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                                                                    EXHIBIT 4(m)


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


                    PREFERRED SECURITIES GUARANTEE AGREEMENT


                     CONSUMERS ENERGY COMPANY FINANCING III


                          Dated as of           , 1999

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


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                                TABLE OF CONTENTS


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                                                                              Page
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                                   ARTICLE I.
                         DEFINITIONS AND INTERPRETATION

SECTION 1.1  Definitions and Interpretation.................................   2


                                   ARTICLE II.
                               TRUST INDENTURE ACT

SECTION 2.1  Trust Indenture Act; Application...............................   4
SECTION 2.2  Lists of Holders of Securities.................................   4
SECTION 2.3  Reports by the Preferred Guarantee Trustee.....................   5
SECTION 2.4  Periodic Reports to Preferred Guarantee Trustee................   5
SECTION 2.5  Evidence of Compliance with Conditions Precedent...............   5
SECTION 2.6  Events of Default; Waiver......................................   5
SECTION 2.7  Event of Default; Notice.......................................   5
SECTION 2.8  Conflicting Interests..........................................   6


                                  ARTICLE III.
                          POWERS, DUTIES AND RIGHTS OF
                           PREFERRED GUARANTEE TRUSTEE

SECTION 3.1  Powers and Duties of the Preferred Guarantee Trustee...........   6
SECTION 3.2  Certain Rights of Preferred Guarantee Trustee..................   7
SECTION 3.3  Not Responsible for Recitals or Issuance of Guarantee..........   9


                                   ARTICLE IV.
                           PREFERRED GUARANTEE TRUSTEE

SECTION 4.1  Preferred Guarantee Trustee; Eligibility.......................   9
SECTION 4.2  Appointment, Removal and Resignation of Preferred Guarantee
             Trustees.......................................................  10


                                   ARTICLE V.
                                    GUARANTEE

SECTION 5.1  Guarantee......................................................  10
SECTION 5.2  Waiver of Notice and Demand....................................  11
SECTION 5.3  Obligations Not Affected.......................................  11
SECTION 5.4  Rights of Holders..............................................  12
SECTION 5.5  Guarantee of Payment...........................................  12
SECTION 5.6  Subrogation....................................................  12
SECTION 5.7  Independent Obligations........................................  12


                                   ARTICLE VI.
                    LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 6.1  Limitation of Transactions.....................................  12
SECTION 6.2  Ranking........................................................  13
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                                  ARTICLE VII.
                                   TERMINATION

SECTION 7.1  Termination................................................      13


                                  ARTICLE VIII.
                                 INDEMNIFICATION

SECTION 8.1  Exculpation................................................      13
SECTION 8.2  Indemnification............................................      14


                                   ARTICLE IX.
                                  MISCELLANEOUS

SECTION 9.1  Successors and Assigns.....................................      14
SECTION 9.2  Amendments.................................................      14
SECTION 9.3  Notices....................................................      14
SECTION 9.4  Benefit....................................................      15
SECTION 9.5  Governing Law..............................................      15
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                    PREFERRED SECURITIES GUARANTEE AGREEMENT


                  GUARANTEE AGREEMENT (the "Preferred Securities Guarantee"),
dated as of            , 1999, is executed and delivered by Consumers Energy
Company, a Michigan corporation (the "Guarantor"), and The Bank of New York, as
trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as
defined herein) from time to time of the Preferred Securities (as defined
herein) of Consumers Energy Company Financing III, a Delaware statutory business
trust (the "Issuer").

                  WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of           , 1999, among the trustees of
the Issuer named therein, the Guarantor, as sponsor, and the holders from time
to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing on the date hereof       preferred securities, having an
aggregate liquidation amount of        designated the     % Trust Originated
Preferred Securities (the "Preferred Securities");

                  WHEREAS, as incentive for the Holders to purchase the
Preferred Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Preferred Securities Guarantee, to pay to
the Holders of the Preferred Securities the Guarantee Payments (as defined
herein) and to make certain other payments on the terms and conditions set forth
herein; and

                  WHEREAS, the Guarantor is also executing and delivering a
guarantee agreement (the "Common Securities Guarantee") in substantially
identical terms to this Preferred Securities Guarantee for the benefit of the
holders of the Common Securities (as defined herein), except that if an Event of
Default (as defined in the Indenture), has occurred and is continuing, the
rights of holders of the Common Securities to receive Guarantee Payments under
the Common Securities Guarantee are subordinated to the rights of Holders of
Preferred Securities to receive Guarantee Payments under this Preferred
Securities Guarantee;

                  NOW, THEREFORE, in consideration of the purchase by each
Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Preferred
Securities Guarantee for the benefit of the Holders.


