate for all costs related to remedial action for all
23 sites of between $40 million and $140 million. These estimates are based on
undiscounted 1994 costs. At September 30, 1994, Consumers has accrued a
liability of $40 million, representing the minimum amount in the range. Any
significant change in assumptions such as remediation technique, nature and
extent of contamination and regulatory requirements, could impact the estimate
of remedial costs for the sites.

Consumers believes that remedial costs are recoverable in rates as the
MPSC in 1993 addressed the question of recovery of investigation and remedial
costs for another Michigan gas utility as part of a gas rate case. In that
proceeding, the MPSC determined that prudent investigation and remedial costs
could be deferred and amortized over 10-year periods. In order to be recovered
in rates, prudent costs must be approved in a rate case. Any costs amortized
in years prior to filing a rate case may not be recoverable. The MPSC stated
that the length of the amortization period may be reviewed from time to time,
but any revisions would be prospective. The order further provided that the
prudency review would include a review of the utility's attempts to obtain
reimbursement from others. The MPSC has also approved similar deferred
accounting requests by two other Michigan utilities relative to investigation
and remediation costs. Accordingly, Consumers has recorded a regulatory asset
for the same amount as the accrued liability for anticipated recovery of these
investigation and remedial clean-up costs. Consumers has initiated discussions
with certain insurance companies regarding coverage for some or all of the
costs which may be incurred for these sites. Consumers plans to seek recovery
of remedial action costs in its gas rate case to be filed in 1994.

OTHER

FIXED CHARGES: Fixed charges in 1993 for the Consumers Gas Group
increased $8 million from 1992 and primarily reflect debt outstanding with
higher rates of interest in 1993. The significant decrease in fixed charges in
1992 from 1991 primarily reflects Consumers' program aimed at significantly
reducing its debt and the refinancing of debt at lower interest rates.

PUBLIC UTILITY HOLDING COMPANY ACT EXEMPTION: CMS Energy is exempt
from registration under PUHCA. However, the Attorney General and the MMCG have
asked the Commission to revoke CMS Energy's exemption from registration under
PUHCA. In April 1992, the MPSC filed a statement with the Commission
recommending that CMS Energy's current exemption be revoked and a new exemption
be issued conditioned upon certain reporting and operating requirements. If
CMS Energy were to lose its current exemption, it would become more heavily
regulated by the Commission; Consumers could ultimately be forced to divest
either its electric or gas utility business; and CMS Energy would be restricted
from conducting businesses that are not functionally related to the conduct of
its utility business as determined by the Commission. CMS Energy is opposing
this request and believes it will maintain its current exemption from
registration under PUHCA.

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NEW ACCOUNTING STANDARDS: In October 1994, the Financial Accounting
Standards Board ("FASB") issued SFAS 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures, and SFAS 119,
Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments. Consumers is studying these statements, which are effective for
year-end 1994 financial statements, but does not expect either statement will
have a material impact on Consumers' financial position or results of
operations.

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CMS ENERGY
SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated financial information of CMS Energy presented
below for and at the nine months ended September 30, 1994 and 1993 were derived
from the CMS Energy Consolidated Financial Statements contained elsewhere
herein. The selected consolidated income statement data for each of the years
in the three-year period ended December 31, 1993 and the balance sheet data as
of December 31, 1993 and December 31, 1992 were derived from the CMS Energy
consolidated Financial Statements contained elsewhere herein which have been
audited by Arthur Andersen LLP, independent public accountants. The following
selected consolidated financial information should be read in conjunction with
CMS Energy Consolidated Financial Statements, "CMS Energy--Unaudited Pro forma
Condensed Consolidated Financial Statements" and "CMS Energy--Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Nine Months Ended
------------------
September 30
-----------------
1994 1993 Years Ended December 31
---- ---- -------------------------
(Unaudited) 1993 1992 1991
(Millions of Dollars, Except As Noted) ---- ---- ----

INCOME STATEMENT DATA:

Operating Revenue $2,705 $2,546 $3,482 $3,146 $2,998

Pretax Operating Income $ 408 $ 351 $ 439 $ 231 $ 261

Net income (loss) $ 148 $ 128 $ 155 $ (297) $ (276)(a)

Earnings (loss) per average common share $ 1.73 $ 1.60 $ 1.90 $(3.72) $(3.44)(a)

Average common shares outstanding (in thousands) 85,742 80,097 81,251 79,877 79,988

Cash dividends declared per common share $ .57 $ .42 $ .60 $ .48 $ .48
------ ------ ------ ------ ------

BALANCE SHEET DATA:

Net plant and property $4,752 $4,495 $4,583 $4,326 $4,121

Total assets $7,161 $7,035 $6,964 $6,848 $6,194

Long-term debt, excluding current maturities $2,378 $2,621 $2,405 $2,725 $1,941

Notes payable $ 401 $ 564 $ 259 $ 215 $ 708

Other liabilities $3,224 $3,309 $3,315 $3,135 $2,962
------ ------ ------ ------ ------

Common stockholders' equity $1,085 $ 830 $ 966 $ 727 $1,060
====== ====== ====== ====== ======

(a) Includes an extraordinary loss of $14 million, after tax or $.18 per
average common share.

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CMS ENERGY
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements
reflect adjustments to the capital structure of CMS Energy upon approval of the
Class G Common Stock proposal and the subsequent issuance and sale of 5 million
shares of Class G Common Stock and the use of the net proceeds to repay a
portion of the debt of CMS Energy. The pro forma statements of income give
effect to such transactions as if they occurred on January 1, 1993. The pro
forma balance sheet gives effect to such transactions as if they had occurred
on September 30, 1994.

The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with CMS Energy's Consolidated Financial
Statements and "CMS Energy--Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere herein. The unaudited
pro forma condensed financial statements are not necessarily indicative of
results that would have occurred if the transactions described above occurred
or of the financial condition or results of CMS Energy for any future date or
period.

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CMS ENERGY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994

In Millions Historical Adjustments Pro Forma
---------- ----------- ---------

Assets

Plant and property $8,717 $8,717
Less accumulated depreciation, depletion and amortization 4,244 4,244
------ ------

4,473 4,473
Construction work-in-progress 279 279
------ ------

Net plant 4,752 4,752
Investments 468 468
Current assets 670 670
Non-current assets 1,271 1,271
------ ------

Total Assets $7,161 $7,161
====== ======

Stockholders' Investment and Liabilities

Common stockholders' equity $1,085 $ 100 (a) $1,185
Preferred stock of subsidiary 356 356
Long-term debt 2,378 (100)(b) 2,278
Non-current portion of capital leases 118 118
------ ------

Total capitalization 3,937 - 3,937
Current liabilities 1,275 1,275
Non-current liabilities 1,949 1,949
------ ------

Total Stockholders' Investment and Liabilities $7,161 - $7,161
====== ======

(a) Reflects the issuance and sale of 5 million shares of Class G Common Stock,
representing 20% of the equity attributable to the Consumers Gas Group.

(b) Reflects the use of the net proceeds of $100 million to repay a portion of
the long-term debt of CMS Energy.

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CMS ENERGY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

In Millions, Nine Months Ended September 30, 1994 Year Ended December 31, 1993
------------------------------------ ------------------------------------
Except Per Share Amounts Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------

Operating revenue $2,705 $2,705 $3,482 $3,482
Operating expenses 2,297 2,297 3,043 3,043
------ ------ ------ ------

Pretax operating income (loss)
Electric utility 281 281 286 286
Gas utility 106 106 147 147
Oil and gas exploration
and production 11 11 3 3
Independent power production 12 12 5 5
Natural gas pipeline, storage
and marketing 8 8 7 7
Other (10) (10) (9) (9)
------ ------ ------ ------

Total pretax operating income 408 408 439 439
Income taxes 97 $ 2 (a) 99 81 $ 3 (a) 84
------ --------- ------ ------ --------- ------

Net operating income 311 (2) 309 358 (3) 355
Other income (deductions) 1 1 31 31
Fixed charges 164 $ (7)(b) 157 234 (9)(b) 225
------ --------- ------ ------ --------- ------

Net income $ 148 $ 5 (c) $ 153 $ 155 $ 6 (c) $ 161
====== ========= ====== ====== ========= ======

Net income available to
CMS Energy shareholder $ 148 $ 5 (c) $ 144 $ 155 $ 6 (c) $ 148
(9)(d) (13)(d)
====== ========= ====== ====== ========= ======

Net income available to
Class G shareholder - $ 9 (e) $ 9 - $ 13 (e) $ 13
====== ========= ====== ====== ========= ======

Average common shares outstanding
CMS Energy stock 86 - 86 81 - 81
====== ========= ====== ====== ========= ======
Class G stock - 5 (f) 5 - 5 (f) 5
====== ========= ====== ====== ========= ======

Earnings per average common share
CMS Energy stock $ 1.73 $ (.07)(g) $ 1.66 $ 1.90 $ (.07)(g) $ 1.83
====== ========= ====== ====== ========= ======
Class G stock - $ 1.80 (e) $ 1.80 - $ 2.60 (e) $ 2.60
====== ========= ====== ====== ========= ======

Dividends declared per common share
CMS Energy stock (h) $ .57 - $ .57 $ .60 - $ .60
====== ========= ====== ====== ======== ======

(a) Assumes income taxes for the item discussed in (b) below, which were
computed based upon the U.S. statutory tax rate.

(b) Assumes reduction in interest expense as a result of the reduction in a
portion of CMS Energy debt outstanding with the net proceeds from the
issuance and sale of Class G Common Stock, assuming a 9% interest rate.

(d) Assumes the net income available to the holders of Class G Common Stock.

(e) Assumes the rights to 20% of the earnings of the Consumers Gas Group.

(f) Assumes the issuance and sale of 5 million shares of Class G Common Stock
on January 1, 1993.

(g) Assumes the per share impact on CMS Energy Common Stock of items (c) and
(d) above.

(h) CMS Energy Common Stock annual dividend was raised to $.84 per share ($.21
quarterly) to be effective with the third quarter 1994 dividend.

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CMS ENERGY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non-utility energy-related
businesses including: 1) oil and gas exploration and production, 2)
development and operation of independent power production facilities, 3) gas
marketing services to end-users, and 4) storage and transmission of natural
gas.

In September 1994, management announced that Consumers is being
internally reorganized into separate electric utility and gas utility strategic
business units. The restructuring, effective January 1, 1995, while not
affecting Consumers' or CMS Energy's consolidated financial statements or
corporate legal form, is designed to sharpen management focus, improve
efficiency and accountability in both business segments and better position
Consumers for growth in the gas market and to meet increased competition in the
electric power market. Management believes that the strategic business unit
structure will allow each unit to focus more on its own profitability and
growth potential, and will ultimately, in the long term, result in lower
overall costs.

CMS ENERGY STOCK PROPOSAL

CMS Energy is seeking shareholder approval to amend its Articles of
Incorporation and authorize a new class of Common Stock of CMS Energy. This
proposed new class of Common Stock, designated Class G Common Stock, is
intended to, and, if and after any shares of Class G Common Stock are issued,
will, reflect the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers and Michigan Gas Storage (such
businesses, collectively, will be attributed to the Consumers Gas Group). The
existing CMS Energy Common Stock will continue to be outstanding and, if and
after any shares of Class G Common Stock are issued by CMS Energy, will be
intended to reflect the performance of all of the businesses of CMS Energy and
its subsidiaries, including the business of the Consumers Gas Group, except for
the interest in the Consumers Gas Group attributable to the outstanding shares
of the Class G Common Stock.

If the shareholders of CMS Energy approve the proposed amendment to
the Articles of Incorporation, CMS Energy may, subject to prevailing market and
other conditions, offer shares of Class G Common Stock for sale for cash in the
Offering. The net proceeds of such Offering would be invested in the
businesses and used for general corporate purposes of CMS Energy. Initially,
such net proceeds would be used to repay a portion of the debt of CMS Energy
(none of which is attributed to the Consumers Gas Group). Shares of Class G
Common Stock intended to represent approximately ___ percent of the common
stockholders' equity value attributed to the Consumers Gas Group are being
offered in the Offering. Additional authorized shares of Class G Common Stock
could be offered by CMS Energy in the future at the discretion of the Board of
Directors and without further shareholder approval.

Although the financial statements of Consumers Gas Group separately
report the assets, liabilities and stockholders' equity attributed to the
Consumers Gas Group, legal title to such assets and the responsibility for such
liabilities are not separately identifiable to a specific class of common
stock.

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Dividends on the Class G Common Stock will be paid at the discretion
of the Board of Directors based primarily upon the earnings and financial
condition of the Consumers Gas Group, and, to a lesser extent, CMS Energy as a
whole. Dividends will be payable out of the lesser of (i) the assets of CMS
Energy legally available therefore and (ii) the Available Class G Dividend
Amount.

Dividends with respect to the Class G Common Stock are expected to be
paid commensurate with dividend practices of comparable publicly-held local
natural gas distribution companies generally. Management believes that such
practices currently are to pay out from 70 percent to 85 percent of annual
earnings available for dividends on common stock.

CMS Energy, in the sole discretion of its Board of Directors, could
pay dividends exclusively to the holders of CMS Energy Common Stock,
exclusively to the holders of Class G Common Stock, or to the holders of both
of such classes in equal or unequal amounts. It is the Board of Directors'
current intention that the declaration or payment of dividends with respect to
the Class G Common Stock shall not be reduced, suspended or eliminated as a
result of factors arising out of or relating to the electric utility business
on the non-utility businesses of CMS Energy unless such factors also require,
in the Board of Directors' sole discretion, the omission of the declaration or
reduction in payment of dividends on both the CMS Energy Common Stock and the
Class A Common Stock.

In May 1994, the Board of Directors of CMS Energy approved a 17
percent increase in the CMS Energy Common Stock dividend, raising the annual
rate to $.84 per share from $.72 per share. The increase was effective with
the dividend payment in August 1994.

For further information regarding the CMS Energy stock proposal,
including additional dividend information, voting, liquidation and potential
tax issues, see Notes 2, 8 and 13 of the Notes to Consolidated Financial
Statements of CMS Energy (hereinafter referred to as the "CMS Energy Notes").

CONSOLIDATED EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993

Consolidated net income totaled $148 million or $1.73 per share for
the nine months ended September 30, 1994, compared to $128 million or $1.60 per
share for the nine months ended September 30, 1993. The increased net income
reflects increased electric utility sales resulting from increased motor
vehicle production, increased levels of employment and the overall strong
economic expansion in Consumers' service territory. Also, the increased net
income reflects increased gas utility deliveries due largely to record cold
winter weather. Furthermore, net income benefited from a mid-May 1994 electric
rate increase and additional earnings from the growth of non-utility
businesses.

CONSOLIDATED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

Consolidated net income for 1993 totaled $155 million or $1.90 per
share, compared to net losses of $297 million or $3.72 per share in 1992 and
$276 million or $3.44 per share in 1991. The increased net income reflects the
Settlement Order related to power purchases from the MCV Partnership. Earnings
also reflect record-setting utility electric sales and gas deliveries and
additional earnings from the growth of non-utility businesses.

CASH POSITION, FINANCING AND INVESTING

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September 30, 1994. In October 1994, Consumers declared a $36 million common
stock dividend payable in November, 1994. In 1993, CMS Energy also received
cash dividends of $11 million from its non-utility subsidiaries. CMS Energy
paid $49 million in cash dividends to common shareholders compared to $38
million in 1992. The $11 million increase reflects an annual increase of $.24
per share commencing third quarter 1993.

CMS Energy's consolidated operating cash requirements are met by its
operating and financing activities. In 1993 and 1992, CMS Energy's
consolidated cash inflow from operations was derived mainly from Consumers'
sale and transportation of natural gas and its generation, sale and
transmission of electricity, and from CMS NOMECO Oil & Gas Co.'s, a
wholly-owned subsidiary of Enterprises ("NOMECO"), sale of oil and natural gas.
Consolidated cash from operations for 1993 primarily reflects Consumers'
increased electric sales and gas deliveries and reduced after-tax cash
shortfalls resulting from Consumers' purchases of power from the MCV
Partnership. Consolidated cash from operations for the first nine months of
1994 primarily reflects the benefits of Consumers' increased electric sales and
significantly higher gas deliveries.

During 1992, CMS Energy's cash from operations decreased as compared
to 1991 primarily due to higher operational expenditures and reduced electric
rates. In 1991, CMS Energy generated cash primarily from its consolidated
operating and investing activities, including $859 million of net proceeds from
the sale of a majority of the leverage-lease financing of the MCV Facility, and
tax-exempt pollution control revenue bonds ("PCRBs," and collectively, the "MCV
Bonds").

Over the last three years, CMS Energy has used its consolidated cash
to fund its extensive utility construction expenditures, to improve the
reliability of its utility transmission and distribution systems and to expand
its non-utility businesses. It also has used its cash to retire portions of
long-term securities and to pay cash dividends.

FINANCING ACTIVITIES

In October 1993, CMS Energy issued 4.6 million shares of common stock
at a price of $26 5/8. The net proceeds of $119 million were used to reduce
existing debt and for general corporate purposes. During 1993, Consumers
significantly reduced its future interest charges by retiring approximately $51
million of high-cost outstanding debt and refinancing approximately $573
million of other debt at lower interest rates.

In January 1994, CMS Energy filed a shelf registration statement with
the Commission permitting the issuance and sale of up to $250 million of GTNs.
The net proceeds are being used to reduce the amount of Series B Notes
outstanding and for general corporate purposes. As of November 4, 1994, CMS
Energy had issued approximately $80 million of GTNs with interest rates ranging
from 6.75 to 7.75 percent and reduced the principal amount of Series B Notes
outstanding by $95 million.

On July 29, 1994, CMS Energy refinanced its $220 million Secured
Credit Facility, entered into in November 1992 (the "Secured Credit Facility"),
with a new $400 million Credit Facility and extended the termination date to
June 30, 1997. At October 31, 1994, $129 million was outstanding at a weighted
average interest rate of 6.4 percent. On October 6, 1994, CMS Energy filed a
shelf registration statement for the offering and issuance of up to two million
shares of CMS Common Stock. As described in the Commission filing, the shares
may be offered and issued in connection with acquisitions of energy-related
businesses and assets.

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the sale are targeted for general corporate purposes, including debt retirement
and improvements to Consumers' distribution systems.

During February and March 1994, Consumers continued to reduce its
future interest charges by retiring $100 million of high-cost first mortgage
bonds. In November 1993, NOMECO amended the terms of its loan agreement and
increased the amount to $110 million. For further information, see Note 8 of
CMS Energy Notes.

INVESTING ACTIVITIES

Capital expenditures (excluding assets placed under capital lease),
deferred demand-side management ("DSM") costs and investments in unconsolidated
subsidiaries totaled $708 million, $525 million, $460 million and $502 million
in 1993, 1992, and the first nine months of 1994 and 1993, respectively. CMS
Energy's expenditures in 1993 for its utility, independent power production,
oil and gas exploration and production, and gas transmission and marketing
business segments were $503 million, $110 million, $81 million and $14 million,
respectively and $318 million and $142 million for the first nine months of
1994 for its utility and non-utility businesses, respectively.

In December 1993, Consumers sold $309 million of MCV Bonds it held and
used the net proceeds to temporarily reduce short-term borrowings and
ultimately plans to reduce long-term debt and to finance its construction
program.

OUTLOOK

CMS Energy estimates that capital expenditures, including DSM and new
lease commitments, will total approximately $2.2 billion for the years 1994
through 1996. Cash generated by operations is expected to satisfy a
substantial portion of capital expenditures. Additionally, CMS Energy will
continue to evaluate capital markets in 1994 and 1995 as a potential source of
financing its subsidiaries' investing activities. The following estimates for
electric and gas utility reflect Consumers' current outage schedules for its
nuclear plants and construction expenditures to be included in its electric and
gas rate requests which are expected to be filed with the MPSC in late 1994.
For independent power production, and oil and gas exploration and production,
the following estimates for 1994 include acquisition costs relating to
HYDRA-CO, an independent power production subsidiary of Niagara Mohawk Power
Corporation ("HYDRA-CO") and the contemplated acquisition of Walter
International, Inc., a Texas corporation ("Walter"), respectively.

In Millions
Years Ended December 31 1994 1995 1996
---- ---- ----

Electric utility $ 347 $ 333 $ 255
Gas utility 132 125 115
Oil and gas exploration and production 162 85 100
Independent power production 186 166 146
Natural gas pipeline, storage and marketing 36 24 29
----- ----- -----

$ 863 $ 733 $ 645
===== ===== =====

CMS Energy is required to redeem or retire approximately $796 million
of long-term debt during 1994 through 1996. Cash generated by operations is
expected to satisfy a substantial portion of these capital

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expenditures and debt retirements. Additionally, CMS Energy will evaluate the
capital markets in 1994 as a source of financing its subsidiaries' investing
activities.

Consumers' short-term sources of credit include a $470 million working
capital facility and unsecured, committed lines of credit totaling $185
million. At September 30, 1994, Consumers had $300 million and $101 million,
respectively, outstanding under these facilities. Consumers has also received
FERC authorization to issue or guarantee up to $900 million in short-term debt
through December 31, 1996. This is the same amount of short-term debt
authorized through 1994. Consumers uses short-term borrowings to finance
working capital, seasonal fuel inventory and to pay for capital expenditures
between long-term financings. Consumers has an agreement permitting the sales
of certain accounts receivable for up to $500 million. At September 30, 1994,
receivables sold totaled $210 million as compared to $285 million at December
31, 1993.

ELECTRIC UTILITY OPERATIONS

COMPARATIVE RESULTS OF OPERATIONS

ELECTRIC PRETAX OPERATING INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1994 AND 1993: The $50 million improvement in 1994 electric pretax
operating income compared to 1993 primarily is the result of increased electric
system sales due in large part to Michigan's increased levels of employment and
overall economic expansion and the May 1994 electric rate increase. Also,
during the second quarter of 1994, Consumers recognized $11 million in revenue,
related to DSM, based on having achieved all objectives agreed upon with the
MPSC (see Note 5 of CMS Energy Notes).

ELECTRIC PRETAX OPERATING INCOME FOR THE YEARS ENDED DECEMBER 31, 1993,
1992, AND 1991: The improvement in 1993 pretax operating income compared to
1992 reflects an increase of $126 million relating to the resolution of the
recoverability of Midland Cogeneration Venture ("MCV") power purchase costs
under the PPA and increased electric system sales of $45 million, partially
offset by higher costs to improve system reliability. The 1992 decrease of $66
million from the 1991 level primarily resulted from an increased emphasis on
system reliability improvements and decreased electric rates resulting from the
full-year impact of a mid-1991 rate decrease.

The following table quantifies the impact of the major reasons for the
changes in electric pretax operating income for the nine months ended September
30, 1994 and 1993, and for the years ended December 31, 1993, 1992 and 1991:

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In Millions
Impact on Pretax Operating Income
------------------------------------------------------------------
Nine months ended Year ended Year ended
1994 compared 1993 compared 1992 compared
to 1993 to 1992 to 1991
--------------------- -------------- -------------

Sales $ 31 $ 45 $ (5)
Resolution of MCV power cost issues - 126 -
Rate increases and other regulatory issues 29 5 (13)
O&M, general taxes and depreciation (10) (44) (48)
----- ---- ----

Total Change $ 50 $132 $(66)
==== ==== ====

ELECTRIC SALES: Electric system sales during the nine months ended
September 30, 1994 totaled 24.8 billion kilowatt-hours ("kWh"), a 4.8 percent
increase from 1993 levels. During the nine month 1994 period, residential and
commercial sales increased 2.7 percent and 3.0 percent respectively, while
industrial sales increased 7.6 percent.

Electric system sales in 1993 totaled a record 31.7 billion kWh, a 3.8
percent increase from 1992 levels. In 1993, residential and commercial sales
increased 3.4 percent and 3.0 percent, respectively, while industrial sales
increased 6.5 percent. Growth in the industrial sector was the strongest in
the auto-related segments of fabricated and primary metals and transportation
equipment. Electric system sales in 1992 totaled 30.5 billion kWh, essentially
unchanged from the 1991 levels.

The following table quantifies electric sales by customer type for the
nine months ended September 30, 1994 and 1993, and for the years ended December
31, 1993, 1992 and 1991:

Millions of kWh
Years Ended
Nine Months Ended --------------------------------
September 30, December 31,
------------- ------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----

Residential 7,753 7,549 10,066 9,733 9,997
Commercial 6,920 6,718 8,909 8,652 8,692
Industrial 9,159 8,515 11,541 10,831 10,692
Sales for resale 964 869 1,142 1,292 1,311
------ ------ ------- ------- -------

System sales (a) 24,796 23,651 31,658 30,508 30,692
====== ====== ====== ====== ======

(a) Excludes intersystem exchanges of power with other utilities through joint
dispatching for the economic benefit of customers.

POWER COSTS: Power costs for the nine-month period ending September
30, 1994 totaled $723 million, a $50 million increase from the corresponding
1993 period. Power costs for 1993 totaled $908 million, a $31 million increase
from the corresponding 1992 period. This increase primarily reflects greater
power purchases from outside sources to meet increased sales demand and to
supplement decreased generation at Palisades due to an extended outage. Power
costs for 1992 totaled $877 million, a $17 million decrease as compared to
1991.

OPERATION AND MAINTENANCE: Increases in other operation and
maintenance expense for 1993 and 1992 reflected increased expenditures to
improve electric system reliability.

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DEPRECIATION: The increased depreciation for 1993 reflects additional
capital investments in plant. The 1992 increase resulted from higher
depreciation rates, increased amortization of abandoned nuclear investment and
increased nuclear plant decommissioning expense.

ELECTRIC UTILITY RATES

POWER PURCHASES FROM THE MCV PARTNERSHIP: Consumers' obligations for
purchase of contract capacity from the MCV Partnership under the PPA since 1992
follow:

1995 and
Year 1992 1993 1994 thereafter
- ---- ---- ---- ---- ----------

MW 915 1,023 1,132 1,240

Since 1990, recovering capacity and fixed-energy costs for power
purchased from the MCV Partnership has been a significant issue. Effective
January 1, 1993, the Settlement Order allowed Consumers to recover from
electric retail customers substantially all of the payments for its ongoing
purchase of 915 MW of contract capacity from the MCV Partnership, significantly
reducing the amount of future underrecoveries for these power costs. The
Association of Business Advocating Tariff Equity ("ABATE") and the Attorney
General have filed claims of appeal of the Settlement Order with the Court of
Appeals.

Prior to the Settlement Order, Consumers had recorded losses for
underrecoveries from 1990 through 1992. In December 1992, Consumers recognized
an after-tax loss of $343 million for the present value of estimated future
underrecoveries of power costs under the PPA as a result of the Settlement
Order, based on management's best estimates regarding the future availability
of the MCV Facility, and the effect of the future power market on the amount,
timing and price at which various increments of the capacity above the
MPSC-authorized level could be resold. This loss included all fixed energy
amounts at issue in the arbitration proceedings discussed below. Except for
adjustments to the above loss to reflect the after-tax time value of money
through accretion expense, no additional losses are expected unless actual
future experience materially differs from management's estimates. The
after-tax expense for the time value of money for the $343 million loss is
estimated to be approximately $24 million in 1994, and various lower levels
thereafter, including $22 million in 1995 and $20 million in 1996. Although
the settlement losses were recorded in 1992, Consumers continues to experience
cash underrecoveries associated with the Settlement Order. These after-tax
cash underrecoveries were $59 million in 1993 and totaled $51 million for the
first nine months of 1994. Consumers believes there is and will be a market
for the resale of capacity purchases from the MCV Partnership above the
MPSC-authorized level. If Consumers is unable to sell any capacity above the
current MPSC-authorized level, future additional after-tax losses and after-tax
cash underrecoveries could be incurred. Estimates for the next five years if
none of the additional capacity is sold are as follows:

After-tax, In Millions
1994 1995 1996 1997 1998
---- ---- ---- ---- ----

Expected cash underrecoveries $65 $65 $62 $61 $ 8

Possible additional underrecoveries and losses (a) $ 5 $20 $20 $22 $72
=== === === === ===

(a) If unable to sell any capacity above the MPSC's authorized level.

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Consumers and the MCV Partnership have commenced arbitration proceedings under
the PPA to determine whether Consumers is entitled to exercise its regulatory
out regarding fixed energy charges on the portion of available MCV capacity
above the current MPSC-authorized levels. An arbitrator acceptable to both
parties has been selected and hearings are being conducted. If the arbitrator
determines that Consumers cannot exercise its regulatory out, Consumers would
be required to make these fixed energy payments to the MCV Partnership. The
arbitration proceedings will also determine who is entitled to the fixed energy
amounts for which Consumers did not receive full cost recovery during the years
prior to settlement. Although Consumers intends to aggressively pursue its
right to exercise the regulatory out, management cannot predict the outcome of
the arbitration proceedings or any possible settlement of the matter.
Accordingly, losses were recorded prior to 1993 for all fixed energy amounts at
issue in the arbitration. At September 30, 1994, $25 million has been escrowed
by Consumers and is included as a non-current asset in Consumers' financial
statements. In December 1993, Consumers made an irrevocable offer to pay
through September 15, 2007, fixed energy charges to the MCV Partnership on all
kWh delivered by the MCV Partnership to Consumers from the contract capacity in
excess of 915 MW, which represents a portion of the fixed energy charges in
dispute. Consumers made the offer to facilitate the sale of the remaining MCV
Bonds in 1993. See Note 19 of the CMS Energy Notes with regard to certain
subsequent developments.

The lessors of the MCV Facility have filed a lawsuit in federal
district court against CMS Energy, Consumers and CMS Midland Holdings Company
("CMS Holdings"), a subsidiary of Midland Group, Ltd. ("MGL") (MGL is a
subsidiary of Consumers). It alleges breach of contract, breach of fiduciary
duty and negligent or willful misrepresentation relating to the MCV
Partnership's failure to object to the Settlement Order in light of Consumers'
interpretation of the Settlement Order, which is the subject of an arbitration
between the MCV Partnership and Consumers. The action alleges damages in
excess of $1 billion and seeks injunctive relief relative to Consumers'
payments of the fixed energy charge. CMS Energy and Consumers believe that at
all times they and CMS Holdings have conducted themselves properly and that the
action is without merit. It appears from the complaint that a significant
portion of the alleged damages represent fixed energy charges in dispute in the
arbitration. CMS Energy and Consumers have requested that the lawsuit be
dismissed for lack of jurisdiction and have commenced a lawsuit in Midland,
Michigan, to address these issues. While management believes that the
possibility of the alleged damages being awarded is remote, CMS Energy and
Consumers are unable to predict the outcome of this issue. In addition, CMS
Holdings has filed a lawsuit in a local circuit court seeking reimbursement of
$7 million of certain tax indemnification payments made to its partners in the
First Midland Limited Partnership ("FMLP") and owed to CMS Holdings. Consumers
is unable to predict the outcome of this issue.

In May 1994, Consumers was notified by the MCV that it was initiating
arbitration proceedings under the PPA to determine whether the energy charge
paid to the MCV is being properly calculated. Consumers believes that its
calculation of the energy charge is correct. The amount in dispute, which
relates to the period beginning in 1990 and continuing through the term of the
PPA, is estimated by the MCV Partnership to total $8 million annually. The
parties are in the process of selecting an arbitrator and establishing a
schedule for arbitration. Consumers cannot predict the timing and outcome of
these proceedings. For further information regarding power purchases from the
MCV Partnership, see Note 4 of CMS Energy Notes.

In July 1994, Consumers paid $30 million to terminate a power purchase
agreement with a 65 MW coal-fired cogeneration facility being developed by
Michigan Cogeneration Partners Limited Partnership ("Michigan Cogeneration
Partners"). Consumers plans to seek MPSC approval to substitute 65 MW of less
expensive contract capacity from the MCV Facility which Consumers is currently
not authorized to recover from retail customers. For further information, see
Note 4 of CMS Energy Notes.

PSCR ISSUES: Consumers experienced an extended refueling and
maintenance outage at Palisades during 1993. From mid-February through
mid-June 1994, Palisades was temporarily taken out of service

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to repair valve-leakage and conduct other needed inspections and repairs.
Recovery of replacement power costs and the prudency of actions taken during
the outages will be reviewed by the MPSC during the 1993 and 1994 PSCR
reconciliations of actual costs and revenues. On November 9, 1994, the
Administrative Law Judge ("ALJ") presiding over the 1993 PSCR reconciliation
proceeding issued a proposal for decision that recommended a disallowance to
Consumers related to the Palisades outage of $4.2 million. CMS Energy had
previously established a reserve for this potential disallowance. For more
information on the potential impact of the outages, see Note 5 of CMS Energy
Notes.

ELECTRIC RATE CASE: In May 1994, the MPSC issued an order, granting
Consumers a $58 million annual increase in its retail electric rates effective
May 11, 1994. The order provides Consumers with higher revenues associated
with increased expenditures primarily related to capital additions, operation
and maintenance, higher depreciation and postretirement benefits computed under
SFAS 106, Employers' Accounting for Postretirement Benefits Other than
Pensions, and the continuation of certain demand-side management programs at
reduced levels. The MPSC order generally supported Consumers' rate design
proposal and reduced the level of subsidization of residential customers by
commercial and industrial customers. Consumers filed a request with the MPSC
on November 10, 1994, to increase its retail electric rates in a range from
$104.4 million to $139.5 million annually. For further information, see Note 5
of CMS Energy Notes.

SPECIAL RATES: In June 1994, Consumers also filed a request with the
MPSC, seeking approval of a plan to offer competitive, special rates to certain
large qualifying customers. Consumers proposes to offer the new rates to
customers using high amounts of electricity that have expressed an intention to
or are capable of terminating purchases of electricity from Consumers and have
the ability to acquire energy from alternative sources. To serve these
customers, Consumers would use power purchases from the MCV Partnership which
exceed the 915 MW currently recoverable from electric retail customers. The
MPSC has adopted a hearing schedule that calls for briefs to be filed in
December 1994. A final order is expected in the first quarter of 1995.

ELECTRIC CONSERVATION EFFORTS

In 1993, Consumers completed the customer participation portion of
several DSM programs designed to encourage the efficient use of energy. Based
on the MPSC's determination of Consumers' effectiveness in implementing these
programs, Consumers' future rate of return on electric common equity may be
adjusted for one year either upward by up to 1 percent or downward by up to 2
percent. The proceedings before the MPSC have started and based on the
criteria set out in the demand-side management settlement agreement approved by
the MPSC in 1992, Consumers has achieved all the agreed-upon objectives.
Consumers believes that the MPSC will ultimately allow collection of the full
$11 million incentive. Accordingly, during the second quarter of 1994,
Consumers recognized $11 million in revenue, related to its demand-side
management program. A final order from the MPSC is expected by mid-1995. In
May 1994, as part of Consumers' electric rate case, the MPSC issued an order
that authorized Consumers to continue certain demand-side management programs
at reduced levels. For further information, see Note 5 of CMS Energy Notes.

ELECTRIC ENVIRONMENTAL MATTERS

The 1990 amendment of the federal Clean Air Act, as amended on November
15, 1990 (the "Clean Air Act"), significantly increased the environmental
constraints that utilities will operate under in the future. While the Clean
Air Act's provisions will require Consumers to make certain capital
expenditures in order to comply with the amendments for nitrogen oxide
reductions, Consumers' generating units are presently operating at or near the
sulfur dioxide emission limits which will be effective in the year 2000.
Therefore, management believes that Consumers' annual operating costs will not
be materially affected.

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In 1990, the State of Michigan passed amendments to the Environmental
Response Act, under which Consumers expects that it will ultimately incur costs
at a number of sites, even those in which it has a partial or no current
ownership interest. It is expected that in most cases parties other than
Consumers with current or former ownership interests may also be considered
liable under the law and may be required to share in the costs of any site
investigations and remedial actions. Consumers believes costs incurred for
both investigation and any required remedial actions would be recoverable from
electric utility customers under established regulatory policies and
accordingly are not likely to materially affect its financial position or
results of operations.

Consumers is a so-called "potentially responsible party" at several
sites being administered under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund"). Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial assets
cooperating with respect to the individual sites. Based on current
information, management believes it is unlikely that Consumers' liability at
any of the known Superfund sites, individually or in total, will have a
material adverse effect on its financial position or results of operations.

