UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to

|                       |  |                                                                                                                                                |  |                                
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------
|Commission
File Number |  | Registrant; State of Incorporation;
Address; and Telephone Number                                                                              |  | IRS Employer
Identification No.
|                      
|                      
|                      
|                      
|1-9513                 |  | CMS ENERGY CORPORATION
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive, Dearborn, Michigan 48126
(313)436-9200 |  | 38-2726431                     
|                      
|                      
|                      
|                      
|1-5611                 |  | CONSUMERS ENERGY COMPANY
(A Michigan Corporation)
212 West Michigan Avenue, Jackson, Michigan 49201
(517)788-0550                              |  | 38-0442310                     
|                      
|                      
|                      
|                      
|1-2921                 |  | PANHANDLE EASTERN PIPE LINE COMPANY
(A Delaware Corporation)
5444 Westheimer Road, P.O. Box 4967, Houston, Texas 77210-4967
(713)989-7000      |  | 44-0382470                     

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

Panhandle Eastern Pipe Line Company meets the conditions set forth in General
Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form
10-Q with the reduced disclosure format. In accordance with Instruction H, Part
I, Item 2 has been reduced and Part II, Items 2, 3 and 4 have been omitted.

|                                                                                               |                                               |  |            |             | 
|---------------------------------------------------------------------------------------------- | --------------------------------------------- |  | ---------- | ----------- | 
|Number of shares outstanding of each of the issuers classes of common stock at July 31, 2000:
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|CMS Energy Corporation:                                                                       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | CMS Energy Common Stock, $.01 par value       |  |            | 110,020,574 | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | CMS Energy Class G Common Stock, no par value |  |            | 0           | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Consumers Energy Company, $10 par value, privately held by CMS Energy                          |                                               |  | 84,108,789 |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Panhandle Eastern Pipe Line Company, no par value,                                            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | indirectly privately held by CMS Energy       |  |            | 1,000       | 





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CMS Energy Corporation
and
Consumers Energy Company
and
Panhandle Eastern Pipe Line Company

Quarterly reports on Form 10-Q to the Securities and Exchange Commission
for the Quarter Ended June 30, 2000

This combined Form 10-Q is separately filed by each of CMS Energy Corporation,
Consumers Energy Company and Panhandle Eastern Pipe Line Company. Information
contained herein relating to each individual registrant is filed by such
registrant on its own behalf. Accordingly, except for their respective
subsidiaries, Consumers Energy Company and Panhandle Eastern Pipe Line Company
make no representation as to information relating to any other companies
affiliated with CMS Energy Corporation.

TABLE OF CONTENTS

Page

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|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ---- | -------------- |  | 
|Glossary                                                   |                                                                                                                 | 3    |               
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|PART I:                                                   
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|CMS Energy Corporation                                    
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|                                                           | Managements Discussion and Analysis                                                                            |      | CMS-1          | 
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|                                                           | Consolidated Statements of Income                                                                               |      | CMS-16         | 
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|                                                           | Consolidated Statements of Cash Flows                                                                           |      | CMS-18         | 
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|                                                           | Consolidated Balance Sheets                                                                                     |      | CMS-20         | 
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|                                                           | Consolidated Statements of Common Stockholders Equity                                                          |      | CMS-22         | 
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|                                                           | Condensed Notes to Consolidated Financial Statements                                                            |      | CMS-23         | 
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|                                                           | Report of Independent Public Accountants                                                                        |      | CMS-40         | 
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|Consumers Energy Company                                  
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|                                                           | Managements Discussion and Analysis                                                                            |      | CE-1           | 
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|                                                           | Consolidated Statements of Income                                                                               |      | CE-10          | 
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|                                                           | Consolidated Statements of Cash Flows                                                                           |      | CE-11          | 
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|                                                           | Consolidated Balance Sheets                                                                                     |      | CE-12          | 
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|                                                           | Consolidated Statements of Common Stockholders Equity                                                          |      | CE-14          | 
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|                                                           | Condensed Notes to Consolidated Financial Statements                                                            |      | CE-15          | 
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|                                                           | Report of Independent Public Accountants                                                                        |      | CE-26          | 
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|Panhandle Eastern Pipe Line Company                       
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|                                                           | Managements Discussion and Analysis                                                                            |      | PE-1           | 
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|                                                           | Consolidated Statements of Income                                                                               |      | PE-6           | 
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|                                                           | Consolidated Statements of Cash Flows                                                                           |      | PE-7           | 
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|                                                           | Consolidated Balance Sheets                                                                                     |      | PE-8           | 
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|                                                           | Consolidated Statements of Common Stockholders Equity                                                          |      | PE-10          | 
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|                                                           | Condensed Notes to Consolidated Financial Statements                                                            |      | PE-11          | 
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|                                                           | Report of Independent Public Accountants                                                                        |      | PE-17          | 
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|Quantitative and Qualitative Disclosures about Market Risk |                                                                                                                 | CO-1 |               
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|PART II:                                                  
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|                                                          
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|                                                           | Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information |      | CO-1
CO-2
CO-3 | 
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|                                                           | Item 6. Exhibits and Reports on Form 8-K                                                                        |      | CO-3           | 
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|Signatures                                                 |                                                                                                                 | CO-4 |               

2



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GLOSSARY

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

|                                               |  |                                                                                                                                                                                                                                                                                                                                                      
|---------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ABATE                                          |  | Association of Businesses Advocating Tariff Equity                                                                                                                                                                                                                                                                                                   
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|ALJ                                            |  | Administrative Law Judge                                                                                                                                                                                                                                                                                                                             
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|Alliance                                       |  | Alliance Regional Transmission Organization                                                                                                                                                                                                                                                                                                          
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|Articles                                       |  | Articles of Incorporation                                                                                                                                                                                                                                                                                                                            
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|Attorney General                               |  | Michigan Attorney General                                                                                                                                                                                                                                                                                                                            
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|bcf                                            |  | Billion cubic feet                                                                                                                                                                                                                                                                                                                                   
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|Big Rock                                       |  | Big Rock Point nuclear power plant, owned by Consumers                                                                                                                                                                                                                                                                                               
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|Board of Directors                             |  | Board of Directors of CMS Energy                                                                                                                                                                                                                                                                                                                     
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|Btu                                            |  | British thermal unit                                                                                                                                                                                                                                                                                                                                 
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|Class G Common Stock                           |  | One of two classes of common stock of CMS Energy, no par value, which
reflects the separate performance of the Consumers Gas Group, redeemed
in October 1999.                                                                                                                                                                                        
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|Clean Air Act                                  |  | Federal Clean Air Act, as amended                                                                                                                                                                                                                                                                                                                    
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|CMS Electric and Gas                           |  | CMS Electric and Gas Company, a subsidiary of Enterprises                                                                                                                                                                                                                                                                                            
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|CMS Energy                                     |  | CMS Energy Corporation, the parent of Consumers and Enterprises                                                                                                                                                                                                                                                                                      
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|CMS Energy Common Stock                        |  | One of two classes of common stock of CMS Energy, par value $.01 per
share                                                                                                                                                                                                                                                                           
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|CMS Gas Transmission                           |  | CMS Gas Transmission Company, a subsidiary of Enterprises                                                                                                                                                                                                                                                                                            
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|CMS Generation                                 |  | CMS Generation Co., a subsidiary of Enterprises                                                                                                                                                                                                                                                                                                      
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|CMS Holdings                                   |  | CMS Midland Holdings Company, a subsidiary of Consumers                                                                                                                                                                                                                                                                                              
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|CMS Midland                                    |  | CMS Midland Inc., a subsidiary of Consumers                                                                                                                                                                                                                                                                                                          
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|CMS MST                                        |  | CMS Marketing, Services and Trading Company, a subsidiary of
Enterprises                                                                                                                                                                                                                                                                             
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|CMS Oil and Gas                                |  | CMS Oil and Gas Company, a subsidiary of Enterprises                                                                                                                                                                                                                                                                                                 
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|CMS Panhandle Holding                          |  | CMS Panhandle Holding Company, a subsidiary of CMS Gas Transmission                                                                                                                                                                                                                                                                                  
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|Common Stock                                   |  | All classes of Common Stock of CMS Energy and each of its
subsidiaries, or any of them individually, at the time of an award or
grant under the Performance Incentive Stock Plan                                                                                                                                                                     
|                                              
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|Consumers                                      |  | Consumers Energy Company,
a subsidiary of CMS Energy                                                                                                                                                                                                                                                                                                 
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|Consumers Gas Group                            |  | The gas distribution, storage and transportation businesses currently
conducted by Consumers and Michigan Gas Storage                                                                                                                                                                                                                                
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|Court of Appeals                               |  | Michigan Court of Appeals                                                                                                                                                                                                                                                                                                                            
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|Customer Choice and
ElectricityReliability Act |  | Michigan statute enacted in June 2000 that allows all retail customers
choice of alternative electric suppliers no later than January 1,
2002, provides for full recovery of net stranded costs and
implementation costs, establishes a 5 percent reduction in residential
rates, establishes rate freeze and rate cap, and allows for
securitization
|                                              
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|Detroit Edison                                 |  | The Detroit Edison Company, a non-affiliated company                                                                                                                                                                                                                                                                                                 
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|DOE                                            |  | U.S. Department of Energy                                                                                                                                                                                                                                                                                                                            
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|Dow                                            |  | The Dow Chemical Company, a non-affiliated company                                                                                                                                                                                                                                                                                                   
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|Duke Energy                                    |  | Duke Energy Corporation, a non-affiliated company                                                                                                                                                                                                                                                                                                    

3



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|                                      |  |                                                                                                                                                                        
|------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
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|EITF                                  |  | Emerging Issues Task Force                                                                                                                                             
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|Enterprises                           |  | CMS Enterprises Company, a subsidiary of CMS Energy                                                                                                                    
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|EPA                                   |  | Environmental Protection Agency                                                                                                                                        
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|EPS                                   |  | Earnings per share                                                                                                                                                     
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|FASB                                  |  | Financial Accounting Standards Board                                                                                                                                   
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|FERC                                  |  | Federal Energy Regulatory Commission                                                                                                                                   
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|FMLP                                  |  | First Midland Limited Partnership, a partnership which holds a 75.5%
lessor interest in the Midland Cogeneration Venture facility                                      
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|FTC                                   |  | Federal Trade Commission                                                                                                                                               
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|GCR                                   |  | Gas cost recovery                                                                                                                                                      
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|GTNs                                  |  | CMS Energy General Term Notes(R), $250 million Series A, $125 million
Series B, $150 million Series C, $200 million Series D and $400
million Series E                 
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|Huron                                 |  | Huron Hydrocarbons, Inc., a subsidiary of Consumers                                                                                                                    
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|kWh                                   |  | Kilowatt-hour                                                                                                                                                          
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|Loy Yang                              |  | The 2,000 MW brown coal fueled Loy Yang A power plant and an
associated coal mine in Victoria, Australia, in which CMS Generation
holds a 50 percent ownership interest
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|LNG                                   |  | Liquefied natural gas                                                                                                                                                  
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|Ludington                             |  | Ludington pumped storage plant, jointly owned by Consumers and Detroit
Edison                                                                                          
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|mcf                                   |  | Thousand cubic feet                                                                                                                                                    
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|MCV Facility                          |  | A natural gas-fueled, combined-cycle cogeneration facility operated by
the MCV Partnership                                                                             
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|MCV Partnership                       |  | Midland Cogeneration Venture Limited Partnership in which Consumers
has a 49 percent interest through CMS Midland                                                      
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|MD&A                                  |  | Managements Discussion and Analysis                                                                                                                                   
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|MEPCC                                 |  | Michigan Electric Power Coordination Center                                                                                                                            
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|Michigan Gas Storage                  |  | Michigan Gas Storage Company, a subsidiary of Consumers                                                                                                                
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|Michigan State UtilityWorkers Council |  | The executive board and negotiating body for local chapters of the
Union                                                                                               
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|MMBtu                                 |  | Million British thermal unit                                                                                                                                           
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|MPSC                                  |  | Michigan Public Service Commission                                                                                                                                     
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|MW                                    |  | Megawatts                                                                                                                                                              
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|NEIL                                  |  | Nuclear Electric Insurance Limited, an industry mutual insurance
company owned by member utility companies                                                             
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|NOx                                   |  | Nitrogen Oxide                                                                                                                                                         
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|NRC                                   |  | Nuclear Regulatory Commission                                                                                                                                          
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|NYMEX                                 |  | New York Mercantile Exchange                                                                                                                                           
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|Outstanding Shares                    |  | Outstanding shares of Class G Common Stock                                                                                                                             
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|Palisades                             |  | Palisades nuclear power plant, owned by Consumers                                                                                                                      

4



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|                            |  |                                                                                                                                                                                                                                                                                                                                
|--------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           
|                           
|                           
|                           
|Panhandle                   |  | Panhandle Eastern Pipe Line Company, including its subsidiaries
Trunkline, Pan Gas Storage, Panhandle Storage, and Trunkline LNG.
Panhandle is a wholly owned subsidiary of CMS Gas Transmission                                                                                                                               
|                           
|                           
|                           
|                           
|Panhandle Eastern Pipe Line |  | Panhandle Eastern Pipe Line Company, a wholly owned subsidiary of CMS Gas
Transmission                                                                                                                                                                                                                                         
|                           
|                           
|                           
|                           
|Panhandle Storage           |  | CMS Panhandle Storage Company, a subsidiary of Panhandle Eastern Pipe
Line Company                                                                                                                                                                                                                                             
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|PCBs                        |  | Poly chlorinated biphenyls                                                                                                                                                                                                                                                                                                     
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|PECO                        |  | PECO Energy Company, a non-affiliated company                                                                                                                                                                                                                                                                                  
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|PPA                         |  | The Power Purchase Agreement between Consumers and the MCV Partnership
with a 35-year term commencing in March 1990                                                                                                                                                                                                            
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|PSCR                        |  | Power supply cost recovery                                                                                                                                                                                                                                                                                                     
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|RTO                         |  | Regional Transmission Organization                                                                                                                                                                                                                                                                                             
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|Sea Robin                   |  | Sea Robin Pipeline Company                                                                                                                                                                                                                                                                                                     
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|SEC                         |  | Securities and Exchange Commission                                                                                                                                                                                                                                                                                             
|                           
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|Securitization              |  | A financing authorized by statute in which the statutorily assured
flow of revenues from a portion of the rates charged by a utility to
its customers is set aside and pledged as security for the repayment
of rate reduction bonds issued by a special purpose entity affiliated
with such utility.                          
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|Senior Credit Facility      |  | $1 billion one-year revolving credit facility maturing in June 2001                                                                                                                                                                                                                                                            
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|SFAS                        |  | Statement of Financial Accounting Standards                                                                                                                                                                                                                                                                                    
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|SOP                         |  | Statement of position                                                                                                                                                                                                                                                                                                          
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|Stranded Costs              |  | Costs incurred by utilities in order to serve their customers in a
regulated monopoly environment, but
which may not be recoverable in a
competitive environment because of
customers leaving their systems and
ceasing to pay for their costs. These
costs could include owned and
purchased generation and regulatory
assets.
|                           
|                           
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|Superfund                   |  | Comprehensive Environmental Response, Compensation and Liability Act                                                                                                                                                                                                                                                           
|                           
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|TBtu                        |  | Trillion british thermal unit                                                                                                                                                                                                                                                                                                  
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|Transition Costs            |  | Stranded Costs, as defined, plus the costs incurred in the transition
to competition.                                                                                                                                                                                                                                          
|                           
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|Trunkline                   |  | Trunkline Gas Company, a subsidiary of Panhandle Eastern Pipe Line
Company                                                                                                                                                                                                                                                     
|                           
|                           
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|Trunkline LNG               |  | Trunkline LNG Company, a subsidiary of Panhandle Eastern Pipe Line
Company                                                                                                                                                                                                                                                     
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|                           
|Trust Preferred Securities  |  | Securities representing an undivided beneficial
interest in the assets of statutory
business trusts, which interests have
a preference with respect to certain
trust distributions over the
interests of either CMS Energy or
Consumers, as applicable, as owner of
the common beneficial interests of
the trusts              
|                           
|                           
|                           
|                           
|Union                       |  | Utility Workers of America, AFL-CIO                                                                                                                                                                                                                                                                                            

5



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CMS Energy Corporation

Managements Discussion and Analysis

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers is a combination electric and gas utility company serving the Lower
Peninsula of Michigan. Enterprises, through subsidiaries, is engaged in several
domestic and international diversified energy businesses including: natural gas
transmission, storage and processing; independent power production; oil and gas
exploration and production; energy marketing, services and trading; and
international energy distribution. On March 29, 1999, CMS Energy completed the
acquisition of Panhandle, as further discussed in the Capital Resources and
Liquidity section of this MD&A and Note 1. Panhandle is primarily engaged in
the interstate transportation and storage of natural gas.

The MD&A of this Form 10-Q should be read along with the MD&A and other parts
of CMS Energys 1999 Form 10-K. This MD&A also refers to, and in some sections
specifically incorporates by reference, CMS Energys Condensed Notes to
Consolidated Financial Statements and should be read in conjunction with such
Statements and Notes. This report and other written and oral statements made by
CMS Energy from time to time contain forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. The words anticipates,
believes, estimates, expects, intends, and plans, and variations of
such words and similar expressions, are intended to identify forward-looking
statements that involve risk and uncertainty. These forward-looking statements
are subject to various factors which could cause CMS Energys actual results to
differ materially from those anticipated in such statements. CMS Energy
disclaims any obligation to update or revise forward-looking statements,
whether from new information, future events or otherwise. CMS Energy details
certain risk factors, uncertainties and assumptions in this MD&A and
particularly in the section entitled CMS Energy, Consumers and Panhandle
Forward-Looking Statements Cautionary Factors in CMS Energys 1999 Form 10-K
Item 1 and periodically in various public filings it makes with the SEC. This
discussion of potential risks and uncertainties is by no means complete but is
designed to highlight important factors that may impact CMS Energys outlook.
This report also describes material contingencies in the Condensed Notes to
Consolidated Financial Statements and readers are encouraged to read such
Notes.

RESULTS OF OPERATIONS

CMS Energy Consolidated Earnings

|                                          |            |                   |    |                                       |     |        |    |    |     |   |   |    |      |  
|----------------------------------------- | ---------- | ----------------- | -- | ------------------------------------- | --- | ------ | -- | -- | --- | - | - | -- | ---- | -
|                                          |            |                   |    | In Millions, Except Per Share Amounts
|                                          |            |                   |    |                                      
|Three months ended June 30,               |            | 2000              |    | 1999                                  |     | Change
|                                          |            |                   |    |                                       |     |       
|Consolidated Net Income                   |            | $                 | 81 |                                       |     | $      | 75 |    |     | $ | 6 |   
|                                         
|                                         
|                                         
|                                         
|Net Income Attributable to Common Stocks:
|                                         
|                                         
|                                         
|                                         
|                                          | CMS Energy |                   |    | 81                                    |     |        |    | 74 |     |   |   | 7  |     
|                                         
|                                         
|                                         
|                                         
|                                          | Class G    |                   |    |                                      |     |        |    | 1  |     |   |   | (1 | )   
|                                         
|                                         
|                                         
|                                         
|Earnings Per Average Common Share:       
|                                         
|                                         
|                                         
|                                         
|                                          | CMS Energy
|                                         
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|                                         
|                                         
|                                          |            | Basic             |    |                                       | .73 |        |    |    | .68 |   |   |    | .05  |  
|                                         
|                                         
|                                         
|                                         
|                                          |            | Diluted           |    |                                       | .72 |        |    |    | .67 |   |   |    | .05  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Class G   
|                                         
|                                         
|                                         
|                                         
|                                          |            | Basic and Diluted |    |                                       |    |        |    |    | .10 |   |   |    | (.10 | )
|                                          |            |                   |    |                                       |     |        |    |    |     |   |   |   

CMS-1



---



|                                          |            |                   |     |                                       |      |        |     |     |      |   |     |     |       |  
|----------------------------------------- | ---------- | ----------------- | --- | ------------------------------------- | ---- | ------ | --- | --- | ---- | - | --- | --- | ----- | -
|                                          |            |                   |     | In Millions, Except Per Share Amounts
|                                          |            |                   |     |                                      
|Six months ended June 30,                 |            | 2000              |     | 1999                                  |      | Change
|                                          |            |                   |     |                                       |      |       
|Consolidated Net Income                   |            | $                 | 161 |                                       |      | $      | 173 |     |      | $ | (12 | )  
|                                         
|                                         
|                                         
|                                         
|Net Income Attributable to Common Stocks:
|                                         
|                                         
|                                         
|                                         
|                                          | CMS Energy |                   |     | 161                                   |      |        |     | 162 |      |   |     | (1  | )    
|                                         
|                                         
|                                         
|                                         
|                                          | Class G    |                   |     |                                      |      |        |     | 11  |      |   |     | (11 | )    
|                                         
|                                         
|                                         
|                                         
|Earnings Per Average Common Share:       
|                                         
|                                         
|                                         
|                                         
|                                          | CMS Energy |                   |     |                                       |      |        |     |     |      |   |     |     |      
|                                         
|                                         
|                                         
|                                         
|                                          |            | Basic             |     |                                       | 1.44 |        |     |     | 1.50 |   |     |     | (.06  | )
|                                         
|                                         
|                                         
|                                         
|                                          |            | Diluted           |     |                                       | 1.42 |        |     |     | 1.48 |   |     |     | (.06  | )
|                                         
|                                         
|                                         
|                                         
|                                          | Class G   
|                                         
|                                         
|                                         
|                                         
|                                          |            | Basic and Diluted |     |                                       |     |        |     |     | 1.28 |   |     |     | (1.28 | )
|                                          |            |                   |     |                                       |      |        |     |     |      |   |     |    

The increase in consolidated net income for the second quarter 2000 over the
comparable period in 1999 resulted from increased earnings from CMS Energys
diversified energy businesses, including the independent power production
business, the natural gas transmission, storage and processing business, the
oil and gas exploration and production business, the marketing, services and
trading business and the international energy distribution business, as well as
gains on the sale of non-strategic assets. Partially offsetting these
increases were decreased earnings from the electric and gas utilities, as well
as higher interest expense principally related to the Panhandle acquisition.
Second quarter 2000 results include approximately $50 million or $.43 per
diluted share, of after-tax gains from major asset sales. CMS Energys
recurring asset optimization program is expected to generate $50 million of
pre-tax gains, or approximately $.30 per diluted share, from asset sales
annually. As a result, approximately $.13 per diluted share of after-tax gains
exceeds the amount CMS Energy expects to sustain in future years.

The decrease in consolidated net income for the six months ended June 30, 2000
over the comparable period in 1999 resulted from decreased earnings from the
electric and gas utilities, coupled with higher interest expense principally
related to the Panhandle acquisition. Partially offsetting these decreases
were increased earnings from CMS Energys diversified energy businesses,
including the natural gas transmission, storage and processing business
primarily reflecting ownership of Panhandle for the entire first six months of
2000 versus only the second quarter of 1999, the independent power production
business, the oil and gas exploration and production business, the
international energy distribution business, and the marketing, services and
trading business, as well as gains on the sale of non-strategic assets. The
six months ended June 30, 2000 results include approximately $50 million, or
$.43 per diluted share of after-tax gains from major asset sales.
Approximately $.13 per diluted share of after-tax gains exceeds the amount CMS
Energy expects to sustain in future years as part of its recurring asset
optimization program.

For further information, see the individual results of operations for each CMS
Energy business segment in this MD&A.

CMS-2



---



Consumers Electric Utility Results of Operations

Electric Pretax Operating Income:For the three months ended June 30, 2000,
electric pretax operating income decreased $13 million from the comparable
period in 1999. The earnings decrease reflects increased power costs not
totally recoverable from customers, the 5 percent residential customer rate
reduction resulting from the Customer Choice and Electricity
Reliability Act, and increased operating expenses. For the six months ended June 30, 2000, electric
pretax operating income decreased $32 million from the comparable period in
1999. The earnings decrease also reflects the increased cost of purchased power
and the impact of the electric rate reduction partially offset by increased
electric sales to customers. Due to changes in regulation, since 1998
differences in power supply costs now impact Consumers earnings. In the past,
such cost changes did not impact electric pretax operating income because
Consumers passed the cost of electric power on to electric customers. During
the current year, Consumers needed additional purchased electric power to meet
customer requirements due to scheduled and unscheduled outages at Consumers
internal generators. The following table quantifies these impacts on pretax
operating income:

|                                       |  |               |     |               |  |             |     |  
|-------------------------------------- |  | ------------- | --- | ------------- |  | ----------- | --- | -
|                                       |  |               |     |               |  | In Millions
|                                       |  |               |     |               |  |            
|                                       |  | Three Months  |     | Six Months   
|                                       |  | Ended June 30 |     | Ended June 30
|Change Compared to Prior Year          |  | 2000 vs 1999  |     | 2000 vs 1999 
|                                       |  |               |     |              
|Electric deliveries                    |  | $             | 4   |               |  | $           | 12  |  
|                                      
|                                      
|                                      
|                                      
|Power supply costs and related revenue |  |               | (3  | )             |  |             | (25 | )
|                                      
|                                      
|                                      
|                                      
|Rate decrease                          |  |               | (5  | )             |  |             | (5  | )
|                                      
|                                      
|                                      
|                                      
|Non-commodity revenue                  |  |               | (2  | )             |  |             | (5  | )
|                                      
|                                      
|                                      
|                                      
|Operation and maintenance expense      |  |               | (8  | )             |  |             | (8  | )
|                                      
|                                      
|                                      
|                                      
|General taxes and depreciation expense |  |               | 1   |               |  |             | (1  | )
|                                       |  |               |     |               |  |             |     |  
|Total change                           |  | $             | (13 | )             |  | $           | (32 | )
|                                       |  |               |     |               |  |             |     |  

Electric Deliveries:Electric deliveries were 10.1 billion kWh for the three
months ended June 30, 2000, essentially unchanged from the second quarter of
1999. Electric deliveries were 19.8 billion kWh for the six months ended June
30, 2000, a slight decrease from the corresponding 1999 period. Total electric
deliveries decreased due to lower intersystem sales, less usage by industrial
customers, and lower residential space heating.

Power Supply Costs:

|                   |  |      |     |      |  |             |     |  |  |   |    | 
|------------------ |  | ---- | --- | ---- |  | ----------- | --- |  |  | - | -- | 
|                   |  |      |     |      |  | In Millions
|                   |  |      |     |      |  |            
|June 30            |  | 2000 |     | 1999 |  | Change     
|                   |  |      |     |      |  |            
|Three months ended |  | $    | 294 |      |  | $           | 293 |  |  | $ | 1  | 
|                  
|                  
|                  
|                  
|Six months ended   |  |      | 594 |      |  |             | 571 |  |  |   | 23 | 
|                   |  |      |     |      |  |             |     |  |  |   |    | 

Power supply costs were essentially unchanged for the three months ended June
30, 2000 from the comparable period in 1999 but increased for the six month
period, primarily due to higher interchange power costs. Consumers had to
purchase more external power because internal generation decreased due to
scheduled and unscheduled outages.

CMS-3



---



Consumers Gas Utility Results of Operations

Gas Pretax Operating Income:

Gas pretax operating income decreased in the three months ended June 30, 2000
by $44 million. The earnings decrease primarily reflects sharply higher gas
prices in 2000 and the establishment of a $45 million regulatory obligation
related to the higher prices above the frozen gas customer rate. These
decreases are partially offset by higher gas deliveries due to cooler
temperatures in the three months ended June 30, 2000. Gas pretax operating
income decreased in the six months ended June 30, 2000 by $59 million. The
earnings decrease primarily reflects decreased gas deliveries in the six months
ended June 30, 2000 due to warmer temperatures during the heating season and
the higher gas prices purchased for the next heating season as described for
the three month period. Due to a temporary change in regulation, differences
in gas costs directly impact Consumers earnings. This change in regulation
relates to the gas industry restructuring initiatives, which provide Consumers
the opportunity to temporarily benefit or lose from changes in commodity gas
prices. See Note 2, Uncertainties, Consumers Gas Utility Matters  Gas
Restructuring, for more detailed information on this matter. The following
table quantifies these impacts on Pretax Operating Income.

|                                        |  |               |     |               |  |             |     |  
|--------------------------------------- |  | ------------- | --- | ------------- |  | ----------- | --- | -
|                                        |  |               |     |               |  | In Millions
|                                        |  |               |     |               |  |            
|                                        |  | Three Months  |     | Six Months   
|                                        |  | Ended June 30 |     | Ended June 30
|Change Compared to Prior Year           |  | 2000 vs 1999  |     | 2000 vs 1999 
|                                        |  |               |     |              
|Gas deliveries                          |  | $             | 4   |               |  | $           | (6  | )
|                                       
|                                       
|                                       
|                                       
|Gas commodity costs and related revenue |  |               | (50 | )             |  |             | (61 | )
|                                       
|                                       
|                                       
|                                       
|Gas wholesale and retail services       |  |               | 2   |               |  |             | 4   |  
|                                       
|                                       
|                                       
|                                       
|Operation and maintenance expense       |  |               | 1   |               |  |             | 3   |  
|                                       
|                                       
|                                       
|                                       
|General taxes and depreciation expense  |  |               | (1  | )             |  |             | 1   |  
|                                        |  |               |     |               |  |             |     |  
|Total change                            |  | $             | (44 | )             |  | $           | (59 | )
|                                        |  |               |     |               |  |             |     |  

Gas Deliveries:Gas system deliveries for the three months ended June 30, 2000,
including miscellaneous transportation totaled 66 bcf, an increase of 4 bcf or
6 percent compared with 1999. The increased deliveries reflect cooler
temperatures during the second quarter of 2000. Gas system deliveries for the
six months ended June 30, 2000, including miscellaneous transportation totaled
227 bcf, a decrease of 1 bcf or .5 percent compared with 1999.

Cost of Gas Sold:

|                   |  |      |     |      |  |        |     |  |  |             |    | 
|------------------ |  | ---- | --- | ---- |  | ------ | --- |  |  | ----------- | -- | 
|                   |  |      |     |      |  |        |     |  |  | In Millions
|                   |  |      |     |      |  |        |     |  |  |            
|June 30            |  | 2000 |     | 1999 |  | Change
|                   |  |      |     |      |  |       
|Three months ended |  | $    | 95  |      |  | $      | 78  |  |  | $           | 17 | 
|                  
|                  
|                  
|                  
|Six months ended   |  | $    | 390 |      |  | $      | 384 |  |  | $           | 6  | 
|                   |  |      |     |      |  |        |     |  |  |             |    | 

The cost of gas sold increased for the three months ended June 30, 2000 due to
higher gas prices and increased gas deliveries due to cooler than normal
temperature. Higher gas prices also impacted the cost of gas sold for the six
months ended June 30, 2000. These higher gas costs were partially offset by
decreased sales from warmer than normal temperatures during the first quarter
of 2000.

CMS-4



---



Natural Gas Transmission, Storage and Processing Results of Operations

Pretax Operating Income:Pretax operating income for the three months ended
June 30, 2000 increased $4 million (9 percent) from the comparable period in
1999. The increase reflects increased earnings from international and domestic
operations, including Sea Robin, which was acquired in March 2000, partially
offset by decreased earnings from Panhandle. Pretax operating income for the
six months ended June 30, 2000 increased $78 million (170 percent) from the
comparable period in 1999. The increase reflects earnings from Panhandle and
Sea Robin, which CMS Energy acquired in March 1999 and March 2000,
respectively, as well as increased earnings from other international and
domestic operations and lower operating expenses.

Independent Power Production Results of Operations

Pretax Operating Income:Pretax operating income for the three months ended
June 30, 2000 increased $29 million (74 percent) from the comparable period in
1999. The increase primarily reflects the earnings benefits from a new
facility in Asia, the restructuring of a power supply contract and increased
earnings from international and domestic plant operations. Partially
offsetting these increases were higher operating expenses and a scheduled
reduction in operating fees. Pretax operating income for the six months ended
June 30, 2000 increased $19 million (29 percent) from the comparable period in
1999. The increase is attributable to earnings from the new Asian facility,
the restructuring of a power supply contract and increased earnings from
international plant operations. Partially offsetting these increases were
decreased earnings from domestic plants and the MCV Facility, a scheduled
reduction in operating fees and higher operating expenses.

Oil and Gas Exploration and Production Results of Operations

Pretax Operating Income:Pretax operating income for the three months ended
June 30, 2000 increased $1 million (20 percent) from the comparable period in
1999 as a result of higher realized commodity prices and increased production
from West Texas and Powder River properties, partially offset by increased
general and administrative expenses and reduced earnings from northern Michigan
oil and gas properties which were sold in March 2000. Pretax operating income
for the six months ended June 30, 2000 increased $3 million (43 percent) from
the comparable period in 1999 as a result of higher realized commodity prices
and increased production from West Texas and Powder River properties, partially
offset by lower northern Michigan production as a result of the aforementioned
sale in March 2000 and higher operating, general and administrative, and
exploration costs.

Marketing, Services and Trading Results of Operations

Pretax Operating Income:Pretax operating earnings for the three months ended
June 30, 2000 increased $4 million from the comparable period in 1999. The
increase primarily reflects increased earnings from wholesale gas activities,
including mark-to-market adjustments on trading contracts, which benefited from
natural gas market price increases, partially offset by reduced margins from
wholesale electric activities. Pretax operating income for the six months
ended June 30, 2000 increased $4 million from the comparable period in 1999 as
a result of increased wholesale gas earnings due to increases in natural gas
market prices, increased LNG sales and earnings benefits from an energy
management services acquisition made in late 1999, partially offset by reduced
margins from wholesale electric activities.

CMS-5



---



International Energy Distribution Results of Operations

Pretax Operating Income:Pretax operating income for the three months ended
June 30, 2000 increased $2 million (100 percent) from the comparable period in
1999. The increase primarily reflects earnings from new investments in a
Brazilian electric distribution utility as well as lower operating expenses.
Pretax operating income for the six months ended June 30, 2000 increased $14
million (350 percent) from the comparable period in 1999. The increase is the
result of increased earnings from new investments in a Brazilian electric
distribution utility, increased earnings from Argentine and Venezuelan electric
distribution utilities, and lower operating expenses.

Market Risk Information

CMS Energy is exposed to market risks including, but not limited to, changes in
interest rates, currency exchange rates, and certain commodity and equity
security prices. Management employs established policies and procedures to
manage its risks associated with these market fluctuations, including the use
of various derivative instruments such as futures, swaps, options and forward
contracts. Management believes that any losses incurred on derivative
instruments used to hedge risk would be offset by an opposite movement of the
value of the hedged item.

In accordance with SEC disclosure requirements, CMS Energy has performed
sensitivity analyses to assess the potential loss in fair value, cash flows and
earnings based upon hypothetical 10 percent increases and decreases in market
exposures. Management does not believe that sensitivity analyses alone provide
an accurate or reliable method for monitoring and controlling risks. Therefore,
CMS Energy and its subsidiaries rely on the experience and judgment of senior
management and traders to revise strategies and adjust positions as they deem
necessary. Losses in excess of the amounts determined in the sensitivity
analyses could occur if market rates or prices exceed the 10 percent shift used
for the analyses.

Commodity Price Risk:Management uses commodity futures contracts, options and
swaps (which require a net cash payment for the difference between a fixed and
variable price) to manage commodity price risk. The prices of energy
commodities, such as gas, oil, electric and natural gas liquids, fluctuate due
to changes in the supply of and demand for those commodities. To reduce price
risk caused by these market fluctuations, CMS Energy hedges certain inventory
and purchases and sales contracts. A hypothetical 10 percent adverse shift in
quoted commodity prices in the near term would not have had a material impact
on CMS Energys consolidated financial position, results of operations or cash
flows as of June 30, 2000. The analysis assumes that the maximum exposure
associated with purchased options is limited to prices paid. The analysis also
does not quantify short-term exposure to hypothetically adverse price
fluctuations in inventories.