<PAGE>   5



                                   ARTICLE I.
                         DEFINITIONS AND INTERPRETATION

SECTION 1.1  Definitions and Interpretation

             In this Preferred Securities Guarantee, unless the context
otherwise requires:

             (a)   Capitalized terms used in this Preferred Securities Guarantee
                   but not defined in the preamble above have the respective
                   meanings assigned to them in this Section 1.1;

             (b)   a term defined anywhere in this Preferred Securities
                   Guarantee has the same meaning throughout;

             (c)   all references to "the Preferred Securities Guarantee" or
                   "this Preferred Securities Guarantee" are to this Preferred
                   Securities Guarantee as modified, supplemented or amended
                   from time to time;

             (d)   all references in this Preferred Securities Guarantee to
                   Articles and Sections are to Articles and Sections of this
                   Preferred Securities Guarantee, unless otherwise specified;

             (e)   a term defined in the Trust Indenture Act has the same
                   meaning when used in this Preferred Securities Guarantee,
                   unless otherwise defined in this Preferred Securities
                   Guarantee or unless the context otherwise requires; and

             (f)   a reference to the singular includes the plural and vice
                   versa.

             "Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act of 1933, as amended, or any successor rule thereunder.

             "Authorized Officer" of a Person means any Person that is
authorized to bind such Person.

             "Business Day" means any day other than a day on which banking
institutions in the City of New York, New York are authorized or required by any
applicable law to close.

             "Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.

             "Corporate Trust Office" means the office of the Preferred
Guarantee Trustee at which the corporate trust business of the Preferred
Guarantee Trustee shall, at any particular time, be principally administered,
which office at the date of execution of this Agreement is located at 101
Barclay Street, Floor 21 West, New York, New York 10286.

             "Covered Person" means any Holder or beneficial owner of Preferred
Securities.

             "Debentures" means the series of junior subordinated debt
securities of the Guarantor designated the 8.20% Subordinated Deferrable
Interest Notes due 2027 held by the Property Trustee (as defined in the
Declaration) of the Issuer.

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<PAGE>   6


             "Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.

             "Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in the Declaration) that are required to be paid on such Preferred Securities to
the extent the Issuer shall have funds available therefor, (ii) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the "Redemption Price") to the extent the Issuer has funds available therefor,
with respect to any Preferred Securities called for redemption by the Issuer,
and (iii) upon a voluntary or involuntary dissolution, winding-up or termination
of the Issuer (other than in connection with the distribution of Debentures to
the Holders in exchange for Preferred Securities as provided in the
Declaration), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent the Issuer shall have funds available therefor, and (b)
the amount of assets of the Issuer remaining available for distribution to
Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution"). If an event of default under the Indenture has occurred and is
continuing, the rights of holders of the Common Securities to receive payments
under the Common Securities Guarantee Agreement are subordinated to the rights
of Holders of Preferred Securities to receive Guarantee Payments.

             "Holder" shall mean any holder, as registered on the books and
records of the Issuer of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.

             "Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.

             "Indenture" means the Indenture dated as of January 1, 1996,
between the Guarantor (the "Debenture Issuer") and The Bank of New York, as
trustee, and any indenture supplemental thereto pursuant to which certain
subordinated debt securities of the Debenture Issuer are to be issued to the
Property Trustee of the Issuer.

             "Majority in liquidation amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by Holder(s) of Preferred
Securities, voting separately as a class, of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all Preferred Securities.

             "Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:

             (a) a statement that each officer signing the Officers' Certificate
        has read the covenant or condition and the definition relating thereto;


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             (b) a brief statement of the nature and scope of the examination or
        investigation undertaken by each officer in rendering the Officers'
        Certificate;

             (c) a statement that each such officer has made such examination or
        investigation as, in such officer's opinion, is necessary to enable such
        officer to express an informed opinion as to whether or not such
        covenant or condition has been complied with; and

             (d) a statement as to whether, in the opinion of each such officer,
        such condition or covenant has been complied with.

             "Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.

             "Preferred Guarantee Trustee" means The Bank of New York, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.

             "Responsible Officer" means, with respect to the Preferred
Guarantee Trustee, any officer within the Corporate Trust Office of the
Preferred Guarantee Trustee, including any vice-president, any assistant
vice-president, any assistant secretary, the treasurer, any assistant treasurer
or other officer of the Corporate Trust Office of the Preferred Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.

