<PAGE>   1
                                   FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 1997

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                               to

Commission file number (Under the Securities Act of 1933)    33-37977

               MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
            -----------------------------------------------------
            (Exact name of registrant as specified in its charter)

             MICHIGAN                                          38-2726166
  -------------------------------                         -------------------
  (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                         Identification No.)

 100 PROGRESS PLACE, MIDLAND, MICHIGAN                           48640
----------------------------------------                       ---------- 
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code         (517)   839-6000
                                                           ----------------

Securities registered pursuant to Section 12(b) of the Act:

     NONE

Securities registered pursuant to Section 12(g) of the Act:

     NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [X]



<PAGE>   2


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP

                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
PART I                                                                               Page
--------                                                                             ----
<S>       <C>                                                                        <C>

Item 1.   Business ................................................................     1
          A.General ...............................................................     1
          B.The Partners ..........................................................     1
          C.The Facility ..........................................................     2
          D.Major Issues Facing MCV ...............................................     2
          E.Contracts .............................................................     3
          F.Employees .............................................................    12
          G.Regulation ............................................................    12
          H.Environmental Matters .................................................    17
          I.Overall Lease Transaction .............................................    19

Item 2.   Properties ..............................................................    21

Item 3.   Legal Proceedings .......................................................    22

Item 4.   Submission of Matters to a Vote of Security Holders .....................    22

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters ...    23

Item 6.   Selected Financial Data .................................................    23

Item 7.   Management's Discussion and Analysis of Financial Condition and Results
           of Operations ..........................................................    23

Item 8.   Financial Statements and Supplementary Data .............................    31

Item 9.   Changes In and Disagreements with Accountants on Accounting and Financial
           Reporting Matters ......................................................    31

PART III

Item 10.  Directors and Executive Officers of the Registrant ......................    32

Item 11.  Executive Compensation ..................................................    34

Item 12.  Security Ownership of Certain Beneficial Owners and Management ..........    36

Item 13.  Certain Relationships and Related Transactions ..........................    37

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K .........    38
</TABLE>





<PAGE>   3


                                     PART I

Item 1. BUSINESS

A. General

   In January 1987, Midland Cogeneration Venture Limited Partnership ("MCV")
   was formed as a limited partnership to convert a portion of an uncompleted
   Consumers Power Company, now known as Consumers Energy Company
   ("Consumers"), nuclear power plant into a natural gas-fired,
   combined-cycle, cogeneration facility located in Midland County, Michigan
   (the "Facility").  The Facility commenced commercial operation (the
   "Commercial Operation Date") in 1990 and is capable of generating
   approximately 1370 megawatts ("MW") of electricity and approximately 1.5
   million pounds of process steam per hour.  The Facility is dependent upon
   natural gas for its fuel supply and a substantial portion of the Facility's
   operating expenses consist of the costs of obtaining natural gas.

   The Facility is a cogeneration facility, meaning that it sequentially
   produces electricity and useful thermal energy through an integrated system
   using a single fuel source.  The Facility has been certified by the Federal
   Energy Regulatory Commission ("FERC") as a qualifying cogeneration facility
   ("QF") under the Public Utility Regulatory Policies Act of 1978, as amended
   ("PURPA").  As a QF, the Facility is exempt from various provisions of the
   Federal Power Act, as amended (the "FPA"), the Public Utility Holding
   Company Act of 1935, as amended (the "1935 Act"), certain state laws
   regarding rate, financial and organizational regulation, and is entitled to
   sell electric capacity and related energy to a public utility (such as
   Consumers) at such utility's incremental cost of alternative electric
   energy, otherwise known as "avoided cost".  A utility's "incremental cost
   of alternative electric energy" means, with respect to electric energy
   purchased from a QF, the cost to the electric utility of the electric
   energy (determined, at the option of the QF, at either the time of delivery
   or at the time the obligation is incurred) which, but for the purchase from
   such QF, such utility would generate or purchase from another source.

   MCV has entered into three separate energy sales agreements.  The first is
   a Power Purchase Agreement (the "PPA") effective in 1990, providing for the
   sale to Consumers of electric capacity and related energy from the Facility
   for a term of 35 years.  Under the terms of the PPA, MCV will supply up to
   1240 MW of electric capacity and related energy to Consumers for resale to
   its customers.  The second is a Steam and Electric Power Agreement (the
   "SEPA") also effective in 1990, providing for the sale to The Dow Chemical
   Company ("Dow") of steam and electricity produced by the Facility for terms
   of 25 years and 15 years, respectively.  The third is a Steam Purchase
   Agreement (the "SPA") effective in 1996, providing for the sale of steam
   produced by the Facility to Dow Corning Corporation ("DCC") for a term of
   15 years.

B. The Partners

   The current general partners of MCV are CMS Midland, Inc. ("CMS Midland"),
   a wholly-owned subsidiary of Consumers, Source Midland Limited Partnership
   ("Source Midland"), a wholly-owned limited partnership of MCN Energy Group
   Inc., Coastal Midland, Inc., a wholly-owned subsidiary of The Coastal
   Corporation ("Coastal"), and MEI Limited Partnership, an affiliate of Asea
   Brown Boveri, Inc. ("ABB").  On May 16, 1997, MCNIC Power Company, a
   wholly-owned subsidiary of MCN Energy Group Inc., acquired all of
   the partnership interests in Source Midland from PanEnergy Corp., the
   previous parent company.  MCV's current limited partners are C-E Midland
   Energy, Inc., an affiliate of ABB, Dow, Micogen Limited Partnership, an
   affiliate of Fluor Corporation ("Fluor"), and Alanna Corporation
   ("Alanna"), a wholly-owned subsidiary of Alanna Holdings Corporation
   ("Alanna Holding").  The capital stock of Alanna Holding is owned by Dow,
   CMS Energy Corporation ("CMS Energy"), an affiliate of Consumers, Coastal
   Natural Gas Company, an affiliate of Coastal, Source Midland, Fluor and ABB.
   The general partners and limited partners of MCV are referred to herein as   
   the "Partners."  The ownership interests of the Partners are described in
   Part III, Item 12, "Security Ownership of Certain Beneficial Owners and
   Management."


                                       1


<PAGE>   4


C. The Facility

   MCV's principal business is the operation of the Facility and the sale of
   electric capacity and related energy (principally to Consumers) and steam
   (to Dow and DCC) produced at the Facility.  The Facility is located on an
   approximately 1,200-acre site that is leased from Consumers (the "Site").

   The Facility consists of the following:

   -   12 gas turbine generators ("GTGs") capable of producing approximately
       1045 MW (gross) under design ambient conditions;
     
   -   12 heat recovery steam generators ("HRSGs") which create steam using heat
       from the GTG exhaust;
     
   -   A steam turbine (the "Unit 1 Steam Turbine") capable of producing 355
       MW (gross) under design ambient conditions from the steam generated by
       the HRSGs;
     
   -   A second steam turbine (the "Unit 2 Steam Turbine") which serves as a
       backup to the Unit 1 Steam Turbine;
     
   -   Pollution control assets;
     
   -   A 25-mile gas pipeline connecting the interstate gas pipeline system to
       the Facility;
     
   -   Pipelines to deliver steam to Dow and DCC; and
     
   -   Various associated equipment and improvements.
     
   The Facility is designed to have a net electrical generating capacity of
   approximately 1370 MW and to produce approximately 1,500,000 pounds per
   hour of process steam under design ambient conditions.  Electricity is
   produced from the 12 GTGs, and the steam is produced by the 12 HRSGs using
   the heat from the GTG exhaust.  The Unit 1 Steam Turbine is designed to
   produce electricity from the steam generated by the HRSGs and process steam
   that is provided to Dow and DCC.  Demineralized water is sold by Dow to MCV
   from the Dow plant.  Electricity is sold by MCV to Consumers through an
   interconnect and to Dow through dedicated transmission lines.

D. Major Issues Facing MCV

   MCV faces several major issues crucial to its future success.  These
   issues, briefly summarized here, are discussed more fully in the sections
   cross referenced below:

   Electric Industry Restructuring.  At both the state and federal level,
   efforts continue on restructuring the electric industry.  In Michigan, the
   Michigan Public Service Commission ("MPSC") has entered a final order
   permitting customers to choose their power provider over a four-year
   phase-in period beginning in 1998.  Similar efforts, in the form of
   proposed legislation, exist at the federal level.  Two issues generally
   involved in these restructuring efforts which could impact MCV the most are
   stranded assets or transition cost recovery for utilities and contract
   (PPA) sanctity.  Approximately 90% of MCV's revenues come from sales
   pursuant to the PPA.  To date, these restructuring efforts have not
   negatively impacted MCV, but if the final order of the MPSC is construed so
   as to deny stranded cost recovery of above-market PPA costs, and such order
   is not reversed on appeal, MCV may be negatively impacted especially in the
   period after 2007.  MCV continues to monitor and participate in these
   matters, as appropriate.  (See Part I, Item 1, Section G, "Regulation -
   Michigan Electric Industry Restructuring Proceedings", Part II, Item 7,
   "MD&A - Outlook -  Michigan Electric Industry Restructuring Proceedings",
   Part I, Item 1, Section G, "Regulation - Federal Electric Industry
   Restructuring", Part II, Item 7, "MD&A - Outlook - Federal Electric
   Industry Restructuring" and Notes to Consolidated Financial Statements,
   Note 1, "The Partnership and Associated Risks".)

   Energy Rate and Cost of Production.  Since January 1992, MCV has
   experienced an overall reduction in the energy charges it is paid for
   electricity under the PPA, primarily due to declining coal costs at
   Consumers' generating 

                                       2


<PAGE>   5

   plants and Consumers' exercise of the "regulatory out" provision of the PPA 
   with respect to fixed energy charges.  In addition, MCV's costs associated 
   with production of electricity have continued to rise.  These circumstances
   have negatively affected cash flow.  (See Part I, Item 1,  Section G,
   "Regulation -- MPSC and Other Proceedings Relating to Capacity and Energy
   Charges", Section I, "Overall Lease Transaction",  and Part II, Item 7,
   "Management's Discussion and Analysis of Financial Condition and Results of
   Operations ("MD&A") -- Liquidity and Financial Resources.")

   Plant Availability.  Approximately 65% of PPA revenues are capacity
   payments based on the Facility's availability to generate electricity.  PPA
   availability will depend on the level of scheduled and unscheduled
   maintenance and on the level of output from the GTGs and steam turbines.
   Over the past seven years, some of the GTGs have experienced cracking in
   the hot gas casings.  As a result of these cracking problems, MCV and ABB
   Power Generation, Inc. ("ABB Power") implemented a program of hot gas
   casing inspections for all GTGs.  MCV and ABB Power continue to address
   equipment reliability issues to alleviate future outages.  (See Part II,
   Item 7, "MD&A -- Outlook -- Operating Outlook" and Notes to Consolidated
   Financial Statements, Note 8, "Contingencies -- GTG Equipment Problems.")

   Natural Gas Availability and Price.  MCV is wholly dependent on natural gas
   for its fuel supply.  While MCV continues to acquire long-term fuel supply,
   the availability or price of natural gas after the expiration of existing
   gas contracts is uncertain.  (See Part I, Item 1, Section G "Regulation --
   Other Regulatory Issues," Part II, Item 7, "MD&A -- Outlook -- Natural Gas"
   and Notes to Consolidated Financial Statements, Note 1, "The Partnership
   and Associated Risks.")

E. Contracts

   MCV has entered into the PPA, which provides for the sale to Consumers of
   electric capacity and related energy; the SEPA, which provides for the sale
   of steam and electricity to Dow; the SPA, which provides for the sale of
   steam to DCC; gas supply, storage and transportation contracts with a
   number of companies; a transmission service agreement with Consumers; an
   agreement covering gas turbine inspection services and spare parts with ABB
   Power and an agreement covering steam turbine inspection services and parts
   with General Electric Company ("GE").  MCV's interests in all the foregoing
   contracts, except the SPA, have been assigned to the Owner Trustees, which
   in turn subassigned such contracts to MCV and granted a security interest
   in such contracts to the Note Trustees.  (See Part I, Item 1, Section I,
   "Overall Lease Transaction.")  The following is intended to summarize
   briefly certain provisions of such contracts and is qualified in its
   entirety by reference thereto.

   Power Purchase Agreement

   Under the PPA, Consumers contracted to purchase specified amounts (the
   "Contract Capacity") of the Facility's electric capacity, for an initial
   35-year term commencing on the Commercial Operation Date, and thereafter
   subject to yearly extensions that are automatic in the absence of a
   termination notice from either party.  Beginning in 1995 and thereafter,
   Contract Capacity is 1240 MW/hour.

   In allocating the available electrical output of the Facility, MCV must
   first satisfy Dow's requirements under the SEPA before supplying power to
   Consumers.

   Consumers has the right of first refusal to purchase any available electric
   capacity and related energy produced by the Facility in excess of Contract
   Capacity.  Pursuant to an agreement between Consumers and MCV (the
   "Transmission Agreement"), MCV is entitled to sell excess electric capacity
   and related energy to other electric utilities, and Consumers is required,
   if requested by such utilities, to transmit electrical energy to them.

   Capacity charges are payable for available Contract Capacity, whether or
   not electricity is dispatched.  The capacity charges for on-peak and
   off-peak power average 4.15 cents per available kilowatt hour ("kWh");
   however, for the first 17-1/2 years of the term of the PPA the capacity
   charge may be reduced by Consumers to a level of no less than an average of
   3.77 cents per kWh.


                                       3


<PAGE>   6


   Energy charges are based on costs incurred by Consumers at certain of its
   coal-fired plants (i.e., those coal plants wholly or partially owned by
   Consumers having a net demonstrated capacity of at least 100 MW, available
   for generating electrical energy for not less than 5500 hours during the
   most recent year and having a capacity factor of at least 40% when
   connected to Consumers' system and generating electrical energy).

           Fixed Energy Charges.  Like the capacity charges, fixed energy
           charges are payable for available kWhs of Contract Capacity.  Fixed
           energy charges are adjusted each year based on a fuel inventory
           charge, administrative and general expenses and one-half of
           operation and maintenance expenses (excluding fuel) incurred at
           these plants during either the immediately preceding calendar year
           or the calendar year preceding that year depending on when the
           adjustment is being made.  In 1991, Consumers asserted that, under
           the PPA, it had the right to withhold that portion of fixed energy
           charges payable on the basis of energy available but not delivered
           since it was not permitted by the MPSC to collect such charges from
           its electric customers.  In a final order issued in February 1995,
           an arbitrator ruled that Consumers was entitled under the PPA to
           reduce its payments of fixed energy charges for energy available
           but not delivered.  (See Part I, Item 1, Section G, "Regulation --
           MPSC and Other Proceedings Relating to Capacity and Energy
           Charges.")

           Variable Energy Charges.  Variable energy charges are payable for
           energy actually delivered.  Variable energy charges are determined
           monthly and are equal to one-half of operation and maintenance
           expenses incurred at these plants, as calculated annually, and the
           actual cost of coal burned at these plants as determined monthly
           based on a rolling twelve-month average (with a two-month lag) and
           converted to an overall cost per kWh.

   As noted above, the PPA permits Consumers, under certain conditions, to
   reduce the capacity and energy charges payable to MCV and/or to receive
   refunds of capacity and energy charges paid to MCV if the MPSC does not
   permit Consumers to recover from its customers the capacity and energy
   charges specified in the PPA (the "regulatory out" provision).  For the
   first 17-1/2 years of commercial operation, however, the capacity charge
   may not be reduced  below an average capacity rate of 3.77 cents per kWh
   for the available Contract Capacity notwithstanding the "regulatory out"
   provision.  Consumers and MCV are required to support and defend the terms
   of the PPA.  (See Part I, Item 1, Section G, "Regulation -- MPSC and Other
   Proceedings Relating to Capacity and Energy Charges.")

   Under the PPA, MCV must provide initial assurances that it has adequate gas
   supplies under contract to generate at least 60% of the maximum annual
   output of Contract Capacity for the period commencing on the Commercial
   Operation Date through 1999.  Consumers has acknowledged that MCV has
   provided, such initial assurances to Consumers.  In addition, commencing in
   1998, MCV must provide at Consumers request continuing annual assurances of
   such capability for each succeeding five-year period.  MCV believes it can
   meet the requirement of continuing assurances in 1998 for the succeeding
   five-year period.  If MCV is unable to provide these continuing assurances,
   Consumers is entitled to withhold in a separate escrow fund a portion of
   capacity charges until these assurances are provided. The portion of such
   capacity charges is a function of the percentage of unmet fuel needs and an
   increasing factor based on the number of consecutive months that capacity
   charges have been withheld.  Assuming a 3.77 cents per kWh capacity charge,
   the maximum capacity charges which could be withheld and escrowed under
   this provision are as follows:


<TABLE>
<CAPTION>
                                                      Maximum Possible
                  Consecutive Months That               Reduction in
                   MCV Fails to Provide               Capacity Charge
               Adequate Continuing Assurance            (cents/kWh)
               -----------------------------          ----------------
               <S>                                       <C>
                     1-12 ..............                    .1885
                    13-24 ..............                    .5655
                    25-36 ..............                   1.5080
                    37 and thereafter ..                   2.6390
</TABLE>


   The PPA does not make any provision for the use of escrowed funds, except
   that the PPA provides that interest earned, if any, on the escrowed funds
   is to be divided equally between MCV and Consumers.  After withholding

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   capacity charges for 48 months without fuel assurances being provided,
   Consumers may terminate the PPA.  In the event of termination, MCV must pay
   an early termination charge.

   If any party is rendered unable by force majeure to carry out its
   obligations under the PPA, these obligations are suspended during the
   period of force majeure.  Force majeure includes all natural calamities;
   war; curtailments, orders, regulations or restrictions imposed by
   governmental authority; and all other causes beyond the reasonable control
   of the affected party, but specifically does not include shortages of fuel
   and supplies (unless caused by calamity or unusual world events applicable
   to other major industrial users as well as MCV), mechanical breakdowns,
   labor strikes or explosions or fires (unless caused by criminal acts).

   Consumers schedules all deliveries of electricity from the Facility to its
   system and is obligated to do so in a manner consistent with the safe and
   prudent operation of the Facility.  Consumers' determination of the amount
   of energy that it dispatches from the Facility will be subject to its
   contractual relationships with The Detroit Edison Company, with which
   Consumers established a Michigan Electric Coordinated System ("MECS") to
   coordinate generation between the two utilities.  The operation and
   management of the MECS is subject to FERC Order 888 - "Open Access and
   Stranded Costs Rulemaking".  Through December 31, 1995, Consumers was
   scheduling deliveries of electricity pursuant to a March 31, 1993 MPSC
   Order.  Beginning January 1, 1996, Consumers began dispatching MCV at
   higher levels, consistent with the Consumers/MPSC staff proposed settlement
   agreement, filed with the MPSC on September 8, 1995, which settlement was
   approved, with modifications, by the MPSC on November 14, 1996.  (See Part
   I, Item 1, Section G, "Regulation -- MPSC and Other Proceedings Relating to
   Capacity and Energy Charges.")  On March 13, 1998, MCV received notice from
   Consumers that it would begin economically dispatching the Facility by
   scheduling energy deliveries on an economic basis relative to the cost of
   other energy resources, instead of at the higher dispatch levels experienced
   over the past several years.

   As long as the annual availability of Contract Capacity equals or exceeds
   75% of Contract Capacity, Consumers must purchase sufficient electrical
   energy from the Facility to achieve at least a 60% capacity factor on an
   annual basis.  This purchase obligation decreases, based on a prescribed
   formula, if annual availability falls below 75% of Contract Capacity.

   Consumers must purchase a specified minimum amount of electrical energy at
   all times, except during emergencies on its system.  MCV determines a
   minimum level of generation designed to assure that the Facility operates
   in a stable manner and that MCV meets its obligations to supply steam and
   electricity to Dow, but MCV cannot specify a minimum generating level which
   exceeds 350 MW.  Outages, other than forced outages, are to be scheduled to
   accommodate Consumers' requirements to the extent MCV deems practicable.

   MCV is obligated to have the Facility inspected at least once each year by
   a consulting engineer selected by it from a list of engineering firms
   approved by Consumers.  The annual inspection includes, at a minimum, all
   equipment, structures, operating procedures and maintenance practices
   necessary for the generation and delivery of energy to Consumers.  Upon
   completion of an annual inspection, the consulting engineer must promptly
   issue a written report.  Any recommendations in this report regarding
   equipment, structure and maintenance practices which have been approved by
   MCV's management must be implemented within a specified period of time.  In
   its April 1997 report, Cummins & Barnard, Inc., the consulting engineer,
   found no conditions which they considered would constitute a serious risk
   to meeting PPA commitments although they recommended that management focus
   attention on implementing recommendations to improve the operation and
   reliability of the condensate demineralizer system, and made several other
   suggestions to be considered as enhancements.  During 1998, MCV is
   scheduled to implement mechanical and instrumentation control upgrades to
   the condensate demineralizer system and other approved recommendations.
   With regard to the most recent inspection, MCV expects to receive the
   report by the end of  April, 1998 and does not anticipate any substantial
   problems.

   Steam and Electric Power Agreement; Related Dow Agreements

   SEPA.  Pursuant to the SEPA, Dow has agreed to purchase steam from the
   Facility for an initial term of 25 years commencing in 1990 and to purchase
   electricity from the Facility for 15 years (any electricity to be purchased
   thereafter at Dow's option, although MCV remains obligated to make certain
   amounts of electricity available for an

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<PAGE>   8

   additional 10 years).  The SEPA is subject to automatic extensions for up
   to 10 additional years after its 25-year term in the absence of a
   three-year notice of termination from either party.

   Under the SEPA, Dow has agreed to notify MCV quarterly of the amount of
   steam and annually of the amount of electricity expected to be delivered.
   In any year, MCV is not obligated to deliver more than 691,900 pounds of
   steam per hour and 60 MW of electricity on an annual average basis except
   as Dow may increase its entitlement as discussed below.  Dow has agreed to
   take as much steam as is necessary for the Facility to retain its QF status
   under the FERC regulations in effect on November 1, 1986 (which regulations
   have not been revised in relevant part in any material respect).  However,
   Dow's obligation with respect to minimum annual steam purchases is an
   average of 440,000 pounds per hour (less amounts supplied by certain
   standby facilities owned by Dow and less 50% of amounts purchased by any
   other steam customers of MCV) and is binding only for the initial 25-year
   term of the SEPA.  During 1997, MCV sold an average of 543,151 pounds of
   steam and 61 MW of electricity per hour to Dow.

   Dow may increase its steam or electricity entitlement to 110% of the steam
   or electricity delivered in the previous 12-month period, plus any steam or
   electricity required by any addition to or modification of the Dow plant,
   provided that any increase above an annual average of 1,000,000 pounds of
   steam per hour or 75 MW of electricity requires MCV's consent.  MCV,
   however, may be required, on an instantaneous basis, to deliver steam at a
   rate of up to 135% of the maximum annual average hourly quantity of steam
   or to deliver power at a rate up to 20 MW greater than the applicable
   annual average.  During 1997, Dow gave notice to MCV that pursuant to the
   SEPA it was increasing its electric entitlement to 67.75 MW/hr beginning
   April 1, 1997.

   On November 1, 1994, MCV and Dow entered into the Seventh Amendment to
   SEPA.  This amendment provided that Dow would install a steam line to the
   Dow Corporate Center for the purpose of delivering MCV-generated steam for
   heating and air conditioning purposes.  In return, MCV agreed to a 30%
   price discount on steam used at the corporate center for a period of five
   years for up to 262.8 million pounds of steam per year (an average of
   30,000 pounds per hour).  On October 5, 1995, steam deliveries to the Dow
   Corporate Center began under this provision.

   Under the SEPA, there is a base charge for steam and electricity which is
   subject to adjustment each quarter based on changes in MCV's fuel costs,
   producer price for capital equipment and certain compensation per hour
   indices.  In 1993, Dow exercised its option under the SEPA to provide the
   gas necessary to generate Dow's take of steam and electricity ("toll").
   Dow agreed to purchase from MCV the gas used under this tolling option at a
   price of $2.72 per million British thermal units ("MMBtu") escalating at 4%
   per year, through July 31, 2006 (the "Gas Tolling Agreement").  On April
   15, 1996, MCV and Dow entered into an agreement (the "April 15, 1996
   Agreement") concerning gas tolling which terminated the Gas Tolling
   Agreement.  The April 15, 1996 Agreement provides that Dow may toll up to
   9,000 MMBtu per day, subject to certain limitations and conditions, until
   January 1, 2002, at which time Dow's tolling rights revert to the
   provisions in the SEPA.  Under the provisions of the SEPA, Dow receives a
   billing credit of 5/8 of its steam and electric charges in exchange for Dow
   purchasing the gas from MCV. Dow has been tolling gas under the April 15,
   1996 Agreement since April 1, 1997.  In addition, Dow must make 36
   consecutive quarterly installment payments of $3,817,500 each, through the
   year 1998, to MCV in consideration for the delivery of steam and
   electricity.

   In order to assure reliable steam for the Dow plant, Dow owns and maintains
   certain standby facilities consisting of certain package boilers, which are
   not part of the Facility (the "Standby Facilities").  The Seventh Amendment
   to SEPA also provided that Dow would retire certain of the Standby
   Facilities located on the MCV site and would progressively reduce the
   annual standby fees payable to Dow from $700,000 per year to a level of
   $350,000 per year in 1998 and thereafter.  These fees are subject to
   adjustment each quarter based on changes in fuel costs, capital equipment
   costs and wage rates.  In addition, the fee charged by Dow for each use of
   the Standby Facilities, necessitated by MCV's failure to deliver steam
   under the SEPA, was increased from $100,000 to $150,000.  From the
   Commercial Operation Date through December 31, 1997, MCV has paid or
   incurred an aggregate of $900,000 to Dow for eight instances requiring use
   of the Standby Facilities.

   The terms of the SEPA provide that Dow may terminate the SEPA if one or
   more "contract outages" occur for a cumulative period greater than 60 hours
   in the first year after the Commercial Operation Date, 40 hours in the
   second year and 24 hours in any subsequent year, provided that a single
   outage of more than 24 consecutive hours 

                                       6


<PAGE>   9

   but less than 72 consecutive hours will not give rise to a right of 
   termination unless another such contract outage has occurred within the 
   previous 60 months.

   A "contract outage" generally occurs when MCV fails to deliver minimum
   operation steam (i.e., an hourly flow rate of at least 75% of the then
   current rate), or fails to meet pressure specifications after having failed
   to deliver steam for 15 consecutive minutes, or fails to meet pressure and
   quantity specifications after having failed to deliver steam for seven
   consecutive days, except in each case as a result of scheduled maintenance
   outages, outages forced at Dow's request or resulting from Dow's failure to
   provide demineralized water or waste water treatment services or outages
   caused by an event of force majeure lasting no more than two years.  Steam
   provided to Dow from the Standby Facilities is treated as steam delivered
   by MCV for this purpose.  For such a contract outage to occur, more than
   ten of the Facility's GTGs would have to be out of service at the same time
   that Dow's Standby Facilities are unavailable.

   The SEPA and various backup agreements among MCV, Consumers and Dow contain
   various provisions designed to assure a continuous supply of steam and
   electricity to Dow in the event the SEPA is terminated.

   Dow Facilities and Demineralized Water.  Dow owns the electrical
   transmission lines which carry electricity from the Facility to the Dow
   plant.  Dow also owns certain steam and demineralized water lines which are
   used in the operation of the Facility, and which have been leased by Dow to
   MCV.  Dow has contracted to provide MCV sufficient demineralized water to
   meet the Facility's requirements until 30 months after MCV's obligation to
   supply steam to Dow ceases.