Interest Rate Risk:Management uses a combination of fixed-rate and
variable-rate debt to reduce interest rate exposure. Interest rate swaps and
rate locks may be used to adjust exposure when deemed appropriate, based upon
market conditions. These strategies attempt to provide and maintain the lowest
cost of capital. The carrying amount of long-term debt was $7.2 billion at June
30, 2000 with a fair value of $6.7 billion. The fair value of CMS Energys
interest rate swaps at June 30, 2000, with a notional amount of $1.9 billion,
was $1 million, representing the amount CMS Energy would pay upon settlement. A
hypothetical 10 percent adverse shift in interest rates in the near term would
not have a material effect on CMS Energys consolidated financial position,
results of operations or cash flows as of June 30, 2000.

CMS-6



---



Currency Exchange Risk:Management uses forward exchange and option contracts
to hedge certain investments in foreign operations. A hypothetical 10 percent
adverse shift in currency exchange rates would not have a material effect on
CMS Energys consolidated financial position or results of operations as of
June 30, 2000, but would result in a net cash settlement of approximately $21
million. The estimated fair value of the foreign exchange and option contracts
at June 30, 2000 was $18 million, representing the amount CMS Energy would pay
upon settlement.

Equity Security Price Risk:CMS Energy and certain of its subsidiaries have
equity investments in companies in which they hold less than a 20 percent
interest. A hypothetical 10 percent adverse shift in equity security prices
would not have a material effect on CMS Energys consolidated financial
position, results of operations or cash flows as of June 30, 2000.

For a discussion of accounting policies related to derivative transactions, see
Note 5.

CAPITAL RESOURCES AND LIQUIDITY

Cash Position, Investing and Financing

CMS Energys primary ongoing source of cash is dividends and distributions from
subsidiaries. During the first six months of 2000, Consumers paid $109 million
in common dividends and Enterprises paid $454 million in common dividends and
distributions to CMS Energy. In July 2000, Consumers declared a $17 million
dividend payable in August 2000 to CMS Energy. CMS Energys consolidated cash
requirements are met by its operating and financing activities.

Operating Activities:CMS Energys consolidated net cash provided by operating
activities is derived mainly from the processing, storage, transportation and
sale of natural gas; the generation, transmission, distribution and sale of
electricity; and the sale of oil. Consolidated cash from operations totaled
$183 million and $440 million for the first six months of 2000 and 1999,
respectively. The $257 million decrease resulted primarily from a decrease in
earnings, excluding gains from asset sales, the timing of cash receipts and
payments related to working capital items, a decrease in deferred taxes, and an
increase in undistributed equity earnings of unconsolidated subsidiaries. CMS
Energy uses its cash derived from operating activities primarily to maintain
and expand its international and domestic businesses, to maintain and expand
electric and gas systems of Consumers, to pay interest on and retire portions
of its long-term debt, and to pay dividends.

Investing Activities:CMS Energys consolidated net cash used in investing
activities totaled $37 million and $2.441 billion for the first six months of
2000 and 1999, respectively. The decrease of $2.404 billion primarily reflects
the acquisition of Panhandle in March 1999 for $1.9 billion and a $558 million
increase in proceeds from the sales of assets. CMS Energys expenditures
(excluding acquisitions) during the first six months of 2000 for its utility
and diversified energy businesses were $243 million and $279 million,
respectively, compared to $197 million and $357 million, respectively, during
the comparable period in 1999.

CMS-7



---



Financing Activities:CMS Energys net cash used in financing activities
totaled $38 million for the first six months of 2000, while net cash provided
by financing activities totaled $2.113 billion for the first six months of
1999. Net cash provided in 1999 primarily related to funding the approximately
$1.9 billion Panhandle acquisition in March 1999. The decrease of $2.151
billion in net cash provided by financing activities resulted from a decrease
of $2.119 billion in the issuance of new securities (see table below for
securities issued in first six months of 2000), an increase in the retirement
of bonds and other long-term debt ($186 million), and an increase in the
repurchase of common stock, net of common stock issuances ($177 million),
partially offset by decreases in the retirement of notes payable ($138 million)
and preferred stock ($194 million).

|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     |  |  |             |                            | 
|------------- |  | ------------ | ----- | -------- |  | ------------- | ---- | ------ |  | --------------- | ---- | --------- |  | - | --- |  |  | ----------- | -------------------------- | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     |  |  | In Millions
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     |  |  |            
|              |  |              |       |          |  |               |      |        |  | Distribution/   |      | Principal
|              |  | Month Issued |       | Maturity |  | Interest Rate |      | Amount |  | Use of Proceeds
|              |  |              |       |          |  |               |      |        |  |                
|CMS Energy   
|             
|             
|             
|             
|GTNs Series E |  |              | (1    | )        |  |               | (1   | )      |  |                 | 8.8  | %(1)      |  | $ | 62  |  |  |             | General corporate purposes | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  | $ | 62  | 
|             
|             
|             
|             
|Panhandle    
|             
|             
|             
|             
|Senior Notes  |  |              | March |          |  |               | 2010 |        |  |                 | 8.25 | %         |  | $ | 100 |  |  |             | To fund acquisition        | 
|             
|             
|             
|             
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     |  |  |             | of Sea Robin and general   | 
|             
|             
|             
|             
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     |  |  |             | corporate purposes         | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  | $ | 100 | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     | 
|Total         |  |              |       |          |  |               |      |        |  |                 |      |           |  | $ | 162 | 
|              |  |              |       |          |  |               |      |        |  |                 |      |           |  |   |     |  |  |             |                            | 



---

|(1) |  | GTNs are issued from time to time with varying maturity dates. The rate
shown herein is a weighted average interest rate.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

For the first six months of 2000, CMS Energy declared and paid $82 million in
cash dividends to holders of CMS Energy Common Stock. In July 2000, the Board
of Directors declared a quarterly dividend of $.365 per share on CMS Energy
Common Stock, payable in August 2000.

Other Investing and Financing Matters:At June 30, 2000, the book value per
share of CMS Energy Common Stock was $21.36.

At August 1, 2000, CMS Energy had an aggregate $1.6 billion in securities
registered for future issuance.

CMS Energys Senior Credit Facility consists of a $1 billion one-year revolving
credit facility maturing in June 2001. Additionally, CMS Energy has unsecured
lines of credit as anticipated sources of funds to finance working capital
requirements and to pay for capital expenditures between long-term financings.
At June 30, 2000, the total amount available under the Senior Credit Facility
was $270 million, and under the unsecured lines of credit was $24 million. For
detailed information, see Note 3, incorporated by reference herein.

CMS-8



---



Consumers has credit facilities, lines of credit and a trade receivable sale
program in place as anticipated sources of funds to fulfill its currently
expected capital expenditures. For detailed information about these sources of
funds, see Note 3, incorporated by reference herein.

CMS Energy has identified for possible sale certain assets that are expected to
contribute little or no earnings benefit in the short to medium term. From
December 1999 through August 1, 2000, CMS Energy had sold or had reached
agreements to sell $664 million of these assets, including a partial interest
in its Northern Header gathering system, all of its ownership interest in a
Brazilian distribution system, all of its northern Michigan oil and gas
properties, its ownership interest in the Lakewood Cogeneration plant located
in Lakewood, New Jersey, and all of its ownership interest in certain oil
reserves located in Ecuador. These asset sales have resulted in total cash
proceeds and associated reduction of consolidated project debt of approximately
$850 million. CMS Energy plans to continue to sell additional assets resulting
in cash proceeds and associated reduction of consolidated project debt, as more
fully discussed in the Outlook-Financial Plan section below.

In addition, in February 2000, CMS Energy announced its intention to sell its
50 percent interest in Loy Yang. The amount CMS Energy ultimately realizes from the sale
of Loy Yang could differ materially from the approximately $500 million
investment amount currently reflected as an asset on the balance
sheet.

Capital Expenditures

CMS Energy estimates that capital expenditures, including new lease commitments
and investments in new business developments through partnerships and
unconsolidated subsidiaries, will total $4.4 billion during 2000 through 2002.
These estimates are prepared for planning purposes and are subject to revision.
CMS Energy expects to satisfy a substantial portion of the capital
expenditures with cash from operations. CMS Energy will continue to evaluate
capital markets in 2000 as a potential source for financing its subsidiaries
investing activities. CMS Energy estimates capital expenditures by business
segment over the next three years as follows:

|                                                 |  |      |       |      |  |      |       |  |  |             |       | 
|------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | ----------- | ----- | 
|                                                 |  |      |       |      |  |      |       |  |  | In Millions
|                                                 |  |      |       |      |  |      |       |  |  |            
|Years Ending December 31                         |  | 2000 |       | 2001 |  | 2002
|                                                 |  |      |       |      |  |     
|Consumers electric operations (a) (b)            |  | $    | 438   |      |  | $    | 580   |  |  | $           | 545   | 
|                                                
|                                                
|                                                
|                                                
|Consumers gas operations (a)                     |  |      | 117   |      |  |      | 140   |  |  |             | 145   | 
|                                                
|                                                
|                                                
|                                                
|Natural gas transmission, storage and processing |  |      | 326   |      |  |      | 210   |  |  |             | 260   | 
|                                                
|                                                
|                                                
|                                                
|Independent power production                     |  |      | 448   |      |  |      | 200   |  |  |             | 215   | 
|                                                
|                                                
|                                                
|                                                
|Oil and gas exploration and production           |  |      | 182   |      |  |      | 160   |  |  |             | 165   | 
|                                                
|                                                
|                                                
|                                                
|Marketing, services and trading                  |  |      | 32    |      |  |      | 30    |  |  |             | 5     | 
|                                                
|                                                
|                                                
|                                                
|International energy distribution                |  |      | 89    |      |  |      | 25    |  |  |             |      | 
|                                                
|                                                
|                                                
|                                                
|Other                                            |  |      | 18    |      |  |      | 25    |  |  |             | 25    | 
|                                                 |  |      |       |      |  |      |       |  |  |             |       | 
|                                                 |  | $    | 1,650 |      |  | $    | 1,370 |  |  | $           | 1,360 | 
|                                                 |  |      |       |      |  |      |       |  |  |             |       | 



---

|(a) |  | These amounts include an attributed portion of Consumers anticipated
capital expenditures for plant and equipment common to both the electric and
gas utility businesses.                                           
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | These amounts include estimates for capital expenditures possibly required
to comply with recently revised national air quality standards under the Clean
Air Act. For further information see Note 2, Uncertainties.

CMS-9



---



CMS Energy currently plans investments in the years 2000 through 2002 in
focused markets, which include: North and South America; West Africa; the
Middle East and India. Investments will be made in market segments which align
with CMS Energys varied business units skills with a focus on optimization
and integration of existing assets, as further discussed in Outlook section
below.

OUTLOOK

As the deregulation and privatization of the energy industry takes place in
global energy markets, CMS Energy has positioned itself to be a leading
international integrated energy company acquiring, developing and operating
energy facilities and providing energy services in the United States and
selected world growth markets. In the immediate future, CMS Energy expects to
continue to sharpen its geographic focus on key growth areas where it has
significant business concentrations and opportunities. CMS Energy provides a
complete range of international energy expertise from energy production to
consumption. CMS Energy intends to pursue global growth by making energy
investments that provide expansion opportunities for multiple CMS Energy
businesses.

CMS Energy also enhances its growth strategy through an active portfolio
management program (the ongoing sale of non-strategic assets), with proceeds
reinvested in assets with greater potential for synergies with existing or
planned assets. In particular, CMS Energy is reviewing its options regarding
certain assets performing below prior expectations, including Argentine
generating assets. CMS Energy also continues to seek improvement in the
profitability of all assets retained in its portfolio.

Financial Plan

CMS Energy is currently implementing a financial plan to strengthen its balance
sheet, reduce fixed expenses and enhance earnings per share growth. CMS Energy
plans to raise $1 billion of asset sale proceeds and $400 million of consolidated
project debt eliminations from asset sales by year-end 2000. As of August 1,
2000, CMS Energy has completed the sale of assets resulting in
approximately $850 million of cash proceeds and associated debt reduction of
consolidated project debt.

CMS Energy management believes that the sale of specific assets to interested
industry buyers will allow CMS Energy to achieve more geographic and business
focus, thereby permitting CMS Energy to concentrate on its most profitable and
growing ventures.

CMS Energy will continue to evaluate alternatives to strengthen its balance
sheet and to enhance shareholder value. These actions are expected to make
further issuance of CMS Energy Common Stock unnecessary in the foreseeable
future, except for issuances in connection with existing convertible
securities, a major acquisition, employee benefit plans and the stock purchase
plan.

The Board of Directors approved the repurchase of up to 10 million shares of
CMS Energy Common Stock, from time to time, in open market or private
transactions. As of August 1, 2000, CMS Energy had repurchased approximately
6.6 million shares.

CMS-10



---



Diversified Energy Outlook

CMS Energy expects to grow its diversified energy businesses (all businesses
except for Consumers and Panhandle) by focusing on acquisitions and greenfield
(new construction) projects in the United States, as well as high-growth
markets in India, South America and the Middle East. Additionally, the growth
strategy includes exploiting its West Africa oil and gas reserves, further
developing markets for the fuel and methanol product derived in West Africa,
and investigating expansion opportunities for its existing independent power
project in West Africa. CMS Energy seeks to minimize operational and financial
risks when operating internationally by utilizing multilateral financing
institutions, procuring political risk insurance and hedging foreign currency
exposure where appropriate.

CMS Energy intends to use its marketing, services and trading business to
improve the return on CMS Energys other business assets. One method to achieve
this goal is to use marketing and trading to enhance performance of assets,
such as gas reserves and power plants. Other strategies include expanding CMS
Energys industrial and commercial energy services to enhance our commodity
marketing business, using CMS Energys gas production as a hedge to commodity
risk in other areas of our business, and developing risk management products
that address customer needs.

CMS Energy also intends to grow its oil and gas exploration and production
business focusing its domestic interest gas exploration and production in west
Texas and the Powder River Basin and its international interest in South
America and Africa.

Consumers Electric Utility Outlook

Growth:Consumers expects average annual growth of approximately two and one
half percent per year in electric system deliveries for the years 2000 to 2005
based on a steadily growing customer base. This growth rate does not take into
account the possible impact on the industry of restructuring or changing
regulation. Abnormal weather, changing economic conditions or the developing
competitive market for electricity may affect actual electric deliveries by
Consumers in future periods.

Competition and Regulatory Restructuring:Generally, electric restructuring is
the regulatory and legislative attempt to introduce competition to the electric
industry by allowing customers to choose their electric generation supplier.
Competition affects, and will continue to affect, Consumers retail electric
business. To remain competitive, Consumers has multi-year electric supply
contracts with some of its largest industrial customers to provide power to
some of their facilities. The MPSC approved these contracts as part of its
phased introduction to competition. During the period from 2000 through 2005,
depending on future business and regulatory circumstances, these
contracts can be terminated or restructured. These contracts involve approximately
600 MW of customer power supply requirements. The ultimate financial impact of
changes related to these power supply contracts is not known at this time.

As a result of a transition of the wholesale and retail electric businesses in
Michigan to competition, Detroit Edison, in December 1996, gave Consumers the
required four-year notice of its intent to terminate the current agreements
under which the companies jointly operate the MEPCC. At the same time, Detroit
Edison filed with the FERC seeking early termination of the agreements. The
FERC has not acted on Detroit Edisons application. Detroit Edison and
Consumers are currently in negotiations to terminate or restructure the MEPCC
operations. Consumers is unable to predict the outcome of these negotiations,
but does not anticipate any adverse impacts caused by termination or
restructuring of the MEPCC.

CMS-11



---



Since 1997, there have been repeated efforts made in the Michigan Legislature
to enact electric restructuring legislation. On June 3, 2000, these efforts
resulted in the passage of the Customer Choice and Electricity Reliability
Act, which became effective June 5, 2000.

Uncertainty exists with respect to the enactment of federal legislation
restructuring the electric power industry. A variety of bills introduced in
Congress in recent years seek to change existing federal regulation of the
industry. These federal bills could potentially affect or supercede state
regulation; however, none have been enacted. Consumers cannot predict the
outcome of electric restructuring on its financial position, liquidity, or
results of operations.

Rate Matters: Prior to June 5, 2000 there were several pending rate issues
that could have affected Consumers electric business. As a result of the
passage of the Customer Choice and Electricity Reliability Act, certain MPSC
rate proceedings and a complaint by ABATE seeking a reduction in rates have
been dismissed.

For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 1, Corporate Structure
and Basis of Presentation, and Note 2, Uncertainties, Consumers Electric
Utility Rate Matters  Electric Restructuring and Consumers Electric Utility
Rate Matters  Electric Proceedings, incorporated by reference herein.

Uncertainties:Several electric business trends or uncertainties may affect
CMS Energys financial results and condition. These trends or uncertainties
have, or CMS Energy reasonably expects could have, a material impact on net
sales, revenues, or income from continuing electric operations. Such trends
and uncertainties include: 1) capital expenditures for compliance with the
Clean Air Act; 2) environmental liabilities arising from compliance with
various federal, state and local environmental laws and regulations, including
potential liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Act and Superfund; 3) electric industry restructuring,
including the ability to offset the 5 percent reduction in residential rates
with savings from Securitization and the ability to recover Stranded Costs; 4)
the ability to meet peak electric demand loads at a reasonable cost and without
market disruption and initiatives undertaken to reduce exposure to energy price
increases; and 5) ongoing issues relating to the storage of spent nuclear fuel
and the operating life of Palisades. For detailed information about these
trends or uncertainties, see Note 2, Uncertainties, incorporated by reference
herein.

CMS-12



---



Consumers Gas Utility Business Outlook

Growth:Consumers currently anticipates gas deliveries, including gas customer
choice deliveries (excluding transportation to the MCV Facility and off-system
deliveries), to grow at an average annual rate of between one and two percent
over the next five years based primarily on a steadily growing customer base.
Actual gas deliveries in future periods may be affected by abnormal weather,
alternative energy prices, changes in competitive conditions, and the level of
natural gas consumption per customer.

Gas Restructuring:In December 1997, the MPSC approved Consumers application
to implement, effective April 1, 1998, a gas customer choice pilot program that
was designed to encourage Consumers to minimize its purchased natural gas
commodity costs while providing rate stability for its customers. The program
allows 300,000 residential, commercial and industrial retail gas sales
customers to choose an alternative gas commodity supplier in direct competition
with Consumers. Unless some other arrangements are made, when this pilot
program ends on March 31, 2001, these customers will again become Consumers
gas commodity customers. The program is voluntary and participating natural
gas customers are selected on a first-come, first-served basis, up to a limit
of 100,000 per year. As of June 30, 2000, more than 160,000 customers chose
alternative gas suppliers, representing approximately 11 bcf of gas load.
Customers choosing to remain as sales customers of Consumers will not see a
rate change in their gas rates. This three-year program: 1) freezes gas
distribution rates through March 31, 2001, establishing a delivered gas
commodity cost at a fixed rate of $2.84 per mcf; 2) establishes an earnings
sharing mechanism with customers if Consumers earnings exceed certain
pre-determined levels; and 3) establishes a gas transportation code of conduct
that addresses the relationship between Consumers and marketers, including its
affiliated marketers. In December 1999, the Court of Appeals affirmed in its
entirety the December 1997 MPSC order. The Attorney General filed with the
Michigan Supreme Court an application for leave to appeal the Court of Appeals
decision. Subsequent to June 30, 2000, the MPSC issued an order directing
Consumers and certain other Michigan gas utilities to undertake a collaborative
process, including public meetings with MPSC staff and other interested parties
during August and September 2000, for the purpose of developing uniform terms
and conditions for the future provision of gas customer choice to all Michigan
customers.

During the first two years of the pilot program, Consumers realized a benefit
of $45 million as delivered gas commodity prices were below the $2.84 per mcf
level collected from customers. Recent significant increases in gas prices
have exposed Consumers to gas commodity losses during the last year of the
program that ends March 31, 2001. Estimated loss of earnings for this last
year of the program could range from $45 million to $135 million, of which
Consumers has already recognized $45 million in the second quarter 2000 as a
regulatory obligation. Under the provisions of the pilot program, Consumers
has the right to request termination of the program at any time and to return
to a GCR mechanism, pursuant to which the customer gas commodity prices would
increase significantly from the current frozen rate. As an alternative to
exercising that right, Consumers is considering an approach that, if approved
by the MPSC, would potentially avoid further losses any greater than the $45
million already recognized and mitigate the customer rate increases that would
otherwise result. It is expected that such an approach could be implemented
this fall.

CMS-13



---



In December 1999, several bills related to gas industry restructuring were
introduced into the Michigan Legislature. Combined, these bills constitute the
gas choice program. Consumers is participating in the legislative process
involving these bills. They provide for 1) a phased-in approach to gas choice
requiring 40 percent of the customers to be allowed choice by April 2002, 60
percent by April 2003 and all customers by April 2004; 2) a market-based,
unregulated pricing mechanism for gas commodity for customers who exercise
choice; and 3) a new safe haven pricing mechanism for customers who do not
exercise choice under which NYMEX pricing would be used to establish a
statutory cap on gas commodity prices that could be charged by gas utilities
instead of traditional cost of service regulation. The proposed bills also
provide for a gas distribution service rate freeze until December 31, 2005, a
code of conduct governing business relationships with affiliated gas suppliers
and the MPSC licensing of all gas suppliers doing business in Michigan and
imposes financial penalties for noncompliance. They also provide customer
protection by preventing slamming, the switching of a customers gas supplier
without consent, and cramming, the inclusion of optional products and
services without the customers authorization. The bills establishing the gas
choice program have become the subject of extensive legislative hearings during
which there will undoubtedly be various amendments offered by many parties,
including the gas utility coalition. Consumers cannot predict the timing or
outcome of this legislative process.

Uncertainties:CMS Energys financial results and position may be affected by
a number of trends or uncertainties that have, or CMS Energy reasonably expects
could have, a material impact on net sales or revenues or income from
continuing gas operations. Such trends and uncertainties include: 1)
potential environmental costs at a number of sites, including sites formerly
housing manufactured gas plant facilities; 2) a statewide experimental gas
industry restructuring program; 3) permanent gas industry restructuring; and 4)
implementation of a suspended GCR and the success or failure of initiatives
undertaken to protect against gas commodity price increases.

Consumers Other Outlook

The Union represents Consumers operating, maintenance and construction
employees. Consumers and the Union negotiated a new collective bargaining
agreement that became effective as of June 1, 2000. By its terms, that
agreement will continue in full force and effect until June 1, 2005. Consumers
is evaluating the financial effect of changes in the agreement.

Consumers offers a variety of energy-related services to electric and gas
customers focused upon appliance maintenance, home safety, commodity choice and
assistance to customers purchasing heating, ventilation and air conditioning
equipment. Consumers continues to look for additional growth opportunities in
energy-related services for Consumers customers.

CMS-14



---



Panhandle Outlook

CMS Energy intends to use Panhandle as a platform for expansion in the United
States. The growth strategy around Panhandle includes enhancing the
opportunities to extract value for other CMS businesses involved in electric
power generation and distribution, gathering, processing, exploration and
production. The market for transmission of natural gas to the Midwest is
increasingly competitive, however, and may become more so in light of projects
recently completed or in progress to increase Midwest transmission capacity for
gas originating in Canada and the Rocky Mountain region. As a result, there
continues to be pressure on prices charged by Panhandle and an increasing
necessity to discount the prices charged from the legal maximum, which reduces
revenues. New contracts in the current market conditions tend to be of shorter
duration than the expiring contracts being replaced, which will also increase
revenue volatility. In addition, Trunkline in 1996 filed with FERC and placed
into effect a general rate increase; however, a subsequent January 2000 FERC
order could, if approved without modification upon rehearing, reduce
Trunklines tariff rates and future revenue levels by up to 3% of Panhandles
consolidated revenues. Panhandle continues to be selective in offering
discounts to maximize revenues from existing capacity and to advance projects
that provide expanded services to meet the specific needs of customers.

Regulatory Matters:For detailed information about Panhandles regulatory
uncertainties see Note 2, Uncertainties  Panhandle Matters, incorporated by
reference herein.

OTHER MATTERS

New Accounting Rules

In 1999, the FASB issued SFAS 137, Accounting for Derivative Instruments and
Hedging Activities  Deferral of the Effective Date of FASB Statement No.133.
In June 2000, the FASB also issued SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133.SFAS 137 defers the effective date of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities,to January 1, 2001, and SFAS 138 clarifies
certain issues pertaining to SFAS 133. CMS Energy is currently studying SFAS
133 and will adopt SFAS 133 as of January 1, 2001, but has yet to quantify the
effects of adoption on its financial statements.

Foreign Currency Translation

CMS Energy adjusts common stockholders equity to reflect foreign currency
translation adjustments for the operation of long-term investments in foreign
countries. The adjustment is primarily due to the exchange rate fluctuations
between the United States dollar and each of the Australian dollar, Brazilian
real and Argentine peso. From January 1, 2000 through June 30, 2000, the
foreign currency translation amount realized from asset sales increased equity
by $25 million and the change in the foreign currency translation adjustment
decreased equity by $90 million, net of after-tax hedging proceeds. Although
management currently believes that the currency exchange rate fluctuations over
the long term will not have a material adverse affect on CMS Energys financial
position, liquidity or results of operations, CMS Energy has hedged its
exposure to the Australian dollar, the Brazilian real and the Argentine peso.
CMS Energy uses forward exchange and option contracts to hedge certain
receivables, payables, long-term debt and equity value relating to foreign
investments. The notional amount of the outstanding foreign exchange contracts
was $370 million at June 30, 2000, which includes $25 million, $150 million and
$195 million for Australian, Brazilian and Argentine foreign exchange
contracts, respectively. The estimated fair value of the foreign exchange and
option contracts at June 30, 2000 was $18 million, representing the amount CMS
Energy would pay upon settlement.

CMS-15



---



CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)

|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |     |     |     |       | 
|----------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------- | --- | ---- | --- | ------------------ | ----- | ---------------- | --- | ------------------------------------- | ----- | --- | ----- | --- | ----- | --- | --- | --- | ----- | 
|                                                      |                                                                                    |                                   |     |      |     | Three Months Ended |       | Six Months Ended
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                 
|June 30                                               |                                                                                    | 2000                              |     | 1999 |     | 2000               |       | 1999            
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                 
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     | In Millions, Except Per Share Amounts
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                      
|Operating Revenue
  Electric utility                  |                                                                                    | $                                 | 647 |      |     | $                  | 663   |                  |     | $                                     | 1,287 |     |       | $   | 1,299 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gas utility                                                                        |                                   |     | 148  |     |                    |       | 175              |     |                                       |       | 623 |       |     |       | 681 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Natural gas transmission, storage and processing                                   |                                   |     | 177  |     |                    |       | 186              |     |                                       |       | 355 |       |     |       | 290 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Independent power production                                                       |                                   |     | 131  |     |                    |       | 86               |     |                                       |       | 212 |       |     |       | 158 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Oil and gas exploration and production                                             |                                   |     | 33   |     |                    |       | 25               |     |                                       |       | 65  |       |     |       | 44  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Marketing, services and trading                                                    |                                   |     | 391  |     |                    |       | 146              |     |                                       |       | 742 |       |     |       | 304 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | International energy distribution                                                  |                                   |     | 65   |     |                    |       | 45               |     |                                       |       | 128 |       |     |       | 83  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                                                              |                                   |     | 7    |     |                    |       | 6                |     |                                       |       | 14  |       |     |       | 10  |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|                                                      |                                                                                    |                                   |     |      |     |                    | 1,599 |                  |     |                                       | 1,332 |     |       |     | 3,426 |     |     |     | 2,869 | 
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|Operating Expenses
    Operation                     
|                                                      |                                                                                    | Fuel for electric generation      |     |      | 104 |                    |       |                  | 106 |                                       |       |     | 182   |     |       |     | 199 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Purchased power  related parties |     |      | 151 |                    |       |                  | 139 |                                       |       |     | 297   |     |       |     | 278 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Purchased and interchange power   |     |      | 163 |                    |       |                  | 103 |                                       |       |     | 331   |     |       |     | 206 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Cost of gas sold                  |     |      | 430 |                    |       |                  | 253 |                                       |       |     | 1,021 |     |       |     | 749 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Other                             |     |      | 261 |                    |       |                  | 253 |                                       |       |     | 489   |     |       |     | 459 |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|                                                      |                                                                                    |                                   |     |      |     |                    | 1,109 |                  |     |                                       | 854   |     |       |     | 2,320 |     |     |     | 1,891 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Maintenance                                                                        |                                   |     | 73   |     |                    |       | 49               |     |                                       |       | 149 |       |     |       | 88  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Depreciation, depletion and amortization                                           |                                   |     | 142  |     |                    |       | 138              |     |                                       |       | 318 |       |     |       | 288 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | General taxes                                                                      |                                   |     | 70   |     |                    |       | 60               |     |                                       |       | 141 |       |     |       | 126 |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|                                                      |                                                                                    |                                   |     |      |     |                    | 1,394 |                  |     |                                       | 1,101 |     |       |     | 2,928 |     |     |     | 2,393 | 
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|Pretax Operating Income (Loss)
  Electric utility     |                                                                                    |                                   | 109 |      |     |                    | 122   |                  |     |                                       | 224   |     |       |     | 256   |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gas utility                                                                        |                                   |     | (28  | )   |                    |       | 16               |     |                                       |       | 35  |       |     |       | 94  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Natural gas transmission, storage and processing                                   |                                   |     | 47   |     |                    |       | 43               |     |                                       |       | 124 |       |     |       | 46  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Independent power production                                                       |                                   |     | 68   |     |                    |       | 39               |     |                                       |       | 85  |       |     |       | 66  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Oil and gas exploration and production                                             |                                   |     | 6    |     |                    |       | 5                |     |                                       |       | 10  |       |     |       | 7   |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Marketing, services and trading                                                    |                                   |     |     |     |                    |       | (4               | )   |                                       |       | 4   |       |     |       |    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | International energy distribution                                                  |                                   |     | 4    |     |                    |       | 2                |     |                                       |       | 10  |       |     |       | (4  | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                                                              |                                   |     | (1   | )   |                    |       | 8                |     |                                       |       | 6   |       |     |       | 11  |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|                                                      |                                                                                    |                                   |     |      |     |                    | 205   |                  |     |                                       | 231   |     |       |     | 498   |     |     |     | 476   | 
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|Other Income (Deductions)
  Accretion income          |                                                                                    |                                   | 1   |      |     |                    | 1     |                  |     |                                       | 1     |     |       |     | 2     |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accretion expense                                                                  |                                   |     | (2   | )   |                    |       | (4               | )   |                                       |       | (4  | )     |     |       | (7  | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gain on asset sales, net of
foreign currency     translation losses of $25 in 2000 |                                   |     | 61   |     |                    |       | 7                |     |                                       |       | 69  |       |     |       | 9   |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other, net                                                                         |                                   |     | 1    |     |                    |       | 11               |     |                                       |       | (3  | )     |     |       | 13  |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|                                                      |                                                                                    |                                   |     |      |     |                    | 61    |                  |     |                                       | 15    |     |       |     | 63    |     |     |     | 17    | 
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|Fixed Charges
  Interest on long-term debt            |                                                                                    |                                   | 144 |      |     |                    | 134   |                  |     |                                       | 291   |     |       |     | 230   |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other interest                                                                     |                                   |     | 12   |     |                    |       | 11               |     |                                       |       | 12  |       |     |       | 24  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Capitalized interest                                                               |                                   |     | (11  | )   |                    |       | (13              | )   |                                       |       | (21 | )     |     |       | (23 | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred dividends                                                                |                                   |     |     |     |                    |       |                 |     |                                       |       | 1   |       |     |       | 5   |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred securities distributions                                                 |                                   |     | 24   |     |                    |       | 9                |     |                                       |       | 47  |       |     |       | 17  |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|                                                      |                                                                                    |                                   |     |      |     | 169                |       |                  |     | 141                                   |       |     |       | 330 |       |     |     | 253 |      
|                                                     
|                                                     
|                                                     
|                                                     
|Income Before Income Taxes
and Minority     Interests |                                                                                    |                                   | 97  |      |     |                    | 105   |                  |     |                                       | 231   |     |       |     | 240   |    
|                                                     
|                                                     
|                                                     
|                                                     
|Income Taxes                                          |                                                                                    |                                   | 15  |      |     |                    | 30    |                  |     |                                       | 68    |     |       |     | 67    |    
|                                                     
|                                                     
|                                                     
|                                                     
|Minority Interests                                    |                                                                                    |                                   | 1   |      |     |                    |      |                  |     |                                       | 2     |     |       |     |      |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    
|Consolidated Net Income                               |                                                                                    | $                                 | 81  |      |     | $                  | 75    |                  |     | $                                     | 161   |     |       | $   | 173   |    
|                                                      |                                                                                    |                                   |     |      |     |                    |       |                  |     |                                       |       |     |       |     |       |    

CMS-16



---



|                                          |  |            |  |                    |      |                  |  |                                       |      |      |  |   |      |  |  |   |      | 
|----------------------------------------- |  | ---------- |  | ------------------ | ---- | ---------------- |  | ------------------------------------- | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|                                          |  |            |  | Three Months Ended |      | Six Months Ended
|                                          |  |            |  |                    |      |                 
|June 30                                   |  |            |  | 2000               |      | 1999             |  | 2000                                  |      | 1999
|                                         
|                                          |  |            |  |                    |      |                  |  | In
Millions, Except Per Share Amounts
|Net Income Attributable to Common Stocks  |  | CMS Energy |  | $                  | 81   |                  |  | $                                     | 74   |      |  | $ | 161  |  |  | $ | 162  | 
|                                         
|                                         
|                                         
|                                         
|                                          |  | Class G    |  |                    | -    |                  |  | $                                     | 1    |      |  |   | -    |  |  | $ | 11   | 
|                                         
|                                         
|                                         
|                                         
|                                         
|Average Common Shares Outstanding         |  | CMS Energy |  |                    | 110  |                  |  |                                       | 109  |      |  |   | 112  |  |  |   | 108  | 
|                                          |  | Class G    |  |                    | -    |                  |  |                                       | 9    |      |  |   | -    |  |  |   | 9    | 
|                                         
|                                         
|                                         
|                                         
|                                         
|Basic Earnings Per Average Common Share   |  | CMS Energy |  | $                  | .73  |                  |  | $                                     | .68  |      |  | $ | 1.44 |  |  | $ | 1.50 | 
|                                         
|                                         
|                                         
|                                         
|                                          |  | Class G    |  |                    | -    |                  |  | $                                     | .10  |      |  |   | -    |  |  | $ | 1.28 | 
|                                         
|                                         
|                                         
|                                         
|                                         
|Diluted Earnings Per Average Common Share |  | CMS Energy |  | $                  | .72  |                  |  | $                                     | .67  |      |  | $ | 1.42 |  |  | $ | 1.48 | 
|                                         
|                                         
|                                         
|                                         
|                                          |  | Class G    |  |                    | -    |                  |  | $                                     | .10  |      |  |   | -    |  |  | $ | 1.28 | 
|                                         
|                                         
|                                         
|                                         
|                                         
|Dividends Declared Per Common Share       |  | CMS Energy |  | $                  | .365 |                  |  | $                                     | .33  |      |  | $ | .73  |  |  | $ | .66  | 
|                                         
|                                         
|                                         
|                                         
|                                          |  | Class G    |  |                    | -    |                  |  | $                                     | .325 |      |  |   | -    |  |  | $ | .65  | 
|                                         

The accompanying condensed notes are an integral part of these statements.