             "Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.

             "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.


                                   ARTICLE II.
                               TRUST INDENTURE ACT

SECTION 2.1  Trust Indenture Act; Application

             (a) This Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of this
Preferred Securities Guarantee and shall, to the extent applicable, be governed
by such provisions; and

             (b) if and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.


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SECTION 2.2  Lists of Holders of Securities

             (a) The Guarantor shall provide the Preferred Guarantee Trustee
with a list, in such form as the Preferred Guarantee Trustee may reasonably
require, of the names and addresses of the Holders of the Preferred Securities
("List of Holders") as of such date, (i) within 14 days after January 1 and June
30 of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Preferred Guarantee Trustee
provided, that the Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The
Preferred Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.

             (b) The Preferred Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.

SECTION 2.3  Reports by the Preferred Guarantee Trustee

             Within 60 days after May 15 of each year, the Preferred Guarantee
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act.

SECTION 2.4  Periodic Reports to Preferred Guarantee Trustee

             The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.

SECTION 2.5  Evidence of Compliance with Conditions Precedent

             The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.

SECTION 2.6  Events of Default; Waiver

             The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.

SECTION 2.7  Event of Default; Notice

             (a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default

                                       5
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actually known to a Responsible Officer of the Preferred Guarantee Trustee,
unless such defaults have been cured before the giving of such notice, provided,
that, the Preferred Guarantee Trustee shall be protected in withholding such
notice, to the extent permitted by the Trust Indenture Act, if and so long as a
Responsible Officer of the Preferred Guarantee Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders of the
Preferred Securities.

             (b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Declaration shall have
obtained actual knowledge.

SECTION 2.8  Conflicting Interests

             The Declaration shall be deemed to be specifically described in
this Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.

                                  ARTICLE III.
                          POWERS, DUTIES AND RIGHTS OF
                           PREFERRED GUARANTEE TRUSTEE

SECTION 3.1  Powers and Duties of the Preferred Guarantee Trustee

             (a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.4(b) or to a
Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred
Guarantee Trustee of its appointment to act as Successor Preferred Guarantee
Trustee. The right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee, and such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered pursuant to the appointment of such
Successor Preferred Guarantee Trustee.

             (b) If an Event of Default actually known to a Responsible Officer
of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.

             (c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall be
read into this Preferred Securities Guarantee against the Preferred Guarantee
Trustee. In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6) and is actually known to a Responsible Officer
of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Preferred Securities
Guarantee, and use the same degree of care and skill in its exercise thereof, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.

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<PAGE>   10


             (d)   No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

                   (i)   prior to the occurrence of any Event of Default and
             after the curing or waiving of all such Events of Default that may
             have occurred:

                         (A) the duties and obligations of the Preferred
                   Guarantee Trustee shall be determined solely by the express
                   provisions of this Preferred Securities Guarantee, and the
                   Preferred Guarantee Trustee shall not be liable except for
                   the performance of such duties and obligations as are
                   specifically set forth in this Preferred Securities
                   Guarantee, and no implied covenants or obligations shall be
                   read into this Preferred Securities Guarantee against the
                   Preferred Guarantee Trustee; and

                         (B) in the absence of bad faith on the part of the
                   Preferred Guarantee Trustee, the Preferred Guarantee Trustee
                   may conclusively rely, as to the truth of the statements and
                   the correctness of the opinions expressed therein, upon any
                   certificates or opinions furnished to the Preferred Guarantee
                   Trustee and conforming to the requirements of this Preferred
                   Securities Guarantee; but in the case of any such
                   certificates or opinions that by any provision hereof are
                   specifically required to be furnished to the Preferred
                   Guarantee Trustee, the Preferred Guarantee Trustee shall be
                   under a duty to examine the same to determine whether or not
                   they conform to the requirements of this Preferred Securities
                   Guarantee;

                   (ii)  the Preferred Guarantee Trustee shall not be liable for
             any error of judgment made in good faith by a Responsible Officer
             of the Preferred Guarantee Trustee, unless it shall be proved that
             the Preferred Guarantee Trustee was negligent in ascertaining the
             pertinent facts upon which such judgment was made;

                   (iii) the Preferred Guarantee Trustee shall not be liable
             with respect to any action taken or omitted to be taken by it in
             good faith in accordance with the direction of the Holders of not
             less than a Majority in liquidation amount of the Preferred
             Securities relating to the time, method and place of conducting any
             proceeding for any remedy available to the Preferred Guarantee
             Trustee, or exercising any trust or power conferred upon the
             Preferred Guarantee Trustee under this Preferred Securities
             Guarantee; and

