##### Table of Contents





UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC
    20549
  FORM 10-K
  [X]
 ANNUAL REPORT
    PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES
    EXCHANGE ACT OF 1934
 For
    the fiscal year ended December 31, 2008
 OR
 o
 TRANSITION REPORT
    PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES
    EXCHANGE ACT OF 1934
 For
    the transition period
    from          
    to
  Commission

Registrant; State
    of Incorporation;

IRS EmployerFile
    Number

Address; and
    Telephone Number

Identification
    No.1-9513

CMS Energy Corporation
    (A Michigan Corporation)
    One Energy Plaza, Jackson, Michigan 49201(517) 788-0550

38-27264311-5611

Consumers Energy Company
    (A Michigan Corporation)
    One Energy Plaza, Jackson, Michigan 49201(517) 788-0550

38-0442310   Securities
    registered pursuant to Section 12(b) of the Act:
 Name of Each
    ExchangeRegistrant

Title of
    Class

on Which
    RegisteredCMS Energy Corporation

Common Stock, $.01 par value

New York Stock ExchangeConsumers Energy Company

Preferred Stocks, $100 par value: $4.16 Series, $4.50 Series

New York Stock Exchange  Securities
    registered pursuant to Section 12(g) of the
    Act: None
  Indicate
    by check mark if the Registrant is a well-known seasoned issuer,
    as defined in Rule 405 of the Securities Act.
  CMS
    Energy
    Corporation : Yes [X] No oConsumers
    Energy
    Company: Yes [X] No o
  Indicate
    by check mark if the Registrant is not required to file reports
    pursuant to Section 13 or Section 15(d) of the Act.
  CMS
    Energy
    Corporation: Yes o No [X] Consumers
    Energy
    Company: Yes o No [X]
  Indicate
    by check mark whether the Registrant (1) has filed all
    reports required to be filed by Section 13 or 15(d) of the
    Securities Exchange Act of 1934 during the preceding
    12 months (or for such shorter period that the Registrant
    was required to file such reports), and (2) has been
    subject to such filing requirements for the past 90 days.
  CMS
    Energy
    Corporation: Yes [X] No oConsumers
    Energy
    Company: Yes [X] No o
  Indicate
    by check mark if disclosure of delinquent filers pursuant to
    Item 405 of
    Regulation S-K
    is not contained herein, and will not be contained, to the best
    of Registrants knowledge, in definitive proxy or
    information statements incorporated by reference in
    Part III of this
    Form 10-K
    or any amendment to this
    Form 10-K.o
  CMS
    Energy Corporation:
  Indicate
    by check mark whether the registrant is a large accelerated
    filer, an accelerated filer, a non-accelerated filer, or a
    smaller reporting company. See the definitions of large
    accelerated filer, accelerated filer and
    smaller reporting company in Rule
    12b-2 of the
    Exchange Act. (Check one):
  Large
    accelerated
    filer x
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller reporting
    company o (Do
    not check if a smaller reporting company)
  Consumers
    Energy Company:
  Indicate
    by check mark whether the registrant is a large accelerated
    filer, an accelerated filer, a non-accelerated filer, or a
    smaller reporting company. See the definitions of large
    accelerated filer, accelerated filer and
    smaller reporting company in Rule
    12b-2 of the
    Exchange Act. (Check one):
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer x
    Smaller reporting
    company o (Do
    not check if a smaller reporting company)
  Indicate
    by check mark whether the Registrant is a shell company (as
    defined in
    Rule 12b-2
    of the Act).
  CMS
    Energy
    Corporation: Yes o No [X] Consumers
    Energy
    Company: Yes o No [X]
  The
    aggregate market value of CMS Energy voting and non-voting
    common equity held by non-affiliates was $3.344 billion for
    the 224,418,751 CMS Energy Common Stock shares outstanding on
    June 30, 2008 based on the closing sale price of $14.90 for
    CMS Energy Common Stock, as reported by the New York Stock
    Exchange on such date.
  There
    were 226,623,039 shares of CMS Energy Common Stock outstanding
    on February 23, 2009. On February 23, 2009, CMS Energy
    held all voting and non-voting common equity of Consumers.
  Documents
    incorporated by reference: CMS Energys proxy statement and
    Consumers information statement relating to the 2009
    annual meeting of shareholders to be held May 22, 2009, are
    incorporated by reference in Part III.




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##### 





CMS Energy
    Corporation
 And
 Consumers Energy
    Company
  Annual Reports on
    Form 10-K
    to the Securities and Exchange Commission for the Year Ended
 December 31,
    2008
  This combined
    Form 10-K
    is separately filed by CMS Energy Corporation and Consumers
    Energy Company. Information in this combined
    Form 10-K
    relating to each individual registrant is filed by such
    registrant on its own behalf. Consumers Energy Company makes no
    representation regarding information relating to any other
    companies affiliated with CMS Energy Corporation other than its
    own subsidiaries. None of CMS Energy Corporation, CMS
    Enterprises Company nor any of CMS Energy Corporations
    other subsidiaries (other than Consumers Energy Company) has any
    obligation in respect of Consumers Energy Companys debt
    securities and holders of such securities should not consider
    CMS Energy Corporation, CMS Enterprises Company or any of CMS
    Energy Corporations other subsidiaries (other than
    Consumers Energy Company and its own subsidiaries (in relevant
    circumstances)) financial resources or results of operations in
    making a decision with respect to Consumers Energy
    Companys debt securities. Similarly, Consumers Energy
    Company has no obligation in respect of debt securities of CMS
    Energy Corporation.
  
  TABLE OF CONTENTS
  PageGlossary



4PART I:Item 1.

Business

11Item 1A.

Risk Factors

25Item 1B.

Unresolved Staff Comments

32Item 2.

Properties

33Item 3.

Legal Proceedings

33Item 4.

Submission of Matters to a Vote of Security
    Holders

37PART II:Item 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

38Item 6.

Selected Financial Data

38Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations

39Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk

39Item 8.

Financial Statements and Supplementary Data

40Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure

CO-1Item 9A.

Controls and Procedures

CO-1Item 9A(T).

Controls and Procedures

CO-2Item 9B.

Other Information

CO-2PART III:Item 10.

Directors, Executive Officers and Corporate
    Governance

CO-3Item 11.

Executive Compensation

CO-3Item 12.

Security Ownership of Certain Beneficial Owners
    and Management Related Stockholder Matters

CO-4Item 13.

Certain Relationships and Related Transactions,
    and Director Independence

CO-4Item 14.

Principal Accountant Fees and Services

CO-4PART IV:Item 15.

Exhibits, Financial Statement Schedules

CO-4EX-3.(B)EX-3.(D)EX-4.(F)EX-10.(B)EX-10.(L)EX-10.(M)EX-10.(N)EX-10.(P)EX-10.(R)EX-10.(S)EX-10.(T)EX-10.(TT)EX-10.(WW)EX-10.(XX)EX-12.(A)EX-12.(B)EX-21EX-23(A)EX-23.(B)EX-23(C)EX-23(D)EX-23.(E)EX-23(F)EX-24(A)EX-24(B)EX-31.(A)EX-31.(B)EX-31.(C)EX-31.(D)EX-32.(A)EX-32.(B)   2




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  3




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GLOSSARY     ABATE

Association of Businesses Advocating Tariff EquityABO

Accumulated Benefit Obligation. The liabilities of a pension
    plan based on service and pay to date. This differs from the
    Projected Benefit Obligation that is typically disclosed in that
    it does not reflect expected future salary increases.AEI

Ashmore Energy International, a non-affiliated companyAFUDC

Allowance for funds used during constructionAMT

Alternative minimum taxAOC

Administrative Order on ConsentAOCI

Accumulated Other Comprehensive IncomeAOCL

Accumulated Other Comprehensive LossAPB

Accounting Principles BoardAPB Opinion No. 18

APB Opinion No. 18, The Equity Method of Accounting
    for Investments in Common StockARB

Accounting Research BulletinARO

Asset retirement obligationBay Harbor

A residential/commercial real estate area located near Petoskey,
    Michigan. In 2002, CMS Energy sold its interest in Bay Harbor.Beeland

Beeland Group LLC, a wholly owned indirect subsidiary of
    CMS Energybcf

Billion cubic feet of gasBig Rock

Big Rock Point nuclear power plantBig Rock ISFSI

Big Rock Independent Spent Fuel Storage InstallationBoard of Directors

Board of Directors of CMS EnergyBtu

British thermal unit; one Btu equals the amount of energy
    required to raise the temperature of one pound of water by one
    degree FahrenheitCAIR

Clean Air Interstate RuleCAMR

Clean Air Mercury RuleCEO

Chief Executive OfficerCFO

Chief Financial OfficerCity gate arrangement

The arrangement made for the point at which a local distribution
    company physically receives gas from a supplier or pipelineCKD

Cement kiln dustClean Air Act

Federal Clean Air Act, as amendedCMS Capital

CMS Capital, L.L.C., a wholly owned subsidiary of CMS EnergyCMS Electric and Gas

CMS Electric & Gas Company, L.L.C., a wholly owned
    subsidiary of EnterprisesCMS Energy

CMS Energy Corporation, the parent of Consumers and EnterprisesCMS Energy Common Stock or common stock

Common stock of CMS Energy, par value $.01 per shareCMS ERM

CMS Energy Resource Management Company, formerly CMS MST, a
    wholly owned subsidiary of EnterprisesCMS Field Services

CMS Field Services, Inc., a former wholly owned subsidiary of
    CMS Gas TransmissionCMS Gas Transmission

CMS Gas Transmission Company, a wholly owned subsidiary of
    EnterprisesCMS Generation

CMS Generation Co., a former wholly owned subsidiary of
    EnterprisesCMS International Ventures

CMS International Ventures LLC, a subsidiary of Enterprises 4




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CMS Land

CMS Land Company, a wholly owned subsidiary of CMS EnergyCMS MST

CMS Marketing, Services and Trading Company, a wholly owned
    subsidiary of Enterprises, whose name was changed to CMS ERM
    effective January 2004CMS Oil and Gas

CMS Oil and Gas Company, formerly a wholly owned subsidiary of
    EnterprisesCMS Viron

CMS Viron Corporation, a wholly owned subsidiary of CMS ERMConsumers

Consumers Energy Company, a wholly owned subsidiary of CMS EnergyCPEE

Companhia Paulista de Energia Eletrica, in which CMS
    International Ventures formerly owned a 94 percent interestCustomer Choice Act

Customer Choice and Electricity Reliability Act, a Michigan
    statuteDCCP

Defined Company Contribution PlanDC SERP

Defined Contribution Supplemental Executive Retirement PlanDekatherms/day

A measure of the heat content value of gas per day; one
    dekatherm/day is equivalent to 1,000,000 British thermal units
    (Btu) per dayDetroit Edison

The Detroit Edison Company, a non-affiliated companyDIG

Dearborn Industrial Generation, LLC, a wholly owned subsidiary
    of CMS EnergyDOE

U.S. Department of EnergyDOJ

U.S. Department of JusticeDow

The Dow Chemical Company, a non-affiliated companyDSSP

Deferred Salary Savings PlanEISP

Executive Incentive Separation PlanEITF

Emerging Issues Task ForceEITF Issue 06-11

EITF Issue
    No. 06-11,
    Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment AwardsEITF Issue 07-5

EITF Issue
    No. 07-5,
    Determining Whether an Instrument (or Embedded Feature) Is
    Indexed to an Entitys Own StockEITF Issue 08-5

EITF Issue
    No. 08-5,
    Issuers Accounting for Liabilities Measured at Fair
    Value with a Third-Party Credit EnhancementEl Chocon

A 1,200 MW hydro power plant located in Argentina, in which
    CMS Generation formerly held a 17.2 percent ownership
    interestEnerBank

EnerBank USA, a wholly owned subsidiary of CMS CapitalEntergy

Entergy Corporation, a non-affiliated companyEnterprises

CMS Enterprises Company, a wholly owned subsidiary of CMS EnergyEPA

U.S. Environmental Protection AgencyEPS

Earnings per shareExchange Act

Securities Exchange Act of 1934, as amendedFASB

Financial Accounting Standards BoardFDIC

Federal Deposit Insurance CorporationFERC

Federal Energy Regulatory CommissionFIN 14

FASB Interpretation No. 14, Reasonable Estimation of
    Amount of a LossFIN 45

FASB Interpretation No. 45, Guarantors
    Accounting and Disclosure Requirements for Guarantees, including
    Indirect Guarantees of Indebtedness of OthersFIN 46(R)

Revised FASB Interpretation No. 46, Consolidation of
    Variable Interest Entities 5




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FIN 47

FASB Interpretation No. 47, Accounting for
    Conditional Asset Retirement ObligationsFIN 48

FASB Interpretation No. 48, Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109First Mortgage Bond Indenture

The indenture dated as of September 1, 1945 between
    Consumers and The Bank of New York Mellon, as Trustee, and as
    amended and supplementedFMB

First Mortgage BondsFMLP

First Midland Limited Partnership, a partnership that holds a
    lessor interest in the MCV FacilityFOV

Finding of ViolationFSP

FASB Staff PositionFSP APB 14-1

FASB Staff Position on APB No. 14, Accounting for
    Convertible Debt and Debt Issued with Stock Purchase
    WarrantsFSP EITF 03-6-1

FASB Staff Position on EITF
    No. 03-6,
    Participating Securities and the Two-Class method under
    FASB Statement No. 128FSP FAS 132(R)-1

FASB Staff Position on SFAS No. 132(R),
    Employers Disclosures about Pensions and Other
    Postretirement BenefitsFSP FAS 133-1 and FIN 45-4

FASB Staff Position on SFAS No. 133, Accounting
    for Derivative Instruments and Hedging Activities and
    FIN 45, Guarantors Accounting and Disclosure
    Requirements for Guarantees, Including Indirect Guarantees of
    Indebtedness of OthersFSP FAS 142-3

FASB Staff Position on SFAS No. 142,
    Determination of the Useful Life of Intangible AssetsFSP FAS 157-3

FASB Staff Position on SFAS No. 157, Fair Value
    MeasurementsFSP FIN 39-1

FASB Staff Position on SFAS Interpretation No. 39,
    Offsetting of Amounts Related to Certain ContractsGAAP

U.S. Generally Accepted Accounting PrinciplesGasAtacama

GasAtacama Holding Limited, a limited liability partnership that
    manages GasAtacama S.A., which includes an integrated natural
    gas pipeline and electric generating plant in Argentina and
    Chile and Atacama Finance Company, in which CMS International
    Ventures formerly owned a 50 percent interestGenesee

Genesee Power Station Limited PartnershipGCR

Gas cost recoveryGWh

Gigawatt hour (a unit of energy equal to one million kilowatt
    hours)Grayling

Grayling Generating Station Limited PartnershipHYDRA-CO

HYDRA-CO Enterprises, Inc. a wholly owned subsidiary of
    EnterprisesICSID

International Centre for the Settlement of Investment DisputesIPP

Independent power producerIRS

Internal Revenue ServiceISFSI

Independent spent fuel storage installationITC

Income tax creditJamaica

Jamaica Private Power Company, Limited, a 63 MW
    diesel-fueled power plant in Jamaica, in which CMS Generation
    formerly owned a 42 percent interestJorf Lasfar

A 1,356 MW coal-based power plant in Morocco, in which CMS
    Generation formerly owned a 50 percent interestkilovolts

Thousand volts (unit used to measure the difference in
    electrical pressure along a current)kWh

Kilowatt-hour
    (a unit of energy equal to one thousand watt hours) 6




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LS Power Group

LS Power Group, a non-affiliated companyLucid Energy

Lucid Energy LLC, a non-affiliated companyLudington

Ludington pumped storage plant, jointly owned by Consumers and
    Detroit EdisonMarathon

Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba,
    Marathon E.G. LPG, Marathon Production LTD, and Alba Associates,
    LLC, each a non-affiliated companymcf

One thousand cubic feet of gasMCV Facility

A natural gas-fueled, combined-cycle cogeneration facility
    operated by the MCV PartnershipMCV GP II

Successor of CMS Midland, Inc., formerly a subsidiary of
    Consumers that had a 49 percent ownership interest in the
    MCV PartnershipMCV Partnership

Midland Cogeneration Venture Limited PartnershipMCV PPA

The Power Purchase Agreement between Consumers and the MCV
    Partnership with a
    35-year term
    commencing in March 1990, as amended and restated in an
    agreement dated as of June 9, 2008 between the MCV
    Partnership and ConsumersMD&A

Managements Discussion and AnalysisMDEQ

Michigan Department of Environmental QualityMDL

Multidistrict LitigationMEI

Michigan Energy Investments LLC, an affiliate of Lucid EnergyMETC

Michigan Electric Transmission Company, LLC, a non-affiliated
    company owned by ITC Holdings Corporation and a member of MISOMGP

Manufactured Gas PlantMidwest Energy Market

An energy market developed by the MISO to provide day-ahead and
    real-time market information and centralized dispatch for market
    participantsMISO

Midwest Independent Transmission System Operator, Inc.MPSC

Michigan Public Service CommissionMRV

Market-Related Value of Plan assetsMSBT

Michigan Single Business TaxMW

Megawatt (a unit of power equal to one million watts)MWh

Megawatt hour (a unit of energy equal to one million watt hours)NAV

Net Asset ValuesNeyveli

ST-CMS Electric Company Private Ltd., a joint venture power
    project company located in India, in which CMS International
    Ventures formerly indirectly owned a 50 percent interestNMC

Nuclear Management Company LLC, a non-affiliated companyNOV

Notice of ViolationNREPA

Michigan Natural Resources and Environmental Protection ActNSR

New Source ReviewNYMEX

New York Mercantile ExchangeOPEB

Postretirement benefit plans other than pensionsPalisades

Palisades nuclear power plant, formerly owned by ConsumersPanhandle

Panhandle Eastern Pipe Line Company, including its wholly owned
    subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage, and
    Panhandle Holdings, a former wholly owned subsidiary of CMS Gas
    TransmissionPCB

Polychlorinated biphenylPDVSA

Petroleos de Venezuela S.A., a non-affiliated companyPeabody Energy

Peabody Energy Corporation, a non-affiliated company 7




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Pension Plan

The trusteed, non-contributory, defined benefit pension plan of
    Panhandle, Consumers and CMS EnergyPension Protection Act

The Pension Protection Act of 2006, signed into law on
    August 17, 2006PowerSmith

A 124 MW natural gas power plant located in Oklahoma, in
    which CMS Generation formerly held a 6.25% limited partner
    ownership interestPrairie State

Prairie State Energy Campus, a planned 1,600 MW power plant
    and coal mine in southern IllinoisPSCR

Power supply cost recoveryPSD

Prevention of Significant DeteriorationPUHCA

Public Utility Holding Company ActPURPA

Public Utility Regulatory Policies Act of 1978Quicksilver

Quicksilver Resources, Inc., a non-affiliated companyRCP

Resource Conservation PlanReserve Margin

The amount of unused available electric capacity at peak demand
    as a percentage of total electric peak demandRMRR

Routine maintenance, repair and replacementROA

Retail Open Access, which allows electric generation customers
    to choose alternative electric suppliers pursuant to the
    Customer Choice ActSEC

U.S. Securities and Exchange CommissionSecuritization

A financing method authorized by statute and approved by the
    MPSC which allows a utility to sell its right to receive a
    portion of the rate payments received from its customers for the
    repayment of securitization bonds issued by a special purpose
    entity affiliated with such utilitySENECA

Sistema Electrico del Estado Nueva Esparta C.A., a former wholly
    owned subsidiary of CMS International VenturesSERP

Supplemental Executive Retirement PlanSFAS

Statement of Financial Accounting StandardsSFAS No. 13

SFAS No. 13, Accounting for LeasesSFAS No. 71

SFAS No. 71, Accounting for the Effects of
    Certain Types of RegulationSFAS No. 87

SFAS No. 87, Employers Accounting for
    PensionsSFAS No. 98

SFAS No. 98, Accounting for LeasesSFAS No. 106

SFAS No. 106, Employers Accounting for
    Postretirement Benefits Other Than PensionsSFAS No. 109

SFAS No. 109, Accounting for Income TaxesSFAS No. 123(R)

SFAS No. 123 (revised 2004), Share-Based
    PaymentsSFAS No. 132(R)

SFAS No. 132 (revised 2003), Employers
    Disclosures about Pensions and Other Postretirement
    BenefitsSFAS No. 133

SFAS No. 133, Accounting for Derivative
    Instruments and Hedging Activities, as amended and
    interpretedSFAS No. 141(R)

SFAS No. 141 (revised 2007), Business
    CombinationsSFAS No. 142

SFAS No. 142, Goodwill and Other Intangible
    AssetsSFAS No. 143

SFAS No. 143, Accounting for Asset Retirement
    ObligationsSFAS No. 157

SFAS No. 157, Fair Value MeasurementsSFAS No. 158

SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statements No. 87,
    88, 106, and 132(R) 8




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SFAS No. 159

SFAS No. 159, The Fair Value Option for
    Financial Assets and Financial Liabilities, Including an
    Amendment to FASB Statement No. 115SFAS No. 160

SFAS No. 160, Noncontrolling Interests in
    Consolidated Financial Statements  an amendment of
    ARB No. 51SFAS No. 161

SFAS No. 161, Disclosures about Derivative
    Instruments and Hedging Activities, an amendment of FASB
    Statement No. 133Stranded Costs

Costs incurred by utilities in order to serve their customers in
    a regulated monopoly environment, 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.Superfund

Comprehensive Environmental Response, Compensation and Liability
    ActSupplemental Environmental Programs

Environmentally beneficial projects which a party agrees to
    undertake as part of the settlement of an enforcement action,
    but which the party is not otherwise legally required to performTakoradi

A 200 MW open-cycle combustion turbine crude oil power
    plant located in Ghana, in which CMS Generation formerly owned a
    90 percent interestTAQA

Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi
    Water and Electricity Authority, a non-affiliated companyT.E.S. Filer City

T.E.S. Filer City Station Limited PartnershipTGN

A natural gas transportation and pipeline business located in
    Argentina, in which CMS Gas Transmission formerly owned a
    23.54 percent interestTNEB

Tamil Nadu Electricity Board, a non-affiliated companyTRAC

Terminal Rental Adjustment Clause, a provision of a leasing
    agreement which permits or requires the rental price to be
    adjusted upward or downward by reference to the amount realized
    by the lessor under the agreement upon sale or other disposition
    of formerly leased propertyTrunkline

CMS Trunkline Gas Company, LLC, formerly a wholly owned
    subsidiary of CMS Panhandle Holdings, LLCTrust Preferred Securities

Securities representing an undivided beneficial interest in the
    assets of statutory business trusts, the interests of which have
    a preference with respect to certain trust distributions over
    the interests of either CMS Energy or Consumers, as applicable,
    as owner of the common beneficial interests of the trustsTSR

Total shareholder returnUnion

Utility Workers Union of America, AFL-CIOVEBA

VEBA employees beneficiary association trusts accounts
    established to set aside specifically employer contributed
    assets to pay for future expenses of the OPEB planVIE

Variable interest entityWolverine

Wolverine Power Supply Cooperative, Inc., a non-affiliated
    companyZeeland

A 935 MW gas-based power plant located in Zeeland, Michigan  9




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PART I ITEM 1. BUSINESS  GENERAL
  CMS
    Energy
  and/or
    Consumers
        Consumers Properties General:
  BUSINESS
    SEGMENTS
  CMS Energy
    Financial Information
    Consumers
    Financial Information
   11




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Consumers
    Electric Utility
  Electric
    Utility Operations
      2007-08
 12




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Electric
    Utility Properties
  Generation:
  2008


2008 NetSummer Net


GenerationNumber of Units and Year

Demonstrated


(MillionsName and Location (Michigan)

Entering Service

Capability (MW)


of kWh)Coal GenerationJ H Campbell 1 & 2  West Olive

2 Units, 1962-1967


615



3,913J H Campbell 3  West Olive

1 Unit, 1980


770
(a)


5,722D E Karn  Essexville

2 Units, 1959-1961


515



2,073B C Cobb  Muskegon

2 Units, 1956-1957


312



1,999J R Whiting  Erie

3 Units, 1952-1953


328



2,211J C Weadock  Essexville

2 Units, 1955-1958


310



1,783Total coal generation




2,850



17,701Oil/Gas GenerationB C Cobb  Muskegon

3 Units, 1999-2000(b)


183



D E Karn  Essexville

2 Units, 1975-1977


1,276



75Zeeland  Zeeland

1 Unit, 2002


538



552Total oil/gas generation




1,997



627HydroelectricConventional Hydro Generation

13 Plants, 1906-1949


73



454Ludington

6 Units, 1973


955
(c)


(382
)(d)Total hydroelectric




1,028



72Gas/Oil Combustion TurbineVarious Plants

7 Plants, 1966-1971


331



8Zeeland  Zeeland

2 Units, 2001


330



210Total gas/oil combustion turbine




661



218Total owned generation




6,536



18,618Purchased and Interchange Power(e)




3,050
(f)


20,296
(g)Total




9,586



38,914     (a)
    Represents Consumers share of the capacity of the J H
    Campbell 3 unit, net of the 6.69 percent ownership
    interest of the Michigan Public Power Agency and Wolverine.  (b)
    
    Cobb 1-3 are retired coal-based units that were converted to
    gas-based. Units were placed back into service in the years
    indicated.(c)
    
    Represents Consumers 51 percent share of the capacity
    of Ludington. Detroit Edison owns 49 percent.(d)
    
    Represents Consumers share of net pumped storage
    generation. This facility electrically pumps water during
    off-peak hours for storage to generate electricity later during
    peak-demand hours.(e)
    
    Includes purchases from the Midwest Energy Market, long-term
    purchase contracts, options, spot market and other seasonal
    purchases.(f)
    
    Includes 1,240 MW of purchased contract capacity from the
    MCV Facility and 778 MW of purchased contract capacity from
    the Palisades plant.(g)
    
    Includes 6,837 million kWh of purchased energy from the
    Palisades plant and 3,789 million kWh of purchased energy
    from the MCV Facility.  Distribution:
  
    398 miles of high-voltage distribution radial lines
    operating at 120 kilovolts or above; 13




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
    4,238 miles of high-voltage distribution overhead lines
    operating at 23 kilovolts and 46 kilovolts;
    17 subsurface miles of high-voltage distribution underground
    lines operating at 23 kilovolts and 46 kilovolts;
    55,734 miles of electric distribution overhead lines;
    9,872 miles of underground distribution lines; and
    substations having an aggregate transformer capacity of
    23,400,170 kilovoltamperes.    Fuel Supply:
  Millions of kWhPower Generated

2008


2007


2006


2005


2004Coal


17,701



17,903



17,744



19,711



18,810Nuclear






1,781



5,904



6,636



5,346Oil


41



112



48



225



193Gas


804



129



161



356



38Hydro


454



416



485



387



445Net pumped storage


(382
)


(478
)


(426
)


(516
)


(538
)Total net generation


18,618



19,863



23,916



26,799



24,294     Cost per Million BtuFuel Consumed

2008


2007


2006


2005


2004Coal

$
2.01


$
2.04


$
2.09


$
1.78


$
1.43Oil


11.54



8.21



8.68



5.98



4.68Gas


10.94



10.29



8.92



9.76



10.07Nuclear






0.42



0.24



0.34



0.33All Fuels(a)


2.47



2.07



1.72



1.64



1.26     (a)
    
    Weighted average fuel costs.  40-day
     14




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##### Table of Contents



Consumers
    Gas Utility
  Gas
    Utility Operations
      Gas Utility Properties:
  
    26,451 miles of distribution mains;
    1,656 miles of transmission lines;
    7 compressor stations with a total of 159,250 installed
    horsepower; and
    15 gas storage fields with an aggregate storage capacity of 307
    bcf and a working storage capacity of 142 bcf.  Gas Supply:
    Volume(dekatherms/day)


ExpirationANR Pipeline Company


50,000


March


2017Great Lakes Gas Transmission, L.P


100,000


March


2011Great Lakes Gas Transmission, L.P


50,000


March


2017Trunkline Gas Company


240,000


October


2012Panhandle Eastern Pipe Line Company (starting 4/01/09)


50,000


October


2009Panhandle Eastern Pipe Line Company (starting 4/01/10)


50,000


October


2010Panhandle Eastern Pipe Line Company (starting 4/01/11)


50,000


October


2011Panhandle Eastern Pipe Line Company (starting 4/01/12)


50,000


October


2012Panhandle Eastern Pipe Line Company (starting 4/01/13)


50,000


October


2013Panhandle Eastern Pipe Line Company


50,000


October


2013Vector Pipeline


50,000


March


2012    15




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##### Table of Contents



Enterprises
      Independent Power
    Production
      Independent Power Production Properties:
    Percentage ofGross CapacityUnder Long-TermPrimary

Ownership Interest


Gross Capacity


ContractLocation

Fuel Type

(%)


(MW)


(%)California

Biomass


37.8



36



100Connecticut

Scrap tire


100



31



0Michigan

Coal


50



70



100Michigan

Natural gas


100



710



92Michigan

Natural gas


100



224



0Michigan

Biomass


50



40



100Michigan

Biomass


50



38



100North Carolina

Biomass


50



50



0Total








1,199     Energy Resource
    Management
   16




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##### Table of Contents



Natural Gas
    Transmission
      International
    Energy Distribution
      CMS ENERGY AND
    CONSUMERS REGULATION
    Michigan Public
    Service Commission
      Rate Proceedings:
   17




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##### Table of Contents



MPSC Regulation and Michigan Legislation:
  
    a provision to streamline the regulatory process by generally
    allowing utilities to self-implement rates six months after
    filing, subject to refund, and requiring the MPSC to issue an
    order 12 months after filing or the rates as filed become
    permanent,
    reform of the Customer Choice Act to limit generally alternative
    energy suppliers to no more than 10 percent of our
    weather-adjusted sales,
    establishment of a certificate-of-necessity process at the MPSC
    for existing or proposed power plants, or power purchase
    agreements if the construction, investment, or purchase costs
    more than $500 million,
    a requirement that 10 percent of electric sales volume come
    from renewable energy sources by 2015 with interim
    targets, and
    new programs and incentives to encourage greater energy
    efficiency among customers, along with the requirement that the
    utility prepare energy cost savings optimization plans and
    achieve sales reduction targets beginning in 2009 through 2015.    Federal Energy
    Regulatory Commission
      Other
    Regulation
      CMS ENERGY AND
    CONSUMERS ENVIRONMENTAL COMPLIANCE
     18




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##### Table of Contents



19




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##### Table of Contents



CMS ENERGY AND
    CONSUMERS COMPETITION
  Electric
    Competition
        
    industrial customers relocating all or a portion of their
    production capacity outside Consumers service territory
    for economic reasons;
    municipalities owning or operating competing electric delivery
    systems;
    customer self-generation; and
    adjacent utilities that extend lines to customers in contiguous
    service territories.        Gas
    Competition
    INSURANCE
     20




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##### Table of Contents



EMPLOYEES
  CMS
    Energy
    Consumers
    CMS ENERGY
    EXECUTIVE OFFICERS (as of February 1, 2009)
  Name

