<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, 1996

                                       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, 1996


                               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                                                                  13
          G.Regulation                                                                 13
          H.Environmental Matters                                                      17
          I.Overall Lease Transaction                                                  19

Item 2.   Properties                                                                   22

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                                  30

Item 9.   Changes In and Disagreements with Accountants on Accounting and Financial
           Reporting Matters                                                           30

PART III

Item 10.  Directors and Executive Officers of the Registrant                           31

Item 11.  Executive Compensation                                                       33

Item 12.  Security Ownership of Certain Beneficial Owners and Management               35

Item 13.  Certain Relationships and Related Transactions                               36

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K              37
</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 existing gas contracts are expected to satisfy the majority of
   the Facility's gas needs through 2001.

   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, an affiliate of Panhandle Eastern Corporation, doing
   business as "PanEnergy Corp" ("PanEnergy"), Coastal Midland, Inc., a
   wholly-owned subsidiary of The Coastal Corporation ("Coastal"), and MEI
   Limited Partnership, an affiliate of Asea Brown Boveri, Inc. ("ABB").
   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, PanEnergy, 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."

   PanEnergy Corp ("PanEnergy"), the parent company of Source Midland
   Limited Partnership ("Source Midland"), one of the general partners of
   MCV, announced on November 25, 1996, that its Board of Directors had
   approved a definitive merger agreement with Duke Power Company.  The
   merger remains subject to

                                       1
<PAGE>   4
   regulatory and shareholder approvals.  To the extent that the merger
   would cause Source Midland to be regulated as a utility under PURPA,
   Source Midland would be required by the MCV Limited Partnership Agreement
   to divest itself of its interest in MCV in order to keep the utility
   ownership in MCV below 50% in compliance with PURPA QF ownership
   limitations.

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:

   o    12 gas turbine generators ("GTGs") capable of producing approximately
        1045 MW (gross) under design ambient conditions;

   o    12 heat recovery steam generators ("HRSGs") which create steam using
        heat from the GTG exhaust;

   o    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;

   o    A second steam turbine (the "Unit 2 Steam Turbine") which serves as a
        backup to the Unit 1 Steam Turbine;

   o    Pollution control assets;

   o    A 25-mile gas pipeline connecting the interstate gas pipeline system to
        the Facility;

   o    Pipelines to deliver steam to Dow and DCC; and

   o    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:

   Energy Rate and Cost of Production.  Since January 1992, MCV has
   experienced reductions in energy charges paid for electricity under the
   PPA, due both to declining coal costs at Consumers' generating 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.")


                                       2
<PAGE>   5
   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 six 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. In January 1996, several GTGs
   experienced cracking in the hot gas casing which resulted in additional
   outages with consequent reductions in plant availability.  MCV and ABB
   Power continue to address availability issues to alleviate future
   outages.  (See Part II, Item 7, "MD&A -- Outlook -- Operating Outlook"
   and Notes to Consolidated Financial Statements, Note 7, "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.")

   Electric Industry Restructuring.  At both the state and federal level,
   efforts are underway to restructure the electric industry including the
   power generation segment of the industry.  In Michigan, the Michigan
   Public Service Commission ("MPSC") has initiated proceedings to
   determine, among other things, the feasibility of permitting customers to
   choose their electricity provider.  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 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.  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" and Part II, Item 7, "MD&A -
   Outlook - Federal Electric Industry Restructuring".)

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 has contracted to purchase the following 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:

<TABLE>
<CAPTION>

                       Year                       MW/hour
                       ----                       -------
                       <S>                          <C>
                       through December 31, 1991      806
                       1992                           915
                       1993                         1,023
                       1994                         1,132
                       1995 and thereafter          1,240

</TABLE>


                                       3
<PAGE>   6
   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.

   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 January 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.

   However, 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.  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:


                                       4
<PAGE>   7

<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 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.")

   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 1996, Cummins &
   Barnard, Inc. ("Cummins") replaced Ambitech Engineering Corporation who had
   been the consulting engineer since 1991.  In its April 1996 report, Cummins
   found no conditions which they considered would constitute a serious risk to
   meeting PPA commitments although they made several suggestions to be
   considered as enhancements.  MCV's Management had already planned actions to
   address those suggested enhancements.  With regard to the most recent

                                       5
<PAGE>   8
   inspection, MCV expects to receive the report by the end of  April, 1997 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 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 1996, MCV sold an average of 549,670 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.

   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.  On March 17, 1997, Dow notified MCV that it intends to begin
   exercising its tolling rights beginning 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

                                       6
<PAGE>   9
   Commercial Operation Date through December 31, 1996, MCV has paid or
   incurred an aggregate of $900,000 to Dow for eight instances requiring use
   of the Standby Facilities. To date in 1997, there have been no 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 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 4 to 14 years, with U.S. and Canadian suppliers
   for a maximum supply of natural gas as of January 1, 1997 of 236,500
   Mcf/day.  No single Gas Contract accounts for more than 9% 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, 1997, while Gas
   Contracts with Canadian suppliers ("Canadian Gas Contracts") provide for the
   purchase of 80,000 Mcf/day.    MCV has met the initial fuel supply
   requirements under the PPA with Consumers to have at least 189,000 Mcf/day
   of gas under contract through 1999.  Once a year during any calendar year
   after 1997, MCV can be required to demonstrate to Consumers that MCV can
   meet the continuing fuel needs for supplying the minimum scheduled electric
   energy under the PPA during each of the following five calendar years.

   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.  Approximately 30% of the volume is
   priced with a fixed escalator, 35% is priced with the energy index and 35%
   with a combination thereof.

                                       7
<PAGE>   10
   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.

   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")                  20,000    12/31/2000    2.25/1988  Fixed plus 4% escalator
Apache Corp.                             12,000      1/1/2002    1.95/1987  Energy index
Apollo Exploration and Development,       7,500(b)   4/1/2011    2.79/1995  Greater of fixed price
  Delta Oil Co., Inc., Force Energy                                         plus 4% escalator or
  Inc. ("Apollo")                                                           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
CMS Nomeco Oil & Gas Co.                 10,000    12/31/2006    2.15/1988  Greater of fixed price
                                                                            plus 4% escalator or
                                                                            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
Co Energy Trading Co.                     5,000(c) 12/31/2006    2.15/1988  Greater of fixed price
("Co Energy I")                                                             plus 4% escalator or
                                                                            energy index
Co Energy Trading Co.                    10,000(c) 12/31/2006    2.34/1992  Greater of fixed price
("Co Energy II")                                                            plus 4% escalator or
                                                                            energy index
Enron Power Services, Inc. ("Enron I")    8,500(d) 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.    15,000(e)  9/30/2006    2.45/1997  Scheduled price
("Enron II")                                                                increases from
                                                                            $2.45/MMBtu in 1997 to
                                                                            $3.365/MMBtu in 2005.
                                                                            See also footnote (e).
Oxy USA, Inc.                            15,000    12/31/2001    2.25/1988  Energy index plus floor
Wolverine Gas and Oil Company             5,500(b)   1/1/2007    2.54/1991  Greater of fixed price
("Wolverine")                                                               plus 4% escalator or
                                                                            energy index
                                        -------
Subtotal as of 1/1/97                   156,500
</TABLE>


                                       8
<PAGE>   11
<TABLE>
<CAPTION>
                                       Maximum
                                        Daily      Contract      Base
                                       Quantity   Expiration  Price/Year          Pricing
     Current Canadian Suppliers       in Mcf(a)      Date      $/MMBtu            Formula
------------------------------------  ----------  ----------  ----------  -----------------------
<S>                                   <C>         <C>         <C>         <C>
Husky Oil Operations, Ltd. ("Husky")   15,000(f)  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
Shell Canada Limited                   15,000     11/1/2004    1.95/1988  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
       ----------------------        
Coastal Gas Marketing Company                                             
(Gas deliveries begin on 1/1/2002)     30,000     12/31/2006   3.05/2002  4% escalator to 2005
                                                                          $3.60 in 2006
</TABLE>

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

           (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)  The Wolverine contract is a dedication of gas
                production from certain Michigan Antrim Shale gas reserves.  An
                MDQ of 5,500 Mcf/day was provided under the contract in 1993.
                Unlike MCV's other Gas Contracts, the Wolverine and Apollo
                contracts do not impose an obligation on Wolverine or Apollo to
                deliver the MDQ.  Under the Wolverine contract, Wolverine is
                only obligated to deliver 500 Mcf/day.  MCV, however, is
                required to take the quantity delivered, up to the MDQ, or
                reimburse Wolverine 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)  The gas contracts formerly with Northern Michigan
                Exploration Co. were assigned to Co Energy on July 22, 1994 for
                Co Energy II and on March 13, 1995 for Co Energy I.
           (d)  Effective August 1, 1996, the cost of gas under
                this contract was reduced by fixed amounts.  The amount of
                these contract price reductions were $.20/MMBtu, $.17/MMBtu and
                $.13/MMBtu for the respective periods of 8/1/96 to 12/31/99,
                1/1/2000 to 12/31/2003 and 1/1/2004 to 9/30/2006.
           (e)  The gas contract formerly held by Union Pacific
                Fuels, Inc. was assigned to Enron Capital & Trade Resources
                Corp. on May 7, 1996.  In addition, effective March 1, 1997,
                the cost of gas under this contract was reduced to the
                following:  $2.45/MMBtu for the period 3/1/97 to 12/31/98,
                $2.50/MMBtu for the period 1/1/99 to 12/31/2000, $2.55/MMBtu
                for the period 1/1/2001 to 12/31/2002, $3.10/MMBtu for the
                period 1/1/2003 to 12/31/2004, and $3.365/MMBtu for the period
                1/1/2005 to 9/30/2006.  In consideration for the aforementioned
                changes to the contract price, MCV will make a $15.8 million
                cash payment to Enron on March 3, 1997.
           (f)  The gas contract formerly with Canterra Energy Ltd.
                was assigned to Husky on June 12, 1989.