The United States Environmental Protection Agency ("EPA") has asked a
number of utilities in the Great Lakes area to voluntarily retire certain
equipment containing specific levels of polychlorinated biphenyls. While
Consumers believes that it is largely in compliance with the EPA's request, it
has agreed to a 10-year retirement period for certain equipment included in the
EPA's request. Consumers does not anticipate that any additional costs will be
incurred as a result of this agreement. For further information regarding
electric environmental matters, see Note 13 of CMS Energy Notes.

ELECTRIC OUTLOOK

Consumers expects economic growth, competitive rates and other factors
to increase the demand for electricity within its service territory by
approximately 1.8 percent per year over the next five years. For the near
term, Consumers currently plans a reserve margin of 20 percent and expects to
fill the additional capacity required through long- and short-term power
purchases. Long-term purchased power will likely be obtained through a
competitive bidding solicitation process utilizing the framework established by
the MPSC in 1992. Capacity from the MCV Facility above the levels authorized
by the MPSC may be offered by Consumers in connection with the solicitation.

In late 1993, the NRC completed a review of Consumers' performance at
Palisades that showed a decline in performance. To provide NRC senior
management with a more in-depth assessment of plant performance, the NRC
conducted a diagnostic evaluation inspection at Palisades. The inspection
evaluated all aspects of nuclear plant operation and management. The
inspection, completed in June 1994, found certain performance, operational and
management deficiencies at Palisades. The NRC acknowledged that the new
Palisades senior management team, in place since early 1994, had recognized and
begun to address the problems at Palisades. The NRC did not place Palisades on
either the NRC's "Troubled" or "Declining Performance" list. In August 1994,
Consumers filed its response to the NRC's diagnostic evaluation report which
included both short- and long-term enhancements planned for Palisades to
improve performance. Attaining and maintaining acceptable performance at
Palisades will require continuing performance improvements and additional
expenditures at the plant, which have been included in Consumers' total planned
level of expenditures.

Consumers' on-site storage pool at Palisades is at capacity, and it is
unlikely that the United States Department of Energy ("DOE") will begin
accepting any spent nuclear fuel by the originally scheduled date in 1998.
Consumers is using NRC-approved dry casks, which are steel and concrete vaults,
for temporary on-site storage. Several appeals relating to NRC approval of the
casks and Consumers' use of the casks are now pending at the U.S. Sixth Circuit
Court of Appeals where oral argument was held during October 1994. If
Consumers is unable to continue to use the casks as planned, significant costs
could be incurred, including

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replacement power costs during any resulting plant shutdown and costs to remove
the spent fuel from the dry casks. If Consumers cannot store fuel on-site in
the dry casks, and if no off-site storage is available, Palisades could be
forced to cease operation as early as mid-1995, when all fuel must be
off-loaded for a ten-year inspection of the reactor vessel. In order to
address concerns raised subsequent to the initial cask loading, Consumers and
the NRC analyzed the effects of seismic and other natural hazards on the
support pad on which the casks are placed, and concluded that the pad location
is acceptable to support the casks. See Note 19 of CMS Energy Notes with
regard to certain subsequent developments.

Consumers is required by NRC regulations to calculate and report to the
NRC, values relating to the continuing ability of the Palisades reactor vessel
to withstand postulated "pressurized thermal shock" events during its remaining
license life. Preliminary analysis of more recent data from testing of similar
materials indicates that the Palisades reactor vessel could exceed, prior to
2004, a temperature screening criterion established in the regulations.
Consumers is continuing to analyze this data and will report its conclusions to
the NRC in late November. Consumers is also continuing to analyze alternative
means to permit continued operation of Palisades to the end of its license life
in the year 2007. Consumers cannot predict the outcome of these efforts. For
further information regarding Palisades, see Note 3 of CMS Energy Notes.

Consumers has experienced recent increases in complaints relating
primarily to the effect of so-called stray voltage on certain livestock. A
complaint seeking certification as a class action suit was filed in 1993
against Consumers alleging significant damages, primarily related to certain
livestock. Consumers believes the allegations to be without merit, and in
March 1994, the circuit judge hearing the complaint refused to grant class
action status to the suit. This decision is being appealed by the plaintiffs,
and a number of individuals who would have been part of the class action have
refiled their claims as separate lawsuits. At October 31, 1994, Consumers had
88 separate stray voltage lawsuits pending (see Note 13 of CMS Energy Notes).

Some of Consumers' larger industrial customers are exploring the
possibility, or have announced the intention, of constructing and operating
their own on-site generating facilities. Certain other customers are also
considering municipalization options. Consumers is actively working with these
customers to develop rate and service alternatives designed to compete with
these options. Consumers has on file with the FERC two open access
interconnection tariffs which could have the effect of increasing competition
for wholesale customers. As part of its most recent electric rate case, the
MPSC reduced the level of rate subsidization of residential customers by
commercial and industrial customers so as to further improve rate
competitiveness for its largest customers. Consumers has also requested MPSC
authorization to offer special rates to attract industrial and commercial
customers into its service territory and to retain certain customers using high
amounts of electricity that have expressed an intention and have the ability to
acquire energy from other sources (see Note 5 of CMS Energy Notes).

In April 1994, the MPSC approved a framework for a five-year
experimental retail wheeling program for Consumers and The Detroit Edison
Company ("Detroit Edison"). Under the experiment, up to 60 MW of Consumers'
additional load requirements could be met by retail wheeling. Rates to be used
for the experiment have yet to be determined, and a final MPSC order on the
program is not expected until mid-1995. Consumers does not expect this
experiment to have a material impact on its financial position or results of
operations.

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In July 1994, the FERC approved new 40-year licenses for 11 of
Consumers' hydroelectric plants, confirming planned environmental expenditures.
In issuing the licenses, the FERC approved, with modifications, a settlement
agreement signed by Consumers, the Attorney General, the DNR and other state
and federal officials. The agreement requires Consumers to make payments and
investments which could total $30 million over the license periods for such
things as environmental safeguards and fishery habitat improvements.

GAS UTILITY OPERATIONS

The Gas Distribution Business is subject to regulatory jurisdiction
with respect to utility rates. The earnings of the Consumers Gas Group depend
substantially upon its ability to secure timely and appropriate rate relief for
the gas distribution business. Also, a major factor affecting Consumers Gas
Group's results of operations is gas usage which is impacted by the weather,
particularly with respect to residential and commercial customers who use
natural gas for space heating and, to a lesser extent, industrial customers.

GAS PRETAX OPERATING INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1994 AND 1993: The $9 million improvement in 1994 gas pretax operating income
compared to 1993 reflects higher gas deliveries (both sales and transportation
volumes) and the favorable resolution of a previously recorded gas cost
contingency, partially offset by higher depreciation and gas operating costs
which include $7.5 million of SFAS 106 costs related to the gas settlement with
the MPSC (see Gas Utility Rates below).

GAS PRETAX OPERATING INCOME FOR THE YEARS ENDED DECEMBER 31, 1993,
1992, AND 1991: As summarized in the table below, for 1993, pretax operating
income increased $37 million compared to 1992. This increase reflects higher
gas deliveries due to growth and colder temperatures, and more favorable
regulatory recovery of gas costs related to transportation deliveries. During
1992, gas pretax operating income increased $45 million from the 1991 level,
essentially for many of the same reasons as the 1993 period.

In Millions
Impact on Pretax Operating Income
-------------------------------------------------------------
Nine months ended Year ended Year ended
1994 compared 1993 compared 1992 compared
to 1993 to 1992 to 1991
----------------- ------------- -------------

Deliveries $12 $17 $20
Regulatory recovery of gas costs 14 12 48
O&M, general taxes and depreciation (14) 8 (23)
Other (3) 1 -
---- --- -----

Total Change $ 9 $38 $45
==== === ===

GAS DELIVERIES: For the nine months ended September 30, 1994, gas
sales and gas transported totaled 298 bcf, a 5.8 percent increase from the
corresponding 1993 level due largely to record cold winter weather. For the
year ended December 31, 1993 gas sales and gas transported totaled 411 bcf, a
6.9 percent increase from the corresponding 1992 period. This increase
occurred in both firm sales and transportation deliveries. For the year ended
December 31, 1992, gas sales and gas transported totaled 384 bcf, a combined
6.1 percent increase from 1991 deliveries.

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The following table quantifies gas deliveries for the nine months ended
September 30, 1994 and 1993, and for the years ended December 31, 1993, 1992
and 1991:

Nine months ended Years ended
September 30, December 31,
------------------- ----------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
Bcf

Gas Sales 173 165 245 234 222
Transportation deliveries 52 50 71 66 62
Transportation for MCV 58 54 73 64 55
Off-system transportation
service 15 13 22 20 23
--- --- --- --- ---

Total deliveries 298 282 411 384 362
=== === === === ===

GAS UTILITY RATES

In July 1994, the MPSC approved an agreement previously reached
between the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the last
six months of 1994. This charge against earnings will partially offset costs
related to state property taxes which have been reduced. The agreement was
reached in response to an assertion by the MPSC staff that gas utility business
earnings for 1993 were in excess of the currently authorized level. The
agreement also provides for an additional $4 million of 1995-related SFAS 106
costs to be charged against 1995 earnings instead of being deferred. As part
of the agreement, Consumers committed to file a gas rate case before December
31, 1994, that will, among other things, incorporate cost increases, including
costs for postretirement benefits computed under SFAS 106, into its retail gas
rates. A final order should be received approximately 9 to 12 months after the
request is filed. No assurance can be given as to the level of rates which
will be authorized by the MPSC. Consumers' gas distribution business is
currently authorized to earn a 13.25 percent rate of return on equity.
Consumers' most recent rate filing for its electric utility business resulted
in an approved rate of return on equity of 11.75 percent. See Note 19 of CMS
Energy Notes with regard to certain subsequent developments.

In gas rate cases the MPSC determines, among other things, an
appropriate capital structure, including equity, for the Gas Distribution
Business and approves a rate of return on such equity. Because the Gas
Distribution Business is part of Consumers, it does not have its own capital
structure. Accordingly, in the most recent gas rate case before the MPSC
relating to the Gas Distribution Business, the MPSC utilized Proxy Capital
Structure. It is possible that in future gas rate cases, the MPSC may utilize
another method to determine the equity used for ratemaking purposes for the
Consumers Gas Group or otherwise arrive at a methodology different than the
Proxy Capital Structure. The capital structure employed for ratemaking
purposes directly affects the overall rate of return of a rate regulated
enterprise.

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In 1992, the FERC issued Order 636, which made a number of significant
changes to the structure of the services provided by interstate natural gas
pipelines. Consumers is a significant purchaser of gas from an interstate
pipeline (Trunkline) and is a major transportation customer of a number of
pipelines. Through a settlement approved by the FERC and MPSC, Consumers will
be allowed recovery of costs incurred in connection with the Trunkline
restructuring. The effect of the transition costs relating to Consumers'
agreements with ANR and Panhandle on Consumers is minimal.

GAS ENVIRONMENTAL MATTERS

Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the nature
and extent of contamination at these sites and to determine which of several
possible remedial action alternatives, including no action, may be required
under the Environmental Response Act. The DNR has approved two of three plans
for remedial investigation/feasibility studies submitted by Consumers and is
currently reviewing the third.

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accounting requests by two other Michigan utilities relative to investigation
and remediation costs. Accordingly, Consumers has recorded a regulatory asset
for the same amount as the accrued liability for anticipated recovery of these
investigation and remedial clean-up costs. Consumers has initiated discussions
with certain insurance companies regarding coverage for some or all of the
costs which may be incurred for these sites. Consumers plans to seek recovery
of remedial action costs in its gas rate case to be filed in 1994.

OIL AND GAS EXPLORATION AND PRODUCTION

PRETAX OPERATING INCOME: Pretax operating income for the nine months
ended September 30, 1994 increased $3 million from September 30, 1993
reflecting the gain from assignment of a gas supply contract, higher gas sales
volumes and lower international write-offs, partially offset by lower average
market prices for oil and gas.

1993 pretax operating income decreased $4 million from 1992, primarily
reflecting lower average market prices for oil and $10 million of international
write-offs, partially offset by higher gas and oil sales volumes and higher
average market prices for gas. 1992 pretax operating income decreased $7
million from 1991, primarily due to lower average market prices for oil,
partially offset by increased oil and gas sales volumes.

CAPITAL EXPENDITURES: In June 1994, NOMECO acquired for $22.5 million
a working interest in the Espinal block in Colombia, South America, from Sun
Company, Inc. The block is operated by LASMO Oil (Colombia) Limited. The
other interest holder is Empresa Colombiana de Peltroleos (Ecopetrol), the
Colombian State Oil Company. The block which includes 250,000 acres is
currently producing 5,000 barrels of oil per day and is expected to exceed
8,500 barrels per day later this year. NOMECO estimates the block to contain
at least 75 million barrels of proven oil reserves of which NOMECO's share is
nine million barrels, a 12.4 percent interest.

In September 1994, a consortium in which NOMECO is a 29 percent
participant was awarded the right to enter in to an agreement with Maraven,
S.A., a unit of the Venezuelan state oil company to develop the Colon block in
the Maracaibo basin of western Venezuela. The consortium will spend at least
$160 million over the next three years in a development program involving
reworking, re-equipping and re-entering wells, and drilling new wells to
optimize production from existing proved reserves and to develop additional
probable and possible reserves. Total production from block is expected to
exceed 30,000 barrels per day by 1997.

During 1993, CMS Energy's oil and gas exploration and production
capital expenditures were $81 million. Most expenditures were made to develop
existing proven reserves -- oil reserves in Ecuador which will start production
in 1994 and Antrim Shale gas in northern Michigan.

The 1994 capital expenditures also reflect pipeline and road
construction and development drilling in Ecuador. Production commenced in June
1994 and is now averaging 23,000 barrels of oil per day from block 16 and the
adjoining Tivacuno block. Because of pipeline capacity constraints production
proration is in effect, and the blocks are currently officially allocated
approximately 12,000 barrels per day of pipeline capacity; however, because of
under utilization of pipeline capacity by other producers, production has
remained at 23,000 barrels per day and is not expected to drop below that
volume. Further, the Ministry of Energy and Mines in Ecuador has recently
informed NOMECO and other consortium members that the Ministry will seek to
renegotiate the Service Contract dated January 27, 1986 (the "Risk Service
Contract") for Exploration and Exploitation of Hydrocarbons and Block No. 16 of
the Ecuadorian Amazon Region and other contracts governing the project. NOMECO
cannot predict the outcome of these negotiations. NOMECO holds a 14% working
interest in block 16 and the Tivacuno block.

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CMS Energy currently plans to invest $347 million for the years 1994
through 1996 in its oil and gas exploration and production operations. These
anticipated capital expenditures primarily reflect continued development of
Ecuador and Colombia oil, Michigan Antrim gas and further reserve acquisition.

INDEPENDENT POWER PRODUCTION

PRETAX OPERATING INCOME

Pretax operating income increased $7 million for the nine months ended
September 30, 1994 over the comparable 1993 period. This increase reflects
increases in subsidiary earnings and the addition of new electric generating
capacity.

1993 pretax operating income increased $21 million, primarily reflecting the
addition of new electric generating capacity and improved equity earnings and
operating efficiencies. CMS Energy's ownership share of sales and revenues
increased 24 percent and 18 percent, respectively, over the prior year.

CAPITAL EXPENDITURES

CMS Energy continued expansion of its independent power production
segment during the first nine months of 1994. In January, S.T./CMS Electric
Co., an affiliate of CMS Generation Co. ("CMS Generation," a subsidiary of
Enterprises), entered into a definitive agreement with the Tamil Nadu State
Electric Board in India to supply 250 MW of electric capacity and energy from a
lignite-fired plant to be built in Neyveli, India. Construction of the $450
million plant is currently scheduled to begin in early 1995 with commercial
operation scheduled in 1998. CMS Generation will be the project manager and
plant operator and will hold a 40 percent ownership interest.

In March 1994, Genesee Power Station Limited Partnership ("GPSLP"), an
unconsolidated affiliate of CMS Generation, obtained financing for the Genesee
Power Station principally with the issuance and sale of $72 million of Michigan
Strategic Fund Solid Waste Disposal Revenue Refunding Bonds (Genesee Power
Station Project) Series 1994. CMS Generation has a 50 percent ownership
interest in GPSLP. In April 1994, construction began on the 35 MW waste
wood-fueled power plant near Flint, Michigan. Completion of the project is
scheduled for Spring 1996 with an estimated cost of $94 million.

In May 1994, CMS Generation acquired a 25 percent ownership interest
in a 235 MW mixed fuel independent power generation project to be built in
Jegurupadu, Andhra Pradesh, India. CMS Generation will provide project
management services and will be the operator of the plant. The Andhra Pradesh
State Electricity Board has signed a 30 year contract for the purchase of the
plant's entire electric output. Construction of the natural gas and
naptha-fueled combined-cycle project is currently expected to begin in early
1995, with completion scheduled by early 1997. The project is estimated to
cost $300 million.

Also in May 1994, CMS Generation announced it had acquired a 25
percent ownership interest in Magellan Utility Development Corporation, which
is developing a 300 MW coal-fired power project at Pinamucan in Batangas
Province, the Philippines. CMS Generation will be the project manager and
plant operator. Magellan Utility Development Corporation has signed a 25-year
power purchase agreement with the Manila Electric Company, the largest private
electric utility in the Philippines, for the plant's entire electric output.
Construction of the project is scheduled to begin in early 1995. The plant is
scheduled to be completed by year-end 1997 at a cost of $300 million. The
project has the potential to be expanded to 600 MW.

In June 1994, CMS Generation acquired a 41 percent ownership interest
in the Centrales Termicas Mendoza electric generating plant in western
Argentina's Mendoza Province. CMS Generation is the lead

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developer and will become the plant operator. With major retrofitting and
maintenance, this facility has the potential to produce 382 MW of generating
capacity from oil and natural gas and currently sells 135 MW of capacity on the
Argentine wholesale electric market. Takeover of the plant occurred on
November 1, 1994.

In October 1994, CMS Generation entered into an agreement with Niagara
Mohawk Power Corporation for the acquisition of HYDRA-CO. HYDRA-CO holds
ownership in six major operating electric generating facilities and a number of
smaller plants totaling 835 MW of gross capacity and 285 MW of net capacity.
HYDRA-CO's plants are fueled by coal, natural gas, waste wood and water
(hydro). CMS Generation will acquire 100 percent of HYDRA-CO's stock for cash
using a combination of equity and bank or capital market financing. The
purchase price is between $200 and $215 million, including approximately $50
million of current assets. See Note 19 of CMS Energy Notes.

CMS Generation holds a 32.5 percent ownership interest in Toledo Power
Company which acquired two operating power plants totaling 135 MW of generating
capacity located on the island of Cebu in the Philippines. CMS Generation is
the plant operator of a consortium which purchased the plants, and has become
the operator of the 93 MW coal- and oil-fueled Sangi station and the 42 MW
oil-fired Carmen station.

In 1993, capital expenditures were $110 million, including investments
in unconsolidated subsidiaries. These expenditures were primarily used to
obtain ownership interests in an additional 309 MW of owned operating capacity
or a 40 percent increase from December 31, 1992.

In April 1993, CMS Generation acquired a 50 percent interest in the
Lyonsdale cogeneration plant, a 19 MW power plant in upstate New York. CMS
Generation has invested $9 million in the project and additional investments
relating to this project are expected to be immaterial.

In May 1993, a consortium including CMS Generation purchased an 88
percent share in the 650 MW San Nicolas power plant near Buenos Aires,
Argentina. As of December 31, 1993, CMS Generation's share of the consortium
is 18.6 percent and it has provided notice to exercise its option to increase
its share to 21 percent. The plant sells power under long-term contracts to
two utilities and Argentina's electric grid system. CMS Generation has
invested $21 million in the partnership through December 31, 1993 and plans to
invest approximately $3 million in 1994 in exercising its option.

In June 1993, CMS Generation was involved in the formation of Scudder
Latin American Trust for Independent Power as a lead partner. The fund, which
has investment commitments of $25 million from each of the four lead partners,
will invest in electric generation and infrastructure resulting from the
development of new power generating capacity. CMS Generation has contributed
$.5 million through December 31, 1993 and estimates contributions of up to $11
million in 1994.

In July 1993, an investment company including CMS Generation S. A.
acquired the rights to a 59 percent ownership interest in two hydroelectric
power plants on the Limay River in western Argentina. These plants have a
total generating capacity of 1,320 MW. The remaining interest in the project
is to be held 39 percent by the Argentine provincial government and 2 percent
by the plant employees. CMS Generation S.A., a subsidiary of CMS Generation
("CMS Generation S.A."), has a 25 percent ownership interest in the investment
company. The investment company secured a 30-year concession under a
government privatization program and in August 1993, began operating these
power plants. CMS Generation S.A. entered into letter of credit agreements to
support the acquisition. As of December 31, 1993, CMS Energy had approximately
$41 million of guarantees relating to this agreement which were reduced to less
than $15 million in January 1994. CMS Generation has invested $64 million in
equity and loans and plans to invest up to an additional $2 million in 1994.

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CMS Generation has a 50 percent ownership interest and has invested,
through The Oxford Energy Company ("Oxford")/CMS Development Limited
Partnership, $7 million in the Exeter waste tire-fueled/electric generation
facility near Sterling, Connecticut. Based on a financial restructuring
completed in 1993, CMS Generation may be obligated to invest up to an
additional $2 million. The 26.5 MW Exeter facility has a capacity of
processing 10 million waste tires per year and sells its capacity and energy to
Connecticut Light and Power Company under a long-term agreement.

Effective November 1, 1993, CMS Generation acquired a 50 percent
ownership interest in an 18 MW wood waste-fueled electric generation facility
located near Chateaugay, New York for approximately $5 million and became the
operator March 1, 1994. The facility sells its entire electric output to New
York State Electric and Gas Corporation under a long-term power purchase
agreement. CMS Generation expects no additional investment relating to this
project.

CMS Energy currently plans to invest $498 million relating to its
independent power production operations for the years 1994 through 1996,
primarily in domestic and international subsidiaries and partnerships. CMS
Generation is involved with partnerships that have signed power contracts to
construct power plant facilities capable of producing a total of 885 MW of
operating capacity in Michigan, Tamil Nadu, India, and two projects in
Batangas, Philippines. CMS Generation will also pursue acquisitions in Latin
America, southern Asia and the Pacific Rim region.

NATURAL GAS PIPELINE, STORAGE AND MARKETING

PRETAX OPERATING INCOME

Pretax operating income increased $2 million for the nine months ended
September 30, 1994 compared to the comparable 1993 period, reflecting earnings
growth from gas pipeline and storage projects and gas marketed to end-users.

1993 pretax operating income increased $2 million over 1992,
reflecting earnings growth from existing and new gas transportation projects
and increased natural gas marketed. In 1993, 60 bcf was marketed compared to
45 bcf in 1992.

CAPITAL EXPENDITURES

CMS Energy continued its expansion of its natural gas pipeline,
storage and marketing segment during 1994. In the first quarter of 1994 CMS
Gas Transmission acquired a 50 percent ownership interest in Moss Bluff Gas
Storage Systems, an existing 5 bcf high deliverability salt cavern storage
facility on the Gulf Coast of Texas for $18 million. In October 1994, Moss
Bluff Gas Storage Systems completed an expansion of its storage capacity
creating an additional 0.5 bcf of working storage. CMS Gas Transmission has
also agreed to develop an additional 2.5 bcf salt cavern at Moss Bluff which is
expected to be in service by the beginning of the winter of 1995-1996.

In April 1994, CMS Gas Transmission entered into an agreement in
principle to develop a North American natural gas market center in southeastern
Michigan. The Grands Lacs Market Center will provide a major exchange and
storage point for natural gas buyers and sellers throughout the midwest and
northeast United States and Canada.

In August 1994, CMS Gas Marketing Company, a subsidiary of Enterprises
("CMS Gas Marketing"), acquired Natural Gas Services, Inc., an Owensboro,
Kentucky-based independent marketer of natural gas. Natural Gas Services has
been active since 1988 in Tennessee, Indiana, Illinois, Ohio, South

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Carolina and Kentucky, providing gas marketing and consulting services to a
variety of end-users and natural gas utilities. CMS Gas Marketing has acquired
all of Natural Gas Services' assets and contracts.

In October 1994, CMS Gas Transmission reached a revised agreement with
Michigan Consolidated Gas Company ("MichCon") to provide a gas treating service
for up to 260 million cubic feet per day of Antrim gas. Under the agreement
CMS Gas Transmission, which currently owns a 60 percent interest in two
existing carbon dioxide treating facilities, will purchase the remaining 40
percent interest in the treating facilities from MCN Investment Corporation.
CMS Gas Transmission currently plans to expand this existing 120 million cubic
feet per day treating complex to accommodate new Antrim production. The
construction is scheduled to be completed in two phases, with phase I in
service by June 1995 and the final phase in service by December 1995. This $22
million expansion will treat gas connected to a number of gathering lines
including CMS Gas Transmission's South Chester gathering system and deliver gas
to MichCon's Northern Michigan pipeline network.

Also in October 1994, CMS Gas Transmission announced that Peoples Gas
Light and Coke Company of Chicago have agreed to become storage customers of
the Grand Lacs Market Center under a five-year agreement commencing in April
1995. The Grand Lacs Market Center, located in southeastern Michigan's St.
Clair County, will provide natural gas storage services, peaking storage,
wheeling, parking and other related natural gas services. Under the agreement
with Peoples Gas, Grand Lacs Market Center will provide up to 150 million cubic
feet per day of Michigan-based firm storage service.

During 1993, CMS Energy's non-utility gas companies made capital
expenditures of $14 million and formed two marketing partnerships which will
provide natural gas marketing services throughout the Appalachian region of the
United States and in Chicago and northern Illinois.

In November 1993, CMS Gas Transmission acquired an existing $4 million
gas gathering system in the Antrim Shale region of Michigan's Lower Peninsula,
which was placed into service in December 1993. CMS Gas Transmission began an
$11 million expansion of its carbon dioxide processing facility, with
completion expected in March 1994. In December 1993, they signed a letter of
intent to invest $18 million to acquire 50 percent ownership in an existing 5
bcf high deliverability salt cavern storage facility on the Gulf Coast of
Texas.

CMS Energy currently plans to invest $89 million for the years 1994
through 1996 relating to its non-utility gas operations. These investments
would reflect the significant expansion of certain northern Michigan gas
pipeline and carbon dioxide removal plant facilities. It will continue to
pursue development of natural gas storage, gas gathering and pipeline
operations both domestically and internationally and work toward the
development of a Midwest "market center" for natural gas through strategic
alliances and asset acquisition and development.

OTHER

OTHER INCOME: Other income decreased $30 million for the first nine
months of 1994 when compared to the corresponding 1993 period, reflecting the
impact of the sale of the remaining MCV Bonds. The 1993 other income level
reflects lower Midland-related losses than experienced in 1992. The 1992 loss
included a $343 million charge related to the Settlement Order. The 1991 loss
included $294 million related to an MPSC order received in 1991 that allowed
Consumers to recover only $760 million of remaining abandoned Midland
investment.

FIXED CHARGES: Fixed charges for 1993 increased $22 million from 1992
and primarily reflect debt outstanding with higher rates of interest in 1993.
The significant decrease in fixed charges in 1992 from 1991 primarily reflects
Consumers' program aimed at significantly reducing its debt and the refinancing
of debt at lower interest rates.

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NEW ACCOUNTING STANDARDS In October 1994, the FASB issued SFAS 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures, and SFAS 119, Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments. CMS Energy is studying these
statements, which are effective for year-end 1994 financial statements, but
does not expect either statement will have a material impact on CMS Energy's
financial position or results of operations.

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DESCRIPTION OF CAPITAL STOCK

The following is a description of the Capital Stock of CMS Energy,
assuming the filing of the Certificate of Amendment authorizing the Class G
Common Stock with the Michigan Department of Commerce prior to the completion
of the Offering. The Certificate of Amendment will be voted upon by the
holders of CMS Energy Common Stock at a special meeting of such holders
scheduled to be held on March 21, 1995. This description does not purport to
be complete and is qualified in its entirety by reference to the Articles of
Incorporation and the Certificate of Amendment, which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.

GENERAL

The authorized capital stock of CMS Energy consists of 320 million
shares of capital stock, of which 10 million are shares of preferred stock,
$.01 par value ("Preferred Stock"), 60 million are shares of common stock, no
par value, designated as Class G Common Stock, and 250 millon are shares of
common stock, par value $.01 per share, designated as CMS Energy Common Stock.
As of February 10, 1995, there were no shares of Preferred Stock or Class G
Common Stock issued or outstanding, and 86,562,096 shares of CMS Energy Common
Stock were issued and outstanding.

Authorized but unissued shares of Class G Common Stock will be
available for issuance by CMS Energy from time to time, as determined by the
Board of Directors, for any proper corporate purpose, which could include
raising capital for use by CMS Energy (in the case of the sale of any Retained
Interest Shares) or for attribution to the Consumers Gas Group (in the case of
any sale of Additional Shares), payment of dividends, providing compensation or
benefits to employees or acquiring companies or businesses. The issuance of
such shares of Class G Common Stock would not be subject to approval by the
shareholders of CMS Energy unless deemed advisable by the Board of Directors or
required by applicable law, regulation or stock exchange listing requirements.
Any net proceeds from, or other effects of, the issuance by CMS Energy of Class
G Common Stock (other than Retained Interest Shares) would be attributed to the
Consumers Gas Group.

The Class G Common Stock is designed to establish a class of Common
Stock that is intended to reflect the performance of the businesses attributed
to the Consumers Gas Group. See "Business of the Consumers Gas Group."

PREFERRED STOCK

The authorized Preferred Stock may be issued without the approval of
the holders of Common Stock in one or more series, from time to time, with each
such series to have such designation, powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated in a resolution
providing for the issue of any such series adopted by the Board of Directors.
The future issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of CMS Energy.

CLASS G COMMON STOCK

DIVIDENDS: Dividends on the Class G Common Stock will be limited to
the lesser of (i) the assets of CMS Energy legally available for dividends
under Michigan law and (ii) the Available Class G Dividend Amount. Michigan
law prohibits a dividend, if after giving it effect, CMS Energy would not be
able to pay its debts as they become due in the usual course of business, or
CMS Energy's total assets would be less than the sum of its total liabilities
plus, unless the Articles of Incorporation of CMS

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Energy are amended to provide otherwise, the amount that would be needed, if
CMS Energy were to be dissolved at the time of the dividend, to satisfy the
preferential rights upon dissolution of any shareholders whose preferential
rights are superior to those receiving the assets. Consequently, the amount
allowed under clause (i) above will reflect the amount of any net losses of CMS
Energy, including the businesses attributed to the Consumers Gas Group, and any
dividends or distributions on the Class G Common Stock or the CMS Energy Common
Stock. However, such net losses, dividends or distributions would not reduce
assets legally available for distribution on the Class G Common Stock unless
the legally available assets of CMS Energy are less than the Available Class G
Dividend Amount limitations set forth in the Articles of Incorporation.
Subject to the express terms of any outstanding Preferred Stock, the foregoing
limitations and the contractual limitations described under "Dividend Policy,"
the Board of Directors may, in its sole discretion, declare and pay dividends
exclusively on either class of Common Stock, in equal or unequal amounts,
notwithstanding the respective amounts of assets available for dividends on
each class, the respective voting rights of each class, the amounts of prior
dividends declared on each class or any other factor. It is the Board of
Directors' current intention that the declaration or payment of dividends with
respect to the Class G Common Stock shall not be reduced, suspended or
eliminated as a result of factors arising out of or relating to the electric
utility business or the non-utility businesses of CMS Energy unless such
factors also require, in the Board of Directors' sole discretion, the omission
of the declaration or reduction in payment of dividends on both the CMS Energy
Common Stock and the Class G Common Stock.

The "Available Class G Dividend Amount," on any date ("calculation
date"), means the excess of:

(i) the product of (a) the Gas Group Fraction as of such
calculation date and (b) an amount equal to the total assets
attributed to the Consumers Gas Group less the total liabilities
attributed to the Consumers Gas Group as of such calculation date
determined in accordance with generally accepted accounting principles
as in effect at such time applied on a basis consistent with that
applied in determining Consumers Gas Group income; over

(ii) the product of (a) the Gas Group Fraction as of such
calculation date and (b) the amount that would be needed to satisfy
any preferential rights to which holders of any outstanding shares of
preferred stock attributed to the Consumers Gas Group are entitled as
of such calculation date;

provided that such excess will be reduced by an amount, if any, sufficient to
ensure that the Consumers Gas Group will be able to pay its debts as they
become due in the usual course of business.

The "Gas Group Fraction," as of any calculation date, represents the
fractional interest in the businesses attributed to the Consumers Gas Group
that is held by the holders of the issued and outstanding Class G Common Stock.
It is a fraction, the numerator of which is the number of shares of Class G
Common Stock issued and outstanding on such date and the denominator of which
is the sum of the number of shares of Class G Common Stock issued and
outstanding on such date plus the number of Retained Interest Shares on such
date, but such fraction will never be greater than one.

The "Retained Interest Shares" as of any date represents the interest
in the businesses attributed to the Consumers Gas Group that is not held by the
holders of the outstanding shares of Class G Common Stock, but is retained by
CMS Energy. The Retained Interest Shares are not deemed to be outstanding
shares of Class G Common Stock and have no voting rights. The number of
Retained Interest Shares will initially be the number of shares of Class G
Common Stock that the Board of

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Directors deems, prior to the first issuance of Class G Common Stock, to
represent 100% of the common stockholders' equity of CMS Energy attributable to
the Consumers Gas Group, less the number of shares of Class G Common Stock to
be first issued. The number from time to time will be:

(i) adjusted as appropriate to reflect subdivisions (by stock
split or otherwise) and combinations (by reverse stock split or
otherwise) of Class G Common Stock and dividends or distributions of
shares of Class G Common Stock to holders thereof and other
reclassifications of Class G Common Stock;

(ii) decreased by (A) the number of Retained Interest Shares
issued or sold by CMS Energy, including any sold pursuant to the
Offering, (B) the number of Retained Interest Shares issued upon
conversion or exercise of Convertible Securities (as defined below)
which are not attributed to the Consumers Gas Group, (C) the number of
Retained Interest Shares issued by CMS Energy as a dividend or
distribution or by reclassification or exchange to holders of CMS
Energy Common Stock and (D) the number (rounded, if necessary, to the
nearest whole number) equal to the aggregate fair value (as determined
by the Board of Directors) of assets or properties of CMS Energy which
cease to be attributable to the Consumers Gas Group in consideration
for a decrease in the Retained Interest Shares determined by dividing
such amount by the Fair Market Value of one share of Class G Common
Stock as of the date such assets or properties cease to be
attributable to the Consumers Gas Group; and

(iii) increased by (A) the number of issued and outstanding
shares of Class G Common Stock repurchased by CMS Energy with assets
which are not attributed to the Consumers Gas Group, and (B) the
number (rounded, if necessary, to the nearest whole number) equal to
the aggregate fair value (as determined by the Board of Directors) of
assets or properties of CMS Energy that are attributed to the
Consumers Gas Group in consideration for an increase in the number of
Retained Interest Shares divided by the Fair Market Value of one share
of Class G Common Stock as of the date of such attribution.

"Convertible Securities" means any securities of CMS Energy that are
convertible into or exercisable for or evidence the right to acquire any shares
of CMS Energy Common Stock or Class G Common Stock, whether at such time or
upon the occurrence of certain events, pursuant to antidilution provisions of
such securities or otherwise.

VOTING: Except as set forth below and except as otherwise provided by
law, the holders of both classes of Common Stock vote together as a single
class on all matters as to which all holders of Common Stock are entitled to
vote. On all matters to be voted on by the holders of both classes of Common
Stock voting together as a single class (i) each share of outstanding CMS
Energy Common Stock would have one vote and (ii) each share of outstanding
Class G Common Stock would have one vote. If shares of only one class of
Common Stock are outstanding, each share of that class will have one vote. If
any class of Common Stock of CMS Energy is entitled to vote separately as a
class, with respect to any matter, each share of that class shall be entitled
to one vote in the separate vote on such matter.