                   (iv) no provision of this Preferred Securities Guarantee
             shall require the Preferred Guarantee Trustee to expend or risk its
             own funds or otherwise incur personal financial liability in the
             performance of any of its duties or in the exercise of any of its
             rights or powers, if the Preferred Guarantee Trustee shall have
             reasonable grounds for believing that the repayment of such funds
             or liability is not reasonably assured to it under the terms of
             this Preferred Securities Guarantee or indemnity, reasonably
             satisfactory to the Preferred Guarantee Trustee, against such risk
             or liability is not reasonably assured to it.

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SECTION 3.2  Certain Rights of Preferred Guarantee Trustee

             (a)   Subject to the provisions of Section 3.1:

                   (i)   The Preferred Guarantee Trustee may conclusively rely,
             and shall be fully protected in acting or refraining from acting
             upon, any resolution, certificate, statement, instrument, opinion,
             report, notice, request, direction, consent, order, bond,
             debenture, note, other evidence of indebtedness or other paper or
             document believed by it to be genuine and to have been signed, sent
             or presented by the proper party or parties.

                   (ii)  Any direction or act of the Guarantor contemplated by
             this Preferred Securities Guarantee shall be sufficiently evidenced
             by an Officers' Certificate.

                   (iii) Whenever, in the administration of this Preferred
             Securities Guarantee, the Preferred Guarantee Trustee shall deem it
             desirable that a matter be proved or established before taking,
             suffering or omitting any action hereunder, the Preferred Guarantee
             Trustee (unless other evidence is herein specifically prescribed)
             may, in the absence of bad faith on its part, request and
             conclusively rely upon an Officers' Certificate which, upon receipt
             of such request, shall be promptly delivered by the Guarantor.

                   (iv) The Preferred Guarantee Trustee shall have no duty to
             see to any recording, filing or registration of any instrument (or
             any rerecording, refiling or registration thereof).

                   (v) The Preferred Guarantee Trustee may consult with counsel
             of its choice, and the written advice or opinion of such counsel
             with respect to legal matters shall be full and complete
             authorization and protection in respect of any action taken,
             suffered or omitted by it hereunder in good faith and in accordance
             with such advice or opinion. Such counsel may be counsel to the
             Guarantor or any of its Affiliates and may include any of its
             employees. The Preferred Guarantee Trustee shall have the right at
             any time to seek instructions concerning the administration of this
             Preferred Securities Guarantee from any court of competent
             jurisdiction.

                   (vi) The Preferred Guarantee Trustee shall be under no
             obligation to exercise any of the rights or powers vested in it by
             this Preferred Securities Guarantee at the request or direction of
             any Holder, unless such Holder shall have provided to the Preferred
             Guarantee Trustee such security and indemnity, reasonably
             satisfactory to the Preferred Guarantee Trustee, against the costs,
             expenses (including attorneys' fees and expenses and the expenses
             of the Preferred Guarantee Trustee's agents, nominees or
             custodians) and liabilities that might be incurred by it in
             complying with such request or direction, including such reasonable
             advances as may be requested by the Preferred Guarantee Trustee;
             provided that, nothing contained in this Section 3.2(a)(vi) shall
             be taken to relieve the Preferred Guarantee Trustee, upon the
             occurrence of an Event of Default, of its obligation to exercise
             the rights and powers vested in it by this Preferred Securities
             Guarantee.

                                       8

<PAGE>   12


                   (vii)  The Preferred Guarantee Trustee shall not be bound to
             make any investigation into the facts or matters stated in any
             resolution, certificate, statement, instrument, opinion, report,
             notice, request, direction, consent, order, bond, debenture, note,
             other evidence of indebtedness or other paper or document, but the
             Preferred Guarantee Trustee, in its discretion, may make such
             further inquiry or investigation into such facts or matters as it
             may see fit.

                   (viii) The Preferred Guarantee Trustee may execute any of the
             trusts or powers hereunder or perform any duties hereunder either
             directly or by or through agents, nominees, custodians or
             attorneys, and the Preferred Guarantee Trustee shall not be
             responsible for any misconduct or negligence on the part of any
             agent or attorney appointed with due care by it hereunder.