   Steam Purchase Agreement

   On November 15, 1995, MCV entered into the SPA with DCC which generally
   provides that MCV will construct, own and operate a steam line and
   appurtenant equipment to serve steam to DCC's Midland Plant.  DCC has
   agreed to purchase steam from MCV for an initial term of fifteen years with
   automatic year-to-year renewals thereafter.  Under the SPA, MCV expects to
   supply steam at the rate of up to 180,000 pounds per hour with a minimum of
   90,000 pounds per hour.  The steam MCV provides DCC must meet operational
   and content specifications.  The provision of steam to DCC is subject to
   Dow's first preference to the steam under the SEPA.  MCV began supplying
   steam to DCC in July, 1996.  The parties have certain termination rights
   after the declared in service date but may be subject to penalties or
   payment of damages for such termination.

   Gas Supply Arrangements

   MCV has a portfolio of natural gas purchase contracts (the "Gas
   Contracts"), having remaining terms of 2 to 13 years, with U.S. and
   Canadian suppliers for a maximum supply of natural gas as of January 1,
   1998 of 236,500 Mcf/day.  No single Gas Contract accounts for more than 8%
   of MCV's portfolio, and no single supplier accounts for more than 14% of
   MCV's portfolio.  Gas Contracts with U.S. suppliers ("U.S. Gas Contracts")
   provide for the purchase of 156,500 Mcf/day as of January 1, 1998, while
   Gas Contracts with Canadian suppliers ("Canadian Gas Contracts") provide
   for the purchase of 80,000 Mcf/day.

   The Gas Contracts have a fixed price in a base year which is subject to
   adjustment under various methods -- a fixed escalator; an index based on
   Consumers' energy charges under the PPA; or a combination thereof -- which
   permits the seller to increase the price by the greater of the fixed
   escalator or the energy charge index.  Over the terms of the contracts,
   approximately 37% of the volume is priced with a fixed escalator, 28% is
   priced with the energy index and 35% with a combination thereof.  While the
   price of gas under the U.S. Gas Contracts is exclusive of transportation
   charges (beyond the point of delivery into a pipeline servicing MCV), the
   Canadian Gas Contracts require the payment of a monthly charge whether or
   not MCV buys any gas (the "Demand Charge") to cover the costs incurred by
   Canadian suppliers for the provision of transportation capacity to the
   U.S.-Canada border.


                                       7


<PAGE>   10


     MCV has entered into the following Gas Contracts:


<TABLE>
<CAPTION>
                                         Maximum
                                          Daily      Contract         Base
                                         Quantity   Expiration     Price/Year              Pricing
        Current U.S. Suppliers          in Mcf(a)      Date          $/MMBtu               Formula
--------------------------------------  ----------  ----------  -----------------  -----------------------
<S>                                     <C>         <C>         <C>                <C>
ANR Production Co.                        5,000      4/1/2002           2.15/1988  Fixed plus 4% escalator
Apache Corp. ("Apache I")                20,000     12/31/2000          2.25/1988  Fixed plus 4% escalator
Apache Corp ("Apache II").               12,000      1/1/2002           1.95/1987  Energy index
Apollo Exploration and Development,                                                Greater of fixed price
 Delta Oil Co., Inc., Force Energy                                                 plus 4% escalator or
 Inc. ("Apollo")                          7,500(b)   4/1/2011           2.79/1995  energy index
Aquila Energy Marketing Corp.            11,000     12/31/2004         2.319/1990  Greater of fixed plus
                                                                                   4% escalator or energy
                                                                                   index through 1999,
                                                                                   scheduled price
                                                                                   increases from $4.06
                                                                                   in 2000 to $5.02 in
                                                                                   2004
                                                                                   Greater of fixed price
CMS Energy Corporation and CMS NOMECO Oil                                              plus 4% escalator or
 & Gas Co.                               10,000     12/31/2006          2.15/1988  energy index
CNG Producing Co.                        20,000      4/1/2002           1.85/1987  Fixed plus 4% escalator
CNG Producing Co.                        12,000      4/1/2000           2.27/1989  Fixed plus 4% escalator
CoEnergy Trading Co.                                                               
 ("Co Energy I")                          5,000     12/31/2006          2.15/1988  Greater of fixed price     
                                                                                   plus 4% escalator or
CoEnergy Trading Co.                                                               energy index
 ("Co Energy II")                        10,000     12/31/2006          2.34/1992  Greater of fixed price
                                                                                   plus 4% escalator or
                                                                                   energy index
Dominion Midwest Energy, Inc. (b)                                                  
 ("Dominion")                             5,500(b)   1/1/2007           2.54/1991  Greater of fixed price
                                                                                   plus 4% escalator or
                                                                                   energy index
Enron Power Services, Inc. ("Enron I")    8,500     12/31/2007          2.65/1997  Greater of scheduled
                                                                                   price or energy index
                                                                                   through 1999,
                                                                                   scheduled price
                                                                                   increases from $3.33
                                                                                   in 2000 to $6.37 in
                                                                                   2007
Enron Capital & Trade Resources Corp.                                             
 ("Enron II")                            15,000      9/30/2006          2.45/1997  Scheduled price 
                                                                                   increases from
                                                                                   $2.45/MMBtu in 1997 to
                                                                                   $3.365/MMBtu in 2005.
Oxy USA, Inc.                            15,000     12/31/2001          2.25/1988  Energy index plus floor
                                        -------
Subtotal as of 1/1/97                   156,500

      Current Canadian Suppliers
--------------------------------------
Coral Energy Canada, Inc. (c)            15,000     11/1/2004           1.95/1988  Energy index
Husky Oil Operations, Ltd. ("Husky")     15,000     11/1/2006           1.90/1988  Energy index plus floor
Norcen Energy Resources Limited          10,000     11/1/2001           1.95/1988  Energy index
North Canadian Oils, Ltd.                10,000     11/1/2000           1.95/1989  Greater of fixed price
                                                                                   plus escalator or
                                                                                   energy index
Poco Petroleum Ltd.                      15,000     11/1/2004           1.95/1988  Greater of fixed price
                                                                                   plus escalator or
                                                                                   energy index
TransCanada Pipelines Limited
 through its agent Western Gas     
 Marketing Limited                       15,000     11/1/2004           1.95/1988  Energy index
                                        -------
Subtotal                                 80,000
                                        -------
Total as of 1/1/97                      236,500
                                        =======

        Future U. S. Suppliers
--------------------------------------
Engage Energy US, L.P. (d)                                                         
 (Gas deliveries begin on 1/1/2002)      30,000     12/31/2006          3.05/2002  4% escalator to 2005
                                                                                   $3.60 in 2006

                                                                        
CMS Marketing, Services and Trading                             
 Company (Gas deliveries begin on                                       
 1/1/2003)                               15,000     12/31/2004          2.21/2003  Price remains constant
                                                                (for 5,000/ day)   over the two-year term
                                                                                   of the contract
                                                                        2.13/2003 
                                                                (for 10,000/ day)   
</TABLE>


                                       8


<PAGE>   11





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

           (a)  Some contracts are in thousand cubic feet ("Mcf"),
                some in MMBtu.  Depending on the heat content of the gas, one
                Mcf may be more or less than one MMBtu.  This analysis assumes
                an equivalent heat content.
           (b)  Dominion Midwest Energy, Inc. ("Dominion") changed
                its name from Wolverine Oil and Gas Company Inc., effective
                January 1, 1998.  The Dominion contract is a dedication of gas
                production from certain Michigan Antrim Shale gas reserves.
                Unlike MCV's other Gas Contracts, the Dominion and Apollo
                contracts do not impose an obligation on Dominion or Apollo to
                deliver the MDQ.  Under the Dominion contract, Dominion is
                only obligated to deliver 500 Mcf/day.  MCV, however, is
                required to take the quantity delivered, up to the MDQ, or
                reimburse Dominion for the difference in price between the
                contract price and the spot market price.  Under the Apollo
                contract, Apollo is obligated to deliver only 500 Mcf/day and
                no explicit payment is defined if MCV fails to take up to the
                MDQ.
           (c)  Effective May 31, 1997, the gas contract formerly
                with Shell Canada Limited was assigned to Coral Energy Canada,
                Inc.
           (d)  Effective June 1, 1997, the gas contract formerly
                with Coastal Gas Marketing Company was assigned to Engage
                Energy US, L.P.

   Current U.S. Gas Contracts. The U.S. Gas Contracts provide for either a
   corporate "warranty of deliverability" or a "dedication of reserves."
   Under a dedication of reserves, specific reserves are dedicated to fulfill
   the supplier's obligations and under a corporate warranty, reserves are not
   dedicated but generally MCV is indemnified for the cost of purchasing
   supplies elsewhere if the gas is not delivered as warranted.

   Most of the U.S. Gas Contracts contain "take-or-pay" provisions obligating
   MCV to purchase at least a specified percentage (generally 75%) of the MDQ
   to which MCV is entitled under the contract, unless such failure is due to
   force majeure, failure of the gas to meet quality standards or, in some
   cases, failure of the supplier to deliver the quantity nominated by MCV.
   If, over the course of a contract year, MCV has a take deficiency, it must
   make a deficiency payment that is based, in most cases, on the product of
   the take deficiency and either all or some percentage of the contract
   price.  In addition, under some of the U.S. Gas Contracts, the producer may
   terminate the contract if, for reasons other than force majeure, MCV fails
   to purchase a specified percentage of the MDQ (generally between 50 and
   100%) within a specified period (generally 120 days).  Most U.S. Gas
   Contracts allow a "make-up period" ranging from one to five years to make
   up the deficiency.  Apache currently has the right to reduce the MDQ, under
   its contract Apache I, by 5,000 Mcf/day  because MCV purchased gas
   quantities at less than 75% of the MDQ during the first five years of the
   contract.

   Most U.S. Gas Contracts provide that MCV has the right to terminate upon 20
   days' written notice if the supplier, for any reason other than force
   majeure, fails to provide a specific percentage of the requested volumes of
   gas for a period of at least 120 consecutive days.  MCV may terminate two
   other U.S. Gas Contracts upon 30 days' written notice if the producer, for
   any reason, including force majeure, fails to deliver 500 Mcf/day for a
   period of four consecutive months.

   Current Canadian Gas Contracts.  All Canadian Gas Contracts warrant the
   delivery of quantities requested by MCV up to the MDQ, subject to force
   majeure, and in one case, a 2% tolerance is allowed.  Subject to MCV's
   obligation to mitigate, Canadian suppliers have agreed to indemnify MCV for
   the Facility's replacement gas costs, excluding indirect or consequential
   damages or loss of profit, for any breach of this supply warranty.  One
   producer may be relieved of its supply warranty under certain circumstances
   if its ratio of remaining reserves to annual production is less than ten.

   Prices under the Canadian Gas Contracts are based on reference prices
   indexed to Consumers' energy charges under the PPA, subject in some
   instances to floor prices below which the reference price cannot fall.  All
   the Canadian Gas Contracts provide for deliveries at the international
   border near Emerson, Manitoba.

   In addition to an amount per MMBtu based on the quantity of gas actually
   delivered (the "Commodity Charge"), MCV pays each Canadian supplier a
   Demand Charge to cover the transportation demand charges incurred by the

                                       9


<PAGE>   12



   Canadian suppliers to have transportation capacity for the MDQ available to
   the U.S.-Canada border.  To the extent that MCV takes less than 100% of the
   MDQ from its Canadian Gas Contracts, gas costs per unit taken by MCV
   increase because Demand Charges are being paid for the quantity of gas not
   being taken.  Two contracts provide discounts to the Commodity Charge where
   monthly takes are in excess of 85% of MDQ.

   The Canadian Gas Contracts establish specific minimum annual takes
   (generally 75%).  Generally, MCV is required to make deficiency payments to
   the Canadian suppliers equal to all or some percentage of the Commodity
   Charge multiplied by any deficiency.  MCV has make-up rights in some
   circumstances under some of the Canadian Gas Contracts.

   If a Canadian supplier underdelivers to MCV in any month, subject to
   certain force majeure provisions, the contract price is reduced by a
   proportionate share of the Canadian and U.S. transporters' Demand Charges.
   Further, if a Canadian supplier fails, for reasons other than force
   majeure, to deliver 90% of quantities requested up to the MDQ over any 120
   consecutive day period then, in most cases following a cure period, MCV can
   reduce the MDQ or, under certain circumstances, terminate the agreement.
   If the MDQ is reduced, MCV can request the Canadian supplier to assign to
   it, to the extent permitted, the quantity of firm transportation capacity
   on Canadian transporters that corresponds to the reduction in MDQ.  One of
   the Canadian suppliers may terminate its contract if MCV fails to take
   specified percentages of the MDQ.  Another supplier may reduce the MDQ
   after the 7th year if the Facility's operating load factor is above 75% but
   MCV's nominations under the contract during the particular year are less
   than 75% of the MDQ.

   Gas Transportation and Storage Arrangements

   The location of the Facility permits gas to be transported over a number of
   U.S. interstate pipelines.  MCV has signed long-term transportation
   contracts with four of these pipelines:  ANR Pipeline Company ("ANR");
   Panhandle Eastern Pipe Line Company ("Panhandle Pipe Line"); Trunkline Gas
   Company ("Trunkline"); and Great Lakes Gas Transmission Company ("Great
   Lakes").  ANR and Great Lakes are affiliates of Coastal and Panhandle Pipe
   Line and Trunkline are affiliates of PanEnergy, the previous parent company
   of Source Midland.  In addition, certain of the gas suppliers will arrange
   with pipelines for the gathering and transportation of gas from their
   supply sources to the interconnection points with the major interstate
   pipelines with which MCV has contracts.

   MCV has also entered into long-term transportation arrangements with two
   connecting pipelines which link the Facility and its own pipeline to these
   interstate pipelines:  Michigan Gas Storage Company (a subsidiary of
   Consumers) and Consumers.  Michigan gas produced by suppliers is currently
   transported to Consumers' pipeline system by the supplier under contracts
   the suppliers have with Michigan Consolidated Gas Company ("MichCon"), a
   wholly-owned subsidiary of MCN Energy Group, on the MichCon pipeline system
   in northern Michigan.

   The remaining terms of MCV's agreements with the U.S. transporters range
   from 4 to 27 years.  The transportation rates of ANR, Panhandle Pipe Line,
   Trunkline, Great Lakes and Michigan Gas Storage Company are subject to FERC
   regulation.

   The suppliers under the Canadian Gas Contracts are themselves responsible
   for arranging transportation within Canada, and are responsible for paying
   the transportation rates charged by the Canadian transporters, which are
   then reimbursed by MCV.  All suppliers have been allocated firm
   transportation capacity on the relevant pipelines.    Great Lakes
   transports Canadian gas from the U.S.-Canada border to Michigan.

   MCV has also entered into a gas storage agreement with Consumers for the
   underground storage of eight billion cubic feet of gas in exchange for
   delivery to Consumers of 1.75% of the gas placed in storage (for fuel) and
   the payment by MCV to Consumers of an annual storage service charge of
   32.04 cents per Dth times the eight billion cubic feet of storage service
   provided.  Consumers is obligated to provide deliveries from storage up to
   a rate of 120,000 Mcf/day, subject to certain restrictions relating to
   levels of storage gas maintained in inventory by MCV.  This storage
   capability allows MCV to meet fluctuating daily operating requirements and to
   take advantage of opportunities to make spot purchases during periods of the
   year when gas prices are favorable.

                                       10


<PAGE>   13


   Transmission Agreement

   Pursuant to the Transmission Agreement with MCV, Consumers has agreed to
   enter into transmission service agreements with other electric utilities
   (including municipals and cooperatives) to which MCV may sell power,
   provided that such agreements are not contrary to applicable law or
   regulation.  The transmission service agreements contemplated by the
   Transmission Agreement may provide short-term service on an interruptible
   or firm basis, or long-term service on a firm basis. ("Firm" transmission
   service is defined as transmission service which is intended to be
   available at all times during the period covered by the commitment.
   "Interruptible" transmission service refers to transmission service
   provided under agreements which permit curtailment or cessation by the
   transmission company.)Consumers has agreed to provide short-term service
   (up to one year) on an interruptible or firm basis.  Charges for
   interruptible service are those currently on file with FERC; and on
   request, Consumers will develop charges for firm service, to be filed with
   FERC.  Consumers has reserved the right to make a unilateral application to
   FERC to change these charges.

   Consumers has agreed to provide long-term service (for more than one year),
   unless such service would significantly impair Consumers' reliability or
   its own use of its transmission facilities.  If requested, Consumers will
   develop charges for long-term service to be filed with FERC.  MCV must pay
   for necessary additions and modifications to Consumers' transmission system
   to permit any transportation requested by MCV.  No such additions or
   modifications are anticipated at this time.

   Gas Turbine Service Agreement

   Under a service agreement (the "Service Agreement") between MCV and ABB
   Power (formerly ABB Energy Services, Inc.), an affiliate of ABB, ABB Power
   sold MCV an initial inventory of spare parts for the GTGs and provides
   qualified service personnel and supporting staff to assist MCV, to perform
   scheduled inspections on the GTGs, and to repair the GTGs at MCV's request.
   The Service Agreement, as amended, commenced on January 1, 1990, and will
   expire upon the earlier of the completion of the sixth series of major GTG
   inspections  or December 31, 2009.  ABB Power does not assure any level of
   performance by the GTGs in the Service Agreement but warrants all repairs
   made by it pursuant to the Service Agreement.

   MCV must pay a $325,322 (in 1997 dollars) per month inspection fee (which
   escalates based upon various wage level indices and may be increased under
   certain events of force majeure or change of laws), and maintenance and
   repair fees (equal to material and other direct costs, amounts payable to
   subcontractors, and ABB Powers' out-of-pocket costs, plus 15% except in the
   case of fees relating to certain service engineers, supervisors and
   specialists where the maintenance fee shall be equal to the ABB rate).  ABB
   Power warrants that all repairs performed and all spare parts supplied by
   it will be free of defects for one year from the date of completion or date
   of use, respectively.

   The Service Agreement terminates (i) if either ABB Power or MCV fails to
   perform the duties outlined under the Service Agreement, at the option of
   the other party; or (ii) at MCV's option, if MCV is unable to operate the
   Facility for 60 consecutive days due to force majeure.  Upon cessation of
   the force majeure, the Service Agreement may be reinstated by either party
   upon 60 days' notice, together with payment by MCV of a $400,000
   remobilization fee.  Upon termination of the Service Agreement (except for
   nonperformance by ABB Power), MCV must pay a cancellation payment
   ($2,000,000 in 1998, $1,500,000 in 1999, $1,000,000 in 2000 and $500,000 in
   any year thereafter, escalated in 1988 dollars).

   On March 22, 1994, MCV and ABB Power signed an agreement effective December
   31, 1993, to amend the Service Agreement with respect to supplying hot gas
   path parts.  Under the amended Service Agreement, ABB Power would provide
   hot gas path parts for MCV's twelve gas turbines through the fourth series
   of major GTG inspections.  In January 1998, MCV and ABB Power amended the
   length of the amended Service Agreement to extend through the sixth series
   of major GTG inspections, which are expected to be completed by year-end
   2008, for a lump sum fixed price covering the entire term of the amended
   Service Agreement of $266.5 million (in 1993 dollars, which is
   adjusted based on exchange rates and Swiss inflation indices), payable on
   the basis of operating hours as they occur over the same period.  The
   amendment is severable and may be terminated separately from the existing
   Service Agreement. This agreement has reduced uncertainties associated with
   maintenance and the cost of spare parts.

                                       11


<PAGE>   14


   In addition to the January 1998 amendment to the term of the amended
   Service Agreement, MCV has also contracted to purchase from  ABB Power 11NM
   GTG upgrade packages for eleven of the gas turbine generators for $41.6
   million.  The purchase of these upgrades comes after successfully testing
   one upgrade package at the Facility in 1997.  The upgrade packages are
   expected to add to available capacity and significantly improve the
   efficiency of the Facility.  The installation of all eleven upgrade
   packages is expected to be completed by the end of 1999.  Maintenance and
   spare parts for the upgrade packages are covered by the amended Service
   Agreement.  The installation of the upgrade packages is severable and may
   be terminated separately from the Service Agreement and amended Service
   Agreement.  Upon termination of the amendment (except for non-performance
   of ABB Power), MCV must pay a cancellation payment of $15,000,000, which is
   reduced to $5,000,000 upon completion of the fourth major inspection or
   July 1, 2003, whichever comes last.  MCV also agreed to purchase a spare
   GTG rotor to facilitate maintenance activities and improve reliability.

   Steam Turbine Service Agreement

   MCV has entered into a nine year Steam Turbine Maintenance Agreement with
   GE effective January 1, 1995, which is designed to improve unit
   reliability, increase availability and minimize unanticipated maintenance
   costs.  In addition, this contract includes performance incentives and
   penalties which are based on the length of each scheduled outage and the
   number of forced outages during a calendar year.  MCV is to make monthly
   payments over the life of the contract totaling $13.0 million (in 1995
   dollars).

F. Employees

   As of February 28, 1998, MCV had 134 employees, including 90 engineering,
   operating and maintenance personnel.  Fifty-two of MCV's employees are
   members of the Utility Workers Union of America, AFL-CIO Local 564 (the
   "Union"), and are subject to the terms of a collective bargaining agreement
   between MCV and the Union.  MCV and the Union signed a new agreement
   effective March 1, 1995.  It is a five year contract with a wage reopener
   on the fourth anniversary (March 1, 1999).  MCV believes that its
   relationship with its employees is good.

G. Regulation

   Introduction

   The Facility is not subject to most state and federal public utility laws
   and regulations.  The following is a discussion of the principal regulatory
   proceedings and issues which could have an impact on the Facility.

   QF Certification

   In order to be a QF under PURPA and to maintain this status, not more than
   50% of the "equity interest" in a facility may be owned by electric
   utilities or their affiliates.  In addition, certain operating and
   efficiency standards must be maintained on a calendar-year basis.  In the
   case of a topping-cycle generating plant such as the Facility, the
   applicable operating standard requires that the portion of total energy
   output that is put to some useful purpose other than facilitating the
   production of power (the "Thermal Percentage") be at least 5%.  In
   addition, the plant must achieve and maintain an average PURPA efficiency
   standard (the sum of the useful power output plus one-half of the useful
   thermal energy output, divided by the energy input) of at least 45% (the
   "Efficiency Percentage").  However, if the plant maintains a Thermal
   Percentage of 15% or higher, the required Efficiency Percentage is reduced
   to 42.5%.  Since 1990, the Facility has achieved the required Thermal and
   Efficiency Percentages.  During 1997, the Facility achieved a Thermal
   Percentage of 16.0% and an Efficiency Percentage of 45.7%.

   The Facility's QF certification by FERC became effective when portions of
   the Facility were first synchronized to Consumers' system in June 1989.  As
   a QF, the Facility is exempt from various provisions of the FPA and the
   1935 Act and from certain state laws and regulations respecting rate,
   financial and organizational regulation of public utilities.  On January 31
   and March 1, 1990, FERC recertified the Facility as a QF in the context
   of an ownership structure in which MCV owns the Facility and in the context
   of a leveraged lease transaction in which the Facility is owned by owner
   trustees on behalf of institutional investors. In September  1997, MCV filed
   a Notice of Self-

                                       12


<PAGE>   15

   Recertification with the FERC to reflect technical changes in the
   configuration and equipment of the Facility as modified to date, changes in
   MCV Partnership ownership (which changes did not result in a change in the
   percentage of utility ownership) and elimination of Dow's back-pressure
   turbine from the Facility description because it was never installed.  (See
   Part II, Item 7, "MD&A -- Outlook -- Maintaining QF Status".)

   MPSC and Other Proceedings Relating to Capacity and Energy Charges

   Background.  Michigan law requires Consumers to file on an annual basis a
   "Power Supply Cost Recovery Plan" (the "PSCR Plan") describing, among other
   things, the anticipated sources of electric power to be purchased during
   the upcoming year.  The PSCR Plan must be filed at least three months
   before the beginning of the 12-month period covered by the plan.  If the
   MPSC fails to allow or disallow the costs of purchased power in the PSCR
   Plan by the beginning of the year covered thereby, Consumers may adjust its
   rates to recover such costs, as proposed by Consumers, until the MPSC acts.
   Actual costs are reconciled with the costs billed to customers in a
   subsequent filing (made by March 31 of the year subsequent to the plan
   year) known as the "Power Supply Cost Recovery Reconciliation Proceeding"
   ("Reconciliation Case").  The MPSC believes it has the authority to suspend
   the PSCR plan and reconciliation process.  By law, the MPSC must disallow
   in the Reconciliation Case any capacity charges associated with power
   purchases for periods in excess of six months unless the MPSC has
   previously approved the capacity charge.  Under a Michigan statute known as
   Act 81, once a capacity charge in a contract for a purchase from a QF has
   been approved by the MPSC, the MPSC may not disallow recovery by the
   utility of that capacity charge from its customers for a 17-1/2 year period
   commencing with commercial operation of the QF.

   The PPA contains a "regulatory out" provision which permits Consumers,
   under certain conditions, to reduce the capacity and/or energy charges
   payable to MCV and/or to receive refunds of capacity and/or energy charges
   paid to MCV under the PPA if the MPSC does not permit Consumers to recover
   from its customers the capacity and energy charges specified in the PPA.
   For the first 17-1/2 years after the Facility's Commercial Operation Date,
   however, the PPA further provides that Consumers may not reduce the average
   capacity charge below 3.77 cents per kWh notwithstanding the MPSC's failure
   to approve either the amount of capacity Consumers has agreed to purchase
   from MCV under the PPA or the capacity charge specified in the PPA for such
   purchase.

   Energy charges payable by Consumers under the PPA are separate and distinct
   from the capacity charge in that no 17-1/2 year protection against the
   exercise of the "regulatory out" provision for energy charges is provided
   for in the PPA.  Although prior approval of energy charges is not required
   or provided for under Michigan law, the MPSC has asserted the authority to
   disallow Consumers' recovery of a portion of such energy charges paid to
   MCV.  Any disallowance by the MPSC of Consumers' ability to pass energy
   charges through to its customers could, pursuant to the "regulatory out"
   provision of the PPA, result in a reduction or refund of the fixed and
   variable portions of the energy charge under the PPA.

   MPSC and Other Proceedings.  In September 1987, in order to comply with the
   prior approval requirement for contracts exceeding six months and to obtain
   the benefit of the 17-1/2 year rate protection provided by Michigan law,
   MCV requested MPSC approval of the 4.15 cents per kWh capacity rate
   provided for in the PPA.  The MPSC hearing held on the request was
   consolidated with numerous dockets involving other qualifying facility
   projects, and resulted in a number of MPSC orders.  Numerous appeals from
   the MPSC orders were taken to the Michigan Court of Appeals and the
   Michigan Supreme Court by parties to the MPSC proceedings, including
   Consumers and MCV.  During the pendency of this matter before the Court of
   Appeals, Consumers, MPSC staff and other parties negotiated a Revised
   Settlement Proposal which was submitted to the MPSC for approval.