CMS Energy will set forth the amount of outstanding shares of the CMS
Energy Common Stock and the Class G Common Stock in its Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q filed pursuant to the Exchange Act and
will disclose in any proxy statement for a shareholders' meeting the number of
outstanding shares of the CMS Energy Common Stock and the Class G Common Stock.

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Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class,
would be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other corporation if such merger
or consolidation would adversely affect the powers or special rights of such
class of stock, and to authorize any amendment to the Articles of Incorporation
that would increase or decrease the aggregate number of authorized shares of
such class or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. The Articles of
Incorporation also provide that unless the vote or consent of a greater number
of shares shall then be required by law, the approval of the holders of a
majority of the outstanding shares of either class of Common Stock, voting as a
separate class, will be necessary for authorizing, effecting or validating the
merger or consolidation of CMS Energy into or with any other corporation if
such merger or consolidation would adversely affect the powers or special
rights of such class of Common Stock, either directly by amendment to the
Articles of Incorporation or indirectly by requiring the holders of such class
to accept or retain, in such merger or consolidation, anything other than (i)
shares of such class or (ii) shares of the surviving or resulting corporation,
having, in either case, powers and special rights identical to those of such
class prior to such merger or consolidation. The effect of these provisions
may be to permit the holders of a majority of the outstanding shares of either
class of Common Stock to block any such merger or amendment which would
adversely affect the powers or special rights of holders of such class of
Common Stock.

EXCHANGE OR REDEMPTION: The Class G Common Stock will be subject to
exchange or redemption, as the case may be, upon the terms described below.

At any time after the date on which all of the consolidated assets and
liabilities attributed to the Consumers Gas Group (and no other assets or
liabilities) become the consolidated assets and liabilities of a single
corporation, all of the common stock of which is owned by CMS Energy ("Gas
Group Subsidiary"), the Board of Directors, in its sole discretion, provided
that there are assets of CMS Energy legally available therefor, may declare
that all of the outstanding shares of Class G Common Stock will be exchanged
for a number of outstanding shares of common stock of the Gas Group Subsidiary
equal to the product of the Gas Group Fraction and the number of all of the
outstanding shares of common stock of the Gas Group Subsidiary, on a pro rata
basis, each of which shall, upon issuance, be fully paid and nonassessable.
CMS Energy would retain the balance of the outstanding shares of the common
stock of the Gas Group Subsidiary.

Upon the Disposition, in one transaction or a series of related
transactions, by CMS Energy of all or substantially all of the properties and
assets attributed to the Consumers Gas Group (other than in connection with the
Disposition by CMS Energy of all of its properties and assets in one
transaction or a series of related transactions which results in the
dissolution, liquidation or winding up of CMS Energy as set forth under
"Liquidation" below) to any person, entity or group (other than (a) holders of
all outstanding shares of Class G Common Stock on a pro rata basis or (b) a
person, entity or group in which CMS Energy, directly or indirectly, owns a
majority equity interest), CMS Energy is required, on or prior to the first
Business Day (as defined below) following the 90th day following the
consummation of such Disposition, to exchange each outstanding share of Class G
Common Stock for a number of fully paid and nonassessable shares of CMS Energy
Common Stock having a Fair Market Value equal to 110% of the Fair Market Value
of one share of Class G Common Stock as of the date of the first public
announcement by CMS Energy of such Disposition.

If immediately after any event, CMS Energy, directly or indirectly,
owns less than a majority equity interest in any person, entity or group in
which CMS Energy, directly or indirectly, owned a majority equity interest
immediately prior to the occurrence of such event, a Disposition of all of the
properties and assets attributed to the Consumers Gas Group owned by such
person, entity or group shall

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be deemed to have occurred. In the case of a Disposition of properties and
assets in a series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the last of such
transactions.

"Business Day" means each weekday other than any day on which any
relevant class of Common Stock is not traded on any national securities
exchange or the National Association of Securities Dealers Automated Quotations
National Market or in the over-the-counter market.

"Disposition" means a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or contribution of assets, properties
or stock or otherwise), but does not include (1) an attribution of assets or
properties of CMS Energy to the Consumers Gas Group if such attribution
increases the Retained Interest Shares, or (2) assets or properties of CMS
Energy ceasing to be attributed to the Consumers Gas Group if the result is a
decrease in the Retained Interest Shares.

"Fair Market Value" of shares of either class of Common Stock on any
date means the average of the daily closing prices thereof for the period of 20
consecutive Business Days commencing on the 30th Business Day prior to such
date. The closing price of shares of a class of Common Stock for each Business
Day shall be (i) if such shares are listed or admitted to trading on a national
securities exchange, the closing price on the New York Stock Exchange Composite
Tape (or any successor composite tape reporting transactions on national
securities exchanges) or, if such New York Stock Exchange Composite Tape shall
not be in use or shall not report transactions in such shares, the last
reported sales price regular way on the principal national securities exchange
on which such shares are listed or admitted to trading (which shall be the
national securities exchange on which the greatest number of such shares of
stock has been traded during such 20 consecutive Business Days), or, if there
is no transaction on any such Business Day in any such situation, the mean of
the bid and asked prices on such Business Day, or (ii) if such shares are not
listed or admitted to trading on any such exchange, the closing price, if
reported, or, if the closing price is not reported, the average of the closing
bid and asked prices as reported by the National Association of Securities
Dealers Automated Quotations or a similar source selected from time to time by
CMS Energy for this purpose, and (iii) reduced, if such Business Day is prior
to any "ex" date or any similar date occurring during such period for any
dividend or distribution (other than as contemplated in (iv) below) paid or to
be paid with respect to such shares, by the fair market value (as determined by
the Board of Directors) of the per share amount of such dividend or
distribution, and (iv) appropriately adjusted, if such Business Day is prior to
(A) the effective date of any subdivision (by stock split, stock dividend, or
otherwise) or combination (by reverse stock split or otherwise) of such shares,
or (B) the "ex" date or any similar date for any dividend or distribution of
shares of such class of Common Stock on the outstanding shares of such class of
Common Stock, occurring during such period, to reflect such subdivision,
combination, dividend or distribution. In the event such closing or bid and
asked prices are unavailable, the Fair Market Value of such shares shall be
determined by the Board of Directors.

"Substantially all of the properties and assets attributed to the
Consumers Gas Group" means a portion of such properties and assets (A) that
represents at least 80% of the then-current fair market value (as determined by
the Board of Directors) of the properties and assets attributed to the
Consumers Gas Group as of such date or (B) from which were derived at least 80%
of the aggregate revenues for the immediately preceding twelve fiscal quarterly
periods of CMS Energy (calculated on a pro forma basis to include revenues
derived from any of such properties and assets acquired during such periods)
derived from the properties and assets attributed to the Consumers Gas Group as
of such date.

In addition, CMS Energy may, by a majority vote of the Board of
Directors then in office, at any time exchange for each outstanding share of
Class G Common Stock a number of fully paid and

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nonassessable shares of CMS Energy Common Stock having a Fair Market Value
equal to 115% of the Fair Market Value of one share of Class G Common Stock as
of the date of the first public announcement by CMS Energy of such exchange.

After the exchange date on which all outstanding Class G Common Stock
was exchanged, any share of Class G Common Stock that is issued on conversion
or exercise of any Convertible Securities will, immediately upon issuance
pursuant to such conversion or exercise and without any notice or any other
action on the part of CMS Energy or the Board of Directors or the holder of
such share of Class G Common Stock: (A) in the event the then-outstanding
Class G Common Stock was exchanged for CMS Energy Common Stock on such exchange
date as set forth in the first or sixth immediately preceding paragraphs, be
exchanged for the kind and amount of shares of capital stock and other
securities and property that a holder of such Convertible Security would have
been entitled to receive pursuant to the terms of such Convertible Security had
such terms provided that the conversion or exercise privilege in effect
immediately prior to any exchange by CMS Energy of any of its capital stock for
shares of any other capital stock of CMS Energy would be adjusted so that the
holder of any such Convertible Security thereafter surrendered for conversion
or exercise would be entitled to receive the number of shares of capital stock
of CMS Energy and other securities and property such holder would have owned
immediately following such action had such Convertible Security been converted
or exercised immediately prior thereto; or (B) in the event the
then-outstanding Class G Common Stock was exchanged for common stock of the Gas
Group Subsidiary as set forth in the seventh immediately preceding paragraph,
be redeemed, to the extent of the assets of CMS Energy legally available
therefor, for $.01 in cash. The provisions of clause (A) above do not apply to
the extent that equivalent adjustments are otherwise made pursuant to the
provisions of such Convertible Securities.

Under Section 303 of the Michigan Business Corporation Act ("MBCA"),
upon the prior approval of shareholders, a board of directors may amend a
corporation's articles of incorporation to increase the number of authorized
shares of any class or series of stock to the number that will be sufficient,
when added to the previously authorized but unissued shares of such class or
series, to satisfy the conversion privileges of any convertible securities of
the corporation. The Articles of Incorporation deem the required exchange
after the Disposition, in one transaction or a series of related transactions,
of all or substantially all of the properties and assets attributed to the
Consumers Gas Group and the optional exchange at a 15% Premium of Class G
Common Stock by CMS Energy for CMS Energy Common Stock, each as discussed
above, as conversion privileges within the meaning of Section 303 of the MBCA.
Accordingly, in order to give effect to any such exchange, the Board of
Directors would have the authority to amend the Articles of Incorporation to
increase the authorized shares of capital stock generally and of CMS Energy
Common Stock specifically to the number that would be sufficient, when added to
the previously authorized but unissued shares of capital stock and CMS Energy
Common Stock, to give effect to such exchange.

GENERAL EXCHANGE PROVISIONS: In the event of any exchange of Class G
Common Stock, CMS Energy will cause to be given to each holder of Class G
Common Stock to be so exchanged a notice stating (A) that shares of Class G
Common Stock will be exchanged, (B) the date of the exchange, (C) the kind and
amount of shares of capital stock or cash and/or securities or other property
to be received by such holder with respect to each share of such Class G Common
Stock held by such holder, including details as to the calculation thereof, (D)
the place or places where certificates for shares of Class G Common Stock,
properly endorsed or assigned for transfer (unless CMS Energy shall waive such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock or cash and/or securities or other property and (E) that,
except as provided in the following paragraph, dividends or other distributions
on Class G Common Stock will cease to be paid as of such exchange date. Such
notice shall be sent by first-class mail, postage prepaid, not less than 30
days nor more than 60 days

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prior to the exchange date and in any case to each holder of the Class G Common
Stock to be exchanged at such holder's address as the same appears on the stock
transfer books of CMS Energy. Neither the failure to mail such notice to any
particular holder of Class G Common Stock nor any defect therein shall affect
the sufficiency thereof with respect to any other holder of Class G Common
Stock.

No adjustments in respect of dividends or other distributions will be
made upon the exchange of any shares of Class G Common Stock; provided,
however, that if the exchange date with respect to Class G Common Stock shall
be subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Class G
Common Stock at the close of business on such record date shall be entitled to
receive the dividend or other distribution payable on or with respect to such
shares on the date set for payment of such dividend or other distribution,
notwithstanding the exchange of such shares or CMS Energy's default in payment
of the dividend or distribution due on such date.

Before any holder of shares of Class G Common Stock will be entitled
to receive certificates representing shares of any capital stock or cash and/or
securities or other property to be received by such holder with respect to any
exchange, such holder shall surrender at such office as CMS Energy shall
specify certificates for such shares of Common Stock, properly endorsed or
assigned for transfer (unless CMS Energy shall waive such requirement). CMS
Energy will as soon as practicable after such surrender of certificates
representing such shares of Class G Common Stock deliver to the person for
whose account such shares of Class G Common Stock were so surrendered, or to
the nominee or nominees of such person, certificates representing the number of
whole shares of the kind of capital stock or cash and/or securities or other
property to which such person shall be entitled as aforesaid, together with any
fractional payment referred to in the next paragraph.

CMS Energy will not be required to issue or deliver fractional shares
of any class of capital stock or any fractional securities to any holder of
Class G Common Stock upon any exchange, dividend or other distribution. If
more than one share of Class G Common Stock shall be held at the same time by
the same holder, CMS Energy may aggregate the number of shares of any class of
capital stock that shall be issuable or the amount of securities that shall be
deliverable to such holder upon any exchange, dividend or other distribution
(including any fractions of shares or securities). If the number of shares of
any class of capital stock or the amount of securities remaining to be issued
or delivered to any holder of Class G Common Stock is a fraction, CMS Energy
will, if such fraction is not issued or delivered to such holder, pay a cash
adjustment in respect of such fraction in an amount equal to the fair market
value of such fraction on the fifth Business Day prior to the date such payment
is to be made. For purposes of the preceding sentence, "fair market value" of
any fraction will be (i) in the case of any fraction of a share of any class of
Common Stock, the product of such fraction and the Fair Market Value of one
share of such Common Stock and (ii) in the case of any other fractional
security, such value as is determined by the Board of Directors.

From and after any applicable exchange date, all rights of a holder of
shares of Class G Common Stock that were exchanged shall cease except for the
right, upon surrender of the certificates representing such shares of Class G
Common Stock, to receive certificates representing shares of the kind and
amount of capital stock or cash and/or securities or other property for which
such shares were exchanged or redeemed, together with any fractional payment
contemplated by the immediately preceding paragraph and rights to dividends or
other distributions as provided in the third immediately preceding paragraph.
No holder of a certificate that immediately prior to the applicable exchange
date for Class G Common Stock represented shares of Class G Common Stock will
be entitled to receive any dividend or other distribution with respect to
shares of any kind of capital stock into which such Class G Common Stock was
exchanged until surrender of such holder's certificate for a certificate or
certificates

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representing shares of such capital stock. Upon such surrender, there shall be
paid to the holder the amount of any dividends or other distributions (without
interest) which theretofore became payable with respect to a record date after
the exchange date, but that were not paid by reason of the foregoing, with
respect to the number of whole shares of the kind of capital stock represented
by the certificate or certificates issued upon such surrender. From and after
an exchange date for Class G Common Stock, CMS Energy will, however, be
entitled to treat the certificates for such Class G Common Stock that have not
yet been surrendered for exchange as evidencing the ownership of the number of
whole shares of the kind or kinds of capital stock for which the shares of such
Class G Common Stock represented by such certificates shall have been
exchanged, notwithstanding the failure to surrender such certificates.

CMS Energy will pay any and all documentary, stamp or similar issue or
transfer taxes that may be payable in respect of the issue or delivery of any
shares of capital stock on exchange of shares of Class G Common Stock. CMS
Energy will not, however, be required to pay any tax that may be payable in
respect of any transfer involved in the issue and delivery of any shares of
capital stock in a name other than that in which the shares of the Class G
Common Stock so exchanged were registered, and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to CMS
Energy the amount of any such tax, or has established to the satisfaction of
CMS Energy that such tax has been paid.

LIQUIDATION, SUBDIVISION AND COMBINATION: In the event of a
dissolution, liquidation or winding up of CMS Energy, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of CMS Energy and after there shall have been paid or set apart for
the holders of Preferred Stock the full preferential amounts (including any
accumulated and unpaid dividends) to which they are entitled, the holders of
Class G Common Stock and CMS Energy Common Stock will be entitled to receive an
amount per share equal to the amount of assets remaining for distribution to
holders of Common Stock divided by the total number of shares of CMS Energy
Common Stock and Class G Common Stock then outstanding. The liquidation rights
of the holders of the respective classes may not bear any relationship to the
relative Fair Market Values or the relative voting rights of the two classes.

If CMS Energy subdivides (by stock split, stock dividend or otherwise)
or combines (by reverse stock split or otherwise) the outstanding shares of
either Class G Common Stock or CMS Energy Common Stock, the liquidation rights
of shares of CMS Energy Common Stock relative to Class G Common Stock will be
appropriately adjusted so as to avoid any dilution in aggregate voting or
liquidation rights of either class of Common Stock. For example, in case CMS
Energy were to effect a two-for-one split of Class G Common Stock, the per
share liquidation rights of CMS Energy Common Stock would be multiplied by two
in order to avoid dilution in the aggregate liquidation rights of holders of
CMS Energy Common Stock and each post-split share of Class G Common Stock would
have one-half of a vote.

Neither the merger or consolidation of CMS Energy into or with any
other corporation, nor the merger or consolidation of any other corporation
into or with CMS Energy nor any sale, transfer or lease of all or any part of
the assets of CMS Energy, will be deemed to be a dissolution, liquidation or
winding up for purposes of the liquidation provisions set forth above.

DETERMINATIONS BY THE BOARD OF DIRECTORS: Any determinations made in
compliance with applicable law by the Board of Directors under any of the
provisions in the Certificate of Amendment would be final and binding on all
shareholders of CMS Energy.

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OTHER RIGHTS: The holders of Class G Common Stock would have no
preemptive rights or any other rights to convert their shares into any other
securities of CMS Energy.

RETAINED INTEREST OF CMS ENERGY IN CONSUMERS GAS GROUP; GAS GROUP
FRACTION: The "Retained Interest" represents the interest in the common
stockholders' equity of CMS Energy attributed to the Consumer Gas Group that
would be deemed to be retained by CMS Energy after shares of Class G Common
Stock are distributed or sold in the Offering or subsequent public offerings.
If the total number of shares of Class G Common Stock that is distributed or
sold represents all of such interest, there will be no Retained Interest.

Assuming that the Board of Directors has designated 25 million shares
of Class G Common Stock as the number of such shares which it deems to
represent 100% of the CMS Energy common stockholders' equity attributable to
the Consumers Gas Group, such shares will represent the initial Retained
Interest Shares. If 5 million shares of Class G Common Stock are offered and
sold in the Offering, the Retained Interest Shares would be decreased to 20
million. The Retained Interest Shares are not, and will not be, outstanding or
held by CMS Energy and cannot be voted, but are used to measure the Retained
Interest.

The Gas Group Fraction is the percentage interest in the common
stockholders' equity attributed to the Consumers Gas Group that would be
represented at any time by the issued and outstanding shares of Class G Common
Stock. If shares of Class G Common Stock other than Retained Interest Shares
were sold, the Retained Interest Shares would not be reduced, but the Retained
Interest as a percentage of the common stockholders' equity attributed to the
Consumers Gas Group would nonetheless be reduced, and the Gas Group Fraction
would be increased accordingly. As shares of Class G Common Stock are offered
and sold from time to time by CMS Energy, it will identify the number of shares
of Class G Common Stock offered and sold which would (i) decrease the Retained
Interest Shares, or (ii) increase the Gas Group Fraction; the sum of the
percentage equal to the Gas Group Fraction and the percentage of the common
stockholders' equity represented by the Retained Interest would always equal
100%. A determination as to whether shares of Class G Common Stock which are
sold are or are not Retained Interest Shares would be made by the Board of
Directors, in its sole discretion, after consideration of a number of factors,
including, among others, the relative levels of internally generated cash flows
of each business of CMS Energy, the capital expenditure plans of and investment
opportunities available to each business of CMS Energy and the availability,
cost and time associated with alternative financing sources.

Any issuance of shares of Class G Common Stock would dilute the
relative voting power of holders of shares of Class G Common Stock outstanding
prior to such issuance.

The Board of Directors could, in its sole discretion, determine from
time to time to cause cash or other property attributed to the Consumers Gas
Group to cease to be attributed to the Consumers Gas Group, which would
decrease the Retained Interest Shares and the Retained Interest as a percentage
of the common stockholders' equity attributed to the Consumers Gas Group, and
would increase the Gas Group Fraction. The Board of Directors could, in its
sole discretion, determine from time to time to attribute additional cash or
other property to the Consumers Gas Group, which would increase the Retained
Interest Shares and the Retained Interest as a percentage of the common
stockholders' equity attributed to the Consumers Gas Group, and decrease the
Gas Group Fraction. The Board of Directors could determine, in its sole
discretion, to make such attributions after consideration of a number of
factors, including, among others, the relative levels of internally generated
cash flows of each business of CMS Energy, the long-term business prospects for
each business of CMS Energy, including the Consumers Gas Group, the capital
expenditure plans of and the investment opportunities available to

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each business of CMS Energy and the availability, cost and time associated with
alternative financing sources. See "Certain Management and Accounting
Policies--Accounting Matters."

In the event of any dividend or other distribution on outstanding
shares of Class G Common Stock while CMS Energy has a Retained Interest, the
Consumers Gas Group's financial statements would be charged in respect of the
Retained Interest with an amount equal to the product of (i) the aggregate
amount paid in respect of such dividend or other distribution, times (ii) a
fraction, the numerator of which is the Retained Interest Shares and the
denominator of which is the total number of shares of Class G Common Stock then
issued and outstanding.

In the event that CMS Energy repurchases shares of Class G Common
Stock for consideration that is not attributed to the Consumers Gas Group, the
Retained Interest Shares and the Retained Interest as a percentage of the
common stockholders' equity attributed to the Consumers Gas Group would
increase, and the Gas Group Fraction would decrease accordingly. In the event
that CMS Energy repurchases shares of Class G Common Stock for consideration
that is attributed to the Consumers Gas Group, the Retained Interest Shares
would not change, but the Retained Interest as a percentage of the common
stockholders' equity attributed to the Consumers Gas Group would increase, and
the Gas Group Fraction would decrease accordingly. The Board of Directors
could, in its sole discretion, determine whether repurchases of Class G Common
Stock should be made with consideration attributed to the Consumers Gas Group
by considering a number of factors, including, among others, the relative
levels of internally generated cash flows of each business of CMS Energy, the
long-term business prospects for each business of CMS Energy, the capital
expenditure plans of and the investment opportunities available to each
business of CMS Energy and the availability, cost and time associated with
alternative financing sources. See "Certain Management and Accounting
Policies--Accounting Matters."

For further discussion of, and illustrations of the calculation of the
Retained Interest Shares, the Retained Interest as a percentage of the common
stockholders' equity in the Consumers Gas Group and the Gas Group Fraction and
the effects thereon of issuances and repurchases of, and dividends on, shares
of Class G Common Stock, and changes in the Retained Interest Shares, the
Retained Interest and the Gas Group Fraction occasioned by the attribution of
cash or other property, see Appendix II, "Class G Common Stock Retained
Interest Illustrations."

CMS ENERGY COMMON STOCK

DIVIDENDS: The Board of Directors has stated its intention to declare
and pay dividends on the CMS Energy Common Stock based primarily on the
earnings and financial condition of CMS Energy. See "Dividend Policy" above.
The results of operations and financial condition of the businesses attributed
to the Consumers Gas Group will continue to be reflected in the consolidated
financial statements of CMS Energy, and such financial statements will disclose
the interest of the holders of outstanding shares of Class G Common Stock in
the Consumer Gas Group.

For information concerning the policies of CMS Energy with regard to
dividends on common Stock and certain restrictions on its ability to pay such
dividends, see "Dividend Policy" and "Primary source of Dividends for the
Common Stock of CMS Energy; Restrictions on Source of Dividends."

VOTING: Except as described herein, the holders of outstanding Class
G Common Stock will vote together with the holders of the outstanding CMS
Energy Common Stock as a single class on all matters as to which all common
shareholders are entitled to vote.

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On all matters to be voted on by the holders of Class G Common Stock
and CMS Energy Common Stock together as a single class, subject to the
antidilution provisions set forth under "Class G Common Stock -- Liquidation,
Subdivision and Combination" above, each outstanding share of Class G Common
Stock and each outstanding share of CMS Energy Common Stock will have one vote.

Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class,
would be necessary for authorizing, effecting of validating the merger of
consolidation of CMS Energy into or with any other corporation if such merger
or consolidation would adversely affect the powers or special rights of such
class of stock, and to authorize any amendment to the Articles of Incorporation
that would increase or decrease the aggregate number of authorized shares of
such class or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. The Articles of
Incorporation also provide that unless the vote or consent of a greater number
of shares shall then be required by law, the approval of the holders of a
majority of the outstanding shares of either class of Common Stock, voting as a
separate class, will be necessary for authorizing, effecting or validating the
merger or consolidation of CMS Energy into or with any other corporation if
such merger or consolidation would adversely affect the powers or special
rights of such class of Common Stock, either directly by amendment to the
Articles of Incorporation or indirectly by requiring the holders of such class
to accept or retain, in such merger or consolidation, anything other than (i)
shares of such class or (ii) shares of the surviving or resulting corporation,
having, in either case, powers and special rights identical to those of such
class prior to such merger or consolidation. The effect of these provisions
may be to permit the holders of a majority of the outstanding shares of either
class of Common Stock to block any such merger or amendment which would
adversely affect the powers or special rights of holders of such class of
common Stock.

Neither CMS Energy nor any holders of CMS Energy Common Stock would be
entitled to vote with respect to Retained Interest Shares.

LIQUIDATION, SUBDIVISION AND COMBINATION: The rights, if any, of the
holders of CMS Energy Common Stock upon the voluntary or involuntary
liquidation, merger, subdivision, combination, consolidation, distribution or
sale of assets, dissolution or winding up of CMS Energy are as set forth under
"Class G Common Stock--Liquidation, Subdivision and Combination" above.

EXCHANGE OR REDEMPTION: The CMS Energy Common Stock may be exchanged
for outstanding shares of Class G Common Stock upon the terms described under
"Class G Common Stock--Exchange or Redemption" above.

STOCK TRANSFER AGENT AND REGISTRAR

The Transfer Agent and the Registrar for the Common Stock is CMS
Energy.

CERTAIN FEDERAL INCOME TAX EFFECTS OF OFFERING

In the opinion of Sidley & Austin, special counsel to CMS Energy, the
CMS Energy Common Stock and the Class G Common Stock each will be treated for
federal income tax purposes as Common Stock of CMS Energy. Accordingly, for
federal income tax purposes, (i) CMS Energy will not recognize any income, gain
or loss as a result of the offering and sale of the Class G Common Stock; (ii)
a holder of Class G Common Stock will not recognize any income, gain or loss
upon the exchange of Class G Common Stock for CMS Energy Common Stock, either
pursuant to CMS Energy's option or upon the Disposition of all or substantially
all of the assets of the Consumers Gas Group, except for cash

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received in lieu of fractional shares; and (iii) the tax basis of CMS Energy
Common Stock received in such exchange will be the tax basis of the Class G
Common Stock exchanged therefor, and, assuming that the Class G Common Stock is
held as a capital asset, the holding period of such CMS Energy Common Stock
will include the holding period of such Class G Common Stock.

The Internal Revenue Service (the "Service") announced in 1987 that it
was studying and would not issue advance rulings on the classification of an
instrument that has certain voting and liquidation rights in an issuing
corporation but the dividend rights of which are determined by reference to the
earnings of a segregated portion of the issuing corporation's assets, including
assets held by a subsidiary. In addition, there are no court decisions or
other authorities that bear directly on transactions similar to the Offering.
It is possible, therefore, that the Service could assert that the Class G
Common Stock represents property other than stock of CMS Energy. If the Class
G Common Stock were treated as property other than stock of CMS Energy, CMS
Energy or its subsidiaries (i) would recognize a significant taxable gain on
the sale of the Class G Stock in an amount equal to the excess of the fair
market value of such stock sold over its federal income tax basis to CMS Energy
or such subsidiaries and (ii) CMS Energy could lose its ability to file
consolidated federal income tax returns with Consumers (one consequence being
that any dividends paid or deemed to be paid by Consumers to CMS Energy would
be taxable to CMS Energy, subject to any applicable dividends received
deduction). As indicated above, however, it is the opinion of counsel that the
Service would not prevail in any such assertion.

The foregoing discussion is for the general information only. It is
based on the Internal Revenue Code of 1986, as amended to the date hereof,
Treasury Department regulations, published positions of the Service and court
decisions now in effect, all of which are subject to change. In particular,
Congress could enact legislation affecting the treatment of stock with
characteristics similar to the Class G Common Stock or the Treasury Department
could change the current law in future regulations, including regulations
issued pursuant to its authority under Section 337(d) of the Code. Any future
legislation or regulations could apply retroactively.

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UNDERWRITERS

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated _____________, 1995, a syndicate of underwriters (the
"Underwriters") named below for whom _______________________________ are acting
as representatives (the "Representatives") has severally agreed to purchase,
and CMS Energy has agreed to sell to them, the respective number of shares of
Class G Common Stock set forth opposite the name of such Underwriters below:

Number
Name of Shares
---- ---------

Total ,000,000
==========

The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the shares of Class G Common
Stock offered hereby is subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are committed
to take and pay for all the shares of Class G Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
such shares are taken, provided that, under certain circumstances relating to a
default of one or more Underwriters, less than all of such shares may be
purchased. Default by one or more Underwriters would not relieve the
non-defaulting Underwriters from their several obligations, and in the event of
such default, CMS Energy would have the right to require the non-defaulting
Underwriters to purchase the respective number of shares of Class G Common
Stock which they have severally agreed to purchase and, in addition, to
purchase shares of Class G Common Stock which the defaulting Underwriter or
Underwriters shall have so failed to purchase up to a number thereof equal to
one-ninth of the respective numbers of shares of Class G Common Stock which
such non-defaulting Underwriters have otherwise agreed to purchase.

The Underwriters initially propose to offer part of the shares of Class G
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $___ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $___ per share of Class G Common Stock to other Underwriters or to
certain dealers. After the initial offering, the offering price and other
selling terms may from time to time be varied upon the mutual agreement of the
Representatives.

Pursuant to the Underwriting Agreement, CMS Energy has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional __________ shares of Class G Common
Stock at the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any. To the
extent such option is exercised, each

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129

Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Class G Common
Stock as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares offered by the Underwriters hereby.

CMS Energy has agreed that, without the prior written consent of the
Representatives, it will not offer, sell, contract to sell or otherwise dispose
of any shares of (a) Class G Common Stock, or any securities (other than CMS
Energy Common Stock) convertible into or exercisable or exchangeable for Class
G Common Stock, for a period of 180 days after the date of this Prospectus, (b)
CMS Energy Common Stock or any securities convertible into or exercisable or
exchangeable for CMS Energy Common Stock for a period of 90 days after the date
of this Prospectus, provided that CMS Energy may, during such periods, issue
shares of Common Stock under its Dividend Reinvestment and Option Cash Payment
Plan, Performance Incentive Stock Plan, Employee Stock Ownership and Employee
Savings and Incentive Plan.

CMS Energy has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. From time
to time certain of the Underwriters have been retained to provide and continue
to provide investment banking services to CMS Energy or Consumers.

PRICING OF OFFERING

Prior to the offering, there has been no public market for the shares of Class
G Common Stock. The initial public offering price will be determined by
negotiation among CMS Energy and the Representatives. Among the factors to be
considered in determining the initial public offering price will be the
Consumers Gas Group's results of operations, the Consumers Gas Group's current
financial condition and future prospects, the experience of its management, the
industry in general, the general condition of the equity securities market and
the price-earnings ratios and market prices of securities of companies
considered comparable to the Consumers Gas Group. There can be no assurance
that a regular trading market for the shares of Class G Common Stock will
develop after the offering or, if developed, that a public trading market can
be sustained. There can also be no assurance that the prices at which the
Class G Common Stock will sell in the public market after the offering will not
be lower than the price at which it is sold by the Underwriters in the
offering.

LEGAL OPINIONS

Opinions as to the legality of the Class G Common Stock will be rendered for
CMS Energy by Sidley & Austin, Chicago, Illinois, counsel to CMS Energy, and
Denise M. Sturdy, Assistant General Counsel for CMS Energy. Certain legal
matters with respect to the Class G Common Stock will be passed upon by Reid &
Priest LLP, New York, New York, counsel for the Underwriters.

EXPERTS

The consolidated financial statements and schedules of CMS Energy as of
December 31, 1993 and 1992, and for each of the three years in the period ended
December 31, 1993 included or incorporated by reference in this Prospectus,
have been audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.),
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports. Reference is made
to said reports which include an explanatory

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paragraph with respect to the change in the method of accounting for income
taxes in 1992 as discussed in Note 6 to the consolidated financial statements
and with respect to the change in the method of accounting for postretirement
benefits other than pensions in 1992 as discussed in Note 10 to the
consolidated financial statements.

With respect to the unaudited interim consolidated financial information for
the periods ended March 31, June 30 and September 30, 1994 and 1993, Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
thereon states that they did not audit and they did not express an opinion on
that interim consolidated financial information. Accordingly, the degree of
reliance on their report on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act of 1933, as amended ("Securities Act"), for their report on the
unaudited interim consolidated financial information because that report is not
a "report" or "part" of the registration statement prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the Securities Act.

Future consolidated financial statements of CMS Energy and the reports thereon
of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.

AVAILABLE INFORMATION

CMS Energy is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports and other information with the
Commission. Information, as of particular dates, concerning CMS Energy's
directors and officers, their remuneration, the principal holders of CMS Energy
is disclosed in proxy statements distributed to shareholders of CMS Energy and
filed with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 500
West Madison Street, 14th Floor, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W. Washington, D.C. 20549 at prescribed rates. The
outstanding CMS Energy Common Stock is, and the Class G Common Stock is
expected to be, listed on the NYSE and reports, proxy statements and other
information concerning CMS Energy may also be inspected and copied at the
offices of such exchange at 20 Broad Street, New York, New York 10005.

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APPENDIX I

GLOSSARY

Unless otherwise indicated, page number references are to pages in the body
of the Prospectus and the financial statements attached thereto.