                   (ix)  Any action taken by the Preferred Guarantee Trustee or
             its agents hereunder shall bind the Holders of the Preferred
             Securities, and the signature of the Preferred Guarantee Trustee or
             its agents alone shall be sufficient and effective to perform any
             such action. No third party shall be required to inquire as to the
             authority of the Preferred Guarantee Trustee to so act or as to its
             compliance with any of the terms and provisions of this Preferred
             Securities Guarantee, both of which shall be conclusively evidenced
             by the Preferred Guarantee Trustee's or its agent's taking such
             action.

                   (x) Whenever in the administration of this Preferred
             Securities Guarantee the Preferred Guarantee Trustee shall deem it
             desirable to receive instructions with respect to enforcing any
             remedy or right or taking any other action hereunder, the Preferred
             Guarantee Trustee (i) may request instructions from the Holders of
             a Majority in liquidation amount of the Preferred Securities, (ii)
             may refrain from enforcing such remedy or right or taking such
             other action until such instructions are received, and (iii) shall
             be protected in conclusively relying on or acting in accordance
             with such instructions.

             (b)   No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it in any jurisdiction in which it shall be illegal, or
in which the Preferred Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Preferred Guarantee Trustee shall be construed to be a duty.

SECTION 3.3.        Not Responsible for Recitals or Issuance of Guarantee

             The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Preferred Guarantee Trustee does not assume
any responsibility for their correctness. The Preferred Guarantee Trustee makes
no representation as to the validity or sufficiency of this Preferred Securities
Guarantee.

                                       9


<PAGE>   13


                                   ARTICLE IV.
                           PREFERRED GUARANTEE TRUSTEE

SECTION 4.1  Preferred Guarantee Trustee; Eligibility

             (a) There shall at all times be a Preferred Guarantee Trustee which
shall:

                 (i)   not be an Affiliate of the Guarantor; and

                 (ii)  be a corporation organized and doing business under the
             laws of the United States of America or any State or Territory
             thereof or of the District of Columbia, or a corporation or Person
             permitted by the Securities and Exchange Commission to act as an
             institutional trustee under the Trust Indenture Act, authorized
             under such laws to exercise corporate trust powers, having a
             combined capital and surplus of at least 50 million U.S. dollars
             ($50,000,000), and subject to supervision or examination by
             Federal, State, Territorial or District of Columbia authority. If
             such corporation publishes reports of condition at least annually,
             pursuant to law or to the requirements of the supervising or
             examining authority referred to above, then, for the purposes of
             this Section 4.1(a)(ii), the combined capital and surplus of such
             corporation shall be deemed to be its combined capital and surplus
             as set forth in its most recent report of condition so published.

             (b) If at any time the Preferred Guarantee Trustee shall cease to
be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee
shall immediately resign in the manner and with the effect set out in Section
4.2(c).

             (c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.

SECTION 4.2   Appointment, Removal and Resignation of Preferred Guarantee
              Trustees

             (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor.

             (b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has
been appointed and has accepted such appointment by written instrument executed
by such Successor Preferred Guarantee Trustee and delivered to the Guarantor.

             (c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.

             (d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days

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<PAGE>   14


after delivery to the Guarantor of an instrument of resignation, the resigning
Preferred Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Preferred Guarantee Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper, appoint
a Successor Preferred Guarantee Trustee.

             (e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.

             (f) Upon termination of this Preferred Securities Guarantee or
removal or resignation of the Preferred Guarantee Trustee pursuant to this
Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all
amounts accrued to the date of such termination, removal or resignation.


                                   ARTICLE V.
                                    GUARANTEE

SECTION 5.1  Guarantee

             The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders. Notwithstanding anything to the
contrary herein, the Guarantor retains all of its rights under the Indenture to
extend the interest payment period on the Debentures and the Guarantor shall not
be obligated hereunder to pay during an Extension Period (as defined in the
Indenture) any monthly distributions on the Preferred Securities.

SECTION 5.2  Waiver of Notice and Demand

             The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.

SECTION 5.3  Obligations Not Affected

             Except as otherwise provided herein, the obligations, covenants,
agreements and duties of the Guarantor under this Preferred Securities Guarantee
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:

             (a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;

             (b) the extension of time for the payment by the Issuer of all or
any portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Preferred Securities or the
extension of time for the performance of any other obligation under, arising out

                                       11
<PAGE>   15


of, or in connection with, the Preferred Securities (other than an extension of
time for payment of Distributions, Redemption Price, Liquidation Distribution or
other sum payable that results from the extension of any interest payment period
on the Debentures or any extension of the maturity date of the Debentures
permitted by the Indenture);

             (c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;

             (d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Issuer or any of the assets of
the Issuer;

             (e) any invalidity of, or defect or deficiency in, the Preferred
Securities;

             (f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or

             (g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.