CMS-17



---



CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |      |             |        |  
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------------- | ---- | ---------------- | --- | ------ | ---- | ----------- | ------ | -
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      | Six Months Ended
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                 
|June 30                                                                                |                                                                                                                                                                                                                        | 2000                                                                   |                                                     | 1999
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |     
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |      | In Millions
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |      |            
|Cash Flows from Operating
Activities
    Consolidated net income                       |                                                                                                                                                                                                                        | $                                                                      | 161                                                 |      |                  | $   | 173    |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Adjustments to reconcile net
income to net cash        provided by operating activities
          Depreciation, depletion and amortization (includes nuclear
            decommissioning of $19 and $24, respectively) |                                                                        |                                                     | 318  |                  |     |        | 288  |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Capital lease and debt discount amortization                           |                                                     | 16   |                  |     |        | 26   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Accretion expense                                                      |                                                     | 4    |                  |     |        | 7    |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Accretion income  abandoned Midland project                           |                                                     | (1   | )                |     |        | (2   | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | MCV power purchases                                                    |                                                     | (28  | )                |     |        | (28  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Undistributed earnings of related parties                              |                                                     | (101 | )                |     |        | (46  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Deferred income taxes and investment tax credit                        |                                                     | (37  | )                |     |        | 43   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Gain on the sale of assets, net of foreign currency translation losses |                                                     | (69  | )                |     |        | (9   | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Regulatory obligation  gas choice                                     |                                                     | 45   |                  |     |        |     |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                                                                                                                        | Changes in other assets and liabilities                                |                                                     | (125 | )                |     |        | (12  | )          
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|                                                                                       |                                                                                                                                                                                                                        |                                                                        | Net cash provided by operating activities           |      |                  | 183 |        |      |             | 440    |  
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|Cash Flows from Investing Activities
   Acquisition of companies, net of cash acquired |                                                                                                                                                                                                                        |                                                                        | (74                                                 | )    |                  |     | (1,899 | )   
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Capital expenditures (excludes assets placed under capital lease)                                                                                                                                                      |                                                                        |                                                     | (488 | )                |     |        | (291 | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Investments in partnerships and unconsolidated subsidiaries                                                                                                                                                            |                                                                        |                                                     | (24  | )                |     |        | (258 | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Cost to retire property, net                                                                                                                                                                                           |                                                                        |                                                     | (53  | )                |     |        | (39  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Proceeds from sale of property                                                                                                                                                                                         |                                                                        |                                                     | 574  |                  |     |        | 16   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other                                                                                                                                                                                                                  |                                                                        |                                                     | 28   |                  |     |        | 30   |            
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|                                                                                       |                                                                                                                                                                                                                        |                                                                        | Net cash used in investing activities               |      |                  | (37 | )      |      |             | (2,441 | )
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Cash Flows from Financing
Activities
   Proceeds from bank loans, notes and bonds      |                                                                                                                                                                                                                        |                                                                        | 344                                                 |      |                  |     | 2,463  |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Issuance of common stock                                                                                                                                                                                               |                                                                        |                                                     | 3    |                  |     |        | 51   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Retirement of bonds and other long-term debt                                                                                                                                                                           |                                                                        |                                                     | (234 | )                |     |        | (48  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Repurchase of common stock                                                                                                                                                                                             |                                                                        |                                                     | (129 | )                |     |        |     |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Increase (decrease) in notes payable, net                                                                                                                                                                              |                                                                        |                                                     | 74   |                  |     |        | (64  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Payment of common stock dividends                                                                                                                                                                                      |                                                                        |                                                     | (82  | )                |     |        | (77  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Payment of capital lease obligations                                                                                                                                                                                   |                                                                        |                                                     | (14  | )                |     |        | (18  | )          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Retirement of preferred stock                                                                                                                                                                                          |                                                                        |                                                     |     |                  |     |        | (194 | )          
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|                                                                                       |                                                                                                                                                                                                                        |                                                                        | Net cash provided by (used in) financing activities |      |                  | (38 | )      |      |             | 2,113  |  
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|Net Increase in Cash and
Temporary Cash Investments                                    |                                                                                                                                                                                                                        |                                                                        | 108                                                 |      |                  |     | 112    |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Cash and Temporary Cash
Investments, Beginning of Period                               |                                                                                                                                                                                                                        |                                                                        | 132                                                 |      |                  |     | 101    |     
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     
|Cash and Temporary Cash
Investments, End of Period                                     |                                                                                                                                                                                                                        | $                                                                      | 240                                                 |      |                  | $   | 213    |     
|                                                                                       |                                                                                                                                                                                                                        |                                                                        |                                                     |      |                  |     |        |     

CMS-18



---



|                                                                                 |                       |                                            |  |   |     |  |  |   |     |  
|-------------------------------------------------------------------------------- | --------------------- | ------------------------------------------ |  | - | --- |  |  | - | --- | -
|Other cash flow activities
and non-cash investing and financing activities were:
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Cash transactions                                                                |                       |                                            |  |   |     | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                       | Interest paid (net of amounts capitalized) |  | $ | 258 |  |  | $ | 186 |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                       | Income taxes paid (net of refunds)         |  |   | 24  |  |  |   | 41  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Non-cash transactions |                                            |  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                       | Nuclear fuel placed under capital lease    |  | $ | 3   |  |  | $ | (2  | )
|                                                                                 |                       | Other assets placed under capital leases   |  |   | 7   |  |  |   | 7   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                       | Assumption of debt                         |  |   |    |  |  |   | 305 |  
|                                                                                 |                       |                                            |  |   |     |  |  |  

All highly liquid investments with an original maturity of three months or less are considered cash equivalents.

The accompanying condensed notes are an integral part of these
statements.

CMS-19



---



CMS Energy Corporation
Consolidated Balance Sheets

|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |       |             |        | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | ----- | ------- | ----------- | ----------- | ----- | ---- | ------ | ------- | ----- | ----------- | ------ | 
|                                                                                       |                                                                                                                 |                             |        |       | June 30 |             |             |       |      |        | June 30
|                                                                                       |                                                                                                                 |                             |        |       | 2000    |             | December 31 |       | 1999
|ASSETS                                                                                 |                                                                                                                 | (Unaudited)                 |        | 1999  |         | (Unaudited)
|                                                                                       |                                                                                                                 |                             |        |       |         |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |       | In Millions
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |       |            
|Plant and Property (At cost)
 Electric utility                                         |                                                                                                                 | $                           | 7,073  |       |         | $           | 6,981       |       |      | $      | 6,832   |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Gas utility                                                                                                     |                             |        | 2,497 |         |             |             | 2,461 |      |        |         | 2,394 |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Natural gas transmission, storage and processing                                                                |                             |        | 2,078 |         |             |             | 1,934 |      |        |         | 1,882 |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Independent power production                                                                                    |                             |        | 734   |         |             |             | 974   |      |        |         | 575   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Oil and gas properties (successful efforts method)                                                              |                             |        | 531   |         |             |             | 817   |      |        |         | 706   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | International energy distribution                                                                               |                             |        | 446   |         |             |             | 445   |      |        |         | 368   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other                                                                                                           |                             |        | 93    |         |             |             | 62    |      |        |         | 49    |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|                                                                                       |                                                                                                                 |                             |        |       |         | 13,452      |             |       |      | 13,674 |         |       |             | 12,806 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Less accumulated depreciation, depletion and amortization                                                       |                             |        | 6,207 |         |             |             | 6,157 |      |        |         | 5,917 |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|                                                                                       |                                                                                                                 |                             |        |       |         | 7,245       |             |       |      | 7,517  |         |       |             | 6,889  | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Construction work-in-progress                                                                                   |                             |        | 854   |         |             |             | 604   |      |        |         | 363   |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|                                                                                       |                                                                                                                 |                             |        |       |         | 8,099       |             |       |      | 8,121  |         |       |             | 7,252  | 
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|Investments
 Independent power production                                              |                                                                                                                 |                             | 957    |       |         |             | 950         |       |      |        | 1,017   |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Natural gas transmission, storage and processing                                                                |                             |        | 382   |         |             |             | 369   |      |        |         | 498   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | International energy distribution                                                                               |                             |        | 41    |         |             |             | 150   |      |        |         | 146   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Midland Cogeneration Venture Limited Partnership                                                                |                             |        | 261   |         |             |             | 247   |      |        |         | 230   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | First Midland Limited Partnership                                                                               |                             |        | 246   |         |             |             | 240   |      |        |         | 238   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other                                                                                                           |                             |        | 42    |         |             |             | 40    |      |        |         | 35    |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|                                                                                       |                                                                                                                 |                             |        |       |         | 1,929       |             |       |      | 1,996  |         |       |             | 2,164  | 
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|Current Assets
 Cash and temporary cash investments at cost, which approximates market |                                                                                                                 |                             | 240    |       |         |             | 132         |       |      |        | 213     |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Accounts receivable,
notes receivable and accrued revenue, less allowances
   of $20, $12 and $15, respectively |                             |        | 1,030 |         |             |             | 959   |      |        |         | 931   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Inventories at average cost
 Gas in underground storage                                                         |                             |        | 166   |         |             |             | 225   |      |        |         | 167   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                 | Materials and supplies      |        |       | 196     |             |             |       | 158  |        |         |       | 145         |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                                 | Generating plant fuel stock |        |       | 47      |             |             |       | 47   |        |         |       | 32          |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Deferred income taxes                                                                                           |                             |        | 16    |         |             |             | 33    |      |        |         | 9     |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Prepayments and other                                                                                           |                             |        | 249   |         |             |             | 263   |      |        |         | 196   |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|                                                                                       |                                                                                                                 |                             |        |       |         | 1,944       |             |       |      | 1,817  |         |       |             | 1,693  | 
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|Non-current Assets
 Goodwill, net                                                      |                                                                                                                 |                             | 915    |       |         |             | 891         |       |      |        | 709     |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Nuclear decommissioning trust funds                                                                             |                             |        | 612   |         |             |             | 602   |      |        |         | 581   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Unamortized nuclear costs                                                                                       |                             |        | 490   |         |             |             | 519   |      |        |         | 521   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Notes and lease receivable                                                                                      |                             |        | 421   |         |             |             | 44    |      |        |         | 6     |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Postretirement benefits                                                                                         |                             |        | 333   |         |             |             | 348   |      |        |         | 358   |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Notes receivable  related party                                                                                |                             |        | 223   |         |             |             | 251   |      |        |         | 15    |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Abandoned Midland project                                                                                       |                             |        | 35    |         |             |             | 48    |      |        |         | 60    |            
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other                                                                                                           |                             |        | 706   |         |             |             | 825   |      |        |         | 780   |            
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|                                                                                       |                                                                                                                 |                             |        |       |         | 3,735       |             |       |      | 3,528  |         |       |             | 3,030  | 
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      
|Total Assets                                                                           |                                                                                                                 | $                           | 15,707 |       |         | $           | 15,462      |       |      | $      | 14,139  |      
|                                                                                       |                                                                                                                 |                             |        |       |         |             |             |       |      |        |         |      

CMS-20



---



|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |       |             |        | 
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----- | ------- | ----------- | ----------- | ----- | ---- | ------ | ------- | ----- | ----------- | ------ | 
|                                                                             |                                                                            |                                            |        |       | June 30 |             |             |       |      |        | June 30
|                                                                             |                                                                            |                                            |        |       | 2000    |             | December 31 |       | 1999
|STOCKHOLDERS' INVESTMENT AND LIABILITIES                                     |                                                                            | (Unaudited)                                |        | 1999  |         | (Unaudited)
|                                                                             |                                                                            |                                            |        |       |         |            
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |       | In Millions
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |       |            
|Capitalization
       Common stockholders equity                            |                                                                            | $                                          | 2,345  |       |         | $           | 2,456       |       |      | $      | 2,390   |      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Preferred stock of subsidiary                                                |                                                                            |                                            | 44     |       |         |             | 44          |       |      |        | 44      |      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Company-obligated mandatorily redeemable preferred securities of:         
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                                                            | Consumers Power Company Financing I (a)    |        |       | 100     |             |             |       | 100  |        |         |       | 100         |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                                                            | Consumers Energy Company Financing II (a)  |        |       | 120     |             |             |       | 120  |        |         |       | 120         |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                                                            | Consumers Energy Company Financing III (a) |        |       | 175     |             |             |       | 175  |        |         |       |            |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Company-obligated convertible
Trust Preferred Securities of:              
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                                                            | CMS Energy Trust I (b)                     |        |       | 173     |             |             |       | 173  |        |         |       | 173         |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                                                            | CMS Energy Trust II (b)                    |        |       | 301     |             |             |       | 301  |        |         |       |            |       
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Company-obligated Trust
Preferred Securities of CMS RHINOS       Trust (c) |                                            |        | 250   |         |             |             | 250   |      |        |         | 250   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Long-term debt                                                             |                                            |        | 6,918 |         |             |             | 6,987 |      |        |         | 7,079 |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Non-current portion of capital leases                                      |                                            |        | 197   |         |             |             | 88    |      |        |         | 92    |            
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|                                                                             |                                                                            |                                            |        |       |         | 10,623      |             |       |      | 10,694 |         |       |             | 10,248 | 
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|Minority Interests                                                           |                                                                            |                                            | 212    |       |         |             | 222         |       |      |        | 148     |      
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Current Liabilities
    Current portion of long-term debt and capital leases |                                                                            |                                            | 547    |       |         |             | 552         |       |      |        | 306     |      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Notes payable                                                              |                                            |        | 278   |         |             |             | 230   |      |        |         | 264   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accounts payable                                                           |                                            |        | 824   |         |             |             | 775   |      |        |         | 397   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accrued taxes                                                              |                                            |        | 309   |         |             |             | 320   |      |        |         | 261   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accrued interest                                                           |                                            |        | 163   |         |             |             | 148   |      |        |         | 106   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accounts payable  related parties                                         |                                            |        | 65    |         |             |             | 61    |      |        |         | 73    |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Power purchases  MCV Partnership                                          |                                            |        | 47    |         |             |             | 47    |      |        |         | 47    |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accrued refunds                                                            |                                            |        |      |         |             |             | 11    |      |        |         | 14    |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other                                                                      |                                            |        | 375   |         |             |             | 363   |      |        |         | 363   |            
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|                                                                             |                                                                            |                                            |        |       |         | 2,608       |             |       |      | 2,507  |         |       |             | 1,831  | 
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|Non-current Liabilities
    Deferred income taxes                            |                                                                            |                                            | 612    |       |         |             | 702         |       |      |        | 646     |      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Postretirement benefits                                                    |                                            |        | 469   |         |             |             | 485   |      |        |         | 488   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Deferred investment tax credit                                             |                                            |        | 122   |         |             |             | 126   |      |        |         | 131   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Regulatory liabilities for income taxes, net                               |                                            |        | 82    |         |             |             | 64    |      |        |         | 115   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Power purchases  MCV Partnership                                          |                                            |        | 50    |         |             |             | 73    |      |        |         | 101   |            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other                                                                      |                                            |        | 929   |         |             |             | 589   |      |        |         | 431   |            
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|                                                                             |                                                                            |                                            |        |       |         | 2,264       |             |       |      | 2,039  |         |       |             | 1,912  | 
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      
|Commitments and Contingencies (Notes 1 and 2)                               
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Total Stockholders Investment and Liabilities                               |                                                                            | $                                          | 15,707 |       |         | $           | 15,462      |       |      | $      | 14,139  |      
|                                                                             |                                                                            |                                            |        |       |         |             |             |       |      |        |         |      



---

|(a) |  | The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36 percent subordinated
deferrable interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company Financing II is $124
million principal amount of 8.20 percent subordinated deferrable interest notes due 2027 from Consumers. The primary asset of
Consumers Energy Company Financing III is $180 million principal amount of 9.25 percent subordinated deferrable interest notes
due 2029 from Consumers. For further discussion, see Note 7 to the Consolidated Financial Statements contained in CMS
Energys 1999 Form 10-K .
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | The primary asset of CMS Energy Trust I is $178 million principal amount of 7.75 percent convertible subordinated deferrable
interest debentures due 2027 from CMS Energy. The primary asset of CMS Energy Trust II is $310 million principal amount of
8.625 percent convertible junior subordinated debentures due July 2004 from CMS Energy. For further discussion, see Note 7
contained in CMS Energys 1999 Form 10-K.                                                                                                                                                                                                                             
|   
|   
|   
|   
|(c) |  | As described in Note 7 contained in CMS Energys 1999 Form 10-K, the primary asset of CMS RHINOS Trust is $258 million
principal amount of LIBOR plus 1.75 percent subordinated deferrable interest debentures due September 2001 from CMS Energy.                                                                                                                                                                                                                                                                                                                                                                                                       

The accompanying condensed notes are an integral part of these statements.

CMS-21



---



CMS Energy Corporation
Consolidated Statements of Common Stockholders Equity
(Unaudited)

|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |     |     |       |     | 
|----------------------------------------------------- | ------------------------------------------------------------------- | ---------- | ---------------- | ------------------------------------------------------------------------------------------------------------------- | --- | ------------------ | ----- | ---------------- | --- | ----- | ----- | ---- | --- | ----------- | ----- | --- | --- | ----- | --- | 
|                                                      |                                                                     |            |                  |                                                                                                                     |     | Three Months Ended |       | Six Months Ended
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                 
|June 30                                               |                                                                     | 2000       |                  | 1999                                                                                                                |     | 2000               |       | 1999            
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                 
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     | In Millions
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |            
|Common Stock
  At beginning and end of period         |                                                                     | $          | 1                |                                                                                                                     |     | $                  | 1     |                  |     | $     | 1     |      |     | $           | 1     |    
|                                                     
|                                                     
|                                                     
|                                                     
|Other Paid-in Capital
  At beginning of period        |                                                                     |            | 2,653            |                                                                                                                     |     |                    | 2,619 |                  |     |       | 2,749 |      |     |             | 2,594 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Redemption of affiliates preferred stock                           |            |                  |                                                                                                                    |     |                    |       |                 |     |       |       |     |     |             |       | (2  | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock repurchased                                            |            |                  | (27                                                                                                                 | )   |                    |       |                 |     |       |       | (129 | )   |             |       |    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock reissued                                               |            |                  |                                                                                                                    |     |                    |       |                 |     |       |       | 3    |     |             |       |    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock issued:                                               
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     | CMS Energy |                  |                                                                                                                     |    |                    |       |                  | 21  |       |       |      | 3   |             |       |     | 47  |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     | Class G    |                  |                                                                                                                     |    |                    |       |                  | 3   |       |       |      |    |             |       |     | 4   |      
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|                                                      |                                                                     |            | At end of period |                                                                                                                     |     | 2,626              |       |                  |     | 2,643 |       |      |     | 2,626       |       |     |     | 2,643 |    
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|Revaluation Capital
  At beginning of period          |                                                                     |            | 3                |                                                                                                                     |     |                    | (13   | )                |     |       | 3     |      |     |             | (9    | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Change in unrealized investments-gain (loss) (a)                    |            |                  | (2                                                                                                                  | )   |                    |       | 23               |     |       |       | (2   | )   |             |       | 19  |    
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|                                                      |                                                                     |            | At end of period |                                                                                                                     |     | 1                  |       |                  |     | 10    |       |      |     | 1           |       |     |     | 10    |    
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|Foreign Currency Translation
  At beginning of period |                                                                     |            | (132             | )                                                                                                                   |     |                    | (141  | )                |     |       | (108  | )    |     |             | (136  | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Change in foreign currency translation realized from asset sale (a) |            |                  |                                                                                                                    |     |                    |       |                 |     |       |       | 25   |     |             |       |    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Change in foreign currency translation (a)                          |            |                  | (41                                                                                                                 | )   |                    |       | 15               |     |       |       | (90  | )   |             |       | 10  |    
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|                                                      |                                                                     |            | At end of period |                                                                                                                     |     | (173               | )     |                  |     | (126  | )     |      |     | (173        | )     |     |     | (126  | )  
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|Retained Earnings (Deficit)
  At beginning of period  |                                                                     |            | (151             | )                                                                                                                   |     |                    | (174  | )                |     |       | (189  | )    |     |             | (234  | )  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Consolidated net income (a)                                         |            |                  | 81                                                                                                                  |     |                    |       | 75               |     |       |       | 161  |     |             |       | 173 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock dividends declared:                                   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     | CMS Energy |                  |                                                                                                                     | (40 | )                  |       |                  | (36 | )     |       |      | (82 | )           |       |     | (71 | )    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     | Class G    |                  |                                                                                                                     |    |                    |       |                  | (3  | )     |       |      |    |             |       |     | (6  | )    
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|                                                      |                                                                     |            | At end of period |                                                                                                                     |     | (110               | )     |                  |     | (138  | )     |      |     | (110        | )     |     |     | (138  | )  
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|Total Common Stockholders Equity                     |                                                                     | $          | 2,345            |                                                                                                                     |     | $                  | 2,390 |                  |     | $     | 2,345 |      |     | $           | 2,390 |    
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|(a) Disclosure of Comprehensive Income:              
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     |            |                  | Revaluation capital
    Unrealized investments-gain (loss), net of tax of
$-, $(12), $- and     $(10), respectively |     | $                  | (2    | )                |     | $     | 23    |      |     | $           | (2    | )   |     | $     | 19  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     |            |                  | Foreign currency translation, net                                                                                   |     |                    | (41   | )                |     |       | 15    |      |     |             | (65   | )   |     |       | 10  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                     |            |                  | Consolidated net income                                                                                             |     |                    | 81    |                  |     |       | 75    |      |     |             | 161   |     |     |       | 173 | 
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    
|                                                      |                                                                     |            |                  | Total Consolidated Comprehensive Income                                                                             |     | $                  | 38    |                  |     | $     | 113   |      |     | $           | 94    |     |     | $     | 202 | 
|                                                      |                                                                     |            |                  |                                                                                                                     |     |                    |       |                  |     |       |       |      |     |             |       |    

The accompanying condensed notes are an integral part of these statements.

CMS-22



---



CMS Energy Corporation
Condensed Notes to Consolidated Financial Statements

These Condensed Notes and their related Consolidated Financial Statements
should be read along with the Consolidated Financial Statements and Notes
contained in the 1999 Form 10-K of CMS Energy, which includes the Reports of
Independent Public Accountants. Certain prior year amounts have been
reclassified to conform with the presentation in the current year. In the
opinion of management, the unaudited information herein reflects all
adjustments necessary to assure the fair presentation of financial position,
results of operations and cash flows for the periods presented.

1: Corporate Structure and Basis of Presentation

Corporate Structure and Basis of Presentation

CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving the Lower
Peninsula of Michigan, is a subsidiary of CMS Energy. Enterprises, through
subsidiaries, is engaged in several domestic and international diversified
energy businesses including: natural gas transmission, storage and processing;
independent power production; oil and gas exploration and production; energy
marketing, services and trading; and international energy distribution.

The consolidated financial statements include CMS Energy, Consumers and
Enterprises and their majority owned subsidiaries. The financial statements
are prepared in conformity with generally accepted accounting principles and
use managements estimates where appropriate. Affiliated companies (where CMS
Energy has more than 20 percent but less than a majority ownership interest)
are accounted for by the equity method. For the three and six months ended
June 30, 2000, undistributed equity earnings were $73 million and $101 million,
respectively compared to $30 million and $46 million for the three and six
months ended June 30, 1999, respectively.

Foreign currency translation adjustments relating to the operation of CMS
Energys long-term investments in foreign countries are included in common
stockholders equity. From January 1, 2000 through June 30, 2000, the foreign
currency translation amount realized from assets sales increased equity by $25
million and the change in the foreign currency translation adjustment decreased
equity by $90 million, net of after-tax hedging proceeds.

Oil and Gas Properties

CMS Oil and Gas follows the successful efforts method of accounting for its
investments in oil and gas properties. CMS Oil and Gas capitalizes, as
incurred, the costs of property acquisitions, successful exploratory wells, all
development costs, and support equipment and facilities. It expenses
unsuccessful exploratory wells when they are determined to be non-productive.
CMS Oil and Gas also charges to expense, as incurred, production costs,
overhead, and all exploration costs other than exploratory drilling. CMS Oil
and Gas determines depreciation, depletion and amortization of proved oil and
gas properties on a field-by-field basis using the units-of-production method
over the life of the remaining proved reserves.

CMS-23



---



Utility Regulation

Consumers accounts for the effects of regulation based on the regulated utility
accounting standard SFAS 71, Accounting for the Effects of Certain Types of
Regulation. As a result, the actions of regulators affect when Consumers
recognizes revenues, expenses, assets and liabilities.

In March 1999, Consumers received MPSC electric restructuring orders.
Consistent with these orders, Consumers discontinued application of SFAS 71 for
the energy supply portion of its business in the first quarter of 1999 because
Consumers expected to implement retail open access for its electric customers
in September 1999. Discontinuation of SFAS 71 for the energy supply portion of
Consumers business resulted in Consumers reducing the carrying value of its
Palisades plant-related assets by approximately $535 million and establishing a
regulatory asset for a corresponding amount. According to current accounting
standards, Consumers can continue to carry its energy supply-related regulatory
assets if legislation or an MPSC rate order allows the collection of cash flows
to recover these regulatory assets from its regulated transmission and
distribution customers. At June 30, 2000, Consumers had a net investment in
energy supply facilities of $1.017 billion included in electric plant and
property. See Note 2, Uncertainties, Consumers Electric Utility Rate Matters
 Electric Restructuring.

Acquisition

In March 1999, CMS Energy, through a subsidiary, acquired Panhandle from Duke
Energy for a cash payment of $1.9 billion and existing Panhandle debt of $300
million. CMS Energy used the purchase method of accounting to account for the
acquisition and, accordingly, included the results of operations of Panhandle
for the period from March 29, 1999 in the accompanying consolidated financial
statements. Assets acquired and liabilities assumed are recorded at their fair
values. CMS Energy allocated the excess purchase price over the fair value of
net assets acquired of approximately $800 million to goodwill and amortizes
this amount on a straight-line basis over 40 years.

The following unaudited pro forma amounts for operating revenue, consolidated
net income, basic earnings per share and diluted earnings per share, as if the
acquisition had occurred on January 1, 1999, illustrate the effects of: (1)
various restructuring, realignment, and elimination of activities between
Panhandle and Duke Energy prior to the closing of the acquisition by CMS
Energy; (2) the adjustments resulting from the acquisition by CMS Energy; and
(3) financing transactions which include the public issuance of $800 million of
senior notes by Panhandle, $850 million of senior notes by CMS Energy, and the
private sale of $250 million of Trust Preferred Securities by CMS Energy.

CMS-24



---



|                           |  |                                       |       |      |  |   |       | 
|-------------------------- |  | ------------------------------------- | ----- | ---- |  | - | ----- | 
|                           |  | In Millions, except per share amounts
|                           |  |                                      
|Six Months Ended June 30,  |  | 2000                                  |       | 1999
|                           |  |                                       |       |     
|Operating revenue          |  | $                                     | 3,426 |      |  | $ | 3,004 | 
|                          
|                          
|                          
|                          
|Consolidated net income    |  | $                                     | 161   |      |  | $ | 184   | 
|                          
|                          
|                          
|                          
|Basic earnings per share   |  | $                                     | 1.44  |      |  | $ | 1.59  | 
|                          
|                          
|                          
|                          
|Diluted earnings per share |  | $                                     | 1.42  |      |  | $ | 1.57  | 
|                           |  |                                       |       |      |  |   |       | 

2: Uncertainties

Consumers Electric Utility Contingencies

Electric Environmental Matters:The Clean Air Act limits emissions of sulfur
dioxide and nitrogen oxides and requires emissions and air quality monitoring.
Consumers currently operates within these limits and meets current emission
requirements. The Clean Air Act requires the EPA to review periodically the
effectiveness of the national air quality standards in preventing adverse
health effects.

1997 EPA Revised NOx and Small Particulate Emissions Standards In 1997, the
EPA revised these standards to impose further limitations on nitrogen oxide and
small particulate-related emissions. After a United States Court of Appeals
found the revision an unconstitutional delegation of legislative power, the EPA
suspended the standards under the 1997 rule and reinstated the pre-1997
standards. In January 2000, the Department of Justice filed a petition for the
United States Supreme Court to review the case. In May 2000, the Supreme Court
agreed to hear the appeal.

1998 EPA Plan for NOx Emissions In September 1998, based in part upon the
1997 standards, the EPA Administrator issued final regulations requiring the
state of Michigan to further limit nitrogen oxide emissions. Consumers
anticipates a reduction in nitrogen oxide emissions by 2003 to only 32 percent
of levels allowed for the year 2000. The state of Michigan had one year to
submit an implementation plan. The state of Michigan filed a lawsuit objecting
to the extent of the required emission reductions and requesting an extension
of the submission date. In May 1999, the United States Court of Appeals
granted an indefinite stay of the submission date for the state of Michigans
implementation plan. In early 2000, the United States Court of Appeals upheld
the EPAs final regulations. The state of Michigan has filed a petition with
the United States Supreme Court appealing this ruling. During this time
period, the state of Michigan established alternative less stringent nitrogen
oxide emission reduction requirements. At this time the state of Michigan has
decided to draft new rules to comply with the EPA requirements in parallel with
its appeal to the supreme court.

Section 126 Petitions In December 1999, the EPA Administrator signed a
revised final rule under Section 126 of the Clean Air Act. The rule requires
some electric utility generators, including some of Consumers electric
generating facilities, to achieve the same emission rate as that required by
the currently challenged September 1998 EPA final rule. Under the revised
Section 126 rule, the emission rate will become effective on May 1, 2003 and
apply during the ozone season in 2003 and during each subsequent year. Various
parties petitions challenging the EPAs rule have been filed.

CMS-25



---



Until all air quality targets are conclusively established, the estimated cost
of compliance discussed below is subject to revision.

Cost of Environmental Law Compliance The preliminary estimates of capital
expenditures to reduce nitrogen oxide-related emissions to the level proposed by the state of Michigan
for Consumers fossil-fueled generating units range from $150 million to $290
million, calculated in 2000 dollars. If Consumers has to meet the EPAs 1998
and/or Section 126 petition requirements, the estimated cost to Consumers would
be between $290 million and $500 million, calculated in 2000 dollars. In both
cases the lower estimate represents the capital expenditure level that would
satisfactorily meet the proposed emissions limits but would result in higher
operating expense. The higher estimate in the range includes expenditures that
result in lower operating costs while complying with the proposed emissions
limit. Consumers anticipates that it will incur these capital expenditures
between 2000 and 2004, or between 2000 and 2003 if the EPA ultimately imposes
its limits. In addition, Consumers expects to incur cost of removal related to
this effort, but is unable to predict the amount at this time.

Consumers may need an equivalent amount of capital expenditures to comply with
the new small particulate standards sometime after 2004 if those standards
become effective.

Consumers coal-fueled electric generating units burn low-sulfur coal and are
currently operating at or near the sulfur dioxide emission limits. Beginning
in 1992 and continuing into 2000, Consumers incurred capital expenditures
totaling $72 million to install equipment at certain generating units to comply
with the acid rain provisions of the Clean Air Act. Management believes that
these expenditures will not materially affect Consumers annual operating
costs.

Cleanup and Solid Waste Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. Nevertheless, it
believes that these costs are recoverable in rates under current ratemaking
policies.

Consumers is a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several. Along
with Consumers, many other creditworthy, potentially responsible parties with
substantial assets cooperate with respect to the individual sites. Based upon
past negotiations, Consumers estimates that its share of the total liability
for the known Superfund sites will be between $2 million and $9 million. At
June 30, 2000, Consumers has accrued the minimum amount of the range for its
estimated Superfund liability.

During routine maintenance activities, Consumers identified PCB as a component
in certain paint, grout and sealant materials at the Ludington Pumped Storage
Facility. Consumers removed and replaced part of the PCB material. Consumers
is studying the remaining materials and determining options and their related
costs.

Antitrust:In October 1997, two independent power producers sued Consumers in
a federal court. The suit alleged antitrust violations relating to contracts
which Consumers entered into with some of its customers, and interference with
contract claims relating to proposed power facilities. In March 1999, the
court issued an opinion and order granting Consumers motion for summary
judgment, resulting in the dismissal of the case. The plaintiffs appealed this
decision. Consumers cannot predict the outcome of this appeal.

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Consumers Electric Utility Rate Matters

Electric Restructuring: Since 1997, there have been repeated efforts made in
the Michigan Legislature to enact electric restructuring legislation. On June
3, 2000, these efforts resulted in the passage of the Customer Choice and
Electricity Reliability Act, which became effective June 5, 2000. This act:
1) permits all customers to exercise choice of electric generation suppliers by
January 1, 2002; 2) cuts residential electric rates by 5 percent; 3) freezes
all electric rates through December 31, 2003, and establishes a rate cap for
residential customers
through at least December 31, 2005, and a rate cap for small commercial and
industrial customers through at least December 31, 2004; 4) allows for the use
of Securitization to refinance stranded costs as a means of offsetting the
earnings impact of the 5 percent residential rate reduction; 5) establishes a
market power test which may require the transfer of control of a portion of
generation resources in excess of that required to serve firm retail sales
load; 6) requires Michigan utilities to join a FERC approved RTO or divest its
interest in transmission facilities to an independent transmission owner; 7)
requires the expansion of available transmission capability by at least 2,000
MW by January 1 of 2003; and 8) allows for the recovery of stranded costs and
implementation costs incurred as a result of the passage of the act.

In September 1999, Consumers began implementing a plan for electric retail
customer open access. Consumers submitted this plan to the MPSC in 1998, and
the MPSC issued electric restructuring orders in March 1999 that generally
supported the plan. The Customer Choice and Electricity Reliability Act states
that orders issued by the MPSC before the date of this act that; 1) allow
electric customers to choose their supplier, 2) authorize recovery of net
stranded costs and implementation costs, and 3) confirm any voluntary
commitments of electric utilities, are in compliance with this act and
enforceable by the MPSC. On June 19, 2000, the MPSC issued an order requiring
Consumers to file tariffs governing its retail open access program and any
revisions appropriate to comply with the Customer Choice and Electricity
Reliability Act. Consumers cannot predict how the MPSC will modify the tariffs
or enforce the existing restructuring orders.

On June 9, 2000, the Court of Appeals issued an opinion relating to a number of
consolidated MPSC restructuring orders. The opinion primarily involved issues
that the Customer Choice and Electricity Reliability Act has rendered moot. In
a separate pending case, ABATE and the Attorney General each appealed an August
1999 order in which the MPSC found that it had jurisdiction to approve rates,
terms and conditions for electric retail wheeling (also known as electric
customer choice) if a utility voluntarily chooses to offer that service.
Consumers believes that the Customer Choice and Electricity Reliability Act has
rendered the issue moot, but cannot predict how the Court of Appeals will
resolve the issue.