                                       9
<PAGE>   12
   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 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 the 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 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

                                       10
<PAGE>   13
   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.  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") on the
   MichCon pipeline system in northern Michigan.

   The remaining terms of MCV's agreements with the U.S. transporters range
   from 6 to 28 years.  The transportation rates of ANR, Panhandle Pipe Line,
   Trunkline, Great Lakes and Michigan Gas Storage Company are subject to FERC
   regulation.  For more information about Great Lakes' rates, see Part I, Item
   1, Section G, "Regulation - Great Lakes Pricing of Gas Transportation
   Costs."

   On June 29, 1994, FERC authorized a direct interconnect between Great Lakes
   and MCV's pipeline.  This interconnect went into service on December 1, 1994
   and provides firm deliveries for volumes directly to MCV's pipeline.
   Previously, MCV gas from Great Lakes was delivered to the pipelines of
   Michigan Gas Storage and Consumers, which in turn delivered the gas to MCV.

   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 off-peak periods.

   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.  ("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.)

   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.  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

                                       11
<PAGE>   14
   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 commenced on January 1, 1990, and will expire upon the
   earlier of the completion of the fourth series of major GTG inspections  or
   December 31, 2003.  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 $290,435 (in 1996 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
   ($2,500,000 in 1997, reduced by $500,000 in 1998 and each year thereafter).

   The total liability of ABB Power or MCV under the Service Agreement may not
   exceed (i) the greater of $2,799,000 or the inspection fee with respect to
   any year, and (ii) an aggregate sum of $15,000,000 with respect to the
   entire term.

   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.  As part of the amendment, ABB Power paid the third year
   availability incentive of $3,000,000 to Fluor Engineers pursuant to the
   completion of the construction contract of the Facility.  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,
   which are expected to be completed by year end 2002, for a lump sum fixed
   price of $158 million (in 1993 dollars), 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.  Upon
   termination of the amendment (except for non-performance of ABB Power), MCV
   must pay a cancellation payment of $5,000,000.  This agreement has reduced
   uncertainties associated with maintenance and the cost of spare parts.

   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


                                       12
<PAGE>   15
   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, 1997, MCV had 133 employees, including 90 engineering,
   operating and maintenance personnel.  Fifty-three 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 1996, the Facility achieved a Thermal Percentage of
   15.0% and an Efficiency Percentage of 45.5%.  (See Part II, Item 7, "MD&A --
   Outlook -- Maintaining QF Status".)

   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.

   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 Reconciliation Proceeding" ("Reconciliation Case").
   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.


                                       13
<PAGE>   16
   The PPA contains a "regulatory out" provision which 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 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 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 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 the PSCR Plan and Reconciliation Case for 1993 and
   was intended to be applied in subsequent years if the MPSC deemed it to be
   appropriate.  Petitions for Rehearing of the Settlement Order filed with the
   MPSC by opponents to the Revised Settlement Proposal, including the Michigan
   Attorney General, were denied by the MPSC  in May 1993.  In accordance with
   the provisions of the Settlement Order, in August 1993, Consumers and MCV
   withdrew their remaining appeals relating to MCV cost recovery issues (from
   1990, 1991 and 1992 PSCR Reconciliation Cases) pending before the Michigan
   Court of Appeals and the Michigan Supreme Court.  An appeal of the
   Settlement Order was filed with the Michigan Court of Appeals by a group
   representing some of Consumers' industrial customers and by the Michigan
   Attorney General ("Appellants").  On March 19, 1996, the Court of Appeals
   issued a decision which affirmed the Settlement Order.  The Appellants
   unsuccessfully sought further judicial review of the Court of Appeals'
   decision and that 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 the MCV is subject to annual PSCR
   reviews.

   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

                                       14
<PAGE>   17
   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 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 said 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 (approximately $62,000 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) relating to
   the jurisdictional issue, subject to a final resolution between MCV and
   Consumers as to the appropriate escrow amount and 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 the jurisdictional
   issue as operating revenues.

   The MPSC ruled in the 1993 Reconciliation Case that Consumers could not
   recover from its retail customers approximately $.6 million of fixed energy
   charges payable to MCV for energy delivered above the off-peak cap of 732 MW
   (the "off-peak cap issue").  Consumers had paid into escrow approximately
   $.4 million of this sum and the balance had been paid to MCV.  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.  MCV Management cannot predict the outcome
   of this proceeding.

   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 court for rehearing.  Other PSCR
   Plan and Reconciliation Cases for the years 1994 - 1997 are pending before
   the MPSC at this time.  Consumers has


                                       15
<PAGE>   18
   escrowed approximately $2.8 million in 1996 and $1.0 million for the years
   1995 and 1994 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 is a party to the consolidated
   proceeding.  The settlement agreement proposes 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 is in addition to
   the 915 MW already approved by the MPSC.  Recovery from Consumers retail
   customers would 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.  Various parties have petitioned
   the MPSC for rehearing and may take further judicial appeals.  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 $1.4 million escrowed in 1993, 1994 and 1995 remains in escrow.
   MCV has not recognized any of these amounts related to the off-peak issue as
   operating revenues.  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.  Generally, the MPSC
   is considering a transition to a competitive regime whereby electric retail
   customers will be able to chose their power supplier.  The MPSC held three
   public hearings to receive comments on a "Staff Report on Electric Industry
   Restructuring" ("Staff Report") prepared by the MPSC staff.  The Staff
   Report recommends a phased-in program (from 1997 through 2004) for this
   competitive regime known as "direct access" whereby all customers
   (industrial, commercial and residential) would be eligible to select the
   electricity supplier of their choice.  The report addresses many transition
   issues including reliability, stranded cost (or transition cost) recovery,
   rates, and other issues.  The Staff Report recommends recovery by utilities
   of stranded costs including energy supply costs (such as purchased power
   contracts previously approved by the MPSC ) incurred during the regulated
   era that will be above market prices during the new competitive regime
   proposed in the Staff Report.  MCV filed comments to the Staff Report.  MCV
   advocated, among other things, full recovery of PPA charges.  On February 5,
   1997, the MPSC issued a subsequent order which, among other things,
   concluded that additional information would be useful for the MPSC to fully
   evaluate the Staff Report.  To that end, four additional public hearings
   were scheduled, Consumers and Detroit Edison Company (the two largest
   investor owner utilities in Michigan) were directed to make an informational
   filing by March 7, 1997 and interested parties were given the opportunity to
   file written comments by April 7, 1997.  On March 7, 1997, Consumers made
   its informational filing addressing all of the requested issues.  Generally,
   Consumers' filing approved of the Staff Report with certain significant
   modifications.  Of importance to MCV, Consumers' filing stated that
   Consumers has approximately $1.8 billion of existing transition costs (which
   includes costs associated with the purchases of capacity from MCV through
   the year 2007) which would be recovered by a transition charge to be paid by
   direct access customers.  No other proceedings are scheduled by the MPSC at
   this time.  The Michigan legislature has also begun a hearing process to
   consider electric industry restructuring and deregulation.  While
   restructuring could have a material impact on MCV, MCV Management cannot
   predict the impact on MCV or the outcome of this proceeding.

   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


                                       16
<PAGE>   19
   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.  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 developments.

   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 (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, among
   others, MCV 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 are
   subject to further administrative and judicial processes, and MCV and others
   have filed appeals to the United States Court of Appeals for the District of
   Columbia ("Court of Appeals") challenging certain aspects of the Order on
   Remand.  MCV Management cannot predict the outcome of these proceedings but
   believes that the likelihood of a reversal by the Court of Appeals of that
   portion of the FERC Order on Rehearing requiring rolled-in rate treatment 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


                                       17
<PAGE>   20
   and difficult.  Any such changes, however, are likely to apply to similarly
   situated power plants and not only to the Facility.

   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 Michigan Department of
   Environmental Quality ("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 could
   take as much as two years to complete.

   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.

   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


                                       18
<PAGE>   21
   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.

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.  Fleet National Bank (formerly Shawmut 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 Comerica Bank (formerly the Manufacturers National Bank
   of Detroit) as collateral Agent (the "Collateral Agent"), which provides for
   the creation



                                       19
<PAGE>   22
   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 (the "Partner
   Affiliates") which agreed to loan money under specified conditions to MCV
   pursuant to a standby working capital facility described below.  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, 1997.  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 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.