Term Page Where Definition Appears
- ---- -----------------------------

ABATE . . . . . . . . . . . . . . . . . . . . . . . . . Page 72
Additional Shares . . . . . . . . . . . . . . . . . . . Page 37
ALJ . . . . . . . . . . . . . . . . . . . . . . . . . . Page 74
AMT . . . . . . . . . . . . . . . . . . . . . . . . . . Page F-12
ANR . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
Articles . . . . . . . . . . . . . . . . . . . . . . . Page 19
Articles of Incorporation . . . . . . . . . . . . . . . Page 4
Attorney General . . . . . . . . . . . . . . . . . . . Page 23
Available Class G Dividend Amount . . . . . . . . . . . Page 87
Big Rock . . . . . . . . . . . . . . . . . . . . . . . Page F-34
Board of Directors . . . . . . . . . . . . . . . . . . Page 1
Business Day . . . . . . . . . . . . . . . . . . . . . Page 90
base period . . . . . . . . . . . . . . . . . . . . . . Page 34
Bcf . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
BTU . . . . . . . . . . . . . . . . . . . . . . . . . . Page F-56
calculation date . . . . . . . . . . . . . . . . . . . Page 87
Certificate of Amendment . . . . . . . . . . . . . . . Page 4
Class G Common Stock . . . . . . . . . . . . . . . . . Page 1
Clean Air Act . . . . . . . . . . . . . . . . . . . . . Page 74
CMS Energy . . . . . . . . . . . . . . . . . . . . . . Page 1
CMS Energy Common Stock . . . . . . . . . . . . . . . . Page 1
CMS Gas Marketing . . . . . . . . . . . . . . . . . . . Page 83
CMS Generation . . . . . . . . . . . . . . . . . . . . Page 81
CMS Generation S.A. . . . . . . . . . . . . . . . . . . Page 82
CMS Holdings . . . . . . . . . . . . . . . . . . . . . Page 73
CMS Midland . . . . . . . . . . . . . . . . . . . . . . Page F-37
Commission . . . . . . . . . . . . . . . . . . . . . . Page 3
Common Stock . . . . . . . . . . . . . . . . . . . . . Page 14
Consumers . . . . . . . . . . . . . . . . . . . . . . . Page 1
Consumers Gas Group . . . . . . . . . . . . . . . . . . Page 1
Consumers Gas Group Notes . . . . . . . . . . . . . . Page 55
Convertible Securities . . . . . . . . . . . . . . . . Page 88
Court of Appeals . . . . . . . . . . . . . . . . . . . Page 22
Credit Facility . . . . . . . . . . . . . . . . . . . . Page 32
Detroit Edison . . . . . . . . . . . . . . . . . . . . Page 76
Disposition . . . . . . . . . . . . . . . . . . . . . . Page 90
DNR . . . . . . . . . . . . . . . . . . . . . . . . . . Page 60
DOE . . . . . . . . . . . . . . . . . . . . . . . . . . Page 75
DSM . . . . . . . . . . . . . . . . . . . . . . . . . . Page 69
Energy Act . . . . . . . . . . . . . . . . . . . . . . Page F-42

I-1
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Enterprises . . . . . . . . . . . . . . . . . . . . . . Page 8
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . Page 75
Environmental Response Act . . . . . . . . . . . . . . Page 47
Exchange Act . . . . . . . . . . . . . . . . . . . . . Page 3
FASB . . . . . . . . . . . . . . . . . . . . . . . . . Page 61
FERC . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
Fair Market Value . . . . . . . . . . . . . . . . . . . Page 90
15% Premium . . . . . . . . . . . . . . . . . . . . . . Page 26
FMLP . . . . . . . . . . . . . . . . . . . . . . . . . Page 73
Gas Distribution Business . . . . . . . . . . . . . . . Page 4
Gas Group Fraction . . . . . . . . . . . . . . . . . . Page 87
Gas Group Subsidiary . . . . . . . . . . . . . . . . . Page 89
GCR . . . . . . . . . . . . . . . . . . . . . . . . . . Page 45
GPSLP . . . . . . . . . . . . . . . . . . . . . . . . . Page 81
GTNs . . . . . . . . . . . . . . . . . . . . . . . . . Page 33
GTN Indenture . . . . . . . . . . . . . . . . . . . . . Page 32
HYDRA-CO . . . . . . . . . . . . . . . . . . . . . . . Page 69
Incorporated Documents . . . . . . . . . . . . . . . . Page 3
Indenture . . . . . . . . . . . . . . . . . . . . . . . Page 32
ITC . . . . . . . . . . . . . . . . . . . . . . . . . . Page F-12
KW . . . . . . . . . . . . . . . . . . . . . . . . . . Page 7
kWh . . . . . . . . . . . . . . . . . . . . . . . . . . Page 71
Ludington . . . . . . . . . . . . . . . . . . . . . . . Page F-40
Mcf . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
MBCA . . . . . . . . . . . . . . . . . . . . . . . . . Page 91
MCV . . . . . . . . . . . . . . . . . . . . . . . . . . Page 70
MCV Bonds . . . . . . . . . . . . . . . . . . . . . . . Page 68
MCV Facility . . . . . . . . . . . . . . . . . . . . . Page 22
MCV Partnership . . . . . . . . . . . . . . . . . . . . Page 5
MGL . . . . . . . . . . . . . . . . . . . . . . . . . . Page 73
MGS . . . . . . . . . . . . . . . . . . . . . . . . . . Page 1
MichCon . . . . . . . . . . . . . . . . . . . . . . . . Page 84
Michigan Cogeneration Partners . . . . . . . . . . . . Page 73
MMbtu . . . . . . . . . . . . . . . . . . . . . . . . . Page F-56
MMCG . . . . . . . . . . . . . . . . . . . . . . . . . Page 23
MOAPA . . . . . . . . . . . . . . . . . . . . . . . . . Page F-48
Mortgage Indenture . . . . . . . . . . . . . . . . . . Page 19
MPSC . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
MW . . . . . . . . . . . . . . . . . . . . . . . . . . Page 21
NEIL . . . . . . . . . . . . . . . . . . . . . . . . . Page F-35
NML . . . . . . . . . . . . . . . . . . . . . . . . . . Page F-35
NGVs . . . . . . . . . . . . . . . . . . . . . . . . . Page 7
North Michigan . . . . . . . . . . . . . . . . . . . . Page 48
NOMECO . . . . . . . . . . . . . . . . . . . . . . . . Page 68
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . Page 9
NRC . . . . . . . . . . . . . . . . . . . . . . . . . . Page 22
O&M . . . . . . . . . . . . . . . . . . . . . . . . . . Page 54
Offering . . . . . . . . . . . . . . . . . . . . . . . Page 3
Order 636 . . . . . . . . . . . . . . . . . . . . . . . Page 46
Oxford . . . . . . . . . . . . . . . . . . . . . . . . Page 83
Palisades . . . . . . . . . . . . . . . . . . . . . . . Page 22
Panhandle . . . . . . . . . . . . . . . . . . . . . . . Page 6
PCRB . . . . . . . . . . . . . . . . . . . . . . . . . Page 68

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Pension Plan . . . . . . . . . . . . . . . . . . . . . Page F-19
Plateau . . . . . . . . . . . . . . . . . . . . . . . . Page F-36
PPA . . . . . . . . . . . . . . . . . . . . . . . . . . Page 21
Preferred Stock . . . . . . . . . . . . . . . . . . . Page 86
Proxy Capital Structure . . . . . . . . . . . . . . . . Page 21
PSCR . . . . . . . . . . . . . . . . . . . . . . . . . Page 22
PUHCA . . . . . . . . . . . . . . . . . . . . . . . . . Page 23
Representatives . . . . . . . . . . . . . . . . . . . Page 98
Retained Interest . . . . . . . . . . . . . . . . . . . Page 94
Retained Interest Fraction . . . . . . . . . . . . . . Page 16
Retained Interest Shares . . . . . . . . . . . . . . . Page 87
Restricted Payment . . . . . . . . . . . . . . . . . . Page 32
Revised Settlement Proposal . . . . . . . . . . . . . . Page F-37
Risk Service Contract . . . . . . . . . . . . . . . . . Page 80
Secured Credit Facility . . . . . . . . . . . . . . . . Page 68
Securities Act . . . . . . . . . . . . . . . . . . . . Page 100
Series A Notes . . . . . . . . . . . . . . . . . . . . Page F-14
Series B Notes . . . . . . . . . . . . . . . . . . . . Page F-14
SERP . . . . . . . . . . . . . . . . . . . . . . . . . Page F-18
Settlement Order . . . . . . . . . . . . . . . . . . . Page 22
Service . . . . . . . . . . . . . . . . . . . . . . . . Page 97
SFAS . . . . . . . . . . . . . . . . . . . . . . . . . Page 57
Substantially all of the properties and assets
attributed to the Consumers Gas Group . . . . . . . . Page 90
Superfund . . . . . . . . . . . . . . . . . . . . . . . Page 75
10% Premium . . . . . . . . . . . . . . . . . . . . . . Page 26
Trunkline . . . . . . . . . . . . . . . . . . . . . . . Page 6
Underwriters . . . . . . . . . . . . . . . . . . . . . Page 98
Union . . . . . . . . . . . . . . . . . . . . . . . . . Page 49
US Court of Appeals . . . . . . . . . . . . . . . . . Page 48
Voluntary Employee Beneficiary Association . . . . . . Page F-17
Walter . . . . . . . . . . . . . . . . . . . . . . . . Page 69

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APPENDIX II

CLASS G COMMON STOCK RETAINED INTEREST ILLUSTRATIONS

The following illustration reflects the calculations of the
Retained Interest based on the assumptions set forth herein and using the 60
million authorized shares of the Class G Common Stock, of which 25 million
shares have been deemed to represent 100% of the common stockholders' equity of
CMS Energy attributable to the Consumers Gas Group, as diagramed below:

After Offering
Before Offering (as discussed below)
--------------- --------------------

35 million Additional 35 million Additional
Shares Shares

25 million Retained 20 million Retained
Interest Shares Interest Shares

5 million Outstanding
Shares

OFFERING OF CLASS G COMMON STOCK

. A total of 5 million shares sold in the Offering. Such shares
will be entitled to vote and, in the aggregate, will represent
an interest in the earnings and equity of CMS Energy
attributable to the Consumers Gas Group equal to the Gas Group
Fraction, in this case 20%.

. The Gas Group Fraction, which represents the fractional
interest in the earnings and equity of CMS Energy attributable
to the Consumers Gas Group that is held by the holders of the
outstanding shares of Class G Common Stock, is equal to the
following fraction:

Outstanding Shares of Class G Common Stock
------------------------------------------------------

Outstanding Shares of + Retained Interest Shares
Class G Common Stock

or in the foregoing case,

5 million
----------------------------- = 20%
5 million + 20 million

. The balance of the shares deemed to represent 100% of the CMS
Energy common stockholders' equity value attributed to the
Consumers Gas Group (25 million minus 5 million, or 20
million) will represent the Retained Interest Shares, which
remain attributed to CMS Energy at the conclusion of the
Offering. The Retained Interest Shares will not be issued,
outstanding or entitled to vote. CMS Energy's Retained
Interest in the Consumers Gas Group is equal to one minus the
Gas Group Fraction, in this case 80%.

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1 - 5 million = 80%
------------------------------
5 million + 20 million

. After the Offering, CMS Energy will have 55 million authorized
and unissued shares of Class G Common Stock remaining (60
million minus 5 million issued and outstanding). Authorized
and unissued shares may be issued without further action by
shareholders and would result in the reduction of the
percentage equity interest of existing holders and may be
issued at prices which could dilute the equity interest of
existing shareholders. Issuance of Retained Interest Shares,
however, would not dilute earnings per share of the Consumers
Gas Group because the number of shares that would be used in
the denominator for such calculation would remain the same
after any such issue.

. In addition, with a Gas Group Fraction of 20% (and a Retained
Interest of 80%) the financial statements of the Consumers Gas
Group are charged in respect of the Retained Interest, with an
amount equal to four times (representing the ratio of the 20
million Retained Interest Shares to the 5 million shares
outstanding) the aggregate amount of any dividend or other
distribution paid on the Class G Common Stock. When for
example, a cash dividend of $.20 per share is declared and
paid on the 5 million shares of Class G Common Stock
outstanding (an aggregate of $1 million), the Consumers Gas
Group financial statements are charged, through an adjustment
to the cash balance attributable to the Consumers Gas Group,
with $4 million in addition to the $1 million dividend (an
aggregate of $5 million). Thus, the Consumers Gas Group is
treated as having paid a cash dividend on not only the
outstanding shares of Class G Common Stock but also on each of
the Retained Interest Shares.

. Any additional shares sold in the Offering to cover
over-allotments by the Underwriters will be attributed to the
Retained Interest and will increase the Gas Group Fraction and
reduce the Retained Interest accordingly.

ADDITIONAL OFFERING OF CLASS G COMMON STOCK

The following illustrations reflect the sale of 5 million shares of
Class G Common Stock subsequent to the Offering.

A. Additional Offering of Shares other than Retained Interest Shares

All such shares are identified as representing an additional
equity interest in the Consumers Gas Group, with the net proceeds
reflected in the financial statements of the Consumers Gas Group.
Such shares may be issued at prices which dilute the equity interest
of the holders of the outstanding shares.

Shares previously issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 5 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 million
----------

Total issued and outstanding after the
second offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 million
==========

. CMS Energy would have 50 million authorized and unissued
shares of Class G Common Stock remaining (60 million minus 10
million issued and outstanding), 20 million of which would be
Retained Interest Shares.

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136

. The total issued and outstanding shares (10 million) would in
the aggregate represent a Gas Group Fraction of 33.3%,
calculated as follows:

10 million = 33.3%
--------------------------------
10 million + 20 million

The 20 million Retained Interest Shares would accordingly
represent an interest of 66.7% in such earnings and equity.

. In this case, the financial statements of the Consumers Gas
Group would be charged, with an amount equal to two times
(representing the ratio of the 20 million Retained Interest
Shares to the 10 million shares outstanding) the aggregate
amount of any dividend or other distribution paid on the Class
G Common Stock. The Consumers Gas Group therefore would be
treated as having paid a dividend or other distribution on not
only the outstanding shares of Class G Common Stock but also
on each of the Retained Interest Shares.

B. Additional Offering From the Retained Interest Shares

All of such shares are identified as Retained Interest Shares,
with none of the net proceeds being reflected in the financial
statements of the Consumers Gas Group.

Shares previously issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 million
----------

Total issued and outstanding after the
second offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 million
==========

. CMS Energy would have 50 million authorized and unissued
shares of Class G Common Stock remaining (60 million minus 10
million issued and outstanding), 15 million of which would be
Retained Interest Shares.

. The total issued and outstanding shares (10 million) would in
the aggregate represent a Gas Group Fraction of 40%,
calculated as follows:

10 million = 40%
---------------------------------
10 million + 15 million

. The remaining 15 million Retained Interest Shares would
accordingly represent an interest of 60% in such earnings
and equity.

. Even if CMS Energy issues all shares deemed to represent the
Retained Interest Shares at a particular point in time (and
the Gas Group Fraction accordingly would become 100%), CMS
Energy could still attribute assets and property to the
Consumers Gas Group which would increase above zero the
Retained Interest Shares and would accordingly reduce the Gas
Group Fraction. See "Attribution of Assets between CMS Energy
and Consumers Gas Group -- Attribution of Additional Assets,
Including Equity Infusions, from CMS Energy to Consumers Gas
Group."

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ATTRIBUTION OF NET ASSETS BETWEEN CMS ENERGY AND CONSUMERS GAS GROUP

The following illustrations reflect equity infusions resulting
from the assumed attribution (whether contributed or deemed to have been
contributed by a regulatory agency and required by such agency to be accounted
for as such), after the assumed initial issuance of 5 million shares of Class G
Common Stock attributable to the Retained Interest, of $100 million of net
assets (consisting of $150 million of assets and $50 million of liabilities
related thereto) on a date on which the Fair Market Value of a share of Class G
Common Stock is $25 per share.

A. Attribution of Additional Net Assets from CMS Energy to
Consumers Gas Group

Assume the attribution of net assets by CMS Energy to the
Consumers Gas Group.

Shares previously issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . 5 million
Newly issued shares . . . . . . . . . . . . . . . . . . . 0
----------

Total issued and outstanding
after attribution . . . . . . . . . . . . . . . . . . . 5 million
==========

. The Retained Interest Shares would be increased to reflect the
attribution of net assets to the Consumers Gas Group by the
number equal to the value of the net assets allocated ($100
million) divided by the Fair Market Value of a share of Class
G Common Stock at that time ($25), or 4 million shares.

Retained Interest Shares prior
to attribution . . . . . . . . . . . . . . . . . . . . . 20 million
Increase to reflect attribution to
Consumers Gas Group . . . . . . . . . . . . . . . . . . 4 million
----------

Retained Interest Shares after
attribution . . . . . . . . . . . . . . . . . . . . . . 24 million
==========

. As a result, the total issued and outstanding shares (5
million) would in the aggregate represent a Gas Group Fraction
of 17.2%, calculated as follows:

5 million = 17.2%
---------------------------------
5 million + 24 million

The Retained Interest as a percentage would accordingly be increased
to 82.8%.

. CMS Energy would have 55 million authorized and unissued shares of
Class G Common Stock (60 million minus 5 million issued and
outstanding).

II-4
138

B. Attribution of Net Assets from Consumers Gas Group to CMS
Energy

Assume the attribution of net assets attributed to the
Consumers Gas Group to CMS Energy

Shares Previously issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . 5 million
Newly Issued Shares . . . . . . . . . . . . . . . . . . . 0
---------

Total issued and outstanding
after attribution . . . . . . . . . . . . . . . . . . . 5 million
=========

. The Retained Interest Shares would be decreased to reflect the
attribution by CMS Energy of net assets attributed to the
Consumers Gas Group to CMS Energy by the number equal to the
value of the net assets attributed ($100 million) divided by
the Fair Market Value of a share of Class G Common Stock at
that time ($25), or 4 million shares.

Retained Interest Shares prior to
attribution . . . . . . . . . . . . . . . . . . . . . . 20 million
Decrease to reflect attribution to the
CMS Energy . . . . . . . . . . . . . . . . . . . . . . . -4 million
----------

Retained Interest Shares after
attribution . . . . . . . . . . . . . . . . . . . . . . 16 million
==========

. As a result, the total issued and outstanding shares (5
million) would in the aggregate represent a Gas Group Fraction
of 23.8%, calculated as follows:

5 million = 23.8%
--------------------------------
5 million + 16 million

The Retained Interest as a percentage would accordingly decrease to
76.2%.

. CMS Energy would have 55 million authorized and unissued
shares of Class G Common Stock (60 million minus 5 million
issued and outstanding).

REPURCHASES OF CLASS G COMMON STOCK

The following illustrations reflect an assumed repurchase of 3 million
shares of Class G Common Stock after the assumed initial issuance of 5 million
shares of Class G Common Stock.

II-5
139

A. Repurchase With Assets Not Attributed to the Consumers Gas Group

All of such shares are identified as repurchased with assets
not attributed to the Consumers Gas Group, with no charge to the
financial statements of the Consumers Gas Group for the consideration
paid for such shares, resulting in an increase in CMS Energy's
Retained Interest in the Consumers Gas Group.

Shares previously issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . 5 million
Shares repurchased with assets not attributed to
the Consumers Gas Group . . . . . . . . . . . . . . . . -3 million
----------

Total issued and outstanding
after repurchase . . . . . . . . . . . . . . . . . . . . 2 million
==========

. The Retained Interest Shares would be increased by the number
of shares of Class G Common Stock repurchased as noted above.

Retained Interest Shares prior to
repurchase . . . . . . . . . . . . . . . . . . . . . . . 20 million

Number of shares repurchased
with assets not attributed to
the Consumers Gas Group . . . . . . . . . . . . . . . . 3 million
----------

Number of Retained Interest Shares after
repurchase . . . . . . . . . . . . . . . . . . . . . . . 23 million
==========

. As a result, the total issued and outstanding shares (2
million) would in the aggregate represent a Gas Group Fraction
of 8%, calculated as follows:

2 million = 8%
---------------------------
2 million + 23 million

The Retained Interest as a percentage would accordingly be increased
to 92%.

. The shares repurchased would no longer be outstanding or
entitled to vote and thereafter CMS Energy would have 58
million authorized and unissued shares of Class G Common Stock
(60 million minus 2 million issued and outstanding).

B. Repurchase With Assets Attributed to the Consumers Gas Group

Assume all of such shares are identified as repurchased with
assets attributed to the Consumers Gas Group, with the financial
statements of the Consumers Gas Group being charged entirely with the
consideration paid for such shares.

II-6
140

Shares previously issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . 5 million
Shares repurchased with assets attributed
to the Consumers Gas Group . . . . . . . . . . . . . . . -3 million
----------

Total issued and outstanding
after repurchase . . . . . . . . . . . . . . . . . . . . 2 million
==========

. The Retained Interest Shares (20 million) would remain
unchanged.

. As a result, the total issued and outstanding shares (2
million) would in the aggregate represent a Gas Group Fraction
of 9.1%, calculated as follows:

2 million = 9.1%
---------------------------
2 million + 20 million

The Retained Interest as a percentage would accordingly be increased
to 90.9%.

II-7
141

INDEX TO FINANCIAL STATEMENTS

Page
----

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consumers Gas Group Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Consumers Gas Group Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consumers Gas Group Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Consumers Gas Group Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-7

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-25

CMS Energy Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . F-26

CMS Energy Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . F-27

CMS Energy Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28

CMS Energy Consolidated Statements of Common Stockholders' Equity . . . . . . . . . . . . . F-30

CMS Energy Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . F-31

________________________

F-1
142

EXPLANATORY NOTE REGARDING FINANCIAL INFORMATION

Effective upon completion of the Offering, CMS Energy will have
outstanding two classes of Common Stock: Class G Common Stock, which is
intended to reflect the performance of the Consumers Gas Group; and CMS Energy
Common Stock, which is intended to reflect the performance of CMS Energy (which
will also reflect the performance of the Consumers Gas Group to the extent of
the Retained Interest).

Although the financial statements of the Consumers Gas Group will
separately report the assets, liabilities (including contingent liabilities)
and shareholders' equity of CMS Energy attributed to the Consumers Gas Group,
such attribution will not affect CMS Energy's legal title to such assets or
responsibility for such liabilities. Holders of Class G Common Stock will be,
and holders of CMS Energy Common Stock are, shareholders of CMS Energy, which
continues to be responsible for all of its liabilities. Financial results
arising from the business of CMS Energy (including its Retained Interest in the
Consumers Gas Group) or from the business of the Consumers Gas Group could
affect the market price of both classes of Common Stock. In addition, any net
losses of CMS Energy or the Consumers Gas Group, and dividends or distributions
on, or repurchases of, either class of Common Stock will reduce the assets of
CMS Energy legally available for payment of dividends on both classes of Common
Stock. Accordingly, CMS Energy's consolidated financial information should be
read in conjunction with the Consumers Gas Group's financial information.

F-2
143

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To CMS Energy Corporation:

We have audited the accompanying balance sheets of CONSUMERS GAS GROUP
(representing a business unit of Consumers Power Company ("Consumers") and its
wholly-owned subsidiary, Michigan Gas Storage Company) as of December 31, 1993
and 1992, and the related statements of income, and cash flows for each of the
three years in the period ended December 31, 1993. These financial statements
are the responsibility of the management of CMS Energy Corporation (the
"Company"), the parent of Consumers. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consumers Gas Group as of
December 31, 1993 and 1992, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.

As discussed in Note 4 to the financial statements, effective January 1, 1992,
Consumers changed its method of accounting for income taxes. As discussed in
Note 9 to the financial statements, effective January 1, 1992, Consumers
changed its method of accounting for postretirement benefits other than
pensions. Additionally, as discussed in Note 6 to the financial statements,
Consumers effected a quasi-reorganization on December 31, 1992.

Arthur Andersen LLP

Detroit, Michigan
December 1, 1994
(except with respect to the matter discussed in
Note 2 as to which the date is February 14, 1995)

F-3
144

CONSUMERS GAS GROUP

STATEMENTS OF INCOME

NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------- --- ----- ----- -------- ---
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(UNAUDITED)
IN MILLIONS

Operating Revenue $837 $809 $1,160 $1,126 $1,061
------ ------ ------- ------- -------
Operating Expenses
Operation
Cost of gas sold 475 473 678 673 677
Other 137 125 171 177 172
------ ------ ------- ------- -------
Total operation 612 598 849 850 849
Maintenance 29 25 38 37 27
Depreciation, depletion and amortization 51 49 73 76 70
General taxes 39 41 54 54 51
------ ------ ------- ------- -------
Total operating expenses 731 713 1,014 1,017 997
------ ------ ------- ------- -------
Pretax Operating Income 106 96 146 109 64
Income Taxes 32 27 39 35 2
------ ------ ------- ------- -------
Net Operating Income 74 69 107 74 62
------ ------ ------- ------- -------
Other Income (Deductions) (1) (1) (2) (3) 3
------ ------ ------- ------- -------
Fixed Charges
Interest on long-term debt 22 22 31 28 41
Other interest 3 4 7 1 21
Capitalized interest - - (1) - -
Preferred dividends 3 1 2 2 2
------ ------ ------- ------- -------
Net fixed charges 28 27 39 31 64
------ ------ ------- ------- -------
Net Income $ 45 $ 41 $ 66 $ 40 $ 1
====== ====== ======= ======= =======

The accompanying notes are an integral part of these statements.

F-4
145

CONSUMERS GAS GROUP

STATEMENTS OF CASH FLOWS

NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------- --- ----- ----- -------- ---
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(UNAUDITED)
IN MILLIONS

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45 $ 41 $ 66 $ 40 $ 1
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 51 49 73 76 70
Debt discount and capital lease amortization 3 2 5 8 8
Deferred income taxes and investment tax credit 6 - 4 (4) (5)
Changes in other assets and liabilities
(Note 12) 12 (94) (68) (14) 106
---- ----- ----- ----- -----
Net cash provided by operating activities 117 (2) 80 106 180
==== ===== ===== ===== =====
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (excludes assets placed under
capital leases) (Note 12) (83) (107) (153) (107) (68)
Other (5) (5) (6) 3 (3)
---- ----- ----- ----- -----
Net cash used in investing activities (88) (112) (159) (104) (71)
==== ===== ===== ===== =====
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable, net 1 120 86 (52) 68
Retirement of bonds (29) - (121) - (109)
Payment of bank loans (33) (2) - - (57)
Payment of common stock dividends (30) (21) (47) - (13)
Payment of capital lease obligations (3) (3) (5) (8) (7)
Contribution from stockholder 22 - - - -
Proceeds from preferred stock 42 - - - -
Proceeds from bonds - - 155 38 -
Proceeds from bank loans - 9 2 25 -
---- ----- ----- ----- -----
Net cash provided by (used in)
financing activities (30) 103 70 3 (118)
==== ===== ===== ===== =====
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS: (1) (11) (9) 5 (9)
Cash and temporary cash investments
Beginning of period 4 13 13 8 17
---- ----- ----- ----- -----
End of period $ 3 $ 2 $ 4 $ 13 $ 8
==== ===== ===== ===== =====

The accompanying notes are an integral part of these statements.

F-5
146

CONSUMERS GAS GROUP
BALANCE SHEETS

SEPTEMBER 30, DECEMBER 31,
--------- --- -------- ---
1994 1993 1992
---- ---- ----
(UNAUDITED)
IN MILLIONS

ASSETS
Plant and Property (At Cost)
Plant $2,014 $1,939 $1,818
Less accumulated depreciation, depletion and amortization 1,103 1,061 1,015
----- ----- -----
911 878 803
Construction work-in-progress 57 53 43
----- ----- -----
968 931 846
----- ----- -----
Current Assets
Cash and temporary cash investments at cost, which approximates
market 3 4 13
Accounts receivable and accrued revenues, less allowances of $2 at
September 30, 1994 and in 1993 and 1992 (Note 5) 24 79 85
Inventories at average cost
Gas in underground storage 271 228 204
Materials and supplies 10 10 10
Trunkline settlement (Note 3) 30 31 30
Deferred income taxes (Note 4) 11 9 4
Prepayments and other 22 57 66
----- ----- -----
371 418 412
----- ----- -----
Non-Current Assets
Postretirement benefits (Note 9) 158 159 151
Trunkline settlement (Note 3) 63 86 116
Deferred income taxes (Note 4) - 3 18
Other 65 31 31
----- ----- -----
286 279 316
----- ----- -----
Total Assets $1,625 $1,628 $1,574
====== ====== ======

STOCKHOLDERS' INVESTMENT AND LIABILITIES

Capitalization (Note 6)
Common stockholders' equity $ 325 $ 288 $ 269
Preferred stock 78 36 36
Long-term debt 343 376 392
Non-current portion of capital leases 18 18 21
----- ----- -----
764 718 718
----- ----- -----
Current Liabilities
Current portion of long-term debt and capital leases 53 82 28
Notes payable 110 109 23
Accounts payable 69 67 74
Accrued refunds 31 20 30
Trunkline settlement (Note 3) 30 30 30
Accrued taxes 25 62 94
Accrued interest 7 9 9
Other 63 70 64
----- ----- -----
388 449 352
----- ----- -----
Non-Current Liabilities
Postretirement benefits (Note 9) 176 171 161
Regulatory liabilities for income taxes, net (Note 4) 137 131 135
Trunkline settlement (Note 3) 63 86 116
Deferred investment tax credits 31 32 34
Other 66 41 58
----- ----- -----
473 461 504
----- ----- -----
Commitments and Contingencies (Notes 2, 3 and 11)
Total Stockholders' Investment and Liabilities $1,625 $1,628 $1,574
====== ====== ======

The accompanying notes are an integral part of these statements.

F-6
147

CONSUMERS GAS GROUP

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE STRUCTURE

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non-utility energy-related
businesses including: 1) oil and gas exploration and production, 2) development
and operation of independent power production facilities, 3) gas marketing
services to end-users and 4) transmission and storage of natural gas.

In September 1994, management announced that Consumers is being
internally reorganized into separate electric utility and gas utility strategic
business units. The restructuring, effective January 1, 1995, while not
affecting Consumers' consolidated financial statements or corporate legal form,
is designed to sharpen management focus, improve efficiency and accountability
in both business segments and better position Consumers for growth in the gas
market and to meet increased competition in the electric power market.
Management believes that the strategic business unit structure will allow each
unit to focus more on its own profitability and growth potential, and will
ultimately, in the long term, result in lower overall costs.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Basis of Presentation

CMS Energy is seeking shareholder approval to amend its Articles of
Incorporation and authorize a new class of Common Stock of CMS Energy. This
proposed new class of Common Stock, designated Class G Common Stock, will
reflect the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers and Michigan Gas Storage (such
businesses, collectively, will be attributed to the Consumers Gas Group). The
existing CMS Energy Common Stock will continue to be outstanding and, if and
after any shares of Class G Common Stock are issued by CMS Energy, will be
intended to reflect the performance of all of the businesses of CMS Energy and
its subsidiaries, including the business of the Consumers Gas Group, except for
the interest in the Consumers Gas Group attributable to the outstanding shares
of the Class G Common Stock.

Following approval of the New Stock Proposal by the shareholders, CMS
Energy may, subject to prevailing market and other conditions, to offer shares
of Class G Common Stock for sale for cash in an initial public offering. The
net proceeds of such offering would be invested in the businesses of CMS Energy
and used for its general corporate purposes. Initially, such proceeds will be
used to repay a portion of the debt of CMS Energy (none of which is
attributable to the Consumers Gas Group). The timing and size of such public
offering and the price at which such shares would be sold would be determined
by the Board of Directors without further approval of the shareholders.
However, shares of Class G Common Stock intended to represent up to
approximately 30 percent of the common stockholders' equity value attributed to
the Consumers Gas Group are currently expected to be offered to the public in
the initial public offering. Such offer will be made only by prospectus and
after a Registration Statement filed with respect thereto by CMS Energy under
the Securities Act of 1933 has become effective. An application will be filed
to list the Class G Common Stock for trading on the NYSE in connection with any
such offer. Additional authorized shares of Class G Common Stock could be
offered by CMS Energy in the future at

F-7
148

the discretion of the Board of Directors and without further shareholder
approval.

Consumers is a regulated utility. Accordingly, the majority of the
accounting allocation policies described within these notes have a
long-standing basis and have historically been used in proceedings conducted
before the MPSC. The financial statements for the Consumers Gas Group have
been prepared based upon consistent methods that management believes are
reasonable and appropriate to reflect its financial position, results of
operations and cash flows. Where appropriate, the financial statements reflect
the assets, liabilities, revenues and expenses directly related to the
Consumers Gas Group. However, in instances where common accounts (containing
both electric and gas activities) were not readily attributable to a single
business segment, management allocated to the Consumers Gas Group's financial
statements based on certain measures of business activities, such as gas
revenues, salaries, other O&M expenditures, number of gas customers in
relationship to total utility customers and/or functional use surveys.
Management believes the attributions are reasonable.

Although the financial statements of Consumers Gas Group separately
report the assets, liabilities and stockholders' equity, legal title to such
assets and the responsibility for such liabilities are not separately
identifiable to a specific class of Common Stock. Therefore, the creditors of
CMS Energy are unaffected by the implementation of the Consumers Gas Group,
because all assets of the corporation remain available to satisfy all
liabilities. The holders of CMS Energy Common Stock and the proposed Class G
Common Stock continue to be subject to all risks associated with investments in
CMS Energy. Holders of Class G Common Stock have no direct rights in the
equity or assets of Consumers Gas Group, but rather have rights in the equity
and assets of CMS Energy. Accordingly, CMS Energy's consolidated financial
statements and related notes included within this Prospectus should be read in
conjunction with these financial statements.

Principles Applied in Financial Statements

The financial statements of the Consumers Gas Group incorporate
Consumers' natural gas utility business and the related business of Michigan
Gas Storage. The Consumers Gas Group and the remaining business segments of
CMS Energy comprise all of the accounts included in the consolidated financial
statements of CMS Energy.

The financial statements of Consumers Gas Group were prepared in
accordance with generally accepted accounting principles on a consistent basis.
Any future changes in accounting policy not mandated by appropriate authorities
must be, in management's opinion, preferable to the policy in place and must be
disclosed in accordance with generally accepted accounting principles.

For presentation purposes, all material transactions between companies
within the Consumers Gas Group have been eliminated. Amounts as of, and for,
and pertaining to the nine month periods ended September 30, 1994 and 1993
included herein are unaudited.

Dividend Policy

Dividends on the Class G Common Stock will be paid at the discretion
of the Board of Directors based primarily upon the earnings and financial
condition of the Consumers Gas Group, and, to a lesser extent, CMS Energy as a
whole. Dividends will be payable out of the lesser of (i) the assets of CMS
Energy legally available therefor and (ii) the Available Class G Dividend
Amount.

F-8
149

currently are to pay out from 70 percent to 85 percent of annual earnings
available for dividends on common stock.

CMS Energy, in the sole discretion of its Board of Directors, could
pay dividends exclusively to the holders of CMS Energy Common Stock,
exclusively to the holders of Class G Common Stock, or to the holders of both
of such classes in equal or unequal amounts. It is the Board of Directors'
current intention that the declaration or payment of dividends with respect to
the Class G Common Stock shall not be reduced, suspended or eliminated as a
result of factors arising out of or relating to the electric utility businesses
or the non-utility business of CMS Energy unless such factors also require, in
the Board of Directors' sole discretion, the omission of the declaration or
reduction in payment of dividends on both the CMS Energy Common Stock and the
Class G Common Stock.

In making its dividend decisions with respect to the Class G Common
Stock, the Board of Directors will rely on the financial statements of the
Consumers Gas Group, as well as, to a lesser extent, the consolidated financial
statements of CMS Energy. The method of calculating earnings per share for the
Class G Common Stock reflects the intent of the Board of Directors that the
separately reported assets and earnings of the Consumers Gas Group are to be
the source for payment of, and the basis for determining, dividends to be paid
on the Class G Common Stock, although liquidation rights of the Class G Common
Stock and legally available assets of CMS Energy are based on different
factors.

Earnings Per Share

Earnings available to Class G Common Stock on a per share basis will
be determined based on the separately calculated earnings of the Consumers Gas
Group.

Earnings per share are omitted from the historic statements of
earnings since the Class G Common Stock was not part of the equity structure of
CMS Energy and the Articles of Incorporation had not been amended to allow for
the issuance of the Class G Common Stock for the periods presented.

Gas Inventory

Consumers uses the weighted average cost method for valuing working
gas inventory. Cushion gas, which is gas stored to maintain reservoir pressure
for recovery of working gas, is recorded in the appropriate gas utility plant
account. Consumers and Michigan Gas Storage maintain gas inventory in their
underground storage facilities.

Maintenance, Depreciation and Depletion

New Accounting Standards

In November 1992, the FASB issued SFAS 112, Employers' Accounting for
Postemployment Benefits, which CMS Energy adopted January 1, 1994. CMS Energy
pays for several postemployment benefits, the most significant being workers'
compensation. Because CMS Energy's postemployment benefit plans do not vest or
accumulate, the standard did not materially impact the Consumers Gas Group's
financial position or results of operations. For new accounting standards

F-9
150

regarding income taxes, see Note 4; for financial instruments, see Note 7; and
for pensions and other postretirement benefits, see Note 9.

Related-Party Transactions

The Consumers Gas Group, stored and transported natural gas and
provided other services to the MCV Partnership totaling approximately $14
million for 1993, 1992 and 1991, respectively.

Any future transactions between Consumers Gas Group and the remaining
segments of CMS Energy will be on terms comparable to arm's length transactions
in accordance with generally accepted accounting principles. (See Note 4 for
income tax policy.) Other related-party transactions are immaterial.

Revenue and Fuel Costs

Consumers accrues revenue for gas used by its customers but not billed
at the end of an accounting period. It also accrues or reduces revenue for any
underrecovery or overrecovery of natural gas costs by establishing a
corresponding asset or liability until it bills these unrecovered costs or
refunds the excess recoveries to customers after reconciliation hearings
conducted before the MPSC.

Unaudited Interim Information

In the opinion of management, the unaudited financial information for
the nine months ended September 30, 1994 and 1993 reflects all adjustments
necessary to assure the fair presentation of financial position, results of
operations and cash flows.

Utility Regulation

Consumers' gas operations and Michigan Gas Storage are regulated by
the MPSC and FERC, respectively. Accordingly, Consumers Gas Group accounts for
the effects of gas regulation under SFAS 71, Accounting for the Effects of
Certain Types of Regulation. As a result, the actions of regulators affect
when revenues, expenses, assets and liabilities are recognized.

Other

For significant accounting policies regarding cash equivalents, see
Note 12; for income taxes, see Note 4; and for pensions and other
postretirement benefits, see Note 9.