During periods when electric demand is high, the cost of purchasing energy on
the spot market can be substantial. To reduce Consumers exposure to the
fluctuating cost of electricity, and to ensure adequate supply to meet demand,
Consumers is planning to maintain sufficient generation and to purchase
electricity from others to create a power reserve (also called a reserve
margin). Consumers plans a reserve margin of approximately 15 percent. The
reserve margin provides Consumers with additional power above its anticipated
peak power demands. It also allows Consumers to provide reliable service to
its electric service customers and to protect itself against unscheduled plant
outages and unanticipated demand. Consumers estimates the actual reserve
margin for summer 2000 is in the range of 13 percent to 16 percent. The
ultimate reserve margin will depend on summer weather conditions and on the
level of retail open access load being served by others this summer.
(Consumers offered other electric service providers with the opportunity to
serve up to 600 MW of nominal retail open access load during summer 2000. As
of June 30, 2000, no other electric service provider is serving the retail open
access load.) To reduce the risk of

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high energy prices during peak demand
periods and to achieve its reserve margin target, Consumers has employed a
strategy of purchasing electric call option contracts for the physical delivery
of electricity during the months of June through September. Consumers expects
to use a similar strategy in the future. As of June 30, 2000, Consumers had
purchased or had commitments to purchase electric call option contracts for
summer 2000 at a cost of approximately $51 million, of which $6 million had
expired. Additionally, as of June 30, 2000 Consumers had purchased or had
commitments to purchase electric call option contracts partially covering the
reserve margin requirements for summer 2001, 2002 and 2003 at a cost of $13
million with expected total future purchases to reach $56 million this year.

In June 1999, Consumers and four other electric utility companies sought
approval from the FERC to form the Alliance RTO. The proposed structure
provided for the creation of a transmission entity that would control,
operate and own transmission facilities of one or more of the member companies.
The proposal was structured to give the member companies the flexibility to
maintain or divest ownership of their transmission facilities while ensuring
independent operation of the regional transmission system. In December 1999,
the FERC conditionally approved formation of Alliance, but asked the applicants
to make a number of changes in the proposal and to provide additional
information. Among other things, the FERC expressed concern about the proposed
governance structure of Alliance, its rates and its geographic configuration.
Consumers and the Alliance companies sought rehearing of the Alliance order.
Additionally, in a February 2000 compliance filing, the Alliance companies
addressed some of the concerns expressed in the December 1999 Alliance order.
Consumers is uncertain about the outcome of the Alliance matter before the FERC
and its continued participation in Alliance.

On the same day as the December 1999 Alliance order, the FERC issued Order No.
2000, which describes the characteristics the FERC would find acceptable in an
RTO. In Order No. 2000, the FERC declined to mandate that utilities join RTOs,
but did order utilities to make filings in October 2000 and January 2001
declaring their intentions with respect to RTO membership.

In May 2000, the FERC issued an order on compliance filing and request for
rehearing and clarification. The order concluded that the Alliance RTOs
proposed structure is not in the proper scope and configuration. The FERC
rejected the Alliance companies proposal to allow 25 percent cumulative active
ownership of the Alliance RTO by the transmission owners. The May 2000 order
also required the applicants to make a rate compliance filing. The FERC did
not substantively address Consumers alternative governance structure. In June
2000, Consumers filed a request for hearing of the May 2000 order and also
separately sought once again approval of its alternative governance structure.
Consumers also filed a petition for review of the May 2000 order in the United
States Court of Appeals for the District of Columbia Circuit.

Electric Proceedings:In 1996, the MPSC issued a final order that authorized
Consumers to recover costs associated with the purchase of the additional 325
MW of MCV Facility capacity (see Power Purchases from the MCV Partnership in
this Note). In addition, the order allowed Consumers to recover its nuclear
plant investment by increasing prospective annual nuclear plant depreciation
expense by $18 million, with a corresponding decrease in fossil-fueled
generating plant depreciation expense. The order also established an
experimental direct-access program. The Attorney General, ABATE, the MCV
Partnership and other parties filed appeals with the Court of Appeals
challenging the MPSCs 1996 order. In 1999, the Court of Appeals affirmed the
MPSCs 1996 order in all respects. The Attorney General, however, filed an
application for leave to appeal this decision to the Michigan Supreme Court.
In June 2000, the Michigan Supreme Court denied the application for leave to
appeal.

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In 1997, ABATE filed a complaint with the MPSC. The complaint alleged that
Consumers electric earnings are more than its authorized rate of return and
sought an immediate reduction in Consumers electric rates that approximated
$189 million annually. As a result of the passage of the rate freeze imposed
by the Customer Choice and Electricity Reliability Act, the MPSC issued an
order on June 19, 2000 dismissing the ABATE complaint. On July 12, 2000 ABATE
filed a rehearing petition with the MPSC. Consumers cannot predict the outcome
of the rehearing process.

Before 1998, the PSCR process provided for the reconciliation of actual power
supply costs with power supply revenues. This process assured recovery of all
reasonable and prudent power supply costs actually incurred by Consumers, such
as, the actual cost of fuel, interchange power and purchased power. In 1998,
as part of the electric restructuring efforts, the MPSC suspended the PSCR
process through December 31, 2001. Under the suspension, the MPSC would not
grant adjustment of customer rates through 2001. In March 2000, Consumers
filed an application with the MPSC requesting reinstatement of the PSCR clause,
approval of a PSCR plan, and authorization of monthly PSCR factors from July
2000 through June 2001. As a result of the rate freeze imposed
by the Customer Choice and Electricity Reliability Act, the MPSC issued an
order on June 19, 2000 dismissing this application.

Other Consumers Electric Utility Uncertainties

The Midland Cogeneration Venture:The MCV Partnership, which leases and
operates the MCV Facility, contracted to sell electricity to Consumers for a
35-year period beginning in 1990 and to supply electricity and steam to Dow.
Consumers, through two wholly owned subsidiaries, holds the following assets
related to the MCV Partnership and MCV Facility: 1) CMS Midland owns a 49
percent general partnership interest in the MCV Partnership; and 2) CMS
Holdings holds, through FMLP, a 35 percent lessor interest in the MCV Facility.

Summarized Statements of Income for CMS Midland and CMS Holdings (unaudited)

|                        |  |                  |    |             |  |   |    | 
|----------------------- |  | ---------------- | -- | ----------- |  | - | -- | 
|                        |  |                  |    | In Millions
|                        |  |                 
|                        |  | Six Months Ended
|                        |  |                  |    |             |  |   |    | 
|June 30                 |  | 2000             |    | 1999       
|                        |  |                  |    |            
|Pretax operating income |  | $                | 20 |             |  | $ | 26 | 
|                       
|                       
|                       
|                       
|Income taxes and other  |  |                  | 6  |             |  |   | 8  | 
|                        |  |                  |    |             |  |   |    | 
|Net income              |  | $                | 14 |             |  | $ | 18 | 
|                        |  |                  |    |             |  |   |    | 

Power Purchases from the MCV Partnership Consumers annual obligation to
purchase capacity from the MCV Partnership is 1,240 MW through the termination
of the PPA in 2025. The PPA provides that Consumers is to pay, based on the MCV
Facilitys availability, a levelized average capacity charge of 3.77 cents per
kWh, a fixed energy charge, and a variable energy charge based primarily on
Consumers average cost of coal consumed for all kWh delivered. Since January
1, 1993, the MPSC has permitted Consumers to recover capacity charges averaging
3.62 cents per kWh for 915 MW, plus a substantial portion of the fixed and
variable energy charges. Since January 1, 1996, the MPSC has also permitted
Consumers to recover capacity charges for the remaining 325 MW of contract
capacity with an initial average charge of 2.86 cents per kWh increasing
periodically to an eventual 3.62 cents per kWh by 2004 and thereafter. After
September 2007, under the terms of the PPA, Consumers will only be required to
pay the MCV Partnership capacity and energy charges that the MPSC has
authorized for recovery from electric customers.

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In March 1999, Consumers signed a long-term power sales agreement to resell to
PECO its capacity and energy purchases under the PPA until September 2007.
Implementation of the agreement is contingent upon regulatory treatment
satisfactory to Consumers. Such treatment is not yet assured. Under the terms
of the agreement, after a three-year transition period during which 100 to 150
MW will be sold to PECO, beginning in 2002 Consumers will sell all 1,240 MW of
PPA capacity and associated energy to PECO. In March 1999, Consumers also filed
an application with the MPSC for accounting and ratemaking approvals related to
the PECO agreement. If used as an offset to electric customers Transition Cost
responsibility, Consumers estimates that there could be a reduction of as much
as $58 million (on a net present value basis) of Transition Cost related to the
MCV PPA. In an order issued in April 1999, the MPSC conditionally approved the
requests for accounting and rate-making treatment to the extent that customer
rates are not increased from the current level absent the agreement and as
modified by the order. In response to Consumers and other parties requests
for clarification and rehearing, in an August 1999 opinion, the MPSC partially
granted the relief Consumers requested on rehearing and attached certain
additional conditions to its approval. Those conditions relate to Consumers
continued decision to carry out the electricity customer choice program (which
Consumers has affirmed as discussed above) and a determination to file for
approval of a revised capacity solicitation process (which Consumers filed).
The August opinion is a companion order to a power supply cost reconciliation
order issued on the same date in another case.
This order affects the level of frozen power supply costs recoverable in
rates during future years when the transaction with PECO would be taking place.
Consumers filed a motion for clarification of the order relating to the PECO
agreement, which is still pending. Due to uncertainties associated with
electric industry restructuring legislation in Michigan, Consumers and PECO
entered into an interim arrangement for the sale of 125 MW of PPA capacity and
associated energy to PECO during 2000. Prices in the interim arrangement are
identical to the March 1999 power sales agreement. Consumers is currently
evaluating its options associated with the PECO agreement due to the recent
electric restructuring legislation and related MPSC decisions.

Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA based on MPSC recovery
orders. At June 30, 2000 and June 30, 1999, the remaining after-tax present
value of the estimated future PPA liability associated with the 1992 loss
totaled $63 million and $96 million, respectively. The annual after-tax cash
underrecoveries are based on the assumption that the MCV Facility would be
available to generate electricity 91.5 percent of the time over its expected
life. Historically the MCV Facility has operated above the 91.5 percent level.
In March 1999, Consumers and the MCV Partnership reached an agreement effective
January 1, 1999 that capped availability payments to the MCV Partnership at
98.5 percent. If the MCV Facility generates electricity at the maximum 98.5
percent level during the next five years, Consumers after-tax cash
underrecoveries associated with the PPA could be as follows:

|                                                    |  |      |    |      |  |      |    |      |  |      |    |  |  |   |    |  |             |   |    | 
|--------------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- |  | ----------- | - | -- | 
|                                                    |  |      |    |      |  |      |    |      |  |      |    |  |  |   |    |  | In Millions
|                                                    |  |      |    |      |  |      |    |      |  |      |    |  |  |  
|                                                    |  | 2000 |    | 2001 |  | 2002 |    | 2003 |  | 2004
|                                                    |  |      |    |      |  |      |    |      |  |     
|Estimated cash underrecoveries at 98.5%, net of tax |  | $    | 36 |      |  | $    | 39 |      |  | $    | 38 |  |  | $ | 37 |  |             | $ | 36 | 
|                                                    |  |      |    |      |  |      |    |      |  |      |    |  |  |   |    |  |             |   |    | 

If the MCV Facility operates at availability levels above managements 91.5
percent estimate made in 1992 for the remainder of the PPA, the estimated PPA
liability would be deficient and Consumers will need to recognize additional
operating expenses for current underrecoveries. For further discussion on the
impact of the frozen PSCR, see Electric Rate Matters in this Note.
Management continues to evaluate the adequacy of the contract loss liability
considering actual MCV Facility operations, and resolution of the electric
restructuring effort.

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In February 1998, the MCV Partnership filed a claim of appeal from the January
1998 and February 1998 MPSC orders related to electric utility industry
restructuring. At the same time, the MCV Partnership filed suit in the United
States District Court seeking a declaration that the MPSCs failure to provide
Consumers and the MCV Partnership a certain source of recovery of capacity
payments after 2007 deprived the MCV Partnership of its rights under the Public
Utilities Regulatory Policies Act of 1978. In July 1999, the United States
District Court issued an order granting the MCV Partnerships motion for
summary judgment. The order permanently prohibits enforcement of the
restructuring orders in any manner which denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or which
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the United States District Court order. Consumers cannot predict the
outcome of this litigation.

Nuclear Matters:In January 1997, the NRC issued its Systematic Assessment of
Licensee Performance report for Palisades. The report rated all areas as good.
The NRC suspended this assessment process for all licensees in 1998. Until
the NRC completes its review of processes for assessing performance at nuclear
power plants, the NRC uses the Plant Performance Review to provide an
assessment of licensee performance. Palisades received its annual performance
review dated March 31, 2000 in which the NRC stated that no significant
performance issues existed during the assessment period in the reactor safety,
radiation safety, and safeguards strategic performance areas. The NRC stated
that Palisades continues to operate in a safe manner. Further, it stated that
the NRC plans to conduct only routine inspections at Palisades over the next
year. The NRC implemented the revised reactor oversight process industry-wide,
including for Palisades, on April 2, 2000. As part of that process, Palisades
submitted required NRC performance data in April 2000 that indicated that
Consumers was within the limits of acceptable performance for which no NRC
response is required.

Palisades temporary on-site storage pool for spent nuclear fuel is at
capacity. Consequently, Consumers is using NRC-approved steel and concrete
vaults, commonly known as dry casks, for temporary on-site storage. As of
June 30, 2000, Consumers had loaded 18 dry storage casks with spent nuclear
fuel at Palisades. Palisades will need to load more casks by 2004 in order to
continue operation. Palisades only has three additional storage-only casks
available for loading. Consumers anticipates, however, that licensed
transportable casks will be available prior to 2004.

Consumers maintains insurance against property damage, debris removal, personal
injury liability and other risks that are present at its nuclear facilities.
Consumers also maintains coverage for replacement power costs during prolonged
accidental outages at Palisades. Insurance would not cover such costs during
the first 12 weeks of any outage, but would cover most of such costs during the
next 52 weeks of the outage, followed by reduced coverage to 80 percent for 110
additional weeks. If certain covered losses occur at its own or other nuclear
plants similarly insured, Consumers could be required to pay maximum
assessments of $15.5 million in any one year to NEIL; $88 million per
occurrence under the nuclear liability secondary financial protection program,
limited to $10 million per occurrence in any year; and $6 million if nuclear
workers claim bodily injury from radiation exposure. Consumers considers the
possibility of these assessments to be remote.

The NRC requires Consumers to make certain calculations and report on the
continuing ability of the Palisades reactor vessel to withstand postulated
pressurized thermal shock events during its remaining license life, considering
the embrittlement of reactor materials. In December 1996, Consumers received
an interim Safety Evaluation Report from the NRC indicating that the reactor
vessel can be safely operated through 2003 before reaching the NRCs screening
criteria for reactor embrittlement. On February 21,

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2000, Consumers submitted an analysis to the NRC that shows that the NRCs screening criteria will not be
reached until 2014. Accordingly, Consumers believes that with fuel management
designed to minimize embrittlement, it can operate Palisades to the end of its
license life in the year 2007 without annealing the reactor vessel.
Nevertheless, Consumers will continue to monitor the matter.

In May 2000, Consumers requested that the NRC modify the operating license for
the Palisades nuclear plant to recapture the four year construction period.
This modification would extend the plants operation to March of 2011 and allow
a full 40-year operating period, consistent with current NRC practice.

Nuclear Fuel Cost:Consumers amortizes nuclear fuel cost to fuel expense based
on the quantity of heat produced for electric generation. Interest on leased
nuclear fuel is expensed as incurred. Under current federal law, as confirmed
by court decision, the DOE was to begin accepting deliveries of spent nuclear
fuel for disposal by January 31, 1998. For fuel used after April 6, 1983,
Consumers charges disposal costs to nuclear fuel expense, recovers them through
electric rates, and then remits them to the DOE quarterly. Consumers elected to
defer payment for disposal of spent nuclear fuel burned before April 7, 1983.
At June 30, 2000, Consumers had a recorded liability to the DOE of $126
million, including interest, which is payable upon the first delivery of spent
nuclear fuel to the DOE. Consumers recovered through electric rates the amount
of this liability, excluding a portion of interest. In January 1997, in
response to the DOEs declaration that it would not begin to accept spent
nuclear fuel deliveries in 1998, Consumers and other utilities filed suit in
federal court. The court issued a decision in late 1997 affirming the DOEs
duty to take delivery of spent fuel, but was not specific as to the relief
available for failure of the DOE to comply. Further litigation brought by
Consumers and others in 1998, intended to produce specific relief for the DOEs
failure to comply, has not been successful to date. In April 2000, the U.S.
Senate and House of Representatives approved federal legislation that would
advance the cause of moving nuclear waste to a permanent repository. The
President of the United States vetoed this legislation.

On July 20, 2000, the DOE announced that an agreement had been reached with a
utility to address the DOEs delay in accepting spent fuel. The DOE stated
that the agreement, which is in the form of a contract amendment, is intended
to be a framework that can be applied to all Nuclear Power Plants. Consumers
is evaluating this matter further.

Consumers Gas Utility Contingencies

Gas Environmental Matters:Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. These include 23
sites that formerly housed manufactured gas plant facilities, even those in
which it has a partial or no current ownership interest. Consumers has
completed initial investigations at the 23 sites. On sites where Consumers has
received site-wide study plan approvals, it will continue to implement these
plans. It will also work toward closure of environmental issues at sites as
studies are completed. Consumers has estimated its costs related to further
investigation and remedial action for all 23 sites using the Gas Research
Institute-Manufactured Gas Plant Probabilistic Cost Model. Using this model,
Consumers estimates the costs to be between $66 million and $118 million.
These estimates are based on undiscounted 1999 costs. As of June 30, 2000,
after consideration of prior years expenses, Consumers has a remaining accrued
liability of $59 million and a regulatory asset of $64 million. Any
significant change in assumptions, such as remediation techniques, nature and
extent of contamination, and legal and regulatory requirements, could affect
the estimate of remedial action costs for the sites. Consumers defers and
amortizes, over a period of ten years, environmental clean-up costs above the
amount currently being recovered in rates. Rate recognition of amortization
expense cannot begin until after a prudence review in

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a future general gas rate
case. Consumers is allowed current recovery of $1 million annually. Consumers
has initiated lawsuits against certain insurance companies regarding coverage
for some or all of the costs that it may incur for these sites.

Consumers Gas Utility Matters

Gas Restructuring:In December 1997, the MPSC approved Consumers application
to implement, effective April 1, 1998, a gas customer choice pilot program that
was designed to encourage Consumers to minimize its purchased natural gas
commodity costs while providing rate stability for its customers. The program
allows 300,000 residential, commercial and industrial retail gas sales
customers to choose an alternative gas commodity supplier in direct competition
with Consumers. Unless some other arrangements are made, when this pilot
program ends on March 31, 2001, these customers will again become Consumers
gas commodity customers. The program is voluntary and participating natural
gas customers are selected on a first-come, first-served basis, up to a limit
of 100,000 per year. As of June 30, 2000, more than 160,000 customers chose
alternative gas suppliers, representing approximately 11 bcf of gas load.
Customers choosing to remain as sales customers of Consumers will not see a
rate change in their gas rates. This three-year program: 1) freezes gas
distribution rates through March 31, 2001, establishing a delivered gas
commodity cost at a fixed rate of $2.84 per mcf; 2) establishes an earnings
sharing mechanism with customers if Consumers earnings exceed certain
pre-determined levels; and 3) establishes a gas transportation code of conduct
that addresses the relationship between Consumers and marketers, including its
affiliated marketers. In December 1999, the Court of Appeals affirmed in its
entirety the December 1997 MPSC order. The Attorney General filed with the
Michigan Supreme Court an application for leave to appeal the Court of Appeals
decision. Subsequent to June 30, 2000, the MPSC issued an order directing
Consumers and certain other Michigan gas utilities to undertake a collaborative
process, including public meetings with MPSC staff and other interested parties
during August and September 2000, for the purpose of developing uniform terms
and conditions for the future provision of gas customer choice to all Michigan
customers.

During the first two years of the pilot program, Consumers realized a benefit
of $45 million as delivered gas commodity prices were below the $2.84 per mcf
level collected from customers. Recent significant increases in gas prices
have exposed Consumers to gas commodity losses during the last year of the
program that ends March 31, 2001. Estimated loss of earnings for this last
year of the program could range from $45 million to $135 million, of which
Consumers has already recognized $45 million in the second quarter 2000 as a
regulatory obligation. Under the provisions of the pilot program, Consumers
has the right to request termination of the program at any time and to return
to a GCR mechanism, pursuant to which the customer gas commodity prices would
increase significantly from the current frozen rate. As an alternative to
exercising that right, Consumers is considering an approach that, if approved
by the MPSC, would potentially avoid further losses any greater than the $45
million already recognized and mitigate the customer rate increases that would
otherwise result. It is expected that such an approach could be implemented
this fall.

Panhandle Matters

Regulatory Matters:Effective August 1996, Trunkline placed into effect a
general rate increase, subject to refund. On September 16, 1999, Trunkline
filed a FERC settlement agreement to resolve certain issues in this proceeding.
FERC approved this settlement February 1, 2000 and required refunds of
approximately $2 million which were made in April 2000, with supplemental
refunds of $1.3 million in June 2000. On January 12, 2000, FERC issued an
order on the remainder of the rate proceeding which, if approved

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without
modification, would result in a substantial reduction to Trunklines tariff
rates which would impact future revenues and require refunds. Trunkline has
requested rehearing of certain matters in this order.

In conjunction with a FERC order issued in September 1997, FERC required
certain natural gas producers to refund previously collected Kansas ad-valorem
taxes to interstate natural gas pipelines. FERC ordered these pipelines to
refund these amounts to their customers. The pipelines must make all payments
in compliance with prescribed FERC requirements. At June 30, 2000 and December
31, 1999, Accounts Receivable included $56 million and $54 million,
respectively, due from natural gas producers, and Other Current Liabilities
included $56 million and $54 million, respectively, for related obligations.

Environmental Matters:Panhandle is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. Panhandle has identified environmental
contamination at certain sites on its systems and has undertaken clean-up
programs at these sites. The contamination resulted from the past use of
lubricants in compressed air systems containing PCBs and the prior use of
wastewater collection facilities and other on-site disposal areas. Under the
terms of the sale of Panhandle to CMS Energy, a subsidiary of Duke Energy is
obligated to complete the Panhandle clean-up programs at certain agreed-upon
sites and to indemnify against certain future environmental litigation and
claims. The Illinois EPA included Panhandle and Trunkline, together with other
non-affiliated parties, in a cleanup of former waste oil disposal sites in
Illinois. Prior to a partial cleanup by the United States EPA, a preliminary
study estimated the cleanup costs at one of the sites to be between $5 million
and $15 million. The State of Illinois contends that Panhandle Eastern Pipe
Line Companys and Trunklines share for the costs of assessment and
remediation of the sites, based on the volume of waste sent to the facilities,
is 17.32 percent. Management believes that the costs of cleanup, if any, will
not have a material adverse impact on Panhandles financial position,
liquidity, or results of operations.

Other Uncertainties

CMS Generation  Loy Yang:At June 30, 2000, CMS Energy has an approximately
$500 million investment in Loy Yang. In February 2000, CMS Energy announced
its intention to sell its 50 percent interest in Loy Yang.
The amount CMS Energy ultimately realizes from the sale of Loy Yang could
differ materially in the near term from the amount currently reflected as an
asset on the balance sheet.

CMS Generation Environmental Matters:CMS Generation does not currently expect
to incur significant capital costs at its power facilities for compliance with
current environmental regulatory standards.

Capital Expenditures:CMS Energy estimates capital expenditures, including
investments in unconsolidated subsidiaries and new lease commitments, of $1.65
billion for 2000, $1.37 billion for 2001, and $1.36 billion for 2002. For
further information, see Capital Resources and Liquidity-Capital Expenditures
in the MD&A.

Other:As of June 30, 2000, CMS Energy and
Enterprises guaranteed up to $605 million in contingent obligations of unconsolidated affiliates and related
parties.

In March 2000, Adams Affiliates, Inc. and Cottonwood Partnership (prior
majority owners of Continental Natural Gas) initiated arbitration proceedings
through the American Arbitration Association against CMS Energy. The
plaintiffs claim, in connection with an Agreement and Plan of Merger among CMS
Energy, CMS Merging Corporation, Continental Natural Gas and the plaintiffs,
damages for breach of warranty,

CMS-34



---



implied duty of good faith, violation of the
Michigan Uniform Securities Act, and common law fraud and negligent
misrepresentation. The plaintiffs allege $13 million of compensatory damages
and $26 million in exemplary damages. CMS Energy filed a response denying all
the claims made by the plaintiffs and asserting several counterclaims. CMS
Energy believes this lawsuit is without merit and will vigorously defend
against it, but cannot predict the outcome of this matter.

In addition to the matters disclosed in this Note, Consumers and certain other
subsidiaries of CMS Energy are parties to certain lawsuits and administrative
proceedings before various courts and governmental agencies arising from the
ordinary course of business. These lawsuits and proceedings may involve
personal injury, property damage, contractual matters, environmental issues,
federal and state taxes, rates, licensing and other matters.

CMS Energy has accrued estimated losses for certain contingencies discussed in
this Note. Resolution of these contingencies is not expected to have a
material adverse impact on CMS Energys financial position, liquidity, or
results of operations.

3: Short-Term and Long-Term Financings, and Capitalization

CMS Energy:CMS Energys Senior Credit Facility consists of a $1 billion
one-year revolving credit facility maturing in June 2001. Additionally, CMS
Energy has unsecured lines of credit in an aggregate amount of $38 million. As
of June 30, 2000, the total amount utilized under the Senior Credit Facility
and the unsecured lines of credit were $730 million and $14 million,
respectively, and the amounts available under the Senior Credit Facility and
the unsecured lines of credit were $270 million and $24 million, respectively.

At June 30, 2000, CMS Energy had $111 million of Series A GTNs, $107 million of
Series B GTNs, $130 million of Series C GTNs, $199 million Series D GTNs, and
$340 million Series E GTNs issued and outstanding with weighted average
interest rates of 7.9 percent, 8.1 percent, 7.9 percent, 7.0 percent and 7.7
percent, respectively.

In February 2000, the Board of Directors approved a stock repurchase program
whereby CMS Energy could reacquire up to 10 million shares of CMS Energy Common
Stock. As of June 30, 2000, CMS Energy had reacquired approximately 6.6
million shares.

CMS Energy is currently implementing a financial plan to strengthen its balance
sheet, reduce fixed expenses and enhance earnings per share growth. In
conjunction with this plan, CMS Energy has identified for possible sale certain
non-strategic assets which are expected to contribute little or no earnings
benefits in the short to medium term. In addition, this plan will allow CMS
Energy to achieve more geographic and business focus, thereby allowing CMS
Energy to concentrate on its most profitable and growing ventures. From
December 1999 through June 30, 2000, CMS Energy has received $664 million of
proceeds from the sale of these assets, including a partial interest in its
Northern Header gathering system, all of its ownership interest in a Brazilian
distribution system, all of its northern Michigan oil and gas properties, its
ownership interest in the Lakewood Cogeneration plant located in Lakewood, New
Jersey, and all of its ownership interest in certain oil reserves located in
Ecuador.

Consumers:At July 1, 2000, Consumers had FERC authorization to issue or
guarantee through June 2002, up to $900 million of short-term securities
outstanding at any one time. Consumers also had remaining

CMS-35



---



FERC authorization
to issue through June 2002 up to $250 million and $800 million of long-term
securities with maturities up to 30 years for refinancing purposes and for
general corporate purposes, respectively.

Consumers has an unsecured $300 million credit facility and unsecured lines of
credit aggregating $145 million. These facilities are available to finance
seasonal working capital requirements and to pay for capital expenditures
between long-term financings. At June 30, 2000, a total of $275 million was
outstanding at a weighted average interest rate of 7.8 percent, compared with
$264 million outstanding at June 30, 1999, at a weighted average interest rate
of 6.1 percent.

Consumers currently has in place a $325 million trade receivables sale program.
At June 30, 2000 and 1999, receivables sold under the program totaled $283
million and $266 million, respectively. Accounts receivable and accrued
revenue in the Consolidated Balance Sheets have been reduced to reflect
receivables sold.

Under the provisions of its Articles of Incorporation, Consumers had $360
million of unrestricted retained earnings available to pay common dividends at
June 30, 2000. In January 2000, Consumers declared and paid a $79 million
common dividend, in April 2000, Consumers declared a $30 million common
dividend which was paid in May 2000. In July 2000, Consumers declared a $17
million common dividend payable in August 2000.

Panhandle:In March 2000, Panhandle received net proceeds of $99 million from
the sale of $100 million 8.25 percent senior notes, due April 2010. Proceeds
from this offering were used to fund the acquisition of Sea Robin, a 1 bcf per
day natural gas and condensate pipeline in the Gulf of Mexico offshore
Louisiana west of Trunklines existing Terrebonne system.

CMS Oil and Gas:CMS Oil and Gas has a three-year $225 million floating rate
revolving credit facility which matures in May 2002. At June 30, 2000, the
amount utilized under the credit facility was $15 million.

4: Earnings Per Share and Dividends

On October 25, 1999, CMS Energy exchanged approximately 6.1 million shares of
CMS Energy Common Stock for all of the approximately 8.7 million issued and
outstanding shares of Class G Common Stock in a tax-free exchange for United
States federal income tax purposes.

Earnings per share attributable to Common Stock for the three and six months
ended June 30, 1999 reflect the performance of Consumers Gas Group. The
allocation of earnings attributable to each class of Common Stock and the
related amounts per share are computed by considering the weighted average
number of shares outstanding.

Earnings attributable to the Outstanding Shares are equal to Consumers Gas
Group net income multiplied by a fraction; the numerator is the weighted
average number of Outstanding Shares during the period and the denominator is
the weighted average number of Outstanding Shares and authorized but unissued
shares of Class G Common Stock not held by holders of the Outstanding Shares
during the period.

CMS-36



---



Computation of EPS:

|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |    |       |      | 
|--------------------------------------------------------------- | ----------------------------------- | -------------------------------------------------- | ----------------- | - | -------------- | --- | -------------- | - | ----- | ------------------------------------- | ---- | - | ----- | ---- | --- | -- | ----- | ---- | 
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       | In Millions, Except Per Share Amounts
|                                                                |                                     |                                                    |                   |   |               
|                                                                |                                     |                                                    |                   |   | Three Months   |     | Six Months    
|                                                                |                                     |                                                    |                   |   | Ended June 30, |     | Ended June 30,
|                                                                |                                     |                                                    |                   |   |                |     |               
|                                                                |                                     |                                                    |                   |   | 2000           |     | 1999           |   | 2000  |                                       | 1999
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |     
|Net Income Applicable to Basic and Diluted EPS                 
|                                                               
|                                                               
|                                                               
|                                                               
|Consolidated Net Income                                         |                                     | $                                                  | 81                |   |                | $   | 75             |   |       | $                                     | 161  |   |       | $    | 173 |   
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|Net Income Attributable to Common Stocks:                      
|                                                               
|                                                               
|                                                               
|                                                               
|CMS Energy  Basic EPS                                          |                                     | $                                                  | 81                |   |                |     | 74             |   |       |                                       | 161  |   |       |      | 162 |   
|                                                               
|                                                               
|                                                               
|                                                               
|Add conversion of 7.75% Trust
Preferred Securities (net of tax) |                                     |                                                    | 2                 |   |                |     | 2              |   |       |                                       | 4    |   |       |      | 4   |   
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|CMS Energy  Diluted EPS                                        |                                     | $                                                  | 83                |   |                | $   | 76             |   |       | $                                     | 165  |   |       | $    | 166 |   
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|Class G:                                                       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Basic and Diluted EPS               |                                                    | $                 |  | (a)            |     | $              | 1 |       |                                       | $    |  | (a)   |      | $   | 11 |      
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|Average Common Shares Outstanding                              
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Applicable to Basic and Diluted EPS
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | CMS Energy:                        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     | Average Shares  Basic                             |                   |   | 110.1          |     |                |   | 108.7 |                                       |      |   | 111.8 |      |     |    | 108.5 |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     | Add conversion of 7.75% Trust
Preferred Securities |                   |   | 4.2            |     |                |   | 4.2   |                                       |      |   | 4.2   |      |     |    | 4.2   |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     | Options-Treasury Shares                            |                   |   | .1             |     |                |   | .4    |                                       |      |   | .1    |      |     |    | .4    |     
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|                                                                |                                     | Average Shares  Diluted                           |                   |   | 114.4          |     |                |   | 113.3 |                                       |      |   | 116.1 |      |     |    | 113.1 |     
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|                                                                | Class G:                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     | Average Shares
Basic and Diluted                   |                   |   |               | (a) |                |   | 8.6   |                                       |      |   |      | (a)  |     |    | 8.5   |     
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   
|Earnings Per Average Common Share                              
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | CMS Energy:                        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     |                                                    | Basic             |   | $              | .73 |                |   | $     | .68                                   |      |   | $     | 1.44 |     |    | $     | 1.50 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     |                                                    | Diluted           |   | $              | .72 |                |   | $     | .67                                   |      |   | $     | 1.42 |     |    | $     | 1.48 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Class G:                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                     |                                                    | Basic and Diluted |   | $              |    | (a)            |   | $     | .10                                   |      |   | $     |     | (a) |    | $     | 1.28 | 
|                                                                |                                     |                                                    |                   |   |                |     |                |   |       |                                       |      |   |       |      |     |   



---

|(a) |  | All of the outstanding shares of Class G Common Stock were exchanged for
CMS Energy Common Stock on October 25, 1999.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

In February and May 2000, CMS Energy paid dividends of $.365 per share on CMS
Energy Common Stock. In July 2000, the Board of Directors declared a quarterly
dividend of $.365 per share on CMS Energy Common Stock, payable in August 2000.

CMS-37



---



5: Risk Management Activities and Derivatives Transactions

CMS Energy and its subsidiaries use a variety of derivative instruments
(derivatives), including futures contracts, swaps, options and forward
contracts, to manage exposure to fluctuations in commodity prices, interest
rates and foreign exchange rates. To qualify for hedge accounting, derivatives
must meet the following criteria: i) the item to be hedged exposes the
enterprise to price, interest or exchange rate risk; and ii) the derivative
reduces that exposure and is designated as a hedge.

Derivative instruments contain credit risk if the counterparties, including
financial institutions and energy marketers, fail to perform under the
agreements. CMS Energy minimizes such risk by performing financial credit
reviews using, among other things, publicly available credit ratings of such
counterparties. Nonperformance by counterparties is not expected to have a
material adverse impact on CMS Energys financial position, liquidity, or
results of operations.

Commodity Price Hedges:CMS Energy engages in both energy trading and
non-trading activities as defined by EITF 98-10, Accounting for Energy Trading
and Risk Management Activities. CMS Energy accounts for its non-trading
commodity price derivatives as hedges and, as such, defers any changes in
market value and gains and losses resulting from settlements until the hedged
transaction is complete. If there was a material lack of correlation between
the changes in the market value of the commodity price contracts and the market
price ultimately received for the hedged item, open commodity price contracts
would be marked-to-market and gains and losses would be recognized in the
income statement currently.
Consumers enters into electric option contracts to ensure a reliable source of
capacity to meet its customers electric requirements and to limit its risk
associated with electricity price increases. It is managements intent to take
physical delivery of the commodity. Consumers continuously evaluates its daily
capacity needs and sells the option contracts, if marketable, when it has
excess daily capacity. Consumers maximum exposure associated with these
options is limited to the price paid.

A CMS Energy subsidiary has a swap agreement which fixes the prices that it
will pay for gas sold to the MCV Facility for the years 2001 through 2006. The
subsidiary pays fixed prices and receives floating prices under the agreement.
The settlement periods are each a one-year period ending December 31, 2001
through 2006 on 3.65 million MMBtu. At June 30, 2000, the agreement has been
classified as a trading activity and correspondingly, has been
marked-to-market.