Age

Position

PeriodDavid W. Joos

55

President and CEO of CMS Energy

2004-PresentCEO of Consumers

2004-PresentChairman of the Board, President, CEO of Enterprises

5/2008-PresentDirector of CMS Energy

2001-PresentDirector of Consumers

2001-PresentDirector of Enterprises

2000-PresentChairman of the Board, CEO of Enterprises

2003-5/2008President, Chief Operating Officer of CMS Energy

2001-2004President, Chief Operating Officer of Consumers

2001-2004Thomas J. Webb

56

Executive Vice President, CFO of CMS Energy

2002-PresentExecutive Vice President, CFO of Consumers

2002-PresentExecutive Vice President, CFO of Enterprises

2002-PresentDirector of Enterprises

2002-PresentJames E. Brunner*

56

Senior Vice President and General Counsel of CMS Energy

11/2006-PresentSenior Vice President and General Counsel of Consumers

11/2006-PresentSenior Vice President and General Counsel of Enterprises

11/2007-PresentDirector of Enterprises

2006-PresentSenior Vice President of Enterprises

2006-11/2007Senior Vice President, General Counsel and Chief Compliance
    Officer of CMS Energy

5/2006-11/2006Senior Vice President, General Counsel and Chief Compliance
    Officer of Consumers

5/2006-11/2006Senior Vice President, General Counsel and Interim Chief
    Compliance Officer of Consumers

2/2006-5/2006Senior Vice President and General Counsel of CMS Energy

2/2006-5/2006Senior Vice President and General Counsel of Consumers

2/2006-5/2006Vice President and General Counsel of Consumers

7/2004-2/2006Vice President of Consumers

7/2004 21




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##### Table of Contents



Name

Age

Position

PeriodJohn M. Butler **

44

Senior Vice President of CMS Energy

2006-PresentSenior Vice President of Consumers

2006-PresentSenior Vice President of Enterprises

2006-PresentDavid G. Mengebier

51

Senior Vice President and Chief Compliance Officer of CMS Energy

11/2006-PresentSenior Vice President and Chief Compliance Officer of Consumers

11/2006-PresentSenior Vice President of Enterprises

2003-PresentSenior Vice President of CMS Energy

2001-11/2006Senior Vice President of Consumers

2001-11/2006John G. Russell

51

President and Chief Operating Officer of Consumers

2004-PresentExecutive Vice President and President  Electric
    & Gas of Consumers

7/2004-10/2004Executive Vice President, President and CEO  Electric
    of Consumers

2001-2004Glenn P. Barba

43

Vice President, Controller and Chief Accounting Officer of CMS
    Energy

2003-PresentVice President, Controller and Chief Accounting Officer of
    Consumers

2003-PresentVice President, Chief Accounting Officer and Controller of
    Enterprises

11/2007-PresentVice President and Chief Accounting Officer of Enterprises

2003-11/2007     *
    
    From 1993 until July 2004, Mr. Brunner was Assistant
    General Counsel of Consumers.**
    
    From 2002 until 2004, Mr. Butler was Global Compensation
    and Benefits Resource Center Director at Dow and from 2004 until
    June 2006, Mr. Butler was Human Resources Director,
    Manufacturing and Engineering at Dow.      CONSUMERS
    EXECUTIVE OFFICERS (as of February 1, 2009)
  Name

Age

Position

PeriodDavid W. Joos

55

President and CEO of CMS Energy

2004-PresentCEO of Consumers

2004-PresentChairman of the Board, President, CEO of Enterprises

5/2008-PresentDirector of CMS Energy

2001-PresentDirector of Consumers

2001-PresentDirector of Enterprises

2000-PresentChairman of the Board, CEO of Enterprises

2003-5/2008President, Chief Operating Officer of CMS Energy

2001-2004President, Chief Operating Officer of Consumers

2001-2004Thomas J. Webb

56

Executive Vice President, CFO of CMS Energy

2002-PresentExecutive Vice President, CFO of Consumers

2002-PresentExecutive Vice President, CFO of Enterprises

2002-PresentDirector of Enterprises

2002-Present 22




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##### Table of Contents



Name

Age

Position

PeriodJames E. Brunner*

56

Senior Vice President and General Counsel of CMS Energy

11/2006-PresentSenior Vice President and General Counsel of Consumers

11/2006-PresentSenior Vice President and General Counsel of Enterprises

11/2007-PresentDirector of Enterprises

2006-PresentSenior Vice President of Enterprises

2006-11/2007Senior Vice President, General Counsel and Chief Compliance
    Officer of CMS Energy

5/2006-11/2006Senior Vice President, General Counsel and Chief Compliance
    Officer of Consumers

5/2006-11/2006Senior Vice President, General Counsel and Interim Chief
    Compliance Officer of Consumers

2/2006-5/2006Senior Vice President and General Counsel of CMS Energy

2/2006-5/2006Senior Vice President and General Counsel of Consumers

2/2006-5/2006Vice President and General Counsel of Consumers

7/2004-2/2006Vice President of Consumers

7/2004John M. Butler **

44

Senior Vice President of CMS Energy

2006-PresentSenior Vice President of Consumers

2006-PresentSenior Vice President of Enterprises

2006-PresentDavid G. Mengebier

51

Senior Vice President and Chief Compliance Officer of CMS Energy

11/2006-PresentSenior Vice President and Chief Compliance Officer of Consumers

11/2006-PresentSenior Vice President of Enterprises

2003-PresentSenior Vice President of CMS Energy

2001-11/2006Senior Vice President of Consumers

2001-11/2006John G. Russell

51

President and Chief Operating Officer of Consumers

2004-PresentExecutive Vice President and President  Electric
    & Gas of Consumers

7/2004-10/2004Executive Vice President, President and CEO  Electric
    of Consumers

2001-2004William E. Garrity

60

Senior Vice President of Consumers

2005-PresentVice President of Consumers

1999-2005Frank Johnson

60

Senior Vice President of Consumers

2001-PresentGlenn P. Barba

43

Vice President, Controller and Chief Accounting Officer of CMS
    Energy

2003-PresentVice President, Controller and Chief Accounting Officer of
    Consumers

2003-PresentVice President, Chief Accounting Officer and Controller of
    Enterprises

11/2007-PresentVice President and Chief Accounting Officer of Enterprises

2003-11/2007     *
    
    From 1993 until July 2004, Mr. Brunner was Assistant
    General Counsel of Consumers.**
    
    From 2002 until 2004, Mr. Butler was Global Compensation
    and Benefits Resource Center Director at Dow and from 2004 until
    June 2006, Mr. Butler was Human Resources Director,
    Manufacturing and Engineering at Dow.   23




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##### Table of Contents



AVAILABLE
    INFORMATION
  Form 10-K, Form 10-Q, Form 8-K,
  
    Corporate Governance Principles;
    Codes of Conduct (Code of Business Conduct and Statement of
    Ethics);
    Board committee charters (including the Audit Committee, the
    Compensation and Human Resources Committee, the Finance
    Committee and the Governance and Public Responsibility
    Committee); and
    Articles of Incorporation (and amendments) and Bylaws.    1-800-SEC-0330. http://www.sec.gov.
 24




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##### Table of Contents



ITEM 1A. RISK
    FACTORS    CMS
    Energy depends on dividends from its subsidiaries to meet its
    debt service obligations.
    CMS
    Energy has substantial indebtedness that could limit its
    financial flexibility and hence its ability to meet its debt
    service obligations.
      
    a significant portion of its cash flow from operations will be
    dedicated to the payment of principal and interest on its
    indebtedness and will not be available for other purposes;
    covenants contained in its existing debt arrangements require it
    to meet certain financial tests, which may affect its
    flexibility in planning for, and reacting to, changes in its
    business;
    its ability to obtain additional financing for working capital,
    capital expenditures, acquisitions and general corporate and
    other purposes may be limited;
    it may be at a competitive disadvantage to its competitors that
    are less leveraged;
    its vulnerability to adverse economic and industry conditions
    may increase; and
    its future credit ratings.   25




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##### Table of Contents



CMS
    Energy cannot predict the outcome of claims regarding its
    participation in the development of Bay Harbor.
          
    the disposal of leachate,
    the capping and excavation of CKD,
    the location and design of collection lines and upstream
    diversion of water,
    potential flow of leachate below the collection system,
    applicable criteria for various substances such as
    mercury, and
    other matters that are likely to affect the scope of remedial
    work that CMS Land and CMS Capital may be obligated to undertake.    CMS
    Energy may be adversely affected by regulatory investigations
    and civil lawsuits regarding pricing information that CMS MST
    and CMS Field Services provided to market
    publications.
   26




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##### Table of Contents



CMS
    Energy and Consumers retain contingent liabilities in connection
    with their asset sales.
    
    retain specified preexisting liabilities, such as for taxes,
    pensions or environmental conditions;
    indemnify the buyers against specified risks, including the
    inaccuracy of representations and warranties they make; and
    make payments to the buyers depending on the outcome of
    post-closing adjustments, litigation, audits or other reviews.    CMS
    Energy and Consumers have financing needs and may be unable to
    obtain bank financing or access the capital markets. If the
    national and worldwide financial crisis intensifies, potential
    disruption in the capital and credit markets may adversely
    affect CMS Energys and Consumers businesses,
    including the availability and cost of short-term funds for
    liquidity requirements and their ability to meet long-term
    commitments; each could adversely affect their liquidity,
    financial condition and results of operations.
       27




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##### Table of Contents



and/or and/or
    Electric
    industry regulation could adversely affect CMS Energys and
    Consumers business, including their ability to recover
    costs from their customers.
        CMS
    Energy and Consumers could incur significant costs to comply
    with environmental standards and face difficulty in recovering
    these costs on a current basis.
     28




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##### Table of Contents



and/or
      and/or and/or
  Market
    performance and other changes may decrease the value of benefit
    plan assets, which then could require significant
    funding.
   29




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##### Table of Contents



Periodic
    reviews of the values of CMS Energys and Consumers
    assets could result in accounting charges.
    CMS
    Energys and Consumers revenues and results of
    operations are subject to risks that are beyond their control,
    including but not limited to future terrorist attacks or related
    acts of war.
    Energy
    risk management strategies may not be effective in managing fuel
    and electricity pricing risks, which could result in
    unanticipated liabilities to Consumers and CMS Energy or
    increased volatility of its earnings.
      2009-10 2013-14
 30




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##### Table of Contents



Changes
    in taxation as well as inherent difficulty in quantifying
    potential tax effects of business decisions could negatively
    impact CMS Energys and Consumers results of
    operations.
  and/or
  Consumers
    is exposed to risks related to general economic conditions in
    its service territories.
    CMS
    Energys and Consumers energy sales and operations
    are impacted by seasonal factors and varying weather conditions
    from year to year.
    Unplanned
    power plant outages may be costly for Consumers.
    Failure
    to succeed in implementing new processes and information systems
    could interrupt our operations.
    Consumers
    may not be able to obtain an adequate supply of coal, which
    could limit its ability to operate its facilities.
   31




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##### Table of Contents



CMS
    Energy and Consumers are subject to rate
    regulation.
    CMS
    Energy and Consumers are exposed to credit risk of those with
    whom they do business.
  and/or and/or
  CMS
    Energy could be required to pay cash to certain security holders
    in connection with the optional conversion of their convertible
    securities.
    Consumers
    has a significant capital investment program planned for the
    next five years.
   ITEM 1B.
    UNRESOLVED STAFF COMMENTS   32




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##### Table of Contents



ITEM 2.
    PROPERTIES    
    BUSINESS  GENERAL  Consumers 
    Consumers Properties  General;
    BUSINESS  BUSINESS SEGMENTS  Consumers
    Electric Utility  Electric Utility Properties;
    BUSINESS  BUSINESS SEGMENTS  Consumers Gas
    Utility  Gas Utility Properties; and
    BUSINESS  BUSINESS SEGMENTS  Independent
    Power Production  Independent Power Production
    Properties. ITEM 3. LEGAL
    PROCEEDINGS    GAS INDEX PRICE
    REPORTING LITIGATION
       33




---



##### Table of Contents



34




---



##### Table of Contents



35




---



##### Table of Contents



QUICKSILVER
    RESOURCES, INC.
        STATE STREET
    BANK/TEXAS SOUTHERN UNIVERSITY LITIGATION
    MARATHON
    INDEMNITY CLAIM REGARDING F.T. BARR CLAIM
   36




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##### Table of Contents



FERC
    INVESTIGATION
  follow-up
  ENVIRONMENTAL
    MATTERS
       ITEM 4.
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  CMS
    Energy
    Consumers
   37




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##### Table of Contents



PART II ITEM 5. MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  CMS
    Energy
      Consumers
      Issuer
    Repurchases of Equity Securities
   ITEM 6.
    SELECTED FINANCIAL DATA  CMS
    Energy
    Consumers
   38




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##### Table of Contents



ITEM 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS  CMS
    Energy
    Consumers
   ITEM 7A.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  CMS
    Energy
    Consumers
   39




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##### Table of Contents



ITEM 8.
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageIndex to Financial Statements:CMS Energy CorporationSelected Financial Information

CMS - 2Managements Discussion and Analysis

CMS - 3Forward-Looking Statements and Information

CMS - 3Executive Overview

CMS - 5Results of Operations

CMS - 6Critical Accounting Policies

CMS - 13Capital Resources and Liquidity

CMS - 18Outlook

CMS - 23Implementation of New Accounting Standards

CMS - 30New Accounting Standards Not Yet Effective

CMS - 31Consolidated Financial StatementsConsolidated Statements of Income (Loss)

CMS - 34Consolidated Statements of Cash Flows

CMS - 36Consolidated Balance Sheets

CMS - 38Consolidated Statements of Common
    Stockholders Equity

CMS - 40Notes to Consolidated Financial Statements:1. Corporate Structure and Accounting
    Policies

CMS - 422. Fair Value Measurements

CMS - 493. Asset Sales, Discontinued
    Operations and Impairment Charges

CMS - 534. Contingencies

CMS - 565. Financings and Capitalization

CMS - 676. Earnings Per Share

CMS - 727. Financial and Derivative
    Instruments

CMS - 738. Retirement Benefits

CMS - 769. Asset Retirement Obligations

CMS - 8210. Income Taxes

CMS - 8411. Stock Based Compensation

CMS - 8712. Leases

CMS - 8913. Property, Plant, and Equipment

CMS - 9114. Equity Method Investments

CMS - 9215. Jointly Owned Regulated Utility
    Facilities

CMS - 9416. Reportable Segments

CMS - 9417. Consolidation of Variable Interest
    Entities

CMS - 9718. Quarterly Financial and Common Stock
    Information (Unaudited)

CMS - 98Reports of Independent Registered Public
    Accounting Firms

CMS - 99  40




---



##### Table of Contents



PageConsumers Energy CompanySelected Financial Information

CE - 2Managements Discussion and AnalysisForward-Looking Statements and Information

CE - 3Executive Overview

CE - 5Results of Operations

CE - 7Critical Accounting Policies

CE - 12Capital Resources and Liquidity

CE - 16Outlook

CE - 22Implementation of New Accounting Standards

CE - 27New Accounting Standards Not Yet Effective

CE - 28Consolidated Financial StatementsConsolidated Statements of Income

CE - 31Consolidated Statements of Cash Flows

CE - 32Consolidated Balance Sheets

CE - 34Consolidated Statements of Common Stockholders Equity

CE - 36Notes to Consolidated Financial Statements:1. Corporate Structure and Accounting Policies

CE - 392. Fair Value Measurements

CE - 453. Asset Sales and Impairment Charges

CE - 484. Contingencies

CE - 495. Financings and Capitalization

CE - 566. Financial and Derivative Instruments

CE - 597. Retirement Benefits

CE - 618. Asset Retirement Obligations

CE - 679. Income Taxes

CE - 6910. Stock Based Compensation

CE - 7111. Leases

CE - 7412. Property, Plant, and Equipment

CE - 7513. Jointly Owned Regulated Utility Facilities

CE - 7714. Reportable Segments

CE - 7715. Quarterly Financial and Common Stock Information
    (Unaudited)

CE - 79Reports of Independent Registered Public Accounting Firms

CE - 80  41




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(This page
    intentionally left blank)
  42




---



##### Table of Contents



2008 Consolidated
    Financial Statements
  CMS-1




---



##### Table of Contents



CMS Energy
    Corporation
  SELECTED
    FINANCIAL INFORMATION
  2008


2007


2006


2005


2004Operating revenue (in millions)

($

)


6,821



6,464



6,126



5,879



5,154Earnings from equity method investees (in millions)

($

)


5



40



89



125



115Income (loss) from continuing operations (in millions)

($

)


300



(126
)


(133
)


(141
)


112Cumulative effect of change in accounting (in millions)

($

)


















(2
)Income (loss) from discontinued operations (in millions)

($

)






(89
)


54



57



11Net income (loss) (in millions)

($

)


300



(215
)


(79
)


(84
)


121Net income (loss) available to common stockholders (in millions)

($

)


289



(227
)


(90
)


(94
)


110Average common shares outstanding (in thousands)






223,931



222,644



219,857



211,819



168,553Net income (loss) from continuing operations per average common
    shareCMS Energy  Basic

($

)


1.29



(0.62
)


(0.66
)


(0.71
)


0.59
    Diluted

($

)


1.23



(0.62
)


(0.66
)


(0.71
)


0.58Cumulative effect of change in accounting per average common
    shareCMS Energy  Basic

($

)


















(0.01
)
    Diluted

($

)


















(0.01
)Net income (loss) per average common shareCMS Energy  Basic

($

)


1.29



(1.02
)


(0.41
)


(0.44
)


0.65
    Diluted

($

)


1.23



(1.02
)


(0.41
)


(0.44
)


0.64Cash provided by operations (in millions)

($

)


559



25



690



598



353Capital expenditures, excluding acquisitions and capital lease
    additions (in millions)

($

)


792



1,263



670



593



525Total assets (in millions)(a)

($

)


14,901



14,192



15,325



15,976



15,833Long-term debt, excluding current portion (in millions)(a)

($

)


5,859



5,385



6,200



6,778



6,414Long-term debt-related parties, excluding current portion (in
    millions)

($

)


178



178



178



178



504Non-current portion of capital leases and finance lease
    obligations (in millions)

($

)


206



225



42



308



315Total preferred stock (in millions)

($

)


287



294



305



305



305Cash dividends declared per common share

($

)


0.36



0.20











Market price of common stock at year-end

($

)


10.11



17.38



16.70



14.51



10.45Book value per common share at year-end

($

)


10.88



9.46



10.03



10.53



10.62Number of employees at year-end (full-time equivalents)






7,970



7,898



8,640



8,713



8,660Electric Utility StatisticsSales (billions of kWh)






37



39



38



39



38Customers (in thousands)






1,814



1,799



1,797



1,789



1,772Average sales rate per kWh


(c
)


9.48



8.65



8.46



6.73



6.88Gas Utility StatisticsSales and transportation deliveries (bcf)






338



340



309



350



385Customers (in thousands)(b)






1,713



1,710



1,714



1,708



1,691Average sales rate per mcf

($

)


11.25



10.66



10.44



9.61



8.04     (a)
    
    Until their sale in November 2006, we were the primary
    beneficiary of the MCV Partnership and the FMLP. As a result, we
    consolidated their assets, liabilities and activities into our
    consolidated financial statements through the date of sale and
    for the years ended December 31, 2005 and 2004. These
    partnerships had third-party obligations totaling
    $482 million at December 31, 2005 and
    $582 million at December 31, 2004. Property, plant and
    equipment serving as collateral for these obligations had a
    carrying value of $224 million at December 31, 2005
    and $1.426 billion at December 31, 2004.(b)
    
    Excludes off-system transportation customers. CMS-2




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##### Table of Contents



CMS Energy
    Corporation
  Managements
    Discussion and Analysis
   FORWARD-LOOKING
    STATEMENTS AND INFORMATION  Form 10-K
  
    the price of CMS Energy Common Stock, capital and financial
    market conditions and the effect of these market conditions on
    our postretirement benefit plans, interest rates, and access to
    the capital markets, including availability of financing
    (including our accounts receivable sales program and revolving
    credit facilities) to CMS Energy, Consumers, or any of their
    affiliates, and the energy industry,
    the impact of the continued downturn in the economy and the
    sharp downturn and extreme volatility in the financial and
    credit markets on CMS Energy, including its:  
    revenues,
    capital expenditure program and related earnings growth,
    ability to collect accounts receivable from our customers,
    cost of capital and availability of capital, and
    Pension Plan and postretirement benefit plans assets and
    required contributions,  
    the market perception of the energy industry or of CMS Energy,
    Consumers, or any of their affiliates,
    the credit ratings of CMS Energy or Consumers,
    factors affecting operations, such as unusual weather
    conditions, catastrophic weather-related damage, unscheduled
    generation outages, maintenance or repairs, environmental
    incidents, or electric transmission or gas pipeline system
    constraints,
    changes in applicable laws, rules, regulations, principles or
    practices or in their interpretation, including with respect to
    taxes, environmental and accounting matters, that could have an
    impact on our business,
    the impact of any future regulations or laws regarding:  
    carbon dioxide, mercury and other greenhouse gas emissions,
    limitations on the use of coal-based electric power
    plants, and
    renewable portfolio standards and energy efficiency mandates,  
    national, regional, and local economic, competitive, and
    regulatory policies, conditions and developments,
    adverse regulatory or legal interpretations or decisions,
    including those related to environmental laws and regulations,
    and potential environmental remediation costs associated with
    these interpretations or decisions, including but not limited to
    those that may affect Bay Harbor and Consumers RMRR
    classification under NSR regulations, CMS-3




---



##### Table of Contents




    potentially adverse regulatory treatment or failure to receive
    timely regulatory orders concerning a number of significant
    questions currently or potentially before the MPSC, including:  
    adequate and timely recovery of :  
    Clean Air Act capital and operating costs and other
    environmental and safety-related expenditures,
    power supply and natural gas supply costs,
    operation and maintenance expenses at Consumers,
    additional utility rate-based investments,
    increased MISO energy and transmission costs,
    costs associated with energy efficiency investments and state or
    federally mandated renewable resource standards,
    Big Rock decommissioning funding shortfalls,  
    authorization of a new clean coal plant, and
    implementation of new energy legislation,  
    adverse consequences resulting from a past or future assertion
    of indemnity or warranty claims associated with previously owned
    assets and businesses, including claims resulting from attempts
    by foreign or domestic governments to assess taxes on past
    operations or transactions,
    the ability of Consumers to recover nuclear fuel storage costs
    due to the DOEs failure to accept spent nuclear fuel on
    schedule, including the outcome of pending litigation with the
    DOE,
    the impact of expanded enforcement powers and investigation
    activities at the FERC,
    federal regulation of electric sales and transmission of
    electricity, including periodic re-examination by federal
    regulators of our market-based sales authorizations in wholesale
    power markets without price restrictions,
    energy markets, including availability of capacity and the
    timing and extent of changes in commodity prices for oil, coal,
    natural gas, natural gas liquids, electricity and certain
    related products due to lower or higher demand, shortages,
    transportation problems, or other developments, and their impact
    on our cash flow and working capital,
    the impact of construction material prices and the availability
    of qualified construction personnel to implement our
    construction program,
    potential disruption or interruption of facilities or operations
    due to accidents, war, or terrorism, and the ability to obtain
    or maintain insurance coverage for these events,
    disruptions in the normal commercial insurance and surety bond
    markets that may increase costs or reduce traditional insurance
    coverage, particularly terrorism and sabotage insurance,
    performance bonds, and tax-exempt debt insurance, and stability
    of insurance providers,
    technological developments in energy production, delivery,
    usage, and storage,
    achievement of capital expenditure and operating expense goals,
    earnings volatility resulting from the GAAP requirement that we
    apply mark-to-market accounting to certain energy commodity
    contracts, including electricity sales agreements, and interest
    rate swaps,
    changes in financial or regulatory accounting principles or
    policies, CMS-4




---



##### Table of Contents




    a possible future requirement to comply with International
    Financial Reporting Standards, which differ from GAAP in various
    ways, including the present lack of special accounting treatment
    for regulated activities similar to that provided under SFAS
    No. 71,
    the impact of our new integrated business software system on our
    operations, including customer billing, finance, purchasing,
    human resources and payroll processes, and utility asset
    construction and maintenance work management systems,
    the impact of credit market and economic conditions on EnerBank,
    the outcome, cost, and other effects of legal or administrative
    proceedings, settlements, investigations or claims, including
    the gas price reporting litigation and the pending appeal of the
    Quicksilver litigation,
    population growth or decline in the geographic areas where we do
    business,
    changes in the economic and financial viability of our
    suppliers, customers, and other counterparties and the continued
    ability of these third parties to perform their obligations to
    us,
    the effectiveness of our risk management policies and procedures,
    our ability to achieve generation planning goals and the
    occurrence and duration of planned or unplanned generation
    outages,
    adverse outcomes regarding tax positions due to the difficulty
    in quantifying tax effects of business decisions and
    reserves, and
    other business or investment matters that may be disclosed from
    time to time in CMS Energys or Consumers SEC
    filings, or in other publicly issued written documents.   EXECUTIVE
    OVERVIEW      
    weather, especially during the normal heating and cooling
    seasons,
    economic conditions, primarily in Michigan,
    regulation and regulatory issues that affect our electric and
    gas utility operations,
    energy commodity prices,
    interest rates, and
    our debt credit ratings.     CMS-5




---



##### Table of Contents




    continuing investment in our utility business,
    growing earnings while controlling operating and fuel costs and
    parent debt,
    managing cash flow, and
    maintaining principles of safe, efficient operations, customer
    value, fair and timely regulation, and consistent financial
    performance.   RESULTS OF
    OPERATIONS  CMS
    Energy Consolidated Results of Operations
  Years Ended December 31

2008


2007


2006In Millions (Except for Per Share Amounts)Net Earnings (Loss) Available to Common Stockholders

$
289


$
(227
)

$
(90
)Basic Earnings (Loss) Per Share

$
1.29


$
(1.02
)

$
(0.41
)Diluted Earnings (Loss) Per Share

$
1.23


$
(1.02
)

$
(0.41
)   Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsElectric Utility

$
271


$
196


$
75


$
196


$
199


$
(3
)Gas Utility


89



87



2



87



37



50Enterprises


14



(412
)


426



(412
)


(227
)


(185
)Corporate Interest and Other


(85
)


(9
)


(76
)


(9
)


(153
)


144Discontinued Operations






(89
)


89



(89
)


54



(143
)Net Earnings (Loss) Available to Common Stockholders

$
289


$
(227
)

$
516


$
(227
)

$
(90
)

$
(137
)    CMS-6




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##### Table of Contents



In Millionsabsence of costs incurred by CMS ERM due to
    the termination of certain electricity sales agreements and the
    rescission of a contract with Quicksilver,

$
217absence of impairment charges related to
    international businesses sold in 2007,


133increase in net earnings at our electric and
    gas utility segments primarily due to favorable MPSC rate orders,


129absence of a net loss on the disposal of
    discontinued operations in 2007,


89other net increase at Enterprises and
    corporate and other primarily due to reduced interest and
    operating and maintenance expense, and the absence of early debt
    retirement premiums paid in 2007,


37elimination of certain costs at our electric
    utility from the power purchase agreement with the MCV
    Partnership,


29absence of an increase in the provision for
    environmental remediation costs at Bay Harbor,


29absence of a 2007 net tax benefit,
    associated with the sale of assets, recorded at Enterprises and
    corporate and other,


(53
)decreased deliveries at our electric utility
    segment,


(51
)decrease due to a charge that recognized an
    other than temporary decline in the fair value of our SERP
    investments in 2008 which replaced a gain on the sale of SERP
    assets in 2007, and


(30
)other combined net decrease at our electric
    and gas utility segments due primarily to higher depreciation
    expense offset by a reduction in nuclear operating and
    maintenance costs.


(13
)Total change

$
516    CMS-7




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##### Table of Contents



In Millions

costs incurred by CMS ERM due to the rescission of a contract
    with Quicksilver and the termination of certain electricity
    sales agreements,

$
(217
)

impact from discontinued operations as losses recorded on the
    disposal of international businesses in 2007 replaced earnings
    recorded for these businesses in 2006,


(143
)

reduction in earnings from equity method investees primarily due
    to the absence of earnings from international businesses sold in
    2007,


(32
)

increase in the provision for environmental remediation costs at
    Bay Harbor,


(29
)

additional taxes at our corporate and Enterprises segments as
    the absence of tax benefits associated with the resolution of an
    IRS income tax audit in 2006 more than offset the net tax
    benefits associated with the sale of international businesses
    recorded in 2007,


(16
)

absence of a 2006 net charge resulting from our agreement
    to settle shareholder class action lawsuits,


80

absence of activities related to our former interest in the MCV
    Partnership including asset impairments and mark-to-market
    impacts,


60

earnings from non-MCV-related mark-to-market impacts primarily
    at CMS ERM, as mark-to-market gains in 2007 replaced losses in
    2006,


49

increase in combined net earnings at our gas utility and
    electric utility, primarily due to the positive effects of the
    MPSC gas rate orders and increased weather-related deliveries,


47

decrease in non-MCV-related asset impairment charges, net of
    insurance reimbursement, and


38

additional increase at Enterprises and corporate primarily due
    to gains on the sale of international businesses in 2007, a
    reduction in interest expense, and increased interest income.