   On March 31, 1993, the MPSC issued an order, effective January 1, 1993 (the
   "Settlement Order"), which approved with modifications the Revised
   Settlement Proposal filed by Consumers, the MPSC staff and ten small power
   and cogeneration developers.  Although MCV was not a party to the Revised
   Settlement Proposal, the MPSC staff required that MCV file a letter of
   non-objection to the Revised Settlement Proposal.  The Settlement Order
   addressed, among other things, the amount Consumers could recover from its
   electric customers for the costs of capacity and energy purchased by it
   from MCV.  Generally, the Settlement Order approved cost recovery of 915 MW
   of MCV capacity subject to certain "availability caps" associated with
   on-peak and off-peak periods of time each day and recovery of energy
   payments based on coal proxy prices (the formula in the PPA).  However,
   instead of capacity and fixed energy payments being based on "availability"
   as provided in the PPA, the Settlement Order 

                                       13


<PAGE>   16

   provided for recovery of such payments on an energy "delivered" basis. 
   The MPSC did not order that the PPA be modified to conform with the cost
   recovery approved in the Settlement Order.  However, the MPSC found that
   since the capacity charges approved for recovery under the PPA would not be
   reflected in the PPA, approval for the purposes of Act 81 could not be
   extended to those capacity charges.  The MPSC did indicate in its order,
   however, that its Settlement Order would be implemented for rate-making
   purposes in 1993 and subsequent years. Opponents to the Revised Settlement
   Proposal, filed appeals of the Settlement Order with the Michigan Court of
   Appeals.  On March 19, 1996, the Court of Appeals issued a decision which
   affirmed the Settlement Order. The Appellants unsuccessfully sought further
   judicial review and the decision has now become final.

   Because the Settlement Order did not approve the capacity charges
   authorized for recovery in the PPA, and thereby denied the protection
   provided under Michigan law from reconsideration for a 17-1/2 year period,
   Consumers' cost recovery relating to purchases from MCV is reviewed in the
   annual PSCR Plan and Reconciliation Cases.

   In connection with a dispute between MCV and Consumers regarding the
   payment of certain fixed energy charges which stemmed from the Revised
   Settlement Proposal, on December 10, 1993, Consumers made a written
   irrevocable offer of relief ("Offer of Relief") to MCV.  The Offer of
   Relief was for the purpose of facilitating the sale of Senior Secured Lease
   Obligation Bonds, issued in connection with the financing of the Overall
   Lease Transaction (see Part I, Item 1, Section I, "Overall Lease
   Transaction") and held by Consumers.  Pursuant to the Offer of Relief,
   which was rendered final and irrevocable on December 28, 1993, Consumers
   committed to pay MCV the fixed energy charges on all energy delivered by
   MCV from the block of Contract Capacity above 915 MW.  Consumers did not
   commit to pay MCV for fixed energy charges on energy delivered above the
   "caps" established in the Settlement Order up to 915 MW.  The Offer of
   Relief represented a "floor" for the arbitration of this dispute below
   which payments to MCV of fixed energy charges in dispute could not fall.
   Consumers would schedule deliveries of this energy in accordance with the
   provisions of the PPA.  This unilateral commitment, which became effective
   as of January 1, 1993, to pay fixed energy charges on delivered energy from
   the block of Contract Capacity above 915 MW will expire on September 15,
   2007.

   On June 23, 1993, Consumers exercised its rights under the PPA to obtain a
   determination through arbitration proceedings of whether Consumers could
   exercise the "regulatory out" provision of the PPA in view of Consumers'
   acceptance of the Settlement Order.  In a Final Order issued on February
   16, 1995, the arbitrator ruled that Consumers may withhold the fixed energy
   charges for available but undelivered energy, as well as for energy
   delivered between the "caps" contained in the Settlement Order and 915 MW,
   subject to completion of appellate review in all regulatory and judicial
   proceedings with respect to the Settlement Order and then pending PSCR
   cases.

   On February 23, 1995, the MPSC applied the Settlement Order to Consumers'
   1993 Reconciliation Case and ruled that Consumers could not recover from
   its retail customers the full 915 MW of MCV capacity and fixed energy
   charges provided under the terms of the Revised Settlement Proposal
   approved by the MPSC in the Settlement Order.  Instead, the MPSC
   "allocated" approximately 25 MW of MCV capacity to "non-jurisdictional"
   customers (i.e. customers not subject to PSCR rates) resulting in a
   disallowance to Consumers of approximately $7.4 million of which
   approximately $.7 million relates to fixed energy charges (the
   "Jurisdictional Issue").  On October 19, 1995, Consumers notified MCV that,
   pursuant to the "regulatory out" provision of the PPA, it would be
   increasing the amount being escrowed each month to reflect its calculation
   of fixed energy charge payments allocated to non-jurisdictional customers
   disallowed by the MPSC and Michigan Court of Appeals due to the
   Jurisdictional Issue.  In addition, Consumers requested a refund from MCV
   of $1.9 million plus interest, for the calendar years 1993 and 1994 and the
   first eight months of 1995.  On November 21, 1995, MCV responded to
   Consumers indicating that MCV would, pursuant to the PPA, refund the
   appropriate funds, if any, and determine the appropriate calculation of the
   correct escrow amount, if any, at such time as a final and non-appealable
   order disallowing these recoveries is entered.  The decision involving the
   Jurisdictional Issue has become final, affirming the MPSC's decision.
   Based on this decision, Consumers notified MCV that it would continue
   withholding the fixed energy charges on the Jurisdictional Issue (currently
   averaging approximately $45,000 per month).  In addition, MCV agreed to
   release to Consumers the escrowed funds of approximately $1.0 million plus
   interest (covering the period of September 1995 through December 1996),
   subject to a final resolution between MCV and Consumers as to the
   appropriate escrow amount, and to refund the $1.9 million (discussed above),
   as a result of the finality of the Jurisdictional Issue.  MCV has not
   recognized any of these amounts related to the Jurisdictional Issue as
   operating revenues.

                                       14


<PAGE>   17


   The MPSC ruled in the 1993 Reconciliation Case that Consumers could not
   recover from its retail customers fixed energy charges payable to MCV for
   energy delivered above the off-peak cap of 732 MW (the "off-peak cap
   issue"). Consumers and MCV appealed the MPSC February 23, 1995 Order to the
   Michigan Court of Appeals and on November 1, 1996, the Michigan Court of
   Appeals affirmed the MPSC's decision.  MCV and Consumers filed motions for
   rehearing of the November 1, 1996 Michigan Court of Appeals Order which
   were denied on January 27, 1997.  MCV petitioned the Michigan Supreme Court
   to review the off-peak cap issue of this case.  On January 30, 1998, the
   Michigan Supreme Court denied MCV's petition for review, thus, the case is
   now final.

   In addition, as part of its order in Consumers' 1994 PSCR Plan proceedings,
   the MPSC, on August 18, 1994, ruled that for 1994 Consumers would not be
   permitted to recover fixed energy costs for energy associated with the
   off-peak cap issue.  MCV believed the MPSC order on this issue was
   erroneous and filed an appeal of the MPSC decision.  The Michigan Court of
   Appeals affirmed the MPSC.  MCV has petitioned the Michigan Supreme Court
   to review this case.  Other PSCR Plan and Reconciliation Cases for the
   years 1995 through 1997 are pending before the MPSC at this time.
   Consumers has escrowed approximately $2.8 million in 1996 and $1.0 million
   for the years 1994 and 1995 of fixed energy charges payable to MCV based on
   the MPSC ruling.  MCV Management cannot predict the outcome of these
   proceedings.

   On September 8, 1995, Consumers and the MPSC staff filed a motion to create
   a consolidated proceeding for the purpose of reviewing a settlement
   agreement ("325 MW Proposed Settlement") entered into between the MPSC
   staff and Consumers related to three cases:  Case No. U-10685, Consumers'
   electric general rate case; Case No. U-10787, Consumers' request for
   approval of a special competitive services tariff (Rate SCS); and Case No.
   U-10754, Consumers' application for approval of revised depreciation rates
   for electric and common utility plant.  MCV was a party to the consolidated
   proceeding.  The settlement agreement proposed approving the jurisdictional
   cost recovery of an additional 325 MW of capacity purchased from MCV.  Cost
   recovery approval for the 325 MW of MCV Contract Capacity was in addition
   to the 915 MW already approved by the MPSC with recovery from Consumers
   retail customers to begin January 1, 1996.  The initial average capacity
   charge recovered would be 2.86 cents per kWh escalating to 3.62 cents per
   kWh in 2004 and thereafter.  On September 22, 1995, MCV filed a position
   statement not objecting to the settlement agreement, but reserving all of
   its rights and privileges under the PPA.  Consumers increased MCV's
   dispatch in 1996 consistent with the terms of the settlement agreement.  On
   November 14, 1996, the MPSC approved, with modifications, the settlement
   agreement effective January 1, 1996 ("325 MW Settlement Order").  The
   modifications were related to issues not material to MCV, except the
   Jurisdictional Issue, which the MPSC deferred to the 1996 PSCR plan
   proceeding. As a result of the approval of the 325 MW Settlement Order,
   Consumers notified MCV in February 1997, that it would cease escrowing for
   the off-peak cap issue and has released to MCV the 1996 escrowed funds of
   approximately $2.8 million discussed in the proceeding paragraph, relating
   to the off-peak cap issue, subject to a final decision upholding the 325 MW
   Settlement Order on this issue.  The $1.0 million escrowed in 1994 and 1995
   remains in escrow.  MCV has not recognized any of these amounts related to
   the off-peak issue as operating revenues.  Various parties have appealed
   the 325 MW Settlement Order to the Michigan Court of Appeals.  MCV
   Management cannot predict the outcome of this proceeding.

   Michigan Electric Industry Restructuring Proceedings

   On December 20, 1996, the MPSC issued an order on its own motion to
   consider the restructuring of the electric industry in Michigan.  After
   public hearings and contested case hearings the MPSC issued its initial
   order on June 5, 1997, intermediate orders in related dockets on October
   29, 1997, its final order on January 14, 1998, and a clarification order on
   February 11, 1998 (collectively the "Restructuring Orders").  While the
   Restructuring Orders are not entirely clear, they generally provide for a
   transition to a competitive regime whereby electric retail customers will
   be able to chose their power supplier and pay negotiated or market-based
   rates for such power supply.  The MPSC ordered a phased-in program (from
   1998 through 2001) for this competitive regime known as "direct access"
   whereby all customers (industrial, commercial and residential) would be
   eligible to select the power supplier of their choice.  The MPSC also
   addressed many transition issues including reliability, stranded cost (or
   transition cost) recovery, rates, and other issues.  As noted above (Part
   I, Item 1, Section D, "Major Issues Facing MCV - Electric Industry
   Restructuring"), the two issues involved in this restructuring which could
   impact MCV the most are contract sanctity and stranded cost recovery.  On the
   issue of contract sanctity, the Restructuring Orders indicate that it was
   not the intent of the MPSC to take any action that would affect the
   contractual rights of QFs, including MCV.  On the issue of stranded cost
   recovery, the Restructuring Orders allow recovery by utilities (including 

                                       15


<PAGE>   18

   Consumers) of stranded costs including capacity charges previously approved
   by the MPSC in power contracts incurred during the regulated era that will be
   above market prices during the new competitive regime.  However, it appears
   that stranded cost recovery of above-market capacity charges in power
   purchase contracts (i.e., MCV's PPA) may be limited to the period 1998
   through 2007 (MCV's PPA expires in 2025).  The Restructuring Orders do not
   specifically address the issue of stranded cost recovery after 2007.  In
   addition, the Restructuring Orders permit Consumers to elect to freeze its
   PSCR factor through which charges under the PPA are recovered from retail
   customers. The MPSC has also suspended the annual PSCR (Plan and
   Reconciliation Case) process indefinitely, at Consumers' request.  MCV has
   advocated, among other things, full recovery of PPA charges (capacity and
   energy) for the life of the PPA.  MCV, as well as others, has filed an appeal
   of the MPSC Restructuring Orders in the Michigan Court of Appeals and a
   complaint in the U.S. District Court for the Western District of Michigan
   challenging the Restructuring Orders.  MCV's complaint seeks, among other
   things, a declaration that the Restructuring Orders are preempted by PURPA to
   the extent that they fail to provide for assured retail rate recovery of
   payments made by Consumers to MCV pursuant to PURPA and an injunction barring
   enforcement of the Restructuring Orders to the extent they are preempted by
   PURPA.  The Michigan legislature has also begun the process to consider
   electric industry restructuring and deregulation.  While restructuring could
   have a material impact on MCV, MCV Management cannot, at this time, predict
   the impact or the outcome of these administrative, judicial and legislative
   proceedings.

   Federal Electric Industry Restructuring

   FERC has jurisdiction over wholesale energy sales in interstate commerce
   and is moving towards "market" based pricing of electricity in some
   circumstances as opposed to traditional cost-based pricing.  In April 1996,
   FERC issued Order No. 888 requiring all utilities FERC regulates to file
   uniform transmission tariffs providing for, among other things,
   non-discriminatory "open access" to all wholesale buyers and sellers,
   including the transmission owner, on terms and conditions established by
   FERC.  Order No. 888 also requires utilities to "functionally unbundle"
   transmission and separate transmission personnel from those responsible for
   marketing generation.  Appeals of Order No. 888 are pending before the
   United States Court of Appeals for the Second Circuit.  In addition,
   several bills have been introduced in Congress to require states to permit
   consumers to choose their supplier of electricity and manage other issues
   such as transition cost recovery and FERC jurisdiction of retail electric
   sales.  MCV Management cannot predict the impact on MCV or the outcome of
   these proceedings.

   Other Regulatory Issues

   MCV has been granted a permanent exemption from the Power Plant and
   Industrial Fuel Use Act of 1978, as amended, relating to the use of natural
   gas as its primary energy source.  This exemption permits MCV to consume
   gas without restriction as to hours of operation or the capacity of the
   Facility to consume an alternate fuel.

   The Canadian Gas Contracts require permits from both Canadian and U.S.
   authorities.  All of the suppliers have received approval from Canadian
   provincial authorities to lift and remove sufficient gas volumes to meet
   MCV contract requirements and from the National Energy Board ("NEB") to
   export these volumes.  The U.S. Gas Contracts are not subject to regulatory
   approvals.

   Great Lakes Pricing of Gas Transportation Costs

   In 1990, Great Lakes expanded its interstate pipeline system to accommodate
   gas purchases from MCV and other customers.  Historically, such capital
   costs were "rolled-in" to the rate base, thus combining the capital cost of
   common use facility additions with the cost of existing common use
   facilities for the purpose of determining the transportation rates to be
   charged to all system shippers.  In 1991, FERC issued an order that
   rejected rolled-in pricing for the MCV-related expansion costs and,
   instead, imposed incremental pricing which, for MCV, took effect April 1,
   1993.  The incremental methodology allocates the capital cost of facility
   additions solely to the new shippers who will gain access to the expanded
   facilities.  FERC's decision was appealed by MCV and others to the United
   States Court of Appeals for the District of Columbia Circuit, which held
   that FERC had failed to adequately explain the adoption of incremental
   rates and remanded the orders to FERC for reconsideration.  On July 26,
   1995, FERC issued its Order on Remand reversing its prior order and directed
   Great Lakes to: (i) implement rolled-in rates prospectively beginning 
   October 1, 1995, for the expansion facilities including those applicable to 
   MCV; and

                                       16



<PAGE>   19

   (ii) refund to MCV, subject to FERC approval, the principal amount,
   excluding interest, paid in excess of rolled-in rates.  MCV had, from April
   1, 1993 to October 1, 1995, reflected in current operating results Great
   Lakes gas transportation costs associated with incremental pricing.  On
   April 25, 1996, FERC affirmed its Order on Remand as it pertains to the MCV
   issues described above ("Order on Rehearing").  On June 3, 1996, FERC
   granted rehearing for further consideration. Rehearing was requested by
   MCV, among others, for clarification of the timing of refunds, surcharges
   and interest thereon subsequent to October 1, 1995.  On July 31, 1996, FERC
   clarified its April 25, 1996 order stating that interest on refunds was to
   commence October 1, 1995 and otherwise denied the relief requested in the
   petitions for rehearing.  In August 1996, MCV recognized in its current
   operating results approximately $19.0 million (which represented $17.6
   million in transportation costs included as a reduction in fuel costs and
   $1.4 million of accrued interest subsequent to October 1, 1995) of the
   Great Lakes refund.  The FERC Order on Rehearing and its July 31, 1996
   order were appealed by MCV and others to the United States Court of Appeals
   for the District of Columbia ("Court of Appeals") challenging certain
   aspects of the Order on Remand. On January 16, 1998, the United States
   Court of Appeals ruled that MCV should have been paid interest for the
   period prior to October 1, 1995 on the Great Lakes refund and denied all
   other petitions that had been filed challenging the refund.  This decision
   is subject to further appeal.  MCV Management cannot predict the outcome of
   any such appeal, but believes that the likelihood of reversal of any
   portion of the Court of Appeals' decision is remote.

H. Environmental Matters

   MCV has obtained all material federal, state and local environmental
   permits necessary to construct and operate the Facility.  MCV believes that
   the Facility complies in all material respects with all applicable federal,
   state and local environmental regulations and laws.  There is no litigation
   or, to the knowledge of MCV, any administrative proceeding or investigation
   pending or threatened with respect to environmental issues at the Facility.
   It is possible that applicable environmental laws and regulations may
   change, making compliance more costly, time consuming and difficult.  Any
   such changes, however, are likely to apply to similarly situated power
   plants and not only to the Facility.

   Water Quality.  On five instances in 1997, MCV exceeded the discharge
   limits on oil and grease from the oily waste treatment system.  A new
   filtration unit was installed and is presently being evaluated.  The
   Michigan Department of Environmental Quality ("MDEQ") has taken no action
   to date on this issue.  Oily treated waste falls out to MCV's 4.1 billion
   gallon cooling pond.  MCV's NPDES permit expires October 1, 1998 with the
   application for renewal due on April 1, 1998.  MCV does not expect any
   difficulty in the reissuance of this permit.

   Air Quality.  On September 24, 1996, MCV submitted a Renewable Operating
   Permit ("ROP") Application and received notification that it was
   administratively complete on October 2, 1996.  This determination affords
   the Facility an "application shield", which authorizes operation of the
   plant in accordance with its current permits and rules until such time as
   the ROP application is formally acted upon by the MDEQ Air Quality
   Division.  Although the requirements that might be imposed at this time are
   not yet known, MCV does not currently foresee any impediments to issuance
   of that ROP.  MDEQ Air Quality Division may request additional information
   during the technical review of the application followed by the issuance of
   a draft permit for public notice and comment, followed by a final permit.
   This process is scheduled for late 1998 with the issuance of the final
   permit in early 1999.

   Dow Operations.  Portions of the Site were previously owned by Dow.  At one
   time, Dow had a brine pond, a portion of which was on the Site.  Brine
   pipelines previously crossed the Site.  Some underground brine lines were
   capped and abandoned in place.  Dow had brine lines running near the Site.
   One brine well was used by Dow on the Site.  Dow brine pipeline spills off
   the Site are listed on Michigan's "List of Sites of Environmental
   Contamination" established under Michigan Environmental Response Act
   ("MERA").  The principal contaminant of concern at the pipeline spill
   locations is brine.  The Site also may have been used for the testing of
   explosives during the 1950s or the 1960s.

   The Dow Plant, immediately across the Tittabawassee River from the Site, is
   on Michigan's "List of Sites of Environmental Contamination" established
   under MERA.  The principal contaminants of concern at the Dow Plant are
   dioxins believed to have originated from chemical product manufacturing.

                                       17


<PAGE>   20



   While it is possible that MCV or Consumers could incur liability under the
   Comprehensive Environmental Response, Compensation, and Liability Act of
   1980 ("CERCLA") or MERA for Site conditions from previous Dow activities,
   MCV does not know of any conditions on the Site that MCV believes require
   cleanup.  In any event, to the extent that such liability could be shown to
   be due to Dow's activities, MCV or Consumers would seek contribution from
   Dow for any costs incurred in connection with Dow's activities.

   Michigan Department of Natural Resources and the United Stated
   Environmental Protection Agency required Dow to install a groundwater
   collection tile system to prevent migration of tertiary treatment pond
   leakage from Dow's property.  The system involves hydraulic monitoring and
   collection of groundwater at the border of the MCV Site.  Installation of
   the system has been completed.  MCV retained an engineering firm (Gilbert
   Commonwealth Corporation) to review Dow's plans and evaluate the effects on
   Facility operations and the MCV Site of the groundwater collection tile
   system.  In 1992, Gilbert Commonwealth Corporation issued a report which
   concluded that the installation of the system "will not materially involve
   or adversely affect the occupation, use, possession, ownership, operation
   and maintenance of the Facility."  As a result, MCV granted the requested
   easement to Dow and the groundwater collection tile system was completed in
   early 1993.

   Noise.  MCV has received complaints from nearby residents regarding noise
   from the Facility.  Although the majority of the complaints have stemmed
   from noise generated by construction, startup and equipment testing, there
   have been some complaints regarding plant operation noise.  In 1990, MCV
   completed installation of silencers in all of the stacks to reduce plant
   operation noise.  Installation of stack silencers has resulted in a
   reduction of noise during normal plant operation.  MCV has installed a
   silencer on the hogging air ejector and anti-noise insulation on the gas
   knockout drum.  Additionally, steam venting silencers have been installed
   on all 12 HRSGs to control noise in connection with startup and shutdown
   operation.  In 1996, MCV installed mufflers on the atmospheric dump valves
   to reduce noise in the event of a steam turbine trip or during periods when
   the steam turbines are out of service.

   Environmental Indemnity Agreements.  CMS Energy has executed environmental
   indemnity agreements in favor of the Senior Bond Trustee, the Subordinated
   Bond Trustee, the Tax-Exempt Trustee (all as defined in Part I, Item 1,
   Section I, "Overall Lease Transaction"), MCV and the holders, from time to
   time, of the Bonds.  Pursuant to these indemnity agreements, CMS Energy has
   agreed to indemnify these parties and certain related parties against all
   expense, damage and liability suffered or incurred by them at any time and
   which is caused by certain classes of environmental matters to the extent
   these occurred at the Site before June 15, 1990 (with certain exceptions).
   These matters include (i) the presence of any environmentally hazardous
   materials at the Site, (ii) any environmentally hazardous activity at the
   Site and (iii) any event which is a violation of environmental laws
   affecting the Site (including amendments and supplements to such laws
   whenever enacted except, in the case of such enactments after June 15,
   1990, to the extent they would require installation or modification of
   equipment).  CMS Energy has entered into a similar environmental indemnity
   agreement for the benefit of the Owner Trustee (in its individual and trust
   capacities), the Owner Participants (as defined in Part I, Item 1, Section
   I, "Overall Lease Transaction") and certain related parties.  In the
   agreement in favor of MCV, payments by CMS Energy are subject to a
   deductible of $20,000 per occurrence and $240,000 in the aggregate.  The
   agreement in favor of MCV terminates when all the Senior Bonds (as defined
   in Part I, Item 1, Section I, "Overall Lease Transaction") have been paid
   in full and all the holders of the Bonds (as defined in Part I, Item 1,
   Section I, "Overall Lease Transaction") have been paid all amounts owed
   under the general indemnity in the Participation Agreements, except that
   such indemnity shall not terminate with respect to certain rights arising
   prior to such final payment.

   MCV has also executed an environmental indemnification agreement in favor
   of CMS Energy under which it has agreed to indemnify CMS Energy in
   connection with (i) any violation of the environmental laws by MCV with
   respect to the Site after June 5, 1988, (ii) the release or disposal of any
   hazardous materials at, on or to the Site after June 5, 1988 (unless caused
   by CMS Energy or resulting from hazardous materials at or on the Site prior
   to June 5, 1988), and (iii) any hazardous activities at the Site after June
   5, 1988, provided that CMS Energy may satisfy these obligations only from
   amounts that are otherwise available for distribution to Partners under the
   Participation Agreements.

                                       18


<PAGE>   21



I. Overall Lease Transaction

   General

   Permanent financing for the Facility has been provided through five
   separate but contemporaneous sale and leaseback transactions (the "Overall
   Lease Transaction"), pursuant to which MCV sold undivided interests in all
   of the fixed assets comprising the Facility to the Owner Trustee under five
   separate owner trusts (the "Owner Trusts") established for the benefit of
   the Owner Participants.  State Street Bank and Trust Company (formerly
   Fleet National Bank) serves as Owner Trustee under each of the Owner Trusts
   (in each such capacity, an "Owner Trustee" and, collectively, the "Owner
   Trustees").  Each Owner Trustee leases its undivided interest in the
   Facility to MCV under one of five separate leases, each having a 25-year
   base term (the "Basic Lease Term") commencing in 1990.  The Overall Lease
   Transaction was closed in two phases.  The first closing (involving
   pollution control and certain related assets) occurred on March 16, 1990,
   (the "First Closing" or the "First Closing Date") and the second closing
   (involving the remainder of the Facility) occurred on June 16, 1990 (the
   "Second Closing" or the "Second Closing Date").

   Each purchase of an undivided interest in the Facility by an Owner Trustee
   and the lease of such undivided interest back to MCV constitutes a separate
   transaction (each, a "Lease Transaction").  The undivided interests are in
   varying "undivided interest percentages" ranging from approximately 4.4% to
   75.5%.  Each Lease Transaction was effected through separate, but
   substantially identical, documents relating to a particular undivided
   interest, including a Trust Agreement pursuant to which the Owner
   Participant established the Owner Trust with the Owner Trustee and
   authorized the Owner Trustee to hold title to its undivided interest on its
   behalf and lease the same to MCV (each a "Trust Agreement"), a
   Participation Agreement pursuant to which MCV, the Owner Participant, the
   Owner Trustee and the various other parties to such Lease Transaction
   agreed to the terms and conditions thereof (each, a "Participation
   Agreement"), a Lease Agreement pursuant to which the Owner Trustee leases
   the undivided interest to MCV (each, a "Lease") and two separate Trust
   Indentures pursuant to which the Owner Trustee issued Senior Notes (as
   defined in this Section I, "Overall Lease Transaction -- The Lease
   Funding") (each, a "Senior Note Indenture") and Subordinated Notes (as
   defined in this Section I, "Overall Lease Transaction -- The Lease
   Funding") (each, a "Subordinated Note Indenture" and, together with the
   Senior Note Indentures, the "Note Indentures").  The United States Trust
   Company and First Union National Bank (formerly Meridian Trust Company) are
   note trustees under the Senior Note Indenture and the Subordinated Note
   Indenture, respectively (the "Note Trustees").  There is, however, a single
   Collateral Agency  and Intercreditor Agreement (the "Intercreditor
   Agreement"), executed by the Owner Trustees, MCV, the Note Trustees, the
   Working Capital Lender (as defined below) and First Trust Michigan (which
   acquired the trust assets of Comerica Bank) as collateral Agent (the
   "Collateral Agent"), which provides for the creation and maintenance of
   certain reserves, the deposit of all revenues generated by the Facility,
   the payment of operating expenses, and the distribution of remaining
   revenues according to the priorities set forth therein to or for the
   account of the Working Capital Lender, the Note Trustees, the Owner
   Trustees, MCV and the affiliates of certain Partners.  MCV has arranged for
   a $50 million working capital line (the "Working Capital Facility") with
   Bank of Montreal (the "Working Capital Lender") which expires August 31,
   1999.  As security for its obligation to repay advances made under the
   Working Capital Facility, MCV has granted to the Working Capital Lender a
   first priority security interest in certain receivables earned by MCV
   through the sale of electricity, electric generating capacity, natural gas,
   or steam to third parties, including Dow, Consumers and DCC (the "Earned
   Receivables") and in MCV's natural gas inventory (the "Natural Gas
   Inventory").  Payments due under the Working Capital Facility are direct
   obligations of MCV and will in general have a priority in payment over
   payments under the Leases (and thus on the Notes, as defined in this
   Section I, "Overall Lease Transaction -- The Lease Funding," and the
   Bonds).

   Pursuant to separate Tax Indemnification Agreements between MCV and the
   Owner Participants (the "Tax Indemnification Agreements"), MCV has agreed
   to indemnify the Owner Participants against certain adverse federal income
   tax consequences.

