UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

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

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

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

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

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

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

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

CMS Energy Corporation:

Large accelerated filer þ		Accelerated filer o		Non-Accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Consumers Energy Company:

Large accelerated filer o		Accelerated filer o		Non-Accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at April 21, 2010:

CMS Energy Corporation:
CMS Energy Common Stock, $.01 par value		229,896,872
Consumers Energy Company:
Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation			84,108,789

 

 

CMS Energy Corporation
Consumers Energy Company

Quarterly Reports on Form 10-Q to the Securities and Exchange Commission for the Period Ended
March 31, 2010

TABLE OF CONTENTS

		Page
Glossary			3
Filing Format			8
Forward-Looking Statements and Information			8
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
CMS Energy Corporation			31
Consumers Energy Company			39
Notes to Consolidated Financial Statements			46
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures about Market Risk			80
Item 4. Controls and Procedures			80
Item 4T. Controls and Procedures			80
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			80
Item 1A. Risk Factors			81
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			81
Item 3. Defaults Upon Senior Securities			81
Item 5. Other Information			81
Item 6. Exhibits			82
Signatures			84
EX-10.A
EX-10.B
EX-10.C
EX-10.D
EX-10.E
EX-10.F
EX-10.G
EX-10.H
EX-12.A
EX-12.B
EX-31.A
EX-31.B
EX-31.C
EX-31.D
EX-32.A
EX-32.B

GLOSSARY

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

2008 Energy Legislation		Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524
2009 Form 10-K		Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2009
ALJ		Administrative Law Judge
AOC		Administrative Order on Consent
ASU		FASB Accounting Standards Update
Bay Harbor		A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor.
bcf		Billion cubic feet of gas
Beeland		Beeland Group LLC, a wholly owned subsidiary of CMS Land
Big Rock		Big Rock Point nuclear power plant, formerly owned by Consumers
CAIR		The Clean Air Interstate Rule
Cantera Gas Company		Cantera Gas Company LLC, a non-affiliated company
Cantera Natural Gas, Inc.		Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services
CEO		Chief Executive Officer
CFO		Chief Financial Officer
Chrysler		Chrysler LLC, a non-affiliated company
CKD		Cement kiln dust
Clean Air Act		Federal Clean Air Act, as amended

Clean Water Act		Federal Water Pollution Control Act
CMS Capital		CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy
CMS Energy		CMS Energy Corporation, the parent of Consumers and CMS Enterprises
CMS Energy Common Stock or common stock		Common stock of CMS Energy, par value $0.01 per share
CMS Energy Trust I		A wholly owned business trust formed for the sole purpose of issuing preferred securities and lending the proceeds to CMS Energy
CMS Enterprises		CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM		CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises
CMS Field Services		CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission
CMS Gas Transmission		CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises
CMS Generation		CMS Generation Co., a former wholly owned subsidiary of CMS Enterprises
CMS International Ventures		CMS International Ventures LLC, a subsidiary of CMS Enterprises in which CMS Enterprises owns a 61.49 percent interest and CMS Gas Transmission owns a 37.01 percent interest
CMS Land		CMS Land Company, a wholly owned subsidiary of CMS Capital
CMS MST		CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004
CMS Oil and Gas		CMS Oil and Gas Company, a former wholly owned subsidiary of CMS Enterprises
CMS Viron		CMS Viron Corporation, a wholly owned subsidiary of CMS ERM
Consumers		Consumers Energy Company, a wholly owned subsidiary of CMS Energy
Customer Choice Act		Customer Choice and Electricity Reliability Act, a Michigan statute
Detroit Edison		The Detroit Edison Company, a non-affiliated company
D.C.		District of Columbia
DOE		U.S. Department of Energy
DOJ		U.S. Department of Justice
EnerBank		EnerBank USA, a wholly owned subsidiary of CMS Capital
Entergy		Entergy Corporation, a non-affiliated company
EPA		U.S. Environmental Protection Agency
EPS		Earnings per share
Exchange Act		Securities Exchange Act of 1934, as amended
Exeter		Exeter Energy Limited Partnership, a limited partnership owned directly and indirectly by HYDRA-CO

FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FERC		Federal Energy Regulatory Commission
FMB		First mortgage bond
FOV		Finding of Violation
GAAP		U.S. Generally Accepted Accounting Principles
GCR		Gas cost recovery
Genesee		Genesee Power Station Limited Partnership, a variable interest entity in which HYDRA-CO has a 50 percent interest
GM		General Motors Corporation, a non-affiliated company
Grayling		Grayling Generating Station Limited Partnership, a variable interest entity in which HYDRA-CO has a 50 percent interest
GWh		Gigawatt-hour (a unit of energy equal to one million kilowatt-hours)
HYDRA-CO		HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises
IPP		Independent power producer or independent power production
IRS		Internal Revenue Service
ISFSI		Independent spent fuel storage installation
ITC		Income tax credit
kWh		Kilowatt-hour (a unit of energy equal to one thousand watt-hours)
LIBOR		London Interbank Offered Rate
Ludington		Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison
Marathon		Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a non-affiliated company
MBT		Michigan Business Tax
MD&A		Management’s Discussion and Analysis
MDL		A pending multi-district litigation case in Nevada

MDNRE		Michigan Department of Natural Resources and Environment, which, effective January 17, 2010 as a result of department reorganizations, is the successor to the Michigan Department of Environmental Quality and the Michigan Department of Natural Resources
MGP		Manufactured gas plant
MISO		Midwest Independent Transmission System Operator, Inc.
MPSC		Michigan Public Service Commission
MW		Megawatt (a unit of power equal to one million watts)
MWh		Megawatt-hour (a unit of energy equal to one million watt-hours)
NAV		Net asset value
NOV		Notice of Violation
NREPA		Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation
NSR		New Source Review, a construction-permitting program under the Clean Air Act
NYMEX		New York Mercantile Exchange
OPEB		Postretirement benefit plans other than pensions
Palisades		Palisades nuclear power plant, formerly owned by Consumers
Panhandle		Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage, and Panhandle Holdings, a former wholly owned subsidiary of CMS Gas Transmission
PCB		Polychlorinated biphenyl
Pension Plan		Trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers, and CMS Energy
PFD		Proposal for decision
PPA		Power purchase agreement
PSCR		Power supply cost recovery
PSD		Prevention of Significant Deterioration
QSPE		Qualifying special-purpose entity
REC		Renewable energy credit established under the 2008 Energy Legislation
RMRR		Routine maintenance, repair, and replacement
ROA		Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act