26Total change

$
(137
)  CMS-8




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##### Table of Contents



Electric
    Utility Results of Operations
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet income

$
271


$
196


$
75


$
196


$
199


$
(3
)Reasons for the change:Electric deliveries and rate increase









$
89










$
(118
)Surcharge revenue










15











6Power supply costs and related revenue










18











(17
)Non-commodity revenue










(14
)










(12
)Depreciation and other operating expenses










40











150Other income










(46
)










26General taxes










15











(15
)Interest charges










11











(18
)Income taxes










(53
)










(5
)Total change









$
75










$
(3
)   Electric deliveries and rate increase:
    Surcharge revenue:
    Power supply costs and related revenue:
    Non-commodity revenue:
    Depreciation and other operating expenses:
 CMS-9




---



##### Table of Contents



Other income:
    General taxes:
    Interest charges:
    Income taxes:
   CMS-10




---



##### Table of Contents



Gas
    Utility Results of Operations
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet income

$
89


$
87


$
2


$
87


$
37


$
50Reasons for the change:Gas deliveries and rate increase









$
44










$
91Gas wholesale and retail services, other gas revenues, and other
    income










(28
)










14Other operating expenses










(24
)










(19
)General taxes and depreciation










(1
)










(11
)Interest charges










9











4Income taxes










2











(29
)Total change









$
2










$
50   Gas deliveries and rate increase:
    Gas wholesale and retail services, other gas revenues, and
    other income:
    Other operating expenses:
    General taxes and depreciation:
    Interest charges:
 CMS-11




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##### Table of Contents



Income taxes:
    Enterprises
    Results of Operations
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet income (loss)

$
14


$
(412
)

$
426


$
(412
)

$
(227
)

$
(185
)Reasons for the change:CMS ERM









$
242










$
(144
)Activities associated with the sale of international assets










164











(58
)Environmental remediation










29











(23
)DIG










(7
)










(22
)Other










(2
)










2The MCV Partnership






















60Total Change









$
426










$
(185
)   CMS ERM:
    Activities associated with sale of international
    assets:
    Environmental remediation:
 CMS-12




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##### Table of Contents



DIG:
    Other:
    MCV:
  Corporate
    Interest and Other Net Expenses
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet loss

$
(85
)

$
(9
)

$
(76
)

$
(9
)

$
(153
)

$
144       DISCONTINUED
    OPERATIONS
     CRITICAL
    ACCOUNTING POLICIES   CMS-13




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##### Table of Contents



Use
    of Estimates and Assumptions
    Contingencies:
  Fair Value Measurements:
    Income Taxes:
  Long-Lived Assets and Equity Method Investments:
  
    the nature of the assets,
    projected future economic benefits,
    regulatory and political environments,
    historical and future cash flow and profitability measurements,
    and
    other external market conditions and factors.    Accounting
    for the Effects of Industry Regulation
     CMS-14




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##### Table of Contents



Financial
    and Derivative Instruments and Market Risk Information
  Financial Instruments:
  Derivative Instruments:
        
    they do not have a notional amount (that is, a number of units
    specified in a derivative instrument, such as MWh of electricity
    or bcf of natural gas),
    they qualify for the normal purchases and sales
    exception, or
    there is not an active market for the commodity. CMS-15




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##### Table of Contents



CMS ERM Contracts:
    Market Risk Information:
      Interest Rate Risk:
    December 31

2008


2007In MillionsVariable-rate financing  before-tax annual earnings
    exposure

$
1


$
2Fixed-rate financing  potential reductionin
    fair value(a)


208



172     (a)
    
    Fair value reduction could only be realized if we transferred
    all of our fixed-rate financing to other creditors.  Commodity Price Risk:
 CMS-16




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##### Table of Contents



December 31

2008


2007In MillionsPotential reductionin fair value:Fixed price fuel contracts

$
1


$
Electricity swaps






4Natural gas swaps and futures


1



1   Investment Securities Price Risk:
    December 31

2008


2007In MillionsPotential reductionin fair value of available-for-sale:Equity securities

$
4


$
6Debt securities


1



(Primarily SERP investments)     Retirement
    Benefits
  Pension:
  401(k):
  OPEB:
    
    life expectancies,
    discount rates,
    expected long-term rate of return on plan assets,
    rate of compensation increases, and
    anticipated health care costs.   CMS-17




---



##### Table of Contents



Expected

Pension Cost


OPEB Cost


Pension Contribution


OPEB ContributionIn Millions2009

$
101


$
77


$
300


$
532010


91



74



127



532011


88



72



105



53         Accounting
    for Asset Retirement Obligations
     CAPITAL RESOURCES
    AND LIQUIDITY    
    results of operations,
    capital expenditures,
    energy commodity and transportation costs,
    contractual obligations,
    regulatory decisions,
    debt maturities,
    credit ratings,
    pension plan funding requirements,
    tendering of our convertible securities by holders for
    conversion, CMS-18




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##### Table of Contents




    working capital needs,
    collateral requirements, and
    access to credit markets.      
    in September 2008, Consumers issued $350 million
    FMB, and
    in September 2008, Consumers entered into a $150 million
    revolving credit agreement.        Cash
    Position, Investing, and Financing
       CMS-19




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##### Table of Contents



Operating
    Activities:
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet cash provided by operating activities

$
559


$
25


$
534


$
25


$
690


$
(665
)Reasons for the change:Net income (loss)









$
515










$
(136
)Non-cash operating activities(a)










(154
)










59Accounts receivable and accrued revenue










371











(526
)Inventories










(61
)










95Accounts payable










40











(2
)Postretirement benefits contributions










133











(115
)Shareholder class action settlement payment










125











(125
)Electric sales contract termination payment










(275
)










MCV Partnership gas supplier funds on deposit






















147Regulatory liabilities










(64
)










(173
)Other assets and liabilities










(96
)










111Total change









$
534










$
(665
)     (a)
    
    Represents adjustments to reconcile net income (loss) to net
    cash provided by operating activities, including depreciation
    and amortization, deferred income taxes, postretirement benefits
    expense, asset impairment charges, and other non-cash charges.  2008 versus 2007:
  2007 versus 2006:
 CMS-20




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##### Table of Contents



Investing
    Activities:
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet cash provided by (used in) investing activities

$
(839
)

$
662


$
(1,501
)

$
662


$
(751
)

$
1,413Reasons for the change:Proceeds from asset sales, net of cash relinquished









$
(1,601
)









$
1,683Proceeds from nuclear decommissioning trust funds










(333
)










311Capital expenditures










471











(593
)Other investing










(38
)










12Total change









$
(1,501
)









$
1,413   2008 versus 2007:
  2007 versus 2006:
    Financing
    Activities:
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet cash provided by (used in) financing activities

$
145


$
(692
)

$
837


$
(692
)

$
(436
)

$
(256
)Reasons for the change:Proceeds from notes, bonds and other long-term debt









$
881










$
415Retirement of notes, bonds and other long-term debt










(35
)










(602
)Other financing










(9
)










(69
)Total change









$
837










$
(256
)   2008 versus 2007:
  2007 versus 2006:
  Restrictive Covenants:
  (1) Minimum

Result at(2) Maximum

December 31,Credit Agreement or Facility

Ratio

Requirement

2008CMS senior notes indenture

Interest Coverage

(1)1.7 to 1.0

3.89 to 1.0CMS revolving credit agreement

Debt to EBITDA

(2)7.0 to 1.0

4.71 to 1.0CMS revolving credit agreement

Interest Coverage

(1)1.2 to 1.0

4.45 to 1.0Consumers credit agreements

Debt to Capital

(2)0.7 to 1.0

0.52 to 1.0  CMS-21




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##### Table of Contents



Credit Ratings:
  Issuer

Securities

S&P

Moodys

FitchCMS Energy

Senior Unsecured Debt

BB+

Ba1

BB+CMS Energy

Secured Bank Credit Facilities

−

Baa3

BBB-CMS Energy

Trust Preferred Securities
    (Long-term debt - related parties)

BB

Ba2

BBConsumers

Senior Secured Debt (FMB)

BBB

Baa1

BBB+Consumers

Senior Unsecured Debt

BBB-

Baa2

BBBConsumers

Securitization Bonds

AAA

Aaa

AAAConsumers

Senior Secured Insured Quarterly Notes

AAA

Aaa

AAAConsumers

Tax Exempt Bonds

BBB

Baa1

−Consumers

Tax Exempt Bonds, LOC backed

AAA

Aaa

−     Obligations
    and Commitments
  Contractual Obligations:
  Payments DueLess Than


One to


Three to


More ThanContractual Obligations at December 31, 2008

Total


One Year


Three Years


Five Years


Five YearsIn MillionsLong-term debt(a)

$
6,348


$
489


$
1,037


$
1,197


$
3,625Long-term debt  related parties(a)


178















178Interest payments on long-term debt(b)


2,707



341



591



461



1,314Capital and finance leases(c)


231



25



47



41



118Interest payments on capital and finance leases(d)


122



13



25



22



62Operating leases(e)


237



27



51



44



115Purchase obligations(f)


14,699



2,201



2,391



1,545



8,562Total contractual obligations

$
24,522


$
3,096


$
4,142


$
3,310


$
13,974     (a)
    
    Principal amounts due on outstanding debt obligations, current
    and long-term, at December 31, 2008. For additional details
    on long-term debt, see Note 5, Financings and
    Capitalization.(b)
    
    Currently scheduled interest payments on both variable and
    fixed-rate long-term debt and long-term debt  related
    parties, current and long-term. Variable interest payments are
    based on contractual rates in effect at December 31, 2008.(c)
    
    Principal portion of lease payments under our capital and
    finance leases, comprised mainly of leased service vehicles,
    leased office furniture, and certain power purchase agreements.(d)
    
    Imputed interest on the capital leases.(e)
    
    Minimum noncancelable lease payments under our leases of
    railroad cars, certain vehicles, and miscellaneous office
    buildings and equipment, which are accounted for as operating
    leases. CMS-22




---



##### Table of Contents



(f)
    
    Long-term contracts for purchase of commodities and services.
    These obligations include operating contracts used to assure
    adequate supply with generating facilities that meet PURPA
    requirements. These commodities and services include:  
    natural gas and associated transportation,
    electricity, and
    coal and associated transportation.    Revolving Credit Facilities:
  Sale of Accounts Receivable:
  Capital Expenditures:
  Years Ending December 31

2009


2010


2011In MillionsElectric utility operations(a)(b)

$
574


$
847


$
705Gas utility operations(b)


276



287



251Enterprises


1



1



Total

$
851


$
1,135


$
956     (a)
    
    These amounts include estimates for capital expenditures that
    may be required by revisions to the Clean Air Acts
    national air quality standards or potential renewable energy
    programs.(b)
    
    These amounts include estimates for capital expenditures related
    to information technology projects, facility improvements, and
    vehicle leasing.  Off-Balance
    Sheet Arrangements
   OUTLOOK  Corporate
    Outlook
   CMS-23




---



##### Table of Contents



ELECTRIC UTILITY
    BUSINESS OUTLOOK
  Balanced Energy Initiative:
  
    energy efficiency,
    demand management,
    expanded use of renewable energy, and
    development of new power plants and pursuit of additional power
    purchase agreements to complement existing generating sources.    Proposed Coal Plant Projects:
  
    whether additional generation is needed, and
    whether other feasible and prudent alternatives to a new coal
    plant exist that would better protect the environment, including
    potential demand reduction measures and purchasing power from
    existing sources.        Electric Customer Revenue Outlook:
  Electric Deliveries:
 CMS-24




---



##### Table of Contents




    energy conservation measures and results of energy efficiency
    programs,
    fluctuations in weather, and
    changes in economic conditions, including utilization and
    expansion or contraction of manufacturing facilities, population
    trends, and housing activity.  Electric Reserve Margin:
  Electric Transmission Expenses:
      Renewable Energy Plan:
    Energy Optimization Plan:
  Ancillary Services:
 CMS-25




---



##### Table of Contents



ELECTRIC UTILITY
    BUSINESS UNCERTAINTIES
    Electric Environmental Estimates:
  Clean Air Act:
    Clean Air Interstate Rule:
  State and Federal Mercury Air Rules:
    Routine Maintenance Classification:
    Greenhouse Gases:
 CMS-26




---



##### Table of Contents



Water:
      Stranded Cost Recovery:
  Electric Rate Case:
  Palisades Regulatory Proceedings:
    GAS UTILITY
    BUSINESS OUTLOOK
  Gas Deliveries:
 CMS-27




---



##### Table of Contents




    fluctuations in weather,
    use by independent power producers,
    availability and development of renewable energy sources,
    changes in gas prices,
    Michigan economic conditions including population trends and
    housing activity,
    the price of competing energy sources or fuels, and
    energy efficiency and conservation.  GAS UTILITY
    BUSINESS UNCERTAINTIES
    Gas Environmental Estimates:
  Gas Cost Recovery:
  Gas Depreciation:
  Lost and Unaccounted for Gas:
  ENTERPRISES
    OUTLOOK
      Enterprises Uncertainties:
  
    the impact of indemnity and environmental remediation
    obligations at Bay Harbor, CMS-28




---



##### Table of Contents




    the outcome of certain legal proceedings,
    the impact of representations, warranties, and indemnities we
    provided in connection with the sales of our international
    assets, and
    changes in commodity prices and interest rates on certain
    derivative contracts that do not qualify for hedge accounting
    and must be marked to market through earnings.    OTHER
    OUTLOOK
  Advanced Metering Infrastructure:
  Emergency Shutoff Protection Rules:
  
    extends the protection period from March 31, 2009 to
    April 30, 2009,
    includes protection for physically or mentally disabled
    customers of record,
    expands the qualifications for low income shutoff protection, and
    gives customers the payment options.    Litigation and Regulatory Investigation:
  Emergency Economic Stabilization Act of 2008 
    Mark-to-Market Accounting:
  EnerBank:
 CMS-29




---



##### Table of Contents



IMPLEMENTATION OF
    NEW ACCOUNTING STANDARDS  SFAS No. 157, Fair Value
    Measurements:
  SEC / FASB Guidance on Fair Value
    Measurements:
  FSP
    FAS 157-3,
    Determining the Fair Value of a Financial Asset When the Market
    for That Asset Is Not Active :
  SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statements No. 87,
    88, 106, and 132(R):
  SFAS No. 159, The Fair Value Option for Financial
    Assets and Financial Liabilities, Including an amendment to FASB
    Statement No. 115:
  FSP
    FIN 39-1,
    Amendment of FASB Interpretation No. 39:
  EITF Issue
    06-11,
    Accounting for Income Tax Benefits of Dividends on Share-Based
    Payment Awards:
  FSP
    FAS 133-1
    and
    FIN 45-4,
    Disclosures about Credit Derivatives and Certain Guarantees: An
    Amendment of FASB Statement No. 133 and FASB Interpretation
    No. 45; and Clarification of the Effective Date of FASB
    Statement No. 161:
 CMS-30




---



##### Table of Contents



FSP
    FAS 140-4
    and FIN 46(R)-8, Disclosures by Public Entities
    (Enterprises) about Transfers of Financial Assets and Interests
    in Variable Interest Entities:
 NEW ACCOUNTING
    STANDARDS NOT YET EFFECTIVE  SFAS No. 141(R),Business
    Combinations: Business Combinations
  SFAS No. 160,Noncontrolling Interests in
    Consolidated Financial Statements  an amendment to
    ARB No. 51:
  SFAS No. 161, Disclosures about Derivative
    Instruments and Hedging Activities, an amendment of FASB
    Statement No. 133:
  FSP
    FAS 142-3,Determination of the Useful Life of Intangible
    Assets: FAS 142-3,
  FSP APB
    14-1,
    Accounting for Convertible Debt Instruments That May Be
    Settled In Cash Upon Conversion (Including Partial Cash
    Settlement): 14-1,
 CMS-31




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##### Table of Contents



FSP
    EITF 03-6-1,
    Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating
    Securities: EITF 03-6-1,
  EITF Issue
    07-5,Determining Whether an Instrument (or Embedded Feature) Is
    Indexed to an Entitys Own Stock: 07-5,
  EITF Issue
    08-5,Issuers Accounting for Liabilities Measured at Fair Value
    with a Third-Party Credit Enhancement: 08-5,
  FSP FAS 132(R)-1, Employers Disclosures about
    Postretirement Benefit Plan Assets:
 CMS-32




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##### Table of Contents



(This page
    intentionally left blank)
  CMS-33




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##### Table of Contents



CMS Energy
    Corporation
  CONSOLIDATED
    STATEMENTS OF INCOME (LOSS)
  Years Ended December 312008


2007


2006In MillionsOperating Revenue

$
6,821


$
6,464


$
6,126Earnings from Equity Method Investees


5



40



89Operating ExpensesFuel for electric generation


600



523



711Fuel costs mark-to-market at the MCV Partnership










204Purchased and interchange power


1,335



1,407



709Cost of gas sold


2,277



2,172



2,131Electric sales contract termination






279



Other operating expenses


837



976



1,136Maintenance


193



201



297Depreciation and amortization


589



540



550General taxes


204



222



151Asset impairment charges, net of insurance recoveries






204



459Gain on asset sales, net


(9
)


(21
)


(79
)6,026



6,503



6,269Operating Income (Loss)


800



1



(54
)Other Income (Deductions)Interest and dividends


30



96



76Regulatory return on capital expenditures


33



31



26Other income


15



41



31Other expense


(37
)


(39
)


(21
)41



129



112Fixed ChargesInterest on long-term debt


349



382



448Interest on long-term debt  related parties


14



14



15Other interest


33



48



27Capitalized interest


(4
)


(6
)


(10
)Preferred dividends of subsidiaries










3392



438



483Income (Loss) Before Income Taxes


449



(308
)


(425
)Income Tax Expense (Benefit)


142



(195
)


(188
)Income (Loss) Before Minority Interests (Obligations), Net


307



(113
)


(237
)Minority Interests (Obligations), Net


7



13



(104
)Income (Loss) From Continuing Operations


300



(126
)


(133
)Income (Loss) From Discontinued Operations, Net of Tax (Tax
    Benefit) of $1, $(1), and $32






(89
)


54Net Income (Loss)


300



(215
)


(79
)Preferred Dividends


11



11



11Redemption Premium on Preferred Stock






1



Net Income (Loss) Available to Common Stockholders

$
289


$
(227
)

$
(90
)  CMS-34




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##### Table of Contents



Years Ended December 312008


2007


2006In Millions, Except PerShare AmountsCMS EnergyNet Income (Loss)Net Income (Loss) Available to Common Stockholders

$
289


$
(227
)

$
(90
)Basic Earnings (Loss) Per Average Common ShareIncome (Loss) from Continuing Operations

$
1.29


$
(0.62
)

$
(0.66
)Income (Loss) from Discontinued Operations






(0.40
)


0.25Net Income (Loss) Attributable to Common Stock

$
1.29


$
(1.02
)

$
(0.41
)Diluted Earnings (Loss) Per Average Common ShareIncome (Loss) from Continuing Operations

$
1.23


$
(0.62
)

$
(0.66
)Income (Loss) from Discontinued Operations






(0.40
)


0.25Net Income (Loss) Attributable to Common Stock

$
1.23


$
(1.02
)

$
(0.41
)Dividends Declared Per Common Share

$
0.36


$
0.20


$
    CMS-35




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##### Table of Contents



CMS Energy
    Corporation
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 312008


2007


2006In MillionsCash Flows from Operating ActivitiesNet income (loss)

$
300


$
(215
)

$
(79
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activitiesDepreciation and amortization, net of nuclear decommissioning of
    $-, $4, and $6


589



545



576Deferred income taxes and investment tax credit


129



(221
)


(271
)Minority interests (obligations), net


7



(8
)


(98
)Asset impairment charges, net of insurance recoveries






204



459Postretirement benefits expense


144



131



131Electric sales contract termination






279



Shareholder class action settlement expense










125Fuel costs mark-to-market at the MCV Partnership










204Regulatory return on capital expenditures


(33
)


(31
)


(26
)Capital lease and other amortization


36



55



44Bad debt expense


51



37



28Loss (gain) on the sale of assets


(9
)


112



(79
)Earnings from equity method investees


(5
)


(40
)


(89
)Cash distributions from equity method investees


4



18



75Postretirement benefits contributions


(51
)


(184
)


(69
)Shareholder class action settlement payment






(125
)


Electric sales contract termination payment


(275
)






Changes in other assets and liabilities:Decrease (increase) in accounts receivable and accrued revenues


(80
)


(451
)


75Decrease (increase) in accrued power supply and gas revenue


35



99



(91
)Increase in inventories


(71
)


(10
)


(105
)Decrease in accounts payable


(5
)


(45
)


(43
)Increase (decrease) in accrued expenses


(31
)


(31
)


39Decrease in the MCV Partnership gas supplier funds on deposit










(147
)Increase (decrease) in other current and non-current regulatory
    liabilities


(178
)


(114
)


59Decrease in other current and non-current assets


12



37



58Decrease in other current and non-current liabilities


(10
)


(17
)


(86
)Net cash provided by operating activities


559



25



690Cash Flows from Investing ActivitiesCapital expenditures (excludes assets placed under capital lease)


(792
)


(1,263
)


(670
)Cost to retire property


(34
)


(28
)


(78
)Restricted cash and restricted short-term investments


1



49



124Investments in nuclear decommissioning trust funds






(1
)


(21
)Proceeds from nuclear decommissioning trust funds






333



22Maturity of the MCV Partnership restricted investment securities
    held-to-maturity










130Purchase of the MCV Partnership restricted investment securities
    held-to-maturity










(131
)Proceeds from sale of assets


3



1,717



69Cash relinquished from sale of assets






(113
)


(148
)Increase in non-current notes receivable


(19
)


(32
)


(50
)Other investing


2







2Net cash provided by (used in) investing activities


(839
)


662



(751
) CMS-36




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##### Table of Contents



Years Ended December 312008


2007


2006In MillionsCash Flows from Financing ActivitiesProceeds from notes, bonds, and other long-term debt


1,396



515



100Issuance of common stock


9



15



8Retirement of bonds and other long-term debt


(1,130
)


(1,095
)


(493
)Redemption of preferred stock


(1
)


(32
)


Payment of common stock dividends


(82
)


(45
)


Payment of preferred stock dividends


(13
)


(13
)


(13
)Payment of capital lease and financial lease obligations


(26
)


(20
)


(26
)Debt issuance costs, financing fees, and other


(8
)


(17
)


(12
)Net cash provided by (used in) financing activities


145



(692
)


(436
)Effect of Exchange Rates on Cash






2



1Net Decrease in Cash and Cash Equivalents


(135
)


(3
)


(496
)Cash and Cash Equivalents, Beginning of Period


348



351



847Cash and Cash Equivalents, End of Period

$
213


$
348


$
351Other cash flow activities and non-cash investing and
    financing activities were:Cash transactionsInterest paid (net of amounts capitalized)

$
364


$
432


$
487Income taxes paid (net of refunds of $2, $- , and $2)


3



14



98Non-cash transactionsOther assets placed under capital lease

$
5


$
229


$
7    CMS-37




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##### Table of Contents



CMS ENERGY
    CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
  December 312008


2007In MillionsASSETSPlant and Property (At cost)Electric utility

$
8,965


$
8,555Gas utility


3,622



3,467Enterprises


390



391Other


33



3413,010



12,447Less accumulated depreciation, depletion and amortization


4,428



4,1668,582



8,281Construction
    work-in-progress


608



4479,190



8,728Equity InvestmentsEnterprises


5



6Other


6



511



11Current AssetsCash and cash equivalents at cost, which equals fair value


213



348Restricted cash at cost, which equals fair value


35



34Accounts receivable and accrued revenue, less allowances of $26
    in 2008 and $21 in 2007


851



837Notes receivable


95



68Accrued power supply and gas revenue


7



45Accounts receivable and notes receivable  related
    parties






2Inventories at average costGas in underground storage


1,168



1,123Materials and supplies


110



86Generating plant fuel stock


127



125Deferred property taxes


165



158Regulatory assets  postretirement benefits


19



19Prepayments and other


37



352,827



2,880Non-current AssetsRegulatory AssetsSecuritized costs


416



466Postretirement benefits


1,431



921Customer Choice Act


90



149Other


482



504Deferred income taxes






99Notes receivable, less allowances of $34 in 2008 and $33 in 2007


186



168Other


268



2662,873



2,573Total Assets

$
14,901


$
14,192 CMS-38




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##### Table of Contents



December 312008


2007In MillionsSTOCKHOLDERS INVESTMENT AND LIABILITIESCapitalizationCommon stockholders equityCommon stock, authorized 350.0 shares; outstanding
    226.4 shares and 225.1 shares, respectively

$
2


$
2Other paid-in capital


4,496



4,480Accumulated other comprehensive loss


(28
)


(144
)Accumulated deficit


(2,007
)


(2,208
)2,463



2,130Preferred stock of subsidiary


44



44Preferred stock


243



250Long-term debt


5,859



5,385Long-term debt  related parties


178



178Non-current portion of capital and finance lease obligations


206



2258,993



8,212Minority Interests


52



53Current LiabilitiesCurrent portion of long-term debt, capital and finance lease
    obligations


514



722Notes payable






1Accounts payable


466



430Accrued rate refunds


7



19Accounts payable  related parties






1Accrued interest


107



103Accrued taxes


289



308Deferred income taxes


100



41Regulatory liabilities


120



164Electric sales contract termination liability


2



279Argentine currency impairment reserve






197Other


258



2081,863



2,473Non-current LiabilitiesRegulatory LiabilitiesCost of removal


1,203



1,127Income taxes, net


519



533Other


146



313Postretirement benefits


1,502



858Asset retirement obligation


206



198Deferred investment tax credit


54



58Deferred income taxes


46



Other


317



3673,993



3,454Commitments and Contingencies (Notes 4, 5, 7, 10 and 12)Total Stockholders Investment and Liabilities

$
14,901


$
14,192    CMS-39




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##### Table of Contents



CMS Energy
    Corporation
  Consolidated
    Statements of Common Stockholders Equity
  Years Ended December 312008


2007


2006


2008


2007


2006Number of Shares in Thousands


In MillionsCommon StockAt beginning and end of period













$
2


$
2


$
2Other Paid-in CapitalAt beginning of period


225,146



222,783



220,497



4,480



4,468



4,436Common stock repurchased


(38
)


(318
)


(98
)


(1
)


(5
)


(2
)Common stock reacquired


(445
)


(19
)


(59
)










Common stock issued


1,751



2,339



2,375



17



30



33Common stock reissued






361



68







6



1Redemption of preferred stock


















(19
)


At end of period


226,414



225,146



222,783



4,496



4,480



4,468Accumulated Other Comprehensive LossRetirement benefits liabilityAt beginning of period














(15
)


(23
)


(19
)Retirement benefits liability adjustments(a)






















3Net gain (loss) arising during the period(a)














(12
)


7



Amortization of net actuarial loss(a)


















1



Adjustment to initially apply FASB Statement No. 158






















(7
)At end of period














(27
)


(15
)


(23
)InvestmentsAt beginning of period


















14



9Unrealized gain (loss) on investments(a)














(15
)


1



5Reclassification adjustments included in net income (loss)(a)














15



(15
)


At end of period






















14Derivative instrumentsAt beginning of period














(1
)


(12
)


35Unrealized loss on derivative instruments(a)


















(3
)


(15
)Reclassification adjustments included in net income (loss)(a)


















14



(32
)At end of period














(1
)


(1
)


(12
)Foreign currency translationAt beginning of period














(128
)


(297
)


(313
)Sale of interests in TGN(a)














128







Sale of Argentine assets(a)


















128



Sale of Brazilian assets(a)


















36



Other foreign currency translations(a)


















5



16At end of period


















(128
)


(297
)At end of period














(28
)


(144
)


(318
)Accumulated DeficitAt beginning of period














(2,208
)


(1,918
)


(1,828
)Effects of changing the retirement plans measurement date
    pursuant to SFAS No. 158Service cost, interest cost, and expected return on plan assets
    for December 1 through December 31, 2007, net of tax














(4
)






Additional loss from December 1 through December 31, 2007,
    net of tax














(2
)






Adjustment to initially apply FIN 48


















(18
)


Net income (loss)(a)














300



(215
)


(79
)Preferred stock dividends declared














(11
)


(11
)


(11
)Common stock dividends declared














(82
)


(45
)


Redemption of preferred stock(a)


















(1
)


At end of period














(2,007
)


(2,208
)


(1,918
)Total Common Stockholders Equity













$
2,463


$
2,130


$
2,234  CMS-40




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##### Table of Contents



Years Ended December 312008


2007


2006In Millions(a) Disclosure of Comprehensive Income (Loss):Net income (loss)

$
300


$
(215
)

$
(79
)Retirement benefits liability:Retirement benefits liability adjustments, net of tax of $1 in
    2006










3Net gain (loss) arising during the period, net of tax (tax
    benefit) of ($6) in 2008 and $5 in 2007


(12
)


7



Amortization of net actuarial loss, net of tax of $-






1



Investments:Unrealized gain (loss) on investments, net of tax (tax benefit)
    of ($9) in 2008, $- in 2007 and $2 in 2006


(15
)


1



5Reclassification adjustments included in net income (loss), net
    of tax (tax benefit) of $9 in 2008 and ($7) in 2007


15



(15
)


Derivative instruments:Unrealized loss on derivative instruments, net of tax (tax
    benefit) of $- in 2008, $2 in 2007, and $(11) in 2006






(3
)


(15
)Reclassification adjustments included in net income (loss), net
    of tax (tax benefit) of $- in 2008, $7 in 2007, and $(19) in 2006






14



(32
)Foreign currency translation:Sale of interests in TGN, net of tax of $69


128







Sale of Argentine assets, net of tax of $68






128



Sale of Brazilian assets, net of tax of $20






36



Other foreign currency translations, net of tax of $- in 2008,
    $2 in 2007, and $9 in 2006






5



16Total Comprehensive Income (Loss)

$
416


$
(41
)

$
(102
)    CMS-41




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS
  1: CORPORATE
    STRUCTURE AND ACCOUNTING POLICIES
  Corporate Structure:
  Principles of Consolidation:
  Use of Estimates:
    Revenue Recognition Policy:
  Accounting for Legal Fees:
  Accounting for MISO Transactions:
  Capitalized Interest:
  Cash and Cash Equivalents:
  Collective Bargaining Agreements:
 CMS-42




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   Determination of Pension and OPEB MRV of Plan
    Assets:
  Earnings Per Share:
  Financial and Derivative Instruments:
      Impairment of Long-Lived Assets and Equity Method
    Investments:
  held-in-use
      International Operations and Foreign Currency:
 CMS-43




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Inventory:
    Maintenance and Depreciation:
    Years Ended December 31

2008


2007


2006Electric utility property


3.0
%


3.0
%


3.1
%Gas utility property


3.6
%


3.6
%


3.6
%Other property


8.5
%


8.7
%


8.2
%  CMS-44




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   Other Income and Other Expense:
  Years Ended December 31

2008


2007


2006In MillionsOther incomeInterest and dividends  related parties

$



$



$
8Gain on SERP investment






22



Return on stranded and security costs


5



6



5MCV Partnership emission allowance sales










8Electric restructuring return


1



2



4Foreign currency gain


2



1



Gain on investment






7



1Refund of surety bond premium










1All other


7



3



4Total other income

$
15


$
41


$
31   Years Ended December 31

2008


2007


2006In MillionsOther expenseAccretion expense

$



$



$
(4
)Unrealized investment loss


(24
)






Loss on reacquired and extinguished debt






(22
)


(5
)Abandoned Midland project






(8
)


Derivative loss on debt tender offer






(3
)


Civic and political expenditures


(5
)


(2
)


(2
)Donations










(9
)All other


(8
)


(4
)


(1
)Total other expense

$
(37
)

$
(39
)

$
(21
)   Property, Plant, and Equipment: Position 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
   CMS-45




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Years Ended December 31

2008


2007


2006AFUDC capitalization rate


7.7
%


7.4
%


7.5
%   Property Taxes:
  Reclassifications:
  Restricted Cash:
  Trade Receivables and Notes Receivable:
    Unamortized Debt Premium, Discount, and Expense:
  Utility Regulation:
    CMS-46




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  December 31

End of Recovery or Refund Period

2008


2007In MillionsAssets Earning a Return:Customer Choice Act

2010

$
90


$
149Stranded Costs

See Note 4


71



68Electric restructuring implementation plan

2009


3



14Manufactured gas plant sites (Note 4)

2018


31



33Other(a)

various


44



50Assets Not Earning a Return:Postretirement Benefits (Note 8)

various


1,450



940Securitized costs (Note 5)

2015


416



466Unamortized debt costs

n/a


66



74ARO (Note 9)

n/a


92



85Big Rock nuclear decommissioning and related costs (Note 4)

n/a


129



129Manufactured gas plant sites (Note 4)

n/a


38



17Palisades sales transaction costs (Notes 3 and 4)

n/a






28Other(a)

2011


8



6Total regulatory assets(b)



$
2,438


$
2,059Palisades refund  Current (Note 4)(c)

2009

$
120


$
164Cost of removal (Note 9)

n/a


1,203



1,127Income taxes, net (Note 10)

n/a


519



533ARO (Note 9)

n/a


137



141Palisades refund  Non-current (Note 4)(c)

2008






140Other(a)

various


9



32Total regulatory liabilities(b)



$
1,988


$
2,137     (a)
    