   Statement of Financial Accounting Standards ("SFAS") No. 98, which applies
   to sale and leaseback transactions entered into after June 30, 1988,
   specifies the accounting required by generally accepted accounting
   principles for a seller-lessee's sale and simultaneous leaseback
   transaction involving real estate, including real estate with equipment.
   In accordance with SFAS No. 98, the Overall Lease Transaction must be
   accounted for as a financing 

                                       19


<PAGE>   22


   obligation and not a sale, since MCV has the option to purchase the undivided
   interests in the Facility at the end of the Basic Lease Term, which expires
   on July 23, 2015, and has other forms of continuing involvement with the
   Facility throughout the Basic Lease Term.

   The Lease obligation is recorded as long-term debt, at the present value of
   future minimum Lease payments.  There is no change to property, plant and
   equipment as the transaction was accounted for as a financing arrangement
   for financial reporting purposes.  Certain Lease transaction expenses of
   MCV are recorded as deferred financing costs and amortized using the
   interest method over the term of the Lease.  On an ongoing basis, the
   monthly accrual for the semi-annual Lease payments will be divided between
   interest and principal components using the effective interest method.

   The Lease Funding

   Each Owner Trustee has financed the purchase of its undivided interest in
   the Facility through a combination of equity invested by its related Owner
   Participant ($556,320,000 in the aggregate) and debt incurred through the
   issuance of nonrecourse notes by the Owner Trustee under the related Note
   Indentures, consisting of senior secured notes ($1,200,000,000 in the
   aggregate) (the "Senior Notes") and subordinated secured notes
   ($567,180,000 in the aggregate) (the "Subordinated Notes," and together
   with the Senior Notes, the "Notes").  In order to facilitate the sale of
   this debt (other than the debt evidenced by the Subordinated Notes pledged
   to secure the Tax-Exempt Bonds) (as defined below), two funding
   corporations have been established.  Midland Funding Corporation I was
   established for the purpose of issuing various series of senior bonds (the
   "Senior Bonds"), each series secured by a pledge of the corresponding
   series of Senior Notes issued by the five Owner Trustees.  Midland Funding
   Corporation II was established for the purpose of issuing various series of
   subordinated bonds (the "Subordinated Bonds" and, together with the Senior
   Bonds, the "Bonds"), each series secured by a pledge of the corresponding
   series of the Subordinated Notes issued by the five Owner Trustees.  These
   pledged Subordinated Notes are secured pari passu with the Subordinated
   Notes pledged to secure the Tax-Exempt Bonds issued by the Tax-Exempt
   Issuer (as defined below).  The use of the funding corporations facilitated
   the sale of debt by permitting the offer and sale of three series of Senior
   Bonds and two series of Subordinated Bonds, each secured equally and
   ratably by the corresponding series of Notes issued by each of the five
   Owner Trusts, thus eliminating the need to offer a greater number of
   separate series of Notes to the investor.  In addition, the use of a
   corporate obligor facilitates compliance with certain investment laws by
   certain institutional purchasers of the Senior and Subordinated Bonds.  The
   aggregate principal amount, maturity date, interest rate, redemption
   provisions and other material terms of each series of the Bonds are
   identical to those of the Notes pledged as security therefore.

   The Economic Development Corporation of the County of Midland (the
   "Tax-Exempt Issuer") has issued certain series of tax-exempt bonds (the
   "Tax-Exempt Bonds"), which are issued under and secured by a tax-exempt
   collateral trust indenture.  The proceeds from the issuance and sale of the
   Tax-Exempt Bonds were used to finance certain pollution control assets
   constituting a portion of the Facility.  Each series of Tax-Exempt Bonds is
   secured solely by a corresponding series of Subordinated Notes issued by
   the Owner Trustees, which are secured by a junior security interest in the
   undivided interests of the Owner Trustees in the Facility and certain of
   their rights under and to the related Leases, including rents thereunder
   and the Lease Collateral, including (subject to the rights of the Working
   Capital Lender, which include a prior security interest in certain of MCV's
   receivables and natural gas inventory securing the Working Capital
   Facility) the revenues and other payments received thereunder.  The
   Subordinated Notes securing the Tax-Exempt Bonds and the Subordinated Notes
   issued by the Owner Trustees to secure the Subordinated Bonds are secured
   by junior security interests in a shared collateral pool.

   Security and Sources of Payment

   The sole sources of payment for the Senior Bonds and Subordinated Bonds are
   certain pledged Senior Notes and pledged Subordinated Notes, respectively,
   issued by each of the five Owner Trustees and pledged under the Senior Bond
   Indenture and Subordinated Bond Indenture, respectively.  The pledged
   Senior Notes and pledged Subordinated Notes of each Owner Trustee are
   nonrecourse obligations of such Owner Trustee payable solely from the
   rental payments made by MCV under its related Lease and the other security
   therefor.  The Senior Notes are secured by a senior security interest in
   such Owner Trustee's undivided interest in the Facility and certain of its
   rights under and to the related Lease, including rents thereunder and the
   Lease collateral, including (subject to the 

                                       20


<PAGE>   23

   rights of the Working Capital Lender) the revenues and other payments 
   received thereunder.  The Pledged Subordinated Notes are secured on a
   pari passu basis with the Subordinated Notes pledged to secure the Tax-Exempt
   Bonds, by a junior lien on and security interest in such collateral.  Such
   lien, security interest and assignment are subordinated to the senior lien,
   security interest and assignment securing the Senior Notes issued by such
   Owner Trustee (and pledged to secure the Senior Bonds).

   Additional Senior Notes may be issued (i) to refinance the Senior Notes, in
   whole but not in part, and (ii) to provide funds for the payment of all or
   any portion of certain costs associated with certain modifications to the
   Facility.  Additional Subordinated Notes may be issued (i) to support the
   issuance of up to an additional $366 million principal amount of
   Subordinated Bonds to MEC Development Corporation ("MDC") (which is
   unlikely to occur in the foreseeable future), (ii) to refinance any series
   of Subordinated Notes, in whole or in part, and (iii) to provide funds for
   the payment of all or any portion of certain costs associated with
   modifications to the Facility.  Any additional Senior and Subordinated
   Notes will rank pari passu with all Senior and Subordinated Notes,
   respectively, then outstanding.  The aggregate principal amount of Senior
   and Subordinated Bonds that may be issued is unlimited, provided that at no
   time may the aggregate principal amount of Senior and Subordinated Bonds
   exceed the aggregate principal amount of Senior and Subordinated Notes,
   respectively, then outstanding.  The future issuance of additional Senior
   and Subordinated Bonds (other than for refinancing purposes) would create
   additional claims against the security for the Note Indentures and the
   amounts available to repay amounts in respect of the Bonds currently
   outstanding in the event of foreclosure.

   The rental payments under the Leases are established to provide funds
   sufficient to service the debt issued by the Owner Trustees and to provide
   the Owner Participants with a return on their equity investment.  MCV is
   unconditionally obligated to make rental payments under the Leases in
   amounts sufficient to provide for scheduled payments of the principal of,
   premium, if any, and interest on the Notes, which amounts, in turn, are
   equal to scheduled payments of principal of, premium, if any, and interest
   on the Bonds.  MCV has pledged to each Owner Trustee an undivided interest
   percentage of all revenues to be derived from the operation of the
   Facility, together with its rights with respect to the PPA, the SEPA, and
   various other contracts of MCV relating to the Facility (the "Lease
   Collateral") to secure its rental obligations under the Leases.  Neither
   the Bonds nor the Notes are direct obligations of, or guaranteed by, MCV
   nor do any Partners of MCV have any liability under the terms of the Notes,
   the Bonds or the Leases.  Neither the Partners nor the Partner Affiliates
   have any obligations under the Leases, and the obligations of MCV under the
   Leases and the other documents related to the Overall Lease Transaction are
   nonrecourse to the Partners and the Partner Affiliates.

   Any default or foreclosure with respect to the undivided interest of an
   Owner Trustee relates solely to such undivided interest.  There is no
   cross-collateralization among Owner Trustees and the Subordinated Bond
   trustee as holder of the pledged Subordinated Notes.  The Leases, however,
   contain identical events of default including an event of default related
   to a failure by MCV to pay principal of or interest on any indebtedness for
   borrowed money or other financing obligations (including lease obligations)
   with respect to an amount greater than $10 million.

   Pursuant to the Intercreditor Agreement, a reserve account has been created
   for the benefit of the holders of the Notes, which had been initially
   funded with $90 million in cash (the "Reserve Account").  The Intercreditor
   Agreement further sets forth circumstances under which amounts in the
   Reserve Account will be adjusted to equal the greater (for so long as the
   Senior Bonds are outstanding) or the lesser (after the Senior Bonds have
   been paid in full) of $137 million or the debt portion of basic rent under
   the Leases payable on the next succeeding basic rent payment date, and
   limited circumstances under which no more than $10 million contained
   therein may be withdrawn therefrom to provide working capital.  As of
   December 31, 1997, MCV had funds of $138.2 million in the Reserve Account.
   Excess funds in the Reserve Account are periodically transferred to MCV.

Item 2. PROPERTIES

MCV leases the Facility from the Owner Trustees pursuant to the Leases.  For a
description of the Facility, see Part I, Item 1, Section C, "The Facility."
For a description of the financing arrangements in connection with the lease
of the Facility to MCV, including a description of the liens on the Facility,
see Part I, Item 1, Section I, "Overall Lease Transaction."


                                       21


<PAGE>   24


The Facility is located on the Site, previously the location of Consumers'
abandoned Midland Nuclear Generating Plant in Midland County, Michigan.  The
Site contains approximately 1,200 acres, including an 880-acre cooling pond.
By a lease dated as of December 29, 1987, Consumers, as fee simple owner,
leased the land on which the Facility is located to MCV, CMS Midland and MDC
(the "Original Lease").  By Amended and Restated Agreement of Lease dated as
of June 9, 1988, such parties amended and restated the Original Lease in its
entirety.  By five separate instruments, each dated as of June 1, 1990,
Consumers and MCV created undivided interests in the amended Original Lease
and amended and restated the lease to reflect the creation of such interests
(the Original Lease as so amended and restated is referred to as the "Ground
Lease").  In connection with the Overall Lease Transaction, MCV assigned to
each Owner Trustee an undivided interest in the Ground Lease equal to such
Owner Trustee's undivided interest percentage.  Each Owner Trustee in turn
subleased its undivided interest back to MCV pursuant to separate subleases of
the Site.

In addition to leasing the Site, the Ground Lease assigns to MCV appurtenant
easement rights for a gas pipeline in Midland and Isabella Counties, Michigan
and easements in the City of Midland for a railroad spur track and a water
pipeline.  The Ground Lease is for a term commencing on December 29, 1987 and
ending on December 31, 2035, with two renewal terms of five years each and
with additional renewal terms of two years each as provided therein.  The
annual rental under each of the Ground Leases is equal to the undivided
interest percentage of $600,000 per annum through the two five-year renewal
terms; thereafter, it is fair market rental.  The Ground Leases are fully net
leases.

Item 3. LEGAL PROCEEDINGS

In 1997, MCV filed a property tax appeal contesting the assessed value of
MCV's property for 1997 taxes, which is pending before the Michigan Tax
Tribunal.  MCV may also file such an appeal for 1998 taxes.  MCV Management
cannot predict the outcome of these proceedings.

Other than as discussed in Part I, Item 1, Section G, "Regulation" there are
no other pending legal proceedings to which MCV is a party and to which any of
its property is subject, that are material in relation to the consolidated
financial statements.

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

Not applicable.

                                       22


<PAGE>   25


                                    PART II


Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not applicable.

Item 6.   SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data of MCV.  The
selected operating and financial position data as of December 31, 1997, 1996,
1995, 1994 and 1993 and for each of the five years ended December 31, 1997 have
been derived from audited financial statements.  This information should be
read in conjunction with Part II, Item 7, "MD&A" and the financial statements
and notes thereto included elsewhere herein.


<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                   ------------------------------------------------------
                                      1997       1996       1995      1994       1993
                                   ---------  ---------  ---------  ---------  ----------
                                                   (Dollars in Thousands)
<S>                               <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
   Operating Revenues             $ 651,581  $ 645,168  $ 617,818  $ 578,741  $ 548,483  
   Operating Income                 216,499    227,883    232,347    200,593    186,150  
   Cumulative Effect on Prior                                                            
     Years (to December 31,                                                               
     1996) of Change in Method of                                                          
     Accounting for Property                                                               
     Taxes (1)                       15,533         --         --         --         --  
   Net Income (Loss)                 77,737     65,524     60,936     17,689     (2,637) 

BALANCE SHEET DATA: (2)                                                               
   Total Assets                   2,351,271  2,363,945  2,360,530  2,372,106  2,399,942  
   Capitalization                                                                        
     Partners' Equity               277,221    199,484    133,960     73,024     55,335  
     Long-Term Debt, Excluding                                                             
       Current Maturities         1,788,291  1,929,241  2,007,815  2,080,005  2,145,886  
</TABLE>

(1) Effective January 1, 1997, MCV changed its method of accounting for property
    taxes so that such taxes are expensed monthly during the fiscal period of
    the taxing authority for which the taxes are levied.  This change provides a
    better matching of property tax expense with both the payment for services
    and those services provided by the taxing authorities.  Prior to January 1,
    1997, the Partnership expensed property taxes monthly during the year
    following the assessment date (December 31).  Also see Part II,     Item 7,
    MD&A "Cumulative Effect of Accounting Change" and Notes to Consolidated
    Financial Statements, Note 3, "Change in Method of Accounting for Property
    Taxes."
(2) Balance sheet data consists of the balances at December 31.


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS ("MD&A")

Results of Operations

Overview

For the year ended December 31, 1997, MCV recorded net income of $77.7 million
as compared to 1996 net income of $65.5 million.  The increase in 1997 earnings
is primarily the result of the 1997 change in method of accounting for property
taxes (the cumulative effect on prior years of this change increased earnings
for the year 1997 by approximately $15.5 million while the current year effect
increased 1997 earnings by approximately $.6 million).  Contributing to the
higher earnings is higher available PPA capacity and lower interest expense on
MCV's financing obligation, partially offset by the recognition of the Great
Lakes gas transportation refund in 1996.


                                       23


<PAGE>   26


For the year ended December 31, 1996, MCV's recorded net income was $4.6
million higher than the 1995 net income of $60.9 million.  The increase in 1996
earnings was primarily the result of the Great Lakes gas transportation refund
and lower interest expense.  This increase was partially offset by higher
natural gas prices, lower capacity payments under the PPA due to the 1996 first
quarter equipment problems and higher depreciation expense.

Operating Revenues

The following represents significant operating revenue statistics for the years
ended December 31 (dollars in thousands except average rates):


<TABLE>
<CAPTION>
                                                           1997           1996           1995
                                                       -------------  -------------  -------------
<S>                                                     <C>            <C>            <C>
Operating Revenues                                      $  651,581     $  645,168      $ 617,818
Capacity Revenue                                        $  405,488     $  396,244      $ 401,935
  PPA Contract Capacity (MW)                                 1,240          1,240          1,240
  PPA Availability                                            98.9%          96.4%          98.1%

Electric Revenue                                        $  218,219     $  220,803      $ 188,739
  PPA Delivery as a Percentage of Contract Capacity           91.2%          89.4%          75.2%
  PPA and SEPA Electric Deliveries (MWh)                10,455,717     10,286,934      8,693,500
  Average PPA Variable Energy Rate ($ / MWh)            $    16.87     $    17.00      $   17.20
  Average PPA Fixed Energy Rate ($ / MWh)               $     3.94     $     4.10      $    3.90

Steam Revenue                                           $   12,604     $   12,851      $  11,874
  Steam Deliveries (Mlbs)                                5,717,720      5,215,537      4,680,080

Other Revenue                                           $   15,270     $   15,270      $  15,270
</TABLE>

For the year ended December 31, 1997, MCV's operating revenues increased $6.4
million over 1996 due primarily to higher capacity revenue generated under the
PPA.  The capacity revenue increase of $9.2 million is the result of higher
capacity payments under the PPA due to fewer 1997 scheduled and unscheduled
maintenance outages.  In the first quarter of 1996, MCV experienced severe
cracking in the hot gas casings of several of the gas turbine generators
("GTG's") which reduced the capacity payments under the PPA during that period.
Also contributing to the increase in operating revenues are increases in the
Consumers electric dispatch and DCC steam deliveries.  The increase in
operating revenues was partially offset by lower Dow electric and steam
revenues due to the credit given to Dow for the tolling of gas.

For the year ended December 31, 1996, MCV's operating revenues increased $27.4
million over 1995 due primarily to higher electric revenue generated under the
PPA, which was partially offset by lower capacity revenue under the PPA.  The
increase in electric revenue of $32.1 million was primarily the result of
Consumers' decision to increase MCV's electric dispatch in 1996 consistent with
the terms of the 325 MW Settlement Order.  The capacity revenue reduction of
$5.7 million was the result of lower capacity payments under the PPA due
primarily to additional scheduled and unscheduled maintenance outages on the
gas turbines during the first quarter of 1996.

Operating Expenses

For the year ended December 31, 1997, MCV's operating expenses were $435.1
million, which includes $266.4 million of fuel costs.  During this period MCV
purchased approximately 96.1 bcf of natural gas, of which 3.5 bcf was used
either for transportation fuel or a net change to gas in storage.  During this
same period MCV consumed 95.0 bcf of natural gas at the plant to produce
energy, of which 2.4 bcf of this total was gas provided by Dow.  The average
commodity cost of fuel for the year 1997 was $2.42/MMBtu.  For the year ended
December 31, 1996, MCV's operating expenses were $417.3 million, which includes
$250.5 million of fuel costs.  The fuel costs for the year 1996 include the
Great Lakes gas transportation refund of approximately $17.6 million (excluding
interest).  Excluding the Great Lakes refund fuel costs

                                       24


<PAGE>   27

were $268.1 million for the year 1996.  During this period MCV purchased
approximately 96.8 bcf of natural gas, of which 3.6 bcf was used either for
transportation fuel or as a net change to gas in storage.  During this same
period MCV consumed 93.2 bcf of natural gas at the plant to produce energy.
The average commodity cost of fuel for the year 1996 was $2.37/MMBtu.  The
decrease in fuel costs for the year 1997 of $1.7 million (excluding the Great
Lakes refund) compared to 1996 is due to a decrease in fuel usage resulting
from Dow's providing gas to generate part of its take of steam and electricity,
partially offset by higher gas prices primarily due to the escalation of prices
in MCV's long-term contracts.

In 1997, operating expenses other than fuel costs increased $1.9 million over
1996 due primarily to higher legal fees and higher operating costs due to the
increased energy dispatch and higher maintenance material and service costs.
This increase was partially offset by the 1996 establishment of a provision for
the insurance claims on two gas turbine failures in January 1996.  Other
expenses incurred in these periods were considered normal expenditures to
achieve the recorded operating revenues.

In 1996, MCV's operating expenses increased $31.8 million over 1995, which
includes a $20.9 million increase in fuel costs. The 1996 fuel costs includes
the recognition of the Great Lakes gas transportation refund of approximately
$17.6 million (excluding interest). Excluding the Great Lakes refund, fuel
costs increased $38.5 million over 1995 due primarily to a 13.6 bcf increase in
fuel usage resulting from the higher Consumers dispatch level and to a $.13 per
MMBtu increase in the fuel rate due to an increase in purchases of more
expensive long-term gas over short-term purchases due to a substantial rise in
short-term market prices over 1995.  This increase was partially offset by
lower Great Lakes demand charges as a result of implementing rolled-in rates
beginning October 1, 1995.

In 1996, operating expenses other than fuel costs increased $10.9 million over
1995 due primarily to higher depreciation expense, resulting from the
amortization of increased payments under the amended Service Agreement for hot
gas path parts and a provision for the insurance claims on the two gas turbine
failures in January 1996.  This increase was partially offset by lower property
taxes and lower legal fees.  Other expenses incurred in these periods were
considered normal expenditures to achieve the recorded operating revenues.

Other Income (Expense)

The increase in interest and other income for the year ended December 31, 1997
compared to the year 1996 is due to maintaining a higher average cash
investment balance and to higher interest rates.  This increase was partially
offset by the 1996 receipt of approximately $1.4 million of interest income on
the Great Lakes gas transportation refund.  The increase in interest and other
income for the year ended December 31, 1996 compared to the year 1995 is due to
interest received of approximately $1.4 million on the Great Lakes gas
transportation refund and to maintaining a higher average cash investment
balance. The decrease in interest expense for the year ended December 31, 1997
compared to the year 1996 and in 1996 compared to 1995 is due to a lower
principal balance on MCV's financing obligation.

Cumulative Effect of Accounting Change

Effective January 1, 1997, MCV changed its method of accounting for property
taxes so that such taxes are expensed monthly during the fiscal period of the
taxing authority for which the taxes are levied.  This change provides a better
matching of property tax expense with both the payment for services and those
services provided by the taxing authorities.  Prior to January 1, 1997, the
Partnership expensed property taxes monthly during the year following the
assessment date (December 31).  The cumulative effect on prior years of this
change increased earnings for the year 1997 by approximately $15.5 million
while the current year effect increased 1997 earnings by approximately $.6
million.

Liquidity and Financial Resources

During the years ended December 31, 1997 and 1996, net cash generated by MCV's
operations was $121.1 million and $167.9 million, respectively.  The primary
use of net cash was for the payment of principal on the financing obligation
and capital expenditures.  No distributions to the Partners for federal tax
obligations were made in the last three years; instead, funds totaling $13.2
million, $18.1 million and $5.8 million were retained by MCV as working capital
in 1997, 1996 and 1995, respectively, since the Reserve Account was funded to
the maximum amount of $137 million in 1994, per the Intercreditor Agreement.
MCV's cash and cash equivalents have a normal cycle of collecting six months of
revenues less operating expenses prior to making the semiannual interest and
principal payments of the financing obligation due in

                                       25


<PAGE>   28

January and July for the next seventeen years.  During 1997, 1996 and 1995, MCV
paid the basic rent requirements of $254.6 million, $254.7 million and $254.4
million, respectively, as required under the Overall Lease Transaction.

MCV also has arranged for a $50 million working capital line ("Working Capital
Facility") from the Bank of Montreal to provide temporary financing, as
necessary, for operations.  The Working Capital Facility has been secured by
MCV's natural gas inventory and earned receivables.  At any given time,
borrowings and letters of credit are limited by the amount of the borrowing
base, defined as 90% of earned receivables.  The borrowing base varies over the
month as receivables are earned, billed and collected.  At December 31, 1997,
the borrowing base was $49.2 million.  The Working Capital Facility term
currently extends to August 31, 1999.  MCV did not utilize the Working Capital
Facility during 1997, except for letters of credit associated with normal
business practices.  MCV believes that amounts available to it under the
Working Capital Facility will be sufficient to meet any working capital
shortfalls which might occur.

For the foreseeable future, MCV expects to fund current operating expenses,
payments under the amended Service Agreement  and rental payments primarily
through cash flow from operations.  If necessary, MCV could fund any operating
cash flow shortfalls from cash reserves to the extent available for such
purposes.  As of December 31, 1997, there was $279.9 million (which includes
$67.1 million reserved for capital improvements and spare parts purchases),
including accrued interest, in available reserves for such purposes.

Inflation

MCV does not expect inflation to have a significant effect on future results of
operations in the near term.  MCV's gas contracts have a fixed price in a base
year which is subject to adjustment under various methods -- a fixed escalator,
an index based on Consumers' energy charges under the PPA, or a combination
thereof -- which permits the seller to increase the price by the greater of the
fixed escalator or the energy charge index.  Management believes these
provisions provide a measure of relief from inflation risks inasmuch as none of
the long term gas contracts are indexed either to the price of natural gas or
to the rate of general inflation.  Under the terms of MCV's financing
obligations under the Overall Lease Transaction, all of the outstanding
long-term borrowings are at fixed rates.

Outlook

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995.  The following discussion of the outlook for MCV contains certain
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995 (the "Act"), including, without limitation, discussion as to
expectations, beliefs, plans, objectives and future financial performance, or
assumptions underlying or concerning matters discussed reflecting MCV's current
expectations of the manner in which the various factors discussed therein may
affect its business in the future.  Any matters that are not historical facts
are forward-looking and, accordingly, involve estimates, assumptions, and
uncertainties which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements.  Accordingly, this
"Safe Harbor" Statement contains additional information about such factors
relating to the forward-looking statements.  There is no assurance that MCV's
expectations will be realized or that  unexpected events will not have an
adverse impact on MCV's business.

Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include the
final outcome of the MPSC Restructuring Orders and challenges thereto,
governmental policies, legislation and other regulatory actions (including
those of the Michigan Legislature, Federal Energy Regulatory Commission and the
Michigan Public Service Commission) with respect to cost recovery under the
PPA, industry restructuring or deregulation, operation and construction of
plant facilities including natural gas pipeline and storage facilities, and
present or prospective wholesale and retail competition, among others.  The
business and profitability of MCV is also influenced by economic factors,
weather conditions, pricing and transportation of commodities and inflation,
among other important factors.  All such factors are difficult to predict,
contain uncertainties which may materially affect actual results, and are
beyond the control of MCV.

Results of operations are largely dependent on successfully operating the
Facility at or near contractual capacity levels, the availability of natural
gas, the level of energy rates paid to MCV relative to the cost of fuel used
for generation, 

                                       26


<PAGE>   29



Consumers' performance of its obligations under the PPA, capacity payments made
by Consumers and maintenance of the Facility's QF status.         

Operating Outlook.  Approximately 65% of PPA revenues are capacity payments
which are based on the Facility's availability.  PPA availability was 98.9% in
1997, 96.4% in 1996 and 98.1% in 1995.  Availability will depend on the level
of scheduled and unscheduled maintenance outages, and on the sustained level of
output from each of the GTGs and the steam turbines.  MCV expects long-term PPA
availability to exceed 90%.

On March 13, 1998, MCV received notice from Consumers that it would begin
economically dispatching the Facility by scheduling energy deliveries on an
economic basis relative to the cost of other energy resources, instead of at
the higher dispatch levels experienced over the past several years. MCV
consequently expects both electric operating revenues and operating costs to
decline. However, MCV Management does not expect this change to have a material
impact on MCV's financial position.

GTG Equipment Problems. Over the past seven years and most recently in January
1996, several of the gas turbine generators "GTGs" have experienced severe
cracking in the hot gas casings, which in some cases has caused extensive
damage to the turbine blades and vanes. After each such incident, MCV and ABB
Power have identified and modified each of the GTGs to eliminate the problems
and have implemented a program of hot gas path inspections for all GTGs, which
are currently being performed every 2,000 hours. MCV and ABB Power continue to
address reliability issues to alleviate future outages, and MCV believes that
with the modifications that have been made to date there should be no
significant future impacts on plant availability or efficiency, although no
assurance can be given that additional equipment problems will not occur.

The cost of casing replacements and modifications is covered by ABB Power (with
the exception of insurable events) pursuant to the amended Service Agreement,
under which ABB Power is providing hot gas path parts for MCV's twelve gas
turbines through the sixth series of major GTG inspections which are expected
to be completed by year end 2008.

MCV's insurance carriers continue to monitor and review all the GTG inspection
findings.  At this time, MCV currently maintains property insurance policies
that include the hot gas casing equipment and are in effect through the second
quarter of 1998.  Failure to maintain insurance, subject to certain exceptions,
not currently applicable, is an Event of Default under the Overall Lease
Transaction.

Natural Gas.  The Facility is wholly dependent upon natural gas for its fuel
supply and a substantial portion of the Facility's operating expenses consist
of the costs of natural gas.  While MCV continues to pursue the acquisition of
fuel supply beyond the year 2002, MCV recognizes that its existing gas
contracts are not sufficient to satisfy the anticipated gas needs over the term
of the PPA and, as such, no assurance can be given as to the availability or
price of natural gas after the expiration of the existing gas contracts.