SEC		U.S. Securities and Exchange Commission
Securitization		A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special-purpose entity affiliated with such utility
SERP		Supplemental Executive Retirement Plan
SFAS		Statement of Financial Accounting Standards
Superfund		Comprehensive Environmental Response, Compensation and Liability Act
Supplemental Environmental Programs		Environmentally beneficial projects which a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform
T.E.S Filer City		T.E.S. Filer City Station Limited Partnership, a variable interest entity in which HYDRA-CO has a 50 percent interest
Title V		A federal program under the Clean Air Act designed to standardize air quality permits and the permitting process for major sources of emissions across the U.S.
Trunkline		Trunkline Gas Company, LLC, a former wholly owned subsidiary of CMS Panhandle Holding, LLC
Trust Preferred Securities		Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts
TSU		Texas Southern University, a non-affiliated entity
Union		Utility Workers Union of America, AFL-CIO
U.S		United States
VIE		Variable interest entity

FILING FORMAT

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

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

FORWARD-LOOKING STATEMENTS AND INFORMATION

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

	•		the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry;
	•		the impact of the troubled economy (particularly in Michigan) and the risk of future volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their:

	•		revenues;
	•		capital expenditure programs and related earnings growth;
	•		ability to collect accounts receivable from customers;
	•		cost of capital and availability of capital; and
	•		Pension Plan and postretirement benefit plans assets and required contributions;

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

•

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

	•		carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system;
	•		criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants;
	•		coal ash;
	•		cooling water discharge from power plants or other industrial equipment;
	•		limitations on the use or construction of coal-fueled electric power plants;
	•		renewable portfolio standards and energy efficiency mandates; and
	•		any other potential legislative changes, including changes to the ten-percent ROA limit;

	•		national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;
	•		adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including but not limited to those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;
	•		potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including:

•

sufficient and timely recovery of:

	•		environmental and safety-related expenditures;
	•		power supply and natural gas supply costs;
	•		operating and maintenance expenses;
	•		additional utility rate-based investments;
	•		costs associated with the proposed retirement and decommissioning of facilities;
	•		MISO energy and transmission costs; and
	•		costs associated with energy efficiency investments and state or federally mandated renewable resource standards;

	•		actions of regulators with respect to expenditures subject to tracking mechanisms;
	•		actions of regulators to prevent or curtail shutoffs for non-paying customers;
	•		actions of regulators with respect to the implementation of the “pilot” decoupling mechanism and an uncollectible expense tracking mechanism described in the November 2009 MPSC electric rate case order;
	•		regulatory orders preventing or curtailing rights to self-implement rate requests;
	•		regulatory orders potentially requiring a refund of previously self-implemented rates;
	•		authorization of a new coal-fueled plant; and
	•		implementation of new energy legislation or revisions of existing regulations;

	•		potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times;
	•		loss of customer load to alternative energy suppliers;

	•		potentially adverse regulatory treatment concerning a number of significant matters affecting Consumers that are presently before the MDNRE;
	•		the ability of Consumers to recover its regulatory assets in full and in a timely manner;
	•		the effectiveness of the electric decoupling mechanism in moderating the impact of sales variability on net revenues;
	•		the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE;
	•		the impact of expanded enforcement powers and investigation activities at the FERC;
	•		federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions;
	•		effects of weather conditions, such as unseasonably warm weather during the winter, on sales;
	•		the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates;
	•		the credit ratings of CMS Energy or Consumers;
	•		the impact of credit markets, economic conditions, and new banking regulations on EnerBank;
	•		disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers;
	•		energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energy’s and Consumers’ cash flows and working capital;
	•		changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program;
	•		factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints;
	•		potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events;
	•		technological developments in energy production, delivery, usage, and storage;
	•		achievement of capital expenditure and operating expense goals, including the 2010 capital expenditures forecast;

	•		the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections;
	•		potential effects of new federal health care legislation on current or future health care costs;
	•		the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures;
	•		CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages;
	•		adverse outcomes regarding tax positions;
	•		adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including the F.T. Barr matter and claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions;
	•		the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims;
	•		earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts;
	•		changes in financial or regulatory accounting principles or policies, including possible changes to rules involving fair value accounting;
	•		new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements;
	•		a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and
	•		other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.

For additional details regarding these and other uncertainties, see the “Outlook” section included in MD&A, Note 3, Contingencies and Commitments, Note 4, Utility Rate Matters, Note 10, Income Taxes, and Part II, Item 1A. Risk Factors.

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CMS Energy Corporation
Consumers Energy Company

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

EXECUTIVE OVERVIEW

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

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

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

	•		regulation and regulatory matters;
	•		economic conditions;
	•		weather;
	•		energy commodity prices;
	•		interest rates; and
	•		CMS Energy’s and Consumers’ securities credit ratings.

During the past several years, CMS Energy’s business strategy has emphasized improving its consolidated balance sheet and maintaining focus on its core strength, which is Consumers’ utility operations and service.

Consumers’ forecast calls for capital investments in excess of $7 billion from 2010 through 2014, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency; demand management; expanded use of renewable energy; development of new power plants; pursuit of additional PPAs to complement existing generating sources; and potential retirement of older, less efficient generating units.