    At December 31, 2008 and 2007, other regulatory assets
    include a gas inventory regulatory asset and OPEB and pension
    expense incurred in excess of the MPSC-approved amount. We will
    recover these regulatory assets from our customers by 2011.
    Other regulatory liabilities include liabilities related to the
    sale of sulfur dioxide allowances and AFUDC collected in excess
    of the MPSC-approved amount.(b)
    
    At December 31, 2008 and 2007, we classified
    $19 million of regulatory assets as current regulatory
    assets. At December 31, 2008, we classified
    $120 million of regulatory liabilities as current
    regulatory liabilities. At December 31, 2007, we classified
    $164 million of regulatory liabilities as current
    regulatory liabilities.(c)
    
    The MPSC order approving the Palisades and Big Rock ISFSI sale
    transaction required that we credit $255 million of excess
    sales proceeds and decommissioning amounts to our retail
    customers by December 2008. For 2007, the current portion of
    regulatory liabilities for Palisades refunds represents the
    remaining portion of this obligation, plus interest. There are
    additional excess sales proceeds and decommissioning fund
    balances above the amount in the MPSC order. For 2007, the
    non-current portion of regulatory liabilities for Palisades
    refunds represents this obligation, plus interest. For 2008,
    these additional excess sales proceeds are reported in the
    current portion of regulatory liabilities for Palisades refunds
    as it is probable the proceeds will be credited to customers
    within one year. For additional details, see Note 4,
    Contingencies, Consumers Electric Utility Rate
    Matters. CMS-47




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       Years Ended December 31

2008


2007In MillionsRegulatory Assets for PSCR and GCRUnderrecoveries of power supply and gas costs

$
7


$
45Regulatory Liabilities for PSCR and GCROverrecoveries of power supply and gas costs

$
7


$
19   New Accounting Standards Not Yet
    Effective: SFAS No. 141(R), Business
    Combinations:
  SFAS No. 160, Noncontrolling Interests in
    Consolidated Financial Statements  an amendment to
    ARB No. 51:
  SFAS No. 161, Disclosures about Derivative
    Instruments and Hedging Activities, an amendment of FASB
    Statement No. 133
  FSP
    FAS 142-3,
    Determination of the Useful Life of Intangible Assets: FAS 142-3,
  FSP APB
    14-1,
    Accounting for Convertible Debt Instruments That May Be Settled
    In Cash Upon Conversion (Including Partial Cash Settlement): 14-1,
 CMS-48




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    FSP
    EITF 03-6-1,
    Determining Whether Instruments Granted in Share-Based Payment
    Transactions Are Participating Securities: EITF 03-6-1,
  EITF Issue
    07-5,
    Determining Whether an Instrument (or Embedded Feature) Is
    Indexed to an Entitys Own Stock: 07-5,
  EITF Issue
    08-5,
    Issuers Accounting for Liabilities Measured at Fair Value
    with a Third-Party Credit Enhancement: 08-5,
  FSP FAS 132(R)-1, Employers Disclosures about
    Postretirement Benefit Plan Assets:
 2: FAIR
    VALUE MEASUREMENTS   CMS-49




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      
    Level 1 inputs are unadjusted quoted prices in active
    markets for identical assets or liabilities. These markets must
    be accessible to us at the measurement date.
    Level 2 inputs are observable, market-based inputs, other
    than Level 1 prices. Level 2 inputs may include quoted
    prices for similar assets or liabilities in active markets,
    quoted prices in inactive markets, interest rates and yield
    curves observable at commonly quoted intervals, credit risks,
    default rates, and inputs derived from or corroborated by
    observable market data.
    Level 3 inputs are unobservable inputs that reflect our own
    assumptions about how market participants would value our assets
    and liabilities.      
    AROs,
    most of the nonfinancial assets and liabilities acquired in a
    business combination, and
    impairment analyses performed for nonfinancial assets.    SEC and FASB Guidance on Fair Value Measurements: FAS 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active
 CMS-50




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Assets
    and Liabilities Measured at Fair Value on a Recurring
    Basis
    Total


Level 1


Level 2


Level 3In MillionsAssets:Cash Equivalents

$
176


$
176


$



$
Nonqualified Deferred Compensation Plan Assets


5



5







SERPEquity Securities


39



39







Debt Securities


29







29



Derivative Instruments:CMS ERM Non-trading electricity/gas contracts(a)


1







1



Total

$
250


$
220


$
30


$
Liabilities:Nonqualified Deferred Compensation Plan Liabilities

$
(5
)

$
(5
)

$



$
Derivative Instruments:CMS ERM Non-trading electricity/gas contracts(b)


(17
)


(2
)






(15
)Interest rate collar


(1
)










(1
)Foreign exchange forward


(1
)






(1
)


Fixed price fuel contracts


(1
)






(1
)


Total(c)

$
(25
)

$
(7
)

$
(2
)

$
(16
)     (a)
    
    This amount is gross and excludes the immaterial impact of
    offsetting derivative assets and liabilities under master
    netting arrangements. We report the fair values of our
    derivative assets net of these impacts within Other assets on
    our Consolidated Balance Sheets.(b)
    
    This amount is gross and excludes the immaterial impact of
    offsetting derivative assets and liabilities under master
    netting arrangements and the $2 million impact of
    offsetting cash margin deposits paid by CMS ERM to other
    parties. We report the fair values of our derivative liabilities
    net of these impacts within Other liabilities on our
    Consolidated Balance Sheets.(c)
    
    At December 31, 2008, liabilities classified as
    Level 3 represent 64 percent of total liabilities
    measured at fair value.  Cash Equivalents:
  Nonqualified Deferred Compensation Plan Assets:
  SERP Assets:
 CMS-51




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Nonqualified Deferred Compensation Plan
    Liabilities:
  Derivative Instruments:
      Interest Rate Collar:
 CMS-52




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Foreign Exchange Forward:
  Fixed Price Fuel Contracts:
  Assets
    and Liabilities Measured at Fair Value on a Recurring Basis
    using Level 3 inputs
    CMS ERMNon-tradingcontractsIn MillionsBalance at December 31, 2007

$
(19
)Total gains (realized and unrealized)Included in earnings(a)


2Purchases, sales, issuances, and settlements (net)


1Balance at December 31, 2008


(16
)Unrealized gains included in earnings for the year ended
    December 31, 2008 relating to assets and liabilities still
    held at December 31, 2008(a)

$
3     (a)
    
    Realized and unrealized gains for Level 3 recurring fair
    values are recorded in earnings as a component of Operating
    Revenue or Operating Expenses in our Consolidated Statements of
    Income (Loss). 3: ASSET
    SALES, DISCONTINUED OPERATIONS AND IMPAIRMENT CHARGES  Asset
    Sales
       CMS-53




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
        Disposal ofContinuing


DiscontinuedOperations


OperationsCash


Pretax


PretaxMonth sold

Business

Proceeds


Gain (Loss)


Gain (Loss)In MillionsMarch

El Chocon(a)

$
50


$
34


$
March

Argentine/Michigan businesses(b)


130



(5
)


(278
)April

Palisades(c)


333







April

SENECA(d)


106







46May

Middle East, Africa and India businesses(e)


792



(15
)


96June

CMS Energy Brasil S.A.(f)


201







3August

GasAtacama(g)


80







October

Jamaica(h)


14



1



Various

Other


11



6



Total

$
1,717


$
21


$
(133
)     (a)
    
    We sold our interest in El Chocon to Endesa, S.A.(b)
    
    We sold a portfolio of our businesses in Argentina and our
    northern Michigan non-utility natural gas assets to Lucid
    Energy. Due to the settlement of certain legal proceedings, we
    recognized a $17 million gain in 2007.(c)
    
    We sold Palisades to Entergy for $380 million and as of
    December 31, 2007, received $363 million after various
    closing adjustments. We also paid Entergy $30 million to
    assume ownership and responsibility for the Big Rock ISFSI.
    Because of the sale of Palisades, we paid the NMC, the former
    operator of Palisades, $7 million in exit fees and
    forfeited our $5 million investment in the NMC. Entergy
    assumed responsibility for the future decommissioning of
    Palisades and for storage and disposal of spent nuclear fuel
    located at Palisades and the Big Rock ISFSI sites.We accounted for the disposal of Palisades as a financing for
    accounting purposes and thus we recognized no gain in the
    Consolidated Statements of Income (Loss). We accounted for the
    remaining non-real estate assets and liabilities associated with
    the transaction as a sale.(d)
    
    We sold our ownership interest in SENECA and certain associated
    generating equipment to PDVSA.(e)
    
    We sold our ownership interest in businesses in the Middle East,
    Africa, and India to TAQA.(f)
    
    We sold CMS Energy Brasil S.A. to CPFL Energia S.A., a Brazilian
    utility.(g)
    
    We sold our investment in GasAtacama to Endesa S.A.(h)
    
    We sold our investment in Jamaica to AEI. CMS-54




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     ContinuingOperationsGross Cash


PretaxMonth sold

Business/Project

Proceeds


GainIn MillionsOctober

Land in Ludington, Michigan

$
6


$
2November

MCV GP II(a)


61



77Various

Other


2



Total

$
69


$
79     (a)
    
    In November 2006, we sold all of our interests in the
    Consumers subsidiaries that held the MCV Partnership and
    the MCV Facility to an affiliate of GSO Capital Partners and
    Rockland Capital Energy Investments.      Discontinued
    Operations
    Years Ended December 31

2008


2007


2006In MillionsRevenues

$



$
235


$
684Discontinued operations:Pretax income (loss) from discontinued operations

$
1


$
(90
)

$
86Income tax expense (benefit)


1



(1
)


32Income (Loss) From Discontinued Operations

$



$
(89
)(a)

$
54     (a)
    
    Includes a loss on disposal of our Argentine and northern
    Michigan non-utility assets of $278 million
    ($171 million after tax and after minority interest), a
    gain on disposal of SENECA of $46 million ($33 million
    after tax and after minority interest), a gain on disposal of
    our ownership interests in businesses in the Middle East,
    Africa, and India of $96 million ($62 million after
    tax), and a gain on disposal of CMS Energy Brasil S.A. of
    $3 million ($2 million after tax).   CMS-55




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Impairment
    Charges
    Years Ended December 31

2007


2006In MillionsAsset impairments:TGN(a)

$
140


$
GasAtacama(b)


35



239Jamaica(c)


22



PowerSmith(d)


5



Prairie State(e)


2



MCV Partnership(f)






218Other






2Total asset impairments

$
204


$
459     (a)
    
    We recorded a $215 million impairment charge to recognize
    the reduction in fair value of our investment in TGN, a natural
    gas business in Argentina. The impairment included a cumulative
    net foreign currency translation loss of $197 million. In
    2007, we recognized a $75 million deferred credit in Asset
    impairment charges, net of insurance recoveries, in our
    Consolidated Statements of Income (Loss).(b)
    
    In 2007, we recorded an impairment charge to reflect the fair
    value of our investment in GasAtacama as determined in sale
    negotiations. In 2006, we performed an impairment analysis of
    our investment in GasAtacama and concluded that there had been a
    decline in fair value that was other than temporary. We recorded
    an impairment charge in the third quarter of 2006.(c)
    
    We recorded an impairment charge to reflect the fair value of
    our investment in an electric generating plant in Jamaica by
    discounting a set of probability-weighted streams of future
    operating cash flows.(d)
    
    We recorded an impairment charge to reflect the fair value of
    our investment in PowerSmith as determined in sale negotiations.(e)
    
    We recorded an impairment charge to reflect our withdrawal from
    the co-development of Prairie State with Peabody Energy because
    the project did not meet our investment criteria.(f)
    
    We recorded an impairment charge of $218 million to
    recognize the reduction in fair value of the MCV Facilitys
    real estate assets. 4: CONTINGENCIES  CMS
    Energy Contingencies
  Gas Index Price Reporting Investigation:
  Gas Index Price Reporting Litigation:
 CMS-56




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Bay Harbor:
        
    the disposal of leachate,
    the capping and excavation of CKD,
    the location and design of collection lines and upstream
    diversion of water,
    potential flow of leachate below the collection system,
    applicable criteria for various substances such as
    mercury, and
    other matters that are likely to affect the scope of remedial
    work that CMS Land and CMS Capital may be obligated to undertake.  30-year
 CMS-57




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    
    an increase in the number of problem areas,
    different remediation techniques,
    nature and extent of contamination,
    continued inability to reach agreement with the MDEQ or the EPA
    over required remedial actions,
    delays in the receipt of requested permits,
    delays following the receipt of any requested permits due to
    legal appeals of third parties,
    increase in water disposal costs,
    delays in developing a long-term water disposal option,
    additional or new legal or regulatory requirements, or
    new or different landowner claims.    Quicksilver Resources, Inc.:
      Consumers
    Electric Utility Contingencies
  Electric Environmental Matters:
 CMS-58




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Cleanup and Solid Waste:
      Ludington PCB:
  Electric Utility Plant Air Permit Issues:
  Routine Maintenance Classification:
  Clean Air Interstate Rule:
 CMS-59




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Litigation:
  Consumers
    Electric Utility Rate Matters
  Stranded Cost Recovery:
  Power Supply Costs:
    Power Supply Cost Recovery ReconciliationNet Under-

PSCR CostPSCR Year

Date Filed

recovery

of Power Sold

Description of Net Underrecovery2007

March 2008

$42 million(a)

$1.628 billion

In our 2007 PSCR Plan we expected to offset power supply costs
    by including a $44 million credit for Palisades sale proceeds
    due customers. However, the MPSC directed that the Palisades
    sale proceeds be refunded through bill credits outside of the
    PSCR process.     (a)
    
    This amount includes 2006 underrecoveries as allowed by the MPSC
    order in our 2007 PSCR plan case.  2008 PSCR Plan
  2009 PSCR Plan
   CMS-60




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Electric Rate Case:
  Components of the Increase in RevenueIn MillionsOperating and maintenance

$
50Rate of return


17Rate base


76Book depreciation on new investment


14Property taxes on new investment


9Gross margin


43Other


5Total

$
214     Palisades Regulatory Proceedings:
  Other
    Consumers Electric Utility Contingencies
  The MCV PPA: 35-year
  
    a capacity charge of $10.14 per MWh of available capacity,
    a fixed energy charge based on our annual average base load coal
    generating plant operating and maintenance cost,
    a variable energy charge for all delivered energy that reflects
    the MCV Partnerships cost of production,
    a $5 million annual contribution by the MCV Partnership to
    a renewable resources program, and
    an option for us to extend the MCV PPA for five years or
    purchase the MCV Facility at the conclusion of the MCV
    PPAs term in March 2025.   CMS-61




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Nuclear Matters: DOE Litigation:
    Big Rock Decommissioning:
    Nuclear Fuel Disposal Cost:
  Consumers
    Gas Utility Contingencies
  Gas Environmental Matters:
    FERC Investigation:
 CMS-62




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Consumers
    Gas Utility Rate Matters
  Gas Cost Recovery:
    Gas Cost Recovery ReconciliationNet Over-

GCR CostGCR Year

Date Filed

recovery

of Gas Sold

Description of Net Overrecovery2007-2008

June 2008

$17 million

$1.7 billion

The total amount reflects an overrecovery of $15 million plus $2
    million in accrued interest owed to customers.   GCR plan for year
    2008-2009: 2008-2009
    2008-2009
  GCR plan for year
    2009-2010: 2009-2010
    Gas Depreciation:
  2008 Gas Rate Case:
 CMS-63




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Other
    Contingencies  Indemnifications
  Equatorial Guinea Tax Claim:
  Moroccan Tax Claim:
  Marathon Indemnity Claim regarding F.T. Barr Claim:
  Guarantees and Indemnifications:
    FIN 45Maximum


CarryingGuarantee Description

Issue Date

Expiration Date

Obligation


AmountIn MillionsIndemnifications from asset sales and other agreements

Various

Indefinite

$
1,445
(a)

$
84
(b)Surety bonds and other indemnifications

Various

Indefinite


35



1Guarantees and put options

Various

Various through
    September 2027


89
(c)


1     (a)
    
    The majority of this amount arises from provisions in stock and
    asset sales agreements under which we indemnify the purchaser
    for losses resulting from claims related to tax disputes, claims
    related to power CMS-64




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  purchase agreements and the failure of title to the assets or
    stock we sold to the purchaser. Except for items described
    elsewhere in this Note, we believe the likelihood of loss to be
    remote for the indemnifications we have not recorded as
    liabilities.(b)
    
    In May 2007, CMS Energy provided an indemnification to TAQA in
    connection with the sale of its ownership interests in
    businesses in the Middle East, Africa, and India. This
    indemnification is capped at $50 million and expires two
    years after the May 2, 2007 sale closing date. The
    indemnification covers claims related to the following matters: a dispute between Neyveli and the TNEB regarding the
    capital costs to be reflected in the tariff paid by the TNEB to
    Neyveli, and various matters, including the lack of a valid site
    lease and current operating license for Takoradi.As of December 31, 2008, we have recorded an
    $84 million liability in connection with indemnities
    related to the sale of certain subsidiaries, including a
    $50 million liability related to the indemnification to
    TAQA described in the preceding paragraphs. The TAQA
    indemnification liability may be resolved during 2009, and our
    ultimate payment obligation could be materially less than the
    amount we have accrued for the indemnification.(c)
    
    The maximum obligation includes $85 million related to the
    MCV Partnerships nonperformance under a steam and electric
    power agreement with Dow. We sold our interests in the MCV
    Partnership and the FMLP. The sales agreement calls for the
    purchaser, an affiliate of GSO Capital Partners and Rockland
    Capital Energy Investments, to pay $85 million, subject to
    certain reimbursement rights, if Dow terminates an agreement
    under which the MCV Partnership provides it steam and electric
    power. This agreement expires in March 2016, subject to certain
    terms and conditions. The purchaser secured its reimbursement
    obligation with an irrevocable letter of credit of up to
    $85 million.    Guarantee Description

How Guarantee Arose

Events That Would Require PerformanceIndemnifications from asset sales and other agreements

Stock and asset sales agreements

Findings of misrepresentation, breach of warranties, tax claims
    and other specific events or circumstancesSurety bonds and other indemnifications

Normal operating activity, permits and licenses

NonperformanceGuarantees and put options

Normal operating activity Agreement to provide power and steam
    to Dow Bay Harbor remediation efforts

Nonperformance or non-payment by a subsidiary under a related
    contract MCV Partnerships nonperformance or non-payment
    under a related contract Owners exercising put options requiring
    us to purchase property      CMS-65




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Other:
  Contractual
    Commitments
  Purchase Obligations:
  Purchase Obligations at December 31, 2008Payments DueLess Than


One to


Three to


More ThanTotal


One Year


Three Years


Five Years


Five YearsIn MillionsPurchase obligations(a)

$
14,699


$
2,201


$
2,391


$
1,545


$
8,562     (a)
    
    Long-term contracts for purchase of commodities and services.
    These obligations include operating contracts used to ensure
    adequate supply with generating facilities that meet PURPA
    requirements. The commodities and services include: natural gas and associated transportation, electricity, and and associated transportation. CMS-66




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  5: FINANCINGS
    AND CAPITALIZATION    Interest Rate (%)


Maturity

2008


2007In MillionsCMS Energy
    CorporationSenior notes


7.750


2010

$
300


$
3008.500


2011


300



3006.300


2012


150



150Variable
(a)

2013


150



1506.875


2015


125



1256.550


2017


250



2503.375
(b)

2023


140



1502.875
(b)

2024


288



2881,703



1,713Revolving Credit Facility








105



Total  CMS Energy Corporation








1,808



1,713Consumers Energy
    CompanyFirst mortgage bonds(c)


4.250


2008






2504.800


2009


200



2004.400


2009


150



1504.000


2010


250



2505.000


2012


300



3005.375


2013


375



3756.000


2014


200



2005.000


2015


225



2255.500


2016


350



3505.150


2017


250



2505.650


2018


250



6.125


2019


350



5.650


2020


300



3005.650


2035


142



1455.800


2035


175



1753,517



3,170Senior notes


6.375


2008






1596.875


2018


180



180Securitization bonds


5.495
(d)

2009-2015


277



309Nuclear fuel disposal liability





(e)


162



159Tax-exempt pollution control revenue bonds


Various


2010-2035


161



161Total  Consumers Energy Company








4,297



4,138Other
    SubsidiariesEnerBank brokered certificates of deposit


4.374
(f)

2009-2018


176



153Genesee tax exempt bonds


7.500


2009-2021


57



59Grayling tax exempt bonds


Variable
(g)

2009-2012


19



24Total  other subsidiaries








252



236Total principal amount outstanding








6,357



6,087Current amounts








(489
)


(692
)Net unamortized discount








(9
)


(10
)Total long-term debt







$
5,859


$
5,385     (a)
    
    The variable rate senior notes bear interest at three-month
    LIBOR plus 95 basis points (5.7025 percent at
    December 31, 2008 which reset to 2.0444 percent in
    January 2009). CMS-67




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   (b)
    
    Contingently convertible notes. See the Contingently
    Convertible Securities section in this Note for further
    discussion of the conversion features.(c)
    
    The weighted-average interest rate for our FMB was
    5.329 percent at December 31, 2008 and
    5.131 percent at December 31, 2007.(d)
    
    Represents the weighted-average interest rate at
    December 31, 2008 (5.442 percent at December 31,
    2007).(e)
    
    The maturity date is uncertain.(f)
    
    Represents the weighted-average interest rate for
    EnerBanks brokered certificates of deposit at
    December 31, 2008 (5.198 percent at December 31,
    2007). These deposits are sold through investment brokers in
    large pools with each certificate within the pool having a face
    value of $1,000. They cannot be withdrawn until maturity, except
    in the case of death or incompetence of the holder.(g)
    
    The interest rate for the tax exempt bonds was
    0.910 percent at December 31, 2008 and
    3.530 percent at December 31, 2007.  Financings:
  Principal(In millions)


Interest Rate (%)


Issue/Retirement Date

Maturity DateDebt Issuances:ConsumersFirst mortgage bonds

$
250



5.650
%

March 2008

September 2018Tax-exempt bonds(a)


28



4.250
%

March 2008

June 2010Tax-exempt bonds(b)


68



Variable


March 2008

April 2018First mortgage bonds


350



6.125
%

September 2008

March 2019Total

$
696Debt Retirements:ConsumersSenior notes

$
159



6.375
%

February 2008

February 2008First mortgage bonds


250



4.250
%

April 2008

April 2008Tax-exempt bonds(a)


28



Variable


April 2008

June 2010Tax-exempt bonds(b)


68



Variable


April 2008

April 2018Total

$
505     (a)
    
    In March 2008, Consumers utilized the Michigan Strategic Fund
    for the issuance of $28 million of tax-exempt Michigan
    Strategic Fund Limited Obligation Refunding Revenue Bonds,
    bearing interest at a 4.25 percent annual rate. The bonds
    are secured by FMB. Consumers used the proceeds to redeem
    $28 million of insured tax-exempt bonds in April 2008.(b)
    
    In March 2008, Consumers utilized the Michigan Strategic Fund
    for the issuance of $68 million of tax-exempt Michigan
    Strategic Fund Variable Rate Limited Obligation Refunding
    Revenue Bonds. The initial interest rate was 2.25 percent
    and it resets weekly. The bonds, which are backed by a letter of
    credit, are subject to optional tender by the holders that would
    result in remarketing. Consumers used the proceeds to redeem
    $68 million of insured tax-exempt bonds in April 2008.   CMS-68




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    First Mortgage Bonds:
  Regulatory Authorization for Financings:
      Securitization Bonds:
  Long-Term Debt  Related Parties:
    Debenture and related party

Interest Rate (%)


Maturity


2008


2007In MillionsConvertible subordinated debentures, CMS Energy Trust I


7.75



2027


$
178


$
178     Debt Maturities:
  Payments Due2009


2010


2011


2012


2013In MillionsLong-term debt and long-term debt  related parties

$
489


$
673


$
364


$
618


$
579  CMS-69




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Revolving Credit Facilities:
  OutstandingAmount of


Amount


Letters of


AmountCompany

Expiration Date

Facility


Borrowed


Credit


AvailableIn MillionsCMS Energy(a)

April 2, 2012

$
550


$
105


$
24


$
421Consumers

March 30, 2012


500







172



328Consumers(b)

November 30, 2009


192







192



Consumers

September 9, 2009


150











150     (a)
    
    Average borrowings during 2008 totaled $212 million, with a
    weighted average annual interest rate of 3.59 percent, at
    LIBOR plus 0.75 percent. At December 31, 2008, the
    annual interest rate on the amount borrowed was 2.0 percent.(b)
    
    Secured revolving letter of credit facility.  Dividend Restrictions:
      Sale of Accounts Receivable:
    Years Ended December 31

2008


2007In MillionsAdministrative fees

$
1


$
3Net cash flow as a result of accounts receivable financing

$
170


$
(325
)Collections from customers

$
6,060


$
5,881   Capitalization:
  
    350 million shares of CMS Energy Common Stock, par value
    $0.01 per share, and
    10 million shares of CMS Energy Preferred Stock, par value
    $0.01 per share. CMS-70




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   Preferred Stock:
  Number of SharesDecember 31

2008


2007


2008


2007In MillionsPreferred stock 4.50% convertible, Authorized
    10,000,000 shares


4,978,000



5,000,000


$
249


$
250     paid-in-capital
  Preferred Stock of Subsidiary:
  OptionalRedemption


Number of SharesDecember 31

Series


Price


2008


2007


2008


2007In MillionsPreferred stockCumulative $100 par value, Authorized
    7,500,000 shares, with no mandatory redemption

$
4.16


$
103.25



68,451



68,451


$
7


$
7$
4.50


$
110.00



373,148



373,148



37



37Total Preferred stock of subsidiary

















$
44


$
44   Contingently Convertible Securities:
  Adjusted


AdjustedOutstanding


Conversion


TriggerSecurity

Maturity


(In millions)


Price


Price4.50% preferred stock





$
249


$
9.51


$
11.423.375% senior notes


2023


$
140


$
10.26


$
12.312.875% senior notes


2024


$
288


$
14.18


$
17.02          CMS-71




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     6: EARNINGS
    PER SHARE    Years Ended December 31

2008


2007


2006In Millions, Exceptper Share AmountsIncome (Loss) Available to Common StockholdersIncome (Loss) from Continuing Operations

$
300


$
(126
)

$
(133
)Less Preferred Dividends and Redemption Premiums


(11
)


(12
)


(11
)Income (Loss) from Continuing Operations Available to Common
    Stockholders Basic and Diluted


289



(138
)


(144
)Average Common Shares Outstanding Applicable to Basic and
    Diluted EPSWeighted Average Shares  Basic


223.9



222.6



219.9Add dilutive impact of Contingently Convertible Securities


10.4







Add dilutive Options, Warrants and Restricted Stock Awards


0.5







Weighted Average Shares   Diluted


234.8



222.6



219.9Earnings (Loss) Per Average Common Share Available to Common
    StockholdersBasic

$
1.29


$
(0.62
)

$
(0.66
)Diluted

$
1.23


$
(0.62
)

$
(0.66
)   Contingently Convertible Securities:
  Stock Options, Warrants and Restricted Stock
    Awards:
 CMS-72




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Convertible Debentures:
  
    increased the numerator of diluted EPS by $9 million from
    an assumed reduction of interest expense, net of tax, and
    increased the denominator of diluted EPS by 4.2 million
    shares.    EITF 03-6-1,
 7: FINANCIAL
    AND DERIVATIVE INSTRUMENTS  Financial Instruments:
    2008


2007Cost or





Cost orCarrying





CarryingDecember 31

Amount


Fair Value


Amount


Fair ValueIn MillionsSecurities held to maturity

$
3


$
3


$
3


$
3Securities available for sale


68



68



75



75Notes receivable, net


186



201



163



170Long-term debt(a)


6,348



5,962



6,077



6,287Long-term debt  related parties


178



107



178



173     (a)
    
    Includes current maturities of $489 million at
    December 31, 2008 and $692 million at
    December 31, 2007. Settlement of long-term debt is
    generally not expected until maturity.    2008


2007Unrealized


Unrealized


Fair





Unrealized


Unrealized


FairDecember 31

Cost


Gains


Losses


Value


Cost


Gains


Losses


ValueIn MillionsAvailable for sale:Equity securities

$
39


$



$



$
39


$
62


$



$



$
62Debt securities


29











29



13











13Held to maturity:Debt securities


3











3



3











3  CMS-73




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
        In MillionsDue one year or less

$
1Due after one year through five years


12Due after five years through ten years


13Due after ten years


6Total

$
32     Derivative Instruments:
      
    they do not have a notional amount (that is, a number of units
    specified in a derivative instrument, such as MWh of electricity
    or bcf of natural gas),
    they qualify for the normal purchases and sales
    exception, or
    there is not an active market for the commodity.   CMS-74




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      December 31

2008


2007Fair


Unrealized





Fair


UnrealizedDerivative Instruments

Cost


Value


Loss


Cost


Value


LossIn MillionsInterest rate collar

$



$
(1
)

$
(1
)

$



$



$
Fixed price fuel contracts






(1
)


(1
)










Electricity and gas contracts






(16
)


(16
)






(23
)


(23
)Foreign exchange forward






(1
)


(1
)










   Interest Rate Collar:
  Fixed Price Fuel Contracts:
  Electricity and Gas Contracts:
      FIN 39-1,
  Foreign Exchange Forward:
 CMS-75




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Credit Risk:
      Net Exposure


Net ExposureExposure








from Investment


from InvestmentBefore


Collateral


Net


Grade


GradeCollateral(a)


Held


Exposure


Companies


Companies (%)In MillionsCMS ERM

$
1


$



$
1


$
1



100
%     (a)
    
    Exposure is reflected net of payables or derivative liabilities
    if netting arrangements exist.   8: RETIREMENT
    BENEFITS    
    a non-contributory, qualified defined benefit Pension Plan
    (closed to new non-union participants as of July 1, 2003
    and closed to new union participants as of September 1,
    2005),
    a qualified cash balance Pension Plan for certain employees
    hired between July 1, 2003 and August 31, 2005,
    a non-contributory, qualified DCCP for employees hired on or
    after September 1, 2005,
    benefits to certain management employees under a
    non-contributory, nonqualified defined benefit SERP (closed to
    new participants as of March 31, 2006),
    benefits to certain management employees under a
    non-contributory, nonqualified DC SERP hired on or after
    April 1, 2006,
    health care and life insurance benefits under OPEB,
    benefits to a selected group of management under a
    non-contributory, nonqualified EISP, and
    a contributory, qualified defined contribution 401(k) plan. CMS-76




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   Pension Plan:
    SERP:
    401(k):
  EISP:
  OPEB:
    One Percentage


One PercentagePoint Increase


Point DecreaseIn MillionsEffect on total service and interest cost component

$
16


$
(13
)Effect on postretirement benefit obligation

$
177


$
(155
)  CMS-77




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statements No. 87,
    88, 106, and 132(R):
    Assumptions:
  Weighted
    Average For Benefit Obligations:
  Pension & SERP


OPEBYears Ended December 31

2008


2007


2006


2008


2007


2006Discount rate(a)


6.50%



6.40%



5.65%



6.50%



6.50%



5.65%Expected long-term rate of return on plan assets(b)


8.25%



8.25%



8.25%



7.75%



7.75%



7.75%Mortality table(c)