3. RATE MATTERS

In July 1994, the MPSC approved an agreement previously reached
between the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the last
six months of 1994. This charge against earnings will partially offset costs
related to state property taxes which have been reduced. The agreement was
reached in response to an assertion by the MPSC staff that gas utility business
earnings for 1993 were in excess of the currently authorized level. The
agreement also provides for an additional $4 million of 1995-related SFAS 106
costs to be charged against 1995 earnings instead of being deferred. As part
of the agreement, Consumers committed to file a gas rate case before December
31, 1994, that will among other things, incorporate costs increases, including
costs for postretirement benefits computed under SFAS 106, into its retail gas
rates. A final order should be received approximately 9 to 12 months after the
request is filed. No assurance can be given as to the level of rates which
will be authorized by the MPSC. Consumers' gas distribution business is
currently authorized to earn a 13.25 percent rate of return on equity.
Consumers' most recent rate filing for

F-10
151

its electric utility business resulted in an authorized rate of return on
equity of 11.75 percent. See Note 14 with regard to certain subsequent
developments.

In gas rate cases the MPSC determines, among other things, an
appropriate capital structure, including equity, for the Gas Distribution
Business and approves a rate of return on such equity. Because the Gas
Distribution Business is part of Consumers, it does not have its own capital
structure. Accordingly, in the most recent gas rate case before the MPSC
relating to the Gas Distribution Business, the MPSC utilized a Proxy Capital
Structure. It is possible that in future gas rate cases, the MPSC may use
another methodology to determine the equity used for rate making purposes for
the Consumers Gas Group or otherwise select a methodology different than the
Proxy Capital Structure. The capital structure employed for ratemaking
purposes directly affects the overall rate of return of a rate regulated
enterprise.

GCR Issues

In connection with its 1991 GCR reconciliation case, Consumers
refunded $36 million, including interest, to its firm sales and transportation
rate customers in April 1992. Consumers accrued the full amount for this
refund in 1991.

The MPSC issued an order during 1993 that approved an interim
settlement agreement for the 12 months ended March 31, 1993. As a result of
the settlement, Consumers refunded in August 1993, to its GCR and
transportation customers, approximately $22 million, including interest.
Consumers previously accrued amounts sufficient for this refund.

The MPSC, in a February 1993 order, provided that the price payable to
certain intrastate gas producers by Consumers be reduced prospectively. As a
result, Consumers was not allowed to recover approximately $13 million of costs
incurred prior to February 8, 1993. Consumers previously had accrued a loss
for this issue in excess of the disallowed amount. Future disallowances are
not anticipated, unless the remaining appeals filed by the intrastate producers
are successful.

In 1992, the FERC approved a settlement involving Consumers, Trunkline
and certain other parties, which resolved numerous claims and proceedings
concerning Trunkline liquified natural gas costs. The settlement represents
significant gas cost savings for Consumers and its customers in future years.
As part of the settlement, Consumers will not incur any transition costs from
Trunkline as a result of FERC Order 636. In 1992, Consumers recorded a
liability and regulatory asset for the principal amount of payments to
Trunkline over a five-year period. In May 1993, the MPSC approved a separate
settlement agreement that provides Consumers with full recovery of these costs
over a five-year period. At December 31, 1993, Consumers' remaining liability
and regulatory asset were $116 million. At September 30, 1994, Consumers'
liability and regulatory asset were $93 million.

Other

A contract dispute involving pricing under contracts Consumers had
with eight direct gas suppliers has been resolved. The dispute revolved around
whether the price Consumers pays Trunkline for gas was the proper reference
price for these eight gas supply contracts. Consumers and seven of the
suppliers have agreed to enter into new contracts, at negotiated rates, with
initial terms ranging from one to three years. Consumers and the remaining
supplier agreed to terminate their existing contract.

Estimated losses for certain contingencies discussed in this note have
been accrued. Resolution of these contingencies is not expected to have a
material impact on the financial position or results of operations of the
Consumers Gas Group.

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4. INCOME TAXES

CMS Energy and its subsidiaries file a consolidated federal income tax
return. Income taxes are generally allocated to each subsidiary based on each
subsidiary's separate taxable income. In 1992, CMS Energy implemented SFAS
109, Accounting for Income Taxes. Deferred tax assets and liabilities are
classified as current or noncurrent based on the classification of the related
asset or liability, for all temporary differences. Consumers began practicing
full deferred tax accounting for temporary differences arising after January 1,
1993, as authorized by a generic MPSC order. The generic order reduces the
amount of regulatory assets and liabilities that otherwise could have arisen in
future periods by allowing Consumers to reflect the income statement effect in
the period temporary differences arise.

CMS Energy uses investment tax credits ("ITC") to reduce current
income taxes payable and defers and amortizes ITC over the life of the related
property. The alternative minimum tax ("AMT") requires taxpayers to perform a
second separate federal tax calculation based on a flat rate applied to a
broader tax base. AMT is the amount by which this "broader-based" tax exceeds
regular tax. Any AMT paid generally becomes a tax credit that can be carried
forward indefinitely to reduce regular tax liabilities in future periods when
regular taxes paid exceed the tax calculated for AMT.

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993
increased the statutory federal tax rate from 34 percent to 35 percent
effective January 1, 1993. The cumulative effect of this tax rate change has
been reflected in the financial statements.

The Consumers Gas Group is included in the consolidated federal income
tax return filed by CMS Energy. The financial statement provision and actual
cash tax payments have been reflected in the Consumers Gas Group's financial
statements in accordance with CMS Energy's tax allocation policy. The
financial statement amounts reflect management's estimate of the separate
taxable income of the segment, the effect of deferred tax accounting for
temporary differences that arise, the amortization of ITC over the life of the
related property included within the Consumers Gas Group and any AMT credit
carryforwards that can be carried forward indefinitely to reduce regular tax
liabilities in future periods related to the Consumers Gas Group. Tax
settlements at Consumers Gas Group are consistent with settlements of CMS
Energy's consolidated returns and are generally settled in the year, or in the
year following the year in which such amounts are accrued.

The significant components of income tax expense for the Consumers Gas
Group consisted of:

YEARS ENDED
DECEMBER 31,
-------- ---
1993 1992 1991
---- ---- ----
IN MILLIONS

Current federal income taxes $34 $38 $ 8
Deferred income taxes 6 (2) (9)
--- --- ---
Deferred ITC, net (2) (2) 5
--- --- ---
$38 $34 $ 4
=== === ===
Operating $39 $35 $ 2
Other (1) (1) 2
--- --- ---
$38 $34 $ 4
=== === ===

The principal components of deferred tax assets (liabilities)
recognized in the balance sheet for the Consumers Gas Group are as follows:

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DECEMBER 31,
-------- ---
1993 1992
---- ----
IN MILLIONS

Property $ (53) $ (45)
Postretirement benefits (Note 9) (58) (54)
Employee benefit obligations (includes postretirement
benefits of $58 and $54)(Note 9) 67 63
Regulatory liability 47 46
Other 9 12
----- -----
$ 12 $ 22
===== =====
Gross deferred tax liabilities $(232) $(221)
Gross deferred tax assets 244 243
----- -----
$ 12 $ 22
===== =====

The actual income tax expense for Consumers Gas Group differs from the
amount computed by applying the statutory federal tax rate to income before
income taxes as follows:

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
IN MILLIONS

Net income before preferred dividends $ 68 $ 42 $ 3
Income tax expense 38 34 4
---- ---- ----
106 76 7
Statutory federal income tax rate x35% x34% x34%
---- ---- ----
Expected income tax expense 37 26 2
Increase (decrease) in taxes from:
Differences in book and tax depreciation not
previously deferred 7 7 4
ITC amortization and utilization (2) (2) (2)
Other, net (4) 3 -
---- ---- ----
$ 38 $ 34 $ 4
==== ==== ====

5. SHORT-TERM FINANCINGS

In October 1994, the FERC granted Consumers' request for authorization
to issue or guarantee up to $900 million of short-term debt through December
31, 1996. This is the same amount of short-term debt authorized through 1994.
Consumers has a $470 million facility that is used to finance seasonal working
capital requirements and unsecured, committed lines of credit aggregating $185
million. At December 31, 1993, $235 million and $24 million were outstanding
at weighted average interest rates of 4.0 percent and 3.9 percent,
respectively. At September 30, 1994, Consumers had $300 million and $101
million, respectively, outstanding under these facilities. During the first
quarter of 1994, Consumers reduced the outstanding balance of both facilities
to zero. Further, Consumers has an established $500 million trade receivables
purchase and sale program. At September 30, 1994 and 1993, and December 31,
1993 and 1992, receivables sold under the agreement totaled $210 million, $160
million, $285 million and $225 million, respectively.

Consumers generally manages its short-term financings on a centralized
consolidated basis. The portion of receivables sold estimated by management to
be attributable to the Consumers Gas Group at September 30, 1994 and 1993, and
December 31, 1993 and 1992, is estimated to be $32 million, $25 million, $124
million and $52 million, respectively. Accounts receivable and accrued revenue
in the balance sheets have been reduced to reflect receivables sold. The
portions of short-term debt and receivables sold attributed to Consumers Gas

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Group reflect the high utilization of short-term borrowing to finance the
purchase of gas for storage in the summer and fall periods. Management
believes these allocations to be reasonable. The proposed change in CMS
Energy's capital structure (see Notes 2 and 6) will not affect Consumers'
responsibility for its total liabilities.

6. CAPITALIZATION

CMS Energy

Capital Stock: CMS Energy's Articles permit it to issue up to 250
million shares of Common Stock at $.01 par value and up to 5 million shares of
CMS Energy Preferred Stock at $.01 par value. Under the Unsecured Credit
Facility and the GTN Indenture, pursuant to which the GTN's are issued, which
currently contain CMS Energy's most restrictive dividend covenants, CMS Energy
is permitted to pay, as dividends on its Common Stock, an amount not to exceed
the total of its net income and any proceeds received from the issuance or sale
of Common Stock and $120 million, provided there exists no event of default
under the terms of the Unsecured Credit Facility or the GTN Indenture. The
same formula applies to limit repurchase or reacquisition of CMS Energy Common
Stock. CMS Energy is seeking shareholder approval to amend its Articles of
Incorporation and authorize a new class of common stock of CMS Energy (see Note
2). If such amendment is approved by the shareholders the number of authorized
shares of capital stock would increase from 255 million to 320 million shares
consisting of 250 million shares of CMS Energy Common Stock, par value $.01 per
share, 60 million shares of Class G Common Stock, no par value, and 10 million
shares of CMS Energy Preferred Stock, par value $.01 per share.

The holders of any outstanding Class G Common Stock will vote with the
holders of CMS Energy Common Stock as a single class, except on matters which
would be required by law or the Articles of Incorporation to be voted on by
class. The Class G Common Stock will have one vote per share.

CMS Energy may exchange the Class G Common Stock for a proportionate
number of shares of a subsidiary that holds all the assets and liabilities
attributed to the Consumers Gas Group, and no other assets and liabilities.

If CMS Energy transfers all or substantially all of the properties and
assets attributed to the Consumers Gas Group, CMS Energy is required, subject
to certain exceptions and conditions, to exchange each outstanding share of
Class G Common Stock for a number of shares of CMS Energy Common Stock having a
Fair Market Value equal to 110% of the Fair Market Value of one share of Class
G Common Stock.

CMS Energy also could, in the sole discretion of the Board of
Directors, at any time, exchange each outstanding share of Class G Common Stock
for a number of shares of CMS Energy Common Stock having a Fair Market Value
equal to 115% of the Fair Market Value of one share of Class G Common Stock.

In the event of the liquidation of CMS Energy, each outstanding share
of Class G Common Stock will be entitled to a share of the assets remaining for
distribution to holders of Common Stock equal of the amount of such assets
divided by the total number of shares of CMS Energy Common Stock and Class G
Common Stock then outstanding.

CMS Energy as parent holding company, is paid dividends from its
principal subsidiaries, primarily Consumers. The ability of CMS Energy to pay
dividends on its Common Stock will depend substantially upon timely receipt of
sufficient dividends or other distributions from Consumers, its principal
subsidiary. Consumers' ability to pay dividends on its common stock depends
upon the revenues, earnings and other factors. Consumers' revenues and
earnings will depend substantially upon its ability to secure timely and
appropriate relief

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155

from the MPSC. There is no fixed relationship, on a per share or aggregate
basis, between the dividends that may be paid by CMS Energy to holders of its
Class G Common Stock and the cash dividends or other amounts that may be paid
by Consumers to CMS Energy.

Consumers

Capital Stock and Other Paid in Capital: At December 31, 1992,
Consumers effected a quasi-reorganization, an elective accounting procedure in
which Consumers' accumulated deficit of $574 million was eliminated against
other paid-in capital. This action had no effect on CMS Energy's consolidated
financial statements. As a result of the quasi-reorganization and subsequent
accumulated earnings, Consumers paid a total of $133 million in common stock
dividends in 1993 and also paid a $16 million common stock dividend during the
first quarter of 1994 from 1993 earnings. In addition, through September 30,
1994, Consumers also paid $97 million in 1994 common dividends from current
year earnings. In October 1994, Consumers declared a $36 million common stock
dividend payable in November 1994. The portion of Consumers' common dividends
attributed to the Consumers Gas Group during the period prior to the approval
of the Class G Common Stock proposal has been reflected in the financial
statements. Upon approval of the Class G Common Stock proposal, subsequent
financial statements of Consumers Gas Group will reflect dividends paid to the
Class G Common Stock shareholders and dividends attributable to the Retained
Interest held by CMS Energy.

In March 1994, Consumers issued and sold 8 million shares of
Consumers' $2.08 Class A Preferred Stock (cumulative, without par value) with a
stated annual dividend rate of 8.32 percent. Net proceeds to Consumers were
$193 million. The stock is redeemable at the option of Consumers, on or after
April 1, 1999, at a redemption price of $25 per share plus accrued dividends.
Consumers Gas Group's attributed portion of the net proceeds totaled $42
million and has been reflected in the financial statements. Management
allocated the preferred stock based on the ratio of gas utility net assets
(including common assets attributed to the gas utility segment) to total
Consumers' assets.

In May 1994, Consumers received a $100 million equity investment from
CMS Energy. The investment was consistent with CMS Energy's plan to improve
Consumers' capital structure and was recognized and included in the
capitalization structure employed by the MPSC as part of Consumers' most recent
electric rate order.

Long-Term Debt: Consumers generally manages its long-term debt on a
centralized consolidated basis. The financial statements of Consumers Gas
Group reflect the attributed debt and related interest charges for the periods
presented. Management allocated these amounts based on the ratio of gas
utility net assets (including common assets attributed to the gas utility
segment) to total Consumers' assets. Management believes these measurements
are reasonable. The proposed change in CMS Energy's capitalization structure
will not affect Consumers' responsibility for its total liabilities.

Consumers secures its first mortgage bonds by a mortgage and lien on
substantially all of its property. Consumers' ability to issue and sell
securities is restricted by certain provisions in its First Mortgage Bond
Indenture, the Articles and the need for regulatory approvals in compliance
with applicable state and federal law. In September 1993, Consumers issued,
with MPSC approval, $300 million of 6 3/8 percent first mortgage bonds, due
2003 and $300 million of 7 3/8 percent first mortgage bonds, due 2023.
Consumers used the net proceeds from the bond issuance to refund approximately
$515 million of higher interest first mortgage bonds and the balance to reduce
current short-term borrowings. Unamortized debt costs, premiums and discounts
and call premiums on the refunded debt totaling approximately $18 million were
deferred under SFAS 71, and are being amortized over the lives of the new debt.

F-15
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In the first quarter of 1994, Consumers redeemed first mortgage bonds
totaling $100 million. These redemptions completed Consumers' commitment to
the MPSC, under a 1993 authorization to issue first mortgage bonds, to
refinance certain long-term debt.

In January 1993, Consumers entered into an interest rate swap
agreement, exchanging variable-rate interest for a fixed-rate interest of 5.2
percent on the latest maturing $250 million of the then remaining $500 million
obligation under its long-term credit agreement. The swap agreement has the
same term as the debt agreement and had the effect of increasing the weighted
average interest rate to 4.8 percent from 3.9 percent for the 12 month period
ended December 31, 1993. The swap agreement will amortize beginning in
February 1995 and terminate in May 1996. At September 30, 1994, the
outstanding balance of Consumers' long-term credit agreement totaled $328
million. In November 1994, subsequent to MPSC authorization, Consumers entered
into a new $400 million unsecured, variable rate, five-year term loan and
subsequently used the proceeds to refinance the long-term credit agreement
discussed above and to reduce short-term borrowings.

In June 1993, Consumers entered into loan agreements in connection
with the issuance of approximately $28 million of adjustable rate demand
limited obligation refunding revenue bonds, due 2010, which are secured by an
irrevocable letter of credit expiring in 1996. These bonds bear an initial
interest rate of 2.65 percent. Consumers also entered into loan agreements in
connection with the issuance of $30 million of 5.8 percent limited obligation
refunding revenue bonds, due 2010, secured by a financial guaranty insurance
policy and certain first mortgage bonds of Consumers. Proceeds of these issues
were used to redeem on August 1, 1993 in advance of their maturities,
approximately $58 million of outstanding PCRBs.

7. FINANCIAL INSTRUMENTS

The carrying amounts of CMS Energy's cash, short-term investments and
current liabilities approximate their fair values due to the short-term nature
of those instruments. The estimated fair values of long-term investments are
based on quoted market prices where available. When specific market prices do
not exist for an instrument, the fair value is based on quoted market prices of
similar investments or other valuation techniques. All long-term investments
in financial instruments approximate fair value. CMS Energy's carrying amount
of long-term debt was $2.4 billion and $2.7 billion and the fair value of
long-term debt was $2.6 billion and $2.8 billion as of December 31, 1993 and
1992, respectively. The carrying amount of Consumers Gas Group's long-term
debt was $376 million and $392 million and the fair value was $386 million and
$396 million as of December 31, 1993 and 1992, respectively. Although the
current fair value of the long-term debt, which is based on calculations made
by debt pricing specialists, may be greater than the current carrying amount,
settlement of the reported debt is generally not expected until maturity. The
fair value of CMS Energy's off-balance sheet financial instruments is based on
the amount estimated to terminate or settle the obligation. The fair value of
CMS Energy's interest-rate swap agreements was $6 million and $1 million as of
December 31, 1993 and 1992, respectively. Guarantees/letters of credit
outstanding totaled $96 million and $56 million as of December 31, 1993 and
1992, respectively.

F-16
157

In October 1994, the FASB issued SFAS 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures, which amends SFAS 114,
Accounting by Creditors for Impairment of a Loan. SFAS 114 provided two
alternatives for income recognition to be used for changes in the net carrying
amount of an impaired loan subsequent to the initial measure of impairment.
The creditor could recognize all changes in the net carrying amount of the loan
as an adjustment to bad-debt expense, or the creditor could accrue interest on
the net carrying amount of the impaired loan and recognize other changes as an
adjustment to bad-debt expense. SFAS 118 allows the use of any existing
methods for recognizing interest income on impaired loans.

Consumers is continuing to study SFAS 118 and SFAS 119, which are
effective for year-end 1994 financial statements, but does not expect either
statement will have a material impact on Consumers' financial position or
results of operations.

8. EXECUTIVE INCENTIVE COMPENSATION

CMS Energy's Performance Incentive Stock Plan, restricted shares of
common stock of CMS Energy, stock options and stock appreciation rights are
discussed in Note 10 of CMS Energy Notes. These plans will be amended if the
comprehensive plan that creates Class G Common Stock is approved by the
shareholders.

9. RETIREMENT BENEFITS

Postretirement Benefit Plans Other Than Pensions

CMS Energy and its subsidiaries adopted SFAS 106 effective as of the
beginning of 1992. The standard required CMS Energy to change its accounting
for the cost of health care and life insurance benefits that are provided to
retirees from a pay-as-you-go (cash) method to a full accrual method. CMS
Energy's non-utility subsidiaries expensed their accumulated transition
obligation liability. The amount of such transition obligation is not material
to the presentation of the consolidated financial statements or significant to
CMS Energy's total transition obligation. Consumers recorded a liability of
$466 million for the accumulated transition obligation and a corresponding
regulatory asset for anticipated recovery in utility rates.

Both the MPSC and FERC have generally adopted SFAS 106 costs for
ratemaking purposes, provided costs recovered through rates are placed in
external funds until they are needed to pay benefits. The MPSC's generic order
allows utilities three years to seek recovery of costs and provides for
recovery from customers of any deferred costs incurred prior to the beginning
of rate recovery of such costs. In late 1994, Consumers plans to request
recovery of the gas utility portion of these costs. CMS Energy plans to fund
the benefits using external legal entities, established under guidelines of the
Internal Revenue Code, through which a company can provide certain benefits for
its employees or retirees ("Voluntary Employee Beneficiary Associations"). A
portion of the life insurance benefits have previously been funded. Consumers
anticipates recovering its regulatory asset within 20 years of the SFAS 106
adoption. This treatment is consistent with recovery already authorized by the
MPSC for Consumers' electric business.

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increase in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by $75 million and the aggregate of the
service and interest cost components of net periodic postretirement benefit
costs for 1993 by $9 million.

For the years ended December 31, 1993 and 1992, the weighted average
discount rate was 7.25 percent and 8 percent, respectively, and the expected
long-term rate of return on plan assets was 8.5 percent. Net periodic
postretirement benefit cost for health care benefits and life insurance
benefits was $51 million in 1993 and $50 million in 1992. The 1993 and 1992
cost was comprised of $13 million and $11 million for service plus $38 million
and $39 million for interest, respectively.

The funded status for CMS Energy's centrally managed postretirement
benefit plan reconciled with the total liability recorded at December 31 as
follows:

1993 1992
---- ----
IN MILLIONS

Actuarial present value of estimated benefits
Retirees $ 282 $ 265
Eligible for retirement 54 50
Active (upon retirement) 190 177
---- ----
Accumulated postretirement benefit obligation 526 492
Plan assets (premium deposit fund) at fair value 4 4
---- ----
Projected postretirement benefit obligation in excess
of plan assets (522) (488)
Unrecognized prior service cost (39) (39)
Unrecognized net loss 41 33
---- ----
Recorded liability $(520) $(494)
===== =====

Consumers Gas Group's attributed portion of CMS Energy's total
recorded liability is estimated to be $167 million and $159 million at December
31, 1993 and 1992, respectively. This amount was allocated based on policies
Consumers has historically used in proceedings conducted before the MPSC.

CMS Energy's postretirement health care plan is unfunded; the
accumulated postretirement benefit obligation for that plan is $514 million and
$482 million at December 31, 1993 and 1992, respectively. Consumers' total
regulatory asset was $510 million and $485 million at December 31, 1993 and
1992, respectively.

Supplemental Executive Retirement Plan

Certain management employees qualify under the Supplemental Executive
Retirement Plan (the "SERP"). Benefits are based on the employee's service and
earnings as defined in the SERP. In 1988, a trust from which SERP benefits are
paid was established and funded. Because the SERP is not a qualified plan
under the Internal Revenue Code, earnings of the trust are taxable and trust
assets are included in Consumers' consolidated assets. At December 31, 1993
and 1992, CMS Energy's trust assets at cost (which approximates market) were
$18 million and $16 million, respectively, and were classified as other
non-current assets. The attributed trust assets of Consumers Gas Group at cost
(which approximates market) were $8 million and $7 million, respectively, and
were classified as other non-current assets. This allocation was based on a
ratio of the number of gas customers to total Consumers' customers. Management
believes this method to be reasonable.

Defined Benefit Pension Plan

A trusteed, non-contributory, defined benefit pension plan (the
"Pension Plan") covers substantially all employees. The benefits are based on
an employee's years of accredited service and earnings, as defined in the plan,

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during an employee's five highest years of earnings. Because the plan is fully
funded, no contributions were made for plan years 1991 through 1993.

YEARS ENDED
DECEMBER 31,
-------- ---
1993 1992 1991
---- ---- ----

Discount rate 7.25% 8.5% 8.5%
Rate of compensation increase 4.5% 5.5% 5.5%
===== ===== =====
Expected long-term rate of return on assets 8.75% 8.75% 8.75%
===== ===== =====

CMS Energy's total net Pension Plan and SERP costs consisted of:

YEARS ENDED
DECEMBER 31,
-------- ---
1993 1992 1991
---- ---- ----
IN MILLIONS

Service cost $ 19 $ 19 $ 18
Interest cost 50 48 48
Actual return on plan assets (92) (36) (88)
Net amortization and deferral 34 (20) 29
---- ----- -----
Net periodic pension cost $ 11 $ 11 $ 7
==== ===== =====

Consumers Gas Group's attributed portion of CMS Energy's net periodic
pension cost totaled $3 million for 1993, $4 million for 1992 and $2 million
for 1991.

The funded status of CMS Energy's Pension Plan and SERP reconciled to
the pension liability recorded at December 31 was:

PENSION PLAN SERP
------- ---- ----
1993 1992 1993 1992
---- ---- ---- ----
IN MILLIONS

Actuarial present value of estimated benefits
Vested $471 $349 $ 16 $ 11
Non-vested 56 49 - -
---- ---- ---- ----
Accumulated benefit obligation 527 398 16 11
Provision for future pay increases 138 177 8 6
---- ---- ---- ----
Projected benefit obligation 665 575 24 17
Plan assets (primarily stocks and bonds,
including $87 in 1993 and $64 in 1992 in
common stock of CMS Energy) at fair value 692 631 - -
--- --- ---- ----
Projected benefit obligation less than
(in excess of) plan assets 27 56 (24) (17)
Unrecognized net (gain) loss from experience
different than assumed (56) (76) 7 2
Unrecognized prior service cost 45 49 1 1
Unrecognized net transition
(asset) obligation (44) (49) 1 1
Adjustment to recognize minimum liability - - (1) -
---- ---- ---- ----
Recorded liability $(28) $(20) $(16) $(13)
==== ==== ==== ====

Consumers Gas Group's attributed portion of CMS Energy's total
recorded liability for the Pension Plan totaled $8 million at December 31, 1993
and $6 million at December 31, 1992 and was allocated to the Consumers Gas
Group based on the ratio of salaries and wages related to Consumers' gas
operations to Consumers' total salaries and wages. Consumers Gas Group's
estimated portion of CMS Energy's recorded liability for the SERP totaled $5
million at December 31, 1993 and $5 million at December 31, 1992 and was
allocated to the Consumers Gas

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160

Group based on the ratio of the number of gas customers to total Consumers'
customers.

10. LEASES

CMS Energy and its subsidiaries lease various assets, including
vehicles, aircraft, construction equipment, computer equipment and buildings
and is responsible for payment of taxes, maintenance, operating costs, and
insurance. Consumers Gas Group's portion of CMS Energy's minimum rental
commitments under non-cancelable leases at December 31, 1993, were:

CAPITAL OPERATING
LEASES LEASES
------ ------
IN MILLIONS

1994 $ 5 $ 1
1995 5 -
1996 5 -
1997 4 -
1998 3 -
1999 and thereafter 5 -
---- ----
Total minimum lease payments 27 $ 1
====
Less imputed interest 5
----
Present value of net minimum lease payments 22
Less current portion 4
----
Non-current portion $18
====

Consumers gas operation recovers these charges from customers and
accordingly charges payments for its capital and operating leases to operating
expense. Operating lease charges, including charges to clearing and other
accounts as of December 31, 1993, 1992 and 1991, were $1 million, $1 million
and $1 million, respectively. Capital lease expenses for the Consumers Gas
Group for years ended December 31, 1993, 1992 and 1991 were $6 million, $11
million and $11 million, respectively.

Consumers Gas Group's minimum rental commitments and lease expenses
are generally allocated based on the specific use of the leased item. Common
leases are allocated to Consumers Gas Group through functional use surveys,
which management believes to be reasonable.

11. COMMITMENTS, CONTINGENCIES AND OTHER

Environmental Matters

Consumers is a so-called "potentially responsible party" at several
sites being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial assets
cooperating with respect to the individual sites. Based on information
currently known by management, Consumers believes that it is unlikely that its
liability at any of the known Superfund sites, individually or in total, will
have a material adverse effect on its financial position or results of
operations.

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it has a partial or no current ownership interest. Parties other than
Consumers with current or former ownership interests may also be considered
liable for site investigations and remedial actions.

Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the nature
and extent of contamination at these sites and to determine which of several
possible remedial action alternatives, including no action, may be required
under the Environmental Response Act. The DNR has approved two of three plans
for remedial investigation/feasibility studies submitted by Consumers and is
currently reviewing the third.

Consumers believes that remedial costs are recoverable in rates as the
MPSC in 1993 addressed the question of recovery of investigation and remedial
costs for another Michigan gas utility as part of a gas rate case. In that
proceeding, the MPSC determined that prudent investigation and remedial costs
could be deferred and amortized over 10-year periods. In order to be
recoverable in rates, prudent costs must be approved in a rate case. Any costs
amortized in years prior to filing a rate case may not be recoverable. The
MPSC stated that the length of the amortization period may be reviewed from
time to time, but any revisions would be prospective. The order further
provided that the prudency review would include a review of the utility's
attempts to obtain reimbursement from others. The MPSC has also approved
similar deferred accounting requests by two other Michigan utilities relative
to investigation and remediation costs. Accordingly, Consumers has recorded a
regulatory asset for the same amount as the accrued liability for anticipated
recovery of these investigation and remedial clean-up costs. Consumers has
initiated discussions with certain insurance companies regarding coverage for
some or all of the costs which may be incurred for these sites. Consumers
plans to seek recovery of remedial action costs in its gas rate case to be
filed in 1994.

Capital Expenditures

Commitments for Gas Supplies

Consumers has entered into gas supply contracts with various suppliers
for its natural gas business. These contracts have expiration dates that range
from 1994 to 1999. Generally, Consumers contracts for approximately 75% of its
annual gas requirements which in 1993 totaled approximately $680 million.
Consumers supplements its long-term contracts with spot-market purchases to
fulfill its gas needs.

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Public Utility Holding Company Act Exemption

CMS Energy is exempt from registration under PUHCA. However, the
Attorney General and the MMCG have asked the Commission to revoke CMS Energy's
exemption from registration under PUHCA. In 1992, the MPSC filed a statement
with the Commission recommending that CMS Energy's current exemption be revoked
and a new exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the Commission; Consumers could ultimately be
forced to divest either its electric or gas utility business; and CMS Energy
would be restricted from conducting businesses that are not functionally
related to the conduct of its utility business as determined by the Commission.
CMS Energy is opposing this request and believes it will maintain its current
exemption from registration under PUHCA.

Other

CMS Energy believes that no taxable gain will result in connection
with the sale of the Class G Common Stock. However, the Internal Revenue
Service has previously announced that it was studying the federal tax
consequences of transactions similar to CMS Energy's stock proposal. If the
sale of the Class G Common Stock were treated as property other than stock of
CMS Energy, CMS Energy may have a recognizable gain in an amount equal to the
difference between the fair market value of Class G Common Stock and the
federal income tax basis to CMS Energy in such property.

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

Estimated losses for certain contingencies discussed in this note have
been accrued. The ultimate effect of the proceedings discussed in this note is
not expected to have a material impact on CMS Energy's or Consumers Gas Group's
financial position or results of operations.

12. SUPPLEMENTAL CASH FLOW INFORMATION

For purposes of the Statement of Cash Flows, all highly liquid
investments with an original maturity of three months or less are considered
cash equivalents. Consumers Gas Group's other cash flow activities and
non-cash investing and financing activities for the nine months ended September
30, 1994 and 1993 and the years ended December 31, 1993, 1992, and 1991 were:

F-22
163

NINE MONTHS
ENDED
(UNAUDITED) YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------- --- -------- ---
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
IN MILLIONS

Cash transactions
Interest paid (net of amounts
capitalized) $27 $28 $37 $33 $57
Income taxes paid (net of refunds) 29 63 42 25 11
Non-cash transactions
Other assets placed under capital lease $ 3 $ 4 $ 5 $ 9 $ 6
Capital leases refinanced - 12 12 - -

Changes in other assets and liabilities as shown on the Statement of
Cash Flows for Consumers Gas Group at September 30, 1994 and 1993 and December
31, 1993, 1992 and 1991 are described below:

NINE MONTHS
ENDED
(UNAUDITED) YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------- --- -------- ---
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
IN MILLIONS

Sale of receivables, net (92) (27) $ 72 $ (42) $ 4
Accounts receivable 65 29 (35) 54 63
Accounts payable 2 (2) (7) (3) (73)
Inventories (43) (80) (24) 20 15
Accrued revenue 82 49 (31) 85 7
Accrued refunds 11 (17) (10) (141) 59
Other current assets and liabilities, net (11) (45) (17) 37 (9)
Non-current deferred amounts, net (2) (1) (16) (24) 40
---- ---- ----- ----- ----
$ 12 $(94) $(68) $ (14) $106
==== ==== ===== ===== ====

13. EFFECTS OF THE RATEMAKING PROCESS

Consumers is subject to the provisions of SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Regulatory assets represent probable
future revenue to Consumers associated with certain incurred costs as these
costs are recovered through the ratemaking process. The following regulatory
assets (liabilities) which include both current and non-current amounts, are
reflected in the Consumers Gas Group's Balance Sheets:

DECEMBER 31,
SEPTEMBER 30, ------------
1994 1993 1992
---- ---- ----
IN MILLIONS

Postretirement benefits $ 166 $ 167 $ 159
Trunkline settlement 93 117 146
Environmental clean-up 40 - -
Other 16 21 27
----- ----- -----
Total regulatory assets $ 315 $ 305 $ 332
===== ===== =====
Regulatory liabilities --
Income taxes $(137) $(131) $(135)
===== ===== =====

Consumers has MPSC orders and/or precedents to recover virtually all
of its regulatory assets through future rates.

F-23
164

14. SUBSEQUENT DEVELOPMENTS

Reference is made to Note 3, "Rate Matters." Consumers filed a gas
rate case in December 1994 with the MPSC. Consumers requested an increase in
its gas rates of $21 million annually. The request, among other things,
incorporates cost increases, including costs for postretirement benefits and
costs related to Consumers' former manufactured gas plant sites. Consumers
requested that the MPSC authorize a 13 percent rate of return on equity,
instead of the currently authorized rate of 13.25 percent. Consumers expects
an MPSC decision in late 1995.

F-24
165

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To CMS Energy Corporation:

We have audited the accompanying consolidated balance sheets of CMS
Energy Corporation (a Michigan Corporation) and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of income, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of CMS
Energy Corporation and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993 in conformity with generally accepted
accounting principles.

As discussed in Note 6 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting for
income taxes. As discussed in Note 11 to the consolidated financial
statements, effective January 1, 1992, the Company changed its method of
accounting for postretirement benefits other than pensions.