Among Consumers’ planned capital investments is its proposed new 830 MW coal-fueled power plant. In September 2009, the MPSC staff issued a report to the MDNRE on Consumers’ needs-and-alternatives analysis for the proposed coal-fueled plant, concluding that the long-term capacity need was unjustified without the retirement of certain existing coal-fueled power plants from its fleet and that the proposed coal-fueled plant is only one alternative out of a range of alternatives that Consumers may use to fill the

projected capacity need. In December 2009, the MDNRE issued an air permit for the proposed coal-fueled plant, with the condition that Consumers retire 638 MW of its existing coal-fueled generation, and potentially an additional 320 MW, depending on customer needs. The MDNRE’s condition regarding plant retirements is consistent with Consumers’ balanced energy initiative.

Consumers’ planned capital investments also include renewable energy projects. Consumers expects to spend $570 million on renewable energy investments through 2014. The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. In compliance with this legislation, Consumers filed a renewable energy plan with the MPSC in February 2009 outlining its plans to build or contract for additional renewable energy capacity. At the same time, Consumers filed an energy optimization plan, also called for by the 2008 Energy Legislation, under which Consumers will promote energy efficiency and provide incentives to reduce customer usage. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.

Another significant planned capital investment is Consumers’ smart grid program, which will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment.

Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings with the MPSC. In February 2010, the MPSC issued an order requiring that Consumers refund to customers $86 million collected during a rate freeze from 2001 to 2003; the MPSC determined that these funds should have been placed in a decommissioning trust fund. Consumers has filed an appeal of this order. In November 2009, Consumers self-implemented a gas rate increase in the annual amount of $89 million, subject to refund with interest. Consumers expects to receive a final MPSC rate order in its gas rate case in May 2010. In March 2010, the ALJ issued a PFD that recommended an annual increase in gas rates of $69 million, as well as adoption of a decoupling mechanism. Further, in January 2010, Consumers filed an application with the MPSC seeking an annual increase in electric revenue of $178 million based on an 11 percent authorized return on equity.

Another area of importance for CMS Energy and Consumers is environmental regulation. There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with fossil-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in December 2009, the EPA issued an endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA is considering regulating coal combustion by-products, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery Act. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.

CMS Energy will continue to focus its strategy on:

	•		investing in Consumers’ utility system;
	•		growing earnings and operating cash flow while controlling operating and fuel costs; and
	•		maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.

In executing this strategy, CMS Energy and Consumers will need to overcome a Michigan economy that has been impacted adversely by the continued downturn and uncertainty in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler, as well as by high unemployment rates. The financial market crisis, the effects of which became evident in a global economic downturn beginning in 2008, continues to result in a negative economic outlook in the near term. A range of possible outcomes exists due to the uncertain progress of economic recovery in Consumers’ service territory. Consumers expects that the “pilot” decoupling mechanism and the uncollectible expense tracking mechanism adopted in the November 2009 MPSC electric rate order will mitigate partially the impacts of these economic conditions on the electric utility. While CMS Energy and Consumers believe that their sources of liquidity will be sufficient to meet their requirements, they will continue to monitor developments in the financial and credit markets and government policy responses to those developments for potential implications for CMS Energy’s and Consumers’ businesses and their future financial needs.

RESULTS OF OPERATIONS

CMS Energy’s Consolidated Results of Operations

In Millions (except for per share amounts)
Three months ended March 31		2010				2009				Change
Net Income Available to Common Stockholders		$	85			$	70			$	15
Basic Earnings Per Share		$	0.37			$	0.31			$	0.06
Diluted Earnings Per Share		$	0.34			$	0.30			$	0.04

In Millions
Three months ended March 31		2010				2009				Change
Electric Utility		$	41			$	39			$	2
Gas Utility			66				59				7
Enterprises			9				1				8
Corporate Interest and Other			(30	)			(28	)			(2	)
Discontinued Operations			(1	)			(1	)			—
Net Income Available to Common Stockholders		$	85			$	70			$	15

For the three months ended March 31, 2010, net income available to common stockholders was $85 million, compared with $70 million for 2009. Combined net income available to common stockholders for Consumers’ electric and gas utility segments increased as the favorable impact of rate orders more than offset decreased gas deliveries related to mild weather and unfavorable economic conditions. Further increasing net income available to common stockholders was an increase at the enterprises segment related to lower fuel costs, increased earnings from equity method investees, and higher net mark-to-market gains.

Specific after-tax changes to net income available to common stockholders for the three months ended March 31, 2010 versus 2009 are:

2010 over/(under) 2009
				(In Millions)
•		increase in electric and gas revenues at Consumers due to rate orders		$41
•		increase at the enterprises segment due to lower fuel costs, increased earnings from equity-method investees, and higher mark-to-market gains		8
•		other net increase at Consumers due to lower service restoration and other expenses		5
•		decrease in electric and gas revenue due to unfavorable economic conditions and an unfavorable sales mix		(15)
•		decrease in gas revenue due to mild weather		(15)
•		decrease at Consumers due to costs associated with the voluntary separation plan		(7)
•		decrease at corporate and other due to higher fixed charges, reflecting higher debt levels		(2)
Total change				$15

Consumers’ Electric Utility Results of Operations

In Millions
Three months ended March 31		2010				2009				Change
Net Income Available to Common Stockholders		$	41			$	39			$	2

Reasons for the change:
Electric deliveries and rate increase		$	26
Power supply costs and related revenue			(10	)
Other income, net of expenses			(3	)
Maintenance and other operating expenses			(6	)
Depreciation and amortization			(1	)
General taxes			(2	)
Interest charges			(2	)
Total change		$	2

Electric deliveries and rate increase: For the three months ended March 31, 2010, electric delivery revenues increased $26 million compared with 2009. The increase was due to $32 million of additional revenues resulting from the November 2009 rate order. Also contributing to the increase were other rate-related items of $16 million, which included the impacts of the decoupling mechanism that became effective in December 2009. Additionally, surcharge revenues and related reserves increased $4 million in 2010, due primarily to the implementation of the energy optimization program in June 2009.