2000



2000



2000



2000



2000



2000Rate of compensation increase:Pension


4.00%



4.00%



4.00%SERP


5.50%



5.50%



5.50%   Weighted
    Average For Net Periodic Benefit Cost:
  Pension & SERP


OPEBYears Ended December 31

2008


2007


2006


2008


2007


2006Discount rate(a)


6.40%



5.65%



5.75%



6.50%



5.65%



5.75%Expected long-term rate of return on plan assets(b)


8.25%



8.25%



8.50%



7.75%



7.75%



8.00%Mortality table(c)


2000



2000



2000



2000



2000



2000Rate of compensation increase:Pension


4.00%



4.00%



4.00%SERP


5.50%



5.50%



5.50%     (a)
    
    The discount rate is set to reflect the rates at which benefits
    can be effectively settled. It is set equal to the equivalent
    single rate that results from a yield curve analysis that
    incorporates projected benefit payments specific to our pension
    and other postretirement benefit plans, and the yields on high
    quality corporate bonds rated Aa or better. CMS-78




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   (b)
    
    We determine our long-term rate of return by considering
    historical market returns, the current and expected future
    economic environment, the capital market principles of risk and
    return, and the expert opinions of individuals and firms with
    financial market knowledge. We consider the asset allocation of
    the portfolio in forecasting the future expected total return of
    the portfolio. The goal is to determine a long-term rate of
    return that can be incorporated into the planning of future cash
    flow requirements in conjunction with the change in the
    liability. Annually, we review for reasonableness and
    appropriateness of the forecasted returns for various classes of
    assets used to construct an expected return model.(c)
    
    The mortality assumption is based on the RP-2000 mortality
    tables with projection of future mortality improvements using
    Scale AA, which aligns with the IRS prescriptions for cash
    funding valuations under the Pension Protection Act.  Costs:
  Pension & SERPYears Ended December 31

2008


2007


2006In MillionsNet periodic pension costService cost

$
43


$
50


$
51Interest expense


101



91



88Expected return on plan assets


(81
)


(79
)


(85
)Amortization of:Net loss


41



46



43Prior service cost


6



7



7Net periodic pension cost


110



115



104Regulatory adjustment(a)


4



(22
)


(11
)Net periodic pension cost after regulatory adjustment

$
114


$
93


$
93   OPEBYears Ended December 31

2008


2007


2006In MillionsNet periodic OPEB cost Service cost

$
22


$
25


$
23Interest expense


72



69



64Expected return on plan assets


(66
)


(62
)


(57
)Amortization of:Net loss


9



22



20Prior service credit


(10
)


(10
)


(10
)Net periodic OPEB cost


27



44



40Regulatory adjustment(a)


3



(6
)


(2
)Net periodic OPEB cost after regulatory adjustment

$
30


$
38


$
38     (a)
    
    Regulatory adjustments are the differences between amounts
    included in rates and the periodic benefit cost calculated
    pursuant to SFAS No. 87 and SFAS No. 106.
    The pension regulatory asset had a balance of $29 million
    at December 31, 2008 and $33 million at
    December 31, 2007. The OPEB regulatory asset had a balance
    of $5 million at December 31, 2008 and $8 million
    at December 31, 2007. CMS-79




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       Reconciliations:
  Pension Plan


SERP


OPEBYears Ended December 31

2008


2007


2008


2007


2008


2007In MillionsBenefit obligation at beginning of period

$
1,565


$
1,576


$
95


$
92


$
1,136


$
1,243Service cost


45



49



1



1



24



25Interest cost


103



86



7



5



78



69Actuarial loss (gain)


(66
)


30



(3
)


1



81



(128
)Palisades sale






(38
)














(20
)Benefits paid


(123
)


(138
)


(5
)


(4
)


(53
)


(53
)Benefit obligation at end of period(a)


1,524



1,565



95



95



1,266



1,136Plan assets at fair value at beginning of period


1,078



1,040











852



798Actual return on plan assets


(231
)


89











(201
)


55Company contribution






109



5



4



64



52Palisades sale






(22
)














(5
)Actual benefits paid(b)


(123
)


(138
)


(5
)


(4
)


(53
)


(48
)Plan assets at fair value at end of period


724



1,078











662



852Funded status at end of measurement period


(800
)


(487
)


(95
)


(95
)


(604
)


(284
)Additional VEBA Contributions or Non-Trust Benefit Payments






















12Funded status at December 31(c)

$
(800
)

$
(487
)

$
(95
)

$
(95
)

$
(604
)

$
(272
)     (a)
    
    The Medicare Prescription Drug, Improvement and Modernization
    Act of 2003 establishes a prescription drug benefit under
    Medicare (Medicare Part D) and a federal subsidy,
    which is tax-exempt, to sponsors of retiree health care benefit
    plans that provide a benefit that is actuarially equivalent to
    Medicare Part D. The Medicare Part D annualized
    reduction in net OPEB cost was $25 million for 2008
    and $28 million for 2007. The reduction includes
    $7 million for 2008 and 2007 in capitalized OPEB costs.(b)
    
    We received $6 million in 2008 and $4 million in 2007
    for Medicare Part D Subsidy payments.(c)
    
    Liabilities for retirement benefits comprised
    $1.494 billion classified as non-current and
    $5 million classified as current for the year ended
    December 31, 2008, and $850 million classified as
    non-current and $4 million classified as current for the
    year ended December 31, 2007. CMS-80




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     Years Ended December 31

2008


2007In MillionsPension PBO

$
1,524


$
1,565Pension ABO


1,240



1,231Fair value of Pension Plan assets

$
724


$
1,078   Items Not Yet Recognized as a Component of Net Periodic
    Benefit Cost:
  Pension & SERP


OPEBYears Ended December 31

2008


2007


2008


2007In MillionsRegulatory assetsNet loss

$
835


$
636


$
595


$
265Prior service cost (credit)


33



39



(78
)


(89
)AOCLNet loss (gain)


50



46



(9
)


(22
)Prior service cost (credit)


3



3



(3
)


(3
)Total amounts recognized in regulatory assets and AOCL

$
921


$
724


$
505


$
151   Plan Assets:
  Pension


OPEBYears Ended December 31

2008


2007


2008


2007Asset Category:Fixed Income


37
%


30
%


55
%


34
%Equity Securities


50
%


60
%


45
%


66
%Alternative Strategy


13
%


10
%






      CMS-81




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      SFAS No. 132(R) Benefit Payments:
  Pension


SERP


OPEB(a)In Millions2009

$
72


$
5


$
572010


78



5



602011


85



5



622012


96



6



642013


106



6



652014-2018


669



39



363     (a)
    
    OPEB benefit payments are net of employee contributions and
    expected Medicare Part D prescription drug subsidy
    payments. The subsidies to be received are estimated to be
    $6 million for 2009 and 2010, $7 million for 2011,
    $8 million for 2012 and 2013 and $50 million combined
    for 2014 through 2018. 9: ASSET
    RETIREMENT OBLIGATIONS  SFAS No. 143, Accounting for Asset Retirement
    Obligations:
    FASB Interpretation No. 47, Accounting for
    Conditional Asset Retirement Obligations:
 CMS-82




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    In ServiceARO Description

Date

Long-Lived AssetsDecember 31, 2008Closure of coal ash disposal areas

Various

Generating plants coal ash areasClosure of wells at gas storage fields

Various

Gas storage fieldsIndoor gas services equipment relocations

Various

Gas meters located inside structuresAsbestos abatement

1973

Electric and gas utility plantGas distribution cut, purge & cap

Various

Gas distribution mains & servicesNatural gas-based power plant

1997

Gas fueled power plantClose gas treating plant and gas wells

Various

Gas transmission and storage     ARO














AROLiability











Cash flow


LiabilityARO Description

12/31/06


Incurred


Settled(a)


Accretion


Revisions


12/31/07In MillionsPalisades-decommission

$
401


$



$
(410
)

$
7


$
2


$
Big Rock-decommission


2







(3
)


1







Coal ash disposal areas


57







(4
)


6







59Wells at gas storage fields


1



















1Indoor gas services relocations


1



















1Asbestos abatement


35







(1
)


2







36Gas distribution cut, purge, cap






101















101Natural gas-based power plant


1







(1
)










Close gas treating plant and gas wells


2







(2
)










Total

$
500


$
101


$
(421
)

$
16


$
2


$
198   ARO














AROLiability











Cash flow


LiabilityARO Description

12/31/07


Incurred


Settled(a)


Accretion


Revisions


12/31/08In MillionsPalisades-decommission

$



$



$



$



$



$
Big Rock-decommission






















Coal ash disposal areas


59







(3
)


6







62Wells at gas storage fields


1



















1Indoor gas services relocations


1



















1Asbestos abatement


36







(2
)


2







36Gas distribution cut, purge, cap


101



(1
)


(2
)


7







105Natural gas-based power plant






















Close gas treating plant and gas wells














1







1Total

$
198


$
(1
)

$
(7
)

$
16


$



$
206     (a)
    
    Cash payments of $7 million in 2008 and $5 million in
    2007 are included in the Other current and non-current
    liabilities line in Net cash provided by operating activities in
    our Consolidated Statements of Cash Flows. In CMS-83




---



##### Table of Contents



CMS ENERGY
    CORPORATION  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   10: INCOME
    TAXES            Years Ended December 31

2008


2007


2006In MillionsCurrent income taxes:Federal

$
4


$
229


$
133Federal income tax benefit of operating loss carryforwards






(209
)


(31
)State and local


9



1



Foreign










(2
)$
13


$
21


$
100Deferred income taxes:Federal

$
137


$
(212
)

$
(281
)State and local


(4
)






Foreign










(3
)$
133


$
(212
)

$
(284
)Deferred ITC, net


(4
)


(4
)


(4
)Tax expense/(benefit)

$
142


$
(195
)

$
(188
)    CMS-84




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
        December 31

2008


2007In MillionsCurrent Assets and (Liabilities):Deferred charges

$
1


$
107Tax loss and credit carryforwards


148



Reserves and accruals


20



Employee benefits


(96
)


8Gas inventory


(219
)


(204
)Other


46



48Net Current (Liability)

$
(100
)

$
(41
)Noncurrent Assets and (Liabilities):Tax loss and credit carryforwards

$
775


$
761SFAS No. 109 regulatory liability


205



207Reserves and accruals


43



92Currency translation adjustment






77Foreign investments inflation indexing


30



23Employee benefits


101



64Valuation allowance


(32
)


(32
)Property


(968
)


(840
)Securitized costs


(161
)


(180
)Nuclear decommissioning (including unrecovered costs)


(20
)


(18
)Other


(19
)


(55
)Net Noncurrent Asset/(Liability)

$
(46
)

$
99Total Deferred Income Tax Asset/(Liability)

$
(146
)

$
58  CMS-85




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Years Ended December 31

2008


2007


2006In MillionsIncome (loss) from continuing operations before income taxesDomestic

$
440


$
(124
)

$
(118
)Foreign


2



(197
)


(203
)Total


442



(321
)


(321
)Statutory federal income tax rate


x 35
%


x 35
%


x 35
%Expected income tax expense (benefit)


155



(112
)


(112
)Increase (decrease) in taxes from:Property differences


3



9



13Income tax effect of foreign investments






47



(29
)ITC amortization


(4
)


(4
)


(4
)State and local income taxes, net of federal benefit


3







Medicare Part D exempt income


(9
)


(10
)


(10
)Tax exempt income


(1
)


(1
)


(3
)Tax contingency reserves










(15
)Valuation allowance


(6
)


(121
)


23IRS settlement/credit restoration










(49
)Other, net


1



(3
)


(2
)Recorded income tax benefit

$
142


$
(195
)

$
(188
)Effective tax rate


32.1
%


60.7
%


58.6
%        CMS-86




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    (In Millions)Year Ended December 31

2008


2007Balance at beginning of period

$
51


$
151Reductions for prior year tax positions






(101
)Additions for prior year tax positions


12



1Statute lapses






Additions for current year tax positions


2



Settlements






Balance at end of period

$
65


$
51      11: STOCK-BASED
    COMPENSATION        
    retirement,
    disability, or CMS-87




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   
    change of control of CMS Energy, as defined by the Plan.        Weighted-AverageGrant DateNumber of


Fair ValueRestricted Stock

Shares


per ShareNonvested at December 31, 2007


1,681,454


$
13.52Granted(a)


739,350


$
10.38Vested


(171,004
)

$
13.67Forfeited(b)


(445,500
)

$
15.34Nonvested at December 31, 2008


1,804,300


$
12.10     (a)
    
    During 2008, we granted 482,240 TSR shares and 257,110
    time-lapse shares of restricted stock.(b)
    
    During 2008, 432,500 TSR shares granted in 2005 were forfeited
    due to the failure to meet the specific market conditions.      2008


2007


2006Expected volatility


19.70
%


19.11
%


20.51
%Expected dividend yield


2.67
%


1.20
%


0.00
%Risk-free rate


2.83
%


4.59
%


4.82
%    CMS-88




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    OptionsOutstanding,Fully Vested,


Weighted-Average


Weighted-Average


Aggregateand


Exercise Price


Remaining


IntrinsicStock Options

Exercisable


per Share


Contractual Term


Value(In millions)Outstanding at December 31, 2007


1,213,905


$
21.51



3.8 years


$
(5
)Granted






Exercised


(173,000
)

$
6.45Cancelled or Expired


(233,365
)

$
32.42Outstanding at December 31, 2008


807,540


$
21.58



2.8 years


$
(9
)         Years Ended December 31

2008


2007


2006Weighted average grant date fair value per shareRestricted stock granted

$
10.38


$
14.18


$
13.84Stock options granted(a)










     (a)
    
    No stock options were granted in 2008, 2007, or 2006.   12: LEASES       CMS-89




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Years Ended December 31

2008


2007


2006In MillionsCapital lease expense

$
46


$
34


$
15Operating lease expense


28



25



21Income from subleases


(1
)


(2
)


(2
)     Capital


Finance


OperatingLeases


Lease(a)


LeasesIn Millions2009

$
16


$
23


$
272010


15



22



262011


13



21



252012


15



20



252013


8



20



192014 and thereafter


48



133



115Total minimum lease payments


115



239


$
237Less imputed interest


58



65Present value of net minimum lease payments


57



174Less current portion


12



13Non-current portion

$
45


$
161     (a)
    
    In April 2007, we sold Palisades to Entergy and entered into a
    15-year
    power purchase agreement to buy all of the capacity and energy
    produced by Palisades, up to the annual average capacity of
    798 MW. We provided $30 million in security to Entergy
    for our power purchase agreement obligation in the form of a
    letter of credit. We estimate that capacity and energy payments
    under the Palisades power purchase agreement will average
    $320 million annually. Our total purchases of capacity and
    energy under the Palisades power purchase agreement were
    $298 million in 2008 and $180 million in 2007.Because of the Palisades power purchase agreement and our
    continuing involvement with the Palisades assets, we accounted
    for the disposal of Palisades as a financing and not a sale.
    SFAS No. 98 specifies the accounting required for a
    sellers sale and simultaneous leaseback involving real
    estate. We have continuing involvement with Palisades through
    security provided to Entergy for our power purchase agreement
    obligation, our DOE liability and other forms of involvement. As
    a result, we accounted for the Palisades plant, which is the
    real estate asset subject to the leaseback, as a financing for
    accounting purposes and not a sale. As a financing, no gain on
    the sale of Palisades was recognized in the Consolidated
    Statements of Income (Loss). We accounted for the remaining
    non-real estate assets and liabilities associated with the
    transaction as a sale.As a financing, the Palisades plant remains on our Consolidated
    Balance Sheets and we continue to depreciate it. We recorded the
    related proceeds as a finance obligation with payments recorded
    to interest expense and the finance obligation based on the
    amortization of the obligation over the life of the Palisades
    power purchase CMS-90




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  agreement. The value of the finance obligation was based on an
    allocation of the transaction proceeds to the fair values of the
    net assets sold and fair value of the Palisades plant asset
    under the financing. Total amortization and interest charges
    under the financing were $23 million in 2008 and
    $18 million in 2007. 13: PROPERTY,
    PLANT, AND EQUIPMENT    EstimatedDepreciableDecember 31

Life in Years


2008


2007In MillionsElectric:Generation


18-85


$
3,357


$
3,328Distribution


12-75



4,766



4,496Other


7-40



551



438Capital and finance leases(a)






291



293Gas:Underground storage facilities(b)


30-65



270



267Transmission


13-75



473



570Distribution


30-80



2,460



2,286Other


5-50



398



320Capital leases(a)






21



24Enterprises:IPP


3-45



379



378CMS Electric and Gas


n/a







2Other


3-25



11



11Other:


7-71



33



34Construction
    work-in-progress






608



447Less accumulated depreciation, depletion, and amortization(c)






4,428



4,166Net property, plant, and equipment(d)





$
9,190


$
8,728     (a)
    
    Capital and finance leases presented in this table are gross
    amounts. Accumulated amortization of capital and finance leases
    was $79 million at December 31, 2008 and
    $62 million at December 31, 2007. Additions were
    $6 million and Retirements and adjustments were
    $3 million during 2008. Additions were $229 million
    during 2007, which includes $197 million related to assets
    under the Palisades finance lease. Retirements and adjustments
    were $26 million during 2007.(b)
    
    Includes base natural gas in underground storage of
    $26 million at December 31, 2008 and December 31,
    2007, which is not subject to depreciation.(c)
    
    At December 31, 2008, accumulated depreciation, depletion,
    and amortization included $4.241 billion from our utility
    plant assets and $187 million from other plant assets. At
    December 31, 2007, accumulated depreciation, depletion, and
    amortization included $3.992 billion from our utility plant
    assets and $174 million from other plant assets.(d)
    
    At December 31, 2008, utility plant additions were
    $629 million and utility plant retirements, including other
    plant adjustments, were $60 million. At December 31,
    2007, utility plant additions, including capital leases, were
    $1.303 billion and utility plant retirements, including
    other plant adjustments, were $1.094 billion. CMS-91




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   Asset Acquisition:
    Amortization


2008


2007December 31

Life





Accumulated





AccumulatedDescription

in years


Gross Cost(a)


Amortization


Gross Cost(a)


AmortizationIn MillionsSoftware development


7-15


$
370


$
192


$
207


$
170Plant acquisition adjustments


40



214



6



214



Rights of way


50-75



118



33



116



32Leasehold improvements


various



11



9



19



16Franchises and consents


various



14



6



14



5Other intangibles


various



20



14



20



14Total





$
747


$
260


$
590


$
237     (a)
    
    Intangible asset additions for our utility plant were
    $163 million during 2008, which included $161 million
    related to the installation and operation of our new integrated
    business software system. Intangible asset additions for our
    utility plant were $232 million during 2007, which included
    the Zeeland $213 million plant acquisition adjustment.
    Retirements were $23 million during 2007.   14: EQUITY
    METHOD INVESTMENTS     CMS-92




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Income
    Statement Data
  Year EndedDecember 31, 2007Total(b)In MillionsOperating revenue

$
598Operating expenses


448Operating income


150Other expense, net


69Net income

$
81   Year EndedDecember 31, 2006JorfLasfar(a)


Total(b)In MillionsOperating revenue

$
482


$
2,093Operating expenses


317



1,600Operating income


165



493Other expense, net


57



252Net income

$
108


$
241   Balance
    Sheet Data
  December 31, 2007Total(b)In MillionsAssetsCurrent assets

$
7Property, plant and equipment, net


6Other assets


177$
190LiabilitiesCurrent liabilities

$
4Long-term debt and other non-current liabilities


Equity


186$
190     (a)
    
    We sold our investment in Jorf Lasfar in 2007. At
    December 31, 2006, our investment in Jorf Lasfar was
    $313 million. Our share of net income from Jorf Lasfar was
    $16 million for the period January 1, 2007 through
    May 1, 2007, and $54 million for the year ended
    December 31, 2006.(b)
    
    Amounts include financial data from equity method investments
    through the date of sale. CMS-93




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  15: JOINTLY
    OWNED REGULATED UTILITY FACILITIES    Ownership


Net


Accumulated


ConstructionShare


Investment(a)


Depreciation


Work in ProgressDecember 31

(%)


2008


2007


2008


2007


2008


2007In MillionsCampbell Unit 3


93.3


$
675


$
664


$
360


$
337


$
19


$
44Ludington


51.0



61



65



107



104



7



1Distribution


Various



96



89



41



44



3



5     (a)
    
    Net investment is the amount of utility plant in service less
    accumulated depreciation.   16: REPORTABLE
    SEGMENTS    
    electric utility, consisting of regulated activities associated
    with the generation and distribution of electricity in Michigan
    through our subsidiary, Consumers,
    gas utility, consisting of regulated activities associated with
    the transportation, storage, and distribution of natural gas in
    Michigan through our subsidiary, Consumers, and
    enterprises, consisting of various subsidiaries engaging
    primarily in domestic independent power production.     CMS-94




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Years Ended December 31

2008


2007


2006In MillionsOperating RevenuesElectric utility

$
3,594


$
3,443


$
3,302Gas utility


2,827



2,621



2,373Enterprises


379



383



438Other


21



17



13$
6,821


$
6,464


$
6,126Earnings from Equity Method InvesteesEnterprises

$
5


$
39


$
87Other






1



2$
5


$
40


$
89Depreciation and AmortizationElectric utility

$
438


$
397


$
380Gas utility


136



127



122Enterprises


11



12



44Other


4



4



4$
589


$
540


$
550Fixed ChargesElectric utility

$
185


$
192


$
164Gas utility


60



69



73Enterprises


6



9



66Other


141



168



177$
392


$
438


$
480Income Tax Expense (Benefit)Electric utility

$
153


$
100


$
95Gas utility


45



47



18Enterprises


(10
)


(183
)


(145
)Other


(46
)


(159
)


(156
)$
142


$
(195
)

$
(188
)Net Income (Loss) Available to Common StockholdersElectric utility

$
271


$
196


$
199Gas utility


89



87



37Enterprises


14



(412
)


(227
)Discontinued operations(a)






(89
)


54Other


(85
)


(9
)


(153
)$
289


$
(227
)

$
(90
)   CMS-95




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##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  Years Ended December 31

2008


2007


2006In MillionsInvestmentsEnterprises

$
5


$
6


$
556Other


6



5



10$
11


$
11


$
566Total AssetsElectric utility(b)

$
8,904


$
8,492


$
8,516Gas utility(b)


4,565



4,102



3,950Enterprises


313



982



1,901Other


1,119



616



958$
14,901


$
14,192


$
15,325Capital Expenditures(c)Electric utility

$
553


$
1,319


$
462Gas utility


241



168



172Enterprises


3



5



42Other










1$
797


$
1,492


$
677   Geographic
    Areas(d)
  2008


2007


2006In MillionsUnited StatesOperating revenue

$
6,821


$
6,462


$
6,123Operating income

$
799


$
151


$
85Total Assets

$
14,898


$
14,187


$
14,077InternationalOperating revenue

$



$
2


$
3Operating income (loss)

$
1


$
(150
)

$
(139
)Total Assets

$
3


$
5


$
1,248     (a)
    
    Amounts include income tax expense of $1 million for
    December 31, 2008, an income tax benefit of $1 million
    for December 31, 2007, and income tax expense of
    $32 million for December 31, 2006.(b)
    
    Amounts include a portion of Consumers other common assets
    attributable to both the electric and gas utility businesses.(c)
    
    Amounts include purchase of nuclear fuel and capital lease
    additions. Amounts also include a portion of Consumers
    capital expenditures for plant and equipment attributable to
    both the electric and gas utility businesses.(d)
    
    Revenues are based on the country location of customers. CMS-96




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  17: CONSOLIDATION
    OF VARIABLE INTEREST ENTITIES    
    related party agreements such as operating and maintenance
    agreements, power purchase agreements and leases,
    ownership interest, and
    allocation of expected losses and return based on discounted
    cash flows at a weighted average cost of capital.    TotalNature of



GeneratingName (Ownership Interest)

the Entity

Financing of Partnership

CapacityT.E.S. Filer City (50)%

Coal-based
    power
    generator

Non-recourse long-term debt that matured in December 2007.

70 MWGrayling (50)%

Wood
    waste-based
    power
    generator

Sale of revenue bonds that mature in November 2012 and bear
    interest at variable rates. The debt is recourse to the
    partnership, but not the individual partners, and secured by a
    letter of credit equal to the outstanding balance.

40 MWGenesee (50)%

Wood
    waste-based
    power
    generator

Sale of revenue bonds that mature in 2021 and bear interest at
    fixed rates. The debt is non-recourse to the partnership and
    secured by a CMS Energy guarantee capped at $3 million
    annually.

38 MWTotal





148 MW          CMS-97




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  18: QUARTERLY
    FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)  2008Quarters Ended

March 31


June 30


Sept. 30


Dec. 31In Millions, Except Per Share AmountsOperating revenue

$
2,184


$
1,365


$
1,428


$
1,844Operating income


253



155



212



180Income from continuing operations


106



50



80



64Income (loss) from discontinued operations(a)






(1
)


1



Net income


106



49



81



64Preferred dividends


3



3



2



3Net income available to common stockholders


103



46



79



61Income from continuing operations per average common
    share  basic


0.46



0.21



0.35



0.27Income from continuing operations per average common
    share  diluted


0.44



0.20



0.33



0.27Basic earnings per average common share(b)


0.46



0.20



0.36



0.27Diluted earnings per average common share(b)


0.44



0.19



0.34



0.27Common stock prices(c)High


17.16



15.83



14.91



12.58Low


13.35



13.78



12.09



8.81   2007Quarters Ended

March 31


June 30


Sept. 30


Dec. 31(d)In Millions, Except Per Share AmountsOperating revenue

$
2,189


$
1,319


$
1,282


$
1,674Operating income (loss)


(24
)


7



212



(194
)Income (loss) from continuing operations


(33
)


(55
)


84



(122
)Income (loss) from discontinued operations(a)


(178
)


91







(2
)Net income (loss)


(211
)


36



84



(124
)Preferred dividends


3



3



2



3Redemption premium on preferred stock


1











Net income (loss) available to common stockholders


(215
)


33



82



(127
)Income (loss) from continuing operations per average common
    share  basic


(0.17
)


(0.26
)


0.37



(0.56
)Income (loss) from continuing operations per average common
    share  diluted


(0.17
)


(0.26
)


0.34



(0.56
)Basic earnings (loss) per average common share(b)


(0.97
)


0.15



0.37



(0.57
)Diluted earnings (loss) per average common share(b)


(0.97
)


0.15



0.34



(0.57
)Common stock prices(c)High


18.21



18.93



17.90



17.91Low


16.00



16.78



15.48



16.06     (a)
    
    Net of tax.(b)
    
    Sum of the quarters may not equal the annual earnings (loss) per
    share due to changes in shares outstanding.(c)
    
    Based on New York Stock Exchange composite transactions.(d)
    
    The quarter ended December 31, 2007 includes a
    $181 million net after-tax charge resulting from an
    electricity sales agreement termination. CMS-98




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm     Internal Control  Integrated Framework
          CMS-99




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
           CMS-100




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
          
      CMS-101




---



##### Table of Contents



2008 CONSOLIDATED
    FINANCIAL STATEMENTS
  CE-1




---



##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  SELECTED FINANCIAL
    INFORMATION
  2008


2007


2006


2005


2004Operating revenue (in millions)

($)


6,421



6,064



5,721



5,232



4,711Earnings from equity method investees (in millions)

($)










1



1



1Income (loss) before cumulative effect of change in accounting
    principle (in millions)

($)


364



312



186



(96
)


280Cumulative effect of change in accounting (in millions)

($)


















(1
)Net income (loss) (in millions)

($)


364



312



186



(96
)


279Net income (loss) available to common stockholder (in millions)

($)


362



310



184



(98
)


277Cash provided by operations (in millions)

($)


873



440



474



639



595Capital expenditures, excluding capital lease additions (in
    millions)

($)


789



1,258



646



572



508Total assets (in millions)(a)

($)


14,246



13,401



12,845



13,178



12,811Long-term debt, excluding current portion (in millions)(a)

($)


3,908



3,692



4,127



4,303



4,000Long-term debt  related parties, excluding current
    portion (in millions)

($)


















326Non-current portion of capital and finance lease obligations (in
    millions)

($)


206



225



42



308



315Total preferred stock (in millions)

($)


44



44



44



44



44Number of preferred shareholders at year-end




1,584



1,641



1,728



1,823



1,931Book value per common share at year-end

($)


44.05



43.37



35.17



33.03



28.68Number of full-time equivalent employees at year-end




7,697



7,614



8,026



8,114



8,050Electric statisticsSales (billions of kWh)




37



39



38



39



38Customers (in thousands)




1,814



1,799



1,797



1,789



1,772Average sales rate per kWh

(¢)


9.48



8.65



8.46



6.73



6.88Gas Utility StatisticsSales and transportation deliveries (bcf)




338



340



309



350



385Customers (in thousands)(b)




1,713



1,710



1,714



1,708



1,691Average sales rate per mcf

($)


11.25



10.66



10.44



9.61



8.04     (a)
    
    Until their sale in November 2006 , we were the primary
    beneficiary of both the MCV Partnership and the FMLP. As a
    result, we consolidated their assets, liabilities and activities
    into our consolidated financial statements as of and for the
    years ended December 31, 2005 and 2004. These partnerships
    had third-party obligations totaling $482 million at
    December 31, 2005 and $582 million at
    December 31, 2004. Property, plant and equipment serving as
    collateral for these obligations had a carrying value of
    $224 million at December 31, 2005 and
    $1.426 billion at December 31, 2004.(b)
    
    Excludes off-system transportation customers. CE-2




---



##### Table of Contents



Consumers
    Energy Company
  Consumers Energy
    Company
  Managements
    Discussion and Analysis
    FORWARD-LOOKING
    STATEMENTS AND INFORMATION
  Form 10-K
  
    the price of CMS Energy Common Stock, capital and financial
    market conditions and the effect of these market conditions on
    our postretirement benefit plans, interest rates, and access to
    the capital markets, including availability of financing
    (including our accounts receivable sales program and revolving
    credit facilities) to Consumers, CMS Energy, or any of their
    affiliates, and the energy industry,
    the impact of the continued downturn in the economy and the
    sharp downturn and extreme volatility in the financial and
    credit markets on CMS Energy, including its:  
    revenues,
    capital expenditure program and related earnings growth,
    ability to collect accounts receivable from our customers,
    cost of capital and availability of capital, and
    Pension Plan and postretirement benefit plans assets and
    required contributions,  
    the market perception of the energy industry or of Consumers,
    CMS Energy, or any of their affiliates,
    the credit ratings of Consumers or CMS Energy,
    factors affecting operations, such as unusual weather
    conditions, catastrophic weather-related damage, unscheduled
    generation outages, maintenance or repairs, environmental
    incidents, or electric transmission or gas pipeline system
    constraints,
    changes in applicable laws, rules, regulations, principles or
    practices or in their interpretation, including with respect to
    taxes, environmental and accounting matters, that could have an
    impact on our business,
    the impact of any future regulations or laws regarding:  
    carbon dioxide, mercury and other greenhouse gas emissions,
    limitations on the use of coal-based electric power
    plants, and
    renewable portfolio standards and energy efficiency mandates,  
    national, regional, and local economic, competitive, and
    regulatory policies, conditions and developments, CE-3