                                       20
<PAGE>   23
   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 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.



                                       21
<PAGE>   24
   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 has 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 February 28,
   1997, MCV had  funds of $137.0 million in the Reserve Account.

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."

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

Other than as discussed in Part I, Item 1, Section G, "Regulation" there are no
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, 1996, 1995,
1994, 1993 and 1992 and for each of the five years ended December 31, 1996 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,
                                     ------------------------------------------------------
                                        1996       1995       1994       1993        1992
                                     ---------  ---------  ---------  ---------   ---------
                                                   (Dollars in Thousands)
<S>                                 <C>        <C>        <C>        <C>         <C>
STATEMENT OF OPERATIONS DATA:
 Operating Revenues                  $ 645,168  $ 617,818  $ 578,741  $ 548,483   $ 487,526
 Operating Income                      227,883    232,347    200,593    186,150     172,836
 Net Income (Loss)                      65,524     60,936     17,689     (2,637)    (17,047)

BALANCE SHEET DATA:  (1)
 Total Assets                        2,363,945  2,360,530  2,372,106  2,399,942   2,435,878
 Capitalization
  Partners' Equity                     199,484    133,960     73,024     55,335      57,972
  Long-Term Debt, Excluding Current
    Maturities                       1,929,241  2,007,815  2,080,005  2,145,886   2,185,358
</TABLE>


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

(1)  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, 1996, MCV recorded net income of $65.5 million
as compared to 1995 net income of $60.9 million.  The increase in 1996 earnings
is primarily the result of the Great Lakes gas transportation refund and lower
interest expense overall.  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.  For the year ended
December 31, 1995, MCV's recorded net income was higher than the 1994 net
income by $43.2 million.  The increase in 1995 earnings is primarily the result
of higher capacity payments under the PPA, lower natural gas prices, lower
interest expense and higher interest income.  This increase was partially
offset by increased depreciation expense.




                                       23
<PAGE>   26
Operating Revenues

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


<TABLE>
<CAPTION>
                                     1996           1995           1994
                                 -------------  -------------  -------------
<S>                              <C>            <C>            <C>
Operating Revenues                 $  645,168      $ 617,818      $ 578,741

Capacity Revenue                   $  396,244      $ 401,935      $ 363,770
  PPA Contract Capacity (MW)            1,240          1,240          1,132
  PPA Availability                       96.4%          98.1%          97.2%
Electric Revenue                   $  220,803      $ 188,739      $ 188,550
  PPA Delivery as a Percentage
    of Contract Capacity                 89.4%          75.2%          80.5%
  PPA and SEPA
    Electric Deliveries (MWh)      10,286,934      8,693,500      8,503,787
  Average PPA Variable Energy
    Rate ($ / MWh)                 $    17.00      $   17.20      $   17.80
  Average PPA Fixed Energy
    Rate ($ / MWh)                 $     4.10      $    3.90      $    3.60

Steam Revenue                      $   12,851      $  11,874      $  11,151
  Steam Deliveries (Mlbs)           5,215,537      4,680,080      4,521,916

Other Operating Income             $   15,270      $  15,270      $  15,270
</TABLE>

Operating Revenues

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 is primarily the result of
Consumers' decision to increase MCV's electric dispatch in 1996 consistent with
the terms of the 325 MW Proposed Settlement.  The capacity revenue reduction of
$5.7 million is 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.

For the year ended December 31, 1995, MCV's operating revenues increased $39.1
million over 1994 due primarily to increases in capacity revenue.  The capacity
revenue increase of $38.2 million is primarily the result of higher capacity
payments under the PPA due to the increase of the 1995 Contract Capacity level
above 1994 and a slightly higher PPA availability due to fewer equipment
outages.

Operating Expenses

In 1996, MCV's operating expenses were $417.3 million, which includes $250.5
million of 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 were $268.1 million.
MCV purchased approximately 96.8 billion cubic feet ("bcf") of natural gas, of
which 93.2 bcf was consumed at the plant to produce energy and 3.6 bcf was used
either for transportation fuel or as a net change to gas in storage.  The
average commodity cost of fuel for 1996 was $2.37 per MMBtu.  In 1995,
operating expenses were $385.5 million, which includes $229.6 million of fuel
costs.  During this period, MCV purchased approximately 83.8 bcf of natural
gas, of which 79.6 bcf was consumed at the plant to produce energy and 4.2 bcf
was used either for transportation fuel or as a net change to gas in storage.
The average commodity cost of fuel for 1995 was $2.24 per MMBtu.  The increase
in fuel costs of $38.5 million (excluding the Great Lakes refund) for 1996
compared to 1995 is due primarily to an increase in fuel usage resulting from
the higher Consumers dispatch level

                                       24
<PAGE>   27
and 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 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.

In 1995, MCV's operating expenses increased $7.3 million over 1994, which
includes a $5.5 million decrease in fuel costs.  In 1995, MCV increased its gas
fuel usage over 1994 by approximately .9 bcf with a decrease in the fuel rate
of $0.07 per MMBtu.  The decrease in fuel costs was due to the substantial
displacement of long-term fuel purchases with lower cost short-term fuel
purchases, lower demand charges resulting from the reinstatement of rolled-in
pricing in October, 1995 on Great Lakes transportation system and the receipt
of a gas transportation rate refund from Panhandle Pipe Line.

In 1995, operating expenses other than fuel costs increased $12.8 million over
1994 due primarily to higher depreciation expense resulting from commencement
of amortization of payments under the amended Service Agreement, higher
maintenance costs associated with the General Electric Company steam turbine
maintenance agreement and increased property taxes due on electric transmission
equipment under a facility agreement with Consumers.  This increase was
partially offset by lower legal fees.

Other Income (Expense)

The increase in interest and other income in 1996 compared to 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 1995 increase compared to 1994 is due to higher interest rates
and maintaining a higher average cash investment balance.  The decrease in
interest expense in 1996 compared to 1995 and in 1995 compared to 1994 is due
to a lower principal balance on MCV's financing obligation.

Liquidity and Financial Resources

During 1996 and 1995, net cash generated by MCV's operations was $167.9 million
and $140.8 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 $18.1 million, $5.8 million and $9.1
million were retained by MCV as working capital in 1996, 1995 and 1994,
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 January and July for the next
eighteen years.  During 1996, 1995 and 1994, MCV paid the basic rent
requirements of $254.7 million, $254.4 million and $232.5 million,
respectively, as required under the Overall Lease Transaction.

MCV also has arranged for a $50 million Working Capital Facility from 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, 1996, the borrowing base was
$49.1 million.  The Working Capital Facility term currently extends to August
31, 1997.  MCV did not utilize the Working Capital Facility during 1996, 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 working capital shortfalls, which might occur.

Since January 1992,  MCV has experienced a reduction in the energy charges it
is paid for electricity under the PPA due both to declining coal costs at
Consumers' generating plants and Consumers' ability, under the "regulatory out"
provisions of the PPA, to withhold fixed energy charges for available but
undelivered energy.  If there are continued reductions in energy charges
relative to MCV's cost of fuel used in production, there could be a material
adverse impact on MCV's

                                       25
<PAGE>   28
ability to make future rental payments out of cash flow from operations.  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, 1996, there was $261.9 million (which includes
$60.0 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
prevailing governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission and the Michigan Public Service
Commission) with respect to cost recovery under the PPA, industry
restructuring, 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 the
Partnership 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, Consumers' performance of its obligations under the PPA, 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 96.4% in
1996, 98.1% in 1995 and 97.2% in 1994.  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 turbine.  MCV expects long-term PPA
availability to exceed 90%.

In 1991 and 1992, several GTGs experienced cracking in the hot gas casing
which, in two cases, caused extensive damage to the turbine blades.  As a
result of the cracking problems, modifications were made on all GTGs and MCV
and ABB Power implemented a program of hot gas casing inspections for all GTGs.
During 1994, ABB Power completed an analysis of cracking problems present in
two of the modified GTG hot gas casings and determined that additional
modifications should be made to the hot gas casings.  New hot gas casings which
include these modifications have been installed on all of the GTG units.


                                       26
<PAGE>   29
In January 1996, two additional GTGs experienced severe cracking in the hot gas
casing (one of which included the newest hot gas casing modifications), causing
extensive damage to the turbine blades and vanes. MCV immediately inspected all
of the remaining GTG hot gas casings for evidence of cracking and identified an
additional five GTGs which required casing replacements.  During the first
quarter of 1996, MCV and ABB Power increased the frequency of inspections on
these units which resulted in additional scheduled and unscheduled maintenance
outages.  Extensive analysis and review by MCV and ABB Power has concluded that
crack initiation tended to start in high stress areas of the hot gas casing and
that pulsations were the key factor in crack propagation in these units.  MCV
and ABB Power have modified the burner geometry of all the turbines which has
significantly reduced pulsations in the hot gas casings.  MCV has also
installed additional measuring devices to detect any pulsations which are
suspected of accelerating crack propagation.  In addition, MCV and ABB Power
continue to study whether any modifications are needed in the high stress areas
of the hot gas casings.  MCV currently performs GTG inspections on all units
approximately every 2000 hours.  MCV believes that the burner modifications
have resolved the pulsation problems and there should be no significant future
impacts on plant availability or efficiency from pulsations, 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 fourth series of major GTG inspections which are expected
to be completed by year end 2002.