             There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

SECTION 5.4  Rights of Holders

             (a) The Holders of a Majority in liquidation amount of the
Preferred Securities have the right to direct the time, method and place of
conducting of any proceeding for any remedy available to the Preferred Guarantee
Trustee in respect of this Preferred Securities Guarantee or exercising any
trust or power conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee.

             (b) Any Holder of Preferred Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Issuer, the Preferred Guarantee Trustee or any other Person.

SECTION 5.5  Guarantee of Payment

             This Preferred Securities Guarantee creates a guarantee of payment
and not of collection.

SECTION 5.6  Subrogation

             The Guarantor shall be subrogated to all (if any) rights of the
Holders of Preferred Securities against the Issuer in respect of any amounts
paid to such Holders by the Guarantor under this Preferred Securities Guarantee;

                                       12

<PAGE>   16


provided, however, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) be entitled to enforce or exercise any right
that it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

SECTION 5.7  Independent Obligations

             The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.


                                   ARTICLE VI.
                    LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 6.1  Limitation of Transactions

             So long as any Preferred Securities remain outstanding, if there
shall have occurred an Event of Default or an event of default under the
Declaration, then (a) the Guarantor shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, (b) the Guarantor
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees) issued by
the Guarantor which rank pari passu with or junior to the Debentures or (c) the
Guarantor shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Preferred Securities Guarantee Agreement); provided,
however, the Guarantor may declare and pay a stock dividend where the dividend
stock is the same stock as that on which the dividend is being paid.

SECTION 6.2  Ranking

             This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Guarantor including the Debentures,
except those liabilities of the Guarantor made pari passu or subordinate by
their terms, (ii) pari passu with the most senior preferred or preference stock
now or hereafter issued by the Guarantor and with any guarantee now or hereafter
entered into by the Guarantor in respect of any preferred or preference stock of
any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common
stock.


                                  ARTICLE VII.
                                   TERMINATION

SECTION 7.1  Termination

             This Preferred Securities Guarantee shall terminate (i) upon full
payment of the Redemption Price of all Preferred Securities, (ii) upon the
distribution of the Debentures to the Holders of all of the Preferred Securities

                                       13
<PAGE>   17

or (iii) upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this
Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.


                                  ARTICLE VIII.
                                 INDEMNIFICATION

SECTION 8.1  Exculpation

             (a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this
Preferred Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Preferred Securities Guarantee or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.

             (b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Preferred Securities
might properly be paid.

SECTION 8.2  Indemnification

             The Guarantor agrees to indemnify each Indemnified Person for, and
to hold each Indemnified Person harmless against, any loss, liability or expense
incurred without gross negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.


                                   ARTICLE IX.
                                  MISCELLANEOUS

SECTION 9.1  Successors and Assigns

             All guarantees and agreements contained in this Preferred
Securities Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.

                                       14

<PAGE>   18


SECTION 9.2  Amendments

             Except with respect to any changes that do not adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Preferred Securities Guarantee may only be amended with the prior approval of
the Holders of at least a Majority in liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) of all the outstanding Preferred Securities. The provisions of
Section 12.2 of the Declaration with respect to meetings of Holders of the
Securities apply to the giving of such approval.

SECTION 9.3  Notices

             All notices provided for in this Preferred Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:

             (a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):

                 The Bank of New York
                 101 Barclay Street, Floor 21 West
                 New York, New York  10286
                 Attention:  Administrator
                 Facsimile (212) 815-5915

             (b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Preferred Securities):

                 Consumers Energy  Company
                 212 West Michigan Avenue
                 Jackson, Michigan  49201
                 Attention: Alan M. Wright,
                          Senior Vice President and
                          Chief Financial Officer
                 Facsimile (517) 788-2186

             (c) If given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Issuer.

             All such notices shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

SECTION 9.4  Benefit

             This Preferred Securities Guarantee is solely for the benefit of
the Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.

                                       15

<PAGE>   19


SECTION 9.5  Governing Law

             THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MICHIGAN
WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.

                                       16

<PAGE>   20


             THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and
year first above written.

                                      Consumers Energy  Company,
                                        as Guarantor



                                      By:
                                         ---------------------------------------
                                         Name:   Alan M. Wright
                                         Title:  Senior Vice President and
                                                   Chief Financial Officer


                                      The Bank of New York, as Preferred
                                      Guarantee Trustee



                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title:






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