---



##### Table of Contents



Consumers
    Energy Company
   
    adverse regulatory or legal interpretations or decisions,
    including those related to environmental laws and regulations,
    and potential environmental remediation costs associated with
    these interpretations or decisions, including but not limited to
    those that may affect our RMRR classification under NSR
    regulation,
    potentially adverse regulatory treatment or failure to receive
    timely regulatory orders concerning a number of significant
    questions currently or potentially before the MPSC, including:  
    adequate and timely recovery of:  
    Clean Air Act capital and operating costs and other
    environmental and safety-related expenditures,
    power supply and natural gas supply costs,
    additional electric and gas rate-based investments,
    increased MISO energy and transmission costs,
    costs associated with energy efficiency investments and state or
    federally mandated renewable resource standards,
    Big Rock decommissioning funding shortfalls,  
    timely recognition in rates of additional equity investments and
    additional operation and maintenance expenses at Consumers,
    authorization of a new clean coal plant, and
    implementation of new energy legislation,  
    adverse consequences resulting from a past or future assertion
    of indemnity or warranty claims associated with previously owned
    assets and businesses,
    our ability to recover nuclear fuel storage costs due to the
    DOEs failure to accept spent nuclear fuel on schedule,
    including the outcome of pending litigation with the DOE,
    the impact of expanded enforcement powers and investigation
    activities at the FERC,
    federal regulation of electric sales and transmission of
    electricity, including periodic re-examination by federal
    regulators of our market-based sales authorizations in wholesale
    power markets without price restrictions,
    energy markets, including availability of capacity and the
    timing and extent of changes in commodity prices for oil, coal,
    natural gas, natural gas liquids, electricity and certain
    related products due to lower or higher demand, shortages,
    transportation problems, or other developments, and their impact
    on our cash flow and working capital,
    the impact of construction material prices and the availability
    of qualified construction personnel to implement our
    construction program,
    potential disruption or interruption of facilities or operations
    due to accidents, war, or terrorism, and the ability to obtain
    or maintain insurance coverage for these events,
    disruptions in the normal commercial insurance and surety bond
    markets that may increase costs or reduce traditional insurance
    coverage, particularly terrorism and sabotage insurance,
    performance bonds, and tax-exempt debt insurance, and stability
    of insurance providers,
    technological developments in energy production, delivery,
    usage, and storage,
    achievement of capital expenditure and operating expense goals,
    earnings volatility resulting from the GAAP requirement that we
    apply mark-to-market accounting to certain energy commodity
    contracts, CE-4




---



##### Table of Contents



Consumers
    Energy Company
   
    changes in financial or regulatory accounting principles or
    policies,
    a possible future requirement to comply with International
    Financial Reporting Standards, which differ from GAAP in various
    ways including the present lack of special accounting treatment
    for regulated activities similar to that provided under SFAS
    No. 71,
    the impact of our new integrated business software system on our
    operations, including customer billing, finance, purchasing,
    human resources and payroll processes, and utility asset
    construction and maintenance work management systems,
    the outcome, cost, and other effects of legal or administrative
    proceedings, settlements, investigations or claims,
    population growth or decline in the geographic areas where we do
    business,
    changes in the economic and financial viability of our
    suppliers, customers, and other counterparties and the continued
    ability of these third parties to perform their obligations to
    us,
    the effectiveness of our risk management policies and procedures,
    our ability to achieve generation planning goals and the
    occurrence and duration of planned or unplanned generation
    outages,
    adverse outcomes regarding tax positions due to the difficulty
    in quantifying tax effects of business decisions and
    reserves, and
    other business or investment matters that may be disclosed from
    time to time in Consumers or CMS Energys SEC
    filings, or in other publicly issued written documents.    EXECUTIVE
    OVERVIEW
        
    weather, especially during the normal heating and cooling
    seasons,
    economic conditions,
    regulation and regulatory issues,
    energy commodity prices,
    interest rates, and
    our debt credit rating.   CE-5




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##### Table of Contents



Consumers
    Energy Company
            
    investing in our utility system to enable us to meet our
    customer commitments, improve customer service, comply with
    increasing environmental performance standards, improve system
    performance, and maintain adequate supply and capacity,
    growing earnings while controlling operating and fuel costs,
    managing cash flow, and
    maintaining principles of safe, efficient operations, customer
    value, fair and timely regulation, and consistent financial
    performance.   CE-6




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##### Table of Contents



Consumers
    Energy Company
  RESULTS OF
    OPERATIONS
   Net
    Income (Loss) Available To Common Stockholder
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsElectric

$
271


$
196


$
75


$
196


$
199



(3
)Gas


89



87



2



87



37



50Other (Includes The MCV Partnership interest)


2



27



(25
)


27



(52
)


79Net Income Available to Common Stockholder

$
362


$
310


$
52


$
310


$
184


$
126       In Millions

increase in electric delivery revenue primarily due to the
    MPSCs December 2007 and June 2008 electric rate orders,

$
109

decrease in electric operating expense due to the absence, in
    2008, of certain costs which are no longer incurred under our
    power purchase agreement with the MCV Partnership,


29

absence of nuclear operating and maintenance costs,


25

increase in gas delivery revenue primarily due to the
    MPSCs August 2007 gas rate order,


20

decrease in electric deliveries,


(51
)

decrease in other income,


(48
)

increase in depreciation expense, and


(31
)

other net decreases


(1
)Total change

$
52    CE-7




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##### Table of Contents



Consumers
    Energy Company
    In Millions

lower operating and maintenance costs primarily due to the sale
    of Palisades in April 2007,

$
82

decrease in losses from our ownership interest in the MCV
    Partnership primarily due to the absence, in 2007, of
    mark-to-market losses on certain long-term gas contracts and
    financial hedges,


60

increase in gas delivery revenue primarily due to the
    MPSCs November 2006 and August 2007 gas rate orders,


47

decrease in other income tax adjustments primarily due to higher
    expected utilization of capital loss carryforwards,


14

increase in electric revenue primarily due to favorable weather
    and higher surcharge revenue,


16

increase in gas delivery revenue primarily due to colder weather,


12

decrease due to electric revenue being used to offset costs
    incurred under our power purchase agreement with Entergy,


(88
)

increase in general taxes, primarily due to higher property tax
    expense,


(14
)

increase in interest charges, and


(7
)

other net increases to income


4Total change

$
126   Electric
    Utility Results Of Operations
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet income

$
271


$
196


$
75


$
196


$
199


$
(3
)Reasons for the change:Electric deliveries and rate increase









$
89










$
(118
)Surcharge revenue










15











6Power supply costs and related revenue










18











(17
)Non-commodity revenue










(14
)










(12
)Depreciation and other operating expenses










40











150Other income










(46
)










26General taxes










15











(15
)Interest charges










11











(18
)Income taxes










(53
)










(5
)Total change









$
75










$
(3
)   Electric deliveries and rate increase:
 CE-8




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##### Table of Contents



Consumers
    Energy Company
    Surcharge revenue:
    Power supply costs and related revenue:
    Non-commodity revenue:
    Depreciation and other operating expenses:
    Other income:
 CE-9




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##### Table of Contents



Consumers
    Energy Company
    General taxes:
    Interest charges:
    Income taxes:
    Gas
    Utility Results of Operations
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet income

$
89


$
87


$
2


$
87


$
37


$
50Reasons for the change:Gas deliveries and rate increase









$
44










$
91Gas wholesale and retail services, other gas revenues, and other
    income










(28
)










14Other operating expenses










(24
)










(19
)General taxes and depreciation










(1
)










(11
)Interest charges










9











4Income taxes










2











(29
)Total change









$
2










$
50   Gas deliveries and rate increase:
   CE-10




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##### Table of Contents



Consumers
    Energy Company
    Gas wholesale and retail services, other gas revenues, and
    other income:
    Other operating expenses:
    General taxes and depreciation:
    Interest charges:
    Income taxes:
    Other
    Nonutility Results of Operations
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet income (loss)

$
2


$
27


$
(25
)

$
27


$
(52
)

$
79      CE-11




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##### Table of Contents



Consumers
    Energy Company
    CRITICAL
    ACCOUNTING POLICIES
    Use
    of Estimates and Assumptions
    Contingencies:
  Fair Value Measurements:
    Long-Lived Assets and Investments:
  
    the nature of the assets,
    projected future economic benefits,
    regulatory and political environments,
    historical and future cash flow and profitability
    measurements, and
    other external market conditions and factors.    Accounting
    for the Effects of Industry Regulation
     CE-12




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##### Table of Contents



Consumers
    Energy Company
        Accounting
    for Financial and Derivative Instruments and Market Risk
    Information
  Financial Instruments:
  Derivative Instruments:
      
    they do not have a notional amount (that is, a number of units
    specified in a derivative instrument, such as MWh of electricity
    or bcf of natural gas),
    they qualify for the normal purchases and sales
    exception, or
    there is not an active market for the commodity.   CE-13




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##### Table of Contents



Consumers
    Energy Company
  Market Risk Information:
      Interest Rate Risk:
    December 31

2008


2007In MillionsVariable-rate financing  before tax annual earnings
    exposure

$
1


$
1Fixed-rate financing  potential reductionin
    fair value(a)


136



116    (a)
    Fair value reduction could only be realized if we transferred
    all of our fixed-rate financing to other creditors.  Commodity Price Risk:
    December 31

2008


2007In MillionsPotential reductionin fair value:Fixed price fuel contracts

$
1


$
  CE-14




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##### Table of Contents



Consumers
    Energy Company
  Investment Securities Price Risk:
    December 31

2008


2007In MillionsPotential reductionin fair value of available-for-sale
    equity securities (SERP investments and investment in CMS Energy
    common stock)

$
4


$
7     Retirement
    Benefits
  Pension:
  401(k):
  OPEB:
    
    life expectancies,
    discount rates,
    expected long-term rate of return on plan assets,
    rate of compensation increases, and
    anticipated health care costs.      Expected

Pension Cost


OPEB Cost


Pension Contribution


OPEB ContributionIn Millions2009

$
98


$
78


$
291


$
522010


88



75



123



522011


85



73



102



52    CE-15




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##### Table of Contents



Consumers
    Energy Company
        Accounting
    For Asset Retirement Obligations
      Related
    Party Transactions
    
    purchase and sale of electricity from and to Enterprises,
    payment of parent company overhead costs to CMS Energy, and
    investment in CMS Energy Common Stock.      CAPITAL RESOURCES
    AND LIQUIDITY
    
    results of operations,
    capital expenditures,
    energy commodity and transportation costs,
    contractual obligations,
    regulatory decisions,
    debt maturities, CE-16




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##### Table of Contents



Consumers
    Energy Company
   
    credit ratings,
    pension plan funding requirements,
    working capital needs,
    collateral requirements, and
    access to credit markets.      
    in September 2008, we issued $350 million FMB, and
    in September 2008, we entered into a $150 million revolving
    credit agreement.      Cash
    Position, Investing, and Financing
   CE-17




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##### Table of Contents



Consumers
    Energy Company
    Operating
    Activities:
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet cash provided by operating activities

$
873


$
440


$
433


$
440


$
474


$
(34
)Reasons for the change:Net income









$
52










$
126Non-cash operating activities(a)










209











(62
)Accounts receivable and accrued revenue










363











(466
)Inventories










(84
)










109Accounts payable










24











9Accrued taxes










(144
)










181MCV Partnership gas supplier funds on deposit






















147Postretirement benefits contributions










123











(105
)Regulatory liabilities










(64
)










(173
)Other assets and liabilities










(46
)










200Total change









$
433










$
(34
)     (a)
    
    Represents adjustments to reconcile net income to net cash
    provided by operating activities including depreciation and
    amortization, deferred income taxes, postretirement benefits
    expense, asset impairment charges, and other non-cash charges.  2008 versus 2007:
  2007 versus 2006:
 CE-18




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##### Table of Contents



Consumers
    Energy Company
  Investing
    Activities:
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet cash used in investing activities

$
(823
)

$
(583
)

$
(240
)

$
(583
)

$
(673
)

$
90Reasons for the change:Proceeds from asset sales, net of cash relinquished









$
(337
)









$
416Proceeds from nuclear decommissioning trust funds










(333
)










311Capital expenditures










469











(612
)Other investing










(39
)










(25
)Total change









$
(240
)









$
90   2008 versus 2007:
  2007 versus 2006:
  Financing
    Activities:
  Years Ended December 31

2008


2007


Change


2007


2006


ChangeIn MillionsNet cash provided by (used in) financing activities

$
(176
)

$
301


$
(477
)

$
301


$
(180
)

$
481Reasons for the change:Proceeds from issuance of long-term debt









$
600










$
Retirement of long-term debt










(410
)










183Payment of common stock dividends










(46
)










(104
)Stockholders contribution, net










(650
)










450Other financing










29











(48
)Total change









$
(477
)









$
481   2008 versus 2007:
  2007 versus 2006:
  Restrictive Covenants:
  Credit Ratings:
 CE-19




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##### Table of Contents



Consumers
    Energy Company
    Securities

S&P

Moodys

FitchSenior Secured Debt (FMB)

BBB

Baa1

BBB+Senior Unsecured Debt

BBB-

Baa2

BBBSecuritization Bonds

AAA

Aaa

AAASenior Secured Insured Quarterly Notes

AAA

Aaa

AAATax Exempt Bonds

BBB

Baa1

Tax Exempt Bonds, LOC backed

AAA

Aaa

     Obligations
    and Commitments
  Contractual Obligations:
  Payments DueContractual Obligations




Less Than


One to


Three to


More Thanat December 31, 2008

Total


One Year


Three Years


Five Years


Five YearsIn MillionsLong-term debt(a)

$
4,291


$
383


$
380


$
755


$
2,773Interest payments on long-term debt(b)


1,814



213



378



332



891Capital and finance leases(c)


231



25



47



41



118Interest payments on capital and finance leases(d)


122



13



25



22



62Operating leases(e)


237



27



51



44



115Purchase obligations(f)


14,699



2,201



2,391



1,545



8,562Purchase obligations  related parties(f)


1,570



78



166



168



1,158Total contractual obligations

$
22,964


$
2,940


$
3,438


$
2,907


$
13,679    (a)
    
    Principal amounts due on outstanding debt obligations, current
    and long-term, at December 31, 2008. For additional details
    on long-term debt, see Note 5, Financings and
    Capitalization.(b)
    
    Currently scheduled interest payments on both variable and
    fixed-rate long-term debt, current and long-term. Variable
    interest payments are based on contractual rates in effect at
    December 31, 2008.(c)
    
    Principal portion of lease payments under our capital and
    finance leases, comprised mainly of leased service vehicles,
    leased office furniture, and certain power purchase agreements.  (d)
    
    Imputed interest on the capital leases.  (e)
    
    Minimum noncancelable lease payments under our leases of
    railroad cars, certain vehicles, and miscellaneous office
    buildings and equipment, which are accounted for as operating
    leases.  (f)
    
    Long-term contracts for purchase of commodities and services.
    These obligations include operating contracts used to assure
    adequate supply with generating facilities that meet PURPA
    requirements. These commodities and services include:  
    natural gas and associated transportation,
    electricity, and
    coal and associated transportation. CE-20




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##### Table of Contents



Consumers
    Energy Company
     Revolving Credit Facilities:
  Dividend Restrictions:
  Off-Balance
    sheet Arrangements
  Off-Balance Sheet Arrangements:
  Sale of Accounts Receivable:
  Capital Expenditures:
  Years Ending December 31

2009


2010


2011In MillionsConstruction

$
628


$
748


$
664Clean Air(a)


69



197



105New Customers


70



87



91Other(b)


83



102



96Total

$
850


$
1,134


$
956Electric utility operations(a)(b)

$
574


$
847


$
705Gas utility operations(b)


276



287



251Total

$
850


$
1,134


$
956    (a)
    
    These amounts include estimates for capital expenditures that
    may be required by revisions to the Clean Air Acts
    national air quality standards or potential renewable energy
    programs.(b)
    
    These amounts include estimates for capital expenditures related
    to information technology projects, facility improvements, and
    vehicle leasing.  Dividend Restrictions:
 CE-21




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##### Table of Contents



Consumers
    Energy Company
  OUTLOOK
  Corporate
    Outlook
    ELECTRIC
    BUSINESS OUTLOOK
  Balanced Energy Initiative:
  
    energy efficiency,
    demand management,
    expanded use of renewable energy, and
    development of new power plants and pursuit of additional power
    purchase agreements to complement existing generating sources.    Proposed Coal Plant Projects:
  
    whether additional generation is needed, and
    whether other feasible and prudent alternatives to a new coal
    plant exist that would better protect the environment, including
    potential demand reduction measures and purchasing power from
    existing sources.        Electric Customer Revenue Outlook:
  Electric Deliveries:
 CE-22




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##### Table of Contents



Consumers
    Energy Company
      
    energy conservation measures and results of energy efficiency
    programs,
    fluctuations in weather, and
    changes in economic conditions, including utilization and
    expansion or contraction of manufacturing facilities, population
    trends, and housing activity.  Electric Reserve Margin:
  Electric Transmission Expenses:
      Renewable Energy Plan:
   CE-23




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##### Table of Contents



Consumers
    Energy Company
  Energy Optimization Plan:
  Ancillary Services:
  ELECTRIC
    BUSINESS UNCERTAINTIES
    Electric Environmental Estimates:
  Clean Air Act:
    Clean Air Interstate Rule:
  State and Federal Mercury Air Rules:
    Routine Maintenance Classification:
 CE-24




---



##### Table of Contents



Consumers
    Energy Company
    Greenhouse Gases:
    Water:
      Stranded Cost Recovery:
  Electric Rate Case:
 CE-25




---



##### Table of Contents



Consumers
    Energy Company
  Palisades Regulatory Proceedings:
    GAS
    BUSINESS OUTLOOK
  Gas Deliveries:
  
    fluctuations in weather,
    use by independent power producers,
    availability and development of renewable energy sources,
    changes in gas prices,
    Michigan economic conditions including population trends and
    housing activity,
    the price of competing energy sources or fuels, and
    energy efficiency and conservation.  GAS
    BUSINESS UNCERTAINTIES
    Gas Environmental Estimates:
  Gas Cost Recovery:
  Gas Depreciation:
  Lost and Unaccounted for Gas:
 CE-26




---



##### Table of Contents



Consumers
    Energy Company
  OTHER
    OUTLOOK
  Advanced Metering Infrastructure:
  Emergency Shutoff Protection Rules:
  
    extends the protection period from March 31, 2009 to
    April 30, 2009,
    includes protection for physically or mentally disabled
    customers of record,
    expands the qualifications for low income shutoff protection, and
    gives customers the payment options.    Litigation and Regulatory Investigation:
    Emergency Economic Stabilization Act of 2008 
    Mark-to-Market Accounting:
  IMPLEMENTATION OF
    NEW ACCOUNTING STANDARDS
  SFAS No. 157,Fair Value
    Measurements:
  SEC / FASB Guidance on Fair Value
    Measurements:
 CE-27




---



##### Table of Contents



Consumers
    Energy Company
  FSP
    FAS 157-3,Determining the Fair Value of a Financial Asset When the Market
    for That Asset Is Not Active:
  SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statements No. 87,
    88, 106, and 132(R):
  SFAS No. 159, The Fair Value Option for
    Financial Assets and Financial Liabilities, Including an
    amendment to FASB Statement No. 115:
  EITF Issue
    06-11,
    Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards:
  FSP
    FAS 133-1
    and
    FIN 45-4,
    Disclosures about Credit Derivatives and Certain Guarantees:
    An Amendment of FASB Statement No. 133 and FASB
    Interpretation No. 45; and Clarification of the Effective
    Date of FASB Statement No. 161:
  NEW
    ACCOUNTING STANDARDS NOT YET EFFECTIVE
  SFAS No. 141(R), Business
    Combinations: Business Combinations
  SFAS No. 160, Noncontrolling Interests in
    Consolidated Financial Statements  an amendment to
    ARB No. 51:
 CE-28




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##### Table of Contents



Consumers
    Energy Company
    SFAS No. 161, Disclosures about Derivative
    Instruments and Hedging Activities, an amendment of FASB
    Statement No. 133:
  FSP
    FAS 142-3,
    Determination of the Useful Life of Intangible
    Assets: FAS 142-3,
  EITF Issue
    08-5,
    Issuers Accounting for Liabilities Measured at Fair
    Value with a Third-Party Credit Enhancement: 08-5,
  FSP FAS 132(R)-1, Employers Disclosures about
    Postretirement Benefit Plan Assets:
 CE-29




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##### Table of Contents



(This page
    intentionally left blank)
  CE-30




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##### Table of Contents



Consumers
    Energy Company
  CONSUMERS ENERGY
    COMPANY
  CONSOLIDATED
    STATEMENTS OF INCOME
  Years Ended December 312008


2007


2006In MillionsOperating Revenue

$
6,421


$
6,064


$
5,721Earnings from Equity Method Investees










1Operating ExpensesFuel for electric generation


483



385



672Fuel costs mark-to-market at the MCV Partnership










204Purchased and interchange power


1,313



1,370



647Purchased power  related parties


75



79



74Cost of gas sold


2,079



1,918



1,770Other operating expenses


766



808



895Maintenance


169



183



284Depreciation and amortization


574



524



527General taxes


195



217



150Asset impairment charges










218Loss (gain) on asset sales, net


1



(2
)


(79
)5,655



5,482



5,362Operating Income


766



582



360Other Income (Deductions)Interest


25



69



62Interest and dividends  related parties


1



1



Regulatory return on capital expenditures


33



31



26Other income


12



32



20Other expense


(28
)


(14
)


(12
)43



119



96Interest Charges Interest on long-term debt


229



234



281Interest on long-term debt  related parties






2



5Other interest


22



34



13Capitalized interest


(4
)


(6
)


(10
)247



264



289Income Before Income Taxes


562



437



167Income Tax Expense


198



125



91Income Before Minority Obligations, Net


364



312



76Minority Obligations, Net










(110
)Net Income


364



312



186Preferred Stock Dividends


2



2



2Net Income Available to Common Stockholder

$
362


$
310


$
184    CE-31




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##### Table of Contents



Consumers
    Energy Company
  CONSUMERS ENERGY
    COMPANY
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 312008


2007


2006In MillionsCash Flows from Operating ActivitiesNet income

$
364


$
312


$
186Adjustments to reconcile net income to net cash provided by
    operating activitiesDepreciation and amortization (includes nuclear decommissioning
    of $, $4 and $6)


574



524



527Deferred income taxes and investment tax credit


196



55



(113
)Regulatory return on capital expenditures


(33
)


(31
)


(26
)Minority obligations, net










(110
)Fuel costs mark-to-market at the MCV Partnership










204Asset impairment charges










218Postretirement benefits expense


141



124



122Capital lease and other amortization


30



44



37Bad debt expense


47



33



30Loss (gain) on sale of assets


1



(2
)


(79
)Earnings from equity method investees










(1
)Postretirement benefits contributions


(50
)


(173
)


(68
)Changes in assets and liabilities:Decrease (increase) in accounts receivable, notes receivable and
    accrued revenue


(79
)


(442
)


24Decrease (increase) in accrued power supply and gas revenue


35



99



(91
)Increase in inventories


(89
)


(5
)


(114
)Increase (decrease) in accounts payable


1



(23
)


(32
)Increase (decrease) in accrued expenses


(15
)


(15
)


35Increase (decrease) in accrued taxes


(64
)


80



(101
)Decrease in the MCV Partnership gas supplier funds on deposit










(147
)Increase (decrease) in other current and non-current regulatory
    liabilities


(178
)


(114
)


59Decrease (increase) in other current and non-current assets


14



(7
)


(50
)Decrease in other current and non-current liabilities


(22
)


(19
)


(36
)Net cash provided by operating activities


873



440



474Cash Flows from Investing ActivitiesCapital expenditures (excludes assets placed under capital lease)


(789
)


(1,258
)


(646
)Cost to retire property


(34
)


(28
)


(78
)Restricted cash and restricted short-term investments






32



126Investments in nuclear decommissioning trust funds






(1
)


(21
)Proceeds from nuclear decommissioning trust funds






333



22Maturity of the MCV Partnership restricted investment securities
    held-to-maturity










130Purchase of the MCV Partnership restricted investment securities
    held-to-maturity










(131
)Cash proceeds from sale of assets






337



69Cash relinquished from sale of assets










(148
)Other investing






2



4Net cash used in investing activities


(823
)


(583
)


(673
)    CE-32




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##### Table of Contents



Consumers
    Energy Company
  Years Ended December 312008


2007


2006In MillionsCash Flows from Financing ActivitiesProceeds from issuance of long term debt


600







Retirement of long-term debt


(444
)


(34
)


(217
)Payment of common stock dividends


(297
)


(251
)


(147
)Payment of capital and finance lease obligations


(26
)


(20
)


(26
)Stockholders contribution, net






650



200Payment of preferred stock dividends


(2
)


(1
)


(2
)Increase (decrease) in notes payable






(42
)


15Debt issuance and financing costs


(7
)


(1
)


(3
)Net cash provided by (used in) financing activities


(176
)


301



(180
)Net Increase (Decrease) in Cash and Cash Equivalents


(126
)


158



(379
)Cash and Cash Equivalents, Beginning of Period


195



37



416Cash and Cash Equivalents, End of Period

$
69


$
195


$
37Other cash flow activities and non-cash investing and
    financing activities were:Cash transactionsInterest paid (net of amounts capitalized)

$
206


$
242


$
279Income taxes paid (net of refunds, $, $98, and $39)


84







306Non-cash transactionsOther assets placed under capital lease

$
5


$
229


$
7  CE-33




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##### Table of Contents



Consumers
    Energy Company
  CONSUMERS ENERGY
    COMPANY
  CONSOLIDATED BALANCE
    SHEETS
  December 312008


2007In MillionsASSETSPlant and Property (at cost)Electric

$
8,965


$
8,555Gas


3,622



3,467Other


15



1512,602



12,037Less accumulated depreciation, depletion, and amortization


4,242



3,9938,360



8,044Construction
    work-in-progress


607



4478,967



8,491InvestmentsStock of affiliates


19



32Current AssetsCash and cash equivalents at cost, which equals fair value


69



195Restricted cash at cost, which equals fair value


25



25Accounts receivable and accrued revenue, less allowances of $24
    in 2008 and $16 in 2007


829



810Notes receivable


93



67Accrued power supply and gas revenue


7



45Accounts receivable  related parties


2



4Inventories at average costGas in underground storage


1,168



1,123Materials and supplies


103



79Generating plant fuel stock


118



100Deferred property taxes


165



158Regulatory assets  postretirement benefits


19



19Prepayments and other


30



282,628



2,653Non-current AssetsRegulatory assets Securitized costs


416



466Postretirement benefits


1,431



921Customer Choice Act


90



149Other


482



504Other


213



1852,632



2,225Total Assets

$
14,246


$
13,401    CE-34




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##### Table of Contents



Consumers
    Energy Company
  December 312008


2007In MillionsSTOCKHOLDERS INVESTMENT AND LIABILITIESCapitalizationCommon stockholders equityCommon stock, authorized 125.0 shares; outstanding
    84.1 shares for both periods

$
841


$
841Paid-in capital


2,482



2,482Accumulated other comprehensive loss


(1
)


Retained earnings


383



3243,705



3,647Preferred stock


44



44Long-term debt


3,908



3,692Non-current portion of capital and finance lease obligations


206



2257,863



7,608Current LiabilitiesCurrent portion of long-term debt, capital and finance lease
    obligations


408



470Accounts payable


444



403Accrued rate refunds


7



19Accounts payable  related parties


14



13Accrued interest


69



65Accrued taxes


289



353Deferred income taxes


277



151Regulatory liabilities


120



164Other


151



1501,779



1,788Non-current LiabilitiesDeferred income taxes


792



713Regulatory liabilitiesCost of removal


1,203



1,127Income taxes, net


519



533Other


146



313Postretirement benefits


1,436



813Asset retirement obligations


205



198Deferred investment tax credit


54



58Other


249



2504,604



4,005Commitments and Contingencies (Notes 4, 5, 6, 9, and 11)Total Stockholders Investment and Liabilities

$
14,246


$
13,401  CE-35




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##### Table of Contents



Consumers
    Energy Company
  CONSUMERS ENERGY
    COMPANY
  CONSOLIDATED
    STATEMENTS OF COMMON STOCKHOLDERS EQUITY
  Years Ended December 312008


2007


2006In MillionsCommon StockAt beginning and end of period(a)

$
841


$
841


$
841Other Paid-in CapitalAt beginning of period


2,482



1,832



1,632Stockholders contribution






650



200At end of period


2,482



2,482



1,832Accumulated Other Comprehensive IncomeRetirement benefits liabilityAt beginning of period


(15
)


(8
)


(2
)Retirement benefits liability adjustments(b)


6







Net gain (loss) arising during the period(b)


2



(7
)


Adjustment to initially apply FASB Statement No. 158, net
    of tax










(6
)At end of period


(7
)


(15
)


(8
)InvestmentsAt beginning of period


15



23



18Unrealized gain (loss) on investments(b)


(19
)


(1
)


5Reclassification adjustments included in net income(b)


10



(7
)


At end of period


6



15



23Derivative instrumentsAt beginning of period










56Unrealized loss on derivative instruments(b)










(21
)Reclassification adjustments included in net income(b)










(35
)At end of period










Total Accumulated Other Comprehensive Income (Loss)


(1
)






15Retained EarningsAt beginning of period


324



270



233Effects of changing the retirement plans measurement date
    pursuant to SFAS No. 158Service cost, interest cost, and expected return on plan assets
    for December 1 through December 31, 2007 net of
    tax


(4
)






Additional loss from December 1 through December 31, 2007,
    net of tax


(2
)






Adjustment to initially apply FIN 48, net of tax






(5
)


Net income(b)


364



312



186Cash dividends declared  Common Stock


(297
)


(251
)


(147
)Cash dividends declared  Preferred Stock


(2
)


(2
)


(2
)At end of period


383



324



270Total Common Stockholders Equity

$
3,705


$
3,647


$
2,958    CE-36




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##### Table of Contents



Consumers
    Energy Company
  Years Ended December 312008


2007


2006In Millions(a) Number of shares of common stock outstanding was
    84,108,789 for all periods presented(b) Disclosure of Comprehensive Income:Net income

$
364


$
312


$
186Retirement benefits liabilityRetirement benefits liability adjustment, net of tax of $2 in
    2008


6







Net gain (loss) arising during the period, net of tax (tax
    benefit) of $1 in 2008, and $(4) in 2007


2



(7
)


InvestmentsUnrealized gain (loss) on investments, net of tax (tax benefit)
    of $(10) in 2008, $(1) in 2007, and $2 in 2006


(19
)


(1
)


5Reclassification adjustments included in net income, net of tax
    (tax benefit) of $6 in 2008 and $(3) in 2007


10



(7
)


Derivative instrumentsUnrealized loss on derivative instruments, net of tax benefit of
    $(11) in 2006










(21
)Reclassification adjustments included in net income, net of tax
    benefit of $(19) in 2006










(35
)Total Comprehensive Income

$
363


$
297


$
135  CE-37




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##### Table of Contents



Consumers
    Energy Company
   (This page
    intentionally left blank)
  CE-38




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##### Table of Contents



Consumers
    Energy Company
  CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1: CORPORATE
    STRUCTURE AND ACCOUNTING POLICIES
  Corporate Structure:
  Principles of Consolidation:
  Use of Estimates:
    Revenue Recognition Policy:
  Accounting for Legal Fees:
  Accounting for MISO Transactions:
  Capitalized Interest:
  Cash and Cash Equivalents:
  Collective Bargaining Agreements:
 CE-39




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Determination of Pension and OPEB MRV of Plan
    Assets:
  Financial and Derivative Instruments:
      Impairment of Investments and Long-Lived Assets:
  held-in-use
      Inventory:
    Maintenance and Depreciation:
   CE-40




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Years Ended December 31

2008


2007


2006Electric utility property


3.0%



3.0%



3.1%Gas utility property


3.6%



3.6%



3.6%Other property


8.5%



8.7%



8.2%   Other Income and Other Expense:
  Years Ended December 31

2008


2007


2006In MillionsOther incomeElectric restructuring return

$
1


$
2


$
4Return on stranded and security costs


5



6



5MCV Partnership emission allowance sales










8Gain on SERP investment






10



Gain on investment






7



Gain on stock






4



1All other


6



3



2Total other income

$
12


$
32


$
20   Years Ended December 31

2008


2007


2006In MillionsOther expenseUnrealized investment loss

$
(17
)

$



$
Civic and political expenditures


(5
)


(2
)


(2
)Donations










(9
)Abandoned Midland Project






(8
)


All other


(6
)


(4
)


(1
)Total other expense

$
(28
)

$
(14
)

$
(12
)   Property, Plant, and Equipment: Position 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
   CE-41




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Years Ended December 31

2008


2007


2006AFUDC capitalization rate


7.7
%


7.4
%


7.5
%   Property Taxes:
  Reclassifications:
  Related Party Transactions:
  Description

Related Party

2008


2007


2006In MillionsType of Income:Dividend Income

CMS Energy

$
1


$
1


$
Type of Expense:Electric generating capacity and energy

Affiliates of Enterprises


(75
)


(79
)


(74
)Interest expense on note payable

CMS Energy and Consumers affiliated Trust Preferred
    Securities Companies






(2
)


(5
)Gas transportation(a)

CMS Bay Area Pipeline, L.L.C.