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 1996, the energy charge (fixed and
variable) paid to MCV has declined by .20 cents per kWh, while the average
variable cost of delivered fuel has risen by $0.18 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 contract prices under which MCV purchases fuel (generally
escalated at either the total PPA energy charge or 4% per year).  The
difference could be further exacerbated in approximately four 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.  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,

                                       27
<PAGE>   30
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
(approximately $62,000 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) relating to the
jurisdictional issue, subject to a final resolution between MCV and Consumers
as to the appropriate escrow amount and 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 the jurisdictional issue as
operating revenues.

The MPSC ruled in the 1993 Reconciliation Case that Consumers could not recover
from its retail customers approximately $.6 million of fixed energy charges
payable to MCV for energy delivered above the off-peak cap of 732 MW (the
"off-peak cap issue").  Consumers had paid into escrow approximately $.4
million of this sum and the balance had been paid to MCV.  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.  MCV Management cannot predict the outcome of this proceeding.

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 court for rehearing.  Other PSCR Plan and Reconciliation
Cases for the years 1994 - 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 1995 and 1994 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 is a party to the consolidated proceeding.  The
settlement agreement proposes 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 is in addition to the 915 MW already
approved by the MPSC.  Recovery from Consumers retail customers would 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.  Various parties have petitioned the MPSC for rehearing and may take
further judicial appeals.  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 $1.4 million escrowed in 1993, 1994 and
1995 remains in escrow.  MCV has not recognized any of these amounts related to
the off-peak issue as operating revenues.  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.  Generally, the MPSC is considering a transition
to a competitive regime whereby electric retail customers will be able to chose
their power supplier.  The MPSC held three public hearings to receive comments
on a "Staff Report on Electric Industry Restructuring" ("Staff Report")
prepared by the MPSC staff.  The Staff Report recommends a phased-in program
(from 1997 through 2004) for this competitive regime known as "direct access"
whereby all customers (industrial, commercial and residential) would be
eligible to select the electricity supplier of their choice.  The report
addresses many transition issues including reliability, stranded cost (or

                                       28
<PAGE>   31
transition cost) recovery, rates, and other issues.  The Staff Report
recommends recovery by utilities of stranded costs including energy supply
costs (such as purchased power contracts previously approved by the MPSC )
incurred during the regulated era that will be above market prices during the
new competitive regime proposed in the Staff Report.  MCV filed comments to the
Staff Report.  MCV advocated, among other things, full recovery of PPA charges.
On February 5, 1997, the MPSC issued a subsequent order which, among other
things, concluded that additional information would be useful for the MPSC to
fully evaluate the Staff Report.  To that end, four additional public hearings
were scheduled, Consumers and Detroit Edison Company (the two largest investor
owner utilities in Michigan) were directed to make an informational filing by
March 7, 1997 and interested parties were  given the opportunity to file
written comments by April 7, 1997.  On March 7, 1997, Consumers made its
informational filing addressing all of the requested issues.  Generally,
Consumers' filing approved of the Staff Report with certain significant
modifications.  Of importance to MCV, Consumers' filing stated that Consumers
has approximately $1.8 billion of existing transition costs (which includes
costs associated with the purchases of capacity from MCV through the year 2007)
which would be recovered by a transition charge to be paid by direct access
customers.  No other proceedings are scheduled by the MPSC at this time.  The
Michigan legislature has also begun a hearing process to consider electric
industry restructuring and deregulation.  While restructuring could have a
material impact on MCV, MCV Management cannot predict the impact on MCV or the
outcome of this proceeding.

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.  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 developments.

Maintaining QF Status.  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 (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 1996 and 1995 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 to increase MCV's electric dispatch in 1996 consistent with the terms
of the 325 MW Settlement Order, energy deliveries under the PPA could exceed
90% of Contract Capacity in the future.  In that event, 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.

Under an agreement signed November 1, 1994, Dow began purchasing steam for its
corporate center in October 1995, which has added an annual average of
approximately 22,000  lbs/hr in steam sales.  Under an agreement signed
November 15, 1995, DCC began purchasing steam for its Midland site in July
1996, a use MCV believes will add an annual average of approximately 115,000
lbs/hr in steam sales.  Dow and DCC steam purchases for the year 1996 averaged
593,754 lbs/hr

                                       29
<PAGE>   32
reflecting, in part, the steam sales to DCC which began in mid July 1996.
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 Certification and should 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 certification.
In 1996, MCV achieved an Efficiency Percentage of 45.5% and an Thermal
Percentage of 15.0%.

PanEnergy Corp ("PanEnergy"), the parent company of Source Midland Limited
Partnership ("Source Midland"), one of the general partners of MCV, announced
on November 25, 1996, that its Board of Directors had approved a definitive
merger agreement with Duke Power Company.  The merger remains subject to
regulatory and shareholder approvals.  To the extent that the merger would
cause Source Midland to be regulated as a utility under PURPA, Source Midland
would be required by the MCV Limited Partnership Agreement to divest itself of
its interest in MCV in order to keep the utility ownership in MCV below 50% in
compliance with PURPA QF ownership limitations.

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).

See Part II, Item 8, "Financial Statements and Supplementary Data -- Notes 1
through 7 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.

                                       30
<PAGE>   33
                                    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."

Management Committee

William T. McCormick, Jr.  (52)  Management Committee Chairman

David A. Arledge           (52)  Management Committee Member

Peter Giller               (54)  Management Committee Member

Paula G. Rosput            (40)  Management Committee Member

Executive Officers

James M. Kevra             (48)  President and Chief Executive Officer

James A. Mooney            (57)  Vice President of Engineering, Operations and
                                 Construction

Gary B. Pasek              (41)  General Counsel and Secretary

James M. Rajewski          (49)  Vice President and Controller

Stephen A. Shulman         (40)  Vice President of Finance and Treasurer

LeRoy W. Smith             (55)  Vice President of Gas Supply


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 also President and Chief Executive Officer of The Coastal
Corporation (diversified energy holding company) and has held this position
since October 1995.  Prior to becoming Chief Executive Officer, Mr. Arledge was
Chief Operating Officer of The Coastal Corporation from March, 1994.  He is
also serving as a director of Coastal and of Coastal Midland, Inc., an
affiliate 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.

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.

                                       31
<PAGE>   34
Paula Rosput has served as a member of the Management Committee since July
1995.  Ms. Rosput has been President of PanEnergy Power Services, Inc. (engaged
in independent power marketing), a subsidiary of PanEnergy, since May 1995, and
President of Source Cogeneration Company, Inc. (engaged in the electric power
business), an affiliate of PanEnergy, since June 1995, and also serves on
PanEnergy's Management Committee.  Ms. Rosput previously served as Senior Vice
President of Pacific Gas Transmission Company (engaged in the transportation of
natural gas), a position she held from 1988 to April 1995.

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.

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.  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.


                                       32
<PAGE>   35
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, 1996, 1995 and
1994.

                           Summary Compensation Table

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

James A. Mooney            1996   163,247       57,991             --                 --            35,637(e)
Vice President of          1995   158,989       71,100             --                 --            35,617
Engineering, Operations    1994   149,570       50,200             --               26,000          34,265
and Construction

LeRoy W. Smith             1996   140,425       57,525             --                 --            23,551(f)
Vice President of          1995   138,016       65,570             --                 --            23,234
Gas Supply                 1994   128,955       54,000             --               17,800          21,883

Gary B. Pasek              1996   134,403       49,347             --                 --            20,135(g)
General Counsel &          1995    82,595       29,792           17,075               --            12,000
Secretary
(commencing 5/15/95)

Stephen A. Shulman         1996   122,382       42,439             --                 --            18,335(h)
Vice President of Finance  1995   118,109       47,016             --                 --            11,802
and Treasurer              1994   107,849       42,200             --               8,700           10,087
</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)  Represents bonuses accrued under the Senior Management Long Term
     Incentive Plan which was terminated in 1995.

(d)  Includes company contributions of $7,500 to the 401(k) Savings Plan,
     $13,000 to the Defined Contribution Retirement Plan, $12,769 to the
     Supplement Retirement Plan and $7,001 to the Excess Benefit Plan.

(e)  Includes company contributions of $7,500 to the 401(k) Savings Plan,
     $13,000 to the Defined Contribution Retirement Plan, $11,914 to the
     Supplemental Retirement Plan and  $3,223 to the Excess Benefit Plan.

(f)  Includes company contributions of $6,981 to the 401(k) Savings Plan,
     $13,519 to the Defined Contribution Retirement Plan, $2,608 to the
     Supplemental Retirement Plan and $443 to the Excess Benefit Plan.


                                       33


<PAGE>   36

(g)  Includes company contributions of $6,712 to the 401(k) Savings Plan and
     $13,423 to the Defined Contribution Retirement Plan.

(h)  Includes company contributions of $6,112 to the 401(k) Savings Plan and
     $12,223 to the Defined Contribution Retirement Plan.