Interest Rate Hedges:CMS Energy and some of its subsidiaries enter into
interest rate swap agreements to exchange variable rate interest payment
obligations to fixed rate obligations without exchanging the underlying
notional amounts. These agreements convert variable rate debt to fixed rate
debt to reduce the impact of interest rate fluctuations. The notional amounts
parallel the underlying debt levels and are used to measure interest to be paid
or received and do not re
present the exposure to credit loss. The notional
amount of CMS Energys and its subsidiaries interest rate swaps was $1.9
billion at June 30, 2000. The difference between the amounts paid and received
under the swaps is accrued and recorded as an adjustment to interest expense
over the life of the hedged agreement.

CMS-38



---



Foreign Exchange Hedges:CMS Energy uses forward exchange and option contracts
to hedge certain receivables, payables, long-term debt and equity value
relating to foreign investments. The purpose of CMS Energys foreign currency
hedging activities is to protect the company from the risk that U.S. dollar net
cash flows resulting from sales to foreign customers and purchases from foreign
suppliers and the repayment of non-U.S. dollar borrowings as well as equity
reported on the companys balance sheet, may be adversely affected by changes
in exchange rates. These contracts do not subject CMS Energy to risk from
exchange rate movements because gains and losses on such contracts offset
losses and gains, respectively, on assets and liabilities being hedged. The
notional amount of the outstanding foreign exchange contracts was $370 million
at June 30, 2000, which includes $25 million, $150 million and $195 million for
Australian, Brazilian and Argentine foreign exchange contracts, respectively.
The estimated fair value of the foreign exchange and option contracts at June
30, 2000 was $18 million, representing the amount CMS Energy would pay upon
settlement.

6: Reportable Segments

CMS Energy operates principally in the following six reportable segments:
electric utility; gas utility; independent power production; oil and gas
exploration and production; natural gas transmission, storage and processing;
and energy marketing, services and trading.

The electric utility segment consists of regulated activities associated with
the generation, transmission and distribution of electricity in the state of
Michigan. The gas utility segment consists of regulated activities associated
with the transportation, storage and distribution of natural gas in the state
of Michigan. The other reportable segments consist of the development and
management of electric, gas and other energy-related projects in the United
States and internationally, including energy trading and marketing. CMS
Energys reportable segments are strategic business units organized and managed
by the nature of the products and services each provides. The accounting
policies of each reportable segment are the same as those described in the
summary of significant accounting policies. CMS Energys management evaluates
performance based on pretax operating income. Intersegment sales and transfers
are accounted for at current market prices and are eliminated in consolidated
pretax operating income by segment.

The Consolidated Statements of Income show operating revenue and pretax
operating income by reportable segment. Revenues from an international energy
distribution business and a land development business fall below the
quantitative thresholds for reporting. Neither of these segments has ever met
any of the quantitative thresholds for determining reportable segments.

CMS-39



---



Report of Independent Public Accountants

To CMS Energy Corporation:

We have reviewed the accompanying consolidated balance sheets of CMS ENERGY
CORPORATION (a Michigan corporation) and subsidiaries as of June 30, 2000 and
1999, the related consolidated statements of income and common stockholders
equity for the three-month and six-month periods then ended and the related
consolidated statements of cash flows for the six-month periods then ended.
These financial statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of CMS Energy
Corporation and subsidiaries as of December 31, 1999, and, in our report dated
February 4, 2000, we expressed an unqualified opinion on that statement. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

/s/ Arthur Andersen LLP

Detroit, Michigan,
   July 28, 2000.

CMS-40



---



Consumers Energy Company
Managements Discussion and Analysis

Consumers is a combination electric and gas utility company serving the Lower
Peninsula of Michigan and is a subsidiary of CMS Energy, a holding company.
Consumers customer base includes a mix of residential, commercial and
diversified industrial customers, the largest segment of which is the
automotive industry.

The MD&A of this Form 10-Q should be read along with the MD&A and other parts
of Consumers 1999 Form 10-K. This MD&A also refers to, and in some sections
specifically incorporates by reference, Consumers Condensed Notes to
Consolidated Financial Statements and should be read in conjunction with such
Statements and Notes.

This report and other written and oral statements made by Consumers from time
to time contain forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995. The words anticipates, believes,
estimates, expects, intends, and plans, and variations of such words
and similar expressions, are intended to identify forward-looking statements
that involve risk and uncertainty. These forward-looking statements are subject
to various factors that could cause Consumers actual results to differ
materially from those anticipated in such statements. Consumers disclaims any
obligation to update or revise forward-looking statements, whether from new
information, future events or otherwise. Consumers details certain risk
factors, uncertainties and assumptions in this MD&A and particularly in the
section entitled CMS Energy, Consumers and Panhandle Forward-Looking
Statements Cautionary Factors in Consumers 1999 Form 10-K Item 1 and
periodically in various public filings it makes with the SEC. This discussion
of potential risks and uncertainties is by no means complete, but is designed
to highlight important factors that may impact Consumers outlook. This report
also describes material contingencies in Consumers Condensed Notes to
Consolidated Financial Statements and readers are encouraged to read such
Notes.

Results of Operations

Consumers Consolidated Earnings

|                   |  |      |     |      |  |        |     |  |  |             |     |  
|------------------ |  | ---- | --- | ---- |  | ------ | --- |  |  | ----------- | --- | -
|                   |  |      |     |      |  |        |     |  |  | In Millions
|                   |  |      |     |      |  |        |     |  |  |            
|June 30            |  | 2000 |     | 1999 |  | Change
|                   |  |      |     |      |  |       
|Three months ended |  | $    | 24  |      |  | $      | 68  |  |  | $           | (44 | )
|                  
|                  
|                  
|                  
|Six months ended   |  |      | 109 |      |  |        | 177 |  |  |             | (68 | )
|                   |  |      |     |      |  |        |     |  |  |             |     |  

Net income available to the common stockholder decreased $44 million from the
1999 level for the three months ended June 30, 2000. The earnings decrease was
primarily due to lower gas and electric revenues and higher gas commodity costs
and higher electric power costs not all of which are being collected in
customer rates. The earnings decrease primarily reflects the establishment of
a $45 million regulatory obligation related to the impact of sharply higher gas
prices above the frozen gas customer rate. In addition, earnings decreased by
$5 million due to the state of Michigan passing legislation codifying electric
customer choice which required an immediate five percent electric rate
reduction for residential customers, while commercial and industrial rates
remain unchanged. Net income for the six months ended June 30, 2000 decreased
$68 million from the comparable period in 1999 also as the result of
increased gas costs referenced above. The earnings decrease was also due to
lower gas deliveries, higher electric power costs, and the required electric
rate reduction totaling $5 million resulting from the customer choice
legislation enacted in Michigan, partially offset by increased electric sales
to customers. For further information, see the Electric and Gas Utility
Results of Operations sections and Note 2, Uncertainties.

CE-1



---



ELECTRIC UTILITY RESULTS OF OPERATIONS

Electric Pretax Operating Income:

|                   |  |      |     |      |  |        |     |  |  |             |     |  
|------------------ |  | ---- | --- | ---- |  | ------ | --- |  |  | ----------- | --- | -
|                   |  |      |     |      |  |        |     |  |  | In Millions
|                   |  |      |     |      |  |        |     |  |  |            
|June 30            |  | 2000 |     | 1999 |  | Change
|                   |  |      |     |      |  |       
|Three months ended |  | $    | 109 |      |  | $      | 122 |  |  | $           | (13 | )
|                  
|                  
|                  
|                  
|Six months ended   |  |      | 224 |      |  |        | 256 |  |  |             | (32 | )
|                   |  |      |     |      |  |        |     |  |  |             |     |  

For the three months ended June 30, 2000, electric pretax operating income
decreased $13 million from the comparable period in 1999. The earnings decrease
reflects increased power costs not totally recoverable from customers, the 5
percent residential customer rate reduction resulting from the
Customer Choice and Electricity Reliability Act, and increased operating expenses. For the six
months ended June 30, 2000, electric pretax operating income decreased $32
million from the comparable period in 1999. The earnings decrease also reflects
the increased cost of purchased power and the impact of the electric rate
reduction partially offset by increased electric sales to customers. Due to
changes in regulation, since 1998 differences in power supply costs now impact
Consumers earnings. In the past, such cost changes did not impact electric
pretax operating income because Consumers passed the cost of electric power on
to electric customers. During the current year, Consumers needed additional
purchased electric power to meet customer requirements due to scheduled and
unscheduled outages at Consumers internal generators. The following table
quantifies these impacts on pretax operating income:

|                                       |  |               |     |               |  |             |     |  
|-------------------------------------- |  | ------------- | --- | ------------- |  | ----------- | --- | -
|                                       |  |               |     |               |  | In Millions
|                                       |  |               |     |               |  |            
|                                       |  | Three Months  |     | Six Months   
|                                       |  | Ended June 30 |     | Ended June 30
|                                       |  |               |     |              
|Change Compared to Prior Year          |  | 2000 vs 1999  |     | 2000 vs 1999 
|                                       |  |               |     |              
|Electric deliveries                    |  | $             | 4   |               |  | $           | 12  |  
|                                      
|                                      
|                                      
|                                      
|Power supply costs and related revenue |  |               | (3  | )             |  |             | (25 | )
|                                      
|                                      
|                                      
|                                      
|Rate decrease                          |  |               | (5  | )             |  |             | (5  | )
|                                      
|                                      
|                                      
|                                      
|Non-commodity revenue                  |  |               | (2  | )             |  |             | (5  | )
|                                      
|                                      
|                                      
|                                      
|Operation and maintenance expense      |  |               | (8  | )             |  |             | (8  | )
|                                      
|                                      
|                                      
|                                      
|General taxes and depreciation expense |  |               | 1   |               |  |             | (1  | )
|                                       |  |               |     |               |  |             |     |  
|Total change                           |  | $             | (13 | )             |  | $           | (32 | )
|                                       |  |               |     |               |  |             |     |  

Electric Deliveries:Electric deliveries were 10.1 billion kWh for the three
months ended June 30, 2000, essentially unchanged from the second quarter of
1999. Electric deliveries were 19.8 billion kWh for the six months ended June
30, 2000, a slight decrease from the corresponding 1999 period. Total electric
deliveries decreased due to lower intersystem sales, less usage by industrial
customers, and lower residential space heating.

CE-2



---



Power Supply Costs:

|                   |  |      |     |      |  |             |     |  |  |   |    | 
|------------------ |  | ---- | --- | ---- |  | ----------- | --- |  |  | - | -- | 
|                   |  |      |     |      |  | In Millions
|                   |  |      |     |      |  |            
|June 30            |  | 2000 |     | 1999 |  | Change     
|                   |  |      |     |      |  |            
|Three months ended |  | $    | 294 |      |  | $           | 293 |  |  | $ | 1  | 
|                  
|                  
|                  
|                  
|Six months ended   |  |      | 594 |      |  |             | 571 |  |  |   | 23 | 
|                   |  |      |     |      |  |             |     |  |  |   |    | 

Power supply costs were essentially unchanged for the three month ended June
30, 2000 from the comparable period in 1999 but increased for the six month
period, primarily due to higher interchange power costs. Consumers had to
purchase more external power because internal generation decreased due to
scheduled and unscheduled outages.

GAS UTILITY RESULTS OF OPERATIONS

Gas Pretax Operating Income:

|                   |  |      |     |      |  |        |    |  |  |             |     |  
|------------------ |  | ---- | --- | ---- |  | ------ | -- |  |  | ----------- | --- | -
|                   |  |      |     |      |  |        |    |  |  | In Millions
|                   |  |      |     |      |  |        |    |  |  |            
|June 30            |  | 2000 |     | 1999 |  | Change
|                   |  |      |     |      |  |       
|Three months ended |  | $    | (28 | )    |  | $      | 16 |  |  | $           | (44 | )
|                  
|                  
|                  
|                  
|Six months ended   |  | $    | 35  |      |  | $      | 94 |  |  | $           | (59 | )
|                   |  |      |     |      |  |        |    |  |  |             |     |  

Gas pretax operating income decreased in the three months ended June 30, 2000
by $44 million. The earnings decrease primarily reflects sharply higher gas
prices in 2000 and the establishment of a $45 million regulatory obligation
related to the higher prices above the frozen gas customer rate. These
decreases are partially offset by higher gas deliveries due to cooler
temperatures in the three months ended June 30, 2000. Gas pretax operating
income decreased in the six months ended June 30, 2000 by $59 million. The
earnings decrease primarily reflects decreased gas deliveries in the six months
ended June 30, 2000 due to warmer temperatures during the heating season and
the higher gas prices purchased for the next heating season as described for
the three month period. Due to a temporary change in regulation, differences
in gas costs directly impact Consumers earnings. This change in regulation
relates to the gas industry restructuring initiatives, which provide Consumers
the opportunity to temporarily benefit or lose from changes in commodity gas
prices. See Note 2, Uncertainties, Gas Rate Matters  Gas Restructuring, for
more detailed information on this matter. The following table quantifies these
impacts on Pretax Operating Income.

|                                        |  |               |     |               |  |             |     |  
|--------------------------------------- |  | ------------- | --- | ------------- |  | ----------- | --- | -
|                                        |  |               |     |               |  | In Millions
|                                        |  |               |     |               |  |            
|                                        |  | Three Months  |     | Six Months   
|                                        |  | Ended June 30 |     | Ended June 30
|                                        |  |               |     |              
|Change Compared to Prior Year           |  | 2000 vs 1999  |     | 2000 vs 1999 
|                                        |  |               |     |              
|Gas deliveries                          |  | $             | 4   |               |  | $           | (6  | )
|                                       
|                                       
|                                       
|                                       
|Gas commodity costs and related revenue |  |               | (50 | )             |  |             | (61 | )
|                                       
|                                       
|                                       
|                                       
|Gas wholesale and retail services       |  |               | 2   |               |  |             | 4   |  
|                                       
|                                       
|                                       
|                                       
|Operation and maintenance expense       |  |               | 1   |               |  |             | 3   |  
|                                       
|                                       
|                                       
|                                       
|General taxes and depreciation expense  |  |               | (1  | )             |  |             | 1   |  
|                                        |  |               |     |               |  |             |     |  
|Total change                            |  | $             | (44 | )             |  | $           | (59 | )
|                                        |  |               |     |               |  |             |     |  

Gas Deliveries:Gas system deliveries for the three months ended June 30, 2000,
including miscellaneous transportation totaled 66 bcf, an increase of 4 bcf or
6 percent compared with 1999. The increased deliveries

CE-3



---



reflect cooler temperatures during the second quarter of 2000. Gas system deliveries for the
six months ended

June 30, 2000, including miscellaneous transportation totaled 227 bcf, a
decrease of 1 bcf or .5 percent compared with 1999.

Cost of Gas Sold:

|                   |  |      |     |      |  |        |     |  |  |             |    | 
|------------------ |  | ---- | --- | ---- |  | ------ | --- |  |  | ----------- | -- | 
|                   |  |      |     |      |  |        |     |  |  | In Millions
|                   |  |      |     |      |  |        |     |  |  |            
|June 30            |  | 2000 |     | 1999 |  | Change
|                   |  |      |     |      |  |       
|Three months ended |  | $    | 95  |      |  | $      | 78  |  |  | $           | 17 | 
|                  
|                  
|                  
|                  
|Six months ended   |  | $    | 390 |      |  | $      | 384 |  |  | $           | 6  | 
|                   |  |      |     |      |  |        |     |  |  |             |    | 

The cost of gas sold increased for the three months ended June 30, 2000 due to
higher gas prices and increased gas deliveries due to cooler than normal
temperature. Higher gas prices also impacted the cost of gas sold for the six
months ended June 30, 2000. These higher gas costs were partially offset by
decreased sales from warmer than normal temperatures during the first quarter
of 2000.

Capital Resources and Liquidity

CASH POSITION, INVESTING AND FINANCING

Operating Activities:Consumers derives cash from operating activities from
the sale and transportation of natural gas and from the generation,
transmission, distribution and sale of electricity. Cash from operations
totaled $367 million and $460 million for the first six months of 2000 and
1999, respectively. The $93 million decrease was primarily due to lower gas and
electric revenues, and higher gas commodity and electric power costs as
discussed in the results of operations. Included in net income but which had
no effect on cash flow was the recognition of a $45 million regulatory
obligation ($30 million after tax) related to the impact of sharply higher gas
prices above the frozen gas customer rate. The decrease in cash was also
affected by other temporary changes in working capital items due to timing of
cash receipts and payments. Consumers primarily uses cash derived from
operating activities to maintain and expand electric and gas systems, to retire
portions of long-term debt, and to pay dividends.

Investing Activities:Cash used for investing activities totaled $293 million
and $238 million for the first six months of 2000 and 1999, respectively. The
change of $55 million is primarily the result of a $41 million increase in
capital expenditures and the absence of $7 million of proceeds from the FMLP.

Financing Activities:Cash used in financing activities totaled $82 million
and $218 million for the first six months of 2000 and 1999, respectively. The
change of $136 million is primarily the result of the absence of $200 million
retirement of preferred stock and the absence of $150 million contribution from
Consumers common stockholder. The change was also affected by a $65 million
reduction in the payment of common stock dividends.

Other Investing and Financing Matters:Consumers has credit facilities, lines
of credit and a trade receivable sale program in place as anticipated sources
of funds to fulfill its currently expected capital expenditures. For detailed
information about these sources of funds, see Note 3, Short-Term Financing and
Capitalization.

CE-4



---



Outlook

CAPITAL EXPENDITURES OUTLOOK

Consumers estimates the following capital expenditures, including new lease
commitments, by expenditure type and by business segments over the next three
years. These estimates are prepared for planning purposes and are subject to
revision.

|                                       |  |      |     |      |  |      |     |  |  |             |     | 
|-------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | ----------- | --- | 
|                                       |  |      |     |      |  |      |     |  |  | In Millions
|                                       |  |      |     |      |  |      |     |  |  |            
|Years Ended December 31                |  | 2000 |     | 2001 |  | 2002
|                                       |  |      |     |      |  |     
|Construction                           |  | $    | 528 |      |  | $    | 669 |  |  | $           | 639 | 
|                                      
|                                      
|                                      
|                                      
|Nuclear fuel lease                     |  |      | 3   |      |  |      | 26  |  |  |             | 26  | 
|                                      
|                                      
|                                      
|                                      
|Capital leases other than nuclear fuel |  |      | 24  |      |  |      | 25  |  |  |             | 25  | 
|                                       |  |      |     |      |  |      |     |  |  |             |     | 
|                                       |  | $    | 555 |      |  | $    | 720 |  |  | $           | 690 | 
|                                       |  |      |     |      |  |      |     |  |  |             |     | 
|Electric utility operations (a)(b)     |  | $    | 438 |      |  | $    | 580 |  |  | $           | 545 | 
|                                      
|                                      
|                                      
|                                      
|Gas utility operations (a)             |  |      | 117 |      |  |      | 140 |  |  |             | 145 | 
|                                       |  |      |     |      |  |      |     |  |  |             |     | 
|                                       |  | $    | 555 |      |  | $    | 720 |  |  | $           | 690 | 
|                                       |  |      |     |      |  |      |     |  |  |             |     | 



---

|(a) |  | These amounts include an attributed portion of Consumers anticipated
capital expenditures for plant and equipment common to both the electric and
gas utility businesses.                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | These amounts include estimates for capital expenditures possibly required
for compliance with recently revised national air quality standards under the
Clean Air Act. For further information see Note 2, Uncertainties.

ELECTRIC BUSINESS OUTLOOK

Growth:Consumers expects average annual growth of approximately two and one
half percent per year in electric system deliveries for the years 2000 to 2005
based on a steadily growing customer base. This growth rate does not take into
account the possible impact on the industry of restructuring or changing
regulation. Abnormal weather, changing economic conditions or the developing
competitive market for electricity may affect actual electric deliveries by
Consumers in future periods.

Competition and Regulatory Restructuring:Generally, electric restructuring is
the regulatory and legislative attempt to introduce competition to the electric
industry by allowing customers to choose their electric generation supplier.
Competition affects, and will continue to affect, Consumers retail electric
business. To remain competitive, Consumers has multi-year electric supply
contracts with some of its largest industrial customers to provide power to
some of their facilities. The MPSC approved these contracts as part of its
phased introduction to competition. During the period from 2000
through 2005, depending on future business and regulatory
circumstances, these contracts can be terminated or restructured.
These contracts involve approximately 600 MW of customer power supply
requirements. The ultimate financial impact of changes related to these power
supply contracts is not known at this time.

CE-5



---



As a result of a transition of the wholesale and retail electric businesses in
Michigan to competition, Detroit Edison, in December 1996, gave Consumers the
required four-year notice of its intent to terminate the current agreements
under which the companies jointly operate the MEPCC. At the same time, Detroit
Edison filed with the FERC seeking early termination of the agreements. The
FERC has not acted on Detroit Edisons application. Detroit Edison and
Consumers are currently in negotiations to terminate or restructure the MEPCC
operations. Consumers is unable to predict the outcome of these negotiations,
but does not anticipate any adverse impacts
caused by termination or restructuring of the MEPCC.

Since 1997, there have been repeated efforts made in the Michigan Legislature
to enact electric restructuring legislation. On June 3, 2000, these efforts
resulted in the passage of the Customer Choice and Electricity Reliability
Act, which became effective June 5, 2000.

Uncertainty exists with respect to the enactment of federal legislation
restructuring the electric power industry. A variety of bills introduced in
Congress in recent years seek to change existing federal regulation of the
industry. These federal bills could potentially affect or supercede state
regulation; however, none have been enacted. Consumers cannot predict the
outcome of electric restructuring on its financial position, liquidity, or
results of operations.

Rate Matters:Prior to June 5, 2000 there were several pending rate issues
that could have affected Consumers electric business. As a result of the
passage of the Customer Choice and Electricity Reliability Act, certain MPSC
rate proceedings and a complaint by ABATE seeking a reduction in rates have
been dismissed.

For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, and Note 2, Uncertainties,
Electric Rate Matters  Electric Restructuring and Electric Rate Matters 
Electric Proceedings, incorporated by reference herein.

Uncertainties:Several electric business trends or uncertainties may affect
Consumers financial results and condition. These trends or uncertainties
have, or Consumers reasonably expects could have, a material impact on net
sales, revenues, or income from continuing electric operations. Such trends
and uncertainties include: 1) capital expenditures for compliance with the
Clean Air Act; 2) environmental liabilities arising from compliance with
various federal, state and local environmental laws and regulations, including
potential liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Act and Superfund; 3) electric industry restructuring,
including the ability to offset the 5 percent reduction in residential rates
with savings from Securitization and the ability to recover Stranded Costs; 4)
the ability to meet peak electric demand loads at a reasonable cost and without
market disruption and initiatives undertaken to reduce exposure to energy price
increases; and 5) ongoing issues relating to the storage of spent nuclear fuel
and the operating life of Palisades. For detailed information about these
trends or uncertainties, see Note 2, Uncertainties, incorporated by reference
herein.

GAS BUSINESS OUTLOOK

Growth:Consumers currently anticipates gas deliveries, including gas customer
choice deliveries (excluding transportation to the MCV Facility and off-system
deliveries), to grow at an average annual rate of between one and two percent
over the next five years based primarily on a steadily growing customer base.
Actual gas deliveries in future periods may be affected by abnormal weather,
alternative energy prices, changes in competitive conditions, and the level of
natural gas consumption per customer.

CE-6



---



Gas Restructuring:In December 1997, the MPSC approved Consumers application
to implement, effective April 1, 1998, a gas customer choice pilot program that
was designed to encourage Consumers to minimize its purchased natural gas
commodity costs while providing rate stability for its customers. The program
allows 300,000 residential, commercial and industrial retail gas sales
customers to choose an alternative gas commodity supplier in direct competition
with Consumers. Unless some other arrangements are made, when this pilot
program ends on March 31, 2001, these customers will again become Consumers
gas commodity customers. The program is voluntary and participating natural
gas customers are selected on a first-come, first-served basis, up to a limit
of 100,000 per year. As of June 30, 2000, more than 160,000 customers chose
alternative gas suppliers, representing approximately 11 bcf of gas load.
Customers choosing to remain as sales customers of Consumers will not see a
rate change in their gas rates. This three-year program: 1) freezes gas
distribution rates through March 31, 2001, establishing a delivered gas
commodity cost at a fixed rate of $2.84 per mcf; 2) establishes an earnings
sharing mechanism with customers if Consumers earnings exceed certain
pre-determined levels; and 3) establishes a gas transportation code of conduct
that addresses the relationship between Consumers and marketers, including its
affiliated marketers. In December 1999, the Court of Appeals affirmed in its
entirety the December 1997 MPSC order. The Attorney General filed with the
Michigan Supreme Court an application for leave to appeal the Court of Appeals
decision. Subsequent to June 30, 2000, the MPSC issued an order directing
Consumers and certain other Michigan gas utilities to undertake a collaborative
process, including public meetings with MPSC staff and other interested parties
during August and September 2000, for the purpose of developing uniform terms
and conditions for the future provision of gas customer choice to all Michigan
customers.

During the first two years of the pilot program, Consumers realized a benefit
of $45 million as delivered gas commodity prices were below the $2.84 per mcf
level collected from customers. Recent significant increases in gas prices
have exposed Consumers to gas commodity losses during the last year of the
program that ends March 31, 2001. Estimated loss of earnings for this last
year of the program could range from $45 million to $135 million, of which
Consumers has already recognized $45 million in the second quarter 2000 as a
regulatory obligation. Under the provisions of the pilot program, Consumers
has the right to request termination of the program at any time and to return
to a GCR mechanism, pursuant to which the customer gas commodity prices would
increase significantly from the current frozen rate. As an alternative to
exercising that right, Consumers is considering an approach that, if approved
by the MPSC, would potentially avoid further losses any greater than the $45
million already recognized and mitigate the customer rate increases that would
otherwise result. It is expected that such an approach could be implemented
this fall.

In December 1999, several bills related to gas industry restructuring were
introduced into the Michigan Legislature. Combined, these bills constitute the
gas choice program. Consumers is participating in the legislative process
involving these bills. They provide for 1) a phased-in approach to gas choice
requiring 40 percent of the customers to be allowed choice by April 2002, 60
percent by April 2003 and all customers by April 2004; 2) a market-based,
unregulated pricing mechanism for gas commodity for customers who exercise
choice; and 3) a new safe haven pricing mechanism for customers who do not
exercise choice under which NYMEX pricing would be used to establish a
statutory cap on gas commodity prices that could be charged by gas utilities
instead of traditional cost of service regulation. The proposed bills also
provide for a gas distribution service rate freeze until December 31, 2005, a
code of conduct governing business relationships with affiliated gas suppliers
and the MPSC licensing of all gas suppliers doing business in Michigan and
imposes financial penalties for noncompliance. They also provide customer
protection by preventing slamming, the switching of a customers gas supplier
without consent, and cramming, the inclusion of optional products and
services without the customers authorization. The bills establishing the gas
choice program have become the subject of extensive legislative hearings during
which there will undoubtedly be various amendments offered by many parties,
including the gas utility coalition. Consumers cannot predict the timing or
outcome of this legislative process.

CE-7



---



Uncertainties:Consumers financial results and position may be affected by a
number of trends or uncertainties that have, or Consumers reasonably expects
could have, a material impact on net sales or revenues or income
from continuing gas operations. Such trends and uncertainties include: 1)
potential environmental costs at a number of sites, including sites formerly
housing manufactured gas plant facilities; 2) a statewide experimental gas
industry restructuring program; 3) permanent gas industry restructuring; and 4)
implementation of a suspended GCR and the success or failure of initiatives
undertaken to protect against gas commodity price increases.

OTHER OUTLOOK

The Union represents Consumers operating, maintenance and construction
employees. Consumers and the Union negotiated a new collective bargaining
agreement that became effective as of June 1, 2000. By its terms, that
agreement will continue in full force and effect until June 1, 2005. Consumers
is evaluating the financial effect of changes in the agreement.

Consumers offers a variety of energy-related services to electric and gas
customers focused upon appliance maintenance, home safety, commodity choice and
assistance to customers purchasing heating, ventilation and air conditioning
equipment. Consumers continues to look for additional growth opportunities in
energy-related services for Consumers customers.

Other Matters

NEW ACCOUNTING STANDARDS

In 1999, the FASB issued SFAS 137, Accounting for Derivative Instruments and
Hedging Activities  Deferral of the Effective Date of FASB Statement No. 133.
In June 2000, the FASB also issued SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities an amendment of FASB Statement No.
133.SFAS 137 defers the effective date of SFAS 133, Accounting for Derivative
Instruments and Hedging Activitiesto January 1, 2001, and SFAS 138 clarifies
certain issues pertaining to SFAS 133. Consumers will adopt SFAS 133 on January
1, 2001 and is currently analyzing the effects of adoption on its financial
statements.

DERIVATIVES AND HEDGES

Market Risk Information:Consumers exposure to market risk sensitive
instruments and positions include, but are not limited to, changes in interest
rates, debt prices and equity prices in which Consumers holds less than a 20
percent interest. In accordance with the SECs disclosure requirements,
Consumers performed a 10 percent sensitivity analysis on its derivative and
non-derivative financial instruments. The analysis measures the change in the
net present values based on a hypothetical 10 percent adverse change in the
market rates to determine the potential loss in fair values, cash flows and
earnings. Losses in excess of the amounts determined could occur if market
rates or prices exceed the 10 percent change used for the analysis. Management
does not believe that a sensitivity analysis alone provides an accurate or
reliable method for monitoring and controlling risk. Therefore, Consumers
relies on the experience and judgment of senior management to revise strategies
and adjust positions, as they deem necessary.

For purposes of the analysis below, Consumers has not quantified short-term
exposures to hypothetically adverse changes in the price or nominal amounts
associated with inventories or trade receivables and payables. Furthermore,
Consumers enters into all derivative financial instruments for purposes other
than trading. In the case of hedges, management believes that gains or losses
incurred on derivative instruments used as a hedge would be offset by the
opposite movement of the underlying hedged item.

CE-8



---



Equity Security Price Risk:Consumers has equity investments in companies in
which it holds less than a 20 percent interest in the entity. A hypothetical
10 percent adverse change in market price would result in a $9 million change
in its investment and equity since this equity instrument is currently
marked-to-market through equity. Consumers believes that such an adverse change would not have a
material effect on its consolidated financial position, results of operation or
cash flows.

Debt Price and Interest Rate Risk:Management uses a combination of fixed-rate
and variable-rate debt to reduce interest rate exposure. Interest rate swaps
and rate locks may be used to adjust exposure when deemed appropriate, based
upon market conditions. These strategies attempt to provide and maintain the
lowest cost of capital.

As of June 30, 2000, Consumers had outstanding $975 million of variable-rate
debt. Assuming a hypothetical 10 percent adverse change in market interest
rates, Consumers exposure to earnings is limited to $7 million. As of June
30, 2000, Consumers has outstanding long-term fixed-rate debt of $2.061 billion
with a fair value of $1.934 billion. Assuming a hypothetical 10 percent adverse
change in market rates, Consumers would have an exposure of $130 million to its
fair value if it had to refinance all of its long-term fixed-rate debt.
Consumers believes that any adverse change in debt price and interest rates
would not have a material effect on its consolidated financial position,
results of operation or cash flows.

CE-9



---



Consumers Energy Company
Consolidated Statements of Income
(Unaudited)

|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |     | 
|------------------------------------------ | ---------------------------------------- | --------------------------------- | --- | ------------------ | --- | ---------------- | --- | ---- | --- | - | ----- | ----- | --- | - | ----- | ----------- | --- | 
|                                           |                                          |                                   |     | Three Months Ended |     | Six Months Ended
|                                           |                                          |                                   |     |                    |     |                 
|June 30                                    |                                          | 2000                              |     | 1999               |     | 2000             |     | 1999
|                                           |                                          |                                   |     |                    |     |                  |     |     
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       | In
Millions
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |     | 
|Operating Revenue                         
|                                          
|                                          
|                                          
|                                          
|                                           | Electric                                 |                                   | $   | 647                |     |                  | $   | 663  |     |   | $     | 1,287 |     |   | $     | 1,299       |    
|                                          
|                                          
|                                          
|                                          
|                                           | Gas                                      |                                   |     | 148                |     |                  |     | 175  |     |   |       | 623   |     |   |       | 681         |    
|                                          
|                                          
|                                          
|                                          
|                                           | Other                                    |                                   |     | 13                 |     |                  |     | 12   |     |   |       | 24    |     |   |       | 27          |    
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|                                           |                                          |                                   | 808 |                    |     |                  | 850 |      |     |   | 1,934 |       |     |   | 2,007 |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |    
|Operating Expenses                        
|                                          
|                                          
|                                          
|                                          
|                                           | Operation                               
|                                          
|                                          
|                                          
|                                          
|                                           |                                          | Fuel for electric generation      |     |                    | 85  |                  |     |      | 88  |   |       |       | 146 |   |       |             | 164 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                          | Purchased power  related parties |     |                    | 143 |                  |     |      | 139 |   |       |       | 290 |   |       |             | 278 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                          | Purchased and interchange power   |     |                    | 66  |                  |     |      | 66  |   |       |       | 158 |   |       |             | 129 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                          | Cost of gas sold                  |     |                    | 95  |                  |     |      | 78  |   |       |       | 390 |   |       |             | 384 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                          | Other                             |     |                    | 146 |                  |     |      | 152 |   |       |       | 264 |   |       |             | 281 | 
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|                                           |                                          |                                   | 535 |                    |     |                  | 523 |      |     |   | 1,248 |       |     |   | 1,236 |            
|                                          
|                                          
|                                          
|                                          
|                                           | Maintenance                              |                                   |     | 44                 |     |                  |     | 41   |     |   |       | 92    |     |   |       | 79          |    
|                                          
|                                          
|                                          
|                                          
|                                           | Depreciation, depletion and amortization |                                   |     | 93                 |     |                  |     | 92   |     |   |       | 216   |     |   |       | 213         |    
|                                          
|                                          
|                                          
|                                          
|                                           | General taxes                            |                                   |     | 44                 |     |                  |     | 45   |     |   |       | 99    |     |   |       | 103         |    
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|                                           |                                          |                                   | 716 |                    |     |                  | 701 |      |     |   | 1,655 |       |     |   | 1,631 |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |    
|Pretax Operating Income                   
|                                          
|                                          
|                                          
|                                          
|                                           | Electric                                 |                                   |     | 109                |     |                  |     | 122  |     |   |       | 224   |     |   |       | 256         |    
|                                          
|                                          
|                                          
|                                          
|                                           | Gas                                      |                                   |     | (28                | )   |                  |     | 16   |     |   |       | 35    |     |   |       | 94          |    
|                                          
|                                          
|                                          
|                                          
|                                           | Other                                    |                                   |     | 11                 |     |                  |     | 11   |     |   |       | 20    |     |   |       | 26          |    
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|                                           |                                          |                                   | 92  |                    |     |                  | 149 |      |     |   | 279   |       |     |   | 376   |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |    
|Other Income (Deductions)                 
|                                          
|                                          
|                                          
|                                          
|                                           | Dividends and interest from affiliates   |                                   |     | 2                  |     |                  |     | 3    |     |   |       | 5     |     |   |       | 6           |    
|                                          
|                                          
|                                          
|                                          
|                                           | Accretion income                         |                                   |     | 1                  |     |                  |     | 1    |     |   |       | 1     |     |   |       | 2           |    
|                                          
|                                          
|                                          
|                                          
|                                           | Accretion expense                        |                                   |     | (2                 | )   |                  |     | (4   | )   |   |       | (4    | )   |   |       | (7          | )  
|                                          
|                                          
|                                          
|                                          
|                                           | Other, net                               |                                   |     | 1                  |     |                  |     | 7    |     |   |       | 3     |     |   |       | 8           |    
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|                                           |                                          |                                   | 2   |                    |     |                  | 7   |      |     |   | 5     |       |     |   | 9     |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |    
|Interest Charges                          
|                                          
|                                          
|                                          
|                                          
|                                           | Interest on long-term debt               |                                   |     | 35                 |     |                  |     | 35   |     |   |       | 69    |     |   |       | 70          |    
|                                          
|                                          
|                                          
|                                          
|                                           | Other interest                           |                                   |     | 10                 |     |                  |     | 9    |     |   |       | 18    |     |   |       | 17          |    
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|                                           |                                          |                                   | 45  |                    |     |                  | 44  |      |     |   | 87    |       |     |   | 87    |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |    
|Net Income Before Income Taxes             |                                          |                                   | 49  |                    |     |                  | 112 |      |     |   | 197   |       |     |   | 298   |            
|                                          
|                                          
|                                          
|                                          
|Income Taxes                               |                                          |                                   | 16  |                    |     |                  | 39  |      |     |   | 69    |       |     |   | 107   |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|Net Income                                 |                                          |                                   | 33  |                    |     |                  | 73  |      |     |   | 128   |       |     |   | 191   |            
|                                          
|                                          
|                                          
|                                          
|Preferred Stock Dividends                  |                                          |                                   |    |                    |     |                  |    |      |     |   | 1     |       |     |   | 5     |            
|                                          
|                                          
|                                          
|                                          
|Preferred Securities Distributions         |                                          |                                   | 9   |                    |     |                  | 5   |      |     |   | 18    |       |     |   | 9     |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |            
|Net Income Available to Common Stockholder |                                          | $                                 | 24  |                    |     | $                | 68  |      |     | $ | 109   |       |     | $ | 177   |            
|                                           |                                          |                                   |     |                    |     |                  |     |      |     |   |       |       |     |   |       |             |    

The accompanying condensed
notes are an integral part of these statements.