(1
)


(4
)    (a)
    
    CMS Bay Area Pipeline, L.L.C. was sold to Lucid Energy in March
    2007.    Restricted Cash:
  Trade Receivables:
  Unamortized Debt Premium, Discount, and Expense:
 CE-42




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Utility Regulation:
    End ofrecovery orDecember 31

refund period

2008


2007In MillionsAssets Earning a Return:Customer Choice Act

2010

$
90


$
149Stranded Costs

See Note 4


71



68Electric restructuring implementation plan

2009


3



14Manufactured gas plant sites (Note 4)

2018


31



33Other(a)

various


44



50Assets Not Earning a Return:Postretirement Benefits (Note 7)

various


1,450



940Securitized costs (Note 5)

2015


416



466Unamortized debt costs

n/a


66



74ARO (Note 8)

n/a


92



85Big Rock nuclear decommissioning and related costs (Note 4)

n/a


129



129Manufactured gas plant sites (Note 4)

n/a


38



17Palisades sales transaction costs (Notes 3 and 4)

n/a






28Other(a)

2011


8



6Total regulatory assets(b)



$
2,438


$
2,059Palisades refund  Current (Note 4)(c)

2009

$
120


$
164Cost of removal (Note 8)

n/a


1,203



1,127Income taxes, net (Note 9)

n/a


519



533ARO (Note 8)

n/a


137



141Palisades refund  Non-current (Note 4)(c)

2008






140Other(a)

various


9



32Total regulatory liabilities(b)



$
1,988


$
2,137    (a)
    
    At December 31, 2008 and 2007, other regulatory assets
    include a gas inventory regulatory asset and OPEB and pension
    expense incurred in excess of the MPSC-approved amount. We will
    recover these regulatory assets from our customers by 2011.
    Other regulatory liabilities include liabilities related to the
    sale of sulfur dioxide allowances and AFUDC collected in excess
    of the MPSC-approved amount. CE-43




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     (b)
    
    At December 31, 2008 and 2007, we classified
    $19 million of regulatory assets as current regulatory
    assets. At December 31, 2008, we classified
    $120 million of regulatory liabilities as current
    regulatory liabilities. At December 31, 2007, we classified
    $164 million of regulatory liabilities as current
    regulatory liabilities.(c)
    
    The MPSC order approving the Palisades and Big Rock ISFSI sale
    transaction required that we credit $255 million of excess
    sales proceeds and decommissioning amounts to our retail
    customers by December 2008. For 2007, the current portion of
    regulatory liabilities for Palisades refunds represents the
    remaining portion of this obligation, plus interest. There are
    additional excess sales proceeds and decommissioning fund
    balances above the amount in the MPSC order. For 2007, the
    non-current portion of regulatory liabilities for Palisades
    refunds represents this obligation, plus interest. For 2008,
    these additional excess sales proceeds are reported in the
    current portion of regulatory liabilities for Palisades refunds
    as it is probable the proceeds will be credited to customers
    within one year. For additional details, see Note 4,
    Contingencies, Electric Rate Matters.      Years Ended December 31

2008


2007In MillionsRegulatory Assets for PSCR and GCR
    underrecoveries of power supply and gas costs

$
7


$
45Regulatory Liabilities for PSCR and GCR
    overrecoveries of power supply and gas costs

$
7


$
19   New Accounting Standards Not Yet
    Effective: SFAS No. 141(R), Business
    Combinations: Business Combinations
  SFAS No. 160, Noncontrolling Interests in
    Consolidated Financial Statements  an amendment to
    ARB No. 51:
 CE-44




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    SFAS No. 161, Disclosures about Derivative
    Instruments and Hedging Activities, an amendment of FASB
    Statement No. 133:
  FSP
    FAS 142-3,
    Determination of the Useful Life of Intangible
    Assets: FAS 142-3,
  EITF Issue
    08-5,
    Issuers Accounting for Liabilities Measured at Fair Value
    with a Third-Party Credit Enhancement: 08-5,
  FSP FAS 132(R)-1, Employers Disclosures about
    Postretirement Benefit Plan Assets:
  2: FAIR
    VALUE MEASUREMENTS
      
    Level 1 inputs are unadjusted quoted prices in active
    markets for identical assets or liabilities. These markets must
    be accessible to us at the measurement date.
    Level 2 inputs are observable, market-based inputs, other
    than Level 1 prices. Level 2 inputs may include quoted
    prices for similar assets or liabilities in active markets,
    quoted prices in inactive markets, interest CE-45




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    rates and yield curves observable at commonly quoted intervals,
    credit risks, default rates, and inputs derived from or
    corroborated by observable market data.  
    Level 3 inputs are unobservable inputs that reflect our own
    assumptions about how market participants would value our assets
    and liabilities.      
    AROs,
    most of the nonfinancial assets and liabilities acquired in a
    business combination, and
    impairment analyses performed for nonfinancial assets.    SEC and FASB Guidance on Fair Value Measurements: FAS 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active
 CE-46




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Assets
    and Liabilities Measured at Fair Value on a Recurring
    Basis
    Total


Level 1


Level 2In MillionsAssets:Cash Equivalents

$
56


$
56


$
CMS Energy Common Stock


19



19



Nonqualified Deferred Compensation Plan Assets


3



3



SERPEquity Securities


25



25



Debt Securities


19







19Total

$
122


$
103


$
19Liabilities:Nonqualified Deferred Compensation Plan Liabilities

$
(3
)

$
(3
)

$
Derivative Instruments:Fixed price fuel contracts


(1
)






(1
)Total

$
(4
)

$
(3
)

$
(1
)   Cash Equivalents:
  Nonqualified Deferred Compensation Plan Assets:
  SERP Assets:
  Nonqualified Deferred Compensation Plan
    Liabilities:
 CE-47




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Fixed price fuel contracts:
    3: ASSET
    SALES AND IMPAIRMENT CHARGES
  Asset
    Sales
      Gross Cash


PretaxMonth sold

Business/Project

Proceeds


GainIn MillionsApril

Palisades(a)

$
333


$
Various

Other


4



2Total

$
337


$
2    (a)
    
    We sold Palisades to Entergy for $380 million and as of
    December 31, 2007, received $363 million after various
    closing adjustments. We also paid Entergy $30 million to
    assume ownership and responsibility for the Big Rock ISFSI.
    Because of the sale of Palisades, we paid the NMC, the former
    operator of Palisades, $7 million in exit fees and
    forfeited our $5 million investment in the NMC. Entergy
    assumed responsibility for the future decommissioning of
    Palisades and for storage and disposal of spent nuclear fuel
    located at Palisades and the Big Rock ISFSI sites.      Gross Cash


PretaxMonth sold

Business/Project

Proceeds


GainIn MillionsOctober

Land in Ludington, Michigan

$
6


$
2November

MCV GP II(a)


61



77Various

Other


2



Total

$
69


$
79     (a)
    
    In November 2006, we sold all of our interests in the
    Consumers subsidiaries that held the MCV Partnership and
    the MCV Facility to an affiliate of GSO Capital Partners and
    Rockland Capital Energy Investments.   CE-48




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
        Impairment
    Charges
    4: CONTINGENCIES
  Electric
    Contingencies
  Electric Environmental Matters:
  Cleanup and Solid Waste:
      Ludington PCB:
  Electric Utility Plant Air Permit Issues:
 CE-49




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Routine Maintenance Classification:
  Clean Air Interstate Rule:
  Litigation:
  Electric
    Rate Matters
  Stranded Cost Recovery:
  Power Supply Costs:
 CE-50




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Power
    Supply Cost Recovery Reconciliation
  Net Under-

PSCR CostPSCR Year

Date Filed

recovery

of Power Sold

Description of Net Underrecovery2007

March 2008

$42 million(a)

$1.628 billion

In our 2007 PSCR Plan we expected to offset power supply costs
    by including a $44 million credit for Palisades sale proceeds
    due customers. However, the MPSC directed that the Palisades
    sale proceeds be refunded through bill credits outside of the
    PSCR process.    (a)
    
    This amount includes 2006 underrecoveries as allowed by the MPSC
    order in our 2007 PSCR plan case.  2008 PSCR Plan:
  2009 PSCR Plan:
    Electric Rate Case:
  Components of the increase in revenue

In MillionsOperating and maintenance

$
50Rate of return


17Rate base


76Book depreciation on new investment


14Property taxes on new investment


9Gross margin


43Other


5Total

$
214    CE-51




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Palisades Regulatory Proceedings:
  Other
    Electric Contingencies
  The MCV PPA: 35-year
  
    a capacity charge of $10.14 per MWh of available capacity,
    a fixed energy charge based on our annual average base load coal
    generating plant operating and maintenance cost,
    a variable energy charge for all delivered energy that reflects
    the MCV Partnerships cost of production,
    a $5 million annual contribution by the MCV Partnership to
    a renewable resources program, and
    an option for us to extend the MCV PPA for five years or
    purchase the MCV Facility at the conclusion of the MCV
    PPAs term in March 2025.    Nuclear Matters: DOE Litigation:
    Big Rock Decommissioning:
   CE-52




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Nuclear Fuel Disposal Cost:
  Gas
    Contingencies
  Gas Environmental Matters:
    FERC Investigation:
  Gas
    Rate Matters
  Gas Cost Recovery:
    Gas
    Cost Recovery Reconciliation
  Net Over-

GCR CostGCR Year

Date Filed

recovery

of Gas Sold

Description of Net Overrecovery2007-2008

June 2008

$17 million

$1.7 billion

The total amount reflects an overrecovery of $15 million plus $2
    million in accrued interest owed to customers.   GCR plan for year
    2008-2009: 2008-2009
   CE-53




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      2008-2009
  GCR plan for year
    2009-2010: 2009-2010
    Gas Depreciation:
  2008 Gas Rate Case:
  Other
    Contingencies  Indemnifications
  Guarantees and Indemnifications:
   Expiration

MaximumGuarantee Description

Issue Date

Date

ObligationIn MillionsSurety bonds and other indemnifications

Various

Various

$

(a)Guarantee

January 1987

March 2016


85
(b)    (a)
    
    In the normal course of business, we issue surety bonds and
    indemnities to third parties to facilitate commercial
    transactions. We would be required to pay a counterparty if it
    incurs losses due to a breach of contract terms or
    nonperformance under the contract. At December 31, 2008,
    the guarantee liability recorded for surety bonds and
    indemnities was immaterial. The maximum obligation for surety
    bonds and indemnities was less than $1 million.(b)
    
    The maximum obligation includes $85 million related to the
    MCV Partnerships non-performance under a steam and
    electric power agreement with Dow. We sold our interests in the
    MCV Partnership and the FMLP. CE-54




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    The sales agreement calls for the purchaser, an affiliate of GSO
    Capital Partners and Rockland Capital Energy Investments, to pay
    $85 million, subject to certain reimbursement rights, if
    Dow terminates an agreement under which the MCV Partnership
    provides it steam and electric power. This agreement expires in
    March 2016, subject to certain terms and conditions. The
    purchaser secured its reimbursement obligation with an
    irrevocable letter of credit of up to $85 million.    Other:
  Contractual
    Commitments
  Purchase Obligations:
  Purchase
    Obligations at December 31, 2008
  Payments DueLess Than


One to


Three to


More ThanTotal


One Year


Three Years


Five Years


Five YearsIn MillionsPurchase obligations(a)

$
14,699


$
2,201


$
2,391


$
1,545


$
8,562Purchase obligations  related parties(a)


1,570



78



166



168



1,158    (a)
    
    Long-term contracts for purchase of commodities and services.
    These obligations include operating contracts used to ensure
    adequate supply with generating facilities that meet PURPA
    requirements. The commodities and services include:  
    natural gas and associated transportation,
    electricity, and
    coal and associated transportation. CE-55




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     5: FINANCINGS
    AND CAPITALIZATION
    Interest Rate (%)


Maturity

2008


2007(In Millions)First mortgage bonds(a)


4.250


2008

$



$
2504.800


2009


200



2004.400


2009


150



1504.000


2010


250



2505.000


2012


300



3005.375


2013


375



3756.000


2014


200



2005.000


2015


225



2255.500


2016


350



3505.150


2017


250



2505.650


2018


250



6.125


2019


350



5.650


2020


300



3005.650


2035


142



1455.800


2035


175



1753,517



3,170Senior notes


6.375


2008






1596.875


2018


180



180Securitization bonds


5.495
(b)

2009-2015


277



309Nuclear fuel disposal liability





(c)


162



159Tax-exempt pollution control revenue bonds


Various


2010-2035


161



161Total principal amount outstanding








4,297



4,138Current amounts








(383
)


(440
)Net unamortized discount








(6
)


(6
)Total long-term debt







$
3,908


$
3,692    (a)
    
    The weighted-average interest rate for our FMB was
    5.329 percent at December 31, 2008 and
    5.131 percent at December 31, 2007.(b)
    
    Represents the weighted-average interest rate at
    December 31, 2008 (5.442 percent at December 31,
    2007).(c)
    
    The maturity date is uncertain. CE-56




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     Financings:
  Issue/RetirementPrincipal


Interest Rate (%)

Date

Maturity Date(In millions)Debt Issuances:First mortgage bonds

$
250


5.650%

March 2008

September 2018Tax-exempt bonds(a)


28


4.250%

March 2008

June 2010Tax-exempt bonds(b)


68


Variable

March 2008

April 2018First mortgage bonds


350


6.125%

September 2008

March 2019Total

$
696Debt Retirements:Senior notes

$
159


6.375%

February 2008

February 2008First mortgage bonds


250


4.250%

April 2008

April 2008Tax-exempt bonds(a)


28


Variable

April 2008

June 2010Tax-exempt bonds(b)


68


Variable

April 2008

April 2018Total

$
505    (a)
    
    In March 2008, we utilized the Michigan Strategic Fund for the
    issuance of $28 million of tax-exempt Michigan Strategic
    Fund Limited Obligation Refunding Revenue Bonds, bearing
    interest at a 4.25 percent annual rate. The bonds are
    secured by FMB. We used the proceeds to redeem $28 million
    of insured tax-exempt bonds in April 2008.(b)
    
    In March 2008, we utilized the Michigan Strategic Fund for the
    issuance of $68 million of tax-exempt Michigan Strategic
    Fund Variable Rate Limited Obligation Refunding Revenue
    Bonds. The initial interest rate was 2.25 percent and it
    resets weekly. The bonds, which are backed by a letter of
    credit, are subject to optional tender by the holders that would
    result in remarketing. We used the proceeds to redeem
    $68 million of insured tax-exempt bonds in April 2008.      First Mortgage Bonds:
  Regulatory Authorization for Financings:
     CE-57




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Securitization Bonds:
  Debt Maturities:
  Payments Due2009


2010


2011


2012


2013In MillionsLong-term debt

$
383


$
343


$
37


$
339


$
416   Revolving Credit Facilities:
  OutstandingAmount of


Amount


Letters of


AmountExpiration Date

Facility


Borrowed


Credit


AvailableIn MillionsMarch 30, 2012

$
500


$



$
172


$
328November 30, 2009(a)


192







192



September 9, 2009


150











150    (a)
    
    Secured revolving letter of credit facility.  Dividend Restrictions:
    Sale of Accounts Receivable:
    Years Ended December 31

2008


2007In MillionsAdministrative fees

$
1


$
3Net cash flow as a result of accounts receivable financing

$
170


$
(325
)Collections from customers

$
6,060


$
5,881  CE-58




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Preferred Stock:
  OptionalRedemption


Number of SharesDecember 31

Series


Price


2008


2007


2008


2007In MillionsPreferred stockCumulative $100 par value, Authorized
    7,500,000 shares, with no mandatory redemption

$
4.16


$
103.25



68,451



68,451


$
7


$
7$
4.50


$
110.00



373,148



373,148



37



37Total Preferred stock

















$
44


$
44   6: FINANCIAL
    AND DERIVATIVE INSTRUMENTS
  Financial Instruments:
    2008


2007Book


Fair


Book


FairDecember 31

Value


Value


Value


ValueIn MillionsLong-term debt(a)

$
4,291


$
4,073


$
4,132


$
4,099    (a)
    
    Includes current maturities of $383 million at
    December 31, 2008 and $440 million at
    December 31, 2007. Settlement of long-term debt is
    generally not expected until maturity.    2008


2007Unrealized


Unrealized


Fair





Unrealized


Unrealized


FairDecember 31

Cost


Gains


Losses


Value


Cost


Gains


Losses


ValueIn MillionsCommon stock of CMS Energy(a)

$
8


$
11


$



$
19


$
8


$
24


$



$
32SERP:Equity securities


25











25



35











35Debt securities


19











19



7











7    (a)
    
    At December 31, 2008 and 2007, we held 1.8 million
    shares of CMS Energy Common Stock.     CE-59




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      In MillionsDue one year or less

$
1Due after one year through five years


8Due after five years through ten years


7Due after ten years


3Total

$
19     Derivative Instruments:
      
    they do not have a notional amount (that is, a number of units
    specified in a derivative instrument, such as MWh of electricity
    or bcf of natural gas),
    they qualify for the normal purchases and sales
    exception, or
    there is not an active market for the commodity.    Fixed price fuel contracts:
 CE-60




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    7: RETIREMENT
    BENEFITS
    
    a non-contributory, qualified defined benefit Pension Plan
    (closed to new non-union participants as of July 1, 2003
    and closed to new union participants as of September 1,
    2005),
    a qualified cash balance Pension Plan for certain employees
    hired between July 1, 2003 and August 31, 2005,
    a non-contributory, qualified DCCP for employees hired on or
    after September 1, 2005,
    benefits to certain management employees under a
    non-contributory, nonqualified defined benefit SERP (closed to
    new participants as of March 31, 2006),
    benefits to certain management employees under a
    non-contributory, nonqualified DC SERP hired on or after
    April 1, 2006,
    health care and life insurance benefits under OPEB,
    benefits to a selected group of management under a
    non-contributory, nonqualified EISP, and
    a contributory, qualified defined contribution 401(k) plan.  Pension Plan:
    SERP:
    401(k):
  EISP:
 CE-61




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      OPEB:
    One Percentage


One PercentagePoint Increase


Point DecreaseIn MillionsEffect on total service and interest cost component

$
15


$
(13
)Effect on postretirement benefit obligation

$
172


$
(150
)     SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statements No. 87,
    88, 106, and 132(R):
   CE-62




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    Assumptions:
  Weighted
    Average For Benefit Obligations:
  Pension & SERP


OPEBYears Ended December 31

2008


2007


2006


2008


2007


2006Discount rate(a)


6.50
%


6.40
%


5.65
%


6.50
%


6.50
%


5.65
%Expected long-term rate of return on plan assets(b)


8.25
%


8.25
%


8.25
%


7.75
%


7.75
%


7.75
%Mortality table(c)


2000



2000



2000



2000



2000



2000Rate of compensation increase:Pension


4.00
%


4.00
%


4.00
%SERP


5.50
%


5.50
%


5.50
%   Weighted
    Average For Net Periodic Benefit Cost:
  Pension & SERP


OPEBYears Ended December 31

2008


2007


2006


2008


2007


2006Discount rate(a)


6.40
%


5.65
%


5.75
%


6.50
%


5.65
%


5.75
%Expected long-term rate of return on plan assets(b)


8.25
%


8.25
%


8.50
%


7.75
%


7.75
%


8.00
%Mortality table(c)


2000



2000



2000



2000



2000



2000Rate of compensation increase:Pension


4.00
%


4.00
%


4.00
%SERP


5.50
%


5.50
%


5.50
%    (a)
    
    The discount rate is set to reflect the rates at which benefits
    can be effectively settled. It is set equal to the equivalent
    single rate that results from a yield curve analysis that
    incorporates projected benefit payments specific to our pension
    and other postretirement benefit plans, and the yields on high
    quality corporate bonds rated Aa or better.(b)
    
    We determine our long-term rate of return by considering
    historical market returns, the current and expected future
    economic environment, the capital market principles of risk and
    return, and the expert opinions of individuals and firms with
    financial market knowledge. We consider the asset allocation of
    the portfolio in forecasting the future expected total return of
    the portfolio. The goal is to determine a long-term rate of
    return that can be incorporated into the planning of future cash
    flow requirements in conjunction with the change in the
    liability. Annually, we review for reasonableness and
    appropriateness of the forecasted returns for various classes of
    assets used to construct an expected return model.(c)
    
    The mortality assumption is based on the RP-2000 mortality
    tables with projection of future mortality improvements using
    Scale AA, which aligns with the IRS prescriptions for cash
    funding valuations under the Pension Protection Act. CE-63




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     Costs:
  Pension & SERPYears Ended December 31

2008


2007


2006In MillionsNet periodic pension costService cost

$
41


$
47


$
47Interest expense


96



84



81Expected return on plan assets


(78
)


(75
)


(80
)Amortization of:Net loss


40



44



41Prior service cost


6



7



7Net periodic pension cost


105



107



96Regulatory adjustment(a)


4



(22
)


(11
)Net periodic pension cost after regulatory adjustment

$
109


$
85


$
85   OPEBYears Ended December 31

2008


2007


2006In MillionsNet periodic OPEB costService cost

$
21


$
24


$
22Interest expense


69



65



60Expected return on plan assets


(61
)


(57
)


(53
)Amortization of:Net loss


10



23



20Prior service credit


(10
)


(10
)


(10
)Net periodic OPEB cost


29



45



39Regulatory adjustment(a)


3



(6
)


(2
)Net periodic OPEB cost after regulatory adjustment

$
32


$
39


$
37    (a)
    
    Regulatory adjustments are the differences between amounts
    included in rates and the periodic benefit cost calculated
    pursuant to SFAS No. 87 and SFAS No. 106.
    The pension regulatory asset had a balance of $29 million
    at December 31, 2008 and $33 million at
    December 31, 2007. The OPEB regulatory asset had a balance
    of $5 million at December 31, 2008 and $8 million
    at December 31, 2007.     CE-64




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Reconciliations:
  Pension Plan


SERP


OPEBYears Ended December 31

2008


2007


2008


2007


2008


2007In MillionsBenefit obligation at beginning of period

$
1,565


$
1,576


$
61


$
47


$
1,082


$
1,179Service cost


45



49



1



1



23



24Interest cost


103



86



4



3



74



65Actuarial loss (gain)


(66
)


30



(2
)


12



91



(115
)Palisades sale






(38
)














(20
)Benefits paid


(123
)


(138
)


(2
)


(2
)


(51
)


(51
)Benefit obligation at end of period(a)


1,524



1,565



62



61



1,219



1,082Plan assets at fair value at beginning of period


1,078



1,040











785



734Actual return on plan assets


(231
)


89











(185
)


51Company contribution






109



2



2



62



51Palisades sale






(22
)














(5
)Actual benefits paid(b)


(123
)


(138
)


(2
)


(2
)


(50
)


(46
)Plan assets at fair value at end of period


724



1,078











612



785Funded status at end of measurement period


(800
)


(487
)


(62
)


(61
)


(607
)


(297
)Additional VEBA Contributions or Non-Trust Benefit Payments






















12Funded status at December 31(c)(d)

$
(800
)

$
(487
)

$
(62
)

$
(61
)

$
(607
)

$
(285
)    (a)
    
    The Medicare Prescription Drug, Improvement and Modernization
    Act of 2003 establishes a prescription drug benefit under
    Medicare (Medicare Part D), and a federal subsidy, which is
    tax-exempt, to sponsors of retiree health care benefit plans
    that provide a benefit that is actuarially equivalent to
    Medicare Part D. The Medicare Part D annualized
    reduction in net OPEB cost was $24 million for 2008
    and $27 million for 2007. The reduction includes
    $7 million for 2008 and 2007 in capitalized OPEB costs.(b)
    
    We received $5 million in 2008 and $4 million in 2007
    for Medicare Part D Subsidy payments.(c)
    
    Liabilities for retirement benefits comprised
    $1.429 billion classified as non-current and
    $2 million classified as current for the year ended
    December 31, 2008, and $805 million classified as
    non-current and $2 million classified as current for the
    year ended December 31, 2007.(d)
    
    Of the $800 million funded status of Pension Plan at
    December 31, 2008, $762 million is attributable to
    Consumers. Of the $487 million funded status of the Pension
    Plan at December 31, 2007, $461 million is
    attributable to Consumers, based on allocation of expenses. CE-65




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       Years Ended December 31

2008


2007In MillionsPension PBO

$
1,524


$
1,565Pension ABO


1,240



1,231Fair value of Pension Plan assets

$
724


$
1,078   Items Not Yet Recognized as a Component of Net Periodic
    Benefit Cost:
  Pension & SERP


OPEBYears Ended December 31

2008


2007


2008


2007In MillionsRegulatory assetsNet loss

$
835


$
636


$
595


$
265Prior service cost (credit)


33



39



(78
)


(89
)AOCLNet loss


8



18







Prior service cost


1



1







Total amounts recognized in regulatory assets and AOCL

$
877


$
694


$
517


$
176   Plan Assets:
  Pension


OPEBYears Ended December 31

2008


2007


2008


2007Asset Category:Fixed Income


37
%


30
%


55
%


34
%Equity Securities


50
%


60
%


45
%


66
%Alternative Strategy


13
%


10
%






      CE-66




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
        SFAS No. 132(R) Benefit Payments:
  Pension


SERP


OPEB(a)In Millions2009

$
72


$
2


$
532010


78



2



552011


85



2



582012


96



2



602013


106



2



612014-2018


669



9



338    (a)
    
    OPEB benefit payments are net of employee contributions and
    expected Medicare Part D prescription drug subsidy
    payments. The subsidies to be received are estimated to be
    $5 million for 2009, $6 million for 2010 and 2011,
    $7 million for 2012, $8 million for 2013 and
    $46 million combined for 2014 through 2018.  8: ASSET
    RETIREMENT OBLIGATIONS
  SFAS No. 143, Accounting for Asset Retirement
    Obligations:
   CE-67




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    FASB Interpretation No. 47, Accounting for
    Conditional Asset Retirement Obligations:
    In ServiceARO Description

Date


Long-Lived AssetsDecember 31, 2008Closure of coal ash disposal areas


Various


Generating plants coal ash areasClosure of wells at gas storage fields


Various


Gas storage fieldsIndoor gas services equipment relocations


Various


Gas meters located inside structuresAsbestos abatement


1973


Electric and gas utility plantGas distribution cut, purge & cap


Various


Gas distribution mains & services     ARO














AROLiability











Cash flow


LiabilityARO Description

12/31/06


Incurred


Settled(a)


Accretion


Revisions


12/31/07In MillionsPalisades  decommission

$
401


$



$
(410
)

$
7


$
2


$
Big Rock  decommission


2







(3
)


1







Coal ash disposal areas


57







(4
)


6







59Wells at gas storage fields


1



















1Indoor gas services relocations


1



















1Asbestos abatement


35







(1
)


2







36Gas distribution cut, purge, cap






101















101Total

$
497


$
101


$
(418
)

$
16


$
2


$
198   ARO














AROLiability











Cash flow


LiabilityARO Description

12/31/07


Incurred


Settled(a)


Accretion


Revisions


12/31/08In MillionsPalisades  decommission

$



$



$



$



$



$
Big Rock  decommission






















Coal ash disposal areas


59







(3
)


6







62Wells at gas storage fields


1



















1Indoor gas services relocations


1



















1Asbestos abatement


36







(2
)


2







36Gas distribution cut, purge, cap


101



(1
)


(2
)


7







105Total

$
198


$
(1
)

$
(7
)

$
15


$



$
205    (a)
    
    Cash payments of $7 million in 2008 and $5 million in
    2007 are included in the Other current and non-current
    liabilities line in Net cash provided by operating activities in
    our Consolidated Statements of Cash Flows. In CE-68




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    April 2007, we sold Palisades to Entergy and paid Entergy to
    assume ownership and responsibility for the Big Rock ISFSI. Our
    AROs related to Palisades and the Big Rock ISFSI ended with the
    sale, and we removed the related ARO liabilities from our
    Consolidated Balance Sheets. We also removed the Big Rock ARO
    related to the plant in the second quarter of 2007 due to the
    completion of decommissioning.  9: INCOME
    TAXES
          Years Ended December 31

2008


2007


2006In MillionsCurrent income taxes:Federal

$
(10
)

$
114


$
212Federal income tax benefit of operating loss carryforwards






(44
)


(8
)State and local


12







$
2


$
70


$
204Deferred income taxes:Federal

$
200


$
59


$
(109
)State










$
200


$
59


$
(109
)Deferred ITC, net


(4
)


(4
)


(4
)Tax expense

$
198


$
125


$
91    CE-69




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      December 31

2008


2007In MillionsCurrent Assets and (Liabilities):Tax loss and credit carryforwards

$
8


$
Employee benefits


(100
)


5Gas inventory


(219
)


(204
)Other


34



48Net Current (Liability)

$
(277
)

$
(151
)Noncurrent Assets and (Liabilities):Tax loss and credit carryforwards

$
213


$
249SFAS No. 109 regulatory liability


205



207Nuclear decommissioning (including unrecovered costs)


(20
)


(18
)Property


(1,056
)


(919
)Securitized costs


(161
)


(180
)Employee benefits


80



39Other


(53
)


(91
)Net Noncurrent (Liability)

$
(792
)

$
(713
)Total Deferred Income Tax (Liability)

$
(1,069
)