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
President and Chief Executive Officer and Director of Coastal and 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 1996, 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 $40.9 million.  A similar level of transactions is expected to
occur in 1997.

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 1996, 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 $30.6 million.  A
similar level of transactions is expected to occur in 1997.  In addition, ABB
has 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.

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 1996, Consumers purchased electric
capacity and related energy from the Facility that aggregated approximately
$598.1 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 1996, 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 $28.0 million.  A similar level of transactions is
expected to occur in 1997.

Ms. Rosput is a member of the Compensation Committee of MCV and has served in
this capacity since July, 1995; she also serves as President of PanEnergy Power
Services, Inc., and Source Cogeneration Company, Inc., which are affiliates of
PanEnergy.  Affiliates of PanEnergy have engaged in numerous transactions in
the ordinary course of business to provide services or products to MCV.  In
1996, PanEnergy affiliates engaged in transactions with MCV which included the
sale of natural gas, sale of natural gas transportation, and the purchase of
natural gas that amounted in aggregate to approximately $20.8 million.  A
similar level of transactions is expected to occur in 1997.

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 9 to the
Consolidated Financial Statements."


                                       34

<PAGE>   37
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%    
                                 5400 Westheimer Court                                                            
                                 Houston, TX 77010                                                                
                                                                                                                  
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                                                          
                                 202 Carnegie Center                                                              
                                 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                                                          
                                 202 Carnegie Center                                                              
                                 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>    
---------------


                                       35
<PAGE>   38

(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)  Source Midland Limited Partnership is an affiliate of PanEnergy Corp
     which announced on November 25, 1996, that along with Duke Power Company,
     its Board of Directors has approved a definitive merger agreement to
     create an integrated energy company.  Upon completion of the merger, Duke
     Power Company will change its name to Duke Energy Corporation and
     PanEnergy Corp will be a wholly-owned subsidiary of Duke Energy
     Corporation.  The merger is anticipated to be completed by the end of
     1997.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                       36

<PAGE>   39
                                   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,
       1996 and 1995 or for each of the three years ended December 31, 1996,
       1995 and 1994.


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

</TABLE>

    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 1996.


                                      37

<PAGE>   40

                   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, 1996 and 1995                                              F-3

Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994                F-4

Consolidated Statements of Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994          F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994                F-6

Notes to Consolidated Financial Statements                                                                F-7
</TABLE>



                                      F-1
<PAGE>   41




                    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, 1996 and 1995, and the related
consolidated statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 1996.  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,
1996 and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.


                                                             Arthur Andersen LLP


Detroit, Michigan,
January 24, 1997.










                                      F-2



<PAGE>   42




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


<TABLE>
<CAPTION>
                                                                      1996         1995
                                                                   ----------   ----------
<S>                                                                <C>          <C>
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents (Note 2)                                $  209,959   $  163,953
 Restricted cash and cash equivalents (Notes 2 and 3)                  14,041       13,455
 Accounts receivable (Notes 5 and 9)                                   73,811       64,021
 Gas inventory (Notes 2 and 5)                                         13,539       14,396
 Prepaid expenses                                                       4,078        1,053
                                                                   ----------   ----------

  Total current assets                                                315,428      256,878
                                                                   ----------   ----------

PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 5):
 Property, plant and equipment                                      2,403,640    2,357,881
 Pipeline                                                              21,222       21,410
                                                                   ----------   ----------

  Total property, plant and equipment                               2,424,862    2,379,291

 Accumulated depreciation                                            (535,590)    (431,749)
                                                                   ----------   ----------

  Net property, plant and equipment                                 1,889,272    1,947,542
                                                                   ----------   ----------

OTHER ASSETS:
 Restricted non-current cash and cash equivalents (Notes 2 and 3)     143,049      139,852
 Deferred financing costs, net of accumulated amortization
  of $8,231 and $7,059, respectively (Notes 2 and 5)                   10,346       11,518
 Materials, supplies and other (Note 2)                                 5,850        4,740
                                                                   ----------   ----------

  Total other assets                                                  159,245      156,110
                                                                   ----------   ----------
TOTAL ASSETS                                                       $2,363,945   $2,360,530
                                                                   ==========   ==========

LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable and accrued liabilities (Notes 4 and 9)          $   67,539   $   54,390
 Interest payable (Note 5)                                             88,652       91,840
 Current portion of long-term debt (Note 5)                            78,574       72,190
                                                                   ----------   ----------

  Total current liabilities                                           234,765      218,420
                                                                   ----------   ----------

NON-CURRENT LIABILITIES:
 Long-term debt (Note 5)                                            1,929,241    2,007,815
 Other                                                                    455          335
                                                                   ----------   ----------

  Total non-current liabilities                                     1,929,696    2,008,150
                                                                   ----------   ----------

COMMITMENTS AND CONTINGENCIES (Notes 1, 5, 6 and 7)

TOTAL LIABILITIES                                                   2,164,461    2,226,570
                                                                   ----------   ----------

PARTNERS' EQUITY (Note 9):                                            199,484      133,960
                                                                   ----------   ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY                             $2,363,945   $2,360,530
                                                                   ==========   ==========
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-3



<PAGE>   43




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



<TABLE>
<CAPTION>
                                              1996        1995        1994
                                            ---------   ---------   ---------
<S>                                         <C>         <C>        <C>
 OPERATING REVENUES (Notes 2, 6, 7 and 9):
  Capacity                                  $ 396,244   $ 401,935   $ 363,770
  Electric                                    220,803     188,739     188,550
  Steam and other                              28,121      27,144      26,421
                                            ---------   ---------   ---------

   Total operating revenues                   645,168     617,818     578,741
                                            ---------   ---------   ---------

 OPERATING EXPENSES:
  Fuel costs                                  250,511     229,637     235,088
  Depreciation                                104,189      93,683      82,530
  Operations                                   15,585      13,796      13,423
  Maintenance                                  13,885      12,145      10,087
  Property and single business taxes           25,947      27,565      25,062
  Administrative, selling and general           7,168       8,645      11,958
                                            ---------   ---------   ---------

   Total operating expenses                   417,285     385,471     378,148
                                            ---------   ---------   ---------

 OPERATING INCOME                             227,883     232,347     200,593
                                            ---------   ---------   ---------

 OTHER INCOME (EXPENSE):
  Interest and other income                    18,420      15,637       9,865
  Interest expense                           (180,779)   (187,048)   (192,769)
                                            ---------   ---------   ---------

   Total other income (expense), net         (162,359)   (171,411)   (182,904)
                                            ---------   ---------   ---------

 NET INCOME                                 $  65,524   $  60,936   $  17,689
                                            =========   =========   =========


</TABLE>











        The accompanying notes are an integral part of these statements.


                                      F-4



<PAGE>   44




                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, 1993            $ 36,811   $18,524  $ 55,335

Net income                              15,401     2,288    17,689
                                      --------  --------  --------

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


</TABLE>
































        The accompanying notes are an integral part of these statements.


                                      F-5


<PAGE>   45





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



<TABLE>
<CAPTION>
                                                                    1996       1995       1994
                                                                  --------   --------   --------
<S>                                                               <C>        <C>        <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                                       $ 65,524   $ 60,936   $ 17,689

 Adjustments to reconcile net income to net
  cash provided by operating activities

 Depreciation and amortization                                     105,361     94,896     83,780
 Increase in accounts receivable                                    (9,790)    (6,432)    (6,559)
 (Increase) decrease in gas inventory                                  857        (29)    (2,722)
 Increase in prepaid expenses                                       (3,025)      (385)       (93)
 Increase in materials, supplies and other                          (1,110)    (1,584)      (271)
 Increase (decrease) in accounts payable and accrued liabilities    13,149     (3,468)      (159)
 Decrease in interest payable                                       (3,188)    (2,908)    (1,743)
 Increase (decrease) in other non-current liabilities                  120       (255)      (165)
                                                                  --------   --------   --------
  Net cash provided by operating activities                        167,898    140,771     89,757
                                                                  --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Plant modifications and purchases of plant and equipment          (45,919)   (29,133)   (25,556)
                                                                  --------   --------   --------
  Net cash used in investing activities                            (45,919)   (29,133)   (25,556)
                                                                  --------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayment of financing obligation                                 (72,190)   (65,881)   (39,472)
 Increase in restricted non-current cash and cash equivalents       (3,197)    (1,329)    (9,102)
                                                                  --------   --------   --------
  Net cash used in financing activities                            (75,387)   (67,210)   (48,574)
                                                                  --------   --------   --------

NET INCREASE IN CASH, CASH EQUIVALENTS
 AND RESTRICTED CASH -- CURRENT                                     46,592     44,428     15,627

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -- CURRENT,
 AT BEGINNING OF PERIOD                                            177,408    132,980    117,353
                                                                  --------   --------   --------

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -- CURRENT,
 AT END OF PERIOD                                                 $224,000   $177,408   $132,980
                                                                  ========   ========   ========
</TABLE>















The  accompanying notes are an integral part of these statements.

                                      F-6


<PAGE>   46




                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 9.

    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 for
    the purpose of buying and selling natural gas on the spot market and other
    transactions involving natural gas activities.