CE-10



---



Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)

|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |      |             |      |  
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---- | ---------------- | ---- | -- | ---- | ----------- | ---- | -
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      | Six Months Ended
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                 
|June 30                                                                          |                                                                   | 2000                                                                                                                                                                                              |                                                     | 1999
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |     
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |      | In
Millions
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |      |             |      |  
|Cash Flows from Operating Activities                                            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Net income                                                        |                                                                                                                                                                                                   | $                                                   | 128  |                  |      | $  | 191  |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   | Adjustments to reconcile net income to net cash
provided by operating activities
  Depreciation, depletion and amortization (includes nuclear
       decommissioning of $19 and $24 respectively) |                                                     |      | 216              |      |    |      | 213         |     
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Capital lease and other amortization                |      |                  | 15   |    |      |             | 20   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Accretion expense                                   |      |                  | 4    |    |      |             | 7    |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Accretion income  abandoned Midland project        |      |                  | (1   | )  |      |             | (2   | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Undistributed earnings of related parties           |      |                  | (21  | )  |      |             | (27  | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Deferred income taxes and investment tax credit     |      |                  | (22  | )  |      |             | 6    |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | MCV power purchases                                 |      |                  | (28  | )  |      |             | (28  | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Regulatory obligation  gas choice                  |      |                  | 45   |    |      |             |     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Changes in other assets and liabilities             |      |                  | 31   |    |      |             | 80   |  
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Net cash provided by operating activities           |      |                  | 367  |    |      |             | 460  |  
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|Cash Flows from Investing Activities                                            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Capital expenditures (excludes assets placed under capital lease) |                                                                                                                                                                                                   |                                                     | (233 | )                |      |    | (192 | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost to retire property, net                                      |                                                                                                                                                                                                   |                                                     | (45  | )                |      |    | (39  | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Investments in nuclear decommissioning trust funds                |                                                                                                                                                                                                   |                                                     | (19  | )                |      |    | (24  | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Investment in Electric Restructuring Implementation Plan          |                                                                                                                                                                                                   |                                                     | (13  | )                |      |    | (11  | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Proceeds from nuclear decommissioning trust funds                 |                                                                                                                                                                                                   |                                                     | 17   |                  |      |    | 21   |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Proceeds from FMLP                                                |                                                                                                                                                                                                   |                                                     |     |                  |      |    | 7    |            
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Net cash used in investing activities               |      |                  | (293 | )  |      |             | (238 | )
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|Cash Flows from Financing Activities                                            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Payment of common stock dividends                                 |                                                                                                                                                                                                   |                                                     | (109 | )                |      |    | (173 | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Preferred securities distributions                                |                                                                                                                                                                                                   |                                                     | (18  | )                |      |    | (9   | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Payment of capital lease obligations                              |                                                                                                                                                                                                   |                                                     | (14  | )                |      |    | (18  | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Payment of preferred stock dividends                              |                                                                                                                                                                                                   |                                                     | (1   | )                |      |    | (9   | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Retirement of bonds and other long-term debt                      |                                                                                                                                                                                                   |                                                     | (1   | )                |      |    | (23  | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Increase (decrease) in notes payable, net                         |                                                                                                                                                                                                   |                                                     | 61   |                  |      |    | 49   |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Retirement of preferred stock                                     |                                                                                                                                                                                                   |                                                     |     |                  |      |    | (200 | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Contribution from (return of equity to) stockholder               |                                                                                                                                                                                                   |                                                     |     |                  |      |    | 150  |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Proceeds from bank loans                                          |                                                                                                                                                                                                   |                                                     |     |                  |      |    | 15   |            
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|                                                                                 |                                                                   |                                                                                                                                                                                                   | Net cash provided by (used in) financing activities |      |                  | (82  | )  |      |             | (218 | )
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|Net Increase (Decrease) in Cash and Temporary Cash Investments                   |                                                                   |                                                                                                                                                                                                   | (8                                                  | )    |                  |      | 4  |     
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Cash and Temporary Cash Investments, Beginning of Period                         |                                                                   |                                                                                                                                                                                                   | 18                                                  |      |                  |      | 25 |     
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|Cash and Temporary Cash Investments, End of Period                               |                                                                   | $                                                                                                                                                                                                 | 10                                                  |      |                  | $    | 29 |     
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     
|Other cash flow activities and non-cash investing and financing activities were:
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Cash transactions                                                               
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest paid (net of amounts capitalized)                        |                                                                                                                                                                                                   | $                                                   | 78   |                  |      | $  | 82   |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Income taxes paid (net of refunds)                                |                                                                                                                                                                                                   |                                                     | 76   |                  |      |    | 95   |            
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Non-cash transactions                                                           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Nuclear fuel placed under capital lease                           |                                                                                                                                                                                                   | $                                                   | 3    |                  |      | $  | (2   | )          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other assets placed under capital leases                          |                                                                                                                                                                                                   |                                                     | 7    |                  |      |    | 7    |            
|                                                                                 |                                                                   |                                                                                                                                                                                                   |                                                     |      |                  |      |    |     

All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.

The accompanying condensed notes are an integral part of these
statements.

CE-11



---



Consumers Energy Company
Consolidated Balance Sheets

|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |             |     | 
|------------------------ | --------------------------------------------------------------------------------------- | --------------------------- | ----- | ----------- | --- | ----------- | ----- | ----------- | --- | - | ----- | ----------- | --- | 
|ASSETS                   |                                                                                         | June 30                     |       |             |     |             |       | June 30    
|                         |                                                                                         |                             |       | 2000        |     | December 31 |       | 1999       
|                         |                                                                                         |                             |       | (Unaudited) |     | 1999        |       | (Unaudited)
|                         |                                                                                         |                             |       |             |     |            
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       | In
Millions
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |             |     | 
|Plant (At original cost)
|                        
|                        
|                        
|                        
|                         | Electric                                                                                |                             | $     | 7,073       |     |             | $     | 6,981       |     |   | $     | 6,832       |    
|                        
|                        
|                        
|                        
|                         | Gas                                                                                     |                             |       | 2,497       |     |             |       | 2,461       |     |   |       | 2,394       |    
|                        
|                        
|                        
|                        
|                         | Other                                                                                   |                             |       | 25          |     |             |       | 25          |     |   |       | 25          |    
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|                         |                                                                                         |                             | 9,595 |             |     |             | 9,467 |             |     |   | 9,251 |            
|                        
|                        
|                        
|                        
|                         | Less accumulated depreciation, depletion and amortization                               |                             |       | 5,776       |     |             |       | 5,643       |     |   |       | 5,493       |    
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|                         |                                                                                         |                             | 3,819 |             |     |             | 3,824 |             |     |   | 3,758 |            
|                        
|                        
|                        
|                        
|                         | Construction work-in-progress                                                           |                             |       | 297         |     |             |       | 199         |     |   |       | 171         |    
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|                         |                                                                                         |                             | 4,116 |             |     |             | 4,023 |             |     |   | 3,929 |            
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|Investments             
|                        
|                        
|                        
|                        
|                         | Stock of affiliates                                                                     |                             |       | 111         |     |             |       | 139         |     |   |       | 222         |    
|                        
|                        
|                        
|                        
|                         | First Midland Limited Partnership                                                       |                             |       | 246         |     |             |       | 240         |     |   |       | 238         |    
|                        
|                        
|                        
|                        
|                         | Midland Cogeneration Venture Limited Partnership                                        |                             |       | 261         |     |             |       | 247         |     |   |       | 230         |    
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|                         |                                                                                         |                             | 618   |             |     |             | 626   |             |     |   | 690   |            
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|Current Assets          
|                        
|                        
|                        
|                        
|                         | Cash and temporary cash investments at cost, which approximates market                  |                             |       | 10          |     |             |       | 18          |     |   |       | 29          |    
|                        
|                        
|                        
|                        
|                         | Accounts receivable and accrued revenue, less allowances
of $3, $4 and $4, respectively |                             |       | 36          |     |             |       | 98          |     |   |       | 102         |    
|                        
|                        
|                        
|                        
|                         | Accounts receivable  related parties                                                   |                             |       | 70          |     |             |       | 67          |     |   |       | 59          |    
|                        
|                        
|                        
|                        
|                         | Inventories at average cost                                                            
|                        
|                        
|                        
|                        
|                         |                                                                                         | Gas in underground storage  |       |             | 153 |             |       |             | 216 |   |       |             | 166 | 
|                        
|                        
|                        
|                        
|                         |                                                                                         | Materials and supplies      |       |             | 64  |             |       |             | 62  |   |       |             | 51  | 
|                        
|                        
|                        
|                        
|                         |                                                                                         | Generating plant fuel stock |       |             | 48  |             |       |             | 46  |   |       |             | 32  | 
|                        
|                        
|                        
|                        
|                         | Postretirement benefits                                                                 |                             |       | 25          |     |             |       | 25          |     |   |       | 25          |    
|                        
|                        
|                        
|                        
|                         | Deferred income taxes                                                                   |                             |       |            |     |             |       | 8           |     |   |       |            |    
|                        
|                        
|                        
|                        
|                         | Prepaid property taxes and other                                                        |                             |       | 112         |     |             |       | 159         |     |   |       | 82          |    
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|                         |                                                                                         |                             | 518   |             |     |             | 699   |             |     |   | 546   |            
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|Non-current Assets      
|                        
|                        
|                        
|                        
|                         | Regulatory assets                                                                      
|                        
|                        
|                        
|                        
|                         |                                                                                         | Unamortized nuclear costs   |       |             | 490 |             |       |             | 519 |   |       |             | 521 | 
|                        
|                        
|                        
|                        
|                         |                                                                                         | Postretirement benefits     |       |             | 325 |             |       |             | 341 |   |       |             | 356 | 
|                        
|                        
|                        
|                        
|                         |                                                                                         | Abandoned Midland Project   |       |             | 35  |             |       |             | 48  |   |       |             | 60  | 
|                        
|                        
|                        
|                        
|                         |                                                                                         | Other                       |       |             | 119 |             |       |             | 125 |   |       |             | 116 | 
|                        
|                        
|                        
|                        
|                         | Nuclear decommissioning trust funds                                                     |                             |       | 612         |     |             |       | 602         |     |   |       | 581         |    
|                        
|                        
|                        
|                        
|                         | Other                                                                                   |                             |       | 205         |     |             |       | 187         |     |   |       | 206         |    
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|                         |                                                                                         |                             | 1,786 |             |     |             | 1,822 |             |     |   | 1,840 |            
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            
|Total Assets             |                                                                                         | $                           | 7,038 |             |     | $           | 7,170 |             |     | $ | 7,005 |            
|                         |                                                                                         |                             |       |             |     |             |       |             |     |   |       |            

CE-12



---



|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |             |     | 
|---------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------ | ----- | ----------- | --- | ----------- | ----- | ----------- | --- | - | ----- | ----------- | --- | 
|STOCKHOLDERS' INVESTMENT AND LIABILITIES       |                                                                   | June 30                                    |       |             |     |             |       | June 30    
|                                               |                                                                   |                                            |       | 2000        |     | December 31 |       | 1999       
|                                               |                                                                   |                                            |       | (Unaudited) |     | 1999        |       | (Unaudited)
|                                               |                                                                   |                                            |       |             |     |            
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       | In
Millions
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |             |     | 
|Capitalization                                
|                                              
|                                              
|                                              
|                                              
|                                               | Common stockholders equity                                      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Common stock                               |       | $           | 841 |             |       | $           | 841 |   |       | $           | 841 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Paid-in capital                            |       |             | 645 |             |       |             | 645 |   |       |             | 645 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Revaluation capital                        |       |             | 19  |             |       |             | 37  |   |       |             | 57  | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Retained earnings since December 31, 1992  |       |             | 485 |             |       |             | 485 |   |       |             | 438 | 
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|                                               |                                                                   |                                            | 1,990 |             |     |             | 2,008 |             |     |   | 1,981 |            
|                                              
|                                              
|                                              
|                                              
|                                               | Preferred stock                                                   |                                            |       | 44          |     |             |       | 44          |     |   |       | 44          |    
|                                              
|                                              
|                                              
|                                              
|                                               | Company-obligated mandatorily redeemable preferred securities of:
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Consumers Power Company Financing I (a)    |       |             | 100 |             |       |             | 100 |   |       |             | 100 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Consumers Energy Company Financing II (a)  |       |             | 120 |             |       |             | 120 |   |       |             | 120 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                   | Consumers Energy Company Financing III (a) |       |             | 175 |             |       |             | 175 |   |       |             |    | 
|                                              
|                                              
|                                              
|                                              
|                                               | Long-term debt                                                    |                                            |       | 2,008       |     |             |       | 2,006       |     |   |       | 2,008       |    
|                                              
|                                              
|                                              
|                                              
|                                               | Non-current portion of capital leases                             |                                            |       | 85          |     |             |       | 85          |     |   |       | 88          |    
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|                                               |                                                                   |                                            | 4,522 |             |     |             | 4,538 |             |     |   | 4,341 |            
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|Current Liabilities                           
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of long-term debt and capital leases              |                                            |       | 86          |     |             |       | 90          |     |   |       | 148         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Notes payable                                                     |                                            |       | 275         |     |             |       | 214         |     |   |       | 264         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                                                  |                                            |       | 175         |     |             |       | 224         |     |   |       | 157         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued taxes                                                     |                                            |       | 161         |     |             |       | 232         |     |   |       | 160         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable  related parties                                |                                            |       | 69          |     |             |       | 82          |     |   |       | 82          |    
|                                              
|                                              
|                                              
|                                              
|                                               | Power purchases  MCV Partnership                                 |                                            |       | 47          |     |             |       | 47          |     |   |       | 47          |    
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued interest                                                  |                                            |       | 41          |     |             |       | 37          |     |   |       | 35          |    
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred income taxes                                             |                                            |       | 1           |     |             |       |            |     |   |       | 9           |    
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued refunds                                                   |                                            |       |            |     |             |       | 11          |     |   |       | 14          |    
|                                              
|                                              
|                                              
|                                              
|                                               | Other                                                             |                                            |       | 126         |     |             |       | 139         |     |   |       | 151         |    
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|                                               |                                                                   |                                            | 981   |             |     |             | 1,076 |             |     |   | 1,067 |            
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|Non-current Liabilities                       
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred income taxes                                             |                                            |       | 646         |     |             |       | 700         |     |   |       | 641         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Postretirement benefits                                           |                                            |       | 402         |     |             |       | 420         |     |   |       | 436         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Power purchases  MCV Partnership                                 |                                            |       | 50          |     |             |       | 73          |     |   |       | 101         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred investment tax credit                                    |                                            |       | 121         |     |             |       | 125         |     |   |       | 129         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Regulatory liabilities for income taxes, net                      |                                            |       | 82          |     |             |       | 64          |     |   |       | 115         |    
|                                              
|                                              
|                                              
|                                              
|                                               | Other                                                             |                                            |       | 234         |     |             |       | 174         |     |   |       | 175         |    
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|                                               |                                                                   |                                            | 1,535 |             |     |             | 1,556 |             |     |   | 1,597 |            
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            
|Commitments and Contingencies(Notes 1 and 2)  
|                                              
|                                              
|                                              
|                                              
|Total Stockholders Investment and Liabilities |                                                                   | $                                          | 7,038 |             |     | $           | 7,170 |             |     | $ | 7,005 |            
|                                               |                                                                   |                                            |       |             |     |             |       |             |     |   |       |            

(a) The primary asset of Consumers Power Company Financing I is $103 million
principal amount of 8.36% subordinated deferrable interest notes due 2015 from
Consumers. The primary asset of Consumers Energy Company Financing II is $124
million principal amount of 8.20% subordinated deferrable interest notes due
2027 from Consumers. The primary asset of Consumers Energy Company Financing
III is $180 million principal amount of 9.25% subordinated deferrable interest
notes due 2029 from Consumers. For further discussion, see Note 3 contained in
Consumers 1999 Form 10-K.

The accompanying condensed notes are an integral part of these Balance Sheets.

CE-13



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Consumers Energy Company
Consolidated Statements of Common Stockholders Equity
(Unaudited)

|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |             |     | 
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------- |  |  | - | ---- | ----- | ------------------ | --- | ---------------- | ----- | ---- | --- | --- | ----- | ---- | --- | --- | ----- | ----------- | --- | 
|                                                                                                                      |                                                 |                            |  |  |   |      |       | Three Months Ended |     | Six Months Ended
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                 
|June 30                                                                                                               |                                                 |                            |  |  |   | 2000 |       | 1999               |     | 2000             |       | 1999
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |     
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       | In
Millions
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |             |     | 
|Common Stock                                                                                                         
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | At beginning and end of period                  |                            |  |  |   |      | $     | 841                |     |                  | $     | 841  |     |     | $     | 841  |     |     | $     | 841         |    
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|Other Paid-in Capital                                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | At beginning of period                          |                            |  |  |   |      |       | 645                |     |                  |       | 495  |     |     |       | 645  |     |     |       | 502         |    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Stockholders contribution                      |                            |  |  |   |      |       |                   |     |                  |       | 150  |     |     |       |     |     |     |       | 150         |    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Capital stock expense                           |                            |  |  |   |      |       |                   |     |                  |       |     |     |     |       |     |     |     |       | (7          | )  
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|                                                                                                                      |                                                 | At end of period           |  |  |   |      |       |                    | 645 |                  |       |      | 645 |     |       |      | 645 |     |       |             | 645 | 
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|Revaluation Capital                                                                                                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | At beginning of period                          |                            |  |  |   |      |       | 12                 |     |                  |       | 54   |     |     |       | 37   |     |     |       | 68          |    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Change in unrealized investment-gain (loss) (b) |                            |  |  |   |      |       | 7                  |     |                  |       | 3    |     |     |       | (18  | )   |     |       | (11         | )  
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|                                                                                                                      |                                                 | At end of period           |  |  |   |      |       |                    | 19  |                  |       |      | 57  |     |       |      | 19  |     |       |             | 57  | 
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|Retained Earnings                                                                                                    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | At beginning of period                          |                            |  |  |   |      |       | 491                |     |                  |       | 446  |     |     |       | 485  |     |     |       | 434         |    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Net income                                      |                            |  |  |   |      |       | 33                 |     |                  |       | 73   |     |     |       | 128  |     |     |       | 191         |    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Cash dividends declared- Common Stock           |                            |  |  |   |      |       | (30                | )   |                  |       | (76  | )   |     |       | (109 | )   |     |       | (173        | )  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Cash dividends declared- Preferred Stock        |                            |  |  |   |      |       |                   |     |                  |       |     |     |     |       | (1   | )   |     |       | (5          | )  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Preferred securities distributions              |                            |  |  |   |      |       | (9                 | )   |                  |       | (5   | )   |     |       | (18  | )   |     |       | (9          | )  
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|                                                                                                                      |                                                 | At end of period           |  |  |   |      |       |                    | 485 |                  |       |      | 438 |     |       |      | 485 |     |       |             | 438 | 
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|Total Common Stockholders Equity                                                                                     |                                                 |                            |  |  |   | $    | 1,990 |                    |     | $                | 1,981 |      |     | $   | 1,990 |      |     | $   | 1,981 |            
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)     Number of shares of common stock outstanding was 84,108,789 for all periods
presented.                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(b)    Disclosure
of Comprehensive Income:                                                                           
|Revaluation capital

                    Unrealized
investment-gain (loss),                     net of tax of
$4, $2,
|$(10) and $(6), respectively                                                                                          |                                                 |                            |  |  | $ | 7    |       |                    | $   | 3                |       |      | $   | (18 | )     |      | $   | (11 | )    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Net income                                                                                                            |                                                 |                            |  |  |   |      | 33    |                    |     |                  | 73    |      |     |     | 128   |      |     |     | 191   |            
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            
|                                                                                                                      |                                                 | Total Comprehensive Income |  |  |   | $    | 40    |                    |     | $                | 76    |      |     | $   | 110   |      |     | $   | 180   |            
|                                                                                                                      |                                                 |                            |  |  |   |      |       |                    |     |                  |       |      |     |     |       |      |     |     |       |            

The accompanying condensed notes are an integral part of these statements.

CE-14



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Consumers Energy Company
Condensed Notes to Consolidated Financial Statements

These Condensed Notes and their related Consolidated Financial Statements
should be read along with the Consolidated Financial Statements and Notes
contained in the Consumers 1999 Form 10-K that includes the Report of
Independent Public Accountants. In the opinion of management, the unaudited
information herein reflects all adjustments necessary to assure the fair
presentation of financial position, results of operations and cash flows for
the periods presented.

1: Corporate Structure and Summary of Significant Accounting Policies

Corporate Structure:Consumers is a combination electric and gas utility
company serving the Lower Peninsula of Michigan and is a subsidiary of CMS
Energy, a holding company. Consumers customer base includes a mix of
residential, commercial and diversified industrial customers, the largest
segment of which is the automotive industry.

Utility Regulation:Consumers accounts for the effects of regulation based on
the regulated utility accounting standard SFAS 71, Accounting for the Effects
of Certain Types of Regulation. As a result, the actions of regulators affect
when Consumers recognizes revenues, expenses, assets and liabilities.

In March 1999, Consumers received MPSC electric restructuring orders.
Consistent with these orders, Consumers discontinued application of SFAS 71 for
the energy supply portion of its business in the first quarter of 1999 because
Consumers expected to implement retail open access for its electric customers
in September 1999. Discontinuation of SFAS 71 for the energy supply portion of
Consumers business resulted in Consumers reducing the carrying value of its
Palisades plant-related assets by approximately $535 million and establishing a
regulatory asset for a corresponding amount. According to current accounting
standards, Consumers can continue to carry its energy supply-related regulatory
assets if legislation or an MPSC rate order allows the collection of cash flows
to recover these regulatory assets from its regulated transmission and
distribution customers. At June 30, 2000, Consumers had a net investment in
energy supply facilities of $1.017 billion included in electric plant and
property. See Note 2, Uncertainties, Electric Rate Matters  Electric
Restructuring.

Reportable Segments:Consumers has two reportable segments: electric and gas.
The electric segment consists of activities associated with the generation,
transmission and distribution of electricity. The gas segment consists of
activities associated with the production, transportation, storage and
distribution of natural gas. Consumers reportable segments are domestic
strategic business units organized and managed by the nature of the product and
service each provides. The accounting policies of the segments are the same as
those described in Consumers 1999 Form 10-K. Consumers management evaluates
performance based on pretax operating income. The Consolidated Statements of
Income show operating revenue and pretax operating income by reportable
segment. Intersegment sales and transfers are accounted for at current market
prices and are eliminated in consolidated pretax operating income by segment.

Risk Management Activities and Derivatives Transactions: Consumers and its
subsidiaries use derivative instruments, including swaps and options, to manage
exposure to fluctuations in interest rates and commodity prices, respectively.
To qualify for hedge accounting, derivatives must meet the following criteria:
1) the item to be hedged exposes the enterprise to price and interest rate
risk; and 2) the derivative reduces that exposure and is designated as a hedge.

CE-15



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Derivative instruments contain credit risk if the counterparties, including
financial institutions and energy marketers, fail to perform under the
agreements. Consumers minimizes such risk by performing financial credit
reviews using, among other things, publicly available credit ratings of such
counterparties. The risk of nonperformance by the counterparties is considered
remote.

Consumers enters into interest rate swap agreements to exchange variable-rate
interest payment obligations for fixed-rate obligations without exchanging the
underlying notional amounts. These agreements convert variable-rate debt to
fixed-rate debt in order to reduce the impact of interest rate fluctuations.
The notional amounts parallel the underlying debt levels and are used to
measure interest to be paid or received and do not represent the exposure to
credit loss.

Consumers enters into electric option contracts to ensure a reliable source of
capacity to meet its customers electric requirements and to limit its risk
associated with electricity price increases. It is managements intent to take
physical delivery of the commodity. Consumers continuously evaluates its daily
capacity needs and sells the option contracts, if marketable, when it has
excess daily capacity. Consumers maximum exposure associated with these
options is limited to the price paid. As of June 30, 2000, Consumers has a
deferred asset of $38 million for electric call option contracts, and
commitments to purchase additional call options in the amount of $20 million.

2: Uncertainties

Electric Contingencies

Electric Environmental Matters:The Clean Air Act limits emissions of sulfur
dioxide and nitrogen oxides and requires emissions and air quality monitoring.
Consumers currently operates within these limits and meets current emission
requirements. The Clean Air Act requires the EPA to review periodically the
effectiveness of the national air quality standards in preventing adverse
health effects.

1997 EPA Revised NOx and Small Particulate Emissions Standards In 1997, the
EPA revised these standards to impose further limitations on nitrogen oxide and
small particulate-related emissions. After a United States Court of Appeals
found the revision an unconstitutional delegation of legislative power, the EPA
suspended the standards under the 1997 rule and reinstated the pre-1997
standards. In January 2000, the Department of Justice filed a petition for the
United States Supreme Court to review the case. In May 2000, the Supreme Court
agreed to hear the appeal.

1998 EPA Plan for NOx Emissions In September 1998, based in part upon the
1997 standards, the EPA Administrator issued final regulations requiring the
state of Michigan to further limit nitrogen oxide emissions. Consumers
anticipates a reduction in nitrogen oxide emissions by 2003 to only 32 percent
of levels allowed for the year 2000. The state of Michigan had one year to
submit an implementation plan. The state of Michigan filed a lawsuit objecting
to the extent of the required emission reductions and requesting an extension
of the submission date. In May 1999, the United States Court of Appeals
granted an indefinite stay of the submission date for the state of Michigans
implementation plan. In early 2000, the United States Court of Appeals upheld
the EPAs final regulations. The state of Michigan has filed a petition with
the United States Supreme Court appealing this ruling. During this time
period, the state of Michigan established alternative less stringent nitrogen
oxide emission reduction requirements. At this time the state of Michigan has
decided to draft new rules to comply with the EPA requirements in parallel with
its appeal to the supreme court.

Section 126 Petitions In December 1999, the EPA Administrator signed a
revised final rule under Section 126 of the Clean Air Act. The rule requires
some electric utility generators, including some of Consumers

CE-16



---



electric
generating facilities, to achieve the same emission rate as that required by
the currently challenged September 1998 EPA final rule. Under the revised
Section 126 rule, the emission rate will become effective on May 1, 2003 and
apply during the ozone season in 2003 and during each subsequent year. Various
parties petitions challenging the EPAs rule have been filed.

Until all air quality targets are conclusively established, the estimated cost
of compliance discussed below is subject to revision.

Cost of Environmental Law Compliance The preliminary estimates of capital
expenditures to reduce nitrogen oxide-related emissions to the level proposed
by the state of Michigan for Consumers fossil-fueled generating units range
from $150 million to $290 million, calculated in 2000 dollars. If Consumers
has to meet the EPAs 1998 and/or Section 126 petition requirements, the
estimated cost to Consumers would be between $290 million and $500 million,
calculated in 2000 dollars. In both cases the lower estimate represents the
capital expenditure level that would satisfactorily meet the proposed emissions
limits but would result in higher operating expense. The higher estimate in the
range includes expenditures that result in lower operating costs while
complying with the proposed emissions limit. Consumers anticipates that it
will incur these capital expenditures between 2000 and 2004, or between 2000
and 2003 if the EPA ultimately imposes its limits. In addition, Consumers
expects to incur cost of removal related to this effort, but is unable to
predict the amount at this time.

Consumers may need an equivalent amount of capital expenditures to comply with
the new small particulate standards sometime after 2004 if those standards
become effective.

Consumers coal-fueled electric generating units burn low-sulfur coal and are
currently operating at or near the sulfur dioxide emission limits. Beginning
in 1992 and continuing into 2000, Consumers incurred capital expenditures
totaling $72 million to install equipment at certain generating units to comply
with the acid rain provisions of the Clean Air Act. Management believes that
these expenditures will not materially affect Consumers annual operating
costs.

Cleanup and Solid Waste Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. Nevertheless, it
believes that these costs are recoverable in rates under current ratemaking
policies.

Consumers is a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several. Along
with Consumers, many other creditworthy, potentially responsible parties with
substantial assets cooperate with respect to the individual sites. Based upon
past negotiations, Consumers estimates that its share of the total liability
for the known Superfund sites will be between $2 million and $9 million. At
June 30, 2000, Consumers has accrued the minimum amount of the range for its
estimated Superfund liability.

During routine maintenance activities, Consumers identified PCB as a component
in certain paint, grout and sealant materials at the Ludington Pumped Storage
Facility. Consumers removed and replaced part of the PCB material. Consumers
is studying the remaining materials and determining options and their related
costs.

Antitrust:In October 1997, two independent power producers sued Consumers in
a federal court. The suit alleged antitrust violations relating to contracts
which Consumers entered into with some of its customers, and interference with
contract claims relating to proposed power facilities. In March 1999, the
court issued an opinion and order granting Consumers motion for summary
judgment, resulting in the dismissal of the case. The plaintiffs appealed this
decision. Consumers cannot predict the outcome of this appeal.

CE-17



---



Electric Rate Matters

Electric Restructuring:Since 1997, there have been repeated efforts made in
the Michigan Legislature to enact electric restructuring legislation. On June
3, 2000, these efforts resulted in the passage of the Customer Choice
and Electricity Reliability Act, which became effective June 5, 2000. This
act: 1) permits all customers to exercise choice of electric generation
suppliers by January 1, 2002; 2) cuts residential electric rates by 5 percent;
3) freezes all electric rates through December 31, 2003, and establishes a rate
cap for residential customers through at least December 31, 2005, and a rate
cap for small commercial and industrial customers through at least December 31,
2004; 4) allows for the use of Securitization to refinance stranded costs as a
means of offsetting the earnings impact of the 5 percent residential rate
reduction; 5) establishes a market power test which may require the transfer of
control of a portion of generation resources in excess of that required to
serve firm retail sales load; 6) requires Michigan utilities to join a FERC
approved RTO or divest its interest in transmission facilities to an
independent transmission owner; 7) requires the expansion of available
transmission capability by at least 2,000 MW by January 1 of 2003; and 8)
allows for the recovery of stranded costs and implementation costs incurred as
a result of the passage of the act.

In September 1999, Consumers began implementing a plan for electric retail
customer open access. Consumers submitted this plan to the MPSC in 1998, and
the MPSC issued electric restructuring orders in March 1999 that generally
supported the plan. The Customer Choice and Electricity Reliability Act states
that orders issued by the MPSC before the date of this act that; 1) allow
electric customers to choose their supplier, 2) authorize recovery of net
stranded costs and implementation costs, and 3) confirm any voluntary
commitments of electric utilities, are in compliance with this act and
enforceable by the MPSC. On June 19, 2000, the MPSC issued an order requiring
Consumers to file tariffs governing its retail open access program and any
revisions appropriate to comply with the Customer Choice and Electricity
Reliability Act. Consumers cannot predict how the MPSC will modify the tariffs
or enforce the existing restructuring orders.

On June 9, 2000, the Court of Appeals issued an opinion relating to a number of
consolidated MPSC restructuring orders. The opinion primarily involved issues
that the Customer Choice and Electricity Reliability Act has rendered moot. In
a separate pending case, ABATE and the Attorney General each appealed an August
1999 order in which the MPSC found that it had jurisdiction to approve rates,
terms and conditions for electric retail wheeling (also known as electric
customer choice) if a utility voluntarily chooses to offer that service.
Consumers believes that the Customer Choice and Electricity Reliability Act has
rendered the issue moot, but cannot predict how the Court of Appeals will
resolve the issue.

During periods when electric demand is high, the cost of purchasing energy on
the spot market can be substantial. To reduce Consumers exposure to the
fluctuating cost of electricity, and to ensure adequate supply to meet demand,
Consumers is planning to maintain sufficient generation and to purchase
electricity from others to create a power reserve (also called a reserve
margin). Consumers plans a reserve margin of approximately 15 percent. The
reserve margin provides Consumers with additional power above its anticipated
peak power demands. It also allows Consumers to provide reliable service to
its electric service customers and to protect itself against unscheduled plant
outages and unanticipated demand. Consumers estimates the actual reserve
margin for summer 2000 is in the range of 13 percent to 16 percent. The
ultimate reserve margin will depend on summer weather conditions and on the
level of retail open access load being served by others this summer.
(Consumers offered other electric service providers with the opportunity to
serve up to 600 MW of nominal retail open access load during summer 2000. As
of June 30, 2000, no other electric service provider is serving the retail open
access load.) To reduce the risk of high energy prices during peak demand
periods and to achieve its reserve margin target, Consumers has

CE-18



---



employed a
strategy of purchasing electric call option contracts for the physical delivery
of electricity during the months of June through September. Consumers expects
to use a similar strategy in the future. As of June 30, 2000, Consumers had
purchased or had commitments to purchase electric call option contracts for
summer 2000 at a cost of approximately $51 million, of which $6 million had
expired. Additionally, as of June 30, 2000 Consumers had purchased or had
commitments to purchase electric call option contracts partially covering the
reserve margin requirements for summer 2001, 2002 and 2003 at a cost of $13
million with expected total future purchases to reach $56 million this year.

In June 1999, Consumers and four other electric utility companies sought
approval from the FERC to form the Alliance RTO. The proposed structure
provided for the creation of a transmission entity that would control, operate
and own transmission facilities of one or more of the member companies. The
proposal was structured to give the member companies the flexibility to
maintain or divest ownership of their transmission facilities while ensuring
independent operation of the regional transmission system. In December 1999,
the FERC conditionally approved formation of Alliance, but asked the applicants
to make a number of changes in the proposal and to provide additional
information. Among other things, the FERC expressed concern about the proposed
governance structure of Alliance, its rates and its geographic configuration.
Consumers and the Alliance companies sought rehearing of the Alliance order.
Additionally, in a February 2000 compliance filing, the Alliance companies
addressed some of the concerns expressed in the December 1999 Alliance order.
Consumers is uncertain about the outcome of the Alliance matter before the FERC
and its continued participation in Alliance.