Energy Rates and Cost of Production.  Under the PPA, energy charges are based
on the costs associated with fuel inventory, operations and maintenance, and
administrative and general expenses associated with certain of Consumers' coal
plants.  However, MCV's costs of producing electricity are tied, in large part,
to the cost of natural gas.  To the extent that the costs associated with
production of electricity with natural gas rise faster than the energy charge
payments, which are based largely on Consumers' coal plant operation and
maintenance costs, MCV's financial performance would be negatively affected.
For the period April 1990 through December 1997, the energy charge (fixed and
variable) paid to MCV has declined by .23 cents per kWh, while the average
variable cost of delivered fuel for the period 1990 - 1997, has risen by $0.21
per MMBtu.

The divergence between variable revenues and costs will become greater if the
energy charge (based largely on the cost of coal) declines or escalates more
slowly than the spot market or contract prices under which MCV purchases fuel
(contract prices generally escalate at either the total PPA energy charge or 4%
per year).  The difference could be further exacerbated in approximately three
years as MCV's gas contracts begin to expire if the cost of replacement fuel is
materially higher than the prices in the expiring contracts.

Energy Payments Under the PPA

PPA - "Regulatory Out" Provision.  Under the "regulatory out" provision of the
PPA Consumers may, under certain conditions, be relieved of paying capacity
and/or energy charges to MCV to the extent the MPSC does not allow Consumers to
recover such charges from its customers.  Consumers is not permitted for the
first 17 1/2 years of the PPA to reduce capacity payments to MCV below an
average rate of 3.77 cents per kWh for available contract capacity as a result
of a regulatory disallowance.


                                       27


<PAGE>   30

   PPA - Jurisdictional Disallowance.  On February 23, 1995, the Michigan
   Public Service Commission ("MPSC") in Case No. U-10155-R (the 1993 power
   supply cost recovery reconciliation proceeding, "1993 Reconciliation Case"
   conducted by the MPSC to reconcile actual costs incurred by Consumers in
   1993 in providing power supply to its retail customers with actual revenues
   it collected that same year), ruled that Consumers could not recover from
   its retail customers the full 915 MW of MCV capacity and fixed energy
   charges as Consumers contended it was entitled to under the terms of the
   1993 revised settlement proposal approved by the MPSC in Case Nos. U-10127
   and U-8871 et al.  Instead, the MPSC "allocated" approximately 25 MW of MCV
   capacity to "non-jurisdictional" customers (i.e., customers not subject to
   MPSC jurisdiction) (the "Jurisdictional Issue").  In October 1995, Consumers
   notified MCV that, pursuant to the "regulatory out" provision of the PPA, it
   would increase the amount escrowed each month to reflect its calculation of
   fixed energy charge payments allocated to non-jurisdictional customers
   disallowed by the MPSC and Michigan Court of Appeals due to the
   Jurisdictional Issue.  In addition, Consumers requested a refund from MCV of
   $1.9 million plus interest, for the calendar years 1993 and 1994 and the
   first eight months of 1995.  In November 1995, MCV responded to Consumers
   indicating that MCV would, pursuant to the PPA, refund the appropriate
   funds, if any, and determine the appropriate calculation of the correct
   escrow amount, if any, at such time as a final and non-appealable order
   disallowing these recoveries is entered.  The Michigan Court of Appeals
   decision involving the Jurisdictional Issue has become final.  Based on this
   decision, Consumers notified MCV that it would continue withholding the
   fixed energy charges on the Jurisdictional Issue (currently averaging
   approximately $45,000 per month in 1997).  MCV agreed to the release to
   Consumers of the escrowed funds of approximately $1.0 million plus interest
   (covering the period of September 1995 through December 1996), subject to a
   final resolution between MCV and Consumers of the energy charge to be paid
   to MCV, which will be adjusted with any refund of the $1.9 million
   (discussed above), as a result of the finality of the Jurisdictional Issue.
   MCV has not recognized any of these amounts related to this Jurisdictional
   Issue as operating revenues.

   PPA - Fixed Energy Payments for Deliveries Above the Caps.  The MPSC ruled
   in the 1993, 1994 and 1995 Reconciliation and Plan Cases that Consumers
   would not be permitted to recover from its retail customers fixed energy
   costs for energy delivered above the off-peak cap ("the off-peak cap issue")
   of 732 MW in 1993 and 750.3 MW in 1994 and 1995.  MCV and Consumers appealed
   the MPSC orders for both the years 1993 and 1994 to the Michigan Court of
   Appeals, and in the 1993 Reconciliation and 1994 Plan Cases the Michigan
   Court of Appeals affirmed the MPSC's decisions. MCV believes these rulings
   are erroneous and petitioned the Michigan Supreme Court to review the
   off-peak cap issue in the 1993 Reconciliation and 1994 Plan Cases.  On
   January 30, 1998, the Michigan Supreme Court denied MCV's petition for
   review of the 1993 Reconciliation Case, thus, this case is now final.  Other
   PSCR Plan and/or Reconciliation Cases for the years 1995 through 1997 are
   pending before the MPSC at this time which involve this same issue.
   Consumers escrowed approximately $2.8 million for 1996 and $1.0 million for
   1994 and 1995 of fixed energy charges payable to MCV based upon the MPSC
   rulings. MCV has not recognized any of these amounts related to the off-peak
   cap issue as operating revenues.  MCV Management cannot predict the outcome
   of these proceedings.

   PPA - Additional 325 MW.  In September 1995, Consumers and the MPSC staff
   filed a motion to create a consolidated proceeding for the purpose of
   reviewing a settlement agreement ("325 MW Proposed Settlement") entered into
   between the MPSC staff and Consumers.  The settlement agreement proposed
   approving one-hundred percent jurisdictional cost recovery of an additional
   325 MW of capacity purchased from MCV.  Cost recovery approval for the 325
   MW of MCV Contract Capacity was in addition to the 915 MW already approved
   (subject to the Jurisdictional Issue) by the MPSC.  On November 14, 1996,
   the MPSC approved, with modifications, the settlement agreement effective
   January 1, 1996 ("325 MW Settlement Order").  The modifications were
   generally related to issues not material to MCV, except the Jurisdictional
   Issue which the MPSC deferred to the 1996 PSCR Plan proceeding. In the 1996
   PSCR Plan proceeding, which is subject to further proceedings, the MPSC
   ordered, on May 7, 1997, that the 325 MW of additional MCV capacity would be
   allocated between jurisdictional and non-jurisdictional customers of
   Consumers in the same manner as the original 915 MW. As a result of the
   approval of the 325 MW Settlement Order, Consumers notified MCV in February
   1997, that it would cease escrowing for the off-peak cap issue.  Consumers
   released to MCV the 1996 escrowed funds of approximately $2.8 million
   discussed in the preceding paragraph and Consumers has paid to MCV
   approximately $2.8 million for energy delivered above the off-peak cap
   during 1997, subject to a final decision upholding the 325 MW Settlement
   Order on this issue.  MCV has not recognized these amounts paid to MCV as
   operating revenues.  Various parties have appealed the MPSC's 325 MW
   Settlement Order to the Michigan Court of Appeals.  MCV Management cannot
   predict the outcome of either the 325 MW Settlement Order proceeding or the
   1996 PSCR Plan proceeding.


                                       28


<PAGE>   31


   PPA - Other Issues.  Recently, Consumers informed MCV of several other
   potential issues it may pursue, pursuant to the "regulatory out" provision
   of the PPA.  These issues relate to Consumers' special contract customers,
   pricing of the energy delivered during off-peak ramp hours (when MCV adjusts
   its output to match Consumers' dispatch) and energy delivered in the band
   width (energy delivered above dispatch, within certain limits).  In
   addition, Consumers notified MCV that it does not believe that MCV can use
   the approximately 15 MW of generating capacity attributable to the back
   pressure turbine, which was placed into service in July 1997, towards
   available Contract Capacity under the PPA. MCV is still studying these
   issues and cannot accurately determine the financial impact of these issues
   and what specific action will be taken.  MCV Management believes, based upon
   limited information, that these potential issues will not have a material
   impact upon MCV's financial position, if recognized.

Michigan Electric Industry Restructuring Proceedings.  On December 20, 1996,
the MPSC issued an order on its own motion to consider the restructuring of the
electric industry in Michigan.  After public hearings and contested case
hearings the MPSC issued its initial order on June 5, 1997, intermediate orders
in related dockets on October 29, 1997, its final order on January 14, 1998,
and a clarification order on February 11, 1998 (collectively the "Restructuring
Orders").  While the Restructuring Orders are not entirely clear, they
generally provide for a transition to a competitive regime whereby electric
retail customers will be able to chose their power supplier and pay negotiated
or market-based rates for such power supply.  The MPSC ordered a phased-in
program (from 1998 through 2001) for this competitive regime known as "direct
access" whereby all customers (industrial, commercial and residential) would be
eligible to select the power supplier of their choice.  The MPSC also addressed
many transition issues including reliability, stranded cost (or transition
cost) recovery, rates, and other issues.  As noted above (Part I, Item 1,
Section D, "Major Issues Facing MCV - Electric Industry Restructuring"), the
two issues involved in this restructuring which could impact MCV the most are
contract sanctity and stranded cost recovery.  On the issue of contract
sanctity, the Restructuring Orders indicate that it was not the intent of the
MPSC to take any action that would affect the contractual rights of QFs,
including MCV.  On the issue of stranded cost recovery, the Restructuring
Orders allow recovery by utilities (including Consumers) of stranded costs
including capacity charges previously approved by the MPSC in power contracts
incurred during the regulated era that will be above market prices during the
new competitive regime.  However, it appears that stranded cost recovery of
above-market capacity charges in power purchase contracts (i.e., MCV's PPA) may
be limited to the period 1998 through 2007 (MCV's PPA expires in 2025).  The
Restructuring Orders do not specifically address the issue of stranded cost
recovery after 2007.  In addition, the Restructuring Orders permit Consumers to
elect to freeze its PSCR factor through which charges under the PPA are
recovered from retail customers.  The MPSC has also suspended the annual PSCR
(Plan and Reconciliation Case) process indefinitely, at Consumers' request.
MCV has advocated, among other things, full recovery of PPA charges (capacity
and energy) for the life of the PPA.  MCV, as well as others, has filed an
appeal of the MPSC Restructuring Orders in the Michigan Court of Appeals and a
complaint in the U.S. District Court for the Western District of Michigan
challenging the Restructuring Orders.  MCV's complaint seeks, among other
things, a declaration that the Restructuring Orders are preempted by PURPA to
the extent that they fail to provide for assured retail rate recovery of
payments made by Consumers to MCV pursuant to PURPA and an injunction barring
enforcement of the Restructuring Orders to the extent they are preempted by
PURPA.  The Michigan legislature has also begun the process to consider
electric industry restructuring and deregulation.  While restructuring could
have a material impact on MCV, MCV Management cannot, at this time, predict the
impact or the outcome of these administrative, judicial and legislative
proceedings.

Federal Electric Industry Restructuring.  FERC has jurisdiction over wholesale
energy sales in interstate commerce and is moving towards "market" based
pricing of electricity in some circumstances as opposed to traditional
cost-based pricing.  In April 1996, FERC issued Order No. 888 requiring all
utilities FERC regulates to file uniform transmission tariffs providing for,
among other things, non-discriminatory "open access" to all wholesale buyers
and sellers, including the transmission owner, on terms and conditions
established by FERC.  Order No. 888 also requires utilities to "functionally
unbundle" transmission and separate transmission personnel from those
responsible for marketing generation.  Appeals of Order No. 888 are pending
before the United States Court of Appeals for the Second Circuit.  In addition,
several bills have been introduced in Congress to require states to permit
consumers to choose their supplier of electricity and manage other issues such
as transition cost recovery and FERC jurisdiction of retail electric sales.
MCV Management cannot predict the impact on MCV or the outcome of these
proceedings.

Maintaining QF Status.  In the case of a topping-cycle generating plant such as
the Facility, to maintain QF Status the applicable operating standard requires
that the portion of total energy output that is put to some useful purpose
other than 

                                       29


<PAGE>   32

facilitating the production of power (the "Thermal Percentage") be at least 5%. 
In addition, the plant must achieve and maintain an average PURPA efficiency
standard (the sum of the useful power output plus one-half of the useful thermal
energy output, divided by the energy input (the "Efficiency Percentage")) of at 
least 45%.  However, if the plant maintains a Thermal Percentage of 15% or
higher, the required Efficiency Percentage is reduced to 42.5%.  The tests are
applied on a calendar year basis.  The Facility has achieved the applicable
Efficiency Percentage of 42.5% in each year since commercial operation, and in
the years 1995 through 1997 the Facility achieved an Efficiency Percentage in
excess of 45%.

The Facility's achievement of a Thermal Percentage of 15% (thereby requiring
compliance with the reduced Efficiency Percentage of 42.5%) is dependent upon
both the amount of Dow and DCC steam purchases and the level of electricity
generated by the Facility.  Dow has agreed to take as much steam as is
necessary for the Facility to retain its QF status under the FERC regulations
in effect on November 1, 1986 (which regulations have not been revised in
relevant part in any material respect), subject to an annual average purchase
obligation of no less than approximately 440,000 lbs/hr. of steam (less amounts
supplied by the Standby Facilities and less 50% of the amount sold by MCV to
other steam customers).  The SEPA can be terminated by Dow under certain
circumstances.  Such termination would likely lead to a loss of QF status for
the Facility.  The amounts of steam that Dow is obligated to take under the
SEPA are expected to be sufficient to allow the Facility to maintain a Thermal
Percentage of 5% (which would require the Facility to achieve the 45% PURPA
Efficiency Percentage) but will not be sufficient to allow the Facility to
maintain a Thermal Percentage of 15% (which would allow a reduction of the
required PURPA efficiency standard to 42.5%).  As a result of Consumers'
decision, in 1996, to increase MCV's electric dispatch consistent with the
terms of the 325 MW Settlement Order, energy deliveries under the PPA have
exceeded 90% of Contract Capacity.  Due to this increase in dispatch, Dow and
DCC steam purchases must average approximately 600,000 lbs/hour for the
Facility to achieve a 15% Thermal Percentage.  Higher levels of electric energy
deliveries will require higher levels of steam purchases in order to achieve a
15% Thermal Percentage.  Dow and DCC steam purchases for 1997 averaged 652,708
lbs/hr.  Actual steam usage has varied and will vary with product mix, seasonal
delivery fluctuations and other factors which may change over time.  MCV
believes annual steam sales will be sufficient to allow the Facility to exceed
the 15% Thermal Percentage even if electricity deliveries under the PPA exceed
90% of Contract Capacity.

MCV believes that, given projected levels of steam and electricity sales, and
through diligent management of the issue, the Facility will be able to maintain
QF status and be capable of achieving a 45% PURPA Efficiency Percentage on a
long-term basis.  However, no assurance can be given that factors outside MCV's
control will not cause the Facility to fail to satisfy the annual PURPA
qualification requirements and thus lose its QF status.  In 1997, MCV achieved
an Efficiency Percentage of 45.7% and a Thermal Percentage of 16.0%.

The loss of QF status could, among other things, cause the Facility to lose its
right under PURPA to sell power to Consumers at Consumers' "avoided cost" and
subject the Facility to additional federal and state regulatory requirements,
including the FPA (under which FERC has authority to establish rates for
electricity, which may be different than existing contractual rates).  If the
Facility were to lose its QF status, the Partners of MCV, the Owner
Participants, the bank acting as the Owner Trustee and their respective parent
companies could become subject to regulation under the 1935 Act (under which,
among other things, the Securities and Exchange Commission has authority to
order divestiture of assets under certain circumstances).  The loss of QF
status would not, however, entitle Consumers to terminate the PPA.  Under the
PPA, Consumers is obligated to continue purchasing power from MCV at
FERC-approved rates (provided that the FERC-approved rates do not exceed the
existing contractual rates) and MCV, not Consumers, is entitled to terminate
the PPA (which MCV has covenanted not to do under the Participation
Agreements).  There can be no assurance that FERC-approved rates would be the
same as the rates currently in effect under the PPA.  If the FERC-approved
rates are materially less than the rates under the PPA, MCV may not have
sufficient revenue to make rent payments under the Overall Lease Transaction.
The loss of QF status would constitute an Event of Default under the Lease (and
a corresponding Event of Default under the Indenture) unless, among other
requirements, FERC approves (or accepts for filing) rates under the PPA or
other contracts of MCV for the sale of electricity sufficient to meet certain
target coverage ratios (as defined in the Overall Lease Transaction).

Year 2000 Computer Issues.  MCV utilizes certain software and related
technologies throughout the Facility which will be affected by the year 2000
date change.  Modifications to computer software systems to process year 2000
date transactions and receipt of vendor confirmations that their software is
year 2000 compliant began in 1997.  MCV expects that all new software
installations or other modifications to its computer systems will be completed
by 2000.  Anticipated spending for 

                                       30


<PAGE>   33

modifications will be expensed as incurred, while the costs for new software
will be capitalized and amortized over the software's useful life.  At this
time, MCV does not expect that the cost of these modifications or software will
have a material effect on its financial position, liquidity or results of
operations.

See Part II, Item 8, "Financial Statements and Supplementary Data -- Notes 1
through 8 to the Consolidated Financial Statements" for a further discussion of
associated risks and contingencies.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Report of Independent Public Accountants and Financial Statements are set
forth on Pages F-2 to F-19 of this Annual Report on Form 10-K and are hereby
incorporated herein.


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL REPORTING MATTERS

None.

                                       31


<PAGE>   34


                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information with respect to those individuals who serve as
executive officers of MCV as well as those individuals who serve as members of
its Management Committee, with their ages in parenthesis.  The executive
officers of MCV are each appointed by the Management Committee and serve until
his or her successor is duly chosen or until his or her death, ineligibility to
serve, resignation or removal by the Management Committee.  Members of the
Management Committee are each appointed by a General Partner and serve until
his or her successor is appointed by the appropriate General Partner.  Members
of the Management Committee receive no compensation from MCV for serving on the
Management Committee.  For a discussion of the relationships between members of
the Management Committee, Executive Officers and the Partners, the ownership
interests of each of the general and limited partners of MCV, and the voting
percentages of each of the members of the Management Committee, see Part III,
Item 12, "Security Ownership of Certain Beneficial Owners and Management" and
Part III, Item 13, "Certain Relationships and Related Transactions."



<TABLE>
<S>                          <C>    <C>                                           
Management Committee                                                              
                                                                                  
William T. McCormick, Jr.    (53)   Management Committee Chairman                 
                                                                                  
David A. Arledge             (53)   Management Committee Member                   
                                                                                  
Peter Giller                 (55)   Management Committee Member                   
                                                                                  
Joseph L. Roberts, Jr.       (43)   Management Committee Member                   
                                                                                  
                                                                                  
Executive Officers                                                                
                                                                                  
James M. Kevra               (49)   President and Chief Executive Officer         
                                                                                  
Bruce C. Grant               (51)   Vice President of Human Resources,            
                                    Communications and Public Affairs             
                                                                                  
James A. Mooney              (58)   Vice President of Engineering, Operations and 
                                    Construction                                  
                                                                                  
Gary B. Pasek                (42)   Vice President, General Counsel and Secretary 
                                                                                  
James M. Rajewski            (50)   Vice President and Controller                 
                                                                                  
Stephen A. Shulman           (41)   Vice President of Finance and Treasurer       
                                                                                  
LeRoy W. Smith               (56)   Vice President of Gas Supply                  
</TABLE>

William T. McCormick, Jr. has served as Chairman of the Management Committee of
MCV since its creation in January, 1987.  Mr. McCormick has served as Chairman
of the Board, Chief Executive Officer and Director of CMS Energy (diversified
energy holding company) since it was incorporated in February 1987 and as
Chairman of Consumers since November 1985.

David A. Arledge has served as a member of the Management Committee since July
1988.  Mr. Arledge is Chairman, President and Chief Executive Officer of The
Coastal Corporation, a diversified energy holding company.  Prior to becoming
Chief Executive Officer in October 1995, Mr. Arledge was Chief Operating
Officer of The Coastal Corporation from March, 1994.  He is also a Director of
Coastal and of Coastal Midland, Inc., a subsidiary of Coastal and has held
these positions since February 1988 and April 1989, respectively.  He has held
various executive positions in Coastal and numerous subsidiaries of Coastal for
at least the last five years.

                                       32


<PAGE>   35



Peter Giller has served as a member of the Management Committee since June
1990.  Mr. Giller is also serving as President of ABB Energy Ventures Inc.
(engaged in power plant development) and has held this position since May 1989.

Joseph L. Roberts, Jr. has served as a member of the Management Committee since
May 1997.  Since August 1997, Mr. Roberts has been President of MCNIC Pipeline
& Processing Company and a member of the Board of Directors of MCN Investment
Corporation, both subsidiaries of MCN Energy Group Inc.  He is also Vice
President of MCNIC Power Company, a position he has held since 1993.  From 1993
through 1997 Mr. Roberts was Vice President of MCNIC Pipeline & Processing
Company.  Prior to 1993, Mr. Roberts was employed by Michigan Consolidated Gas
Company, where he held various technical and management positions, including
Director of Industrial Marketing.

James M. Kevra has served as President and Chief Executive Officer of MCV since
July 1995.  Mr. Kevra has served as a member of the Management Committee from
April 1992 to June 1995.  Mr. Kevra has previously served as President of Pan
National Gas Sales, Inc. (engaged in the marketing of liquefied natural gas), a
subsidiary of PanEnergy, and held that position from February 1995 to June
1995, was Vice President of Centana Energy Corporation (engaged in the
gathering and processing of natural gas), a subsidiary of PanEnergy, and was
Vice President of Planning for Panhandle Eastern Pipe Line Company (engaged in
the interstate transportation of natural gas).  Mr. Kevra also served as the
President of Source Cogeneration Company, Inc., (an affiliate of PanEnergy) and
served in that capacity from April 1992 to June 1995.

Bruce C. Grant has served as Vice President of Human Resources, Communications
and Public Affairs of MCV since February 1998.  From May 1988 to February 1998
he served as the Director of Human Resources and Communications.

James A. Mooney has served as Vice President of Engineering, Operations and
Construction of MCV since October 1987.

Gary B. Pasek has served as General Counsel and Secretary of MCV since May 1995
and was elected Vice President in February 1998.  From 1991 until joining MCV,
Mr. Pasek was Assistant General Counsel and Assistant Secretary of the Illinois
Power Company ("IP") (an investor owned electric and gas utility) as well as
General Counsel and Secretary of Illinova Generating Company ("IGC") (an
independent power generation company); both IP and IGC are affiliates of
Illinova Corporation.  Prior to his employment at IP Mr. Pasek was in the
private practice of law since 1980.

James M. Rajewski has served as Vice President and Controller of MCV since
January 1988.

Stephen A. Shulman has served as Vice President of Finance and Treasurer since
February 1994.  From February 1990 to February 1994 he served as Treasurer and
Manager of Financial Analysis.

LeRoy W. Smith has served as Vice President of Gas Supply of MCV since July
1988.


                                       33


<PAGE>   36


Item 11. EXECUTIVE COMPENSATION

Compensation

The following table sets forth certain compensation data with respect to the
chief executive officer and four other most highly compensated executive
officers of MCV for each of the three years ended December 31, 1997, 1996 and
1995.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                              Annual Compensation
           Name                  ---------------------------------------------
           and                                                Other Annual         All Other
   Principal Position      Year  Salary ($)  Bonus ($)(a)  Compensation ($)(b)  Compensation($)
-------------------------  ----  ----------  ------------  -------------------  ---------------
<S>                        <C>   <C>         <C>           <C>                  <C>
James M. Kevra             1997   221,750      127,302             --               45,942(c)
President and              1996   200,535      112,300             --               40,270
Chief Executive Officer    1995   100,267       55,000            4,650             22,770
(commencing 7/1/95)

James A. Mooney            1997   169,139       63,639             --               37,126(d)
Vice President of          1996   163,247       57,991             --               35,637
Engineering, Operations    1995   158,989       71,100             --               35,617
and Construction

LeRoy W. Smith             1997   145,505       59,813             --               24,306(e)
Vice President of          1996   140,425       57,525             --               23,551
Gas Supply                 1995   138,016       65,570             --               23,234

Gary B. Pasek              1997   142,380       51,195             --               21,329(f)
General Counsel &          1996   134,403       49,347             --               20,135
Secretary                  1995    82,595       29,792           17,075             12,000
(commencing 5/15/95)

Stephen A. Shulman         1997   129,932       46,303             --               19,465(g)
Vice President of Finance  1996   122,382       42,439             --               18,335
and Treasurer              1995   118,109       47,016             --               11,802
</TABLE>

----------------
(a)  Represents bonuses accrued under the Senior Management Incentive Plan.

(b)  Represents relocation costs (including tax reimbursements) paid either to
     or on behalf of Mr. Kevra and Mr. Pasek in connection with their moves to
     MCV.

(c)  Includes company contributions of $8,000 to the 401(k) Savings Plan,
     $12,500 to the Defined Contribution Retirement Plan, $12,769 to the
     Supplement Retirement Plan and $12,673 to the Excess Benefit Plan.

(d)  Includes company contributions of $8,000 to the 401(k) Savings Plan,
     $12,500 to the Defined Contribution Retirement Plan, $11,914 to the
     Supplemental Retirement Plan and  $4,712 to the Excess Benefit Plan.

(e)  Includes company contributions of $7,154 to the 401(k) Savings Plan,
     $13,346 to the Defined Contribution Retirement Plan, $2,608 to the
     Supplemental Retirement Plan and $1,198to the Excess Benefit Plan.

(f)  Includes company contributions of $6,834 to the 401(k) Savings Plan,
     $13,666 to the Defined Contribution Retirement Plan and $829 to the
     Supplemental Retirement Plan.

(g)  Includes company contributions of $6,488 to the 401(k) Savings Plan and
     $12,977 to the Defined Contribution Retirement Plan.


                                       34


<PAGE>   37



Compensation Committee Interlocks and Insider Participation

The members of the Management Committee also serve as members of MCV's
Compensation Committee.  Members of the Compensation Committee are each
appointed by a General Partner and serve until his or her successor is
appointed by the appropriate General Partner.  No member of the Compensation
Committee was or is an officer or employee of MCV.  Members of the Compensation
Committee receive no compensation from MCV.

Mr. Arledge is a member of the Compensation Committee of MCV as well as
Chairman, President and Chief Executive Officer and a Director of Coastal and a
Director of Coastal Midland, Inc.  Coastal Midland, Inc. and affiliates of
Coastal have engaged in numerous transactions in the ordinary course of
business to provide services or products to MCV.  In 1997, Coastal affiliates
engaged in transactions with MCV which included the sale of natural gas, sale
of natural gas transportation and various natural gas marketing services that
amounted in aggregate to approximately $38.6 million.  A similar level of
transactions is expected to occur in 1998.  In addition, in 1997 Coastal made a
cash withdrawal from the Partnership in the amount of $7.3 million (including
accrued interest) in exchange for a letter of credit, pursuant to the
Participation Agreement.

Mr. Giller is a member of the Compensation Committee of MCV as well as
President of ABB Energy Ventures Inc.  Affiliates of ABB Energy Ventures have
engaged in numerous transactions in the ordinary course of business to provide
services or products to MCV.  In 1997, ABB affiliates engaged in transactions
with MCV which included the inspections and repairs of the GTGs and the sale of
spare parts for the GTGs that aggregated to approximately $29.9 million.  A
higher level of transactions is expected to occur in 1998 due to the additional
expenditure of approximately $21.1 million for the GTG 11NM upgrade packages to
be installed in 1998.  In addition, in 1996 ABB made a cash withdrawal from the
Partnership in the amount of $4.3 million (including accrued interest) in
exchange for a letter of credit pursuant to the Participation Agreement, which
was repaid to MCV in 1997.