These increases were offset partially by an $8 million decrease in revenues from an unfavorable sales mix, including the impact of customers switching from demand rates to energy rates, and $18 million in lower deliveries due to decreased sales to Consumers’ high margin customers. Overall, deliveries to end-use customers were 9.1 billion kWh, an increase of 0.07 billion kWh or 0.8 percent compared with 2009.

Power supply costs and related revenue: For the three months ended March 31, 2010, PSCR revenue decreased $10 million compared with 2009, reflecting an order received from the MPSC that disallowed recovery of power supply costs in Consumers’ 2007 PSCR reconciliation case.

Other income, net of expenses: For the three months ended March 31, 2010, other income decreased $3 million compared with 2009. The decrease was due primarily to a reduction of interest recorded on certain regulatory assets.

Maintenance and other operating expenses: For the three months ended March 31, 2010, maintenance and other operating expenses increased $6 million compared with 2009. The increase was due to $6 million associated with the implementation of the energy optimization program in June 2009, a $6 million increase in voluntary separation plan expenses and a $2 million increase in uncollectible accounts expense. These increases were offset partially by an $8 million decrease in service restoration and other net expenses.

Depreciation and amortization: For the three months ended March 31, 2010, depreciation and amortization expense increased $1 million compared with 2009. The increase was due to higher depreciation expense of $2 million from increased plant in service, offset partially by lower amortization expense of $1 million on certain regulatory assets.

General taxes: For the three months ended March 31, 2010, general taxes increased $2 million compared with 2009. The increase resulted from higher use taxes on electric property and increased property taxes, reflecting higher capital spending.

Interest charges: For the three months ended March 31, 2010, interest charges increased $2 million compared with 2009. The increase resulted from higher debt levels in 2010 and from an order received from the MPSC that disallowed recovery of power supply costs in Consumers’ 2007 PSCR reconciliation case.

Consumers’ Gas Utility Results of Operations

In Millions
Three months ended March 31		2010				2009				Change
Net Income Available to Common Stockholders		$	66			$	59			$	7

Reasons for the change:
Gas deliveries and rate increase		$	21
Other income, net of expenses			2
Maintenance and other operating expenses			(6	)
Depreciation and amortization			(1	)
General taxes			(1	)
Interest charges			(2	)
Income taxes			(6	)
Total change		$	7

Gas deliveries and rate increase: For the three months ended March 31, 2010, gas delivery revenues increased $21 million compared with 2009. The increase resulted from $31 million of additional revenue from the November 2009 self-implemented gas rate increase, $5 million from a favorable sales mix, and $3 million from the collection in 2010 of regulatory assets related to retirement benefits. Additionally, surcharge revenues increased $6 million due to the implementation of the energy optimization program in June 2009. These increases were offset partially by lower deliveries of $24 million due to milder weather. Gas deliveries, including miscellaneous transportation to end-use customers, were 119.1 bcf, a decrease of 11.6 bcf or 8.9 percent compared with 2009.

Other income, net of expenses: For the three months ended March 31, 2010, other income increased $2 million compared with 2009, due to increased interest income related to Consumers’ gas segment’s secured borrowing agreements.

Maintenance and other operating expenses: For the three months ended March 31, 2010, maintenance and other operating expenses increased $6 million compared with 2009. The increase was due to additional expenses of $6 million related to the implementation of the energy optimization program in June 2009, a $4 million increase in voluntary separation plan expenses, and higher expenses of $3 million associated with retirement benefits in 2010. These increases were offset partially by lower uncollectible accounts expense of $5 million and a decrease of $2 million in other net expenses.

Depreciation and amortization: For the three months ended March 31, 2010, depreciation and amortization expense increased $1 million compared with 2009, due primarily to an increase in plant in service.

General taxes: For the three months ended March 31, 2010, general taxes increased $1 million compared with 2009, due to increased property taxes, reflecting higher capital spending.

Interest charges: For the three months ended March 31, 2010, interest charges increased $2 million compared with 2009, due to higher debt levels in 2010.

Income taxes: For the three months ended March 31, 2010, income taxes increased $6 million compared with 2009. The change reflects $4 million due to higher gas utility earnings in 2010 and a $2 million increase in MBT expense.

Enterprises Results of Operations

In Millions
Three months ended March 31		2010				2009				Change
Net Income Available to Common Stockholders		$	9			$	1			$	8

For the three months ended March 31, 2010, the enterprises segment reported net income of $9 million compared with net income of $1 million for the same period in 2009. The change reflects after-tax expense reductions of $3 million from lower fuel costs, increased net earnings from equity-method investees of $3 million, and higher net mark-to-market gains of $2 million.

Corporate Interest and Other Results of Operations

In Millions
Three months ended March 31		2010				2009				Change
Net Loss Available to Common Stockholders		$	(30	)		$	(28	)		$	(2	)

For the three months ended March 31, 2010, corporate interest and other net expenses increased $2 million compared with 2009 due to higher fixed charges, reflecting higher debt levels.

Discontinued Operations

For the three months ended March 31, 2010 and 2009, net loss from discontinued operations was $1 million. These amounts reflect the operating results of Exeter, which is classified as held for sale.

CAPITAL RESOURCES AND LIQUIDITY

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

	•		In January 2010, CMS Energy issued $300 million of 6.25 percent senior notes due 2020;
	•		In March 2010, CMS Energy’s $239 million of 4.50 percent preferred stock and $139 million of 3.375 percent senior notes became convertible at the holders’ option for the second quarter of 2010; and
	•		In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040.

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

	•		In February 2010, Consumers renewed its accounts receivable sales program through February 2011;
	•		Consumers’ $150 million revolving credit facility is planned for renewal in 2010;
	•		Consumers’ $30 million Letter of Credit Reimbursement Agreement is planned for renewal in 2010;
	•		Consumers’ tax-exempt pollution control revenue bond maturities are $58 million in 2010;
	•		Consumers’ FMBs maturities are $250 million in 2010 and $300 million in 2012;
	•		Consumers’ $500 million revolving credit facility is planned for renewal in 2012;
	•		CMS Energy’s senior notes maturities are $67 million in 2010, $214 million in 2011, and $150 million in 2012; and
	•		CMS Energy’s $550 million revolving credit facility is planned for renewal in 2012.