    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 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' ability to honor 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 terms of
    the PPA provide for the sale to Consumers of 1132 MW in 1994 and 1240 MW in
    1995 and thereafter.

    The Facility is a qualifying cogeneration facility ("QF") 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.  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 1996, the Facility achieved a
    Thermal Percentage of 15.0% and a PURPA Efficiency Percentage of 45.5%. 
    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 1997.

    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.  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.





                                      F-7


<PAGE>   47





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



(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 6 and 7).  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, 1996 and 1995,
    was $2.8 million and $1.9 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 $1.2
    million were amortized in each of the years 1996, 1995 and 1994.

    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.  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.





                                      F-8

<PAGE>   48





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



  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 approximate fair value
  because of the short maturity of these instruments.  The unique nature of
  the negotiated financing obligation discussed in Note 5 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

  MCV enters into forward purchase contracts for Swiss francs in order to
  hedge against adverse foreign currency price fluctuations relating to the
  gas turbine Amended Service Agreement with ABB Power (see Note 6 -
  Commitments and Other Agreements, "Gas Turbine Service Agreement").  Gains
  and losses on these transactions, accounted for as hedges, are deferred
  and included in the measurement of the underlying capitalized maintenance
  costs when incurred.  As of December 31, 1996 and 1995, MCV had forward
  purchase contracts involving Swiss francs, in the amount of $15.0 million
  and $6.7 million, respectively, with a deferred $1.4 million loss  and $.2
  million gain, respectively.

  Natural Gas Options and Futures

  To manage market risks associated with the volatility of natural gas
  prices, MCV maintains a 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.

  Cash is deposited with the broker 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 deposits were $1.7
  million and $.3 million as of December 31, 1996 and 1995, respectively.
  MCV's deferred gains and losses on future and option contracts 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, 1996,
  MCV had open futures contracts of 3.0 Bcf with a deferred gain of $.4
  million.  As of December 31, 1995, MCV had open futures and options
  contracts of 1.4 Bcf with a deferred loss of $.1 million.  In addition,
  MCV recorded approximately $.1 million in net deferred gains on contracts
  closed prior to December 31, 1996, related to January 1997 purchase
  commitments, while MCV recorded approximately $.1 million in net deferred
  losses on contracts closed prior to December 31, 1995, related to January
  1996 purchase commitments.

  New Accounting Standards

  In March 1995, the Financial Accounting Standards Board issued Statement
  of Financial Accounting Standards 121, "Accounting for the Impairment of
  Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."  This
  standard requires that long-lived assets and identifiable intangibles that
  are used in the operations be reviewed for impairment whenever events or
  changes in circumstances indicate that the carrying amount of the assets
  might not be recoverable or information indicates that an impairment might
  exist.  The partnership adopted this standard on January 1, 1996.  The
  adoption of this standard has not had an impact on the financial position
  or results of operations.




                                      F-9

<PAGE>   49





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



    Reclassifications

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


(3) RESTRICTED CASH AND CASH EQUIVALENTS

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


<TABLE>
<CAPTION>

         Current:                                     1996      1995
         --------                                   --------  --------
         <S>                                        <C>       <C>

         Funds restricted for plant modifications   $ 14,041  $ 13,455
                                                    ========  ========
         Non-current:
         -------------                            
         Funds restricted for rental payments
         pursuant to the Overall Lease Transaction  $142,624  $139,546

         Funds restricted for management
         non-qualified plans                             425       306
                                                    --------  --------

         Total                                      $143,049  $139,852
                                                    ========  ========

</TABLE>

(4) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

<TABLE>
<CAPTION>

                                                      1996      1995   
                                                     -------  ------- 
         <S>                                        <C>       <C>
         Accounts payable                                  
           Related parties                          $ 11,743   $11,652   
           Trade creditors                            40,076    26,956   
         Property and single business taxes           11,835    13,675   
         Other                                         3,885     2,107   
                                                     -------   -------   
         Total                                      $ 67,539   $54,390   
                                                     =======   =======   

</TABLE>

(5) LONG-TERM DEBT

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


<TABLE>
<CAPTION>
                                                     1996         1995     
                                                   ---------   ----------  
<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                         $2,007,815    $2,080,005
                                                                           
     Less current portion                           (78,574)      (72,190)
                                                 ----------    ----------  
                                                                           
     Total long-term debt                        $1,929,241    $2,007,815  
                                                 ==========    ==========  
     
</TABLE>
                                      F-10


                                                                          
<PAGE>   50




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


  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 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").  Fleet
  National Bank (formerly Shawmut 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, 1997.  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.  During 1996, MCV did not utilize the Working Capital
  Facility.  At December 31, 1996, the borrowing base calculated under this
  agreement was $49.1 million and MCV had letters of credit outstanding of
  $31.2 million related to gas purchase transactions thereto.

  In addition, affiliates of certain Partners of MCV had agreed (under certain
  conditions) to make unsecured loans to MCV in an aggregate amount not to
  exceed $10 million to cover working capital expenses.  A fee of .375% per
  annum was payable on the average daily unused portion of this commitment.
  This commitment will terminate April 1, 1997, by  the establishment of
  certain reserves and working capital balances.  MCV incurred approximately
  $38,000 in commitment fees in each of the years 1996, 1995 and 1994 and had
  no outstanding loans under this agreement.

  Intercreditor Agreement

  MCV has also entered into an Intercreditor Agreement with the Owner Trustee,
  Working Capital Lender, Comerica Bank ("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

                                      F-11



<PAGE>   51



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


  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, 1996, MCV has deposited $142.6 million into the
  reserve account and $14.0 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).  The $5.6 million of excess funds in the reserve
  account as of December 31, 1996 will be transferred to MCV on February 28,
  1997 .  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 distributions to the Partners.  In the near
  term, MCV does not expect to make cash distributions to the Partners.

  Summary

  Interest and fees incurred related to long-term debt arrangements during
  1996, 1995 and 1994 were $179.6 million, $185.8 million and $191.5 million,
  respectively.

  Interest and fees paid during 1996, 1995 and 1994 were $182.8 million, $188.7
  million and $193.2 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>

      1997                  $ 78,574      $176,022      $  254,596
      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
                           ---------      --------      ----------
                                                                  
                            $578,159      $787,989      $1,366,148
</TABLE>                   =========      ========      ==========



(6) 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.


                                      F-12


<PAGE>   52




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



  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 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, 1997.  As of January 1, 1997,
  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 1997 through 2001 are
  $107.5 million, $111.2 million, $115.3 million, $120.1 million and $120.6
  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 1996, 1995 and 1994, of $36.5 million (excluding the
  Great Lakes Gas Transportation Refund of $17.6 million (see Note 7 -
  Contingencies, "Fuel Matters")) $41.0 million and $44.7 million,
  respectively.  The estimated minimum reservation charges required under these
  agreements are $36.4 million for each of the years 1997 through 2001.  These
  projections are based on current commitments.

  Gas Turbine Service Agreement

  MCV has entered into a service agreement with ABB Power Generation, Inc.
  ("ABB Power") which commenced on January 1, 1990 and will expire upon the
  earlier of  the completion of the fourth series of  major gas-fired turbine
  generators ("GTG") inspections or December 31, 2003.  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 $2.5
  million in 1997, reduced by $500,000 in 1998 and each year thereafter.  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 will provide hot gas path parts for
  MCV's twelve gas turbines through the fourth series of major GTG inspections,
  which are expected to be completed by year end 2002, for a lump sum fixed
  price of $158 million (in 1993 dollars), payable on the basis of operating
  hours as they occur over the same period.  This agreement is expected to
  reduce uncertainties associated with maintenance and the cost of spare parts.





                                      F-13

<PAGE>   53



                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.


(7) CONTINGENCIES

    PPA - 25 MW Regulatory Disallowance, Fixed Energy Payments for Deliveries
    Above the Caps

    On February 23, 1995, the Michigan Public Service Commission ("MPSC") in
    Case No. U-10155-R (the 1993 power supply cost recovery reconciliation
    proceeding 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 provided 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 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").  Under the "regulatory out" provision of the PPA
    Consumers may, under certain conditions, be relieved of paying 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
    the regulatory disallowance described above.  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 (approximately $62,000
    per month).  In addition, 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 to determine any appropriate 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 the jurisdictional
    issue as operating revenues.

    The MPSC ruled in the 1993 Reconciliation Case that Consumers could not
    recover from its retail customers approximately $.6 million of fixed energy
    charges payable to MCV for energy delivered above the off-peak cap of 732

                                      F-14


<PAGE>   54




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


  MW (the "off-peak cap issue").  Consumers had paid into escrow approximately
  $.4 million of this sum and the balance had been paid to MCV.  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.  MCV Management cannot predict the outcome of this
  proceeding.

  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 court for rehearing.  Other PSCR
  Plan and Reconciliation Cases for the years 1994 - 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 1995 and 1994 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 is a party to the consolidated
  proceeding.  The settlement agreement proposes 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 is in addition to
  the 915 MW already approved by the MPSC.  Recovery from Consumers retail
  customers would 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.  Various parties have petitioned the MPSC for
  rehearing and may take further judicial appeals.  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 $1.4
  million escrowed in 1993, 1994 and 1995 remains in escrow.  MCV has not
  recognized any of these amounts related to the off-peak issue as operating
  revenues.  MCV Management cannot predict the outcome of this proceeding.