Mr. McCormick is Chairman of the Compensation Committee of MCV as well as
Chairman of the Board and Director of CMS Energy and Consumers.  CMS Energy and
its affiliates have the following direct and indirect interests in MCV and the
Facility:  CMS Midland Holdings Company has a partnership interest in MCV,
representing indirectly a 35% equity interest in the Facility; CMS Midland has
a 49% general partnership interest in MCV; and Consumers has contractual
obligations under the PPA to purchase electric capacity and related energy from
MCV, has contractual obligations under various backup agreements among MCV,
Consumers and Dow to assure a continuous supply of steam and electricity to Dow
in the event the SEPA is terminated, has contractual obligations to enter into
transmission service agreements with other utilities for MCV's benefit, and has
leased undivided interests in the Site to the Owner Trustees (as MCV's
assignees) pursuant to the Ground Lease.  In 1997, Consumers purchased electric
capacity and related energy from the Facility that aggregated approximately
$608.6 million.  In addition, CMS Energy affiliates have engaged in numerous
transactions in the ordinary course of business to provide services or products
to MCV.  In 1997, CMS Energy affiliates engaged in transactions with MCV which
included the sale of natural gas, the sale of natural gas transportation, the
sale of natural gas storage and the purchase of natural gas that amounted in
aggregate to approximately $30.0 million.  A similar level of transactions is
expected to occur in 1998.

Mr. Roberts is a member of the Compensation Committee of MCV, as well as
President of MCNIC Pipeline & Processing Company, a member of the Board of
Directors of MCN Investment Corporation and Vice President of MCNIC Power
Company. Affiliates of MCN Energy Group Inc. have engaged in numerous
transactions in the ordinary course of business to provide services or products
to MCV.  In 1997, MCN Energy Group Inc. affiliates engaged in transactions with
MCV which included the sale of natural gas and the purchase of natural gas that
amounted in aggregate to approximately $10.8 million.  A similar level of
transactions is expected to occur in 1998.  In addition, in 1997 MCN Energy
Group Inc. made a cash withdrawal from the Partnership in the amount of $11.9
million (including accrued interest) in exchange for a letter of credit,
pursuant to the Partnership Agreement.

For further detailed discussions of MCV's contracts and leases with Partners,
see Part I, Item 1, Section E, "Contracts", Item 2, "Properties" and Part II,
Item 8, "Financial Statements and Supplementary Data -- Note 10 to the
Consolidated Financial Statements."


                                       35


<PAGE>   38


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following information is given with respect to the Partners of MCV, its
Management Committee members and all Management Committee members and officers
as a group.

Security Ownership of Certain Beneficial Owners

<TABLE>                                                                
<CAPTION>
                                                                               Amount and Nature of Beneficial Ownership(a)
                                                                              ----------------------------------------------
                                  
                                                                              Approximate Percent        Approximate Percent
Title of Class                    Name and Address of Beneficial Owner        of Voting Rights of       Partnership Interest
--------------                    ------------------------------------        -------------------       --------------------
<S>                               <C>                                                <C>                       <C>              
General Partnership Interest      CMS Midland, Inc.                                   49.0%                       49.0%         
                                  212 West Michigan Avenue                                                                      
                                  Jackson, MI  49201                                                                            
                                                                                                                                
General Partnership Interest      Source Midland Limited Partnership (b)              24.2%                       18.1%         
                                  500 Griswold Street                                                                           
                                  Detroit, MI 48226                                                                             
                                                                                                                                
General Partnership Interest      Coastal Midland, Inc.                               14.6%                       10.9%         
                                  Coastal Tower                                                                                 
                                  Nine Greenway Plaza                                                                           
                                  Houston, TX 77046                                                                             
                                                                                                                                
General Partnership Interest      MEI Limited Partnership                             12.2%                        9.1%         
                                  c/o ABB Energy Ventures Inc.                                                                  
                                  202 Carnegie Center, Suite 100                                                                
                                  Princeton, NJ 08540                                                                           
                                                                                                                                
Limited Partnership Interest      The Dow Chemical Company                              --                         7.5%         
                                  2030 Dow Center                                                                               
                                  Midland, MI 48674                                                                             
                                                                                                                                
Limited Partnership Interest      Micogen Limited Partnership                           --                         4.5%         
                                  Fluor Daniel Corporation                                                                      
                                  3333 Michelson Drive                                                                          
                                  Irvine, CA 92730                                                                              
                                                                                                                                
Limited Partnership Interest      C-E Midland Energy, Inc.                              --                         0.9%         
                                  c/o ABB Energy Ventures Inc.                                                                  
                                  202 Carnegie Center, Suite 100                                                                
                                  Princeton, NJ 08540                                                                           
                                                                                                                                
Limited Partnership Interest      Alanna Corporation                                    --                     0.00001%         
                                  c/o MCV Limited Partnership                                                                   
                                  100 Progress Place                                                                            
                                  Midland, MI 48640                                                                             
                                                                                                                                
                                                                                     ------                    --------         
                                                                                                                          
                                                                                     100.0%                      100.0%         
</TABLE>


                                       36


<PAGE>   39


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

(a)  Each partner has sole voting and investment power with respect to its
     general partnership interest.  Limited partners have no voting rights,
     except in consenting (with the General Partners) to certain specified acts
     of the Management Committee.  MCV is a limited partnership wholly owned by
     its Partners. Beneficial interests in the partnership are not available to
     any persons other than the Partners.  Accordingly, none of the members of
     the Management Committee and none of the executive officers of MCV have
     any beneficial ownership in MCV.

(b)  On May 16, 1997, MCNIC Power Company, a subsidiary of MCN Energy Group
     Inc., acquired all of the partnership interests in Source Midland Limited
     Partnership from PanEnergy Corp., the previous parent company.


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Part III, Item 11, "Executive Compensation -- Compensation Committee
Interlocks and Insider Partnerships."


                                       37


<PAGE>   40

                                    PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

     1. Financial statements.


        The following consolidated financial statements are as of December 31,
        1997 and 1996 or for each of the three years ended December 31, 1997, 
        1996 and 1995.
                                                                           Page
                                                                           ----
        Index to Consolidated Financial Statements and          
           Supplemental Schedules                                           F-1
        Report of Independent Public Accountants                            F-2
        Consolidated Balance Sheets                                         F-3
        Consolidated Statements of Operations                               F-4
        Consolidated Statements of Partners' Equity                         F-5
        Consolidated Statements of Cash Flows                               F-6
        Notes to Consolidated Financial Statements                          F-7


     2. All schedules are omitted because they are inapplicable, not required
        or the information is included in the financial statements or notes 
        thereto.

    3.  The Exhibits that are filed or incorporated by reference as part of
        this report are listed in the Exhibit Index filed herewith.

(b) Reports on Form 8-K.

    No reports on Form 8-K were filed during the last quarter of 1997.





                                       38

<PAGE>   41
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                Page Reference
                                                                                              in Annual Report on
                                                                                                   Form 10-K
                                                                                              -------------------
<S>                                                                                                   <C>    
Report of Independent Public Accountants                                                              F-2    
                                                                                                             
Consolidated Balance Sheets as of December 31, 1997 and 1996                                          F-3    
                                                                                                             
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995            F-4    
                                                                                                             
Consolidated Statements of Partners' Equity for the Years Ended December 31, 1997, 1996 and 1995      F-5    
                                                                                                             
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995            F-6    
                                                                                                             
Notes to Consolidated Financial Statements                                                            F-7    
</TABLE>



                                      F-1

<PAGE>   42

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Partners and the Management Committee of the
Midland Cogeneration Venture Limited Partnership:


We have audited the accompanying consolidated balance sheets of the MIDLAND
COGENERATION VENTURE LIMITED PARTNERSHIP (a Michigan limited partnership) and
subsidiaries (MCV) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 1997.  These financial
statements are the responsibility of MCV's management.  Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An  audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Midland
Cogeneration Venture Limited Partnership and subsidiaries as of December 31,
1997 and 1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

As discussed in Note 3 to the financial statements, effective January 1, 1997,
MCV changed its method of accounting for property taxes.


                                                             Arthur Andersen LLP


Detroit, Michigan,
January 30, 1998.






                                      F-2

<PAGE>   43


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,
                                 (In Thousands)

<TABLE>
<CAPTION>
ASSETS                                                                    1997         1996
------                                                                 -----------  -----------
<S>                                                                    <C>          <C>
CURRENT ASSETS:                                                                    
  Cash and cash equivalents (Note 2)                                   $   222,365  $   209,959
  Restricted cash and cash equivalents (Notes 2 and 4)                      12,161       14,041
  Accounts and notes receivable (Notes 6 and 10)                            93,674       73,811
  Gas inventory (Notes 2 and 6)                                             12,910       13,539
  Unamortized property taxes (Note 3)                                       16,097           --
  Prepaid expenses and other                                                 4,578        4,078
                                                                       -----------  -----------
    Total current assets                                                   361,785      315,428
                                                                       -----------  -----------
PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 6):
  Property, plant and equipment                                          2,439,651    2,403,640
  Pipeline                                                                  21,222       21,222
                                                                       -----------  -----------
    Total property, plant and equipment                                  2,460,873    2,424,862
  Accumulated depreciation                                                (640,170)    (535,590)
                                                                       -----------  -----------
    Net property, plant and equipment                                    1,820,703    1,889,272
                                                                       -----------  -----------
OTHER ASSETS:
  Restricted investment securities held-to-maturity (Notes 2 and 4)        138,898           --
  Restricted non-current cash and cash equivalents                              --      143,049
  Deferred financing costs, net of accumulated amortization of
    $9,358 and $8,231, respectively (Notes 2 and 6)                          9,219       10,346
  Prepaid gas costs, materials and supplies (Note 2)                        20,666        5,850
                                                                       -----------  -----------
    Total other assets                                                     168,783      159,245
                                                                       -----------  -----------
TOTAL ASSETS                                                           $ 2,351,271  $ 2,363,945
                                                                       ===========  ===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES:
  Accounts payable and accrued liabilities (Notes 5 and 10)            $    58,942  $    67,539
  Interest payable (Note 6)                                                 85,183       88,652
  Current portion of long-term debt (Note 6)                               140,950       78,574
                                                                       -----------  -----------
    Total current liabilities                                              285,075      234,765
                                                                       -----------  -----------
NON-CURRENT LIABILITIES:
  Long-term debt (Note 6)                                                1,788,291    1,929,241
  Other                                                                        684          455
                                                                       -----------  -----------
    Total non-current liabilities                                        1,788,975    1,929,696
                                                                       -----------  -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 6, 7 and 8)
TOTAL LIABILITIES                                                        2,074,050    2,164,461
                                                                       -----------  -----------
PARTNERS' EQUITY (Note 10)                                                 277,221      199,484
                                                                       -----------  -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY                                 $ 2,351,271  $ 2,363,945
                                                                       ===========  ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-3

<PAGE>   44


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
     CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                   1997        1996        1995
                                                ----------  ----------  ----------
<S>                                             <C>         <C>         <C>
OPERATING REVENUES (Notes 2, 7, 8 and 10):
  Capacity                                      $ 405,488   $ 396,244   $  401,935
  Electric                                        218,219     220,803      188,739
  Steam and other                                  27,874      28,121       27,144
                                                ---------   ---------   ----------
    Total operating revenues                      651,581     645,168      617,818
                                                ---------   ---------   ----------
OPERATING EXPENSES:
  Fuel costs                                      266,417     250,511      229,637
  Depreciation                                    104,755     104,189       93,683
  Operations                                       16,080      15,585       13,796
  Maintenance                                      13,403      13,885       12,145
  Property and single business taxes               26,044      25,947       27,565
  Administrative, selling and general               8,383       7,168        8,645
                                                ---------   ---------   ----------
    Total operating expenses                      435,082     417,285      385,471
                                                ---------   ---------   ----------
OPERATING INCOME                                  216,499     227,883      232,347
                                                ---------   ---------   ----------
OTHER INCOME (EXPENSE):
  Interest and other income                        19,645      18,420       15,637
  Interest expense                               (173,940)   (180,779)   (187,048)
                                                ---------   ---------   ----------
    Total other income (expense), net            (154,295)   (162,359)   (171,411)
                                                ---------   ---------   ----------
INCOME BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                62,204      65,524       60,936
Cumulative effect on prior years (to
  December 31, 1996) of change in method of
  accounting for property taxes (Note 3)           15,533          --           --
                                                ---------   ---------   ----------
NET INCOME                                      $  77,737   $  65,524   $   60,936
                                                =========   =========   ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-4

<PAGE>   45


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
  CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
                                 (In Thousands)



<TABLE>
<CAPTION>
                             General     Limited
                             Partners    Partners     Total
                            ----------  ----------  ----------
<S>                         <C>         <C>         <C>
BALANCE, DECEMBER 31, 1994  $   52,212  $   20,812  $   73,024
Net income                      53,052       7,884      60,936
                            ----------  ----------  ----------
BALANCE, DECEMBER 31, 1995     105,264      28,696     133,960
Net income                      57,048       8,476      65,524
                            ----------  ----------  ----------
BALANCE, DECEMBER 31, 1996     162,312      37,172     199,484
Net income                      67,680      10,057      77,737
                            ----------  ----------  ----------
BALANCE, DECEMBER 31, 1997  $  229,992  $   47,229  $  277,221
                            ==========  ==========  ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-5

<PAGE>   46


                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                              1997        1996        1995
                                                                           ----------  ----------  ----------
<S>                                                                        <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                               $   77,737  $   65,524  $   60,936
  Adjustments to reconcile net income to net cash provided by operating
    activities
  Depreciation and amortization                                               105,882     105,361      94,896
  Cumulative effect of change in accounting principle                         (15,533)         --          --
  Increase in accounts and notes receivable                                   (19,863)     (9,790)     (6,432)
  (Increase) decrease in gas inventory                                            629         857        (29)
  Increase in unamortized property taxes                                         (564)         --          --
  Increase in prepaid expenses                                                   (500)     (3,025)       (385)
  Increase in prepaid gas costs, materials and supplies                       (14,816)     (1,110)     (1,584)
  Increase (decrease) in accounts payable, accrued and other liabilities       (8,597)      13,149     (3,468)
  Decrease in interest payable                                                 (3,469)     (3,188)     (2,908)
  Increase (decrease) in other non-current liabilities                            229         120       (255)
                                                                           ----------  ----------  ----------
    Net cash provided by operating activities                                 121,135     167,898     140,771
                                                                           ----------  ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Plant modifications and purchases of plant and equipment                    (36,186)    (45,919)    (29,133)
                                                                           ----------  ----------  ----------
    Net cash used in investing activities                                     (36,186)    (45,919)    (29,133)
                                                                           ----------  ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of financing obligation                                           (78,574)    (72,190)    (65,881)
  Purchase of restricted investment securities held-to-maturity              (138,898)         --          --
  (Increase) decrease in restricted non-current cash and cash equivalents     143,049      (3,197)     (1,329)
                                                                           ----------  ----------  ----------
    Net cash used in financing activities                                     (74,423)    (75,387)    (67,210)
                                                                           ----------  ----------  ----------

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT           10,526      46,592      44,428

CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT, AT BEGINNING OF
  PERIOD                                                                      224,000     177,408     132,980
                                                                           ----------  ----------  ----------

CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT, AT END OF PERIOD     $  234,526  $  224,000  $  177,408
                                                                           ==========  ==========  ==========
</TABLE>

The  accompanying notes are an integral part of these statements.

                                      F-6

<PAGE>   47

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) THE PARTNERSHIP AND ASSOCIATED RISKS

    Midland Cogeneration Venture Limited Partnership ("MCV") was organized to   
    construct, own and operate a combined-cycle, gas-fired cogeneration facility
    (the "Facility") located in Midland, Michigan.  MCV was formed on January
    27, 1987, and the Facility entered into commercial operation in 1990.  The
    Partners, their respective equity interests and interests in the profit and
    losses of the Partnership and transactions between MCV and affiliates of the
    Partners are discussed in Note 10.

    In February 1992, MCV acquired the outstanding common stock of PVCO Corp.,
    a previously inactive company.  MCV and PVCO Corp. entered into a 
    partnership agreement to form MCV Gas Acquisition General Partnership ("MCV
    GAGP") for the purpose of buying and selling natural gas on the spot market
    and other transactions involving natural gas activities.  Currently, MCV
    GAGP is not actively engaged in any business activity.

    The Facility is designed to provide approximately 1370 megawatts ("MW") of  
    electricity and approximately 1.5 million pounds of process steam per hour.
    MCV has contracted to supply up to 1240 MW of electric capacity ("Contract
    Capacity") to Consumers Energy Company, formerly Consumers Power Company,
    ("Consumers") for resale to its customers, to supply electricity and steam
    to The Dow Chemical Company ("Dow") under the Steam and Electric Power
    Agreement ("SEPA") and to supply steam to Dow Corning Corporation ("DCC") 
    under the Steam Purchase Agreement ("SPA").  Results of operations are
    primarily dependent on successfully operating the Facility at or near
    contractual capacity levels and on Consumers honoring its obligations under
    the Power Purchase Agreement ("PPA") with MCV.  Sales pursuant to the PPA
    have historically accounted for over 90% of MCV's revenues.

    The Facility is a qualifying cogeneration facility ("QF") originally
    certified by the Federal Energy Regulatory Commission ("FERC") under the
    Public Utility Regulatory Policies Act of 1978, as amended ("PURPA").  In   
    order to maintain QF status, certain operating and efficiency standards must
    be maintained on a calendar-year basis and certain ownership limitations
    must be met.  In the case of a topping-cycle generating plant such as the
    Facility, the applicable operating standard requires that the portion of
    total energy output that is put to some useful purpose other than
    facilitating the production of power (the "Thermal Percentage") be at least
    5%.  In addition, the Facility must achieve a PURPA efficiency standard (the
    sum of the useful power output plus one-half of the useful thermal energy
    output, divided by the energy input (the "Efficiency Percentage")) of at
    least 45%.  If the Facility maintains a Thermal Percentage of 15% or higher,
    the required Efficiency Percentage is reduced to 42.5%.  Since 1990, the
    Facility has achieved the applicable Thermal and Efficiency Percentages.
    During 1997, the Facility achieved a Thermal Percentage of 16.0% and a PURPA
    Efficiency Percentage of 45.7%.  The loss of QF status could, among other
    things, cause the Facility to lose its rights under PURPA to sell power to
    Consumers at Consumers' "avoided cost" and subject the Facility to
    additional federal and state regulatory requirements.  MCV believes that,
    given projected levels of steam and electricity sales, coupled with
    continued diligent operating practices, the Facility will meet the required
    Thermal and the corresponding Efficiency Percentages in 1998.  MCV meets the
    ownership limitations of PURPA.

    The Facility is wholly dependent upon natural gas for its fuel supply and a 
    substantial portion of the Facility's operating expenses consist of the
    costs of natural gas.  MCV recognizes that its existing gas contracts are
    not sufficient to satisfy the anticipated gas needs over the term of the PPA
    and, as such, no assurance can be given as to the availability or price of
    natural gas after the expiration of the existing gas contracts.  Commencing
    in 1998, MCV must provide, at Consumers request, continuing annual
    assurances of such capability for each succeeding five-year period.  If MCV
    is unable to provide these continuing assurances, Consumers is entitled to
    withhold in a separate escrow fund a portion of capacity charges until these
    assurances are provided.  MCV believes it can meet the requirement of
    continuing assurances in 1998 for the succeeding five-year period.  In
    addition, to the extent that the costs associated with production of
    electricity rise faster than the energy charge payments, MCV's financial
    performance will be negatively affected.  The amount of such impact will
    depend upon the amount of the average energy charge payable under the PPA,
    which is based upon costs incurred at Consumers' coal-fired plants and upon
    the amount of energy scheduled by Consumers for delivery under the PPA. 
    However, given the unpredictability of these factors, the overall economic
    impact upon MCV of changes in energy charges payable under the PPA and in
    future fuel costs under new or existing contracts cannot accurately be
    predicted.

    At both the state and federal level, efforts continue on restructuring the  
    electric industry.  In Michigan, the Michigan Public Service Commission
    ("MPSC") has entered a final order permitting customers to choose their
    power provider

                                      F-7


<PAGE>   48

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


    over a four-year phase-in period beginning in 1998.  Similar efforts, in
    the form of proposed legislation, exist at the federal level.  Two
    issues generally involved in these restructuring efforts which could
    impact MCV the most are stranded assets or transition cost recovery for
    utilities and contract (PPA) sanctity.  Approximately 90% of MCV's revenues
    come from sales pursuant to the PPA.  To date, these restructuring efforts
    have not negatively impacted MCV, but if the final order of the MPSC is
    construed so as to deny stranded cost recovery of above-market PPA costs,
    and such order is not reversed on appeal, MCV cashflows may be negatively
    impacted especially in the period after 2007.  MCV, as well as others, has
    filed an appeal of the MPSC restructuring orders in the Michigan Court of
    Appeals and a complaint in the U.S. District Court for the Western District
    of Michigan challenging the restructuring orders.  MCV continues to monitor
    and participate in these matters, as appropriate and to evaluate potential
    impacts on both cashflows and recoverability of the carrying value of
    property, plant and equipment.  MCV management cannot, at this time,
    predict the impact or outcome of these matters.


(2) SIGNIFICANT ACCOUNTING POLICIES

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the reported amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of the financial
    statements and the reported amounts of revenues and expenses during the
    reporting period. Actual results could differ from those estimates. 
    Following is a discussion of MCV's significant accounting policies.

    Principles of Consolidation

    The consolidated financial statements include the accounts of MCV and its   
    wholly owned subsidiaries.  All material transactions and balances among
    entities which comprise MCV have been eliminated in the consolidated
    financial statements.

    Revenue Recognition

    MCV recognizes revenue for the sale of variable energy and fixed energy 
    when delivered (see Notes 7 and 8).  Capacity and other installment
    revenues are recognized based on plant availability or other contractual
    arrangements.

    Inventory

    MCV's inventory of natural gas is stated at the lower of cost or market, 
    and valued using the last-in, first-out ("LIFO") method.  Inventory
    includes the costs of purchased gas, variable transportation and storage. 
    The amount of reserve to reduce inventories from first-in, first-out
    ("FIFO") basis to the LIFO basis at December 31, 1997 and 1996, was $1.9
    million and $2.8 million, respectively.  Inventory cost, determined on a
    FIFO basis, approximates current replacement cost.

    Materials and Supplies

    Materials and supplies are stated at the lower of cost or market using the
    weighted average cost method.

    Deferred Financing Costs

    Financing costs incurred with the issuance of debt are deferred and
    amortized using the interest method over the life of the related financing
    obligation. Deferred financing costs of approximately $1.1 million were
    amortized in 1997 and $1.2 million were amortized in each of the years 1996
    and 1995.

    Depreciation

    Plant, equipment and pipeline are valued at cost for new construction and 
    at the asset transfer price for purchased and contributed assets, and are
    depreciated using the straight-line method over an estimated useful life of
    3 to 35 years.

                                      F-8

<PAGE>   49

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


    Major renewals and replacements which extend the useful life of plant and   
    equipment are capitalized, while maintenance and repairs are expensed when
    incurred.  Personal property is depreciated using the straight-line method
    over an estimated useful life of 3 to 15 years.  The cost to remove an asset
    is assumed to equal the proceeds of any asset disposition.  The cost of
    assets and related accumulated depreciation are removed from the accounts
    when sold or retired, and any resulting gain or loss reflected in
    operations.

    Federal Income Tax

    MCV is not subject to Federal income tax.  Partnership earnings are taxed
    directly to each individual partner.

    Statement of Cash Flows

    All liquid investments purchased with a maturity of three months or less
    at time of purchase are considered to be current cash equivalents.

    Fair Value of Financial Instruments

    The carrying amounts of cash and cash equivalents and short-term    
    investments approximate fair value because of the short maturity of these
    instruments.  MCV's short-term investments, which are made up of investment
    securities held-to-maturity, as of December 31, 1997 have original maturity
    dates of less than one year.  The unique nature of the negotiated financing
    obligation discussed in Note 6 makes it impractical to estimate the fair
    value of the Owner Participants' underlying debt and equity instruments
    supporting such financing obligation.

    Forward Foreign Exchange Contracts

    An amended service agreement (the "amended Service Agreement") was entered  
    into between MCV and ABB Power Generation ("ABB Power"), under which ABB
    Power will provide hot gas path parts for MCV's twelve gas turbines through
    the sixth series of major GTG inspections, which are expected to be
    completed by year 2008.  The payments due to ABB Power under this amended
    Service Agreement are adjusted annually based on the ratio of the U.S.
    dollar to Swiss franc currency exchange rate.  MCV maintains a foreign
    currency hedging program to be used only with respect to MCV payments
    subject to foreign currency exposure under the amended Service Agreement.

    To manage this currency exchange rate risk and hedge against adverse
    currency fluctuations impacting the payments under this amended Service
    Agreement, MCV enters into forward purchase contracts for Swiss francs.  The
    forward foreign currency exchange contracts qualify as hedges under
    Statement of Financial Accounting Standards ("SFAS") 52 "Foreign Currency
    Translation," since they hedge the identifiable foreign currency commitment
    of the amended Service Agreement.  The gains and losses on these
    transactions, accounted for as hedges, are deferred on the balance sheet and
    included in the measurement of the underlying capitalized major renewal
    costs when incurred.  On December 29, 1997, MCV closed out the forward
    purchase contracts involving Swiss francs in the notional amount of $10.0
    million, resulting in a deferred $.2 million gain, recorded in current
    liabilities.  As of December 31, 1996, MCV had forward purchase contracts
    involving Swiss francs in the notional amount of $15.0 million, with a
    deferred $1.4 million loss, recorded in other assets.

    Natural Gas Options and Futures

    To manage market risks associated with the volatility of natural gas 
    prices, MCV maintains a gas hedging program.  MCV enters into natural
    gas option and futures contracts in order to hedge against unfavorable
    changes in the market price of natural gas in future months when gas is
    expected to be needed. These financial instruments are being utilized only
    to secure anticipated natural gas requirements necessary for projected
    electric sales under the PPA at a cost of gas less than that available under
    MCV's long-term natural gas contracts and to hedge sales of natural gas
    previously obtained in order to optimize MCV's existing gas supply, storage
    and transportation arrangements. The natural gas futures contracts qualify
    as hedges under SFAS 80, "Accounting for Futures Contracts," since the
    contracts cover probable future transactions.


                                      F-9

<PAGE>   50

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



    Cash is deposited with the broker in a margin account, at the time future or
    option contracts are initiated.  The change in market value of these        
    contracts requires adjustment of the margin account balances.  The margin
    balance, recorded in prepaid expenses and other, was $1.6 million and $1.7
    million as of December 31, 1997 and 1996, respectively.  MCV's deferred
    gains and losses on future and option contracts, recorded in current
    liabilities, will be offset by the corresponding underlying physical
    transaction and then included in operating expenses as part of fuel cost in
    the same period the natural gas is burned to operate the Facility.  As of
    December 31, 1997, MCV had net open futures and options contracts of .3 Bcf
    with a deferred loss of $.1 million.  As of December 31, 1996, MCV had net
    open futures contracts of 3.0 Bcf with a deferred gain of $.4 million.  In
    addition, MCV recorded approximately $.6 million in net deferred gains on
    contracts closed prior to December 31, 1997, related to January and February
    1998 purchase commitments, while MCV recorded approximately $.1 million in
    net deferred gains on contracts closed prior to December 31, 1996, related
    to January 1997 purchase commitments.