On the same day as the December 1999 Alliance order, the FERC issued Order No.
2000, which describes the characteristics the FERC would find acceptable in an
RTO. In Order No. 2000, the FERC declined to mandate that utilities join RTOs,
but did order utilities to make filings in October 2000 and January 2001
declaring their intentions with respect to RTO membership.

In May 2000, the FERC issued an order on compliance filing and request for
rehearing and clarification. The order concluded that the Alliance RTOs
proposed structure is not in the proper scope and configuration. The FERC
rejected the Alliance companies proposal to allow 25 percent cumulative active
ownership of the Alliance RTO by the transmission owners. The May 2000 order
also required the applicants to make a rate compliance filing. The FERC did
not substantively address Consumers alternative governance structure. In June
2000, Consumers filed a request for hearing of the May 2000 order and also
separately sought once again approval of its alternative governance structure.
Consumers also filed a petition for review of the May 2000 order in the United
States Court of Appeals for the District of Columbia Circuit.

Electric Proceedings:In 1996, the MPSC issued a final order that authorized
Consumers to recover costs associated with the purchase of the additional 325
MW of MCV Facility capacity (see Power Purchases from the MCV Partnership in
this Note). In addition, the order allowed Consumers to recover its nuclear
plant investment by increasing prospective annual nuclear plant depreciation
expense by $18 million, with a corresponding decrease in fossil-fueled
generating plant depreciation expense. The order also established an
experimental direct-access program. The Attorney General, ABATE, the MCV
Partnership and other parties filed appeals with the Court of Appeals
challenging the MPSCs 1996 order. In 1999, the Court of Appeals affirmed the
MPSCs 1996 order in all respects. The Attorney General, however, filed an
application for leave to appeal this decision to the Michigan Supreme Court.
In June 2000, the Michigan Supreme Court denied the application for leave to
appeal.

In 1997, ABATE filed a complaint with the MPSC. The complaint alleged that
Consumers electric earnings are more than its authorized rate of return and
sought an immediate reduction in Consumers electric rates that approximated
$189 million annually. As a result of the passage of the rate freeze imposed
by the Customer Choice and Electricity Reliability Act, the MPSC issued an
order on June 19,

CE-19



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2000 dismissing the ABATE complaint. On July 12, 2000 ABATE
filed a rehearing petition with the MPSC. Consumers cannot predict the outcome
of the rehearing process.

Before 1998, the PSCR process provided for the reconciliation of actual power
supply costs with power supply revenues. This process assured recovery of all
reasonable and prudent power supply costs actually incurred by Consumers, such
as, the actual cost of fuel, interchange power and purchased power. In 1998,
as part of the electric restructuring efforts, the MPSC suspended the PSCR
process through December 31, 2001. Under the suspension, the MPSC would not
grant adjustment of customer rates through 2001. In March 2000, Consumers
filed an application with the MPSC requesting reinstatement of the PSCR clause,
approval of a PSCR plan, and authorization of monthly PSCR factors from July
2000 through June 2001. As a result of the rate freeze imposed
by the Customer Choice and Electricity Reliability Act, the MPSC issued an
order on June 19, 2000 dismissing this application.

Other Electric Uncertainties

The Midland Cogeneration Venture:The MCV Partnership, which leases and
operates the MCV Facility, contracted to sell electricity to Consumers for a
35-year period beginning in 1990 and to supply electricity and steam to Dow.
Consumers, through two wholly owned subsidiaries, holds the following assets
related to the MCV Partnership and MCV Facility: 1) CMS Midland owns a 49
percent general partnership interest in the MCV Partnership; and 2) CMS
Holdings holds, through FMLP, a 35 percent lessor interest in the MCV Facility.

Summarized Statements of Income for CMS Midland and CMS Holdings (unaudited)

|                        |  |                  |    |      |  |   |    | 
|----------------------- |  | ---------------- | -- | ---- |  | - | -- | 
|                        |  | In Millions     
|                        |  |                 
|                        |  | Six Months Ended
|                        |  |                 
|June 30                 |  | 2000             |    | 1999
|                        |  |                  |    |     
|Pretax operating income |  | $                | 20 |      |  | $ | 26 | 
|                       
|                       
|                       
|                       
|Income taxes and other  |  |                  | 6  |      |  |   | 8  | 
|                        |  |                  |    |      |  |   |    | 
|Net income              |  | $                | 14 |      |  | $ | 18 | 
|                        |  |                  |    |      |  |   |    | 

Power Purchases from the MCV Partnership Consumers annual obligation to
purchase capacity from the MCV Partnership is 1,240 MW through the termination
of the PPA in 2025. The PPA provides that Consumers is to pay, based on the MCV
Facilitys availability, a levelized average capacity charge of 3.77 cents per
kWh, a fixed energy charge, and a variable energy charge based primarily on
Consumers average cost of coal consumed for all kWh delivered. Since January
1, 1993, the MPSC has permitted Consumers to recover capacity charges averaging
3.62 cents per kWh for 915 MW, plus a substantial portion of the fixed and
variable energy charges. Since January 1, 1996, the MPSC has also permitted
Consumers to recover capacity charges for the remaining 325 MW of contract
capacity with an initial average charge of 2.86 cents per kWh increasing
periodically to an eventual 3.62 cents per kWh by 2004 and thereafter. After
September 2007, under the terms of the PPA, Consumers will only be required to
pay the MCV Partnership capacity and energy charges that the MPSC has
authorized for recovery from electric customers.

In March 1999, Consumers signed a long-term power sales agreement to resell to
PECO its capacity and energy purchases under the PPA until September 2007.
Implementation of the agreement is contingent upon regulatory treatment
satisfactory to Consumers. Such treatment is not yet assured. Under the terms
of the agreement, after a three-year transition period during which 100 to 150
MW will be sold to PECO, beginning in 2002 Consumers will sell all 1,240 MW of
PPA capacity and associated energy to PECO. In

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March 1999, Consumers also filed
an application with the MPSC for accounting and ratemaking approvals related to
the PECO agreement. If used as an offset to electric customers Transition Cost
responsibility, Consumers estimates that there could be a reduction of as much
as $58 million (on a net present value basis) of Transition Cost related to the
MCV PPA. In an order issued in April 1999, the MPSC conditionally approved the
requests for accounting and rate-making treatment to the extent that customer
rates are not increased from the current level absent the agreement and as
modified by the order. In response to Consumers and other parties requests
for clarification and rehearing, in an August 1999 opinion, the MPSC partially
granted the relief Consumers requested on rehearing and attached certain
additional conditions to its approval. Those conditions relate to Consumers
continued decision to carry out the electricity customer choice program (which
Consumers has affirmed as discussed above) and a determination to file for
approval of a revised capacity solicitation process (which Consumers filed).
The August opinion is a companion order to a power supply cost reconciliation
order issued on the same date in another case. This order affects the level of
frozen power supply costs recoverable in rates during future years when the
transaction with PECO would be taking place. Consumers filed a motion for
clarification of the order relating to the PECO agreement, which is still
pending. Due to uncertainties associated with electric industry restructuring
legislation in Michigan, Consumers and PECO entered into an interim arrangement
for the sale of 125 MW of PPA capacity and associated energy to PECO during
2000. Prices in the interim arrangement are identical to the March 1999 power
sales agreement. Consumers is currently evaluating its options associated with
the PECO agreement due to the recent electric restructuring legislation and
related MPSC decisions.

Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA based on MPSC recovery
orders. At June 30, 2000 and June 30, 1999, the remaining after-tax present
value of the estimated future PPA liability associated with the 1992 loss
totaled $63 million and $96 million, respectively. The annual after-tax cash
underrecoveries are based on the assumption that the MCV Facility would be
available to generate electricity 91.5 percent of the time over its expected
life. Historically the MCV Facility has operated above the 91.5 percent level.
In March 1999, Consumers and the MCV Partnership reached an agreement effective
January 1, 1999 that capped availability payments to the MCV Partnership at
98.5 percent. If the MCV Facility generates electricity at the maximum 98.5
percent level during the next five years, Consumers after-tax cash
underrecoveries associated with the PPA could be as follows:

|                                                    |  |             |    |      |  |      |    |      |  |      |    |  |  |   |    |  |  |   |    | 
|--------------------------------------------------- |  | ----------- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- |  |  | - | -- | 
|                                                    |  | In Millions
|                                                    |  |            
|                                                    |  | 2000        |    | 2001 |  | 2002 |    | 2003 |  | 2004
|                                                    |  |             |    |      |  |      |    |      |  |     
|Estimated cash underrecoveries at 98.5%, net of tax |  | $           | 36 |      |  | $    | 39 |      |  | $    | 38 |  |  | $ | 37 |  |  | $ | 36 | 
|                                                    |  |             |    |      |  |      |    |      |  |      |    |  |  |   |    |  |  |   |    | 

If the MCV Facility operates at availability levels above managements 91.5
percent estimate made in 1992 for the remainder of the PPA, the estimated PPA
liability would be deficient and Consumers will need to recognize additional
operating expenses for current underrecoveries. For further discussion on the
impact of the frozen PSCR, see Electric Rate Matters in this Note.
Management continues to evaluate the adequacy of the contract loss liability
considering actual MCV Facility operations, and resolution of the electric
restructuring effort.

In February 1998, the MCV Partnership filed a claim of appeal from the January
1998 and February 1998 MPSC orders related to electric utility industry
restructuring. At the same time, the MCV Partnership filed suit in the United
States District Court seeking a declaration that the MPSCs failure to provide
Consumers and the MCV Partnership a certain source of recovery of capacity
payments after 2007 deprived the MCV Partnership of its rights under the Public
Utilities Regulatory Policies Act of 1978. In July 1999, the United States
District Court issued an order granting the MCV Partnerships motion for
summary judgment. The order permanently prohibits enforcement of the
restructuring orders in any manner which denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or

CE-21



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which
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the United States District Court order. Consumers cannot predict the
outcome of this litigation.

Nuclear Matters:In January 1997, the NRC issued its Systematic Assessment of
Licensee Performance report for Palisades. The report rated all areas as good.
The NRC suspended this assessment process for all licensees in 1998. Until
the NRC completes its review of processes for assessing performance at nuclear
power plants, the NRC uses the Plant Performance Review to provide an
assessment of licensee performance. Palisades received its annual performance
review dated March 31, 2000 in which the NRC stated that no significant
performance issues existed during the assessment period in the reactor safety,
radiation safety, and safeguards strategic performance areas. The NRC stated
that Palisades continues to operate in a safe manner. Further, it stated that
the NRC plans to conduct only routine inspections at Palisades over the next
year. The NRC implemented the revised reactor oversight process industry-wide,
including for Palisades, on April 2, 2000. As part of that process, Palisades
submitted required NRC performance data in April 2000 that indicated that
Consumers was within the limits of acceptable performance for which no NRC
response is required.

Palisades temporary on-site storage pool for spent nuclear fuel is at
capacity. Consequently, Consumers is using
NRC-approved steel and concrete vaults, commonly known as dry casks, for
temporary on-site storage. As of June 30, 2000, Consumers had loaded 18 dry
storage casks with spent nuclear fuel at Palisades. Palisades will need to
load more casks by 2004 in order to continue operation. Palisades only has
three additional storage-only casks available for loading. Consumers
anticipates, however, that licensed transportable casks will be available prior
to 2004.

Consumers maintains insurance against property damage, debris removal, personal
injury liability and other risks that are present at its nuclear facilities.
Consumers also maintains coverage for replacement power costs during prolonged
accidental outages at Palisades. Insurance would not cover such costs during
the first 12 weeks of any outage, but would cover most of such costs during the
next 52 weeks of the outage, followed by reduced coverage to 80 percent for 110
additional weeks. If certain covered losses occur at its own or other nuclear
plants similarly insured, Consumers could be required to pay maximum
assessments of $15.5 million in any one year to NEIL; $88 million per
occurrence under the nuclear liability secondary financial protection program,
limited to $10 million per occurrence in any year; and $6 million if nuclear
workers claim bodily injury from radiation exposure. Consumers considers the
possibility of these assessments to be remote.

The NRC requires Consumers to make certain calculations and report on the
continuing ability of the Palisades reactor vessel to withstand postulated
pressurized thermal shock events during its remaining license life, considering
the embrittlement of reactor materials. In December 1996, Consumers received
an interim Safety Evaluation Report from the NRC indicating that the reactor
vessel can be safely operated through 2003 before reaching the NRCs screening
criteria for reactor embrittlement. On February 21, 2000, Consumers submitted
an analysis to the NRC that shows that the NRCs screening criteria will not be
reached until 2014. Accordingly, Consumers believes that with fuel management
designed to minimize embrittlement, it can operate Palisades to the end of its
license life in the year 2007 without annealing the reactor vessel.
Nevertheless, Consumers will continue to monitor the matter.

In May 2000, Consumers requested that the NRC modify the operating license for
the Palisades nuclear plant to recapture the four year construction period.
This modification would extend the plants operation to March of 2011 and allow
a full 40-year operating period, consistent with current NRC practice.

Nuclear Fuel Cost:Consumers amortizes nuclear fuel cost to fuel expense based
on the quantity of heat produced for electric generation. Interest on leased
nuclear fuel is expensed as incurred. Under current federal law, as confirmed
by court decision, the DOE was to begin accepting deliveries of spent nuclear

CE-22



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fuel for disposal by January 31, 1998. For fuel used after April 6, 1983,
Consumers charges disposal costs to nuclear fuel expense, recovers them through
electric rates, and then remits them to the DOE quarterly. Consumers elected to
defer payment for disposal of spent nuclear fuel burned before April 7, 1983.
At June 30, 2000, Consumers had a recorded liability to the DOE of $126
million, including interest, which is payable upon the first delivery of spent
nuclear fuel to the DOE. Consumers recovered through electric rates the amount
of this liability, excluding a portion of interest. In January 1997, in
response to the DOEs declaration that it would not begin to accept spent
nuclear fuel deliveries in 1998, Consumers and other utilities filed suit in
federal court. The court issued a decision in late 1997 affirming the DOEs
duty to take delivery of spent fuel, but was not specific as to the relief
available for failure of the DOE to comply. Further litigation brought by
Consumers and others in 1998, intended to produce specific relief for the DOEs
failure to comply, has not been successful to date. In April 2000, the U.S.
Senate and House of Representatives approved federal legislation that would
advance the cause of moving nuclear waste to a permanent repository. The
President of the United States vetoed this legislation.

On July 20, 2000, the DOE announced that an agreement had been reached with a
utility to address the DOEs delay in accepting spent fuel. The DOE stated
that the agreement, which is in the form of a contract amendment, is intended
to be a framework that can be applied to all Nuclear Power Plants. Consumers
is evaluating this matter further.

Capital Expenditures:Consumers estimates electric capital expenditures,
including new lease commitments and environmental costs under the Clean Air
Act, of $438 million for 2000, $580 million for 2001, and $545 million for
2002. For further information, see the Capital Expenditures Outlook section in
the MD&A.

Gas Contingencies

Gas Environmental Matters:Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. These include 23
sites that formerly housed manufactured gas plant facilities, even those in
which it has a partial or no current ownership interest. Consumers has
completed initial investigations at the 23 sites. On sites where Consumers has
received site-wide study plan approvals, it will continue to implement these
plans. It will also work toward closure of environmental issues at sites as
studies are completed. Consumers has estimated its costs related to further
investigation and remedial action for all 23 sites using the Gas Research
Institute-Manufactured Gas Plant Probabilistic Cost Model. Using this model,
Consumers estimates the costs to be between $66 million and $118 million.
These estimates are based on undiscounted 1999 costs. As of June 30, 2000,
after consideration of prior years expenses, Consumers has a remaining accrued
liability of $59 million and a regulatory asset of $64 million. Any
significant change in assumptions, such as remediation techniques, nature and
extent of contamination, and legal and regulatory requirements, could affect
the estimate of remedial action costs for the sites. Consumers defers and
amortizes, over a period of ten years, environmental clean-up costs above the
amount currently being recovered in rates. Rate recognition of amortization
expense cannot begin until after a prudence review in a future general gas rate
case. Consumers is allowed current recovery of $1 million annually. Consumers
has initiated lawsuits against certain insurance companies regarding coverage
for some or all of the costs that it may incur for these sites.

CE-23



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Gas Rate Matters

Gas Restructuring:In December 1997, the MPSC approved Consumers application
to implement, effective April 1, 1998, a gas customer choice pilot program that
was designed to encourage Consumers to minimize its purchased natural gas
commodity costs while providing rate stability for its customers. The program
allows 300,000 residential, commercial and industrial retail gas sales
customers to choose an alternative gas commodity supplier in direct competition
with Consumers. Unless some other arrangements are made, when this pilot
program ends on March 31, 2001, these customers will again become Consumers
gas commodity customers. The program is voluntary and participating natural
gas customers are selected on a first-come, first-served basis, up to a limit
of 100,000 per year. As of June 30, 2000, more than 160,000 customers chose
alternative gas suppliers, representing approximately 11 bcf of gas load.
Customers choosing to remain as sales customers of Consumers will not see a
rate change in their gas rates. This three-year program: 1) freezes gas
distribution rates through March 31, 2001, establishing a delivered gas
commodity cost at a fixed rate of $2.84 per mcf; 2) establishes an earnings
sharing mechanism with customers if Consumers earnings exceed certain
pre-determined levels; and 3) establishes a gas transportation code of conduct
that addresses the relationship between Consumers and marketers, including its
affiliated marketers. In December 1999, the Court of Appeals affirmed in its
entirety the December 1997 MPSC order. The Attorney General filed with the
Michigan Supreme Court an application for leave to appeal the Court of Appeals
decision. Subsequent to June 30, 2000, the MPSC issued an order directing
Consumers and certain other Michigan gas utilities to undertake a collaborative
process, including public meetings with MPSC staff and other interested parties
during August and September 2000, for the purpose of developing uniform terms
and conditions for the future provision of gas customer choice to all Michigan
customers.

During the first two years of the pilot program, Consumers realized a benefit
of $45 million as delivered gas commodity prices were below the $2.84 per mcf
level collected from customers. Recent significant increases in gas prices
have exposed Consumers to gas commodity losses during the last year of the
program that ends March 31, 2001. Estimated loss of earnings for this last
year of the program could range from $45 million to $135 million, of which
Consumers has already recognized $45 million in the second quarter 2000 as a
regulatory obligation. Under the provisions of the pilot program, Consumers
has the right to request termination of the program at any time and to return
to a GCR mechanism, pursuant to which the customer gas commodity prices would
increase significantly from the current frozen rate. As an alternative to
exercising that right, Consumers is considering an approach that, if approved
by the MPSC, would potentially avoid further losses any greater than $45
million already recognized and mitigate the customer rate increases that would
otherwise result. It is expected that such an approach could be implemented
this fall.

Other Gas Uncertainties

Capital Expenditures:Consumers estimates gas capital expenditures, including
new lease commitments, of $117 million for 2000, $140 million for 2001, and
$145 million for 2002. For further information, see the Capital Expenditures
Outlook section in the MD&A.

Other Uncertainties

In addition to the matters disclosed in this note, Consumers and certain of its
subsidiaries are parties to certain lawsuits and administrative proceedings
before various courts and governmental agencies arising from the ordinary
course of business. These lawsuits and proceedings may involve personal
injury, property damage, contractual matters, environmental issues, federal and
state taxes, rates, licensing and other matters.

CE-24



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Consumers has accrued estimated losses for certain contingencies discussed in
this Note. Resolution of these contingencies is not expected to have a
material adverse impact on Consumers financial position, liquidity, or results
of operations.

3: Short-Term Financing and Capitalization

Authorization:At July 1, 2000, Consumers had FERC authorization to issue or
guarantee through June 2002, up to $900 million of short-term securities
outstanding at any one time. Consumers also had remaining FERC authorization
to issue through June 2002 up to $250 million and $800 million of long-term
securities with maturities up to 30 years for refinancing purposes and for
general corporate purposes, respectively.

Short-Term Financing:Consumers has an unsecured $300 million credit facility
and unsecured lines of credit aggregating $145 million. These facilities are
available to finance seasonal working capital requirements and to pay for
capital expenditures between long-term financings. At June 30, 2000, a total
of $275 million was outstanding at a weighted average interest rate of 7.8
percent, compared with $264 million outstanding at June 30, 1999, at a weighted
average interest rate of 6.1 percent.

Consumers currently has in place a $325 million trade receivables sale program.
At June 30, 2000 and 1999, receivables sold under the program totaled $283
million and $266 million, respectively. Accounts receivable and accrued
revenue in the Consolidated Balance Sheets have been reduced to reflect
receivables sold.

Other:Under the provisions of its Articles of Incorporation, Consumers had
$360 million of unrestricted retained earnings available to pay common
dividends at June 30, 2000. In January 2000, Consumers declared and paid a $79
million common dividend, in April 2000, Consumers declared a $30 million common
dividend which was paid in May 2000. In July 2000, Consumers declared a $17
million common dividend payable in August 2000.

CE-25



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Report of Independent Public Accountants

To Consumers Energy Company:

We have reviewed the accompanying consolidated balance sheets of CONSUMERS
ENERGY COMPANY (a Michigan corporation and wholly owned subsidiary of CMS
Energy Corporation) and subsidiaries as of June 30, 2000 and 1999, the related
consolidated statements of income and common stockholders equity for the
three-month and six-month periods then ended and the related consolidated
statements of cash flows for the six-month periods then ended. These financial
statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Consumers
Energy Company and subsidiaries as of December 31, 1999, and, in our report
dated February 4, 2000, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1999, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.

/s/ Arthur Andersen LLP

Detroit, Michigan,
   July 28, 2000.

CE-26



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Panhandle Eastern Pipe Line Company

Managements Discussion and Analysis

Panhandle is primarily engaged in the interstate transportation and storage of
natural gas. Panhandle owns a LNG regasification plant, related tanker port
unloading facilities and LNG and gas storage facilities. The rates and
conditions of service of interstate natural gas transmission, storage and LNG
operations of Panhandle are subject to the rules and regulations of the FERC.

The MD&A of this Form 10-Q should be read along with the MD&A and other parts
of Panhandles 1999 Form 
10-K. This MD&A also refers to, and in some sections
specifically incorporates by reference, Panhandles Condensed Notes to
Consolidated Financial Statements and should be read in conjunction with such
Statements and Notes. This report and other written and oral statements made
by Panhandle from time to time contain forward-looking statements, as defined
by the Private Securities Litigation Reform Act of 1995. The words
anticipates, believes, estimates, expects, intends, and plans and
variations of such words and similar expressions, are intended to identify
forward-looking statements that involve risk and uncertainty. These
forward-looking statements are subject to various factors which could cause
Panhandles actual results to differ materially from those anticipated in such
statements. Panhandle disclaims any obligation to update or revise
forward-looking statements, whether from new information, future events or
otherwise. Panhandle details certain risk factors, uncertainties and
assumptions in this MD&A and particularly in the section entitled CMS Energy,
Consumers, and Panhandle Forward-Looking Statements Cautionary Factors in CMS
Energys 1999 Form 10-K, Item 1 and periodically in various public filings it
makes with the SEC. This discussion of potential risks and uncertainties is by
no means complete but is designed to highlight important factors that may
impact Panhandles outlook. This report also describes material contingencies
in the Condensed Notes to Consolidated Financial Statements and the readers are
encouraged to read such Notes.

In March 2000, Trunkline, a subsidiary of Panhandle, acquired the Sea Robin
pipeline from El Paso Energy Corporation for cash of $74 million. Sea Robin is
a 1 bcf per day capacity pipeline system located in the Gulf of Mexico. On
March 27, 2000, Panhandle issued $100 million of 8.25 percent senior notes due
2010. Panhandle used the funds primarily to finance the purchase of Sea Robin
(See Note 1).

In March 2000, Trunkline refiled its abandonment application with the FERC
regarding its 26-inch pipeline with a planned conversion of the line from
natural gas service to a refined products pipeline. Panhandle will own
one-third interest in the project, called the Centennial Pipeline, which if
approved is planned to go into service at the end of 2001 (See Note 2).

The acquisition of Panhandle by CMS Panhandle Holding in March 1999 was
accounted for using the purchase method of accounting in accordance with
generally accepted accounting principles. Panhandle allocated the purchase
price paid by CMS Panhandle Holding to Panhandles net assets as of the
acquisition date based on an appraisal completed in December 1999.
Accordingly, the post-acquisition financial statements reflect a new basis of
accounting. Pre-acquisition period and post-acquisition period financial
results (separated by a heavy black line) are presented but are not comparable
(See Note 1).

PE-1



---



The following information is provided to facilitate increased understanding of
the consolidated financial statements and accompanying notes of Panhandle and
should be read in conjunction with these financial statements. Because all of
the outstanding common stock of Panhandle is owned by a wholly-owned subsidiary
of CMS Energy, the following discussion uses the reduced disclosure format
permitted by Form 10-Q for issuers that are wholly-owned subsidiaries of
reporting companies.

Results of Operations

Net Income:

|                 |  |      |    |      |  |        |    |  |  |             |    |  
|---------------- |  | ---- | -- | ---- |  | ------ | -- |  |  | ----------- | -- | -
|                 |  |      |    |      |  |        |    |  |  | In Millions
|                 |  |      |    |      |  |        |    |  |  |            
|June 30          |  | 2000 |    | 1999 |  | Change
|                 |  |      |    |      |  |       
|Six Months Ended |  | $    | 41 |      |  | $      | 48 |  |  | $           | (7 | )
|                 |  |      |    |      |  |        |    |  |  |             |    |  

For the three months ended June 30, 2000, net income was $9 million, down $5
million from the same period in 1999, due primarily to decreased reservation
revenues and higher corporate charges in 2000, partially offset by higher
liquefied natural gas (LNG) terminalling revenues in 2000. For the six months
ended June 30, 2000, net income was $41 million, down $7 million from the
corresponding period in 1999 due primarily to decreased reservation revenues
and higher corporate charges in 2000, partially offset by higher LNG
terminalling revenues in 2000. Total natural gas transportation volumes
delivered for the six months ended June 30, 2000 increased 16 percent from 1999
primarily due to the addition of Sea Robin.

Revenues for the three months and the six months ended June 30, 2000 increased
$2 million and $6 million respectively, from the corresponding periods in 1999
due primarily to increased LNG terminalling revenues and revenues from Sea
Robin in 2000, partially offset by lower reservation revenues in 2000.

Operating expenses for the three months and the six months ended June 30, 2000
increased $10 million and $13 million respectively, from the corresponding
period in 1999 due primarily to the increased corporate charges and the
acquisition of Sea Robin.

Other income for the three months ended June 30, 2000 increased $1 million,
from the corresponding period in 1999, due to interest income on a related
party Note Receivable. For the six months ended June 30, 2000 other income
decreased $2 million from the corresponding period in 1999 primarily due to
non-recurring transition surcharge recoveries recorded in 1999.

Interest on long-term debt for the three months and the six months ended June
30, 2000 increased $2 million and $16 million respectively, from the
corresponding period in 1999 primarily due to interest on the additional debt
incurred by Panhandle in 2000 and 1999 (See Note 1 and 6). Other interest
expense was flat for the three months ended June 30, 2000. Other interest
expense decreased $13 million for the six months ended June 30, 2000 from the
corresponding period in 1999, primarily due to interest on an intercompany note
with PanEnergy. The note was eliminated with the sale of Panhandle to CMS
Panhandle Holding (See Note 1 and Note 3).

PE-2



---



Pretax Operating Income:

|                              |  |               |     |  
|----------------------------- |  | ------------- | --- | -
|                              |  | In Millions  
|                              |  |              
|                              |  | Six Months   
|                              |  | Ended June 30
|Change Compared to Prior Year |  | 2000 vs 1999 
|                              |  |              
|Reservation revenue           |  | $             | (12 | )
|                             
|                             
|                             
|                             
|LNG terminalling revenue      |  |               | 9   |  
|                             
|                             
|                             
|                             
|Commodity revenue             |  |               | 7   |  
|                             
|                             
|                             
|                             
|Other revenue                 |  |               | 2   |  
|                             
|                             
|                             
|                             
|Operations and maintenance    |  |               | (13 | )
|                             
|                             
|                             
|                             
|Depreciation and amortization |  |               | (2  | )
|                             
|                             
|                             
|                             
|General taxes                 |  |               | 2   |  
|                              |  |               |     |  
|Total Change                  |  | $             | (7  | )
|                              |  |               |     |  

Outlook

CMS Energy intends to use Panhandle as a platform for expansion in the United
States. The growth strategy around Panhandle includes enhancing the
opportunities to extract value for other CMS businesses involved in electric
power generation and distribution, gathering, processing, exploration and
production. The market for transmission of natural gas to the Midwest is
increasingly competitive, however, and may become more so in light of projects
recently completed or in progress to increase Midwest transmission capacity for
gas originating in Canada and the Rocky Mountain region. As a result, there
continues to be pressure on prices charged by Panhandle and an increasing
necessity to discount the prices charged from the legal maximum, which reduces
revenues. New contracts in the current market conditions tend to be of shorter
duration than the expiring contracts being replaced, which will also increase
revenue volatility. In addition, Trunkline in 1996 filed with FERC and placed
into effect a general rate increase; however, a subsequent January 2000 FERC
order could, if approved without modification upon rehearing, reduce
Trunklines tariff rates and future revenue levels by up to 3% of Panhandles
consolidated revenues. Panhandle continues to be selective in offering
discounts to maximize revenues from existing capacity and to advance projects
that provide expanded services to meet the specific needs of customers.

PE-3



---



Other Matters

Environmental Matters

PCB (Polychlorinated Biphenyl) Assessment and Clean-up Programs:Panhandle
identified environmental contamination at certain sites on its systems and
undertook clean-up programs at these sites. The contamination was caused by
the past use of lubricants containing PCBs in compressed air systems and
resulted in contamination of the on-site air systems, wastewater collection
facilities and on-site disposal areas. Soil and sediment testing to date
detected no significant off-site contamination. Panhandle communicated with
the EPA and appropriate state regulatory agencies on these matters. Under the
terms of the sale of Panhandle to CMS Energy (See Note 1), a subsidiary of Duke
Energy is obligated to complete the Panhandle clean-up programs at certain
agreed-upon sites and to defend and indemnify Panhandle against certain future
environmental litigation and claims. Panhandle expects these clean-up programs
to continue through 2001.

PE-4



---



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PE-5



---



Panhandle Eastern Pipe Line Company
Consolidated Statement of Income
(In millions)
(Unaudited)

|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |   |     | 
|-------------------------------------------------------------- |  | ------------------------ | -- | ------------------ | --- | ---------------- | -- | ---------- | --- | ----------- | --- | ---- | --- | - | --- | - | --- | - | --- | - | --- | 
|                                                               |  |                          |    | Three Months Ended
|                                                               |  |                          |    | June 30            |     | Six Months Ended |    | March 29 - |     | January 1 -
|                                                               |  |                          |    |                    |     | June 30,         |    | June 30,   |     | March 28,  
|                                                               |  |                          |    | 2000               |     | 1999             |    | 2000       |     | 1999        |     | 1999
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |     
|Operating Revenue
   Transportation and storage of natural gas |  | $                        | 92 |                    |     | $                | 97 |            |     | $           | 217 |      |     | $ | 101 |   |     | $ | 123 |  
|                                                              
|                                                              
|                                                              
|                                                              
|Other                                                          |  |                          |    | 13                 |     |                  |    | 6          |     |             |     | 24   |     |   |     | 6 |     |   |     | 5 |    
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|                                                               |  | Total operating revenue  |    |                    | 105 |                  |    |            | 103 |             |     |      | 241 |   |     |   | 107 |   |     |   | 128 | 
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|Operating Expenses
   Operation and maintenance                |  |                          | 49 |                    |     |                  | 38 |            |     |             | 93  |      |     |   | 40  |   |     |   | 40  |  
|                                                              
|                                                              
|                                                              
|                                                              
|Depreciation and amortization                                  |  |                          | 16 |                    |     |                  | 16 |            |     |             | 32  |      |     |   | 16  |   |     |   | 14  |  
|                                                              
|                                                              
|                                                              
|                                                              
|General taxes                                                  |  |                          | 6  |                    |     |                  | 7  |            |     |             | 12  |      |     |   | 7   |   |     |   | 7   |  
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|                                                               |  | Total operating expenses |    |                    | 71  |                  |    |            | 61  |             |     |      | 137 |   |     |   | 63  |   |     |   | 61  | 
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|Pretax Operating Income                                        |  |                          | 34 |                    |     |                  | 42 |            |     |             | 104 |      |     |   | 44  |   |     |   | 67  |  
|                                                              
|                                                              
|                                                              
|                                                              
|Other Income, Net                                              |  |                          | 2  |                    |     |                  | 1  |            |     |             | 3   |      |     |   | 1   |   |     |   | 4   |  
|                                                              
|                                                              
|                                                              
|                                                              
|Interest Charges
   Interest on long-term debt                 |  |                          | 22 |                    |     |                  | 20 |            |     |             | 41  |      |     |   | 20  |   |     |   | 5   |  
|                                                              
|                                                              
|                                                              
|                                                              
|Other interest                                                 |  |                          |   |                    |     |                  |   |            |     |             |    |      |     |   |    |   |     |   | 13  |  
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|                                                               |  | Total interest charges   |    |                    | 22  |                  |    |            | 20  |             |     |      | 41  |   |     |   | 20  |   |     |   | 18  | 
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|Net Income Before Income Taxes                                 |  |                          | 14 |                    |     |                  | 23 |            |     |             | 66  |      |     |   | 25  |   |     |   | 53  |  
|                                                              
|                                                              
|                                                              
|                                                              
|Income Taxes                                                   |  |                          | 5  |                    |     |                  | 9  |            |     |             | 25  |      |     |   | 10  |   |     |   | 20  |  
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  
|Consolidated Net Income                                        |  | $                        | 9  |                    |     | $                | 14 |            |     | $           | 41  |      |     | $ | 15  |   |     | $ | 33  |  
|                                                               |  |                          |    |                    |     |                  |    |            |     |             |     |      |     |   |     |   |     |   |     |  

The accompanying condensed notes are an integral part
of these statements.