  Fuel Matters

  MCV has entered into long-term gas transportation arrangements with four U.S.
  interstate transporters:  ANR Pipeline Company, Panhandle Eastern Pipe Line
  Company, Trunkline Gas Company and Great Lakes Gas Transmission Company
  ("Great Lakes").  The transportation rates from these transporters are
  subject to FERC regulation.

  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 (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,

                                      F-15


<PAGE>   55




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


  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, among
  others, MCV 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.  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.  The FERC Order on Rehearing and its July 31, 1996 order are
  subject to further administrative and judicial processes, and MCV and others
  have filed appeals to the United States Court of Appeals for the District of
  Columbia ("Court of Appeals") challenging certain aspects of the Order on
  Remand.  Management cannot predict the outcome of these proceedings but
  believes that the likelihood of a reversal by the Court of Appeals of that
  portion of the FERC Order on Rehearing requiring rolled-in rate treatment is
  remote.

  GTG Equipment Problems

  In 1991 and 1992, several GTGs experienced cracking in the hot gas casing
  which, in two cases, caused extensive damage to the turbine blades.  As a
  result of the cracking problems, modifications were made on all GTGs and MCV
  and ABB Power implemented a program of hot gas casing inspections for all
  GTGs.  During 1994, ABB Power completed an analysis of cracking problems
  present in two of the modified GTG hot gas casings and determined that
  additional modifications should be made to the hot gas casings.  New hot gas
  casings which include these modifications have been installed on all of the
  GTG units

  In January 1996, two additional GTGs experienced severe cracking in the hot
  gas casing (one of which included the newest hot gas casing modifications),
  causing extensive damage to the turbine blades and vanes. MCV immediately
  inspected all of the remaining GTG hot gas casings for evidence of cracking
  and identified an additional five GTGs which required casing replacements.
  During the first quarter of 1996, MCV and ABB Power increased the frequency
  of inspections on these units which resulted in additional scheduled and
  unscheduled maintenance outages.  Extensive analysis and review by MCV and
  ABB Power has concluded that crack initiation tended to start in high stress
  areas of the hot gas casing and that pulsations were the key factor in crack
  propagation in these units.  MCV and ABB Power have modified the burner
  geometry of all the turbines which has significantly reduced pulsations in
  the hot gas casings.  MCV has also installed additional measuring devices to
  detect any pulsations which are suspected of accelerating crack propagation.
  In addition, MCV and ABB Power continue to study whether any modifications
  are needed in the high stress areas of the hot gas casings.  MCV currently
  performs GTG inspections on all units approximately every 2000 hours.  MCV
  believes that the burner modifications have resolved the pulsation problems
  and there should be no significant future impacts on plant availability or
  efficiency from pulsations, 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 fourth series of major GTG inspections which
  are expected to be completed by year end 2002.

  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.






                                      F-16

<PAGE>   56





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



(8)  RETIREMENT BENEFITS

     Postretirement Health Care Plan

     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 plan 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.

     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>
                                                               1996       1995
                                                            --------     ------
         <S>                                                <C>          <C>
         Accumulated postretirement benefits obligation                 
            ("APBO"); Active employees not fully eligible    $1,089.1    $911.5
         Less plan assets at fair value                       1,140.6     918.2
                                                             --------    ------
                                                                (51.5)     (6.7)
         Unrecognized prior service cost                           --     (77.3)
         Unrecognized net actuarial gain                        224.9     215.3
                                                             --------    ------
                                                                        
         Accrued postretirement benefits liability           $  173.4    $131.3
                                                             ========    ======

</TABLE>


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


<TABLE>
<CAPTION>

                                                                1996       1995     1994
                                                           ---------   --------   ------
         <S>                                               <C>          <C>      <C>            
         Service cost, benefits attributed to employee                 
           services rendered during the year                $  136.6     $160.0   $134.9
         Interest cost on accumulated postretirement                   
           benefit obligation and service cost                  13.1       21.1     18.6
         Amortization of prior service cost                     52.0       90.5     76.8
                                                            --------    -------   ------

         Net periodic postretirement benefits expense       $  201.7    $ 271.6   $230.3
                                                            ========    =======   ======
</TABLE>

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

<TABLE>
<CAPTION>

                                                               1996     1995     1994
                                                             ------   ------   ------
         <S>                                                  <C>      <C>      <C>
         Discount rate                                        7.50%    7.50%    8.25%
         Long-term rate of return on plan assets              8.50%    8.50%    8.50%
         Inflation benefit amount                                    
           1996 through 1998                                  0.00%    0.00%    4.75%
           1999 and later years                               4.00%    4.00%    4.75%

</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

                                      F-17


<PAGE>   57




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


  costs for this plan are based on matching an employee's savings up to a
  maximum level.  In 1996, 1995, and 1994, MCV contributed $.9 million, $.8
  million and $.7 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>   58




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




(9) 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, 1996, and the nature and amount of related party transactions or
  agreements that existed with the Partners or affiliates as of December 31,
  1996, 1995 and 1994 and for each of the three years ended December 31 (in
  thousands).


<TABLE>
<CAPTION>
 Equity Partner, Type of Partner         Equity                    Related Party Transactions                                    
  and Nature of Related Party           Interest  Interest                and Agreements                                1996     
--------------------------------        --------  --------   ---------------------------------------------             --------  
<S>                                      <C>       <C>       <C>                                                      <C>        
CMS Midland, Inc.                        $97,747    49.0%    Power purchase agreements                                 $598,127  
  General Partner; wholly-owned                              Power purchase agreement administrative fees                    24  
  subsidiary of Consumers Energy Company                     Purchases under gas transportation agreements                9,507  
  (formerly Consumers Power Company)                         Purchases under spot gas agreements                          2,352  
                                                             Purchases under gas supply agreements                       10,121  
                                                             Gas storage agreement                                        2,563  
                                                             Land lease/easement agreements                                 600  
                                                             General construction/service/engineering agreement             176  
                                                             Facilities agreement - transmission line and metering               
                                                                 facility maintenance                                        24  
                                                             Accounts receivable                                         52,048  
                                                             Accounts payable                                             5,469  
                                                             Gas exchanges                                                3,444  
                                                             Prepaid land lease                                             150  
                                                                                                                                 
The Dow Chemical Company                  27,948     7.5     Steam and electric power agreement                          47,041  
  Limited Partner                                            Steam purchase agreement - Dow Corning Corp (affiliate)      1,239 
                                                             Purchases under demineralized water supply agreement         6,292  
                                                             Rent under office building lease agreement                     408  
                                                             Accounts receivable                                          2,247  
                                                             Accounts payable                                             1,427  
                                                             Standby and backup fees                                      1,156  
                                                                                                                                 
Source Midland Limited Partnership        30,745    18.1     Purchases under gas transportation agreements               15,393  
  General Partner; affiliate of                              Purchases under spot gas agreements                          3,313  
  Panhandle Eastern Corporation                              Accounts receivable                                             --  
  d/b/a "PanEnergy Corp"                                     Accounts payable                                             1,272  
                                                             Gas exchanges                                                2,082  
                                                                                                                                 
Coastal Midland, Inc.                     18,447    10.9     Purchases under gas transportation agreements***            (3,296) 
  General Partner; wholly-owned                              Purchases under spot gas agreements                         13,986  
  subsidiary of The Coastal                                  Purchases under gas supply agreement                         4,018  
  Corporation                                                Gas agency agreement                                         1,314  
                                                             Deferred reservation charges under gas purchase agreement    2,955 
                                                             Accounts receivable                                             --  
                                                             Accounts payable                                             2,257  
                                                             Gas exchanges                                                4,494  
                                                                                                                                 
MEI Limited Partnership                   15,373     9.1     Gas turbine maintenance and spare parts agreement           30,623  
  General Partner; affiliate of                              Accounts payable                                             1,043  
  ASEA Brown Boveri, Inc.                                    Partner cash withdrawal (including accrued interest)**       4,284  
                                                                                                                                 
Micogen Limited Partnership                7,686     4.5     Engineering, procurement and construction                           
  Limited Partner; affiliate of                                  contract of $501,352                                        --  
  Fluor Corporation                                          Partner cash withdrawal (including accrued interest)**       1,925  
                                                             Computer maintenance software agreement                         14  
                                                                                                                                 
C-E Midland Energy, Inc.                   1,537      .9     Service Agreement                                            5,983  
  Limited Partner; affiliate                                 Accounts Payable                                               281  
  of ASEA Brown Boveri, Inc.                                                                                                     
                                                                                                                                 
Alanna Corporation                             1*   .00001   Note receivable                                                  1  
  Limited Partner; wholly-owned                                                                                                  
  subsidiary of Alanna Holdings Corporation                                                                                      