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

Cash Position, Investing, and Financing

At March 31, 2010, CMS Energy had $778 million of consolidated cash and cash equivalents, which included $23 million of restricted cash and cash equivalents. At March 31, 2010, Consumers had $614 million of consolidated cash and cash equivalents, which included $23 million of restricted cash and cash equivalents.

CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $114 million in common stock dividends to CMS Energy for the three months ended March 31, 2010. For details on dividend restrictions, see Note 5, Financings and Capitalization.

Operating Activities: Specific components of net cash provided by operating activities for the three months ended March 31, 2010 and 2009 were:

In Millions
Three months ended March 31				2010				2009				Change
CMS Energy, including Consumers
•		Net income		$	88			$	74			$	14
•		Non-cash transactions (a)			282				298				(16	)
				$	370			$	372			$	(2	)
•		Sale of gas purchased in prior year			449				561				(112	)
•		Accounts receivable sales, net			(50	)			(170	)			120
•		Change in other core working capital (b)			53				(61	)			114
•		Other changes in assets and liabilities, net			(165	)			(96	)			(69	)
Net cash provided by operating activities				$	657			$	606			$	51
Consumers
•		Net income		$	107			$	99			$	8
•		Non-cash transactions (a)			219				268				(49	)
				$	326			$	367			$	(41	)
•		Sale of gas purchased in prior year			449				561				(112	)
•		Accounts receivable sales, net			(50	)			(170	)			120
•		Change in other core working capital (b)			42				(63	)			105
•		Other changes in assets and liabilities, net			(84	)			(31	)			(53	)
Net cash provided by operating activities				$	683			$	664			$	19

For the three months ended March 31, 2010, net cash provided by operating activities at CMS Energy increased $51 million compared with 2009. The increase was due to higher net income, net of non-cash transactions, at the enterprises segment, and to changes affecting Consumers’ cash provided by operating activities described in the following paragraph.

For the three months ended March 31, 2010, net cash provided by operating activities at Consumers increased $19 million compared with 2009. The increase was due primarily to higher collections from customers in 2010, offset largely by lower sales of gas.

Investing Activities: Specific components of cash used in investing activities for the three months ended March 31, 2010 and 2009 were:

												In Millions
Three months ended March 31				2010				2009				Change
CMS Energy, including Consumers
•		Capital expenditures		$	(190	)		$	(180	)		$	(10	)
•		Cash effect of deconsolidation of partnerships			(10	)			—				(10	)
•		Costs to retire property and other			(12	)			(12	)			—
Net cash used in investing activities				$	(212	)		$	(192	)		$	(20	)
Consumers
•		Capital expenditures		$	(190	)		$	(177	)		$	(13	)
•		Costs to retire property and other			(12	)			(22	)			10
Net cash used in investing activities				$	(202	)		$	(199	)		$	(3	)

For the three months ended March 31, 2010, net cash used in investing activities at CMS Energy increased $20 million compared with 2009. For the three months ended March 31, 2010, net cash used in investing activities at Consumers increased $3 million compared with 2009. Both increases reflect higher capital expenditures at Consumers.

Financing Activities: Specific components of net cash provided by financing activities for the three months ended March 31, 2010 and 2009 were:

												In Millions
Three months ended March 31				2010				2009				Change
CMS Energy, including Consumers
•		Issuance of FMBs, convertible senior notes, senior notes, and other debt		$	300			$	500			$	(200	)
•		Retirement of debt and other debt maturity payments			(34	)			(260	)			226
•		Payments of common and preferred stock dividends			(37	)			(32	)			(5	)
•		Other financing activities			(8	)			(9	)			1
Net cash provided by financing activities				$	221			$	199			$	22
Consumers
•		Issuance of FMBs		$	—			$	500			$	(500	)
•		Retirement of debt and other debt maturity payments			(9	)			(209	)			200
•		Stockholder’s contribution			200				—				200
•		Payments of common and preferred stock dividends			(114	)			(72	)			(42	)
•		Other financing activities			(6	)			(10	)			4
Net cash provided by financing activities				$	71			$	209			$	(138	)

For the three months ended March 31, 2010, net cash provided by financing activities at CMS Energy increased by $22 million compared with 2009. The increase was due primarily to an increase in net proceeds from borrowing.

For the three months ended March 31, 2010, net cash provided by financing activities at Consumers decreased $138 million compared with 2009. The decrease was due primarily to a decrease in net proceeds from borrowings offset partially by a stockholder’s contribution from CMS Energy.

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

Retirement Benefits

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

														In Millions
		Pension Cost				OPEB Cost				Pension Contribution				OPEB Contribution
CMS Energy, including Consumers
2010		$	107			$	74			$	100			$	71
2011			108				71				89				71
2012			105				67				142				71
Consumers
2010		$	104			$	76			$	97			$	70
2011			105				73				86				70
2012			101				69				137				70

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

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

Obligations And Commitments

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

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

Off-Balance-Sheet Arrangements

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

OUTLOOK

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

Consumers’ Electric Utility Business Outlook and Uncertainties

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

	•		energy efficiency;
	•		demand management;
	•		expanded use of renewable energy;
	•		development of new power plants and pursuit of additional PPAs to complement existing generating sources; and
	•		retirement of older, less efficient generating units.

Consumers’ balanced energy initiative includes plans to build an 830 MW coal-fueled plant at its Karn/Weadock generating complex near Bay City, Michigan. Consumers expects the plant to be in operation in 2017 and plans to use five-eighths of the plant’s output to serve its own customers, with the remaining output to be committed to others.

In December 2009, the MDNRE approved an air permit for Consumers’ proposed coal-fueled plant. As set forth in the air permit, Consumers would retire up to seven of its older, less-efficient generating units if the new unit is built and operated. Consumers plans to retire five units, or 638 MW, by the earlier of December 31, 2017 or within six months of commencement of operation of the new coal plant, with retirement of the additional two units, or 320 MW, dependent on customer need.