PE-6



---



Panhandle Eastern Pipe Line Company
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |     |     |  
|--------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | -- | ---------------- | --- | ---------- | ------ | ----------- | ------ | - | -- | --- | --- | -
|                                                                |                                                                                   |                                           |    | Six Months Ended |     | March 29 - |        | January 1 -
|                                                                |                                                                                   |                                           |    | June 30,         |     | June 30,   |        | March 28,  
|                                                                |                                                                                   |                                           |    | 2000             |     | 1999       |        | 1999       
|                                                                |                                                                                   |                                           |    |                  |     |            |        |            
|CASH FLOWS FROM OPERATING ACTIVITIES
  Net income               |                                                                                   | $                                         | 41 |                  |     | $          | 15     |             |        | $ | 33 |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Adjustments to reconcile net income to net cash provided by
operating activities:
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Depreciation and amortization                                                     |                                           |    | 32               |     |            |        | 16          |        |   |    | 14  |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Deferred income taxes                                                             |                                           |    | 26               |     |            |        | 8           |        |   |    |    |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Changes in current assets and liabilities                                         |                                           |    | (23              | )   |            |        | 25          |        |   |    | (29 | )  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other, net                                                                        |                                           |    | 4                |     |            |        | (4          | )      |   |    | 3   |    
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|                                                                |                                                                                   | Net cash provided by operating activities |    |                  | 80  |            |        |             | 60     |   |    |     | 21  |  
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisition of Panhandle |                                                                                   |                                           |   |                  |     |            | (1,900 | )           |        |   |   |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Capital and investment expenditures                                               |                                           |    | (89              | )   |            |        | (8          | )      |   |    | (4  | )  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net increase in advances receivable  PanEnergy                                   |                                           |    |                 |     |            |        |            |        |   |    | (17 | )  
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|                                                                |                                                                                   | Net cash used in investing activities     |    |                  | (89 | )          |        |             | (1,908 | ) |    |     | (21 | )
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|CASH FLOWS FROM FINANCING ACTIVITIES                            |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Contribution from parent                                                          |                                           |    |                 |     |            |        | 1,116       |        |   |    |    |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Proceeds from senior notes                                                        |                                           |    | 99               |     |            |        | 785         |        |   |    |    |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net increase in note receivable  CMS                                             |                                           |    | (36              | )   |            |        | (40         | )      |   |    |    |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Dividends paid                                                                    |                                           |    | (39              | )   |            |        | (13         | )      |   |    |    |    
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|                                                                |                                                                                   | Net cash provided by financing activities |    |                  | 24  |            |        |             | 1,848  |   |    |     |    |  
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|                                                                | Net Increase (Decrease) in Cash and Temporary Cash Investments                    |                                           |    | 15               |     |            |        |            |        |   |    |    |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash and Temporary Cash Investments, Beginning of Period                          |                                           |    |                 |     |            |        |            |        |   |    |    |    
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|                                                                | Cash and Temporary Cash Investments, End of Period                                |                                           | $  | 15               |     |            | $      |            |        |   | $  |    |    
|                                                                |                                                                                   |                                           |    |                  |     |            |        |             |        |   |    |    
|Other cash flow activities were:                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Interest paid (net of amounts capitalized)                                        |                                           | $  | 38               |     |            | $      |            |        |   | $  | 12  |    
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Income taxes paid (net of refunds)                                                |                                           |    | 5                |     |            |        | 2           |        |   |    | 37  |    

The accompanying condensed notes are an integral part of these statements.

PE-7



---



Panhandle Eastern Pipe Line Company
Consolidated Balance Sheets

(In millions)
(Unaudited)

|                                                    |                                                                          |                                    |       |          |       |              |       |       |       | 
|--------------------------------------------------- | ------------------------------------------------------------------------ | ---------------------------------- | ----- | -------- | ----- | ------------ | ----- | ----- | ----- | 
|                                                    |                                                                          |                                    |       | June 30, |       | December 31,
|                                                    |                                                                          |                                    |       | 2000     |       | 1999        
|                                                    |                                                                          |                                    |       |          |       |             
|ASSETS                                             
|                                                   
|                                                   
|                                                   
|                                                   
|Property, Plant and Equipment
Cost                  |                                                                          | $                                  | 1,622 |          |       | $            | 1,492 |      
|                                                   
|                                                   
|                                                   
|                                                   
|Less accumulated depreciation and amortization      |                                                                          |                                    | 76    |          |       |              | 37    |      
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|                                                    |                                                                          | Sub-total                          |       |          | 1,546 |              |       |       | 1,455 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Construction work-in-progress                                            |                                    |       | 31       |       |              |       | 45    |      
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|                                                    |                                                                          | Net property, plant and equipment  |       |          | 1,577 |              |       |       | 1,500 | 
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|Investments
 Investment in affiliates               |                                                                          |                                    | 2     |          |       |              | 2     |      
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|                                                    |                                                                          | Total investments and other assets |       |          | 2     |              |       |       | 2     | 
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|Current Assets
 Cash and temporary cash investments |                                                                          |                                    | 15    |          |       |              |      |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Receivables, less allowances of $1 as of June 30, 2000 and Dec. 31, 1999 |                                    |       | 106      |       |              |       | 112   |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Inventory and supplies                                                   |                                    |       | 70       |       |              |       | 34    |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred income taxes                                                    |                                    |       | 12       |       |              |       | 11    |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Note receivable  CMS Capital                                            |                                    |       | 121      |       |              |       | 85    |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                                    |                                    |       | 57       |       |              |       | 30    |      
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|                                                    |                                                                          | Total current assets               |       |          | 381   |              |       |       | 272   | 
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|Non-current Assets
 Goodwill, net                   |                                                                          |                                    | 764   |          |       |              | 774   |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Debt issuance cost                                                       |                                    |       | 11       |       |              |       | 11    |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other                                                                    |                                    |       | 5        |       |              |       | 1     |      
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|                                                    |                                                                          | Total non-current assets           |       |          | 780   |              |       |       | 786   | 
|                                                    |                                                                          |                                    |       |          |       |              |       |      
|                                                    | Total Assets                                                             |                                    | $     | 2,740    |       |              | $     | 2,560 |      
|                                                    |                                                                          |                                    |       |          |       |              |       |      

The accompanying condensed notes are an integral part of these statements.

PE-8



---



Panhandle Eastern Pipe Line Company
Consolidated Balance Sheets

(In millions)
(Unaudited)

|                                            |                                                   |                                                                       |                                   |       |          |       |              |       |       |       | 
|------------------------------------------- | ------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------- | ----- | -------- | ----- | ------------ | ----- | ----- | ----- | 
|                                            |                                                   |                                                                       |                                   |       | June 30, |       | December 31,
|                                            |                                                   |                                                                       |                                   |       | 2000     |       | 1999        
|                                            |                                                   |                                                                       |                                   |       |          |       |             
|COMMON STOCKHOLDERS EQUITY AND LIABILITIES
|                                           
|                                           
|                                           
|                                           
|Capitalization                             
|                                           
|                                           
|                                           
|                                           
|                                            | Common stockholders equity                      
|                                           
|                                           
|                                           
|                                           
|                                            |                                                   | Common stock, no par, 1,000 shares authorized, issued and outstanding |                                   | $     | 1        |       |              | $     | 1     |      
|                                           
|                                           
|                                           
|                                           
|                                            |                                                   | Paid-in capital                                                       |                                   |       | 1,127    |       |              |       | 1,127 |      
|                                           
|                                           
|                                           
|                                           
|                                            |                                                   | Retained earnings                                                     |                                   |       | 2        |       |              |       |      |      
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|                                            |                                                   |                                                                       | Total common stockholders equity |       |          | 1,130 |              |       |       | 1,128 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Long-term debt                                    |                                                                       |                                   | 1,193 |          |       |              | 1,094 |      
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|                                            |                                                   |                                                                       | Total capitalization              |       |          | 2,323 |              |       |       | 2,222 | 
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|Current Liabilities                        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                                  |                                                                       |                                   | 10    |          |       |              | 28    |      
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued taxes                                     |                                                                       |                                   | 9     |          |       |              | 8     |      
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued interest                                  |                                                                       |                                   | 31    |          |       |              | 29    |      
|                                           
|                                           
|                                           
|                                           
|                                            | Other                                             |                                                                       |                                   | 204   |          |       |              | 139   |      
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|                                            |                                                   |                                                                       | Total current liabilities         |       |          | 254   |              |       |       | 204   | 
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|Non-current Liabilities                    
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred income taxes                             |                                                                       |                                   | 72    |          |       |              | 45    |      
|                                           
|                                           
|                                           
|                                           
|                                            | Other                                             |                                                                       |                                   | 91    |          |       |              | 89    |      
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|                                            |                                                   |                                                                       | Total non-current liabilities     |       |          | 163   |              |       |       | 134   | 
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      
|                                            | Total Common Stockholders Equity and Liabilities |                                                                       | $                                 | 2,740 |          |       | $            | 2,560 |      
|                                            |                                                   |                                                                       |                                   |       |          |       |              |      

The accompanying condensed notes are an integral part of these statements.

PE-9



---



Panhandle Eastern Pipe Line Company
Consolidated Statements of Common Stockholders Equity

(In millions)
(Unaudited)

|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 
|----------------------------------------------- | -------------------------------------------------------------- | ---------------- | - | ----- | ---------------- | - | ---------- | ----- | ----------- | - | -- | --- | --- |  | 
|                                                |                                                                |                  |   |       | Six Months Ended |   | March 29 - |       | January 1 -
|                                                |                                                                |                  |   |       | June 30,         |   | June 30,   |       | March 28,  
|                                                |                                                                |                  |   |       | 2000             |   | 1999       |       | 1999       
|                                                |                                                                |                  |   |       |                  |   |            |       |            
|Common Stock
    At beginning and end of period |                                                                | $                | 1 |       |                  | $ | 1          |       |             | $ | 1  |    
|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 
|Other Paid-in Capital                           |                                                                |                  |   |       |                  |   |            |       |             |   |    |    
|                                               
|                                               
|                                               
|                                               
|                                                | At beginning of period                                         |                  |   | 1,127 |                  |   |            | 466   |             |   |    | 466 |    
|                                               
|                                               
|                                               
|                                               
|                                                | Acquisition adjustment to eliminate original
paid-in capital   |                  |   |      |                  |   |            | (466  | )           |   |    |    |    
|                                               
|                                               
|                                               
|                                               
|                                                | Capital contribution of acquisition costs by parent            |                  |   |      |                  |   |            | 11    |             |   |    |    |    
|                                               
|                                               
|                                               
|                                               
|                                                | Cash capital contribution by parent                            |                  |   |      |                  |   |            | 1,116 |             |   |    |    |    
|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 
|                                                |                                                                | At end of period |   |       | 1,127            |   |            |       | 1,127       |   |    |     | 466 | 
|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 
|Retained Earnings
 At beginning of period       |                                                                |                  |  |       |                  |   | 101        |       |             |   | 92 |    
|                                               
|                                               
|                                               
|                                               
|                                                | Acquisition adjustment to eliminate original
retained earnings |                  |   |      |                  |   |            | (101  | )           |   |    |    |    
|                                               
|                                               
|                                               
|                                               
|                                                | Net Income                                                     |                  |   | 41    |                  |   |            | 15    |             |   |    | 33  |    
|                                               
|                                               
|                                               
|                                               
|                                                | Assumption of net liability by PanEnergy                       |                  |   |      |                  |   |            |      |             |   |    | 57  |    
|                                               
|                                               
|                                               
|                                               
|                                                | Common stock dividends                                         |                  |   | (39   | )                |   |            | (13   | )           |   |    | (81 | )  
|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 
|                                                |                                                                | At end of period |   |       | 2                |   |            |       | 2           |   |    |     | 101 | 
|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 
|                                                | Total Common Stockholders Equity                              |                  | $ | 1,130 |                  |   | $          | 1,130 |             |   | $  | 568 |    
|                                                |                                                                |                  |   |       |                  |   |            |       |             |   |    |     |     |  | 

The accompanying condensed notes are an integral part of these statements.

PE-10



---



Panhandle Eastern Pipe Line Company

Condensed Notes to Consolidated Financial Statements

These Condensed Notes and their related Consolidated Financial Statements should
be read along with the Consolidated Financial Statements and Notes contained in
the 1999 Form 10-K of Panhandle, which include the Reports of Independent Public
Accountants. Certain prior year amounts have been reclassified to conform with
the presentation in the current year. In the opinion of management, the
unaudited information herein reflects all adjustments necessary to assure the
fair presentation of financial position, results of operations and cash flows
for the periods presented.

1. CORPORATE STRUCTURE

Panhandle is a wholly owned subsidiary of CMS Gas Transmission. Panhandle
Eastern Pipe Line Company was incorporated in Delaware in 1929. Panhandle is
engaged primarily in interstate transportation and storage of natural gas, and
is subject to the rules and regulations of the FERC.

On March 29, 1999, Panhandle Eastern Pipe Line Company and its principal
consolidated subsidiaries, Trunkline and Pan Gas Storage, as well as its
affiliates, Trunkline LNG and Panhandle Storage, were acquired from subsidiaries
of Duke Energy by CMS Panhandle Holding for $1.9 billion in cash and assumption
of existing Panhandle debt of $300 million. Immediately following the
acquisition, CMS Panhandle Holding contributed the stock of Trunkline LNG and
Panhandle Storage to Panhandle Eastern Pipe Line Company. As a result, Trunkline
LNG and Panhandle Storage became wholly owned subsidiaries of Panhandle Eastern
Pipe Line Company.

In conjunction with the acquisition, Panhandles interests in Northern Border
Pipeline Company, Panhandle Field Services Company, Panhandle Gathering Company,
and certain other assets, including the Houston corporate headquarters building,
were transferred to other subsidiaries of Duke Energy; all intercompany accounts
and notes between Panhandle and Duke Energy subsidiaries were eliminated; and
with respect to certain other liabilities, including tax, environmental and
legal matters, CMS Energy and its affiliates, are indemnified for any resulting
losses. In addition, Duke Energy agreed to continue its environmental clean-up
program at certain properties and to defend and indemnify Panhandle against
certain future environmental litigation and claims with respect to certain
agreed-upon sites or matters.

CMS Panhandle Holding privately placed $800 million of senior unsecured notes
and received a $1.1 billion initial capital contribution from CMS Energy to fund
the acquisition of Panhandle. On June 15, 1999, CMS Panhandle Holding was merged
into Panhandle, at which point the CMS Panhandle Holding notes became direct
obligations of Panhandle. In September 1999, Panhandle completed an exchange
offer which replaced the $800 million of notes originally issued by CMS
Panhandle Holding with substantially identical SEC-registered notes.

The acquisition by CMS Panhandle Holding was accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles. Panhandle allocated the purchase price paid by CMS Panhandle Holding
to Panhandles net assets as of the acquisition date based on an appraisal
completed December 1999. Accordingly, the post-acquisition financial statements
reflect a new basis of accounting. Pre-acquisition period and post-acquisition
period financial results (separated by a heavy black line) are presented but are
not comparable.



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Assets acquired and liabilities assumed are recorded at their fair values.
Panhandle allocated the excess purchase price over the fair value of net assets
acquired of approximately $800 million to goodwill and is amortizing this amount
on a straight-line basis over forty years. The amortization of the excess
purchase price over 40 years reflects the nature of the industry in which
Panhandle competes as well as the long-lived nature of Panhandles assets. As a
result of regulation, high replacement costs, and competition, entry into the
natural gas transmission and storage business requires a significant investment.
The excess purchase price over the prior carrying amount of Panhandles net
assets as of March 29, 1999 totaled $1.3 billion, and was allocated as follows:

|                              |  |             |       |  
|----------------------------- |  | ----------- | ----- | -
|                              |  | In Millions
|                              |  |            
|Property, plant and equipment |  | $           | 633   |  
|                             
|                             
|                             
|                             
|Accounts receivable           |  |             | 3     |  
|                             
|                             
|                             
|                             
|Inventory                     |  |             | (9    | )
|                             
|                             
|                             
|                             
|Goodwill                      |  |             | 788   |  
|                             
|                             
|                             
|                             
|Regulatory assets, net        |  |             | (15   | )
|                             
|                             
|                             
|                             
|Liabilities                   |  |             | (72   | )
|                             
|                             
|                             
|                             
|Long-term debt                |  |             | (6    | )
|                             
|                             
|                             
|                             
|Other                         |  |             | (16   | )
|                              |  |             |       |  
|Total                         |  | $           | 1,306 |  
|                              |  |             |       |  

In March 2000, Trunkline, a subsidiary of Panhandle, acquired the Sea Robin
pipeline from El Paso Energy Corporation for cash of approximately $74 million
(See Note 6). Sea Robin is a 1 bcf per day capacity pipeline system located in
the Gulf of Mexico.

2. REGULATORY MATTERS

Effective August 1996, Trunkline placed into effect a general rate increase,
subject to refund. On September 16, 1999, Trunkline filed a FERC settlement
agreement to resolve certain issues in this proceeding. FERC approved this
settlement February 1, 2000 and required refunds of approximately $2 million
which were made in April 2000, with supplemental refunds of $1.3 million in June
2000. On January 12, 2000, FERC issued an order on the remainder of the rate
proceeding which, if approved without modification, would result in a
substantial reduction to Trunklines tariff rates which would impact future
revenues and require refunds. Trunkline has requested rehearing of certain
matters in this order.

In conjunction with a FERC order issued in September 1997, FERC required certain
natural gas producers to refund previously collected Kansas ad-valorem taxes to
interstate natural gas pipelines. FERC ordered these pipelines to refund these
amounts to their customers. The pipelines must make all payments in compliance
with prescribed FERC requirements. At June 30, 2000 and December 31, 1999,
Accounts Receivable included $56 million and $54 million, respectively, due from
natural gas producers, and Other Current Liabilities included $56 million and
$54 million, respectively, for related obligations.

On March 9, 2000, Trunkline filed an abandonment application with FERC seeking
to abandon 720 miles of its 26-inch diameter pipeline that extends from
Longville, Louisiana to Bourbon, Illinois. This filing is in



PE-12



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conjunction with a plan for a limited liability corporation to convert the line
from natural gas transmission service to a refined products pipeline, called
Centennial Pipeline, by the end of 2001. Panhandle will own a one third interest
in the venture along with TEPPCO Partners L.P. and Marathon Ashland Petroleum
LLC.

On May 19, 1999, Trunkline and Trunkline LNG submitted a compliance filing
advising the FERC that the acquisition by CMS Energy of Trunkline LNG triggered
certain provisions of a 1992 settlement. The settlement resolved issues related
to minimum bill provisions of the Trunkline LNG Rate Schedule PLNG-1, as well as
pending rate matters for Trunkline and refund matters for Trunkline LNG.
Specifically, the settlement provisions required Trunkline LNG, and Trunkline in
turn, to make refunds to customers, including Panhandle Eastern Pipe Line
Company and Consumers, who were parties to the settlement, if the ownership of
all or a portion of the LNG terminal was transferred to an unaffiliated entity.
The Commission approved the LNG settlement to be effective April 1,1999.
Trunklines refunds, which were made in April 2000, included $12 million to
Consumers Energy, $4 million to Panhandle Eastern Pipe Line Company, and $1
million to other Trunkline customers. In conjunction with the acquisition of
Panhandle by CMS Energy, Duke Energy indemnified Panhandle for this refund
obligation and reimbursed Trunkline for the refunds in April 2000. On May 31,
2000, the FERC approved Panhandle Eastern Pipe Line Companys flow through of
its portion of the settlement amounts to its customers.

3. RELATED PARTY TRANSACTIONS

Interest charges include $13 million for the six months ended June 30, 1999 for
interest associated with notes payable to a subsidiary of Duke Energy. Other
income includes $3 million for the six months ended June 30, 2000 for interest
on Note Receivable from CMS Capital.

A summary of certain balances due to or due from related parties included in the
Consolidated Balance Sheets is as follows:

|                 |  |          |    |              |  |             |    | 
|---------------- |  | -------- | -- | ------------ |  | ----------- | -- | 
|                 |  |          |    |              |  | In Millions
|                 |  | June 30, |    | December 31,
|                 |  |          |    |             
|                 |  | 2000     |    | 1999        
|                 |  |          |    |             
|Receivables      |  | $        | 29 |              |  | $           | 8  | 
|                
|                
|                
|                
|Accounts payable |  |          | 5  |              |  |             | 16 | 

4. GAS IMBALANCES

The Consolidated Balance Sheets include in-kind balances as a result of
differences in gas volumes received and delivered. At June 30, 2000 and December
31, 1999, other current assets included $40 million and $22 million,
respectively, and other current liabilities included $86 million and $30
million, respectively, related to gas imbalances. Panhandle values gas
imbalances at the lower of cost or market.

5. INCOME TAXES

As described in Note 1, CMS Panhandle Holding acquired the stock of Panhandle
from subsidiaries of Duke Energy for a total of $2.2 billion in cash and
acquired debt. Panhandle treated the acquisition as



PE-13



---



an asset acquisition for tax purposes, which eliminated Panhandles deferred tax
liability and gave rise to a new tax basis in Panhandles assets equal to the
purchase price.

6. LONG TERM DEBT

On March 27, 2000, Panhandle issued $100 million of 8.25 percent senior notes
due 2010. Panhandle used the funds primarily to finance the purchase of Sea
Robin (See Note 1). In July, these notes were exchanged for substantially
identical SEC registered notes.

On March 29, 1999, CMS Panhandle Holding privately placed $800 million of senior
notes (See Note 1) including: $300 million of 6.125 percent senior notes due
2004; $200 million of 6.5 percent senior notes due 2009; and $300 million of 7.0
percent senior notes due 2029. On June 15, 1999, CMS Panhandle Holding merged
into Panhandle and Panhandle assumed the obligations of CMS Panhandle Holding
under the notes and the indenture. In September 1999, Panhandle completed an
exchange offer which replaced the $800 million of notes originally issued by CMS
Panhandle Holding with substantially identical SEC-registered notes.

In conjunction with the application of purchase accounting, Panhandle revalued
its existing notes totaling $300 million. This resulted in a net premium
recorded of approximately $5 million.

7. INVESTMENT IN AFFILIATES

Lee 8 Storage:Panhandle, through its subsidiary Panhandle Storage, owns a 40
percent interest in the Lee 8 partnership, which operates a 1.4 bcf natural gas
storage facility in Michigan. This interest results from the contribution of the
stock of Panhandle Storage to Panhandle Eastern Pipe Line Company by CMS
Panhandle Holding on March 29, 1999.

8. SFAS 71

As a result of Panhandles new cost basis resulting from the merger with CMS
Panhandle Holding, which includes costs not likely to be considered for
regulatory recovery, in addition to the level of discounting being experienced
by Panhandle, it no longer meets the criteria of SFAS 71 and has discontinued
application of SFAS 71. Accordingly, upon acquisition by CMS Panhandle Holding,
the remaining net regulatory assets of approximately $15 million were eliminated
in purchase accounting (See Note 1).

9. COMMITMENTS AND CONTINGENCIES

CAPITAL EXPENDITURES:Panhandle estimates capital expenditures and investments,
including allowance for funds used during construction, to be $60 million in
2001 and 2002. Panhandle prepared these estimates for planning purposes and they
are subject to revision. Panhandle satisfies capital expenditures using cash
from operations.

LITIGATION:Under the terms of the sale of Panhandle to CMS Energy discussed in
Note 1 to the Consolidated Financial Statements, subsidiaries of Duke Energy
indemnified CMS Energy and its



PE-14



---



affiliates from losses resulting from certain legal and tax liabilities of
Panhandle, including the matter specifically discussed below.

In May 1997, Anadarko filed suits against Panhandle and other PanEnergy
affiliates, as defendants, both in the United States District Court for the
Southern District of Texas and State District Court of Harris County, Texas.
Pursuing only the federal court claim, Anadarko claims that it was effectively
indemnified by the defendants against any responsibility for refunds of Kansas
ad valorem taxes which are due from purchasers of gas from Anadarko, retroactive
to 1983. In October 1998 and January 1999, the FERC issued orders on ad valorem
tax issues, finding that first sellers of gas were primarily liable for refunds.
The FERC also noted that claims for indemnity or reimbursement among the parties
would be better addressed by the United States District Court for the Southern
District of Texas. Panhandle believes the resolution of this matter will not
have a material adverse effect on consolidated results of operations or
financial position.

Panhandle is also involved in other legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Where appropriate, Panhandle has made accruals in
accordance with SFAS 5, Accounting for Contingencies, in order to provide for
such matters. Management believes the final disposition of these proceedings
will not have a material adverse effect on consolidated results of operations or
financial position.

ENVIRONMENTAL MATTERS:Panhandle is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. Panhandle has identified environmental
contamination at certain sites on its systems and has undertaken clean-up
programs at these sites. The contamination resulted from the past use of
lubricants in compressed air systems containing PCBs and the prior use of
wastewater collection facilities and other on-site disposal areas. Under the
terms of the sale of Panhandle to CMS Energy, a subsidiary of Duke Energy is
obligated to complete the Panhandle clean-up programs at certain agreed-upon
sites and to indemnify against certain future environmental litigation and
claims. The Illinois EPA included Panhandle and Trunkline, together with other
non-affiliated parties, in a cleanup of former waste oil disposal sites in
Illinois. Prior to a partial cleanup by the United States EPA, a preliminary
study estimated the cleanup costs at one of the sites to be between $5 million
and $15 million. The State of Illinois contends that Panhandle Eastern Pipe Line
Companys and Trunklines share for the costs of assessment and remediation of
the sites, based on the volume of waste sent to the facilities, is 17.32
percent. Management believes that the costs of cleanup, if any, will not have a
material adverse impact on Panhandles financial position, liquidity, or results
of operations.

OTHER COMMITMENTS AND CONTINGENCIES:In 1993, the U.S. Department of the
Interior announced its intention to seek additional royalties from gas producers
as a result of payments received by such producers in connection with past
take-or-pay settlements, and buyouts and buydowns of gas sales contracts with
natural gas pipelines. Panhandles pipelines, with respect to certain producer
contract settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. The potential
liability of the producers to the government and of the pipelines to the
producers involves complex issues of law and fact which are likely to take
substantial time to resolve. If required to reimburse or indemnify the
producers, Panhandles pipelines will file with FERC to recover a portion of
these costs from pipeline customers. Management believes



PE-15



---



these commitments and contingencies will not have a material adverse effect on
consolidated results of operations or financial position.

Under the terms of a settlement related to a transportation agreement between
Panhandle and Northern Border Pipeline Company, Panhandle guarantees payment to
Northern Border Pipeline Company under a transportation agreement held by a
third party. The transportation agreement requires estimated total payments of
$24 million for the remainder of 2000 through the third quarter of 2001.
Management believes the probability that Panhandle will be required to perform
under this guarantee is remote.



PE-16



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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Panhandle Eastern Pipe Line Company:

We have reviewed the accompanying consolidated balance sheet of Panhandle
Eastern Pipe Line Company (a Delaware corporation) and subsidiaries as of
June 30, 2000, and the related consolidated statements of income, common
stockholders equity and cash flows for the three-month and six-month periods
ended June 30, 2000 and 1999. These financial statements are the
responsibility of the companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Panhandle
Eastern Pipe Line Company and subsidiaries as of December 31, 1999, and, in
our report dated February 25, 2000, we expressed an unqualified opinion on
that statement. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1999, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.

/s/ Arthur Andersen LLP

Houston, Texas
July 31, 2000

PE-17



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Quantitative and Qualitative
Disclosures about Market Risk

CMS Energy

Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: CMS Energy Corporations Managements Discussion and Analysis, which is
incorporated by reference herein.

Consumers

Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: Consumers Energy Companys Managements Discussion and Analysis, which is
incorporated by reference herein.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The discussion below is limited to an update of developments that have occurred
in various judicial and administrative proceedings, many of which are more
fully described in CMS Energys, Consumers and Panhandles Form 10-K for the
year ended December 31, 1999, and in their Form 10-Q for the quarter ended
March 31, 2000. Reference is made to the CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS, in particular Note 2  Uncertainties for CMS Energy and
Consumers, and Note 9  Commitments and Contingencies for Panhandle, included
herein for additional information regarding various pending administrative and
judicial proceedings involving rate, operating, regulatory and environmental
matters.

CMS ENERGY

Oxford Tire Recycling:CMS Generation and the Attorney General of California
are negotiating an interim settlement to partially comply with the administrative
order in an effort to stop the running of the penalties. The settlement is
estimated at $800,000 of clean up.

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CMS ENERGY, CONSUMERS and PANHANDLE

Environmental Matters:CMS Energy, Consumers, Panhandle and their subsidiaries
and affiliates are subject to various federal, state and local laws and
regulations relating to the environment. Several of these companies have been
named parties to various actions involving environmental issues. Based on
their present knowledge and subject to future legal and factual developments,
CMS Energy, Consumers and Panhandle believe that it is unlikely that these
actions, individually or in total, will have a material adverse effect on their
financial condition. See CMS Energys, Consumers and Panhandles MANAGEMENTS
DISCUSSION AND ANALYSIS; and CMS Energys, Consumers and Panhandles CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

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

At the CMS Energy Annual Meeting of Shareholders held on May 26, 2000, the
shareholders ratified the appointment of Arthur Andersen LLP as independent
auditors of CMS Energy for the year ended December 31, 2000. The vote was
94,835,175 shares in favor and 720,742 against, with 553,624 abstaining. The
CMS Energy shareholders voted on a proposal to permit awards under CMS Energy
Corporations Executive Incentive Compensation Plan to be income tax deductible
by CMS Energy. The vote was 88,209,892 shares in favor and 4,844,496 against,
with 3,055,169 abstaining. The CMS Energy shareholders also elected all eleven
nominees for the office of director. The votes for individual nominees were as
follows:

CMS ENERGY CORPORATION

|                          |  |     |            |         |  |       |            |  |  |  |            | 
|------------------------- |  | --- | ---------- | ------- |  | ----- | ---------- |  |  |  | ---------- | 
|Number of Votes:          |  | For |            | Against |  | Total
|                          |  |     |            |         |  |      
|William T. McCormick, Jr. |  |     | 84,193,755 |         |  |       | 11,915,806 |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|John M. Deutch            |  |     | 90,144,887 |         |  |       | 5,964,674  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|James J. Duderstadt       |  |     | 93,140,821 |         |  |       | 2,968,740  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|Kathleen R. Flaherty      |  |     | 93,218,928 |         |  |       | 2,890,633  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|Victor J. Fryling         |  |     | 84,161,537 |         |  |       | 11,948,024 |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|Earl D. Holton            |  |     | 93,203,245 |         |  |       | 2,906,316  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|William U. Parfet         |  |     | 93,214,415 |         |  |       | 2,895,146  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|Percy A. Pierre           |  |     | 93,207,514 |         |  |       | 2,902,407  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|Kenneth L. Way            |  |     | 90,418,236 |         |  |       | 5,691,325  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|Kenneth Whipple           |  |     | 93,196,005 |         |  |       | 2,913,556  |  |  |  | 96,109,561 | 
|                         
|                         
|                         
|                         
|John B. Yasinsky          |  |     | 93,233,393 |         |  |       | 2,876,168  |  |  |  | 96,109,561 | 

Consumers did not solicit proxies for the matters submitted to votes at the
contemporaneous May 26, 2000 Consumers Annual Meeting of Shareholders. All
84,108,789 shares of Consumers Common Stock were voted in favor of re-electing
the above-named individuals as directors of Consumers, in favor of ratifying
the appointment of Arthur Andersen LLP as independent auditors of Consumers for
the year ended December 31, 2000, and in favor of a proposal to amend and
restate the Restated Articles of Incorporation to (a) delete the current
Article VIII to remove the requirement that members of the Board must own stock
of Consumers to remain a member of the Board, (b) add a new Article VIII to
provide authority for written consents of the shareholders for annual and
special meetings, and (c) eliminate obsolete material. None of the 441,599
shares of Consumers Preferred Stock were voted at the Annual Meeting.

CO-2



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ITEM 5. OTHER INFORMATION

A shareholder who intends to submit a proposal for a vote at CMS Energys 2001
Annual Meeting of Shareholders but which will not be included in CMS Energys
2001 proxy statement must send the proposal to reach CMS Energy on or before
March 1, 2001. The proposals should be addressed to: Mr. Thomas A. McNish,
Corporate Secretary, Fairlane Plaza South, Suite 1100, 330 Town Center Drive,
Dearborn, Michigan 48126. Failure to timely submit the proposal will allow
management to use discretionary voting authority when the proposal is raised at
the Annual Meeting.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|        |  |                     |  |                                                                                                                                                                                                                                                                                                                    |  |                                                                       
|------- |  | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------
|(a)     |  | List of Exhibits   
|       
|       
|       
|       
|(4)     |  |                     |  | Credit Agreement, dated as of June 27, 2000 among CMS Energy, as
Borrower, and the Banks named therein, as Banks, and The Chase Manhattan
Bank, as Administrative Agent and Collateral Agent, and Bank of America,
N.A. and Barclays Bank plc as Co-Syndication Agents, and Citibank, N.A. as
Documentation Agent.
|       
|       
|       
|       
|(12)    |  | -                   |  | CMS Energy:                                                                                                                                                                                                                                                                                                        |  | Statements regarding computation of Ratio of Earnings to
Fixed Charges
|       
|       
|       
|       
|(15)(a) |  | -                   |  | CMS Energy:                                                                                                                                                                                                                                                                                                        |  | Letter of Independent Public Accountant                               
|       
|       
|       
|       
|(15)(b) |  | -                   |  | Consumers:                                                                                                                                                                                                                                                                                                         |  | Letter of Independent Public Accountant                               
|       
|       
|       
|       
|(27)(a) |  | -                   |  | CMS Energy:                                                                                                                                                                                                                                                                                                        |  | Financial Data Schedule                                               
|       
|       
|       
|       
|(27)(b) |  | -                   |  | Consumers:                                                                                                                                                                                                                                                                                                         |  | Financial Data Schedule                                               
|       
|       
|       
|       
|(27)(c) |  | -                   |  | Panhandle:                                                                                                                                                                                                                                                                                                         |  | Financial Data Schedule                                               
|       
|       
|       
|       
|(b)     |  | Reports on Form 8-K

CMS ENERGY

Current Reports filed May 1, 2000, June 5, 2000 and July 6, 2000 covering
matters pursuant to ITEM 5. OTHER EVENTS.

CONSUMERS

Current Reports filed June 6, 2000 and July 6, 2000 covering matters pursuant
to ITEM 5. OTHER EVENTS.

PANHANDLE

No Current Reports on Form 8-K filed during the second quarter.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.

|                       |  |                                                                                                                                         
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|                       |  | CMS ENERGY CORPORATION
            (Registrant)                                                                                         
|                      
|Dated: August 11, 2000 |  | By:       /s/   A.M. Wright  
            Alan M. Wright
           Senior Vice President and
          Chief Financial Officer         
|                      
|                       |  | CONSUMERS ENERGY COMPANY
            (Registrant)                                                                                       
|                      
|Dated: August 11, 2000 |  | By:       /s/   A.M. Wright
            Alan M. Wright
           Senior Vice President and
          Chief Financial Officer           
|                      
|                       |  | PANHANDLE EASTERN PIPE LINE COMPANY
            (Registrant)                                                                            
|                      
|Dated: August 11, 2000 |  | By:       /s/   A.M. Wright
            Alan M. Wright
           Senior Vice President,
          Chief Financial Officer and Treasurer

CO-4





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|        |  |  |   |  |  |                                                                                                                                                                                                                                                                                                                   
|------- |  |  | - |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  |  |   |  |  | Description                                                                                                                                                                                                                                                                                                       
|        |  |  |   |  |  |                                                                                                                                                                                                                                                                                                                   
|(4)     |  |  |   |  |  | Credit Agreement, dated as of June 27, 2000 among CMS Energy, as
Borrower, and the Banks named therein, as Banks, and The Chase Manhattan
Bank, as Administrative Agent and Collateral Agent, and Bank of America,
N.A. and Barclays Bank plc as Co-Syndication Agents, and Citibank, N.A. as
Documentation Agent.
|       
|       
|       
|       
|(12)    |  |  | - |  |  | CMS Energy: Statements regarding computation of Ratio of Earnings to
Fixed Charges                                                                                                                                                                                                                                
|       
|       
|       
|       
|(15)(a) |  |  | - |  |  | CMS Energy: Letter of Independent Public Accountant                                                                                                                                                                                                                                                               
|       
|       
|       
|       
|(15)(b) |  |  | - |  |  | Consumers: Letter of Independent Public Accountant                                                                                                                                                                                                                                                                
|       
|       
|       
|       
|(27)(a) |  |  | - |  |  | CMS Energy: Financial Data Schedule                                                                                                                                                                                                                                                                               
|       
|       
|       
|       
|(27)(b) |  |  | - |  |  | Consumers: Financial Data Schedule                                                                                                                                                                                                                                                                                
|       
|       
|       
|       
|(27)(c) |  |  | - |  |  | Panhandle: Financial Data Schedule