<CAPTION>
 Equity Partner, Type of Partner         Equity                    Related Party Transactions
  and Nature of Related Party           Interest  Interest                and Agreements                          1995      1994
--------------------------------        --------  --------   ---------------------------------------------        ----      ----
<S>                                      <C>       <C>       <C>                                                <C>       <C>
CMS Midland, Inc.                        $97,747    49.0%    Power purchase agreements                          $571,444   $534,170 
  General Partner; wholly-owned                              Power purchase agreement administrative fees             24         24
  subsidiary of Consumers Energy Company                     Purchases under gas transportation agreements         9,346      9,653
  (formerly Consumers Power Company)                         Purchases under spot gas agreements                   1,633      4,423
                                                             Purchases under gas supply agreements                 9,526     17,434
                                                             Gas storage agreement                                 2,563      2,563
                                                             Land lease/easement agreements                          600        600
                                                             General construction/service/engineering 
                                                                 agreement                                           133        138
                                                             Facilities agreement - transmission line and 
                                                                 metering facility maintenance                        21         48
                                                             Accounts receivable                                  47,907     48,114
                                                             Accounts payable                                      7,029     15,982
                                                             Gas exchanges                                         6,886      5,197
                                                             Prepaid land lease                                       --         --

The Dow Chemical Company                  27,948     7.5     Steam and electric power agreement                   46,374     44,571
  Limited Partner                                            Steam purchase agreement - Dow Corning Corp 
                                                                (affiliate)                                           --         --
                                                             Purchases under demineralized water supply 
                                                                 agreement                                         5,510      5,377
                                                             Rent under office building lease agreement              406        399
                                                             Accounts receivable                                   2,861      2,579
                                                             Accounts payable                                      1,138      1,034
                                                             Standby and backup fees                                 968      1,022

Source Midland Limited Partnership        30,745    18.1     Purchases under gas transportation agreements        14,060     15,887
  General Partner; affiliate of                              Purchases under spot gas agreements                   2,421      3,918
  Panhandle Eastern Corporation                              Accounts receivable                                     718         --
  d/b/a "PanEnergy Corp"                                     Accounts payable                                      2,102      1,766
                                                             Gas exchanges                                         1,271        134

Coastal Midland, Inc.                     18,447    10.9     Purchases under gas transportation agreements***     20,469     22,096
  General Partner; wholly-owned                              Purchases under spot gas agreements                  10,137      6,058
  subsidiary of The Coastal                                  Purchases under gas supply agreement                  3,802      3,717
  Corporation                                                Gas agency agreement                                    952        362
                                                             Deferred reservation charges under gas purchase 
                                                                 agreement                                         1,970        985
                                                             Accounts receivable                                     882        533
                                                             Accounts payable                                      2,841      3,465
                                                             Gas exchanges                                         3,139        968

MEI Limited Partnership                   15,373     9.1     Gas turbine maintenance and spare parts agreement    26,170     24,886
  General Partner; affiliate of                              Accounts payable                                          6      1,378
  ASEA Brown Boveri, Inc.                                    Partner cash withdrawal (including accrued 
                                                                 interest)**                                          --         --

Micogen Limited Partnership                7,686     4.5     Engineering, procurement and construction
  Limited Partner; affiliate of                                  contract of $501,352                                243         10
  Fluor Corporation                                          Partner cash withdrawal (including accrued interest)**   --         --
                                                             Computer maintenance software agreement                  15         25

C-E Midland Energy, Inc.                   1,537      .9     Service Agreement                                     3,065      2,978
  Limited Partner; affiliate                                 Accounts Payable                                        437        411
  of ASEA Brown Boveri, Inc.

Alanna Corporation                             1*   .00001   Note receivable                                           1          1
  Limited Partner; wholly-owned
  subsidiary of Alanna Holdings Corporation
</TABLE>





*   Alanna's capital stock is pledged to secure MCV's obligation under the
    lease and other overall lease transaction documents.
**  In exchange for a letter of credit pursuant to the Participation Agreement.
*** 1996 includes the Great Lakes gas transportation refund of $17.6 million.

                                      F-19



<PAGE>   59






                            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>   60







                                   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 24, 1997                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 24, 1997
----------------------------    (Principal Executive Officer)
James M. Kevra                  



/s/ Stephen A. Shulman          Vice President of Finance and Treasurer  March 24, 1997
----------------------------    (Principal Financial Officer)
Stephen A. Shulman            



/s/ James M. Rajewski           Vice President and Controller            March 24, 1997
----------------------------    (Principal Accounting Officer)
James M. Rajewski             



/s/ William T. McCormick, Jr    Chairman, Management Committee           March 24, 1997
----------------------------
William T. McCormick, Jr.



/s/ Paula G. Rosput             Member, Management Committee             March 24, 1997
----------------------------
Paula G. Rosput



/s/ David A. Arledge            Member, Management Committee             March 24, 1997
----------------------------
David A. Arledge



/s/ Peter Giller                Member, Management Committee             March 24, 1997
----------------------------
Peter Giller

</TABLE>




                                      S-2




<PAGE>   61


                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

                                                                                                                      Sequentially
Exhibit                                                                                                                 Numbered
Number                                                 Description                                                        Page
------         --------------------------------------------------------------------------------------------------     ------------
<S>            <C>                                                                                                    <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)).

</TABLE>



                                      E-1

<PAGE>   62





                                 EXHIBIT INDEX   

<TABLE>
<CAPTION>
                                                                                       Sequentially
Exhibit                                                                                  Numbered
Number                                 Description                                         Page
--------        -----------------------------------------------------------------      -------------
<S>             <C>                                                                    <C>

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

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).
</TABLE>

                                      E-2

<PAGE>   63





                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

                                                                                       Sequentially
Exhibit                                                                                  Numbered
Number                                 Description                                         Page
--------        -----------------------------------------------------------------      -------------
<S>             <C>                                                                    <C>
                                                
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)).

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)).

</TABLE>

                                      E-3


<PAGE>   64




                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
                                                                                       Sequentially
Exhibit                                                                                  Numbered
Number                                 Description                                         Page
--------        -----------------------------------------------------------------      -------------
<S>             <C>                                                                    <C>

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

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      -    Amended Contract for the Engineering, Procurement and 
                Construction and Construction among MCV, Fluor and Fluor Venture
                Group, Inc. dated as of April 27, 1988 (the "Construction
                Contract") ((a), (Exhibit 10.19)).

10.19(a)   -    Amendment No. 1 to the Construction Contract dated December 13,
                1988 ((a), (Exhibit 10.20)).

10.19(b)   -    Amendment No. 2 to the Construction Contract dated September 
                22, 1989 ((a), (Exhibit 10.21)).

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

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

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

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

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

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

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

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

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

</TABLE>


                                      E-4


<PAGE>   65




                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                       Sequentially
Exhibit                                                                                  Numbered
Number                                 Description                                         Page
--------        -----------------------------------------------------------------      -------------
<S>             <C>                                                                    <C>

10.27      -    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)).

10.28      -    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)).

10.29      -    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)).

10.29(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)).

10.29(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)).

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

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

10.32      -    Firm Transportation Service Form of Transportation Agreement
                (#013296), dated November 1, 1993 between Trunkline Gas Company
                and MCV ((e), (Exhibit 10.93)).

10.32(a)   -    Amendment No. 1 dated November 30, 1994 to the Firm
                Transportation Service Form of Transportation Agreement between
                Trunkline Gas Company and MCV and Letter Agreements dated
                January 26, 1995 and February 17, 1995 between Trunkline Gas
                Company and MCV ((g), (Exhibit 10.32 (a)).

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

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

10.35      -    Transportation Agreement (Firm Contract #011456), dated as of
                May 1, 1993 between Panhandle Eastern Pipeline Company and MCV,
                as amended ((e), (Exhibit 10.90)).

10.35(a)   -    Amendment dated June 24, 1994 to the Transportation Agreement
                dated May 1, 1993 between Panhandle Eastern Pipe Line Company
                and MCV ((g), (Exhibit 10.35(a))).

10.36      -    Transportation Agreement (Firm Contract #011457), dated as of
                May 1, 1993 between Panhandle Eastern Pipeline Company and MCV,
                as amended ((e), (Exhibit 10.91)).

10.37      -    Transportation Agreement (Firm Contract #011458), dated as of
                May 1, 1993 between Panhandle Eastern Pipeline Company and MCV,
                as amended ((e), (Exhibit 10.92)).

10.38      -    Transportation Agreement (#FT028) dated as of October 25, 1993
                between Great Lakes Gas Transmission Company and MCV ((f),
                (Exhibit 10.40)).

</TABLE>



                                      E-5


<PAGE>   66




                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                                                     Sequentially
Exhibit                                                                                                                Numbered
Number                                                    Description                                                    Page
-------          --------------------------------------------------------------------------------------------        ------------
<C>             <C>                                                                                                <C>

10.39      -    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)).

10.40      -    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)).

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

10.42      -    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)).

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

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

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

10.46      -    MCV Supplemental Benefit Plan dated January 1, 1989 ((d), (Exhibit 10.88)), (*).

10.47      -    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 1996.

99.01      -    Unaudited - MCV Selected Proforma Operating Cash Flow Data for the years ended 1996 and 1995.
</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.


                                      E-6