In March 2010, two parties filed a petition for review of the MDNRE air permit. Consumers is in the process of intervening in the matter and plans to defend the air permit with the MDNRE.

The 2008 Energy Legislation provided guidelines for the MPSC’s review and approval of energy resource plans and proposed power plants through the issuance of a certificate of necessity. Consumers plans to file a new case with the MPSC in 2010 seeking a certificate of necessity that conforms to the 2008 Energy Legislation. If the certificate of necessity is not approved by the MPSC, Consumers’ alternatives to constructing the proposed coal-fueled plant include constructing new gas-fueled generation, as well as extending the useful life of several existing coal-fueled plants.

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

Under its renewable energy plan, Consumers expects to secure its required 3.6 million RECs each year by 2015; such RECs will be a combination of newly generated RECs and previously generated RECs carried over from prior years. Presently, Consumers generates and purchases 1.6 million RECs per year, which represent 40 percent of its long-term REC needs. Consumers expects to be able to generate and purchase an additional 2 million RECs per year by 2018.

To meet its renewable capacity requirements, Consumers expects to add 500 MW of owned or contracted renewable capacity by 2015. Consumers has secured more than 60,000 acres of land easements in Michigan’s Mason, Huron, and Tuscola Counties for the potential development of wind generation and is presently collecting wind speed and other meteorological data at those sites. Consumers plans to construct a 100 MW wind farm in Mason County, Lake Winds Energy Park, which Consumers expects to

be operational in late 2012. As part of the development of this wind farm, Consumers issued a request for proposal to manufacturers of wind turbine generators in January 2010 and is analyzing bids received in response to that request. Consumers will continue to seek opportunities for wind generation development in support of the renewable capacity standards.

Consumers has also executed agreements with six small-scale renewable energy suppliers for the purchase of 9.4 MW of capacity, which will generate an estimated two percent of Consumers’ long-term REC needs. The MPSC has approved these agreements, enabling Consumers to recover the full costs of these contracts from its customers. Additionally, Consumers is in the process of evaluating proposals from several renewable energy suppliers for a portion of its capacity needs.

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

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

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

	•		energy conservation measures and results of energy efficiency programs;
	•		fluctuations in weather; and
	•		changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities, population trends, and housing activity.

In its 2009 electric rate case order, the MPSC authorized Consumers to adopt a “pilot” decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The MPSC’s order also adopted an uncollectible expense tracking mechanism, which allows future rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense. Consumers expects these mechanisms to mitigate partially the effects of weather fluctuations, the economy, and energy efficiency programs on Consumers’ electric revenue in future periods.

Electric ROA: The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Legislation limited alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At March 31, 2010, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 777 MW of generation service to ROA customers.

Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers continues to focus on complying with the federal Clean

Air Act, Clean Water Act, and numerous state and federal environmental regulations. Consumers estimates expenditures of $1.4 billion from 2010 through 2017 to comply with these regulations. Consumers expects to recover these costs in customer rates, but cannot assure that result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters:

Clean Air Interstate Rule: At this time, CAIR remains in effect, pending EPA revision. While the impacts of this revision are unknown, Consumers expects the EPA to propose stricter standards. A draft rule is expected this year. Consumers’ strategy to comply with CAIR involves the installation of state-of-the-art emission control equipment. In addition, Consumers is monitoring legislative initiatives in the U.S. Senate, which may lead to an alternative to the revised CAIR.

Federal Hazardous Air Pollutant Regulation: The EPA has initiated the development of a revised rule for electric generating unit hazardous air pollutants, such as mercury, based on Section 112 of the Clean Air Act. Consumers will have a better understanding of the potential impact of the proposed rule upon its release, which is expected this year. Existing sources must meet the standards generally within three years of issuance of the final rule.

Greenhouse Gases: In June 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act, which would require reductions in emissions of greenhouse gases, including carbon dioxide. The bill proposes to reduce carbon dioxide and other greenhouse gas emissions by three percent below 2005 levels by 2012, 17 percent below 2005 levels by 2020, and 42 percent below 2005 levels by 2030. The bill also contains provisions for the direct granting of substantial free greenhouse gas emission allowances to load-serving entities, which would mitigate some of the price impact to Consumers’ customers. Consumers believes Congress may eventually pass greenhouse gas legislation, but the form and timing of any final bill is difficult to predict. These laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted, could require Consumers to replace equipment, install additional equipment for emission controls, purchase allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases.

In December 2009, the EPA issued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been challenged in the U.S. Court of Appeals for the D.C. Circuit by numerous parties, the EPA determined that current and projected atmospheric concentrations of six greenhouse gases threaten the public health and welfare of current and future generations. The finding alone does not impose any standard or regulation on industry, but it is a precursor for finalizing proposed emissions standards. Recently, the EPA issued its final rule that regulates greenhouse gas emissions from motor vehicles under Section 202 of the Clean Air Act. This final action renders carbon dioxide and other greenhouse gases “regulated air pollutants” under the Clean Air Act, meaning that PSD and Title V permitting programs will now, under EPA’s view, apply to these greenhouse gases beginning on January 2, 2011. In addition, the EPA recently proposed revisions to its Mandatory Reporting of Greenhouse Gases Rule that would extend reporting requirements to methane releases from natural gas pipelines, distribution facilities, and gas storage fields.

Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

Combustion By-Products: The EPA is considering regulating coal combustion by-products, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery Act. Michigan already regulates coal combustion by-products as low-hazard industrial waste. If coal ash is regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing landfills could be closed if the upgrades to hazardous waste landfill standards are economically prohibitive. Costs associated with this

potential regulation could be substantial.

Water: In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by cooling water intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA has announced plans to issue a revised draft rule this year. Consumers estimates capital expenditures of $150 million to comply with these regulations.