Arthur Andersen LLP

Detroit, Michigan
December 1, 1994
(except with respect to the matter discussed in
Note 2 as to which the date is February 14, 1995)

F-25
166

CMS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- ------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(UNAUDITED)
AMOUNTS IN MILLIONS OF DOLLARS, EXCEPT PER SHARE

Operating Revenue
Electric utility $1,667 $1,556 $2,077 $1,863 $1,849
Gas utility 837 809 1,160 1,126 1,061
Oil and gas exploration and production 64 58 77 70 50
Independent power production 29 14 21 (8) (9)
Natural gas pipeline, storage and marketing 106 105 142 89 42
Other 2 4 5 6 5
----- ----- ----- ----- -----
Total operating revenue 2,705 2,546 3,482 3,146 2,998
----- ----- ----- ----- -----
Operating Expenses
Operation
Fuel for electric generation 230 224 293 305 308
Purchased power--related parties 359 344 467 460 442
Purchased and interchange power 134 105 148 112 144
Cost of gas sold 566 564 801 749 693
Other 460 394 570 554 514
----- ----- ----- ----- -----
Total operation 1,749 1,631 2,279 2,180 2,101
Maintenance 138 152 206 203 172
Depreciation, depletion and amortization 272 263 365 348 283
General taxes 138 149 193 184 181
----- ----- ----- ----- -----
Total operating expenses 2,297 2,195 3,043 2,915 2,737
----- ----- ----- ----- -----
Pretax Operating Income (Loss)
Electric utility 281 231 286 154 220
Gas utility 106 97 147 109 64
Oil and gas exploration and production 11 8 3 7 14
Independent power production 12 5 5 (16) (18)
Natural gas pipeline, storage and marketing 8 6 7 5 4
Other (10) 4 (9) (28) (23)
---- ---- ---- ---- ----
Total pretax operating income 408 351 439 231 261
---- ---- ---- ---- ----
Income Taxes 97 77 81 19 13
---- ---- ---- ---- ----
Net Operating Income 311 274 358 212 248
--- --- --- --- ---
Other Income (Deductions)
Income from contractual arrangements (MCV Bonds) - 24 32 34 119
Accretion income (Note 5) 10 11 14 15 24
Accretion expense (Note 4) (27) (27) (36) - -
Loss on MCV power purchases--settlement (Note 4) - - - (520) -
Write-down of abandoned Midland project
costs (Note 5) - - - - (398)
Other income taxes, net 9 8 6 165 107
Other, net 9 15 15 9 (15)
---- ---- ---- --- ----
Total other income (deductions) 1 31 31 (297) (163)
---- ---- ---- ---- ----
Fixed Charges
Interest on long-term debt 142 155 204 169 274
Other interest 10 17 24 35 68
Capitalized interest (5) (3) (5) (3) (5)
Preferred dividends 17 8 11 11 10
---- --- --- --- ---
Net fixed charges 164 177 234 212 347
--- --- --- --- ---
Net Income (Loss) Before Extraordinary Item $ 148 $ 128 $ 155 $ (297) $ (262)
Extraordinary Item, Early Redemption of Debt, Net - - - - (14)
Net Income (Loss) $ 148 $ 128 $ 155 $ (297) $ (276)
====== ====== ====== ====== ======
Average Common Shares Outstanding 86 80 81 80 80
====== ====== ====== ====== ======
Earnings (Loss) Per Average Common Share
Before Extraordinary Item $ 1.73 $ 1.60 $ 1.90 $(3.72) $(3.26)
Loss Per Average Common Share From
Extraordinary Item - - - - (.18)
------ ------ ------ ------ ----
Earnings (Loss) Per Average Common Share $ 1.73 $ 1.60 $ 1.90 $(3.72) $(3.44)
====== ====== ====== ====== ======
Dividends Declared Per Common Share $ .57 $ .42 $ .60 $ .48 $ .48
====== ====== ====== ====== ======

The accompanying notes are an integral part of these statements.

F-26
167

CMS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- ------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(UNUADITED) IN MILLIONS

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $148 $128 $155 $(297) $(276)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning depreciation of $37, $36,
$47, $50 and $15, respectively) 272 263 365 348 283
Debt discount amortization 28 27 36 12 3
Capital lease amortization 25 21 30 40 43
Deferred income taxes and investment tax credit 61 77 56 (185) (114)
Accretion expense (Note 5) 27 27 36 - -
Accretion income--abandoned Midland project (Note 5) (10) (11) (14) (15) (24)
MCV power purchases--settlement (Note 5) (71) (64) (84) - -
Loss on MCV power purchases--settlement (Note 5) - - - 520 -
Loss on equity investments and loans to
affiliates - - - 6 56
Write-down of abandoned Midland project costs - - - - 398
Other (13) (6) (8) 2 30
Changes in other assets and liabilities (43) (217) (88) 29 168
--- ---- --- --- ---
Net cash provided by operating activities 424 245 483 460 567
--- --- --- --- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (excludes assets placed
under capital leases, Note 15) (415) (377) (548) (487) (353)
Investments in partnerships and unconsolidated
subsidiaries (40) (83) (108) (12) (33)
Investments in nuclear decommissioning trust funds (37) (36) (47) (50) (15)
Cost to retire property, net (25) (24) (32) (14) (18)
Deferred demand-side management costs (5) (42) (52) (26) -
Proceeds from sale of property 10 1 1 12 5
Sale of subsidiary (Note 3) - (14) (14) - -
Reduction of investment in MCV Bonds and MCV
Partnership (Note 4) - 13 322 10 877
Other (5) (1) (4) (1) (3)
Proceeds from Bechtel settlement - - - 46 -
---- ---- ---- ---- ---
Net cash provided by (used) in
investing activities (517) (563) (481) (522) 460
---- ---- ---- ---- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock 193 - - - -
Proceeds from bank loans, notes and bonds (Note 8) 178 667 676 607 207
Issuance of common stock 24 8 132 - -
Retirement of bonds (Note 8) (228) (645) (645) (12) (606)
Increase (decrease) in notes payable, net 142 349 44 (493) 371
Repayment of bank loans (143) (57) (192) (1) (805)
Payment of common stock dividends (49) (34) (49) (38) (38)
Payment of capital lease obligations (24) (18) (26) (36) (41)
Retirement of common and preferred stock (2) (3) (3) (1) (35)
---- ---- ---- ---- ----
Net cash provided by (used in)
financing activities 91 267 (63) 26 (947)
---- ---- ---- ---- ----
Net Increase (Decrease) in Cash and Temporary
Cash Investments (2) (51) (61) (36) 80
Cash and temporary cash investments
Beginning of year 28 89 89 125 45
---- ---- ---- ---- ----
End of year $ 26 $ 38 $ 28 $ 89 $ 125
==== ==== ==== ==== =====

The accompanying notes are an integral part of these statements.

F-27
168

CMS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, DECEMBER 31,
------------
1994 1993 1992
---- ---- ----
(UNAUDITED)
IN MILLIONS

ASSETS
Plant and Property (At Cost)
Electric $5,523 $5,347 $5,076
Gas 1,931 1,862 1,749
Oil and gas properties (full-cost method) 925 845 768
Other 338 294 256
--- --- ---
8,717 8,348 7,849
Less accumulated depreciation, depletion and amortization (Note 3) 4,244 4,022 3,775
----- ----- -----
4,473 4,326 4,074
Construction work-in-progress 279 257 252
--- --- ---
4,752 4,583 4,326
----- ----- -----
Investments
First Midland Limited Partnership (Notes 4 and 17) 216 213 208
Independent power production 131 115 36
Midland Cogeneration Venture Limited Partnership (Notes 4 and 17) 71 67 68
Other 50 26 26
-- -- --
468 421 338
--- --- ---
Current Assets
Cash and temporary cash investments at cost, which approximates
market (Note 4) 26 28 89
Accounts receivable and accrued revenue, less allowances of $4,
$4 and $5, respectively (Note 7) 112 149 183
Inventories at average cost
Gas in underground storage 271 228 204
Materials and supplies 79 74 70
Generating plant fuel stock 33 41 37
Trunkline settlement (Note 5) 30 31 30
Deferred income taxes (Note 6) 20 17 --
Investment in MCV Bonds (Note 4) -- -- 322
Prepayments and other 99 195 221
-- --- ---
670 763 1,156
--- --- -----
Non-Current Assets
Postretirement benefits (Note 11) 490 491 466
Nuclear decommissioning trust funds (Note 3) 204 165 111
Abandoned Midland project (Note 5) 151 162 175
Trunkline settlement (Note 5) 63 86 116
Other 363 293 160
--- --- ---
1,271 1,197 1,028
----- ----- -----
Total Assets $7,161 $6,964 $6,848
====== ====== ======

F-28
169

SEPTEMBER 30, DECEMBER 31,
------------
1994 1993 1992
---- ---- ----
(UNAUDITED)
IN MILLIONS

STOCKHOLDERS' INVESTMENT AND LIABILITIES
Capitalization (Note 8)
Common stockholders' equity $1,085 $ 966 $ 727
Preferred stock of subsidiary 356 163 163
Long-term debt 2,378 2,405 2,725
Non-current portion of capital leases 118 115 98
--- --- --
3,937 3,649 3,713
----- ----- -----
Current Liabilities
Current portion of long-term debt and capital leases 238 368 132
Notes payable 401 259 215
Accounts payable 152 171 201
Accounts payable--related parties 46 46 47
Accrued taxes 102 233 258
MCV power purchases--settlement (Note 4) 82 82 81
Accrued refunds 37 28 77
Accrued interest 29 40 50
Deferred income taxes (Note 6) -- -- 21
Other 188 189 188
--- --- ---
1,275 1,416 1,270
----- ----- -----
Non-Current Liabilities
Deferred income taxes (Note 6) 566 509 349
Postretirement benefits (Note 11) 556 540 503
MCV power purchases--settlement (Note 4) 345 391 439
Deferred investment tax credits 184 191 201
Trunkline settlement (Note 5) 63 86 116
Regulatory liabilities for income taxes, net (Note 6) 20 6 62
Other 215 176 195
--- --- ---
1,949 1,899 1,865
----- ----- -----
Commitments and Contingencies (Notes 3, 4, 5, 12 and 13)
Total Stockholders' Investment and Liabilities $7,161 $6,964 $6,848
====== ====== ======

The accompanying notes are an integral part of these statements.

F-29
170

CMS ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

Other Retained
Number Common Paid-in Earnings
of Shares Stock Capital (Deficit) Total
--------- ------- ------- --------- -----
In Millions, Except Number of Shares

Balance at January 1, 1991 . . . . . . . . . . 80,745,032 $1 $1,565 $ (164) $1,402
Net loss . . . . . . . . . . . . . . . . . . (276) (276)
Common stock dividends declared . . . . . . . (38) (38)
Net gain on retired stock . . . . . . . . . . 1 1
Reissuance of affiliate's
preferred stock . . . . . . . . . . . . . . (2) (2)
Common stock reacquired . . . . . . . . . . . (1,067,697) (30) (30)
Common stock reissued . . . . . . . . . . . . 147,050 3 3
---------- -- ------ ----- -------

Balance at December 31, 1991 . . . . . . . . . 79,824,385 1 1,537 (478) 1,060
Net loss . . . . . . . . . . . . . . . . . . (297) (297)
Common stock dividends declared . . . . . . . (38) (38)
Common stock reacquired . . . . . . . . . . . (9,101) (1) (1)
Common stock reissued . . . . . . . . . . . . 150,438 3 3
---------- -- ------ ----- -------

Balance at December 31, 1992 . . . . . . . . . 79,965,722 1 1,539 (813) 727
Net income . . . . . . . . . . . . . . . . . 155 155
Common stock dividends declared . . . . . . . (49) (49)
Common stock reacquired . . . . . . . . . . . (97,442) (3) (3)
Common stock issued . . . . . . . . . . . . . 5,135,726 132 132
Common stock reissued . . . . . . . . . . . . 192,789 4 4
---------- -- ------ ----- ------

Balance at December 31, 1993 . . . . . . . . . 85,196,795 1 1,672 (707) 966
Net income . . . . . . . . . . . . . . . . . 148 148
Common stock dividends declared . . . . . . . (49) (49)
Common stock reacquired . . . . . . . . . . . (85,174) (2) (2)
Common stock issued . . . . . . . . . . . . . 1,107,267 24 24
Common stock reissued . . . . . . . . . . . . 28,040 1 1
SFAS 115--unrealized loss,
net of tax (A) . . . . . . . . . . . . . . (3) (3)
---------- -- ------ ----- ------

Balance at September 30, 1994 . . . . . . . . . 86,246,928 $1 $1,692 $(608) $1,085
========== == ====== ===== ======

(A) Revaluation capital related to an unrealized loss on available for
sale securities in conjunction with the January 1, 1994 adoption of
SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities (see Note 9).

The accompanying notes are an integral part of these statements.

F-30
171

CMS ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE STRUCTURE

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non-utility energy-related
businesses including: 1) oil and gas exploration and production, 2) development
and operation of independent power production facilities, 3) gas marketing
services to end-users and 4) transmission and storage of natural gas.

In September 1994, management announced that Consumers is being
internally reorganized into separate electric utility and gas utility strategic
business units. The restructuring, effective January 1, 1995, while not
affecting Consumers' or CMS Energy's consolidated financial statements or
corporate legal form, is designed to sharpen management focus, improve
efficiency and accountability in both business segments and better position
Consumers for growth in the gas market and to meet increased competition in the
electric power market. Management believes that the strategic business unit
structure will allow each unit to focus more on its own profitability and
growth potential, and will ultimately, in the long term, result in lower
overall costs.

2. CMS ENERGY STOCK PROPOSAL

CMS Energy is seeking shareholder approval to amend its Articles of
Incorporation and authorize a new class of Common Stock of CMS Energy. This
proposed new class of Common Stock, designated Class G Common Stock, will
reflect the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers and Michigan Gas Storage (such
businesses, collectively, will be attributed to the Consumers Gas Group). The
existing CMS Energy Common Stock will continue to be outstanding and, if and
after any shares of Class G Common Stock are issued by CMS Energy, will reflect
the performance of all of the businesses of CMS Energy and its subsidiaries,
including the business of the Consumers Gas Group, except for the interest in
the Consumers Gas Group attributable to the outstanding shares of the Class G
Common Stock.

Following approval of the New Stock Proposal by the shareholders, CMS
Energy may, subject to prevailing market and other conditions, offer shares of
Class G Common Stock for sale for cash in an initial public offering. The net
proceeds of such offering would be invested in the businesses of CMS Energy and
used for its general corporate purposes. Initially, such proceeds will be used
to repay a portion of the debt of CMS Energy (none of which is attributable to
the Consumers Gas Group). The timing and size of such public offering and the
price at which such shares would be sold would be determined by the Board of
Directors without further approval of the shareholders. However, shares of
Class G Common Stock intended to represent up to approximately 30 percent of
the common stockholders' equity value attributed to the Consumers Gas Group are
currently expected to be offered to the public in the initial public offering.
Such offer will be made only by prospectus and after a Registration Statement
filed with respect thereto by CMS Energy under the Securities Act of 1933 has
become effective. An application will be filed to list the Class G Common
Stock for trading on the NYSE in connection with any such offer. Additional
authorized shares of Class G Common Stock could be offered by CMS Energy in the
future at the discretion of the Board of Directors and without further
shareholder approval.

F-31
172

Although the financial statements of Consumers Gas Group separately
report the assets, liabilities and stockholders' equity, legal title to such
assets and the responsibility for such liabilities are not separately
identifiable to a specific class of Common Stock of CMS Energy. Therefore, the
creditors of CMS Energy are unaffected by the implementation of the Consumers
Gas Group, because all assets of the corporation remain available to satisfy
all liabilities. The holders of CMS Energy Common Stock and the proposed Class
G Common Stock continue to be subject to all risks associated with investments
in CMS Energy. Holders of Class G Common Stock have no direct rights in the
equity or assets of Consumers Gas Group, but rather have rights in the equity
and assets of CMS Energy.

Dividend Policy

Dividends on the Class G Common Stock will be paid at the discretion
of the Board of Directors based primarily upon the earnings and financial
condition of the Consumers Gas Group, and, to a lesser extent, CMS Energy as a
whole. Dividends will be payable out of the lesser of (i) the assets of CMS
Energy legally available therefor and (ii) the Available Class G Dividend
Amount.

Dividends with respect to the Class G Common Stock are expected to be
paid commensurate with dividend practices of comparable publicly-held local
natural gas distribution companies generally. Management believes that such
practices currently are to pay out from 70 percent to 85 percent of annual
earnings available for dividends on common stock.

CMS Energy, in the sole discretion of its Board of Directors, could
pay dividends exclusively to the holders of CMS Energy Common Stock,
exclusively to the holders of Class G Common Stock, or to the holders of both
of such classes in equal or unequal amounts. It is the Board of Directors'
current intention that the declaration or payment of dividends with respect to
the Class G Common Stock shall not be reduced, suspended or eliminated as a
result of factors arising out of or relating to the electric utility business
or the non-utility businesses of CMS Energy unless such factors also require,
in the Board of Directors' sole discretion, the omission of the declaration or
reduction in payment of dividends on both the CMS Energy Common Stock and the
Class G Common Stock.

In making its dividend decisions with respect to the Class G Common
Stock, the Board of Directors will rely on the financial statements of the
Consumers Gas Group, as well as, to a lesser extent, the consolidated financial
statements of CMS Energy. The method of calculating earnings per share for the
Class G Common Stock reflects the intent of the Board of Directors that the
separately reported assets and earnings of the Consumers Gas Group are to be
the source for payment of, and the basis for determining, dividends to be paid
on the Class G Common Stock, although liquidation rights of the Class G Common
Stock and legally available assets of CMS Energy are based on different
factors.

In May 1994, the Board of Directors of CMS Energy approved a 17
percent increase in its common stock dividend, raising the annual rate to $.84
per share from $.72 per share. The increase was effective with the dividend
payment in August 1994.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Principles Applied in Financial Statements

The consolidated financial statements include CMS Energy, Consumers
and Enterprises and their wholly owned subsidiaries. CMS Energy eliminates all
material transactions between its consolidated companies. CMS Energy uses the
equity method of accounting for investments in its companies and partnerships
where it has more than a 20 percent but less than a majority ownership interest

F-32
173

and includes these results in operating revenue. For the years ended December
31, 1993, 1992 and 1991 equity earnings (losses) were $17 million, $(6)
million, and $(8) million, respectively. For the nine month periods ended
September 30, 1994 and 1993, equity earnings were $21 million and $13 million,
respectively.

Gas Inventory

Consumers uses the weighted average cost method for valuing working
gas inventory. Cushion gas, which is gas stored to maintain reservoir pressure
for recovery of working gas, is recorded in the appropriate gas utility plant
account. Consumers maintains gas inventory in its underground storage
facilities.

Maintenance, Depreciation and Depletion

Property repairs and minor property replacements are charged to
maintenance expense. Depreciable property retired or sold plus cost of removal
(net of salvage credits) is charged to accumulated depreciation. Consumers
bases depreciation provisions for utility plant on straight-line and
units-of-production rates approved by the MPSC. In May 1991, the MPSC approved
an increase of approximately $15 million annually in Consumers' electric and
common utility plant depreciation rates. The composite depreciation rate for
electric utility property was 3.4 percent for 1993 and 1992 and 3.3 percent for
1991. The composite rate for gas utility plant was 4.4 percent for 1993 and
4.3 percent for 1992 and 1991.

NOMECO follows the full-cost method of accounting and, accordingly,
capitalizes its exploration and development costs, including the cost of
non-productive drilling and surrendered acreage, on a country-by-country basis.
The capitalized costs in each cost center are being amortized on an overall
units-of-production method based on total estimated proven oil and gas
reserves.

The composite rates for Consumers' common property, NOMECO's other
property, and other property of CMS Energy and its subsidiaries were 4.5
percent in 1993, 4.7 percent in 1992 and 4.1 percent in 1991.

New Accounting Standards

In November 1992, the FASB issued SFAS 112, Employers' Accounting for
Postemployment Benefits, which CMS Energy adopted January 1, 1994. CMS Energy
pays for several postemployment benefits, the most significant being workers'
compensation. Because CMS Energy's postemployment benefit plans do not vest or
accumulate, the standard did not materially impact CMS Energy's financial
position or results of operations. For new accounting standards related to
financial instruments, see Note 9.

Nuclear Fuel, Decommissioning, Insurance and Other Nuclear Matters

Consumers amortizes nuclear fuel cost to fuel expense based on the
quantity of heat produced for electric generation. Interest on leased nuclear
fuel is expensed as incurred. Under federal law, the DOE is responsible for
permanent disposal of spent nuclear fuel at costs to be paid by affected
utilities under various payment options. However, in a statement released
February 17, 1994, the DOE asserted that it does not have a legal obligation to
accept spent nuclear fuel without an operational repository. The DOE is
exploring options to offset the costs incurred by nuclear utilities in
continuing to store spent nuclear fuel on site. For fuel burned after April 6,
1983, Consumers charges disposal costs to nuclear fuel expense, recovers it
through electric rates and remits it to the DOE quarterly. Consumers has
elected to defer payment for disposal of spent nuclear fuel burned before April
7, 1983 until the spent fuel is delivered to the DOE. As of December 31, 1993,
Consumers has recorded a liability to the DOE of

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$90 million, including interest, to dispose of spent nuclear fuel burned before
April 7, 1983. Consumers has been recovering through electric rates the amount
of this liability, excluding a portion of interest. Consumers' liability to
the DOE becomes due when the DOE takes possession of Consumers' spent nuclear
fuel, which was originally scheduled to occur in 1998.

In April 1993, the NRC approved the design of the dry spent fuel
storage casks now being used by Consumers at Palisades. In May 1993, the
Attorney General and certain other parties commenced litigation to block
Consumers' use of the storage casks, alleging that the NRC had failed to comply
adequately with the procedural requirements of the Atomic Energy Act and the
National Environmental Policy Act. The courts have declined to prevent such
use and have refused to issue temporary restraining orders or stays. Several
appeals relating to this matter are now pending at the U.S. Sixth Circuit Court
of Appeals where oral argument was held during October 1994. As of October 31,
1994, Consumers had loaded seven dry storage casks with spent nuclear fuel and
expects to load six additional casks prior to Palisades' 1995 refueling. If
Consumers is unable to continue to use the casks as planned, significant costs
could be incurred, including replacement power costs during any resulting plant
shutdown and costs to remove the spent fuel from the dry casks. If Consumers
cannot store fuel on-site in the dry casks, and if no off-site storage is
available, Palisades could be forced to cease operation as early as mid-1995,
when all fuel must be off-loaded for a ten-year inspection of the reactor
vessel. In order to address concerns raised subsequent to the initial cask
loading, Consumers and the NRC each analyzed the effects of seismic and other
natural hazards on the support pad on which the casks are placed, and concluded
that the pad location is acceptable to support the casks. See Note 19 with
regard to certain subsequent developments.

In August 1994, Consumers announced that it would unload and replace
one of the dry fuel storage casks at Palisades that contain spent nuclear fuel.
In examining radiographs during a review of the cask manufacturer's quality
assurance program, Consumers detected indications of minor flaws in welds in
the steel liner of one of the loaded casks. Although testing has not disclosed
any leakage from the cask, Consumers has nevertheless decided to remove the
spent fuel from this cask and insert it in another cask. Consumers has
examined the radiographs for all of its casks, including the casks containing
spent fuel, and has found all other welds to be acceptable.

Consumers collects estimated costs to decommission (decontamination
and dismantlement) its two nuclear plants through a monthly surcharge to
electric customers which currently totals $45 million annually. Consumers
currently estimates decommissioning costs of $220 million and $423 million, in
1994 dollars, for the Big Rock Point ("Big Rock") nuclear power plant located
near Charlevoix, Michigan and Palisades, respectively. Amounts collected from
electric retail customers and deposited in trusts, and earnings on the trusts,
which are credited to accumulated depreciation, are estimated to accumulate
$425 million and $1.2 billion for decommissioning Big Rock and Palisades,
respectively. The trust funds, which are estimated to earn 7.1 percent, will
be used for decommissioning Big Rock and Palisades at the end of their
respective license periods in 2000 and 2007. In order to meet NRC requirements
for decommissioning, Consumers prepared site-specific decommissioning cost
estimates for Big Rock and Palisades which assumed that each plant site will be
restored to conform with the adjacent landscape, and that all contaminated
equipment will be disassembled and disposed of in a licensed burial facility.
Consumers is currently updating those estimates, and expects that the
decommissioning costs may increase, principally due to the unavailability of
low- and high-level radioactive waste disposal facilities. The lack of an
available disposal site could result in the need to maintain the facilities in
a mothballed state for a significant period of time after retirement.
Consumers expects to file updated decommissioning estimates with the MPSC on or
before March 31, 1995. At September 30, 1994, Consumers had an investment in
nuclear decommissioning trust funds of $204 million for future decommissioning.

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The staff of the Commission has questioned certain accounting
practices of the electric utility industry, including Consumers, regarding the
recognition, measurement and classification of decommissioning costs for
nuclear generating stations in the financial statements. In response to these
questions, the FASB has agreed to review the accounting for removal costs,
including decommissioning. If current electric utility industry accounting
practices for such decommissioning are changed: annual provisions for
decommissioning could increase; estimated costs for decommissioning could be
recorded as a liability rather than as accumulated depreciation; and trust fund
income from the external decommissioning trusts could be reported as investment
income rather than as a reduction to decommissioning expense.

Consumers, as a member of Nuclear Mutual Limited ("NML") and Nuclear
Electric Insurance Ltd. ("NEIL") and through the purchase of other forms of
nuclear insurance, maintains coverage against property damage, debris removal,
personal injury liability and other losses for damages that could be incurred
at its nuclear generating facilities. In the event of covered losses at its
own or any other participating nuclear facility, Consumers could be subject to
maximum assessments of: $31 million in any one year under the NML and NEIL
policies; $79 million per incident under the nuclear liability financial
protection portion, limited to a maximum payment of $10 million per incident in
any one year; and $6 million in the event of claims under the master workers
program. Consumers considers the possibility of these assessments to be
remote. For further information regarding Consumers' nuclear insurance, "CMS
Energy -- Management's Discussion and Analysis."

In November 1993, Palisades returned to service following a planned
refueling and maintenance outage that had been extended due to several
unanticipated repairs (see Note 5). The results of an NRC review of Consumers'
performance at Palisades published shortly after the planned outage showed a
decline in performance ratings for the plant. In order to provide NRC senior
management with a more in-depth assessment of plant performance, the NRC
conducted a diagnostic evaluation inspection at Palisades. The inspection
evaluated all aspects of nuclear plant operation and management. The
inspection, completed in June 1994, found certain performance, operational and
management deficiencies at Palisades. The NRC acknowledged that the new
Palisades senior management team, in place since early 1994, had recognized and
begun to address the problems at Palisades. The NRC did not place Palisades on
either the NRC's "Troubled" or "Declining Performance" list. In August 1994,
Consumers filed its response to the NRC's diagnostic evaluation report, which
included both short- and long-term enhancements planned for Palisades to
improve performance. Attaining and maintaining acceptable performance at
Palisades will require continuing performance improvements and additional
expenditures at the plant, which have been included in Consumers' total planned
levels of expenditures.

As the holder of a license to operate a pressurized-water reactor
nuclear power plant, Consumers is required by NRC regulations to calculate and
report to the NRC, values relating to the continuing ability of the Palisades
reactor vessel to withstand postulated "pressurized thermal shock" events
during its remaining license life, in light of the embrittlement of reactor
vessel materials over time due to operation in a radioactive environment. If
the results of the calculation indicate that a temperature screening criterion
established in the regulations will be exceeded, Consumers must submit a safety
analysis to determine what, if any, plant modifications are necessary to
prevent potential reactor vessel failure as a result of postulated pressurized
thermal shock events if continued operation beyond the screening criterion
value is allowed, and the NRC will then decide whether to permit continued
operation in excess of the criterion. Consumers had previously submitted a
calculation indicating that the Palisades reactor vessel would not exceed the
screening criterion before the year 2004. Preliminary analysis of more recent
data from testing of similar materials indicates that the Palisades reactor
vessel could exceed the screening criterion prior to 2004, but will meet
established requirements without any actions by

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Consumers through at least 1998. Consumers is continuing to analyze this data
and will report its conclusions to the NRC in late November. Consumers is also
continuing to analyze alternative means to permit continued operation of
Palisades to the end of its license life in the year 2007. Consumers cannot
predict the outcome of these efforts.

Plateau Resources Ltd.

In August 1993, Consumers sold its ownership interest in Plateau
Resources Ltd. ("Plateau") to U. S. Energy Corp. As a result of the sale,
approximately $14 million of Plateau's cash and cash equivalents, other assets
and liabilities, including certain future decommissioning, environmental and
other contingent liabilities were transferred to U. S. Energy Corp. In view of
prior write-offs, this transaction did not result in any material gains or
additional losses.

Reclassifications

CMS Energy and the MCV Partnership (see Note 17) have reclassified
certain prior year amounts for comparative purposes. These reclassifications
did not affect the net losses for the years presented.

Related-Party Transactions

In 1993, 1992 and 1991, Consumers purchased $52 million, $36 million
and $26 million, respectively, of electric generating capacity and energy from
affiliates of Enterprises. Affiliates of CMS Energy sold, stored and
transported natural gas and provided other services to the MCV Partnership
totaling approximately $27 million, $21 million and $19 million for 1993, 1992
and 1991, respectively. For additional discussion of related-party
transactions with the MCV Partnership and the FMLP, see Notes 4 and 17. Other
related-party transactions are immaterial.

Revenue and Fuel Costs

Consumers accrues revenue for electricity and gas used by its
customers but not billed at the end of an accounting period. Consumers also
accrues or reduces revenue for any underrecovery or overrecovery of electric
power supply costs and natural gas costs by establishing a corresponding asset
or liability until Consumers bills these unrecovered costs or refunds the
excess recoveries to customers after reconciliation hearings conducted before
the MPSC.

Unaudited Interim Information

Amounts as of, and for, and pertaining to the nine month periods ended
September 30, 1994 and 1993 included herein are unaudited. In the opinion of
management, the unaudited financial information for the nine months ended
September 30, 1994 and 1993 reflects all adjustments necessary to assure the
fair presentation of financial position, results of operations and cash flows.

Utility Regulation

Consumers accounts for the effects of regulation under SFAS 71,
Accounting for the Effects of Certain Types of Regulation. As a result, the
actions of regulators affect when revenues, expenses, assets and liabilities
are recognized.

Other

For significant accounting policies regarding cash equivalents, see
Note 15; for income taxes, see Note 6; and for pensions and other
postretirement benefits, see Note 11.

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4. THE MIDLAND COGENERATION VENTURE

The MCV Partnership, which leases and operates the MCV Facility,
contracted to sell electricity to Consumers for a 35-year period beginning in
1990 and to supply electricity and steam to The Dow Chemical Company for 15-
and 20-year periods, respectively. At September 30, 1994, Consumers, through
its subsidiaries, held the following assets related to the MCV: 1) CMS Midland
Inc., a subsidiary of MGL ("CMS Midland"), owned a 49 percent general
partnership interest in the MCV Partnership; and 2) CMS Holdings held through
the FMLP a 35 percent lessor interest in the MCV Facility.

Power Purchases from the MCV Partnership

Consumers' obligations for purchase of contract capacity from the MCV
Partnership under the PPA since 1992 follow:

1995 AND
YEAR 1992 1993 1994 THEREAFTER
- ---- ---- ---- ---- ----------

MW 915 1,023 1,132 1,240

Prior to 1993, the MPSC allowed Consumers to recover costs of power
purchased from the MCV Partnership based on delivered energy for up to 840 MW
at rates less than Consumers paid. As a result, Consumers recorded after-tax
losses of $86 million in 1992 and $124 million in 1991. In March 1993, the
MPSC approved, with modifications, the settlement proposal to resolve MCV cost
recovery issues, PURPA issues and court remand as filed with the MPSC on July
7, 1992 and amended on September 8, 1992 (the "Revised Settlement Proposal"),
which had been co-sponsored by Consumers, the MPSC staff and 10 small power and
cogeneration developers. These parties accepted the Settlement Order and the
MCV Partnership confirmed that it did not object to the modifications. ABATE
and the Attorney General have filed claims of appeal of the Settlement Order
with the Court of Appeals.

The Settlement Order determined the cost of power purchased from the
MCV Partnership that Consumers can recover from its electric retail customers
and significantly reduced the amount of future underrecoveries for these power
costs. Effective January 1993, the Settlement Order allowed Consumers to
recover substantially all of the payments for its ongoing purchase of 915 MW of
contract capacity from the MCV Partnership. Capacity and energy purchases from
the MCV Partnership above the 915 MW level can be competitively bid into
Consumers' next solicitation for power or, if necessary, utilized for current
power needs with a prudency review and a cost recovery determination in annual
PSCR cases. In either instance, the MPSC would determine the levels of
recovery from customers for the power purchased. The Settlement Order also
provides Consumers the right to remarket to third parties the remaining
contract capacity, the cost of which Consumers is currently not authorized to
recover from retail customers.

The PPA provides that Consumers is to pay to the MCV Partnership a
minimum levelized average capacity charge of 3.77 cents per kWh, a fixed energy
charge and a variable energy charge which is based primarily on Consumers'
average cost of coal consumed. Consumers is scheduling deliveries of energy
from the MCV Partnership whenever it has energy available up to hourly
availability limits, or "caps," for the 915 MW of capacity authorized for
recovery in the Settlement Order. Consumers can recover an average 3.62 cents
per kWh capacity charge and the prescribed energy charges associated with the
scheduled deliveries within the caps, whether or not those deliveries are
scheduled on an economic basis. Through December 1997, there is no cap applied
during on-peak hours to Consumers' recovery for the purchase of capacity made
available within the 915 MW authorized. Recovery for purchases during off-peak
hours is capped at 80 percent in 1993, 82 percent in 1994 and 1995, 84 percent
in 1996 and 1997, increasing to 88.7 percent in 1998 and thereafter at which
time the 88.7 percent cap is

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applicable during all hours. For all economic energy deliveries above the caps
to 915 MW, Consumers is allowed to recover 1/2 cent per kWh capacity payment in
addition to the corresponding variable energy charge.

In December 1992, Consumers recognized an after-tax loss of $343
million for the present value of estimated future underrecoveries of power
costs under the PPA as a result of the Settlement Order. This loss included
management's best estimates regarding the future availability of the MCV
Facility, and the effect of the future power market on the amount, timing and
price at which various increments of the capacity above the MPSC-authorized
level could be resold. Except for adjustments to the above loss to reflect the
after-tax time value of money through accretion expense, no additional losses
are expected unless actual future experience materially differs from
management's estimates. Because the calculation of the 1992 loss depended in
part upon estimates of future unregulated sales of energy to third parties, a
more conservative or risk-free investment rate of 7 percent was used to
calculate $188 million of the total $343 million after-tax loss. The remaining
portion of the loss was calculated using an 8.5 percent discount rate
reflecting Consumers' incremental borrowing rate as required by SFAS 90,
Regulated Enterprises-Accounting for Abandonments and Disallowances of Plant
Costs. The after-tax expense for the time value of money for the loss is
estimated to be $24 million in 1994, and various lower levels thereafter,
including $22 million in 1995 and $20 million in 1996. Although the settlement
loss was recorded in 1992, Consumers continues to experience cash
underrecoveries associated with the Settlement Order. These after-tax cash
underrecoveries, including fixed energy charges (in connection with a dispute
with the MCV Partnership discussed below) which are being escrowed, were $59
million in 1993, and totaled $51 million for the first nine months of 1994.
Consumers believes there is and will be a market for the resale of capacity
purchases from the MCV Partnership above the MPSC-authorized level. However,
if Consumers is unable to sell any capacity above the current MPSC-authorized
level, future additional after-tax losses and after-tax cash underrecoveries
could be incurred. Consumers' estimates of its 1994 and future after-tax cash
underrecoveries and possible additional losses for the next five years if none
of the additional capacity is sold are as follows:

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
AFTER-TAX, IN MILLIONS

Expected cash
underrecoveries $65 $65 $62 $61 $ 8
Possible additional
underrecoveries
and losses(a) $ 5 $20 $20 $22 $72

(a) If unable to sell any capacity above the MPSC's authorized level.

The undiscounted, after-tax amount of the $343 million loss was $789
million. At December 31, 1993, and September 30, 1994, the after-tax, present
value of the Settlement Order liability totaled $307 million and $277 million,
respectively. The reduction in the Settlement Order liability during the nine
months ended September 30, 1994, reflects after-tax cash underrecoveries
related to capacity totaling $47 million, partially offset by after-tax
accretion expense of $17 million.

The PPA, while providing for payment of a fixed energy charge,
contains a "regulatory out" provision which permits Consumers to reduce the
fixed energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. In connection with the MPSC's approval of the Revised Settlement
Proposal, Consumers and the MCV Partnership are engaged in arbitration
proceedings under the PPA to determine whether Consumers is entitled to
exercise its regulatory out regarding fixed energy charges on the portion of
available MCV capacity above the current

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MPSC-authorized levels. An arbitrator acceptable to both parties has been
selected and hearings are being conducted. If the arbitrator determines that
Consumers cannot exercise its regulatory out, Consumers would be required to
make these fixed energy payments to the MCV Partnership even though Consumers
may not be recovering these costs. The arbitration proceedings will also
determine who is entitled to the fixed energy amounts for which Consumers did
not receive full cost recovery during the years prior to settlement. Although
Consumers believes its position on arbitration is sound and intends to
aggressively pursue its right to exercise the regulatory out, management cannot
predict the outcome of the arbitration proceedings or any possible settlement
of the matter. Accordingly, losses were recorded prior to 1993 for all fixed
energy amounts at issue in the arbitration. At September 30, 1994, $25 million
has been escrowed by Consumers and is included as a non-current asset in
Consumers' financial statements. In December 1993, Consumers made an
irrevocable offer to pay through September 15, 2007, fixed energy charges to
the MCV Partnership on all kWh delivered by the MCV Partnership to Consumers
from the contract capacity in excess of 915 MW, which represents a portion of
the fixed energy charges in dispute. Consumers made the offer in connection
with the sale of its remaining $309 million investment in the senior secured
lease obligation bonds and subordinated secured lease obligation bonds issued
in connection with the MCV Bonds which was completed in 1993. See Note 19 with
regard to certain subsequent developments.