    Interest Rate Swap Hedges

    To manage the effects of interest rate volatility on interest income while  
    maximizing return on permitted investments, MCV established an interest rate
    hedging program. The notional amounts of the hedges will tie directly to
    MCV's anticipated cash investments, without physically exchanging the
    underlying notional amounts. These agreements will maximize the yield on
    MCV's investments and minimize the impact of fluctuating interest rates.

    In December 1997, MCV entered into an interest rate swap hedge in the
    notional amount of $20 million, with the period of performance from April 
    1, 1998 through December 1, 2002. Cash was deposited with the broker at the 
    time the interest rate swap was initiated. The change in market value of
    this contract requires adjustment of the margin account balance. The margin
    deposit was $25,000, recorded in prepaid expenses and other, as of December
    31, 1997. The difference between the amounts received and paid under the
    interest rate swap transaction will be accrued and recorded as an adjustment
    to the interest income over the life of the hedged agreement.

    New Accounting Standards

    In 1997, the Financial Accounting Standards Board issued SFAS 130,
    "Reporting  Comprehensive Income," which is effective for fiscal years
    beginning after December 15, 1997, with earlier application permitted.  MCV
    does not expect the application of this statement to have a material impact
    on its financial position or results of operations.

    Reclassifications

    Certain prior year amounts have been reclassified for comparative
    purposes.  These reclassifications have no effect on net income.


(3) CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES

    Effective January 1, 1997, MCV changed its method of accounting for property
    taxes so that such taxes are expensed monthly during the fiscal period of
    the taxing authority for which the taxes are levied.  This change provides a
    better matching of property tax expense with both the payment for services
    and those services provided by the taxing authorities.  Prior to January 1,
    1997, the Partnership expensed property taxes monthly during the year
    following the assessment date (December 31).  The cumulative effect of this
    change in accounting for property taxes increased earnings for the year 1997
    by approximately $15.5 million.  The pro forma effect on 1997 and prior
    years' consolidated net income, including all interim periods, of
    retroactively recording property taxes as if the new method of accounting
    had been in effect for all periods presented is not material.



                                      F-10

<PAGE>   51

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



(4) RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES
    HELD-TO-MATURITY

    Current and non-current restricted cash and cash equivalents consist of
    the following at December 31 (in thousands):


<TABLE>
<CAPTION>
         Current:                                     1997      1996
         --------                                   --------  --------
         <S>                                        <C>       <C>

         Funds restricted for plant modifications   $ 12,161  $ 14,041

         Non-current:
         ------------
         Funds restricted for rental payments
         pursuant to the Overall Lease Transaction  $138,242  $142,624

         Funds restricted for management
         non-qualified plans                             656       425
                                                    --------  --------

         Total                                      $138,898  $143,049
                                                    ========  ========
</TABLE>



(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

    Accounts payable and accrued liabilities consist of the following at
    December 31 (in thousands):


<TABLE>
<CAPTION>
                                                   1997     1996
                                                  -------  -------
              <S>                                 <C>      <C>
              Accounts payable
               Related parties                    $15,382  $11,743
               Trade creditors                     28,531   40,076
              Property and single business taxes   12,379   11,835
              Other                                 2,650    3,885
                                                  -------  -------

              Total                               $58,942  $67,539
                                                  =======  =======
</TABLE>


(6) LONG-TERM DEBT

    Long-term debt consists of the following at December 31 (in thousands):


<TABLE>
<CAPTION>
                                                           1997         1996
                                                        ----------   ----------
<S>                                                     <C>          <C>
Financing obligation, maturing through 2015,
effective interest rate of approximately 8.7%,
payable in semi-annual installments of principal
and interest, secured by property, plant and equipment  $1,929,241   $2,007,815

Less current portion                                      (140,950)     (78,574)
                                                        ----------   ----------

Total long-term debt                                    $1,788,291   $1,929,241
                                                        ==========   ==========

</TABLE>

    Financing Obligation

    In June 1990, MCV obtained permanent financing for the Facility by entering 
    into sale and leaseback agreements ("Overall Lease Transaction") with a
    lessor group, related to substantially all of MCV's fixed assets.  Proceeds
    of the financing were used to retire borrowings outstanding under existing
    loan commitments, make a capital distribution to the Partners and retire a
    portion of notes issued by MCV to MEC Development Corporation ("MDC") in
    connection

                                      F-11

<PAGE>   52

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


    with the transfer of certain assets by MDC to MCV.  In accordance with SFAS 
    No. 98, "Accounting For Leases," the sale and leaseback transaction has been
    accounted for as a financing arrangement.

    Under the terms of the Overall Lease Transaction, MCV sold undivided        
    interests in all of the fixed assets of the Facility for approximately $2.3
    billion, to five separate owner trusts ("Owner Trusts") established for the
    benefit of certain institutional investors ("Owner Participants").  State
    Street Bank and Trust Company (formerly Fleet National Bank) serves as owner
    trustee ("Owner Trustee") under each of the Owner Trusts, and leases
    undivided interests in the Facility on behalf of the Owner Trusts to MCV for
    an initial term of 25 years.  CMS Midland Holdings Company ("CMS Holdings"),
    currently a wholly owned subsidiary of Consumers, acquired a 35% indirect
    equity interest in the Facility through its purchase of an interest in one
    of the Owner Trusts.

    The Overall Lease Transaction requires MCV to achieve certain rent coverage
    ratios and other financial tests prior to a distribution to the Partners.
    Generally, these financial tests become more restrictive with the passage 
    of time.  Further, MCV is restricted to making permitted investments and
    incurring permitted indebtedness as specified in the Overall Lease
    Transaction.  The Overall Lease Transaction also requires filing of certain
    periodic operating and financial reports, notification to the lessors of
    events constituting a material adverse change, significant litigation or
    governmental investigation, and change in status as a qualifying facility
    under FERC proceedings or court decisions, among others.  Notification and
    approval is required for plant modification, new business activities, and
    other significant changes, as defined.  In addition, MCV has agreed to
    indemnify various parties to the sale and leaseback transaction against any
    expenses or environmental claims asserted, or certain Federal and state
    taxes imposed on the Facility, as defined in the Overall Lease Transaction.

    Under the terms of the Overall Lease Transaction, approximately $18.6
    million of transaction costs were a liability of MCV and have been recorded
    as a deferred cost.  These costs are being amortized using the interest 
    method over the 25-year lease term.

    Revolving Credit Agreement

    MCV has also entered into a revolving credit agreement with the Bank of
    Montreal ("Working Capital Lender") which expires August 31, 1999.  Under
    the terms of the existing agreement, MCV can borrow up to the $50 million
    commitment, in the form of revolving credit loans or letters of credit
    secured by MCV's natural gas inventory and earned receivables.  A fee of
    .25% per annum is payable on the average daily unused portion of the
    commitment in addition to a letter of credit fee of .625% per annum.  At
    this time, outstanding borrowings under this agreement are limited to 90% of
    earned accounts receivable. At December 31, 1997, the borrowing base
    calculated under this agreement was $49.2 million.  During 1997, MCV did not
    utilize the Working Capital Facility, except for letters of credit
    associated with normal business practice.  At December 31, 1997, MCV had
    letters of credit outstanding of $27.2 million related to gas purchase
    transactions.

    Intercreditor Agreement

    MCV has also entered into an Intercreditor Agreement with the Owner Trustee,
    Working Capital Lender, First Trust Michigan (which acquired the trust
    assets of Comerica Bank) as Collateral Agent ("Collateral Agent") and
    the Senior and Subordinated Indenture Trustees.  Under the terms of this
    agreement, MCV is required to deposit all revenues derived from the
    operation of the Facility with the Collateral Agent for purposes of paying
    operating expenses and rent. In addition, these funds are required to pay
    construction modification costs and to secure future rent payments.  As of
    December 31, 1997, MCV has deposited $138.2 million into the reserve account
    and $12.2 million into the construction repair account.  The reserve account
    is to be maintained at not less than $40 million nor more than $137 million
    (or debt portion of next succeeding basic rent payment, whichever is
    greater). Excess funds in the reserve account are periodically transferred
    to MCV.  This agreement also contains provisions governing the distribution
    of revenues and rents due under the Overall Lease Transaction, and
    establishes the priority of payment among the Owner Trusts, creditors of the
    Owner Trusts, creditors of MCV and the Partnership.


                                      F-12

<PAGE>   53

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



    Summary

    Interest and fees incurred related to long-term debt arrangements during    
    1997, 1996 and 1995 were $172.8 million, $179.6 million and $185.8 million,
    respectively.

    Interest and fees paid during 1997, 1996 and 1995 were $176.2 million,
    $182.8 million and $188.7 million, respectively.

    Minimum payments due under these long-term debt arrangements over the next
    five years are (in thousands):


<TABLE>
<CAPTION>
                                          Principal   Interest    Total
                                          ---------   --------  ----------
             <S>                          <C>         <C>       <C>
             1998                         $140,950    $168,082  $  309,032
             1999                           64,330     157,332     221,662
             2000                          139,095     149,554     288,649
             2001                          155,210     136,999     292,209
             2002                          185,791     123,379     309,170
                                          --------    --------  ----------
                                          $685,376    $735,346  $1,420,722
                                          ========    ========  ==========
</TABLE>

(7) COMMITMENTS AND OTHER AGREEMENTS

    MCV has entered into numerous commitments and other agreements related to
    the Facility.  Principal agreements are summarized as follows:

    Power Purchase Agreement

    MCV and Consumers have executed the PPA for the sale to Consumers of a
    minimum amount of electricity, subject to the capacity requirements of Dow  
    and any other permissible electricity purchasers.  Consumers has the right
    to terminate and/or withhold payment under the PPA if the Facility fails to
    achieve certain operating levels or if MCV fails to provide adequate fuel
    assurances.  In the event of early termination of the PPA, MCV would have a
    maximum liability of approximately $270 million if the PPA were terminated
    in the 12th through 24th years.  The term of this agreement is 35 years from
    the commercial operation date and year-to-year thereafter.

    Steam and Electric Power Agreement

    MCV and Dow have executed the SEPA for the sale to Dow of certain minimum
    amounts of steam and electricity for Dow's facilities.  In addition to the  
    contractual steam and electric charges, Dow will pay 36 quarterly payments,
    pursuant to the agreement, of $3.8 million each.  These installment payments
    commenced in the first quarter of 1990 and continue, notwithstanding
    performance of the Facility, in each quarter thereafter until all 36
    installments have been paid, or the agreement is terminated.

    If the SEPA is terminated, and Consumers does not fulfill MCV's commitments 
    as provided in the Backup Steam and Electric Power Agreement, MCV will be
    required to pay Dow a termination fee, calculated at that time, ranging from
    a minimum of $60 million to a maximum of $85 million.  This agreement
    provides for the sale to Dow of steam and electricity produced by the
    Facility for terms of 25 years and 15 years, respectively, commencing on the
    commercial operation date and year-to-year thereafter.

    Steam Purchase Agreement

    MCV and DCC have executed the SPA for the sale to DCC of certain minimum    
    amounts of steam for use at the DCC Midland site.  Steam sales under the SPA
    commenced in July 1996.  Termination of this agreement, prior to 

                                      F-13

<PAGE>   54

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


    expiration, requires the terminating party to pay to the other party a
    percentage of future revenues which would have been realized had the initial
    term of 15  years been fulfilled.  The percentage of future revenues payable
    is 50% if termination occurs prior to the fifth anniversary of the
    commercial operation date and 33-1/3% if termination occurs after the fifth
    anniversary of this agreement.  The term of this agreement is 15 years from
    the commercial operation date of steam deliveries under the contract and
    year-to-year thereafter.

    Gas Supply Agreements

    MCV has entered into gas purchase agreements with various producers for the
    supply of natural gas.  The current contracted volume totals 236.5 million  
    cubic feet ("MMcf") per day as of January 1, 1998.  As of January 1, 1998,
    gas contracts with U.S. suppliers provide for the purchase of 156.5 MMcf per
    day while gas contracts with Canadian suppliers provide for the purchase of
    80.0 MMcf per day.  Some of these contracts require MCV to pay for a minimum
    amount of natural gas per year, whether or not taken.  The estimated minimum
    commitments under these contracts for gas for the years 1998 through 2002
    are $110.1 million, $113.9 million, $118.5 million, $120.5 million and
    $106.5 million, respectively.  A portion of these payments may be utilized
    in future years to offset the cost of quantities of natural gas taken above
    the minimum amounts.

    Gas Transportation Agreements

    MCV has entered into firm natural gas transportation agreements with various
    pipeline companies.  These agreements require MCV to pay certain    
    reservation charges in order to reserve the transportation capacity.  MCV
    incurred reservation charges in 1997, 1996 and 1995, of $34.4 million, $36.5
    million (excluding the Great Lakes Gas Transportation Refund of $17.6
    million (see Note 8 - Contingencies, "Fuel Matters")) and $41.0 million,
    respectively. The estimated minimum reservation charges required under these
    agreements are $36.5 million for each of the years 1998 through 2002.  These
    projections are based on current commitments.

    Gas Turbine Service Agreement

    MCV has entered into a service agreement, as amended, with ABB Power which
    commenced on January 1, 1990 and will expire upon the earlier of  the       
    completion of the sixth series of major gas-fired turbine generators
    ("GTG") inspections or December 31, 2009.  Under the terms of this
    agreement, ABB Power sold MCV an initial inventory of spare parts for the
    GTGs and provides qualified service personnel and supporting staff to assist
    MCV to perform scheduled inspections on the GTGs and to repair the GTGs at
    MCV's request. Upon termination of the Service Agreement (except for
    nonperformance by ABB Power), MCV must pay a cancellation payment of $2.0
    million in 1998, $1.5 million in 1999, $1.0 million in 2000 and $.5 million
    in any year thereafter escalated in 1988 dollars.  MCV and ABB Power
    amended the Service Agreement, effective December 31, 1993, to include the
    supply of hot gas path parts. Under the amended Service Agreement, ABB Power
    will provide hot gas path parts for MCV's twelve gas turbines through the
    fourth series of major GTG inspections. In January 1998, MCV and ABB Power
    amended the length of the amended Service Agreement to extend through the
    sixth series of major GTG inspections which are expected to be completed by
    year end 2008, for a lump sum fixed price covering the entire term of the
    amended Service Agreement of $266.5 million (in 1993 dollars, which is
    adjusted based on exchange rates and Swiss inflation indices), payable on
    the basis of operating hours as they occur over the same period.  MCV has
    made payments totaling approximately $79.2 million under this amended
    Service Agreement through December 31, 1997.

    In addition to the January 1998 amendment to the term of the amended Service
    Agreement, MCV has also contracted to purchase from ABB Power 11NM GTG      
    upgrade packages for eleven of the gas turbine generators for $41.6 million.
    The purchase of these upgrades comes after successfully testing one upgrade
    package at the Facility in 1997. The upgrade packages are expected to add to
    available capacity and significantly improve the efficiency of the Facility.
    The installation of all eleven upgrade packages is expected to be completed
    by the end of 1999. Maintenance and spare parts for the upgrade packages are
    covered by the amended Service Agreement.  MCV also agreed to purchase a
    spare GTG rotor to facilitate maintenance activities and improve
    reliability.


                                      F-14

<PAGE>   55

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



    Steam Turbine Service Agreement

    MCV has entered into a nine year Steam Turbine Maintenance Agreement with
    General Electric Company effective January 1, 1995, which is designed to    
    improve unit reliability, increase availability and minimize unanticipated
    maintenance costs.  In addition, this contract includes performance
    incentives and penalties which are based on the length of each scheduled
    outage and the number of forced outages during a calendar year.  MCV is to
    make monthly payments over the life of the contract totaling $13.0 million
    (in 1995 dollars).

    Site Lease

    In December 1987, MCV leased the land on which the Facility is located from
    Consumers ("Site Lease").  MCV and Consumers amended and restated the Site  
    Lease to reflect the creation of five separate undivided interests in the
    Site Lease as of June 1, 1990.  Pursuant to the Overall Lease Transaction,
    MCV assigned these undivided interests in the Site Lease to the Owner
    Trustees, which in turn subleased the undivided interests back to MCV under
    five separate site subleases.

    The Site Lease is for a term which commenced on December 29, 1987, and ends
    on December 31, 2035, including two renewal options of five years each.  
    The rental under the Site Lease is $.6 million per annum, including the two
    five-year renewal terms.


(8) CONTINGENCIES

    PPA - "Regulatory Out" Provision

    Under the "regulatory out" provision of the PPA Consumers may, under 
    certain conditions, be relieved of paying capacity and/or energy
    charges to MCV to the extent the MPSC does not allow Consumers to recover
    such charges from its customers.  Consumers is not permitted for the first
    17 1/2 years of the PPA to reduce capacity payments to MCV below an average
    rate of 3.77 cents per kWh for available contract capacity as a result of a
    regulatory disallowance.

         PPA - Jurisdictional Disallowance
         On February 23, 1995, the MPSC in Case No. U-10155-R (the 1993 power
         supply cost recovery reconciliation proceeding, "1993 Reconciliation   
         Case," conducted by the MPSC to reconcile actual costs incurred by
         Consumers in 1993 in providing power supply to its retail customers
         with actual revenues it collected that same year), ruled that Consumers
         could not recover from its retail customers the full 915 MW of MCV
         capacity and fixed energy charges as Consumers contended it was
         entitled to under the terms of the 1993 revised settlement proposal
         approved by the MPSC in Case Nos. U-10127 and U-8871 et al.  Instead,
         the MPSC "allocated" approximately 25 MW of MCV capacity to
         "non-jurisdictional" customers (i.e., customers not subject to MPSC
         jurisdiction) (the "Jurisdictional Issue").  In October 1995, Consumers
         notified MCV that, pursuant to the "regulatory out" provision of the
         PPA, it would increase the amount escrowed each month to reflect its
         calculation of fixed energy charge payments allocated to
         non-jurisdictional customers disallowed by the MPSC and Michigan Court
         of Appeals due to the Jurisdictional Issue.  In addition, Consumers
         requested a refund from MCV of $1.9 million plus interest, for the
         calendar years 1993 and 1994 and the first eight months of 1995.  In
         November 1995, MCV responded to Consumers indicating that MCV would,
         pursuant to the PPA, refund the appropriate funds, if any, and
         determine the appropriate calculation of the correct escrow amount, if
         any, at such time as a final and non-appealable order disallowing these
         recoveries is entered.  The Michigan Court of Appeals decision
         involving the Jurisdictional Issue has become final.  Based on this
         decision, Consumers notified MCV that it would continue withholding the
         fixed energy charges on the Jurisdictional Issue (currently averaging
         approximately $45,000 per month in 1997).  MCV agreed to the release to
         Consumers of the escrowed funds of approximately $1.0 million plus
         interest (covering the period of September 1995 through December 1996),
         subject to a final resolution between MCV and Consumers of the energy
         charge to be paid to MCV, which will be adjusted with any refund of the
         $1.9 million (discussed above), as a result of the finality of the
         Jurisdictional Issue.  MCV has not recognized any of these amounts
         related to this Jurisdictional Issue as operating revenues.

                                      F-15

<PAGE>   56

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


         PPA - Fixed Energy Payments for Deliveries Above the Caps 
         The MPSC ruled in the 1993, 1994 and 1995 Reconciliation and Plan
         Cases that Consumers would not be permitted to recover from its
         retail customers fixed energy costs for energy delivered above the
         off-peak cap ("the off-peak cap issue") of 732 MW in 1993 and 750.3 MW
         in 1994 and 1995.  MCV and Consumers appealed the MPSC orders for both
         the years 1993 and 1994 to the Michigan Court of Appeals, and in the
         1993 Reconciliation and 1994 Plan Cases the Michigan Court of Appeals
         affirmed the MPSC's decisions. MCV believes these rulings are
         erroneous and petitioned the Michigan Supreme Court to review the
         off-peak cap issue in the 1993 Reconciliation and 1994 Plan Cases.  On
         January 30, 1998, the Michigan Supreme Court denied MCV's petition for
         review of the 1993 Reconciliation Case, thus, this case is now final. 
         Other PSCR Plan and/or Reconciliation Cases for the years 1995 through
         1997 are pending before the MPSC at this time which involve this same
         issue.  Consumers escrowed approximately $2.8 million for 1996 and
         $1.0 million for the period 1994 and 1995 of fixed energy charges
         payable to MCV based upon the MPSC rulings. MCV has not recognized any
         of these amounts related to the off-peak cap issue as operating
         revenues.  MCV Management cannot predict the outcome of these
         proceedings.

         PPA - Additional 325 MW
         In September 1995, Consumers and the MPSC staff filed a motion to
         create a consolidated proceeding for the purpose of reviewing a
         settlement agreement ("325 MW Proposed Settlement") entered into
         between the MPSC staff and Consumers.  The settlement agreement
         proposed approving one-hundred percent jurisdictional cost recovery of
         an additional 325 MW of capacity purchased from MCV.  Cost recovery
         approval for the 325 MW of MCV Contract Capacity was in addition to the
         915 MW already approved (subject to the Jurisdictional Issue) by the
         MPSC.  On November 14, 1996, the MPSC approved, with modifications, the
         settlement agreement effective January 1, 1996 ("325 MW Settlement
         Order").  The modifications were generally related to issues not
         material to MCV, except the Jurisdictional Issue which the MPSC
         deferred to the 1996 PSCR Plan proceeding. In the 1996 PSCR Plan
         proceeding, which is subject to further proceedings, the MPSC ordered,
         on May 7, 1997, that the 325 MW of additional MCV capacity would be
         allocated between jurisdictional and non-jurisdictional customers of
         Consumers in the same manner as the original 915 MW.  The Attorney
         General, among others, has filed an appeal of the 325 MW Settlement
         Order. As a result of the approval of the 325 MW Settlement Order,
         Consumers notified MCV in February 1997, that it would cease escrowing
         for the off-peak cap issue.  Consumers released to MCV the 1996
         escrowed funds of approximately $2.8 million discussed in the preceding
         paragraph and Consumers has paid to MCV approximately $2.8 million for
         energy delivered above the off-peak cap during the first twelve months
         of 1997, subject to a final decision upholding the 325 MW Settlement
         Order on this issue.  MCV has not recognized these amounts paid to MCV
         as operating revenues. Various parties have appealed the MPSC's 325 MW
         Settlement Order to the Michigan Court of Appeals.  MCV Management
         cannot predict the outcome of either the 325 MW Settlement Order
         proceeding or the 1996 PSCR Plan proceeding.

         PPA - Other Issues
         Recently, Consumers informed MCV of several other potential issues it
         may pursue, pursuant to the "regulatory out" provision of the PPA. 
         These issues relate to Consumers' special contract customers, pricing
         of the energy delivered during off-peak ramp hours (when MCV adjusts
         its output to match Consumers' dispatch) and energy delivered in the
         band width (energy delivered above dispatch, within certain limits). 
         In addition, Consumers notified MCV that it does not believe that MCV
         can use the approximately 15 MW of generating capacity attributable to
         the back pressure turbine, which was placed into service in July 1997,
         towards available Contract Capacity under the PPA. MCV is still
         studying these issues and cannot accurately determine the financial
         impact of these issues and what specific action will be taken.  MCV
         Management believes, based upon limited information, that these
         potential issues will not have a material impact upon MCV's financial
         position, if recognized.


                                      F-16

<PAGE>   57

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



    GTG Equipment Problems

    Over the past seven years and most recently in January 1996, several of the 
    gas turbine generators "GTGs" have experienced severe cracking in the hot
    gas casings, which in some cases has caused extensive damage to the turbine
    blades and vanes. After each such incident, MCV and ABB Power have
    identified and modified each of the GTGs to eliminate the problems and have
    implemented a program of hot gas path inspections for all GTGs, which are
    currently being performed every 2,000 hours. MCV and ABB Power continue to
    address reliability issues to alleviate future outages, and MCV believes
    that with the modifications that have been made to date there should be no
    significant future impacts on plant availability or efficiency, although no
    assurance can be given that additional equipment problems will not occur.

    The cost of casing replacements and modifications is covered by ABB Power   
    (with the exception of insurable events) pursuant to the amended Service
    Agreement, under which ABB Power is providing hot gas path parts for MCV's
    twelve gas turbines through the sixth series of major GTG inspections which
    are expected to be completed by year end 2008.

    MCV's insurance carriers continue to monitor and review all the GTG 
    inspection findings.  At this time, MCV currently maintains property
    insurance policies that include the hot gas casing equipment and are in
    effect through the second quarter of 1998.  Failure to maintain insurance,
    subject to certain exceptions, not currently applicable, is an Event of
    Default under the Overall Lease Transaction.

    Fuel Matters

    In 1990, Great Lakes expanded its interstate pipeline system to accommodate 
    gas purchases from MCV and other customers.  Historically, such capital
    costs were "rolled-in" to the rate base, rather than treated as incremental
    costs, and allocated solely to the new shippers who would gain access to the
    expanded facilities.  In 1991, FERC issued an order that rejected rolled-in
    pricing for the MCV-related expansion costs and, instead, imposed
    incremental pricing which, for MCV, took effect April 1, 1993. After
    numerous appeals by MCV and others of FERC's incremental pricing decision,
    FERC reversed its prior order and, commencing October 1, 1995, prospectively
    implemented rolled-in rates and granted interest on the refund paid in
    excess of the rolled-in rates from October 1, 1995 until paid. MCV had, from
    April 1, 1993 to October 1, 1995, reflected in current operating results
    Great Lakes gas transportation costs associated with incremental pricing. In
    August 1996, MCV recognized in its current operating results approximately
    $19.0 million (which represented $17.6 million in transportation costs
    included as a reduction in fuel costs and $1.4 million of accrued interest
    subsequent to October 1, 1995) of the Great Lakes refund.  MCV's refund was
    approximately $5.9 million, $8.0 million and $3.7 million for each of the
    years 1995, 1994 and, 1993 and prior respectively. On January 16, 1998, the
    United States Court of Appeals ruled that MCV should have been paid interest
    for the period prior to October 1, 1995 (totaling approximately $1.5
    million) on the Great Lakes refund and denied all other petitions that had
    been filed challenging the refund.  This decision is subject to further
    appeal.  MCV Management cannot predict the outcome of any such appeal, but
    believes that the likelihood of reversal of any portion of the Court of
    Appeals' decision is remote.


(9) RETIREMENT BENEFITS

    Postretirement Health Care Plans

    In 1992, MCV established defined cost postretirement health care plans that
    cover all full-time employees.  The plans provide health care credits       
    which can be utilized to purchase medical plan coverage and pay qualified
    health care expenses.  Participants become eligible for the benefits if they
    retire on or after the attainment of age 65 or upon a qualified disability
    retirement, or if they have 10 or more years of service and retire at age 55
    or older.  The plans granted retroactive benefits for all employees hired
    prior to January 1, 1992.  This prior service cost has been amortized to
    expense over a five year period.  MCV annually funds the current year
    service and interest cost as well as amortization of prior service cost to
    both qualified and non-qualified trusts.