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

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

Consumers’ Gas Utility Business Outlook and Uncertainties

Gas Deliveries: Consumers expects 2010 weather-adjusted gas deliveries to decline by two percent compared with 2009, due to continuing conservation and overall economic conditions in Michigan. In addition, Consumers expects weather-adjusted gas deliveries to decline an average of two percent annually from 2011 through 2015, which includes expected effects of energy efficiency programs. Actual delivery levels from year to year may vary from this trend due to:

	•		fluctuations in weather;
	•		use by IPPs;
	•		availability and development of renewable energy sources;
	•		changes in gas prices;
	•		Michigan economic conditions including population trends and housing activity;
	•		the price of competing energy sources or fuels; and
	•		energy efficiency and conservation.

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

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

Enterprises Outlook and Uncertainties

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

In April 2010, CMS Energy settled an insurance claim related to a previously sold South American investment, under which insurers will pay CMS Energy $50 million. This settlement will be recognized as a reduction to operating expenses in the second quarter of 2010.

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

	•		the impact of indemnity and environmental remediation obligations at Bay Harbor;
	•		the outcome of certain legal proceedings;
	•		the impact of lower electricity prices, caused primarily by lower natural gas prices, unseasonably cool weather in the summer, and decreased industrial production, on the profitability of the enterprises segment’s generating units;
	•		the impact of representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with the sales of assets;
	•		the impact of changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings;
	•		the impact of changes in various environmental laws, regulations, principles, practices, or in their interpretation; and
	•		the impact of economic conditions in Michigan, including population trends and housing activity.

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

Other Outlook and Uncertainties

Smart Grid: Consumers’ development of a smart grid continues to move forward. The foundation of the smart grid program is an advanced metering infrastructure. The program will include electric and gas smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing systems to manage the data. It is intended to enable customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in higher energy efficiency and environmental benefits. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment. Consumers will also make certain modifications to its software to enable the new system. Consumers intends to conduct an operational pilot of the smart grid technology in 2012.

Health Care Reform: The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. This legislation resulted in a $3 million increase to CMS Energy’s tax expense for the three months ended March 31, 2010, and it had no effect on Consumers’ net income. For additional details, see Note 10, Income Taxes.

Union Contract: The present Union agreement expires in June 2010. In April 2010, Consumers reached a tentative agreement with the Union on a new five-year contract for Union members. The schedule allows for ratification of the new contract by May 2010.

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

EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $268 million at March 31, 2010. Its loan portfolio was funded primarily by deposit liabilities of $240 million and borrowings from the U.S. Federal Reserve Bank of $14 million. Twelve-month rolling average default rates on loans held by EnerBank have declined slightly from 2.1 percent at December 31, 2009 to 2.0 percent at March 31, 2010. EnerBank expects the level of loan defaults to continue to decline in 2010 and return gradually to historical levels.

NEW ACCOUNTING STANDARDS

For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet effective, see Note 1, New Accounting Standards.

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CMS Energy Corporation

Consolidated Statements of Income

(Unaudited)

						In Millions
Three Months Ended March 31		2010				2009
Operating Revenue		$	1,967			$	2,104
Income (Loss) from Equity Method Investees			3				(1	)
Operating Expenses
Fuel for electric generation			138				135
Purchased and interchange power			278				289
Purchased and interchange power — related parties			21				—
Cost of gas sold			778				963
Other operating expenses			233				222
Maintenance			42				47
Depreciation and amortization			172				173
General taxes			66				65
			1,728				1,894
Operating Income			242				209
Other Income (Expense)
Interest and dividends			5				4
Allowance for equity funds used during construction			1				1
Other income			9				12
Other expense			(2	)			(2	)
			13				15
Interest Charges
Interest on long-term debt			98				92
Other interest			8				8
Allowance for borrowed funds used during construction			(1	)			(1	)
			105				99
Income Before Income Taxes			150				125
Income Tax Expense			61				50
Income From Continuing Operations			89				75
Loss From Discontinued Operations, Net of Tax Benefit of $(1) and $(1)			(1	)			(1	)
Net Income			88				74
Income Attributable to Noncontrolling Interests			—				1
Net Income Attributable to CMS Energy			88				73
Preferred Stock Dividends			3				3
Net Income Available to Common Stockholders		$	85			$	70

The accompanying notes are an integral part of these statements.

		In Millions, Except Per Share Amounts
Three Months Ended March 31		2010				2009
Amounts Attributable to Common Stockholders
Amounts Attributable to Continuing Operations		$	86			$	71
Amounts Attributable to Discontinued Operations			(1	)			(1	)
Net Income Available to Common Stockholders		$	85			$	70
Amounts Attributable to Noncontrolling Interests
Amounts Attributable to Continuing Operations		$	—			$	1
Amounts Attributable to Discontinued Operations			—				—
Income Attributable to Noncontrolling Interests		$	—			$	1
Basic Earnings (Loss) Per Average Common Share
Basic Earnings from Continuing Operations		$	0.38			$	0.32
Basic Loss from Discontinued Operations			(0.01	)			(0.01	)
Basic Earnings Attributable to Common Stock		$	0.37			$	0.31
Diluted Earnings (Loss) Per Average Common Share
Diluted Earnings from Continuing Operations		$	0.35			$	0.31
Diluted Loss from Discontinued Operations			(0.01	)			(0.01	)
Diluted Earnings Attributable to Common Stock		$	0.34			$	0.30
Dividends Declared Per Common Share		$	0.15			$	0.125

CMS Energy Corporation

Consolidated Statements of Cash Flows

(Unaudited)