The lessors of the MCV Facility have filed a lawsuit in federal
district court in New York against CMS Energy, Consumers and CMS Holdings. It
alleges breach of contract, breach of fiduciary duty and negligent or
fraudulent misrepresentation relating to the MCV Partnership's failure to
object to the Settlement Order in light of Consumers' interpretation of the
Settlement Order, which is the subject of the arbitration between the MCV
Partnership and Consumers discussed above. The action alleges damages in
excess of $1 billion and seeks injunctive relief relative to Consumers'
payments of the fixed energy charges. CMS Energy and Consumers believe that at
all times they and CMS Holdings have conducted themselves properly and that the
action is without merit. It appears from the complaint that a significant
portion of the alleged damages represent fixed energy charges in dispute in the
arbitration. CMS Energy and Consumers have requested that the lawsuit be
dismissed for lack of jurisdiction and have commenced a lawsuit in Midland,
Michigan, to address these issues. While management believes that the
possibility of the alleged damages being awarded is remote, CMS Energy and
Consumers are unable to predict the outcome of this issue. In addition, CMS
Holdings has filed a lawsuit in the circuit court of Jackson, Michigan, seeking
reimbursement of $7 million of certain tax indemnification payments made to its
partners in the FMLP and owed to CMS Holdings. Consumers is unable to predict
the outcome of this issue.

In July 1994, Consumers paid $30 million to terminate a power purchase
agreement with a 65 MW coal-fired cogeneration facility being developed by
Michigan Cogeneration Partners. Consumers plans to seek MPSC approval to
substitute 65 MW of less expensive contract capacity from the MCV Facility
which Consumers is currently not authorized to recover from retail customers.
The proposed substitution of capacity which would start in 1997, the year the
coal-fired cogeneration facility was scheduled to begin operations, represents
significant savings to Consumers' customers, compared to the cost approved by
the MPSC for a coal-fired cogeneration facility. As a result, Consumers
recorded a

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regulatory asset of $30 million, which it believes will ultimately be
recoverable in rates.

PSCR Matters. Consistent with the terms of the 1993 Settlement Order,
Consumers withdrew its appeals of various MPSC orders issued in connection with
several PSCR cases. Consumers also agreed not to appeal any MCV-related issues
raised in future orders for these plan cases and related reconciliations to the
extent those issues are resolved by the Settlement Order. Consumers made
refunds, including interest, of $69 million in 1993 and $29 million in 1992 to
customers for overrecoveries in connection with the 1991 and 1990 PSCR
reconciliation cases, respectively. These amounts were included in losses
recorded prior to 1993. In 1992, Consumers recovered MCV power purchase costs
consistent with the MPSC's 1992 plan case order, and does not anticipate that
any MCV-related refunds will be required. In March 1994, the MPSC issued an
order in the PSCR reconciliation case for 1992 confirming Consumers' recovery
for the purchase of 840 MW from the MCV in accordance with the MPSC plan case
order and allowing recovery for the purchase of power above 840 MW based on
replacement power costs. The MPSC subsequently confirmed the recovery of
MCV-related costs consistent with the Settlement Order as part of the 1993 and
1994 plan case orders.

5. RATE MATTERS

Electric Rate Case

In May 1994, the MPSC issued an order, granting Consumers a $58
million annual increase in its retail electric rates. The order provides
Consumers with higher revenues associated with increased expenditures primarily
related to capital additions, operation and maintenance, higher depreciation
and postretirement benefits computed under SFAS 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, and the continuation of certain
demand-side management programs at reduced levels. The MPSC order generally
supported Consumers' rate design proposal and reduced the level of
subsidization of residential customers by commercial and industrial customers.
Consequently, residential customers were allocated $40 million, which is 70
percent of the rate increase.

In November 1994, Consumers filed a request with the MPSC which could
increase its retail electric rates in a range from $104.4 million to $139.5
million, depending upon the ratemaking treatment afforded sales losses to
competition and the treatment of the MCV contract capacity above 915 MW. The
request includes recognition of increased expenditures related to continuing
construction activities and capital additions aimed at maintaining and
improving system reliability and increases in financing costs. The filing
addresses the ratemaking effect of jurisdictional sales losses by assuming
adoption of a proposed special nonjurisdictional rate to large, qualifying
industrial customers as requested by Consumers in an earlier June 1994 filing
with the MPSC. An alternative approach presented would use the MCV contract
capacity above 915 MW for jurisdictional electric customers and offer
discounted jurisdictional tariffs. Consumers has also requested that the MPSC
eliminate the rate cross-subsidization of residential rates in a two-step
adjustment. In addition, Consumers proposes to eliminate all DSM expenditures
after April 1995 and further requests MPSC approval to recover all
jurisdictional costs associated with the proposed settlement of the proceedings
concerning the operation of the Ludington pumped storage facility
("Ludington").

Special Rates. In June 1994, Consumers also filed a request with the
MPSC, seeking approval of a plan to offer competitive, special rates to certain
large qualifying customers. Consumers proposes to offer the new rates to
customers using high amounts of electricity that have expressed an intention to
or are capable of terminating purchases of electricity from Consumers and have
the ability to acquire energy from alternative sources. To serve these
customers,

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Consumers would use power purchases from the MCV Partnership which exceed the
915 MW currently recoverable from electric retail customers. Certain other
parties have subsequently filed various alternative proposals. The MPSC has
adopted a hearing schedule that calls for briefs to be filed in December 1994.
A final order is expected in the first quarter of 1995.

Abandoned Midland Project. In 1984, Consumers abandoned construction
of its unfinished nuclear power plant located in Midland, Michigan, and
subsequently took a series of write-downs. In 1991, the MPSC issued orders
permitting recovery of a portion of the plant and Consumers began collecting
$35 million pretax annually for the next 10 years and is amortizing the assets
against current income over the recovery period using an interest method.
Amortization for 1993, 1992 and 1991 was $28 million, $28 million and $18
million, respectively.

Consumers was not permitted to earn a return on the portion of the
abandoned Midland investment for which the MPSC was allowing recovery.
Therefore, under SFAS 90, the recorded losses described above included amounts
that reduced the recoverable asset to the present value of future recoveries.
During the remaining recovery period, part of the prior losses will be reversed
to adjust the unrecovered asset to its present value and is reflected as
accretion income. An after-tax total of approximately $35 million of the prior
losses remains to be included in accretion income through April 2001. Several
parties, including the Attorney General, have filed claims of appeal with the
Court of Appeals regarding MPSC orders issued in 1991 that specified the
recovery of abandoned investment. Oral arguments before the Court of Appeals
were held in October 1994.

Electric DSM. As a result of settlement discussions regarding
demand-side management and an MPSC order in 1991, Consumers agreed to spend $65
million over two years on demand-side management programs. Based on the MPSC's
determination of Consumers' effectiveness in implementing these programs,
Consumers' future rate of return on common equity may be adjusted either upward
by up to 1 percent or downward by up to 2 percent. This adjustment, if
implemented, would be applied to Consumers' retail electric tariff rates and be
in effect for one year following reconciliation hearings with the MPSC. The
estimated revenue effects of the potential adjustment range from an $11 million
increase to a $22 million decrease. The proceedings before the MPSC have
started and based on the criteria set out in the demand-side management
settlement agreement approved by the MPSC in 1992, Consumers has achieved all
the agreed-upon objectives. Consumers believes that the MPSC will ultimately
allow collection of the full $11 million incentive. Accordingly, during the
second quarter of 1994, Consumers recognized $11 million in revenue, related to
its demand-side management program. A final order from the MPSC is expected by
mid-1995.

In October 1993, Consumers completed the customer participation
portion of these DSM programs. In May 1994, as part of Consumers' electric
rate case, the MPSC issued an order that allowed Consumers to recover
demand-side management expenditures which exceeded $65 million. The order also
authorized Consumers to continue certain programs in 1994 through 1996.
Consumers is deferring program costs and amortizing the costs over the period
these costs are being recovered from its customers in accordance with an
accounting order issued by the MPSC in September 1992. The unamortized balance
of deferred costs at September 30, 1994, December 31, 1993 and December 31,
1992 was $71 million, $71 million, and $25 million, respectively.

PSCR Issues

On November 9, 1994, the ALJ presiding over the 1993 PSCR
reconciliation proceeding issued a proposal for decision in this case. Several
issues were included in this proposal for decision including issues related to
a planned refueling and maintenance outage which Consumers began at Palisades
in June 1993.

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Following several required, unanticipated repairs that extended the outage, the
plant returned to service in early November. In addition, from mid-February
through mid-June 1994, Palisades was temporarily taken out of service to repair
valve-leakage and conduct other needed inspections and repairs. Recovery of
replacement power costs incurred by Consumers during these outages were
reviewed during the 1993 PSCR reconciliation of actual costs and revenues to
determine the prudency of actions taken during the outages. The 1994 outages
will be reviewed as part of that year's reconciliation proceedings. Net
replacement power costs during the outages were approximately $180,000 per day
above the cost of fuel Consumers would have otherwise incurred when the plant
is operating. Consumers had conceded that one day of the 1993 outage was
inappropriate, while the MPSC staff has recommended a 20-day disallowance. The
ALJ proposed a disallowance of 22 days of outage totaling $4.2 million. CMS
Energy had previously established a reserve for this potential disallowance.
See Note 3 for information regarding the NRC's review of Palisades'
performance.

The Energy Policy Act of 1992 ("Energy Act") imposes an obligation on
the utility industry, including Consumers, to decommission DOE uranium
enrichment facilities. Consumers currently estimates its payments for
decommissioning those facilities to be $2.4 million per year for 15 years
beginning in 1992, escalating based on an inflation factor. Consumers believes
these costs are recoverable from its customers under traditional regulatory
policies. At December 31, 1993, Consumers' remaining estimated liability was
approximately $33 million. At December 31, 1993, Consumers had a regulatory
asset of $33 million for the expected recovery of this amount in electric
rates.

Gas Rates

In July 1994, the MPSC approved an agreement previously reached
between the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the last
six months of 1994. This charge against earnings will partially offset costs
related to state property taxes which have been reduced. The agreement was
reached in response to an assertion by the MPSC staff that gas utility business
earnings for 1993 were in excess of the currently authorized level. The
agreement also provides for an additional $4 million of 1995-related SFAS 106
costs to be charged against 1995 earnings instead of being deferred. As part
of the agreement, Consumers committed to file a gas rate case before December
31, 1994, that will among other things, incorporate costs increases, including
costs for postretirement benefits computed under SFAS 106, into its retail gas
rates. A final order should be received approximately 9 to 12 months after the
request is filed. No assurance can be given as to the level of rates which
will be authorized by the MPSC. Consumers' gas distribution business is
currently authorized to earn a 13.25 percent rate of return on equity.
Consumers' most recent rate filing for its electric utility business resulted
in an authorized rate of return on equity of 11.75 percent. See Note 19 with
regard to certain subsequent developments.

GCR Issues

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to February 8, 1993. Consumers previously had accrued a loss for this issue in
excess of the disallowed amount. Future disallowances are not anticipated,
unless the remaining appeals filed by the intrastate producers are successful.

In 1992, the FERC approved a settlement involving Consumers, Trunkline
and certain other parties, which resolved numerous claims and proceedings
concerning Trunkline liquefied natural gas costs. The settlement represents
significant gas cost savings for Consumers and its customers in future years.
As part of the settlement, Consumers will not incur any transition costs from
Trunkline as a result of FERC Order 636. In 1992, Consumers recorded a
liability and regulatory asset for the principal amount of payments to
Trunkline over a five-year period. In May 1993, the MPSC approved a separate
settlement agreement that provides Consumers with full recovery of these costs
over a five-year period. At December 31, 1993, Consumers' remaining liability
and regulatory asset were $117 million. At September 30, 1994, Consumers'
liability and regulatory asset were $93 million.

Other

Estimated losses for certain contingencies discussed in this note have
been accrued. Resolution of these contingencies is not expected to have a
material impact on Consumers' financial position or results of operations.

6. INCOME TAXES

CMS Energy and its subsidiaries (including Consumers) file a
consolidated federal income tax return. Income taxes are generally allocated
to each subsidiary based on each subsidiary's separate taxable income. In
1992, CMS Energy implemented SFAS 109, Accounting for Income Taxes. Deferred
tax assets and liabilities are classified as current or noncurrent based on the
classification of the related asset or liability, for all temporary
differences. Consumers began practicing full deferred tax accounting for
temporary differences arising after January 1, 1993 as authorized by a generic
MPSC order. The generic order reduces the amount of regulatory assets and
liabilities that otherwise could have arisen in future periods by allowing
Consumers to reflect the income statement effect in the period temporary
differences arise.

CMS Energy uses ITC to reduce current income taxes payable and defers
and amortizes ITC over the life of the related property. The AMT requires
taxpayers to perform a second separate federal tax calculation based on a flat
rate applied to a broader tax base. AMT is the amount by which this
"broader-based" tax exceeds regular tax. Any AMT paid generally becomes a tax
credit that can be carried forward indefinitely to reduce regular tax
liabilities in future periods when regular taxes paid exceed the tax calculated
for AMT.

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The significant components of income tax expense (benefit) consisted
of:

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991(A)
---- ---- -------
IN MILLIONS

Current federal income taxes $ 19 $ 39 $ 13
Deferred income taxes 67 (177) (143)
Deferred income taxes--tax rate change (1) - -
Deferred ITC, net (10) (8) 36
---- ----- -----
$ 75 $(146) $ (94)
==== ===== =====
Operating $ 81 $ 19 $ 13
Other (6) (165) (107)
---- ----- -----
$ 75 $(146) $ (94)
==== ===== =====

(a) The 1991 provision for income taxes was before an extraordinary item
that had related deferred income taxes of approximately $7 million.

The principal components of CMS Energy's deferred tax assets
(liabilities) recognized in the balance sheet are as follows:

DECEMBER 31,
------------
1993 1992
---- ----
IN MILLIONS

Property $ (580) $ (521)
Unconsolidated investments (194) (128)
Postretirement benefits (Note 11) (180) (167)
Abandoned Midland project (Note 5) (57) (60)
Employee benefit obligations (includes postretirement
benefits of $182 and $168) (Note 11) 204 189
MCV power purchases--settlement (Note 4) 165 177
AMT carryforward 110 83
ITC carryforward (expires 2005) 48 52
Other (8) 5
------- -------
$ (492) $ (370)
======= =======
Gross deferred tax liabilities $(1,571) $(1,416)
Gross deferred tax assets 1,079 1,046
------- -------
$ (492) $ (370)
======= =======

The actual income tax expense (benefit) differs from the amount
computed by applying the statutory federal tax rate to income before income
taxes as follows:

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
IN MILLIONS

Net income (loss) before preferred dividends
and extraordinary item $166 $(286) $(252)
Income tax expense (benefit) 75 (146) (94)
---- ----- -----
241 (432) (346)
Statutory federal income tax rate x35% x34% x34%
---- ----- -----
Expected income tax expense (benefit) 84 (147) (118)
Increase (decrease) in taxes from:
Capitalized overheads previously flowed through 5 5 35
Differences in book and tax depreciation not
previously deferred 6 9 8
ITC amortization and utilization (12) (11) (9)
Other, net (8) (2) (10)
---- ----- ----
$ 75 $(146) $(94)
==== ===== ====

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7. SHORT-TERM FINANCINGS

In October 1994, the FERC granted Consumers' request for authorization
to issue or guarantee up to $900 million of short-term debt through December
31, 1996. This is the same amount of short-term debt currently authorized
through 1994. Consumers has a $470 million facility that is used to finance
seasonal working capital requirements and unsecured, committed lines of credit
aggregating $185 million. At December 31, 1993, $235 million and $24 million
were outstanding at weighted average interest rates of 4.0 percent and 3.9
percent, respectively. At September 30, 1994, Consumers had $300 million and
$101 million, respectively, outstanding under these facilities. During the
first quarter of 1994, Consumers reduced the outstanding balance of both
facilities to zero. Further, Consumers has an established $500 million trade
receivables purchase and sale program. At September 30, 1994 and 1993, and
December 31, 1993 and 1992, receivables sold under the agreement totaled $210
million, $160 million, $285 million and $225 million, respectively. Accounts
receivable and accrued revenue in the Consolidated Balance Sheets have been
reduced to reflect receivables sold.

8. CAPITALIZATION

CMS Energy

Capital Stock. CMS Energy's Articles currently permit it to issue up
to 250 million shares of Common Stock at $.01 par value and up to 5 million
shares of CMS Energy Preferred Stock at $.01 par value. Under the Unsecured
Credit Facility and the GTN Indenture pursuant to which the GTNs are issued,
which currently contain CMS Energy's most restrictive dividend covenant, CMS
Energy is permitted to pay, as dividends on its common stock, an amount not to
exceed the total of its net income, as defined in the GTN Indenture, and any
proceeds received from the issuance or sale of common stock and $120 million,
provided there exists no event of default under the terms of the Unsecured
Credit Facility or the GTN Indenture. The same limits apply to amounts
available to repurchase or reacquire CMS Energy Common Stock. In October 1993,
CMS Energy issued an additional 4.6 million shares of common stock at a price
of $26. The net proceeds of $119 million were used to reduce existing debt and
for general corporate purposes. On October 6, 1994, CMS Energy filed a shelf
registration statement for the offering and issuance of up to two million
shares of common stock. As described in the Commission filing, the shares may
be offered and issued in connection with acquisitions of energy-related
businesses and assets.

CMS Energy is seeking shareholder approval to amend its Articles of
Incorporation and authorize a new class of Common Stock of CMS Energy. If such
amendment is approved by the shareholders the number of authorized shares of
capital stock would increase from 225 million to 320 million shares consisting
of 250 million shares of CMS Energy Common Stock, par value $.01 per share, 60
million shares of Class G Common Stock, no par value, and 10 million shares of
CMS Energy Preferred Stock, par value $.01 per share.

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186

Common Stock for a number of shares of CMS Energy Common Stock having a Fair
Market Value equal to 110% of the Fair Market Value of one share of Class G
Common Stock.

In the event of the liquidation of CMS Energy, each outstanding share
of Class G Common Stock will be entitled to a share of the assets remaining for
distribution to holders of Common Stock equal to the amount of such assets
divided by the total number of shares of CMS Energy Common Stock and Class G
Common Stock then outstanding.

CMS Energy as parent holding company, is paid dividends from its
principal subsidiaries, primarily Consumers. The ability of CMS Energy to pay
dividends on its capital stock will depend substantially upon timely receipt of
sufficient dividends or other distributions from Consumers, its principal
subsidiary. Consumers' ability to pay dividends on its common stock depends
upon the revenues, earnings and other factors. Consumers' revenues and
earnings will depend substantially upon its ability to secure timely and
appropriate relief from the MPSC. There is no fixed relationship, on a per
share or aggregate basis, between the dividends that may be paid by CMS Energy
to holders of its Common Stock and the cash dividends or other amounts that may
be paid by Consumers to CMS Energy.

Long-Term Debt. In October 1992, CMS Energy received proceeds of $130
million and $219 million from the issuance of Series A Senior Deferred Coupon
Notes due October 1, 1997 (the "Series A Notes") and Series B Senior Deferred
Coupon Notes due October 1, 1999 (the "Series B Notes"), respectively.
Interest will accrue and increase the principal to the face value of $172
million for the Series A Notes and $294 million for the Series B Notes through
October 1, 1995. After such date, interest will be paid semi-annually
commencing April 1, 1996, at a rate of 9.5 percent per annum for the Series A
Notes and 9.875 percent per annum for the Series B Notes. In November 1992,
CMS Energy entered into a $220 million Secured Credit Facility. As of December
31, 1993, $18 million was outstanding at a weighted average interest rate of
5.7 percent. The establishment of the Secured Credit Facility and the proceeds
from the Series A Notes and the Series B Notes, net of underwriting expenses,
were used to retire the $410 million one-year secured revolving credit
facility.

In January 1994, CMS Energy filed a registration statement with the
Commission permitting the issuance and sale of up to $250 million of GTNs. The
net proceeds are being used to reduce the amount of Series A Notes and Series B
Notes outstanding and for general corporate purposes. As of November 4, 1994,
CMS Energy had issued approximately $80 million of GTNs with interest rates
ranging from 6.75 to 7.75 percent and reduced the principal amount of Series B
Notes outstanding by $95 million.

On July 29, 1994, CMS Energy refinanced its Secured Credit Facility
with a new $400 million Credit Facility and extended the termination date to
June 30, 1997. Under the terms of the Credit Facility CMS Energy's aggregate
unsecured debt outstanding cannot exceed the greater of (i) $850 million or
(ii) 4.5 times the cash dividend income received from its subsidiaries. At
October 31, 1994, $129 million was outstanding at a weighted average interest
rate of 6.4 percent.

F-46
187

Consumers

Capital Stock. At December 31, 1992, Consumers effected a
quasi-reorganization, an elective accounting procedure in which Consumers'
accumulated deficit of $574 million was eliminated against other paid-in
capital. This action had no effect on CMS Energy's consolidated financial
statements. As a result of the quasi-reorganization and subsequent accumulated
earnings, Consumers paid a total of $133 million in common stock dividends in
1993 and also paid a $16 million common stock dividend during the first quarter
of 1994 from 1993 earnings. In addition, through September 30, 1994, Consumers
paid $97 million in 1994 common dividends from current year earnings. In
October 1994, Consumers declared a $36 million common stock dividend payable in
November 1994.

In March 1994, Consumers issued and sold 8 million shares of Class A
Preferred Stock (cumulative, without par value) with a stated annual dividend
rate of 8.32 percent. Net proceeds to Consumers were $193 million. The stock
is redeemable at the option of Consumers, on or after April 1, 1999, at a
redemption price of $25 per share plus accrued dividends.

First Mortgage Bonds. Consumers secures its first mortgage bonds by a
mortgage and lien on substantially all of its property. Consumers' ability to
issue and sell securities is restricted by certain provisions in its First
Mortgage Bond Indenture, Articles and the need for regulatory approvals in
compliance with applicable state and federal law. In September 1993, Consumers
issued, with MPSC approval, $300 million of 6 3/8 percent first mortgage bonds,
due 2003 and $300 million of 7 3/8 percent first mortgage bonds, due 2023.
Consumers used the net proceeds from the bond issuance to refund approximately
$515 million of higher interest first mortgage bonds and the balance to reduce
current short-term borrowings. Unamortized debt costs, premiums and discounts
and call premiums on the refunded debt totaling approximately $18 million were
deferred under SFAS 71, and are being amortized over the lives of the new debt.

Long-Term Bank Debt. In January 1993, Consumers entered into an
interest rate swap agreement, exchanging variable-rate interest for a
fixed-rate interest of 5.2 percent on the latest maturing $250 million of the
then remaining $500 million obligation under its long-term credit agreement.
The swap agreement has the same term as the debt agreement and had the effect
of increasing the weighted average interest rate to 4.8 percent from 3.9
percent for the 12 month period ended December 31, 1993. The swap agreement
will amortize beginning in February 1995 and terminate in May 1996. At
September 30, 1994, the outstanding balance of Consumers' long-term credit
agreement totaled $328 million. In November 1994, subsequent to MPSC
authorization, Consumers entered into a new $400 million unsecured, variable
rate, five-year term loan and subsequently used the proceeds to refinance the
long-term credit agreement discussed above and to reduce short-term borrowings.

Other. Consumers has a total of $131 million of PCRBs outstanding
with a weighted average interest rate of 4.2 percent at December 31, 1993.
Consumers classifies $101 million of PCRBs as long-term because it can
refinance these amounts through irrevocable letters of credit expiring after
one year.

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188

bonds, due 2010, secured by a financial guaranty insurance policy and certain
first mortgage bonds of Consumers. Proceeds of these issues were used to
redeem on August 1, 1993 in advance of their maturities, approximately $58
million of outstanding PCRBs.

NOMECO

In June, 1994, NOMECO executed a non-binding letter of intent which
calls for a newly-formed subsidiary of CMS Energy to merge with and into
Walter, thereby making Walter a wholly-owned subsidiary of CMS Energy. Walter
is a privately held corporation primarily engaged in international oil and gas
exploration, development and production and activities related thereto. The
letter of intent has expired pursuant to its terms. Nonetheless, NOMECO
expects that this transaction will be completed in late 1994 or early 1995.
The letter of intent contemplated that the holders of Walter common stock would
receive shares of CMS Energy Common Stock with an aggregate market value of
approximately $25 million.

As of December 31, 1993, NOMECO had total debt outstanding of $122
million. Senior serial notes amounting to $45 million with a weighted average
interest rate of 9.4 percent are outstanding from a private placement. In
November 1993, NOMECO amended the terms of its revolving credit agreement and
increased the amount to $110 million. At December 31, 1993 and September 30,
1994, $72 million and $90 million was outstanding at a weighted average
interest rate of 4.7 percent and 6.3 percent, respectively. At December 31,
1993, NOMECO also had $5 million outstanding under other credit agreements.

CMS Generation

As of December 31, 1993, MOAPA Energy Limited Partnership, a
wholly-owned affiliate of CMS Generation ("MOAPA"), had $22 million of Clark
County, Nevada, tax-exempt bonds outstanding with an interest rate of 3.35
percent. These bonds are backed by a letter of credit guaranteed by CMS
Energy. In May 1994, MOAPA redeemed $22 million of Clark County, Nevada
tax-exempt bonds. The bonds had been included in current maturities on the
balance sheet and the funds held in a trust account had been included as other
current assets. The bonds were issued in 1990 for the purpose of providing
partial funding for the development of a proposed tires-to-energy solid waste
disposal and resource recovery facility. The bonds were redeemed due to the
Nevada Public Service Commission's rejection of a signed power purchase
agreement for the facility.

9. FINANCIAL INSTRUMENTS

The carrying amounts of cash, short-term investments and current
liabilities approximate their fair values due to the short-term nature of those
instruments. The estimated fair values of long-term investments are based on
quoted market prices where available. When specific market prices do not exist
for an instrument, the fair value is based on quoted market prices of similar
investments or other valuation techniques. All long-term investments in
financial instruments approximate fair value. The carrying amount of long-term
debt was $2.4 billion and $2.7 billion and the fair value of long-term debt was
$2.6 billion and $2.8 billion as of December 31, 1993 and 1992, respectively.
Although the current fair value of the long-term debt, which is based on
calculations made by debt pricing specialists, may be greater than the current
carrying amount, settlement of the reported debt is generally not expected
until maturity. The fair value of CMS Energy's off-balance sheet financial
instruments

F-48
189

is based on the amount estimated to terminate or settle the obligation. The
fair value of interest rate swap agreements was $6 million and $1 million and
guarantees/letters of credit was $96 million and $56 million as of December 31,
1993 and 1992, respectively (see Notes 8 and 13).

On January 1, 1994, CMS Energy adopted SFAS 115, Accounting for
Certain Investments in Debt and Equity Securities, requiring accounting for
investments in debt securities to be held to maturity at amortized cost;
otherwise debt and marketable equity securities are recorded at fair value,
with any unrealized gains or losses included in earnings if the securities are
for trading purposes or as a separate component of stockholders' equity if the
securities are classified as available for sale. CMS Energy has nuclear
decommissioning and SERP investments classified as available for sale
securities with an amortized cost of $227 million and a fair market value of
$223 million as of September 30, 1994. An unrealized loss on available for
sale securities of $3 million, net of taxes, is included in common
stockholders' equity for nine months ended September 30, 1994. CMS Energy also
has certain equity investments classified as trading securities with a carrying
cost of $11 million and a fair market value of $15 million. An unrealized gain
on trading securities of $3 million, net of taxes, is included in other income
for nine months ended September 30, 1994.

In May 1993, the FASB issued SFAS 114, Accounting by Creditors for
Impairment of a Loan, effective in 1995, requiring that certain loans that are
determined to be impaired be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, the loan's
observable market price or the fair value of any collateral for a secured loan.
CMS Energy does not believe this standard will have a material impact on its
financial position or results of operations.

In October 1994, the FASB also issued SFAS 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments, which
requires added disclosures about the amounts, nature and terms of derivatives.
Derivatives are financial agreements whose returns are linked to or derived
from the performance of underlying assets such as bonds, currencies or
commodities. CMS Energy is continuing to study SFAS 118 and SFAS 119, which
are effective for year-end 1994 financial statements, but does not expect
either statement will have a material impact on CMS Energy's financial position
or results of operations.

10. EXECUTIVE INCENTIVE COMPENSATION

Under CMS Energy's Performance Incentive Stock Plan, restricted shares
of Common Stock of CMS Energy, stock options and stock appreciation rights may
be granted to key employees based on their contributions to the successful
management of CMS Energy and its subsidiaries. The plan reserves for award not
more than 2 percent of CMS Energy's common stock outstanding on January 1 each
year, less the number of shares of restricted common stock awarded and of
common stock subject to options granted under the plan during the immediately
preceding four calendar years. Any forfeitures are subject to award under the
plan. As of December 31, 1993, awards of up to 447,686 shares of common stock
may be issued.

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190

Restricted shares of common stock are outstanding shares with full
voting and dividend rights. Performance criteria were added in 1990 based on
CMS Energy's total return to shareholders. Shares of restricted common stock
cannot be distributed until they are vested and the performance objectives are
met. Further, the restricted stock is subject to forfeiture if employment
terminates before vesting. If key employees exceed performance objectives, the
plan will allow additional awards. Restricted shares vest fully if control of
CMS Energy changes, as defined by the plan. As of December 31, 1993, 289,874
shares of the 316,187 restricted shares outstanding are subject to performance
objectives.

Consumers' Executive Stock Option and Stock Appreciation Rights Plan,
an earlier plan approved by shareholders, remains in effect until all
authorized options are granted or September 25, 1995. As of December 31, 1993,
options for 43,000 shares remained to be granted.

Under both plans, for stock options and stock appreciation rights, the
exercise price on each grant date equaled the closing market price on the grant
date. Options are exercisable upon grant and expire up to 10 years and one
month from date of grant. The status of the restricted stock granted under the
Performance Incentive Stock Plan and options granted under both plans follows:

RESTRICTED
STOCK OPTIONS
----- -------
NUMBER NUMBER PRICE
OF SHARES OF SHARES PER SHARE
--------- --------- ---------

Outstanding at January 1, 1991 212,500 1,162,216 $ 7.13-$34.25
Granted 97,000 194,000 $21.13-$21.13
Exercised or Issued (34,437) (65,125) $ 7.13-$16.00
------- --------- -------------
Outstanding at December 31, 1991 275,063 1,291,091 $ 7.13-$34.25
Granted 101,000 215,000 $17.13-$18.00
Exercised or Issued (37,422) (21,000) $13.00-$16.00
Canceled (15,375) (50,000) $20.50-$33.88
------- --------- -------------
Outstanding at December 31, 1992 323,266 1,435,091 $ 7.13-$34.25
Granted 132,000 249,000 $25.13-$26.25
Exercised or Issued (54,938) (152,125) $ 7.13-$21.13
Canceled (84,141) (33,000) $20.50-$33.88
------- --------- -------------
Outstanding at December 31, 1993 316,187 1,498,966 $ 7.13-$34.25
======= ========= =============

11. RETIREMENT BENEFITS

Postretirement Benefit Plans Other Than Pensions

Both the MPSC and FERC have generally adopted SFAS 106 costs for
ratemaking purposes provided costs recovered through rates are placed in
external funds until they are needed to pay benefits. The MPSC's generic order
allows utilities three years to seek recovery of costs and provides for
recovery from customers of any deferred costs incurred prior to the beginning
of rate recovery of such costs. Consumers anticipates recovering its
regulatory asset within 20 years. As discussed in Note 5, Consumers has
requested recovery of the portion of these costs allocated to the electric
business. In late 1994, Consumers plans to

F-50
191

request recovery of the gas utility portion of these costs. CMS Energy plans
to fund the benefits using external Voluntary Employee Beneficiary
Associations. Funding of the health care benefits would begin when Consumers'
rate recovery based on SFAS 106 begins. A portion of the life insurance
benefits have previously been funded.

As of December 31, 1993, the actuary assumed that retiree health care
costs increased 10.5 percent in 1994, then decreased gradually to a 5.5 percent
increase in 2000 and thereafter. The health care cost trend rate assumption
significantly affects the amounts reported. For example, a 1 percentage point
increase in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by $75 million and the aggregate of the
service and interest cost components of net periodic postretirement benefit
costs for 1993 by $9 million.

The funded status of the postretirement benefit plans is reconciled
with the liability recorded at December 31 as follows:

1993 1992
---- ----
IN MILLIONS

Actuarial present value of estimated benefits
Retirees $ 282 $ 265
Eligible for retirement 54 50
Active (upon retirement) 190 177
----- -----
Accumulated postretirement benefit obligation 526 492
Plan assets (premium deposit fund) at fair value 4 4
----- -----
Projected postretirement benefit obligation in
excess of plan assets (522) (488)
Unrecognized prior service cost (39) (39)
Unrecognized net loss 41 33
----- -----
Recorded liability $(520) $(494)
===== =====

Supplemental Executive Retirement Plan

Certain management employees qualify under the SERP. Benefits are
based on the employee's service and earnings as defined in the SERP. In 1988,
a trust from which SERP benefits are paid was established and funded. Because
the SERP is not a qualified plan under the Internal Revenue Code, earnings of
the trust are taxable and trust assets are included in Consumers' consolidated
assets. At December 31, 1993 and 1992, trust assets at cost (which
approximates market) were $18 million and $16 million, respectively, and were
classified as other non-current assets.

F-51
192

Defined Benefit Pension Plan

A trusteed, non-contributory, defined benefit Pension Plan covers
substantially all employees. The benefits are based on an employee's years of
accredited service and earnings, as defined in the plan, during an employee's
five highest years of earnings. Because the plan is fully funded, no
contributions were made for plan years 1991 through 1993.

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----

Discount rate 7.25% 8.5% 8.5%
Rate of compensation increase 4.5% 5.5% 5.5%
Expected long-term rate of return on assets 8.75% 8.75% 8.75%
===== ===== =====

Net Pension Plan and SERP costs consisted of:

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----

Service cost $ 19 $ 19 $ 18
Interest cost 50 48 48
Actual return on plan assets (92) (36) (88)
Net amortization and deferral 34 (20) 29
---- ---- ----
Net periodic pension cost $ 11 $ 11 $ 7
==== ==== ====

The funded status of the Pension Plan and SERP reconciled to the
pension liability recorded at December 31 was:

PENSION PLAN SERP
------------ ----
1993 1992 1993 1992
---- ---- ---- ----
IN MILLIONS

Actuarial present value of estimated benefits
Vested $471 $349 $ 16 $ 11
Non-vested 56 49 - -
---- ---- ---- ----
Accumulated benefit obligation 527 398 16 11
Provision for future pay increases 138 177 8 6
---- ---- ---- ----
Projected benefit obligation 665 575 24 17
Plan assets (primarily stocks and bonds,
including $87 in 1993 and $64 in 1992 in
common stock of CMS Energy) at fair value 692 631 - -
---- ---- ---- ----
Projected benefit obligation less than
(in excess of) plan assets 27 56 (24) (17)
Unrecognized net (gain) loss from experience
different than assumed (56) (76) 7 2
Unrecognized prior service cost 45 49 1 1
Unrecognized net transition (asset) obligation (44) (49) 1 1
Adjustment to recognize minimum liability - - (1) -
---- ---- ---- ----
Recorded liability $(28) $(20) $(16) $(13)
==== ==== ==== ====

Beginning January 1, 1986, the amortization period for the Pension
Plan's unrecognized net transition asset is 16 years and 11 years for the
SERP's unrecognized net transition obligation. Prior service costs are
amortized on a straight-line basis over the average remaining service period of
active employees. In 1991, certain eligible employees accepted early
retirement incentives. The incentives consisted of lump-sum cash payments and
increased pension payments. The pretax cost of the incentives was $25 million.
Also in

F-52
193

1991, portions of the projected benefit obligation were settled which resulted
in a pretax gain of $25 million that offset the early retirement costs.