                                      F-17

<PAGE>   58

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



    The following table reconciles the plans' funded status to the accrued      
    postretirement benefits liability as reflected on the balance sheet as of
    December 31 (in thousands):


<TABLE>
<CAPTION>
                                                             1997          1996   
                                                           --------      -------- 
         <S>                                               <C>           <C>       
         Accumulated postretirement benefits obligation                           
            ("APBO"); Active employees not fully eligible  $1,413.1      $1,089.1 
         Less plan assets at fair value                     1,400.0       1,140.6 
                                                           --------      -------- 
                                                               13.1         (51.5)
         Unrecognized net actuarial gain                      176.6         224.9 
                                                           --------      -------- 
                                                                                  
         Accrued postretirement benefits liability         $  189.7      $  173.4 
                                                           ========      ======== 

</TABLE>


    Net periodic postretirement health care cost for years ending December 31, 
    included the following components (in thousands):

<TABLE>
<CAPTION>

                                                             1997           1996           1995
                                                           --------       --------       --------
         <S>                                               <C>           <C>             <C>
         Service cost, benefits attributed to employee     
           services rendered during the year               $  146.8       $  136.6       $  160.0
         Interest cost on accumulated postretirement                      
           benefit obligation and service cost                (47.3)          13.1           21.1
         Amortization of prior service cost                    36.2           52.0           90.5
                                                           --------       --------       --------
                                                                          
         Net periodic postretirement benefits expense      $  135.7       $  201.7       $  271.6
                                                           ========       ========       ========

</TABLE>


    Assumptions used in accounting for the Post-Retirement Health Care Plan 
    were as follows:

<TABLE>
<CAPTION>
                                                             1997          1996           1995
                                                            ------        ------         ------
         <S>                                                <C>           <C>            <C>
         Discount rate                                       7.00%         7.50%          7.50%
         Long-term rate of return on plan assets             8.50%         8.50%          8.50%
         Inflation benefit amount                                                         
           1996 through 1998                                 0.00%         0.00%          0.00%
           1999 and later years                              4.00%         4.00%          4.00%

</TABLE>

    Retirement and Savings Plans

    MCV sponsors a defined contribution retirement plan covering all    
    employees.  Under the terms of the plan, MCV makes contributions to the plan
    of either five or ten percent of an employee's eligible annual compensation
    dependent upon the employee's age.  MCV also sponsors a 401(k) savings plan
    for employees.  Contributions and costs for this plan are based on matching
    an employee's savings up to a maximum level.  In 1997, 1996, and 1995, MCV
    contributed $1.0 million, $.9million and $.8 million, respectively, under
    these plans.

    Supplemental Retirement Benefits

    MCV provides supplemental retirement and excess benefit plans for key       
    management.  These plans are not qualified plans under the Internal Revenue
    Code; therefore, earnings of the trusts maintained by MCV to fund these
    plans are taxable to the Partners and trust assets are included in the
    assets of MCV.



                                      F-18

<PAGE>   59

                MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)




(10) PARTNERS' EQUITY AND RELATED PARTY TRANSACTIONS

     The following table summarizes the nature and amount of each of MCV's      
     Partner's equity interest, interest in profits and losses of MCV at
     December 31, 1997, and the nature and amount of related party transactions
     or agreements that existed with the Partners or affiliates as of December
     31, 1997 and 1996, and for each of the twelve month periods ended December
     31, (in thousands).

<TABLE>
<CAPTION>
Equity Partner, Type                                                                                
of Partner and Nature         Equity                                                                
  of Related Party           Interest     Interest     Related Party Transactions and Agreements        1997      1996       1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>      <C>                                                <C>       <C>        <C>
CMS Midland, Inc.            $135,838       49.0%  Power purchase agreement                           $608,640  $598,127   $571,444
  General Partner;                                 Purchases under gas transportation agreements         9,713     9,507      9,346
  wholly-owned subsidiary                          Purchases under spot gas agreements                   6,490     2,352      1,633
  of Consumers Energy                              Purchases under gas supply agreements                 9,543    10,121      9,526
  Company (formerly                                Gas storage agreement                                 2,563     2,563      2,563
  Consumers Power                                  Land lease/easement agreements                          600       600        600
  Company)                                         Accounts receivable                                  53,513    52,048     47,907
                                                   Accounts payable                                      9,276     5,469      7,029
                                                   Gas exchanges                                         1,674     3,444      6,886
                                                                                                    
The Dow Chemical Company       33,779        7.5   Steam and electric power agreement                   42,937    47,041     46,374
  Limited Partner                                  Steam purchase agreement - Dow Corning           
                                                     Corp (affiliate)                                    3,167     1,239         --
                                                   Purchases under demineralized water supply       
                                                     agreement                                           7,336     6,292      5,510
                                                   Accounts receivable                                   1,896     2,247      2,861
                                                   Accounts payable                                        678     1,427      1,138
                                                   Standby and backup fees                                 792     1,156        968
Source Midland Limited                                                                              
  Partnership ("SMLP")         44,835       18.1   SMLP - Under Ownership of MCNIC Power Company    
  General Partner;                                 ---------------------------------------------    
  wholly-owned limited                             Purchases under spot gas agreements                     578        --         --
  partnership of MCN                               Purchases under gas supply agreements                 8,364        --         --
  Energy Group Inc. (1)                            Accounts receivable                                   1,125        --         --
                                                   Accounts payable                                        588        --         --
                                                   Partner cash withdrawal (including accrued       
                                                     interest) (3)                                      11,922        --         --
                                                   Gas exchanges                                         1,845        --         --
                                                   SMLP - Under Ownership of Pan Energy Corp        
                                                   -----------------------------------------        
                                                   Purchases under gas transportation agreements         4,648    15,393     14,060
                                                   Purchases under spot gas agreements                     911     3,313      2,421
                                                   Gas exchanges                                            50     2,082      1,271
                                                   Accounts payable                                         --     1,272      2,102
                                                                                                    
Coastal Midland, Inc.          26,901       10.9   Purchases under gas transportation agreements (2)    13,593    (3,296)    20,469
  General Partner;                                 Purchases under spot gas agreement                    9,920    13,986     10,137
  wholly-owned                                     Purchases under gas supply agreement                  4,188     4,018      3,802
  subsidiary of The                                Gas agency agreement                                  1,497     1,314        952
  Coastal                                          Deferred reservation charges under gas purchase       3,940     2,955      1,970
  Corporation                                      agreement                                        
                                                   Accounts receivable                                   2,271        --        882
                                                   Accounts payable                                      4,569     2,257      2,841
                                                   Gas exchanges                                         5,486     4,494      3,139
                                                   Partner cash withdrawal (including accrued       
                                                     interest) (3)                                       7,343        --         --
                                                                                                    
MEI Limited Partnership        22,418        9.1   Gas turbine maintenance and spare parts agreement    29,900    30,623     26,170
  General Partner;                                 Accounts payable                                         88     1,043          6
  affiliate of ASEA                                Partner cash withdrawal (including accrued       
  Brown Boveri, Inc.                               interest) (3)                                            --     4,284         --
                                                                                                    
                                                                                                    
Micogen Limited Partnership    11,208        4.5   Partner cash withdrawal (including accrued       
  Limited Partner;                                 interest) (3)                                         3,142     1,925         --
  affiliate of                                                                                      
  Fluor Corporation                                                                                 
                                                                                                    
C-E Midland Energy, Inc.        2,241         .9   Service Agreement                                     2,195     5,983      3,065
  Limited Partner; affiliate                       Accounts Payable                                        182       281        437
  of ASEA Brown Boveri, Inc.                                                                        
                                                                                                    
Alanna Corporation                  1(4)   .00001  Note receivable                                           1         1          1
  Limited Partner;                                                                                  
  wholly-owned                                                                                      
  subsidiary of Alanna                                                                              
  Holdings Corporation                                                                              
</TABLE>

(1) On May 16, 1997, MCNIC Power Company acquired all of the partnership
    interests in Source Midland Limited Partnership ("SMLP") from PanEnergy
    Corp.  The SMLP amounts listed Under Ownership of MCNIC Power Company are
    as of December 31, 1997 and for the period May 16, 1997 to
    December 31, 1997.  The SMLP amounts listed Under Ownership of PanEnergy
    Corp. are for the period January 1, 1997 to May 15, 1997, and as of December
    31, 1996 and 1995 and the twelve month periods ended December 31, 1996 and
    1995.

(2) 1996 includes the Great Lakes gas transportation refund of $17.6 million.

(3) In exchange for a letter of credit pursuant to the Participation
    Agreement, recorded as notes receivables.

(4) Alanna's capital stock is pledged to secure MCV's obligation under the
    lease and other overall lease transaction documents.

                                      F-19

<PAGE>   60




                            SUPPLEMENTAL INFORMATION


Supplemental information is to be furnished with reports filed pursuant to
Section 15 (d) of the Act by registrants which have not registered securities
pursuant to Section 12 of the Act.  No such annual report or proxy statement
has been sent to security holders.



                                      S-1

<PAGE>   61





                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     MIDLAND COGENERATION VENTURE
                                     LIMITED PARTNERSHIP




Date:  March 23, 1998                By  /s/ James M. Kevra
                                        ---------------------------------------
                                                    James M. Kevra
                                         President and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.


<TABLE>
<CAPTION>
Signature                            Title                                          Date                  
---------                            -----                                          ----                  
<S>                                  <C>                                            <C>                   
/s/ James M. Kevra                   President and Chief Executive Officer          March 23, 1998        
-----------------------------        (Principal Executive Officer)                                        
James M. Kevra                                                                                            
                                                                                                          
                                                                                                          
                                                                                                          
/s/ Stephen A. Shulman               Vice President of Finance and Treasurer        March 23, 1998        
-----------------------------        (Principal Financial Officer)                                        
Stephen A. Shulman                                                                                        
                                                                                                          
                                                                                                          
                                                                                                          
/s/ James M. Rajewski                Vice President and Controller                  March 23, 1998        
-----------------------------        (Principal Accounting Officer)                                       
James M. Rajewski                                                                                         
                                                                                                          
                                                                                                          
                                                                                                          
/s/ William T. McCormick, Jr.        Chairman, Management Committee                 March 23, 1998        
-----------------------------                                                                             
William T. McCormick, Jr.                                                                                 
                                                                                                          
                                                                                                          
                                                                                                          
/s/ Joseph L. Roberts, Jr.           Member, Management Committee                   March 23, 1998        
-----------------------------                                                                             
Joseph L. Roberts, Jr.                                                                                    
                                                                                                          
                                                                                                          
                                                                                                          
/s/ David A. Arledge                 Member, Management Committee                   March 23, 1998        
-----------------------------                                                                             
David A. Arledge                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
/s/ Peter Giller                     Member, Management Committee                   March 23, 1998        
-----------------------------                                                                             
Peter Giller                                                                                              
</TABLE>




                                      S-2

<PAGE>   62
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>             <C>
3.1        -    Restated Certificate of Limited Partnership dated June 13, 1988 ((a), Exhibit 3.1)).

3.2        -    Amended and Restated Limited Partnership Agreement of MCV dated as of June 13, 1988 ((a) (Exhibit 3.2)).

3.2 (a)    -    Amendment No. 1 dated as of May 26, 1989 to Amended and Restated Limited Partnership Agreement ((a) (Exhibit 3.3)).

3.2 (b)    -    Amendment No. 2 dated as of November 28, 1989 to Amended and Restated Limited Partnership Agreement ((a), Exhibit
                3.4)).

3.2 (c)    -    Amendment No. 3 dated as of June 1, 1990 to Amended and Restated Limited Partnership Agreement (incorporated by
                reference to Exhibit (2)(b) to CMS Energy Corporation's Form 10-K dated March 21, 1990, File No. 1-9513).

3.3        -    Memorandum of Agreement, dated March 2, 1990, relating to Amended and Restated Partnership Agreement ((a), (Exhibit
                3.6)).

4.1        -    Senior Trust Indenture, Leasehold Mortgage and Security Agreement dated as of June 1, 1990 between Shawmut Bank and
                United States Trust Company of New York ((a), Exhibit 4.1)).

4.1 (a)    -    Senior Trust Indenture Supplement No. 1 dated as of June 1, 1990 ((a), (Exhibit 4.2)).

4.2        -    Subordinated Trust Indenture, Leasehold Mortgage and Security Agreement dated as of June 1, 1990 between Shawmut
                Bank and Meridian Trust Company ("Subordinated Trust Indenture") ((a), (Exhibit 4.5)).

4.2 (a)    -    Subordinated Trust Indenture Supplement No. 1 dated as of June 1, 1990 ((a), (Exhibit 4.6)).

4.2 (b)    -    Subordinated Trust Indenture Supplement No. 2 dated as of July 1, 1990 ((a), (Exhibit 4.7)).

4.3        -    Collateral Trust Indenture dated as of June 1, 1990 among Midland Funding Corporation I, MCV and United States Trust
                Company of New York (incorporated by reference to Exhibit No. (28)(b) to CMS Energy Corporation's Form 10-Q for the
                quarter ended June 30, 1990, File No. 1-9513).

4.3 (a)    -    Collateral Trust Indenture Supplement No. 1 dated June 1, 1990 ((a), (Exhibit 4.4)).

4.4        -    Collateral Trust Indenture dated as of June 1, 1990 among Midland Funding Corporation II, MCV and Meridian Trust
                Company (incorporated by reference to Exhibit No. (28)(d) to CMS Energy Corporation's Form 10-Q for the quarter
                ended June 30, 1990, File No. 1-9513).

4.4 (a)    -    Collateral Trust Indenture Supplement No. 1 dated June 1, 1990 ((a), (Exhibit 4.9)).

4.5        -    Amended and Restated Trust Agreement dated as of March 1, 1990 between Shawmut Bank and Owner Participant ((a),
                (Exhibit 4.10)).

4.6        -    Lease Agreement, dated as of March 1, 1990 between MCV and Shawmut Bank ((a), (Exhibit 4.11)).

4.6 (a)    -    Amended and Restated Lease Agreement dated as of June 1, 1990 between MCV and Shawmut Bank ((a), (Exhibit 4.12)).
</TABLE>


                                      E-1

<PAGE>   63

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>             <C>
4.6 (b)    -    Amendment No. 1 dated as of January 1, 1992 to Amended and Restated Lease Agreement ((d), (Exhibit 4.17)).

4.6 (c)    -    Second Amended and Restated Agreement of Lease [Part A] dated as of June 1, 1990 among Consumers, MCV, CMS Midland,
                Inc. and MEC Development Corporation ((a), (Exhibit 4.14)).

4.7        -    Amended and Restated Participation Agreement dated as of June 1, 1990 among MCV, Owner Participant, Shawmut Bank,
                United States Trust Company, Meridian Trust Company, Midland Funding Corporation I, Midland Funding Corporation II,
                MDC and Institutional Senior Bond Purchasers ((a), (Exhibit 4.13)).

4.8        -    Ground Lease Assignment and Assumption Agreement dated as of June 1, 1990 among Shawmut Bank and MCV ((a), (Exhibit
                4.15)).

4.9        -    Collateral Agency and Intercreditor Agreement dated as of June 1, 1990 between Shawmut Bank, MCV, United States
                Trust Company, Meridian Trust Company, Bank of Montreal and Manufacturers National Bank of Detroit ((a), (Exhibit
                4.16)).

10.1       -    Tax Exempt Collateral Trust Indenture dated as of July 1, 1990 among The Economic Development Corporation of the
                County of Midland, MCV and Meridian Trust Company (incorporated by reference to Exhibit No. (28)(g) to CMS Energy
                Corporation's Form 10-Q for the quarter ended June 30, 1990, File No. 1-9513).

10.1 (a)   -    Tax Exempt Collateral Trust Indenture Supplement No. 1 dated July 1, 1990 ((a), (Exhibit  10.2)).

10.2       -    Credit Agreement dated as of June 16, 1990 among Bank of Montreal as Agent, the Lenders named therein and MCV ((a),
                (Exhibit 10.3)).

10.3       -    CMS Transfer Agreement dated as of January 27, 1987, as amended as of June 13, 1988, among Consumers Power Company,
                CMS Midland, Inc. and MCV (incorporated by reference to Exhibit (19)(a) to Consumers Power Company's Form 10-Q for
                the quarter ended June 30, 1988, File No. 1-5611).

10.4       -    Amended and Restated MDC Transfer Agreement dated as of June 13, 1988, among Consumers Power Company, MEC
                Development Corporation and MCV, as amended by the March 2, 1990 Memorandum of Agreement with respect to the Amended
                and Restated Partnership Agreement (incorporated by reference to Exhibit No. (19)(b) to Consumers Power Company's
                Form 10-Q for the quarter ended June 30, 1988, File No. 1-5611), as amended by the March 2, 1990 Memorandum of
                Agreement with respect to the Amended and Restated MDC Transfer Agreement (incorporated by reference to Exhibit
                (2)(b) to CMS Energy Corporation's Form 8-K dated March 21, 1990, File No. 1-9513).

10.5       -    Amended and Restated Tax Indemnification Agreement, dated as of June 1, 1990, among MCV and Owner Participant ((a),
                (Exhibit 10.70)).

10.6       -    Capacity Support Agreement dated as of June 9, 1988, between CMS Energy Corporation and MCV (incorporated by
                reference to Exhibit No. 10(m) to CMS Energy Corporation's Annual Report on Form 10-K, for the year ended December
                31, 1988, File No. 1-9513).

10.7       -    Registration Rights Agreement dated as of December 17, 1993 among Midland Funding Corporation I, MCV, Consumers and
                Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jearette Securities Corporation ((e), (Exhibit 10.97)).
</TABLE>


                                      E-2

<PAGE>   64

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>             <C>
10.8       -    Power Purchase Agreement, dated as of July 17, 1986, between MCV and Consumers Power Company ("PPA") ((a), (Exhibit
                10.4)).

10.8 (a)   -    Amendment No. 1 to PPA dated September 10, 1987 ((a), (Exhibit 10.5)).

10.8 (b)   -    Amendment No. 2 to PPA dated March 18, 1988 ((a), (Exhibit 10.6)).

10.8 (c)   -    Amendment No. 3 to PPA dated August 28, 1989 ((a), (Exhibit 10.7)).

10.8 (d)   -    Amendment No. 4A to PPA dated May 25, 1989 ((a), (Exhibit 10.8)).

10.9       -    Special Facilities/Interconnection Agreement dated as of July 8, 1988 between MCV and Consumers Power Company ((a),
                (Exhibit 10.25)).

10.10      -    Residual Open Access Interconnection Service Purchase Agreement between Consumers Power Company and MCV, dated
                December 5, 1991 ((c), (Exhibit 10.83)).

10.11      -    Agreement with respect to the transmission of power dated as of June 9, 1988, between Consumers Power Company and
                MCV ((a), (Exhibit 10.69)).

10.12      -    MCV Backup Agreement dated June 9, 1988 between MCV and Consumers Power Company with respect to Alternative
                Generating Equipment ((a), (Exhibit 10.27)).

10.13      -    Interconnection Option between MCV, Consumers Power Company, Michigan Gas Storage Company and The Dow Chemical
                Company dated April 27, 1988 ((a), (Exhibit 10.14)).

10.14      -    Steam and Electric Power Agreement between The Dow Chemical Company and MCV dated January 27, 1987 (the "SEPA")
                ((a), (Exhibit 10.10)).

10.14 (a)  -    First Amendment to SEPA ((a), (Exhibit 10.11)).

10.14 (b)  -    Exhibit "A" to SEPA ((a), (Exhibit 10.13)).

10.14 (c)  -    Fourth Amendment to SEPA ((a), (Exhibit 10.15)).

10.14 (d)  -    Fifth Amendment to SEPA ((a), (Exhibit 10.16)).

10.14 (e)  -    Sixth Amendment to SEPA, dated November 20, 1989 ((f), (Exhibit 10.14(e)).

10.14 (f)  -    Seventh Amendment to SEPA, dated November 22, 1994 ((f), (Exhibit 10.14(f)).

10.15      -    Demineralized Water Supply Agreement dated as of January 27, 1987 between MCV and The Dow Chemical Company ((a),
                (Exhibit 10.31)).

10.16      -    Package Boiler Sale and Support Agreement between The Dow Chemical Company, Consumers Power Company and MCV dated as
                of January 27, 1987 ((a), (Exhibit 10.32)).

10.17      -    Equipment Lease dated as of January 27, 1987 between The Dow Chemical Company and MCV (the "Equipment Lease") ((a),
                (Exhibit 10.71)).

10.17 (a)  -    First Amendment to Equipment Lease effective March 1, 1988 and dated as of May 4, 1988 ((a), (Exhibit 10.72)).
</TABLE>



                                      E-3

<PAGE>   65

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>             <C>
10.17 (b)  -    Second Amendment to Equipment Lease effective December 1, 1989 and dated November 20, 1989 ((a), (Exhibit 10.73)).

10.18      -    Equipment Lease Easement dated as of January 27, 1988 between The Dow Chemical Company and MCV ((a), (Exhibit
                10.74)).

10.18 (a)  -    First Amendment to Equipment Lease Easement effective March 1, 1988 and dated May 4, 1988 ((a), (Exhibit 10.75)).

10.18 (b)  -    Second Amendment to Equipment Lease Easement effective December 1, 1989 and dated November 20, 1989 ((a), (Exhibit
                10.76)).

10.19      -    Service Agreement dated as of June 9, 1988 between MCV and ABB Power Generation, Inc. (Previously ABB Energy
                Services, Inc.) ((a), (Exhibit  10.22)).

10.19 (a)  -    Hot Gas Path Parts Addendum to the Service Agreement dated March 22, 1994 ((e), (Exhibit 10.99)).

10.19 (b)  -    Amendment No. 1 to the Service Agreement dated April 1, 1995 ((g), (Exhibit 10.20(b))).

10.19 (c)  -    Amendment No. 2 to the Service Agreement dated January 15, 1998.

10.20      -    Operating Agreement, dated as of June 1, 1990, between MCV and Shawmut Bank, as Owner Trustee ((a), 
                (Exhibit 10.23)).

10.21      -    Lessee Mortgage and Security Agreement, dated as of June 1, 1990, between Shawmut Bank, as Owner Trustee, and MCV
                ((a), (Exhibit 10.24)).

10.22      -    Cogeneration Agreements Assignment, dated as of June 1, 1990, between Shawmut Bank, Owner Trustee, and MCV ((a),
                (Exhibit 10.26)).

10.23      -    Support Facilities License and Easement Agreement dated as of June 1, 1990 between MCV and Shawmut Bank ((a),
                (Exhibit 10.29)).

10.24      -    Facility Agreements and Governmental Actions Assignment Agreement dated as of June 1, 1990 between MCV and Shawmut
                Bank ((a), (Exhibit 10.30)).

10.25      -    Development Agreement, dated as of June 1, 1990 between MCV, Shawmut Bank, as Owner Trustee, and MCV2 ((a), 
                (Exhibit 10.33)).

10.26      -    Amended and Restated Consent and Agreement, dated as of June 1, 1990, between The Dow Chemical Company, Shawmut
                Bank, as Owner Trustee, Meridian Trust Company and United States Trust Company, MCV and Consumers Power Company
                ((a), (Exhibit 10.34)).

10.27      -    Consent and Agreement, dated as of June 1, 1990, between Consumers Power Company, MCV, Shawmut Bank, as Owner
                Trustee, Meridian Trust Company and United States Trust Company ((a), (Exhibit 10.35)).

10.28      -    Natural Gas Purchase Agreement, dated as of May 1, 1989 between Northern Michigan Gas Exploration Company
                ("Nomeco"), CMS Energy Corporation and MCV ((a), (Exhibit  10.39)).

10.28 (a)  -    Amendment dated March 1, 1992 to the Natural Gas Purchase Agreement dated as of May  1, 1989 between Nomeco, CMS
                Energy Corporation and MCV ((e), (Exhibit 10.95)).
</TABLE>


                                      E-4

<PAGE>   66

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>             <C>
10.28 (b)  -    Amendment dated May 11, 1994 to the Natural Gas Purchase Agreement dated as of May 1, 1989 between  Nomeco, CMS
                Energy and MCV,((f), (Exhibit 10.29(b)).

10.29      -    Natural Gas Purchase Agreement, dated as of May 13, 1988 between ANR Production Company and MCV ((a), (Exhibit
                10.41)).

10.30      -    Natural Gas Purchase Contract dated August 18, 1994, between Coastal Gas Marketing and MCV ((f), (Exhibit 10.32)).

10.31      -    Natural Gas Purchase Agreement, dated May 1, 1989 between CoEnergy Trading Company (previously Northern Michigan 
                Gas Exploration Company before being assigned to CoEnergy Trading Company on March 14, 1995) and MCV ((a), (Exhibit
                10.40)).

10.32      -    Natural Gas Purchase Agreement, dated February 1, 1992 between CoEnergy Trading Company (previously Nomeco Oil and
                Gas Company before being assigned to CoEnergy Trading Company on July 22, 1994) and MCV ((d), (Exhibit 10.84)).

10.33      -    Natural Gas Purchase Agreement, dated as of June 2, 1997 between MCV and CMS Marketing, Services and Trading 
                Company.

10.34      -    Transportation Service Agreement, dated as of May 25, 1988 between Great Lakes Gas Transmission Company and MCV and
                letter agreements dated May 25, 1988 and May 26, 1988 ((a), (Exhibit 10.60)).

10.35      -    Transportation Agreement (#17800) dated  November 24, 1993 between ANR Pipeline Company and MCV ((f), (Exhibit
                10.35)).

10.36      -    Transportation Agreement (#17850) dated November 24, 1993 between ANR Pipeline Company and MCV ((f), (Exhibit
                10.36)).

10.37      -    Gas Exchange Agreement (Interruptible Service), dated as of March 2, 1988, between Consumers Power Company and MCV,
                as amended September 21, 1988 ((a), (Exhibit 10.62)).

10.38      -    Gas Exchange Agreement (Firm Service), dated as of March 2, 1988, between Consumers Power Company and MCV, as
                amended September 21, 1988 ((a), (Exhibit 10.63)).

10.39      -    Gas Storage Agreement (Firm Service) between MCV and Consumers Power Company dated March 2, 1988 ((a), (Exhibit
                10.68)).

10.40      -    Gas Transportation Agreement (Firm Service), dated as of March 2, 1988, between Michigan Gas Storage and MCV and
                amendment thereto dated September 21, 1988 ((a), (Exhibit 10.64)).

10.41      -    The Gas Supply Option dated as of January 27, 1987, between The Dow Chemical Company and MCV ((a), (Exhibit 10.67)).

10.42      -    MCV Senior Management Incentive Plan ((a), (Exhibit 10.80)), (*).

10.43      -    MCV Supplemental Retirement Plan dated July 6, 1992 ((d), (Exhibit 10.87)), (*).

10.44      -    MCV Supplemental Benefit Plan dated January 1, 1989 ((d), (Exhibit 10.88)), (*).
</TABLE>


                                      E-5

<PAGE>   67

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>             <C>
10.45      -    MCV Excess - Benefit Plan dated July 1, 1989 ((d), (Exhibit 10.89)), (*).

21         -    Subsidiaries of Registrant -- MCV subsidiaries are in the aggregate not significant subsidiaries as defined in Rule
                1-02 (v) of Regulation S-X.

27         -    Financial Data Schedule for year Ended 1997.

99.01      -    Unaudited - MCV Selected Proforma Operating Cash Flow Data for the years ended 1997 and 1996.
</TABLE>


   --------------------
   (a)  Incorporated by reference to MCV's registration statement on
        Form S-1 (File No. 33-37977) as the bracketed numbered exhibits.

   (b)  Incorporated by reference to MCV's registration statement on
        Form S-1 (File No. 33-37977) originally filed on November 23, 1990,
        as amended, in Amendment No. 1 to File No. 33-37977 as the
        bracketed numbered exhibits.

   (c)  Incorporated by reference to MCV's Annual Report on Form 10-K
        for the year ended December 31, 1991 as the bracketed numbered
        exhibits.

   (d)  Incorporated by reference to MCV's Annual Report on Form 10-K
        for the year ended December 31, 1992 as the bracketed numbered
        exhibits.

   (e)  Incorporated by reference to MCV's Annual Report on Form 10-K
        for the year ended December 31, 1993 as the bracketed numbered
        exhibits.

   (f)  Incorporated by reference to MCV's Annual Report on Form 10-K
        for the year ended December 31, 1994 as the bracketed numbered
        exhibits.

   (g)  Incorporated by reference to MCV's Annual Report on Form 10-K
        for the year ended December 31, 1995 as the bracketed numbered
        exhibits.

   (*)  Exhibits represent Management Contracts and Compensatory Plans
        and Arrangements.


                                      E-6