						In Millions
Three Months Ended March 31		2010				2009
Cash Flows from Operating Activities
Net income		$	88			$	74
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			172				173
Deferred income taxes and investment tax credit			42				49
Postretirement benefits expense			49				46
Allowance for equity funds used during construction			(1	)			(1	)
Capital lease and other amortization			9				10
Bad debt expense			14				20
Loss (income) from equity-method investees			(3	)			1
Cash distributions received from equity-method investees			2				—
Postretirement benefits contributions			(135	)			(13	)
Changes in other assets and liabilities:
Decrease (increase) in accounts receivable and accrued revenues			36				(161	)
Decrease in accrued power supply and gas revenue			38				1
Decrease in inventories			460				566
Decrease in accounts payable			(44	)			(75	)
Decrease in taxes and accrued expenses			(77	)			(52	)
Decrease in other current and non-current assets			39				27
Decrease in other current and non-current liabilities			(32	)			(59	)
Net cash provided by operating activities			657				606
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)			(190	)			(180	)
Cost to retire property			(11	)			(17	)
Cash effect of deconsolidation of partnerships			(10	)			—
Other investing activities			(1	)			5
Net cash used in investing activities			(212	)			(192	)
Cash Flows from Financing Activities
Proceeds from issuance of notes, bonds, and other long-term debt			300				500
Issuance of common stock			3				3
Retirement of bonds and other long-term debt, including related parties			(25	)			(252	)
Payments on securitization bonds			(9	)			(8	)
Payment of common stock dividends			(34	)			(29	)
Payment of preferred stock dividends			(3	)			(3	)
Payment of capital and finance lease obligations			(6	)			(6	)
Debt issuance costs, financing fees, and other			(5	)			(6	)
Net cash provided by financing activities			221				199
Net Increase in Cash and Cash Equivalents			666				613
Decreases (Increases) in Cash and Cash Equivalents Included in Assets Held for Sale			(1	)			2
Net Increase in Cash and Cash Equivalents Excluding Assets Held for Sale			665				615
Cash and Cash Equivalents, Beginning of Period			90				207
Cash and Cash Equivalents, End of Period		$	755			$	822

The accompanying notes are an integral part of these statements.

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CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)

ASSETS

						In Millions
		March 31				December 31
		2010				2009
Current Assets
Cash and cash equivalents		$	755			$	90
Restricted cash and cash equivalents			23				32
Accounts receivable and accrued revenue, less allowances of $28 in 2010 and $23 in 2009			870				948
Notes receivable			81				81
Accrued power supply and gas revenue			10				48
Accounts receivable — related parties			12				—
Inventories at average cost
Gas in underground storage			607				1,043
Materials and supplies			112				118
Generating plant fuel stock			127				158
Deferred property taxes			142				172
Regulatory assets			19				19
Assets held for sale			2				2
Prepayments and other			35				31
			2,795				2,742
Plant, Property & Equipment (at cost)
Plant, property & equipment, gross			13,591				13,716
Less accumulated depreciation, depletion, and amortization			4,507				4,540
Plant, property & equipment, net			9,084				9,176
Construction work in progress			563				506
			9,647				9,682
Non-current Assets
Regulatory assets			2,244				2,291
Notes receivable, less allowances of $5 in 2010 and $6 in 2009			257				269
Investments			52				9
Assets held for sale			9				9
Other			222				254
			2,784				2,832
Total Assets		$	15,226			$	15,256

The accompanying notes are an integral part of these statements.

STOCKHOLDERS’ INVESTMENT AND LIABILITIES

						In Millions
		March 31				December 31
		2010				2009
Current Liabilities
Current portion of long-term debt, capital and finance lease obligations		$	706			$	694
Notes payable			14				40
Accounts payable			395				509
Accrued rate refunds			2				21
Accounts payable — related parties			8				—
Accrued interest			78				96
Accrued taxes			238				283
Deferred income taxes			18				43
Regulatory liabilities			128				145
Liabilities held for sale			2				—
Other			104				123
			1,693				1,954
Non-current Liabilities
Regulatory liabilities			1,932				1,991
Postretirement benefits			1,366				1,460
Asset retirement obligation			233				229
Deferred investment tax credit			50				51
Deferred income taxes			408				231
Other			298				310
			4,287				4,272
Commitments and Contingencies (Notes 3, 4, 5, 7 and 8)
Capitalization
Long-term debt			6,103				5,895
Non-current portion of capital and finance lease obligations			202				197
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 228.0 shares in 2010 and 227.9 shares in 2009			2				2
Other paid-in capital			4,564				4,560
Accumulated other comprehensive loss			(32	)			(33	)
Accumulated deficit			(1,876	)			(1,927	)
Total common stockholders’ equity			2,658				2,602
Preferred stock			239				239
Noncontrolling interests			44				97
Total equity			2,941				2,938
			9,246				9,030
Total Stockholders’ Investment and Liabilities		$	15,226			$	15,256

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

						In Millions
Three Months Ended March 31		2010				2009
Common Stock
At beginning and end of period		$	2			$	2
Other Paid-in Capital
At beginning of period			4,560				4,533
Common stock issued			4				5
At end of period			4,564				4,538
Accumulated Other Comprehensive Loss
Retirement benefits liability
At beginning of period			(32	)			(27	)
Retirement benefits liability adjustments (a)			1				—
At end of period			(31	)			(27	)
Investments
At beginning of period			—				—
Unrealized loss on investments (a)			—				(4	)
At end of period			—				(4	)
Derivative instruments
At beginning and end of period			(1	)			(1	)
At end of period			(32	)			(32	)
Accumulated Deficit
At beginning of period			(1,927	)			(2,031	)
Net income attributable to CMS Energy (a)			88				73
Preferred stock dividends declared			(3	)			(3	)
Common stock dividends declared			(34	)			(29	)
At end of period			(1,876	)			(1,990	)
Preferred Stock
At beginning and end of period			239				243
Noncontrolling Interests
At beginning of period			97				96
Income attributable to noncontrolling interests			—				1
Distributions and other changes in noncontrolling interests			(53	)			(1	)
At end of period			44				96
Total Equity		$	2,941			$	2,857

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

						In Millions
Three Months Ended March 31		2010				2009
(a) Disclosure of Comprehensive Income:
Net income		$	88			$	74
Income attributable to noncontrolling interests			—				1
Net income attributable to CMS Energy		$	88			$	73
Retirement benefits liability:
Retirement benefits liability adjustments, net of tax benefit of $1 in 2010 and $- in 2009			1				—
Investments:
Unrealized loss on investments, net of tax of $- in 2010 and $- in 2009			—				(4	)
Total Comprehensive Income		$	89			$	69