12. LEASES

CMS Energy, Consumers, and Enterprises lease various assets, including
vehicles, aircraft, construction equipment, computer equipment, nuclear fuel
and buildings. Consumers' nuclear fuel capital leasing arrangement was
extended an additional year and is now scheduled to expire in November 1995.
The maximum amount of nuclear fuel that can be leased increased from $55
million to $70 million. Consumers further increased this amount in early 1994
to $80 million. The lease provides for an additional one-year extension upon
mutual agreement by the parties. Upon termination of the lease, the lessor
would be entitled to a cash payment equal to its remaining investment, which
was $57 million as of December 31, 1993. Consumers is responsible for payment
of taxes, maintenance, operating costs, and insurance.

Minimum rental commitments under CMS Energy's non-cancelable leases at
December 31, 1993, were:

CAPITAL OPERATING
LEASES LEASES
------ ------
IN MILLIONS

1994 $ 43 $ 9
1995 64 8
1996 16 3
1997 15 3
1998 13 3
1999 and thereafter 26 22
---- ---
Total minimum lease payments 177 $48
===
Less imputed interest 27
----
Present value of net minimum lease payments 150
Less current portion 35
----
Non-current portion (a) $115
====

- ------------------
(a) In January 1994, Consumers amended its nuclear fuel lease to include
fuel previously owned at Big Rock and further increased the maximum
amount of nuclear fuel that could be leased to $80 million. At
September 30, 1994, $61 million was under lease.

Consumers recovers these charges from customers and accordingly
charges payments for its capital and operating leases to operating expense.
Operating lease charges, including charges to clearing and other accounts as of
December 31, 1993, 1992 and 1991, were $18 million, $15 million and $15
million, respectively.

Capital lease expenses for the years ended December 31, 1993, 1992 and
1991 were $34 million, $47 million and $51 million, respectively. Included in
these amounts for the years ended 1993, 1992 and 1991, are nuclear fuel lease
expenses of $13 million, $17 million and $24 million, respectively.

13. COMMITMENTS, CONTINGENCIES AND OTHER

Ludington Pumped Storage Plant

In October 1994, Consumers, Detroit Edison, the Attorney General, the
DNR and certain other parties, signed an agreement in principle designed to
resolve all legal issues associated with fish mortality at Ludington. The
proposed settlement, which allows for the continued operation of the plant
through the end of its FERC license, will require Consumers and Detroit Edison
to continue using a seasonal barrier net as well as monitoring new technology
which may further reduce fish loss at the plant. The proposed settlement also
requires Consumers to make annual payments to the Great Lakes

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Fishery Trust, develop and improve recreational areas and convey undeveloped
land to the State of Michigan and the Great Lakes Fishery Trust. Upon approval
of the settlement agreement, Consumers will transfer land (with an original
cost of $9 million and a fair market value in excess of $20 million), make an
initial payment of approximately $3 million and incur approximately $1 million
of expenditures related to recreational improvements. Future annual payments
of approximately $1 million are also anticipated over the next 24 years and are
intended to enhance the fishery resources of the Great Lakes. The agreement is
subject to MPSC approval of Consumers being permitted to recover all such
settlement costs from electric customers, and approval by the FERC.

The proposed settlement would resolve a lawsuit filed by the Attorney
General in 1986 on behalf of the State of Michigan in the Circuit Court of
Ingham County, seeking damages from Consumers and Detroit Edison for injuries
to fishery resources because of the operation of the Ludington plant. The
state sought $148 million (including $16 million of interest) for past injuries
and $89,000 per day for future injuries, with the latter amount to be adjusted
upon installation of "adequate" fish barriers and other changed conditions.
Since 1986 the parties have continued to dispute, in various courts, the amount
of actual damages as well as the best alternative to mitigate future damages.

Environmental Matters

Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the nature
and extent of contamination at these sites and to determine which of several
possible remedial action alternatives, including no action, may be required
under the Environmental Response Act. The DNR has approved two of three plans
for remedial investigation/feasibility studies submitted by Consumers and is
currently reviewing the third.

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case may not be recoverable. The MPSC stated that the length of the
amortization period may be reviewed from time to time, but any revisions would
be prospective. The order further provided that the prudency review would
include a review of the utility's attempts to obtain reimbursement from others.
The MPSC has also approved similar deferred accounting requests by two other
Michigan utilities relative to investigation and remediation costs.
Accordingly, Consumers has recorded a regulatory asset for the same amount as
the accrued liability for anticipated recovery of these investigation and
remedial clean-up costs. Consumers has initiated discussions with certain
insurance companies regarding coverage for some or all of the costs which may
be incurred for these sites. Consumers plans to seek recovery of remedial
action costs in its gas rate case to be filed in 1994.

Included in the 1990 amendments to the federal Clean Air Act are
provisions that limit emissions of sulfur dioxide and nitrogen oxides and
require enhanced emissions monitoring. All of Consumers' coal-fueled electric
generating units burn low-sulfur coal and are presently operating at or near
the sulfur dioxide emission limits which will be effective in 2000. Beginning
in 1995, certain coal-fueled generating units will receive emissions allowances
(all of Consumers' coal units will receive allowances beginning in 2000).
Based on projected emissions from these units, Consumers expects to have excess
allowances which may be sold or saved for future use.

The Clean Air Act's provisions require Consumers to make capital
expenditures estimated to total $74 million through 1999 for completed,
in-process and possible modifications at coal-fired units based on current
regulations. Management believes that Consumers' annual operating costs will
not be materially affected.

Capital Expenditures

CMS Energy's currently estimates capital expenditures, including DSM
and new lease commitments, will be $863 million for 1994, $733 million for 1995
and $645 million for 1996.

Commitments for Coal and Gas Supplies

Consumers has entered into coal supply contracts with various
suppliers for its coal-fired generating stations. These contracts have
expiration dates that range from 1994 to 2004. Generally, Consumers contracts
for approximately 70% of its annual coal requirements which in 1993 totaled
approximately $260 million. Consumers supplements its long-term contracts with
spot market purchases to fulfill its coal needs.

Public Utility Holding Company Act Exemption

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Other

As of December 31, 1993, CMS Energy and Enterprises have guaranteed up
to $90 million in contingent obligations of unconsolidated affiliates of
Enterprises' subsidiaries.

NOMECO has hedging arrangements which are used to reduce the risk of
price fluctuations for its spot sales of oil and gas. These arrangements limit
potential gains/losses from any future decrease/increase in the spot prices.

NOMECO has one arrangement which is used to fix the price that NOMECO
will pay to supply gas for the years 2001--2006 by purchasing the economic
equivalent of 10,000 million British Thermal Units ("BTU" and one million BTU
is referred to as "MMBtu") per day at a fixed, escalated price starting at
$2.82 per MMBtu in 2001. The settlement periods are each a one-year period
ending December 31, 2001 through 2006 on 3.65 MMBtu. If the "floating price,"
essentially the then current Gulf Coast spot price, for a period is higher than
the "fixed price," the seller pays NOMECO the difference, and vice versa. If a
party's exposure at any time exceeds $2 million, that party is required to
obtain a letter of credit in favor of the other party for the excess over $2
million and up to $10 million, which is the maximum exposure under this hedge
arrangement. At December 31, 1993 and September 30, 1994, the seller had
arranged a letter of credit in NOMECO's favor for $10 million.

NOMECO also periodically enters into oil and gas price hedging
arrangements to mitigate its exposure to price fluctuations on the sale of
crude oil and natural gas. As of December 31, 1993, NOMECO was party to gas
price collar contracts on 7.3 Bcf of gas for the delivery months of January
through December 1994 at prices ranging from $2.05 to $2.30 per MMBtu. Also,
NOMECO has contracts on 7.3 Bcf of gas for the delivery months of January
through December 1995 at prices ranging from $2.05 to $2.35 per MMBtu. These
hedging arrangements are accounted for as hedges; accordingly, any gains or
losses are deferred and recognized on the settlement dates. As of December 31,
1993 and September 30, 1994, the fair value of these hedge arrangements was not
materially different than the book value.

In 1993, Consumers experienced increases in complaints relating to
so-called stray voltage. Claimants contend that stray voltage results when
small electrical currents present in grounded electric systems are diverted
from their intended path. Investigation by Consumers of prior stray voltage
complaints disclosed that many factors, including improper wiring and
malfunctioning of on-farm equipment, can lead to the stray voltage phenomenon.
Consumers maintains a policy of investigating all customer calls regarding
stray voltage and working with customers to address their concerns including,
when necessary, modifying the configuration of the customer's hook-up to
Consumers. A complaint seeking certification as a class action suit was filed
against Consumers in a local county circuit court in 1993. The complaint
alleged the existence of a purported class that incurred damages in excess of
$1 billion, primarily to certain livestock owned by the purported class, as a
result of stray voltage from electricity being supplied by Consumers.
Consumers believes the allegations to be without merit and in March 1994, the
circuit judge hearing the complaint refused to grant class action status to the
suit. In April 1994, the plaintiffs in this action appealed the matter to the
Court of Appeals. Consumers believes that the various claims are different
enough to warrant separate trials, and that the circuit court's denial of
class-action status will be upheld. A number of individuals who would have
been part of the class action have refiled their claims as separate lawsuits.
At October 31, 1994, Consumers had 88 separate stray voltage lawsuits pending.

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amount equal to the difference between the fair value of Class G Common Stock
and its basis in such property.

14. JOINTLY OWNED UTILITY FACILITIES

Consumers is responsible for providing its share of financing for
jointly owned facilities. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:

DECEMBER 31,
------------
1993 1992
---- ----
IN MILLIONS

NET INVESTMENT
Ludington--51% $114 $112
Campbell Unit 3--93.3% 349 360
Transmission lines--various 32 33
ACCUMULATED DEPRECIATION
Ludington $ 74 $ 71
Campbell Unit 3 210 199
Transmission lines 11 10

15. SUPPLEMENTAL CASH FLOW INFORMATION

For purposes of the Statement of Cash Flows, all highly liquid
investments with original maturities of three months or less are considered
cash equivalents. Other cash flow activities and non-cash investing and
financing activities for nine months ended September 30, 1994 and 1993 and the
years ended December 31, 1993, 1992 and 1991 were:

NINE MONTHS
ENDED
(UNAUDITED) YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
IN MILLIONS

CASH TRANSACTIONS
Interest paid (net of amounts
capitalized) $126 $157 $193 $203 $325
Income taxes paid (net of refunds) 24 37 32 19 21
NON-CASH TRANSACTIONS
Nuclear fuel placed under capital
lease $ 18 $ 23 $ 28 $ 30 $ 6
Other assets placed under capital
leases 11 28 30 39 21
Capital leases refinanced - 42 42 - -
Assumption of debt - - - 15 -
==== ==== ==== ==== ====

Changes in other assets and liabilities as shown on the Statement of
Cash Flows at September 30, 1994 and 1993 and December 31, 1993, 1992 and 1991
are described below:

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NINE MONTHS
ENDED
(UNAUDITED) YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
IN MILLIONS

Sale (purchase) of receivables, net $(75) $ (65) $ 60 $ 25 $ --
Accounts receivable 56 72 22 6 118
Accrued revenue 56 55 (48) 88 7
Accrued refunds 9 (58) (49) (143) 102
Inventories (40) (78) (32) 23 (8)
Accounts payable (19) (43) (31) 20 (70)
Tax Reform Act refund reserve -- -- -- -- (77)
Other current assets and
liabilities, net (41) (70) (4) 46 (20)
Non-current deferred amounts, net 11 (30) (6) (36) 116
---- ----- ---- ----- ----
$(43) $(217) $(88) $ 29 $168
==== ===== ==== ===== ====

16. REPORTABLE SEGMENTS

CMS Energy operates principally in the following five business
segments: electric utility, gas utility, oil and gas exploration and
production, independent power production, and gas transmission and marketing.

The Consolidated Statements of Income show operating revenue and
pretax operating income by business segment. Other segment information
follows:

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
IN MILLIONS

Depreciation, depletion and amortization
Electric utility $ 241 $ 230 $ 172
Gas utility 73 76 70
Oil and gas exploration and production 45 38 33
Independent power production 2 2 2
Gas transmission and marketing 1 1 --
Other 3 1 6
------ ------ ------
$ 365 $ 348 $ 283
====== ====== ======
Identifiable assets
Electric utility(a) $4,361 $3,945 $3,659
Gas utility 1,628 1,566 1,332
Oil and gas exploration and production 398 364 334
Independent power production 488 333 321
Gas transmission and marketing 75 60 45
Other 14 580 503
------ ------ ------
$6,964 $6,848 $6,194
====== ====== ======
Capital expenditures(b)(c)(d)
Electric utility(e) $ 403 $ 390 $ 229
Gas utility 158 116 74
Oil and gas exploration and production 81 68 71
Independent power production 110 12 18
Gas transmission and marketing 14 6 17
Other -- 2 4
------ ------ ------
$ 766 $ 594 $ 413
====== ====== ======

(a) Includes abandoned Midland investment of $162 million, $175 million
and $287 million for 1993, 1992 and 1991, respectively.
(b) Includes capital leases for nuclear fuel and other assets (see
Note 15).

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(c) Includes equity investments in unconsolidated partnerships of $108
million for 1993, $12 million for 1992 and $33 million for 1991.
(d) Certain prior year amounts have been adjusted for comparative
purposes.
(e) Includes DSM costs of $52 million for 1993 and $26 million for 1992.

17. SUMMARIZED FINANCIAL INFORMATION OF SIGNIFICANT RELATED ENERGY SUPPLIER

Under the PPA with the MCV Partnership discussed in Note 4, Consumers'
1993 obligation to purchase electricity from the MCV Partnership was
approximately 14 percent of Consumers' owned and contracted capacity.
Summarized financial information of the MCV Partnership is shown below:

STATEMENTS OF INCOME

YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
IN MILLIONS

Operating revenue(a) $ 548 $ 488 $ 425
Operating expenses 362 315 278
----- ----- -----
Operating income 186 173 147
Other expense, net (189) (190) (186)
----- ----- -----
Net loss $ (3) $ (17) $ (39)
===== ===== =====

BALANCE SHEETS

DECEMBER 31,
------------
1993 1992
---- ----
IN MILLIONS

ASSETS
Current assets(a) $ 181 $ 165
Property, plant and equipment, net 2,073 2,124
Other assets 146 147
------ ------
$2,400 $2,436
====== ======
LIABILITIES AND PARTNERS' EQUITY
Current liabilities $ 198 $ 189
Long-term debt and other non-current liabilities(b) 2,147 2,189
Partners' equity(c) 55 58
------ ------
$2,400 $2,436
====== ======

(a) Revenue from Consumers totaled $505 million, $444 million and $384
million for 1993, 1992 and 1991, respectively. As of December 31,
1993, 1992 and 1991, $44 million, $38 million and $33 million,
respectively, were receivable from Consumers.

(b) FMLP is a beneficiary of an owner trust that is the lessor in a
long-term direct finance lease with the lessee, MCV Partnership. CMS
Holdings holds a 46.4 percent ownership interest in FMLP (see Note 4).
At December 31, 1993 and 1992, lease obligations of $1.7 billion were
owed to the owner trust of which FMLP is the sole beneficiary. CMS
Holdings' share of the interest and principal portion for the 1993
lease payments was $63 million and $16 million, respectively, and for
the 1992 lease payments was $65 million and $12 million, respectively.
The lease payments service $1.2 billion and $1.3 billion in
non-recourse debt outstanding as of December 31, 1993 and 1992,
respectively, of the owner-trust whose beneficiary is FMLP. FMLP's
debt is secured by the MCV Partnership's lease obligations, assets,
and operating revenues. For 1993 and 1992, the owner-trust whose
beneficiary is FMLP made debt payments of $172 million and $166
million, respectively, which included $10 million and $8 million
principal and $25 million and $26 million interest, respectively, on
the MCV Bonds held by MEC Development Corporation during part of 1991
and by Consumers through December 1993.

(c) CMS Midland's recorded investment in the MCV Partnership includes
capitalized interest, which is being amortized to expense over the
life of its investment in the MCV Partnership.

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200

18. EFFECTS OF THE RATEMAKING PROCESS

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1993 1992
---- ---- ----
IN MILLIONS

Postretirement benefits $ 509 $ 510 $ 485
Income taxes 180 189 136
Abandoned Midland project 151 162 175
Trunkline settlement 93 117 146
Demand-side management--deferred costs 71 71 25
Environmental clean-up 40 - -
DOE--decommissioning uranium enrichment facility 32 33 36
Power purchase termination 30 - -
Other 32 39 28
------ ------ ------
Total regulatory assets $1,138 $1,121 $1,031
====== ====== ======

Income taxes $ (199) $ (195) $ (198)
Demand-side management--deferred revenue (19) (17) (16)
Other (1) - -
------ ------ ------
Total regulatory liabilities $ (219) $ (212) $ (214)
====== ====== ======

Consumers has MPSC orders and/or precedents to recover virtually all
of its regulatory assets through future rates.

19. SUBSEQUENT DEVELOPMENTS

Palisades; Storage of Spent Nuclear Fuel. Reference is made to Note
3, "Summary of Significant Accounting Policies and Other Matters"--Nuclear
Fuel, Decommissioning, Insurance and Other Nuclear Matters" for a description
of certain litigation which had been pending before the U.S. Sixth Circuit
Court of Appeals concerning the use of certain dry spent fuel storage casks.
In January 1995, the U.S. Sixth Circuit Court of Appeals rejected the claims of
the Attorney General and certain other parties and upheld the NRC's rulemaking
action. The Court found that the NRC's environmental assessment satisfied NEPA
requirements, and that a site-specific environmental analysis concerning the
use and operation of the storage cask at Palisades was not required.

MCV Fixed Energy Charge Arbitration. Reference is made to Note 4,
"The Midland Cogeneration Venture" for a description of the background of the
MCV Fixed Energy Charge Arbitration. In January 1995, the arbitrator ruled in
favor of Consumers' interpretation of the PPA and found that Consumers was
entitled to the immediate return of an estimated $22 million representing the
fixed energy amounts for which Consumers did not receive full cost recovery
during the years prior to the Settlement Order (1990-1992). Consumers had
escrowed $16 million of this amount. The arbitrator postponed the return of
payments for 1993 and 1994 because the Settlement Order is still subject to
pending appeals. The amount under dispute in 1994 is approximately $9 million
and increases each year thereafter, averaging approximately $17 million per
year over the life of the contract.

Gas Rate Case. Reference is made to Note 5, "Rate Matters--Gas
Rates." Consumers filed a gas rate case in December 1994. Consumers requested
an increase in its gas rates of $21 million annually. The request, among other
things, incorporates cost increases, including costs for postretirement
benefits and costs related to Consumers' former manufactured gas plant sites.
Consumers requested that the MPSC authorize a

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13 percent rate of return on equity, instead of the currently authorized rate
of 13.25 percent. Consumers expects an MPSC decision in late 1995.

Acquisition of HYDRA-CO. In January 1995, CMS Generation completed
its acquisition of HYDRA-Co. CMS Generation purchased 100 percent of HYDRA-CO's
stock for $207 million, including approximately $50 million of current assets.
CMS Generation assumes ownership in seven major electric generating facilities
and a number of smaller plants totaling 835 MW of gross capacity and 285 MW of
net ownership. CMS Generation will manage and operate eight plants previously
managed by HYDRA-Co. The plants are fueled by coal, natural gas, waste wood and
water (hydro). CMS Generation will also assume construction management
responsibility for a 60 MW diesel-fueled plant on which construction began
recently in Jamaica. The plant is scheduled to go into service in the third
quarter of 1996.

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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Amount
------

Filing fee - Securities and Exchange
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,966
Listing on New York Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . 30,000*
Preparation of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . 1,000*
Printing and Engraving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000*
Services of counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000*
Services of independent public accountants,
Arthur Anderson LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000*
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000*
Trustees Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000*
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000*
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000*
--------
Total: $314,966
========

* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The following resolution was adopted by the Board of Directors of CMS Energy on
May 6, 1987:

RESOLVED: That effective March 1, 1987 the Corporation shall
indemnify to the full extent permitted by law every person (including the
estate, heirs and legal representatives of such person in the event of the
decease, incompetency, insolvency or bankruptcy of such person) who is or was a
director, officer, partner, trustee, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all liability, costs, expenses,
including attorneys' fees, judgments, penalties, fines and amounts paid in
settlement, incurred by or imposed upon the person in connection with or
resulting from any claim or any threatened, pending or completed action, suit
or proceeding whether civil, criminal, administrative, investigative or of
whatever nature, arising from the person's service or capacity as, or by reason
of the fact that the person is or was, a director, officer, partner, trustee,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Such right of indemnification shall not be deemed exclusive of any other rights
to which the person may be entitled under statute, bylaw, agreement, vote of
shareholders or otherwise.

Article IX of the Articles of Incorporation reads:

A director shall not be personally liable to the Corporation or its
shareholders for monetary damages for breach of duty as a director except (i)
for a breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for a violation of
Section 551(l) of the Michigan Business Corporation Act, and (iv) any action
from which the director derived an improper personal benefit. No amendment to
or repeal of this Article IX, and no modification to its provisions by law,
shall apply to, or have any effect upon, the liability or alleged liability of
any director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment, repeal or modification.

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Article X of the Articles of Incorporation reads:

Each director and each officer of the Corporation shall be indemnified
by the Corporation to the fullest extent permitted by law against expenses
(including attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
the defense of any proceeding in which he or she was or is a party or is
threatened to be made a party by reason of being or having been a director or
an officer of the Corporation. Such right of indemnification is not exclusive
of any other rights to which such director or officer may be entitled under any
now or thereafter existing statute, any other provision of these Articles,
bylaw, agreement, vote of shareholders or otherwise. If the Business
Corporation Act of the State of Michigan is amended after approval by the
shareholders of this Article X to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Business Corporation Act of the State of Michigan, as
so amended. Any repeal or modification of this Article X by the shareholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification.

Sections 561 through 571 of the Michigan Business Corporation Act provides as
follows:

Sec. 561. A corporation has the power to indemnify a person who was
or is a party or is threatened to be made a party to a threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative and whether formal or informal, other than an action by or in
the right of the corporation, by reason of the fact that he or she is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, judgments, penalties, fines, and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with the action, suit, or proceeding, if the person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders, and with respect to a
criminal action or proceeding, if the person had no reasonable cause to believe
his or her conduct was unlawful. The termination of an action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendre or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation or
its shareholders, and, with respect to a criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.

Sec. 562. A corporation has the power to indemnify a person who was
or is a party or is threatened to be made a party to a threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, and amounts paid in settlement actually
and reasonably incurred by the person in connection with the action or suit, if
the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation or its
shareholders. Indemnification shall not be made for a claim, issue, or matter
in which the person has been found liable to the corporation except to the
extent authorized in section 564c.

Sec. 563. To the extent that a director, officer, employee, or agent
of a corporation has been successful on the merits or otherwise in defense of
an action, suit, or proceeding referred to in section 561 or 562, or in defense
of a claim, issue, or matter in the action, suit, or proceeding, he or she
shall be indemnified against actual and reasonable expenses, including
attorneys' fees, incurred by him or her in connection with the action, suit, or
proceeding and an action, suit, or proceeding brought to enforce the mandatory
indemnification provided in this subsection.

Section 564a. (1) An indemnification under section 561 or 562, unless
ordered by the court, shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the director,

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204

officer, employee, or agent is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in sections 561 and 562
and upon an evaluation of the reasonableness of expenses and amounts paid in
settlement. This determination and evaluation shall be made in any of the
following ways:

(a) By a majority vote of a quorum of the board
consisting of directors who are not parties or threatened to be made
parties to the action, suit, or proceeding.

(b) If a quorum cannot be obtained under subdivision (a),
by majority vote of a committee duly designated by the board and
consisting solely of 2 of more directors not at the time parties or
threatened to be made parties to the action, suit, or proceeding.

(i) By the board or its committee in the manner
prescribed in subdivision (a) or (b).

(ii) If a quorum of the board cannot be obtained under
subdivision (a) and a committee cannot be designated
under subdivision (b), by the board.

(d) By all independent directors who are not parties or
threatened to be made parties to the action, suit, or proceeding.

(e) By the shareholders, but shares held by directors,
officers, employees, or agents who are parties or threatened to be
made parties to the action, suit, or proceeding may not be voted.

(2) In the designation of a committee under subsection (1)(b) or
in the selection of independent legal counsel under subsection (1)(c)(ii), all
directors may participate.

(3) If a person is entitled to indemnification under section 561
or 562 for a portion of expenses, including reasonable attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement, but not for the
total amount, the corporation may indemnify the person for the portion of the
expenses, judgments, penalties, fines, or amounts paid in settlement for which
the person is entitled to be indemnified.

Sec. 564b. (1) A corporation may pay or reimburse the reasonable
expenses incurred by a director, officer, employee, or agent who is a party or
threatened to be made a party to an action, suit, or proceeding in advance of
final disposition of the proceeding if all of the following apply:

(a) The person furnishes the corporation a written
affirmation of his or her good faith belief that he or she has met the
applicable standard of conduct set forth in sections 561 and 562.

(b) The person furnishes the corporation a written
undertaking, executed personally or on his or her behalf, to repay the
advance if it is ultimately determined that he or she did not meet the
standard of conduct.

(c) A determination is made that the facts then known to
those making the determination would not preclude indemnification
under this act.

(2) The undertaking required by subsection (1)(b) must be an
unlimited general obligation of the person but need not be secured.

(3) Determinations and evaluations under this section shall be
made in the manner specified in section 564a.

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205

Section 564c. A director, officer, employee, or agent of the
corporation who is a party or threatened to be made a party to an action, suit,
or proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court after giving any notice it considers necessary may order
indemnification if it determines that the person is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not he or she met the applicable standard of conduct set forth in sections
561 and 562 or was adjudged liable as described in section 562, but if he or
she was adjudged liable, his or her indemnification is limited to reasonable
expenses incurred.

Sec. 565. (1) The indemnification or advancement of expenses provided
under sections 561 to 564c is not exclusive of other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation, bylaws, or a contractual agreement. The total
amount of expenses advanced or indemnified from all sources combined shall not
exceed the amount of actual expenses incurred by the person seeking
indemnification or advancement of expenses.

(2) The indemnification provided for in sections 561 to 565
continues as to a person who ceases to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, personal representatives,
and administrators of the person.

Sec. 567. A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against him or her and incurred by him or her in
any such capacity or arising out of his or her status as such, whether or not
the corporation would have power to indemnify him or her against liability
under sections 561 to 565.

Sec. 569. For purposes of sections 561 to 567, "corporation" includes
all constituent corporations absorbed in a consolidation or merger and the
resulting or surviving corporation, so that a person who is or was a director,
officer, employee, or agent of the constituent corporation or is or was serving
at the request of the constituent corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise whether for profit or not
shall stand in the same position under the provisions of this section with
respect to the resulting or surviving corporation as the person would if he or
she had served the resulting or surviving corporation in the same capacity.

Sec. 571. For the purposes of sections 561 to 567:

(a) "Fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan.

(b) "Other enterprises" shall include employee benefit
plans.

(c) "Serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent of the
corporation which imposes duties on, or involves services by, the
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or its beneficiaries.

(d) A person who acted in good faith and in a manner he
or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be considered to
have acted in a manner "not opposed to the best interests of the
corporation or its shareholders" as referred to in sections 561 and
562.

Officers and directors are covered within specified monetary limits by
insurance against certain losses arising from claims made by reason of their
being directors or officers of CMS Energy or of CMS Energy's subsidiaries and
CMS Energy's officers and directors are indemnified against such losses by
reason of their being or having been directors of officers or another
corporation, partnership, joint venture, trust or other enterprise at

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CMS Energy's request. In addition, CMS Energy has indemnified each of its
present directors by contracts that contain affirmative provisions essentially
similar to those in sections 561 through 571 of the Michigan Business
Corporation Act cited above.

The Limited Partnership Agreement will provide that, to the fullest
extent permitted by applicable law, CMS Energy Michigan shall indemnify the
General Partner, the Special Representative, any affiliate of the General
Partner or Special Representative, any officer, director, shareholder, partner,
member, employee, representative or agent of the General Partner, the Special
Representative, or any affiliate of the General Partner or Special
Representative, and any employee or agent of CMS Energy Michigan or its
affiliates for any loss, damage or claim incurred by such person by reason of
any act or omission performed or omitted by such person in good faith on behalf
of CMS Energy Michigan and in a manner reasonably believed to be within the
scope of authority conferred on such person by the Limited Partnership
Agreement, except that no such person shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by such person by reason of
willful misconduct, gross negligence or fraud with respect to such acts or
omissions. The Limited Partnership Agreement will also require that expenses
(including legal fees) be advanced to any such person to the fullest extent
permitted by applicable law upon receipt by CMS Energy Michigan of an
undertaking from such person to repay such amount if it shall be determined
that the person is not entitled to be indemnified. In addition, the Limited
Partnership Agreement will provide that the provisions of the Limited
Partnership Agreement, to the extent that they restrict the duties and
liabilities of any of the foregoing persons otherwise existing at law or in
equity, are agreed by the parties to the Limited Partnership Agreement to
replace such duties and liabilities.

ITEM 16. EXHIBITS.

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

(1) (a) - Form of Underwriting Agreement with respect to the Offered Securities (other than
the Class G Common Stock).

(1) (b) - Form of Underwriting Agreement with respect to the Class G Common Stock.

(4) (a) - Articles of Incorporation of CMS Energy, as amended. (Designated in CMS Energy's
Form 8-K dated June 8, 1989, File No. 1-9513, as Exhibit (4).)

(4) (b) - Form of Charter Amendment to the Articles of Incorporation of CMS Energy.
(Designated in CMS Energy's Proxy Statement filed under cover of Schedule 14A
Information on February 13, 1995, as Annex III.)

(4) (c) - By-Laws of CMS Energy. (Designated in CMS Energy's Form 10-Q for the quarter ended
September 30, 1989, File No. 1-9513, as Exhibit (4)(b).)

(4) (d) - Indenture dated as of September 15, 1992 between CMS Energy Corporation and NBD
Bank, National Association, as Trustee. (Indenture under which the Senior Debt
Securities will be issued.) (Designated in CMS Energy's Form S-3 Registration
Statement filed May 1, 1992, File No. 33-47629, as Exhibit (4)(a).)

First Supplemental Indenture dated as of October 1, 1992 between CMS Energy
Corporation and NBD Bank, National Association, as Trustee. (Designated in CMS
Energy's Form 8-K dated October 1, 1992, File No. 1-9513, as Exhibit (4).)

Second Supplemental Indenture dated as of October 1, 1992 between CMS Energy
Corporation and NBD Bank, National Association, as Trustee. (Designated in CMS
Energy's Form 8-K dated October 1, 1992, File No. 1-9513, as Exhibit 4(a).)

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January 20, 1994 between CMS Energy and the Chase Manhattan Bank, National Association,
as Trustee. (Designated in CMS Energy's Form 8-K dated March 29, 1994, File
No. 1-9513, as Exhibit (4)(b).)

(4) (f) - Credit Agreement dated as of July 29, 1994 among CMS Energy, Citibank, N.A. and Union
Bank as co-agents and certain banks named therein, and the Exhibits thereto.
(Designated in CMS Energy's Form 10-Q for the quarter ended June 30, 1994,
File No. 1-9513, as Exhibit (4).)

(4) (g) - Form of Subordinated Debt Securities Indenture between CMS Energy and The Chase
Manhattan Bank, N.A., as Trustee.

(4) (h) - Certificate of Limited Partnership of CMS Energy Michigan Limited Partnership.

(4) (i) - Form of Amended and Restated Limited Partnership Agreement of CMS Energy Michigan
Limited Partnership.

(4) (j) - Form of Guarantee Agreement with respect to CMS Energy Michigan Limited CMS Energy
Michigan Preferred Securities.

(5) Opinion of Denise M. Sturdy, Assistant General Counsel for CMS Energy.

(8) Opinion re Tax Matters of Sidley & Austin.

(12) Statement re computation of ratios of earnings to fixed charges and ratios of
earnings to combined fixed charges and preferred stock dividends.

(23)(a) - Consent of Denise M. Sturdy, Assistant General for CMS Energy (included in Exhibit 5
above).

(23)(b) - Consent of Sidley & Austin (included in Exhibit 8 above).

(23)(c) Consents of Arthur Andersen LLP.

(24) Powers of Attorney.

(25)(a) - Statement of Eligibility and Qualification of NBD Bank, N.A. (Trutee under the
Senior Debt Indenture).

(25)(b) - Statement of Eligibility and Qualification of The Chase Manhattan Bank, N.A.
(Trustee under the Subordinated Debt Indenture).

Exhibits listed above which have been filed with the Securities and
Exchange Commission are incorporated herein by reference with the same effect
as if filed with this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned registrants hereby undertake:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) To include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement; (iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any

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material change to such information in the registration statement; provided,
however, that (i) and (ii) do not apply if the registration statement is on
Form S-3 or Form S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that as claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and be governed by the final adjudication of such issue.

(6) That (1) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dearborn, and State of Michigan, on the 14th
day of February, 1995.

CMS ENERGY CORPORATION

By /s/ A M Wright
-------------------------------
Alan M. Wright
Senior Vice President,
Chief Financial Officer and
Treasurer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in their
respective capacities as officers and/or directors of CMS Energy Corporation
and on the dates indicated.

Name Title Date
---- ----- ----

(i) Principal executive officer
Chairman of the Board,
Chief Executive Officer
and Director February 14, 1995
/s/ William T. McCormick, Jr.
----------------------------------
(William T. McCormick, Jr.)

(ii) Principal financial
officer:
Senior Vice President, February 14, 1995
Chief Financial Officer
/s/ A M Wright and Treasurer
----------------------------------
(Alan M. Wright)

(iii) Controller or principal
accounting officer:

/s/ P.D. Hopper Vice President, Controller
---------------------------------- and Chief Accounting Officer February 14, 1995
(Preston D. Hopper)

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Name Title Date

* Director February 14, 1995
- ------------------------------------
(James J. Duerstadt)

* Director February 14, 1995
- ------------------------------------
(Kathleen R. Flaherty)

* Director February 14, 1995
- ------------------------------------
(Victor J. Fryling)

* Director February 14, 1995
- ------------------------------------
(Earl D. Holton)

* Director February 14, 1995
- ------------------------------------
(Lois A. Lund)

Director
- ------------------------------------
(Frank H. Merlotti)

* Director February 14, 1995
- ------------------------------------
(W.U. Parfet)

* Director February 14, 1995
- ------------------------------------
(Percy A. Pierre)

* Director February 14, 1995
- ------------------------------------
(S. Kinnie Smith, Jr.)

* Director February 14, 1995
- ------------------------------------
(Robert D. Tuttle)

* Director February 14, 1995

- ------------------------------------
(Kenneth Whipple)

* Director February 14, 1995
- ------------------------------------
(John B. Yasinsky)

*By /s/ A M Wright
- ------------------------------------
(Alan M. Wright)
Attorney-in-fact

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
co-registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dearborn, and State of Michigan, on the 14th
day of February, 1995.

CMS ENERGY MICHIGAN LIMITED PARTNERSHIP

By CMS ENERGY CORPORATION, as General
Partner

By /s/ A M Wright
-----------------------------------
Alan M. Wright
Senior Vice president and Chief
Financial Officer

Name Title Date

(i) Principal executive
officer
Chairman of the Board,
Chief Executive Officer February 14, 1995
/s/ William T. McCormick, Jr. and Director
---------------------------------
(William T. McCormick, Jr.)

(ii) Principal financial
officer:
Senior Vice President, February 14, 1995
/s/ A M Wright Chief Financial Officer
--------------------------------- and Treasurer
(Alan M. Wright)

(iii) Controller or principal
accounting officer:

Vice President, Controller
/s/ P.D. Hopper and Chief Accounting February 14, 1995
--------------------------------- Officer
(Preston D. Hopper)

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