$
(864
)     Years Ended December 31

2008


2007


2006In MillionsIncome before income taxes and minority obligations, net


562



437



277Statutory federal income tax rate


x 35
%


x 35
%


x 35
%Expected income tax expense


197



153



97Increase (decrease) in taxes from:Property differences


3



9



13IRS settlement/credit restoration










(19
)State and local income tax, net


8







Medicare part D exempt income


(8
)


(9
)


(10
)ITC amortization


(4
)


(3
)


(4
)Valuation allowance






(23
)


15Other, net


2



(2
)


(1
)Recorded income tax expense

$
198


$
125


$
91Effective tax rate


35.2
%


28.6
%


32.9
%  CE-70




---



##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (In millions)Year ended December 31

2008


2007Balance at beginning of period

$
41


$
51Reductions for prior year tax positions






(11
)Additions for prior year tax positions


12



1Statute lapses






Additions for current year tax positions


2



Settlements






Balance at end of period

$
55


$
41       10: STOCK-BASED
    COMPENSATION
   CE-71




---



##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
        
    retirement,
    disability, or
    change of control of CMS Energy, as defined by the Plan.        Weighted-AverageGrant Date Fair ValueRestricted Stock

Number of Shares


per ShareNonvested at December 31, 2007


1,375,079


$
13.54Granted(a)


672,370


$
10.43Vested


(135,804
)

$
13.71Forfeited(b)


(343,725
)

$
15.60Nonvested at December 31, 2008


1,567,920


$
12.03     (a)
    
    During 2008, we granted 432,656 TSR shares and 239,714
    time-lapse shares of restricted stock.(b)
    
    During 2008, 338,725 TSR shares granted in 2005 were forfeited
    due to the failure to meet the specific market conditions.   CE-72




---



##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      2008


2007


2006Expected volatility


19.70
%


19.11
%


20.51
%Expected dividend yield


2.67
%


1.20
%


0.00
%Risk-free rate


2.83
%


4.59
%


4.82
%       Weighted-


Weighted-Options


Average


AverageOutstanding,


Exercise


Remaining


AggregateFully Vested,


Price per


Contractual


IntrinsicStock Options

and Exercisable


Share


Term


Value(In millions)Outstanding at December 31, 2007


686,226


$
21.83



3.6 years


$
(3
)Granted






Exercised


(44,561
)(a)


6.35Cancelled or Expired


(143,879
)(b)


35.85Outstanding at December 31, 2008


497,786



19.81



2.9 years


$
(1
)    (a)
    
    Exercised shares of 8,000 relate to improper allocation of
    exercised shares to Consumers in 2007.(b)
    
    Cancelled or expired shares of 64,000 relate to improper
    allocation of cancelled shares to Consumers in 2007.      Years Ended December 31

2008


2007


2006Weighted average grant date fair value per shareRestricted stock granted

$
10.43


$
14.12


$
13.82Stock options granted(a)










    (a)
    
    No stock options were granted in 2008, 2007, or 2006.   CE-73




---



##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    11: LEASES
          Years Ended December 31

2008


2007


2006In MillionsCapital lease expense

$
46


$
34


$
15Operating lease expense


27



23



19     Capital


Finance


OperatingLeases


Lease(a)


LeasesIn Millions2009

$
16


$
23


$
272010


15



22



262011


13



21



252012


15



20



252013


8



20



192014 and thereafter


47



133



115Total minimum lease payments


114



239


$
237Less imputed interest


57



65Present value of net minimum lease payments


57



174Less current portion


12



13Non-current portion

$
45


$
161    (a)
    
    In April 2007, we sold Palisades to Entergy and entered into a
    15-year
    power purchase agreement to buy all of the capacity and energy
    produced by Palisades, up to the annual average capacity of
    798 MW. We provided $30 million in security to Entergy
    for our power purchase agreement obligation in the form of a
    letter of credit. We estimate that capacity and energy payments
    under the Palisades power purchase agreement will average
    $320 million annually. Our total purchases of capacity and
    energy under the Palisades power purchase agreement were
    $298 million in 2008 and $180 million in 2007. CE-74




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
         12: PROPERTY,
    PLANT, AND EQUIPMENT
    EstimatedDepreciableDecember 31

Life in Years


2008


2007In MillionsElectric:Generation


18-85


$
3,357


$
3,328Distribution


12-75



4,766



4,496Other


7-40



551



438Capital and finance leases(a)






291



293Gas:Underground storage facilities(b)


30-65



270



267Transmission


13-75



473



570Distribution


30-80



2,460



2,286Other


5-50



398



320Capital leases(a)






21



24Other:Non-utility property


7-71



15



15Construction
    work-in-progress






607



447Less accumulated depreciation, depletion, and amortization(c)






4,242



3,993Net property, plant, and equipment(d)





$
8,967


$
8,491    (a)
    
    Capital and finance leases presented in this table are gross
    amounts. Accumulated amortization of capital and finance leases
    was $79 million at December 31, 2008 and
    $62 million at December 31, 2007. Additions were
    $5 million and Retirements and adjustments were
    $3 million during 2008. Additions were $229 million
    during 2007, which includes $197 million related to assets
    under the Palisades finance lease. Retirements and adjustments
    were $26 million during 2007. CE-75




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     (b)
    
    Includes base natural gas in underground storage of
    $26 million at December 31, 2008 and December 31,
    2007, which is not subject to depreciation.(c)
    
    At December 31, 2008, accumulated depreciation, depletion,
    and amortization included $4.241 billion from our utility
    plant and $1 million related to our non-utility plant
    assets. At December 31, 2007, accumulated depreciation,
    depletion, and amortization included $3.992 billion from
    our utility plant and $1 million related to our non-utility
    plant assets.(d)
    
    At December 31, 2008, utility plant additions were
    $629 million and utility plant retirements, including other
    plant adjustments, were $60 million. At December 31,
    2007, utility plant additions were $1.303 billion and
    utility plant retirements, including other plant adjustments,
    were $1.094 billion.  Asset Acquisition:
    December 31


2008


2007Amortization





Accumulated





AccumulatedDescription

Life in years


Gross Cost(a)


Amortization


Gross Cost(a)


AmortizationIn MillionsSoftware development


7-15


$
370


$
192


$
207


$
170Plant acquisition adjustments


40



214



6



214



Rights of way


50-75



118



33



116



32Leasehold improvements


various



11



9



19



16Franchises and consents


n/a



14



6



14



5Other intangibles


n/a



18



13



18



13Total





$
745


$
259


$
588


$
236    (a)
    
    Intangible asset additions were $163 million during 2008,
    which included $161 million related to the installation and
    operation of our new integrated business software system.
    Intangible asset additions for our utility plant were
    $232 million during 2007, which included the Zeeland
    $213 million plant acquisition adjustment. Retirements were
    $23 million during 2007.   CE-76




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
    13: JOINTLY
    OWNED REGULATED UTILITY FACILITIES
    Accumulated


ConstructionOwnership


Net Investment(a)


Depreciation


Work in ProgressDecember 31

Share


2008


2007


2008


2007


2008


2007(%)








In MillionsCampbell Unit 3


93.3


$
675


$
664


$
360


$
337


$
19


$
44Ludington


51.0



61



65



107



104



7



1Distribution


Various



96



89



41



44



3



5     (a)
    
    Net investment is the amount of utility plant in service less
    accumulated depreciation.    14: REPORTABLE
    SEGMENTS
         CE-77




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
      Years Ended December 31

2008


2007


2006In MillionsOperating RevenuesElectric

$
3,594


$
3,443


$
3,302Gas


2,827



2,621



2,374Other










45$
6,421


$
6,064


$
5,721Earnings from Equity Method InvesteesElectric

$



$



$
1Depreciation and AmortizationElectric

$
438


$
397


$
380Gas


136



127



122Other










25$
574


$
524


$
527Interest ChargesElectric

$
185


$
193


$
167Gas


60



70



73Other


2



1



49$
247


$
264


$
289Income Tax Expense (Benefit)Electric

$
153


$
100


$
95Gas


45



47



18Other






(22
)


(22
)$
198


$
125


$
91Net Income (Loss) Available to Common StockholderElectric

$
271


$
196


$
199Gas


89



87



37Other


2



27



(52
)$
362


$
310


$
184Investments in Equity Method InvesteesElectric

$



$



$
5Total AssetsElectric(a)

$
8,904


$
8,492


$
8,516Gas(a)


4,565



4,102



3,950Other


777



807



379$
14,246


$
13,401


$
12,845Capital Expenditures(b)Electric

$
553


$
1,319


$
462Gas


241



168



172Other










19$
794


$
1,487


$
653    (a)
    
    Amounts include a portion of our other common assets
    attributable to both the electric and gas utility businesses. CE-78




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##### Table of Contents



CONSUMERS ENERGY
    COMPANY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
     (b)
    
    Amounts include capital lease additions and a portion of our
    capital expenditures for plant and equipment attributable to
    both the electric and gas utility businesses.  15: QUARTERLY
    FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)
  2008Quarters Ended

March 31


June 30


Sept. 30


Dec. 31In MillionsOperating revenue

$
2,091


$
1,263


$
1,307


$
1,760Operating income


250



139



199



178Net income


130



60



91



83Preferred stock dividends


1







1



Net income available to common stockholder


129



60



90



83   2007Quarters Ended

March 31


June 30


Sept. 30


Dec. 31In MillionsOperating revenue

$
2,055


$
1,247


$
1,172


$
1,590Operating income


209



104



124



145Net income


113



44



60



95Preferred stock dividends


1











1Net income available to common stockholder


112



44



60



94  CE-79




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
    Internal Control  Integrated Framework
            CE-80




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
           CE-81




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            
    CE-82




---



##### Table of Contents



ITEM 9. CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE  CMS
    Energy
    Consumers
   ITEM 9A. CMS
    ENERGYS CONTROLS AND PROCEDURES  Conclusion Regarding the Effectiveness of Disclosure Controls
    and Procedures: Rules 13a-15(e) 15d-15(e)
  Managements Annual Report on Internal Control Over
    Financial Reporting: Rule 13a-15(f).
  
    pertain to the maintenance of records that in reasonable detail,
    accurately and fairly reflect the transactions and dispositions
    of the assets of CMS Energy;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with GAAP, and that receipts and expenditures of CMS
    Energy are being made only in accordance with authorizations of
    management and directors of CMS Energy; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of CMS
    Energys assets that could have a material effect on its
    financial statements.      Changes in Internal Control over Financial
    Reporting:
 CO-1




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##### Table of Contents



ITEM 9A(T).
    CONSUMERS CONTROLS AND PROCEDURES  Conclusion Regarding the Effectiveness of Disclosure Controls
    and Procedures: Rules 13a-15(e) 15d-15(e)
  Managements Annual Report on Internal Control Over
    Financial Reporting: Rule 13a-15(f).
  
    pertain to the maintenance of records that in reasonable detail,
    accurately and fairly reflect the transactions and dispositions
    of the assets of Consumers;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with GAAP, and that receipts and expenditures of
    Consumers are being made only in accordance with authorizations
    of management and directors of Consumers; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of
    Consumers assets that could have a material effect on its
    financial statements.      Changes in Internal Control over Financial
    Reporting:
 ITEM 9B. OTHER
    INFORMATION  CMS
    Energy
    Consumers
   CO-2




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##### Table of Contents



PART III ITEM 10.
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  CMS
    Energy
    CODE OF
    ETHICS
    Consumers
    CODE OF
    ETHICS
   ITEM 11.
    EXECUTIVE COMPENSATION   CO-3




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##### Table of Contents



ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS  CMS
    Energy
    Consumers
   ITEM 13.
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    AND DIRECTOR INDEPENDENCE  CMS
    Energy
    Consumers
   ITEM 14.
    PRINCIPAL ACCOUNTANT FEES AND SERVICES  CMS
    Energy
    Consumers
   PART IV ITEM 15.
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)(1)
    Financial Statements and Reports of Independent Public
    Accountants for CMS Energy and Consumers are included in each
    companys ITEM 8. FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA and are incorporated by reference herein.(a)(2)
    Index to Financial Statement Schedules.  CO-4




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##### Table of Contents



PageSchedule I

Condensed Financial Information of Registrant CMS Energy-Parent
    CompanyCondensed Statements of Income
    (Loss)

CO-12Statements of Cash Flows

CO-13Condensed Balance Sheets

CO-14Notes to Condensed Financial
    Statements

CO-16Schedule II

Valuation and Qualifying Accounts and ReservesCMS Energy Corporation

CO-18Consumers Energy Company

CO-18Report of Independent Registered Public Accounting FirmCMS Energy Corporation

CMS-99Consumers Energy Company

CE-80     (a)(3)
    Exhibits for CMS Energy and Consumers are listed after
    Item 15(b) below and are incorporated by reference herein.(b)
    Exhibits, including those incorporated by reference. CO-5




---



##### Table of Contents



CMS ENERGYS
    AND CONSUMERS EXHIBITS
  Form 10-K
  http://www.sec.gov.
  Previously FiledWith File

As ExhibitExhibits

Number

Number



Description(3)(a)

1-9513

(99)(a)



Restated Articles of Incorporation of CMS Energy, effective
    June 1, 2004
    (Form 8-K
    filed June 3, 2004)(3)(b)







CMS Energy Corporation Bylaws, amended and restated as of
    January 22, 2009(3)(c)

1-5611

3(c)



Restated Articles of Incorporation of Consumers effective
    June 7, 2000 (2000
    Form 10-K)(3)(d)







Consumers Energy Company Bylaws, amended and restated as of
    January 22, 2009(4)(a)

2-65973

(b)(1)-4



Indenture dated as of September 1, 1945, between Consumers
    and Chemical Bank (successor to Manufacturers Hanover
    Trust Company), as Trustee, including therein indentures
    supplemental thereto through the Forty-third Supplemental
    Indenture dated as of May 1, 1979
    (Form S-16
    filed November 13, 1979) Indentures Supplemental
    thereto:1-5611

(4)(a)



71st dated as of 3/06/98 (1997
    Form 10-K)1-5611

(4)(d)



90th dated as of 4/30/03 (1st qtr. 2003
    Form 10-Q)1-5611

(4)(a)



91st dated as of 5/23/03 (3rd qtr. 2003
    Form 10-Q)1-5611

(4)(b)



92nd dated as of 8/26/03 (3rd qtr. 2003
    Form 10-Q)1-5611

(4)(a)



96th dated as of 8/17/04
    (Form 8-K
    filed August 20, 2004)333-120611

(4)(e)(xv)



97th dated as of 9/1/04 (Consumers
    Form S-3
    dated November 18, 2004)1-5611

4.4



98th dated as of 12/13/04
    (Form 8-K
    filed December 13, 2004)1-5611

(4)(a)(i)



99th dated as of 1/20/05 (2004
    Form 10-K)1-5611

4.2



100th dated as of 3/24/05
    (Form 8-K
    filed March 30, 2005)1-5611

4.2



102nd dated as of 4/13/05
    (Form 8-K
    filed April 13, 2005)1-5611

4.2



104th dated as of 8/11/05
    (Form 8-K
    filed August 11, 2005)1-5611

4(b)



105th dated as of 3/30/07 (2007
    Form 10-K)1-5611

4(a)



106th dated as of 11/30/07 (2007
    Form 10-K)1-5611

(4)(a)



107th dated as of 3/1/08 (1st qtr. 2008
    Form 10-Q)1-5611

4.1



108th dated as of 3/14/08
    (Form 8-K
    filed March 14, 2008)1-5611

4.1



109th dated as of 9/11/08
    (Form 8-K
    filed September 16, 2008)1-5611

4.1



110th dated as of 9/12/08
    (Form 8-K
    filed September 12, 2008)(4)(b)

1-5611

(4)(b)



Indenture dated as of January 1, 1996 between Consumers and
    The Bank of New York Mellon, as Trustee (1995
    Form 10-K)(4)(c)

1-5611

(4)(c)



Indenture dated as of February 1, 1998 between Consumers
    and The Bank of New York Mellon (formerly The Chase Manhattan
    Bank), as Trustee (1997
    Form 10-K) CO-6




---



##### Table of Contents



Previously FiledWith File

As ExhibitExhibits

Number

Number



Description(4)(d)

33-47629

(4)(a)*



Indenture dated as of September 15, 1992 between CMS Energy
    and NBD Bank, as Trustee
    (Form S-3
    filed May 1, 1992) Indentures Supplemental thereto:333-58686

(4)(a)*



11th dated as of 3/29/01
    (Form S-8
    filed April 11, 2001)1-9513

(4)(d)(i)*



15th dated as of 9/29/04 (2004
    Form 10-K)1-9513

(4)(d)(ii)*



16th dated as of 12/16/04 (2004
    Form 10-K)1-9513

4.2*



17th dated as of 12/13/04
    (Form 8-K
    filed December 13, 2004)1-9513

4.2*



18th dated as of 1/19/05
    (Form 8-K
    filed January 20, 2005)1-9513

4.2*



19th dated as of 12/13/05
    (Form 8-K
    filed December 15, 2005)1-9513

4.2*



20th dated as of 7/3/07
    (Form 8-K
    filed July 5, 2007)1-9513

4.3*



21st dated as of 7/3/07
    (Form 8-K
    filed July 5, 2007)(4)(e)

1-9513

(4a)*



Indenture dated as of June 1, 1997, between CMS Energy and
    The Bank of New York Mellon, as trustee
    (Form 8-K
    filed July 1, 1997) Indentures Supplemental thereto:1-9513

(4)(b)*



1st dated as of 6/20/97
    (Form 8-K
    filed July 1, 1997)(4)(f)







Certificate of Designation of 4.50% Cumulative Convertible
    Preferred Stock dated as of December 20, 2004, corrected
    February 27, 2006(10)(a)

1-9513

10.2*



$300 million Seventh Amended and Restated Credit Agreement
    dated as of April 2, 2007 among CMS Energy Corporation, the
    Banks, the Administrative Agent, Collateral Agent, Syndication
    Agent and Documentation Agents all defined therein
    (Form 8-K
    filed April 3, 2007) Amendments thereto:1-9513

10(a)*



Amendment No. 1 dated as of December 19, 2007 (2007
    Form 10-K)(10)(b)*







Amendment No. 2 dated as of January 23, 2009Assumptions thereto:(10)(c)

1-9513

10.1*



Assumption and Acceptance dated January 8, 2008
    (Form 8-K
    filed January 11, 2008)(10)(d)

1-9513

10(b)*



Fourth Amended and Restated Pledge and Security Agreement dated
    as of April 2, 2007 among CMS Energy and Collateral Agent,
    as defined therein (2007
    Form 10-K)(10)(e)

1-9513

10(c)*



Amended and Restated Cash Collateral Agreement dated as of
    April 2, 2007, made by CMS Energy to the Administrative
    Agent for the lenders and Collateral Agent, as defined therein
    (2007
    Form 10-K)10)(f)

1-5611

10.1



$500 million Fourth Amended and Restated Credit Agreement
    dated as of March 30, 2007 among Consumers Energy Company,
    the Banks, the Administrative Agent, the Collateral Agent, the
    Syndication Agent and the Documentation Agents all as defined
    therein
    (Form 8-K
    filed April 3, 2007)(10)(g)

1-9513

(10)(e)



2004 Form of Executive Severance Agreement (2007
    Form 10-K)(10)(h)

1-9513

(10)(f)



2004 Form of Officer Severance Agreement (2007
    Form 10-K)(10)(i)

1-9513

(10)(g)



2004 Form of
    Change-in-Control
    Agreement (2007
    Form 10-K)(10)(j)

1-9513

(10)(h)



CMS Energys Performance Incentive Stock Plan effective
    February 3, 1988, as amended June 1, 2004 and as
    further amended effective November 30, 2007 (2007
    Form 10-K)(10)(k)

1-9513

(10)(i)



CMS Deferred Salary Savings Plan effective December 1, 1989
    and as further amended effective December 1, 2007 (2007
    Form 10-K)(10)(l)







Amendment to the Deferred Salary Savings Plan dated
    December 21, 2008 CO-7




---



##### Table of Contents



Previously FiledWith File

As ExhibitExhibits

Number

Number



Description(10)(m)







Annual Officer Incentive Compensation Plan for CMS Energy
    Corporation and its Subsidiaries effective January 1, 2004,
    amended and restated effective as of January 1, 2008(10)(n)







Amendment to the Officers Incentive Compensation Plan
    dated December 21, 2008(10)(o)

1-9513

(10)(k)



Supplemental Executive Retirement Plan for Employees of CMS
    Energy/Consumers Energy Company effective January 1, 1982,
    as further amended December 1, 2007 (2007
    Form 10-K)(10)(p)







Amendment to the Defined Benefit Supplemental Executive
    Retirement Plan dated December 21, 2008(10)(q)

1-9513

(10)(l)



Defined Contribution Supplemental Executive Retirement Plan
    effective April 1, 2006 and as further amended effective
    December 1, 2007 (2007
    Form 10-K)(10)(r)







Amendment to the Defined Contribution Supplemental Executive
    Retirement Plan dated December 21, 2008(10)(s)







2009 Form of Change in Control Agreement(10)(t)







2009 Form of Officer Separation Agreement(10)(u)

1-9513

(10)(v)



Amended and Restated Investor Partner Tax Indemnification
    Agreement dated as of June 1, 1990 among Investor Partners,
    CMS Midland as Indemnitor and CMS Energy as Guarantor (1990
    Form 10-K)(10)(v)

1-9513

(10)(y)*



Environmental Agreement dated as of June 1, 1990 made by
    CMS Energy to The Connecticut National Bank and Others (1990
    Form 10-K)(10)(w)

1-5611

(10)(y)



Unwind Agreement dated as of December 10, 1991 by and among
    CMS Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc.,
    MEC Development Corp. and CMS Midland Holdings Company (1991
    Form 10-K)(10)(x)

1-5611

(10)(z)



Stipulated AGE Release Amount Payment Agreement dated as of
    June 1, 1990, among CMS Energy, Consumers and The Dow
    Chemical Company (1991
    Form 10-K)(10)(y)

1-5611

(10)(aa)*



Parent Guaranty dated as of June 14, 1990 from CMS Energy
    to MCV, each of the Owner Trustees, the Indenture Trustees, the
    Owner Participants and the Initial Purchasers of Senior Bonds in
    the MCV Sale Leaseback transaction, and MEC Development (1991
    Form 10-K)(10)(z)

1-8157

10.41



Contract for Firm Transportation of Natural Gas between
    Consumers Power Company and Trunkline Gas Company, dated
    November 1, 1989, and Amendment, dated November 1,
    1989 (1989
    Form 10-K
    of PanEnergy Corp.)(10)(aa)

1-8157

10.41



Contract for Firm Transportation of Natural Gas between
    Consumers Power Company and Trunkline Gas Company, dated
    November 1, 1989 (1991
    Form 10-K
    of PanEnergy Corp.)(10)(bb)

1-2921

10.03



Contract for Firm Transportation of Natural Gas between
    Consumers Power Company and Trunkline Gas Company, dated
    September 1, 1993 (1993
    Form 10-K)(10)(cc)

1-5611

(10)(a)



Asset Sale Agreement dated as of July 11, 2006 by and among
    Consumers Energy Company as Seller and Entergy Nuclear
    Palisades, LLC as Buyer (2nd qtr. 2006
    Form 10-Q)(10)(dd)

1-5611

(10)(b)



Palisades Nuclear Power Plant Power Purchase Agreement dated as
    of July 11, 2006 between Entergy Nuclear Palisades, LLC and
    Consumers Energy Company (2nd qtr. 2006
    Form 10-Q) CO-8




---



##### Table of Contents



Previously FiledWith File

As ExhibitExhibits

Number

Number



Description(10)(ee)

1-9513

99.2*



Letter of Intent dated January 31, 2007 between CMS
    Enterprises Company and Lucid Energy LLC
    (Form 8-K
    filed February 1, 2007)(10)(ff)

1-9513

99.2*



Agreement of Purchase and Sale, by and between CMS Enterprises
    Company and Abu Dhabi National Energy Company PJSC dated as of
    February 3, 2007
    (Form 8-K
    filed February 6, 2007)(10)(gg)

1-9513

99.2*



Memorandum of Understanding dated February 13, 2007 between
    CMS Energy Corporation and Petroleos de Venezuela, S.A.
    (Form 8-K
    filed February 14, 2007)(10)(hh)

1-9513

10.1*



Common Agreement dated March 12, 2007 between CMS
    Enterprises Company and Lucid Energy, LLC
    (Form 8-K
    filed March 14, 2007)(10)(ii)

1-9513

10.2*



Agreement of Purchase and Sale dated March 12, 2007 by and
    among CMS Enterprises Company, CMS Energy Investment, LLC, and
    Lucid Energy, LLC and Michigan Pipeline and Processing, LLC
    (Form 8-K
    filed March 14, 2007)(10)(jj)

1-9513

10.3*



Agreement of Purchase and Sale dated March 12, 2007 by and
    among CMS Enterprises Company, CMS Generation Holdings Company,
    CMS International Ventures, LLC, and Lucid Energy, LLC and New
    Argentine Generation Company, LLC
    (Form 8-K
    filed March 14, 2007)(10)(kk)

1-9513

10.1*



Agreement of Purchase and Sale dated as of March 30, 2007
    between CMS Energy Corporation and Petroleos de Venezuela, S.A.
    (Form 8-K
    filed April 5, 2007)(10)(ll)

1-9513

10.1*



Share Purchase Agreement dated as of April 12, 2007 by and
    among CMS Electric and Gas, L.L.C., CMS Energy Brasil S.A. and
    CPFL Energia S.A. together with CMS Energy Corporation (solely
    for the limited purposes of Section 8.9)
    (Form 8-K
    filed April 17, 2007)(10)(mm)

1-5611

99.2



Purchase and Sale Agreement by and between Broadway Gen Funding,
    LLC as Seller and Consumers Energy Company as Buyer dated as of
    May 24, 2007
    (Form 8-K
    filed May 29, 2007)(10)(nn)

1-9513

99.2*



Amended and Restated Securities Purchase Agreement by and among
    CMS International Ventures, L.L.C., CMS Capital L.L.C., CMS Gas
    Argentina Company and CMS Enterprises and AEI Chile Holdings LTD
    together with Ashmore Energy International (for purposes of the
    Parent Guarantee) dated as of June 1, 2007
    (Form 8-K
    filed June 4, 2007)(10)(oo)

1-9513

99.3*



Stock Purchase Agreement by and among Hydra-Co Enterprises,
    Inc., HCO-Jamaica, Inc., and AEI Central America LTD together
    with Ashmore Energy International dated as of May 31, 2007
    (Form 8-K
    filed June 4, 2007)(10)(pp)

1-9513

99.1*



Securities Purchase Agreement by and among CMS International
    Ventures, L.L.C., CMS Capital, L.L.C., CMS Gas Argentina Company
    and CMS Enterprises Company and Pacific Energy LLC together with
    Empresa Nacional De Electricdad S.A. (for purposes of the Parent
    Guarantee) dated as of July 11, 2007
    (Form 8-K
    filed July 11, 2007)(10)(qq)

1-9513

(10)(a)*



Form of Indemnification Agreement between CMS Energy Corporation
    and its Directors, effective as of November 1, 2007 (3rd
    qtr. 2007
    Form 10-Q) CO-9




---



##### Table of Contents



Previously FiledWith File

As ExhibitExhibits

Number

Number



Description(10)(rr)

1-5611

(10)(b)



Form of Indemnification Agreement between Consumers Energy
    Company and its Directors, effective as of November 1, 2007
    (3rd qtr. 2007
    Form 10-Q)(10)(ss)

1-5611

10.1



$200 million Letter of Credit Reimbursement Agreement dated
    as of November 30, 2007 between Consumers Energy Company
    and the Bank of Nova Scotia
    (Form 8-K
    filed December 6, 2007)(10)(tt)







First Amendment to Reimbursement Agreement dated as of
    September 25, 2008(10)(uu)

1-5611

10.1



$150 million Revolving Credit Agreement dated as of
    September 11, 2008 among Consumers Energy Company, the
    Banks, Agent and an LC Issuer, Co-Syndication Agents, and
    Documentation Agent all as defined therein
    (Form 8-K
    filed September 16, 2008)(10)(vv)

1-5611

10(a)



Settlement Agreement and Amended and Restated Power Purchase
    Agreement between Consumers Energy Company and Midland
    Cogeneration Venture Limited Partnership (2nd qtr. 2008
    Form 10-Q)(10)(ww)







Receivables Purchase Agreement dated as of May 22, 2003
    among Consumers Receivables Funding II, LLC, Consumers
    Energy Company, Falcon Asset Securitization Corporation, The
    Financial Institutions from time to time parties hereto, as
    Financial Institutions, and Bank One, NA, as Administrative
    Agent, as amended by Amendment No. 1 dated as of
    August 18, 2003, Amendment No. 2 dated, as of
    October 10, 2003, Amendment No. 3 dated as of
    May 20, 2004, Amendment No. 4 dated, as of
    September 28, 2004, Amendment No. 5 dated as of
    May 19, 2005, Amendment No. 6 dated as of
    September 8, 2005, Amendment No. 7 dated as of
    December 22, 2005, Amendment No. 8 dated as of
    March 13, 2006, Amendment No. 9 dated as of
    May 18, 2006, Amendment No. 10 dated as of
    August 15, 2006, Amendment No. 11 dated as of
    May 18, 2007, Amendment No. 12 dated as of
    August 14, 2007, Amendment No. 13 dated as of
    August 12, 2008, Amendment No. 14 dated as of
    November 5, 2008, and Amendment No. 15 dated as of
    February 12, 2009(10)(xx)







Receivables Sale Agreement, dated as of May 22, 2003,
    between Consumers Energy Company, as Originator and Consumers
    Receivables Funding II, LLC, as Buyer, as amended by Amendment
    No. 1 dated as of May 20, 2004 and as amended by
    Amendment No. 2 dated as of August 15, 2006(12)(a)







Statement regarding computation of CMS Energys Ratio of
    Earnings to Fixed Charges and Combined Fixed Charges and
    Preferred Dividends(12)(b)







Statement regarding computation of Consumers Ratio of
    Earnings to Fixed Charges and Combined Fixed Charges and
    Preferred Dividends(16)(a)

1-9513

16.1



Letter from Ernst & Young to the Securities and
    Exchange Commission dated January 25, 2007
    (Form 8-K
    filed January 25, 2007)(16)(b)

1-9513

16.1



Letter from Ernst & Young to the Securities and
    Exchange Commission dated February 28, 2007
    (Form 8-K
    filed February 28, 2007)(21)







Subsidiaries of CMS Energy and Consumers CO-10




---



##### Table of Contents



Previously FiledWith File

As ExhibitExhibits

Number

Number



Description(23)(a)







Consent of PricewaterhouseCoopers LLP for CMS Energy(23)(b)







Consent of Ernst & Young LLP for CMS Energy(23)(c)







Consent of PricewaterhouseCoopers LLP for CMS Energy re: MCV(23)(d)







Consent of PricewaterhouseCoopers LLP for Consumers Energy(23)(e)







Consent of Ernst & Young LLP for Consumers Energy(23)(f)







Consent of PricewaterhouseCoopers LLP for Consumers Energy re:
    MCV(24)(a)







Power of Attorney for CMS Energy(24)(b)







Power of Attorney for Consumers(31)(a)







CMS Energys certification of the CEO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(31)(b)







CMS Energys certification of the CFO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(31)(c)







Consumers certification of the CEO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(31)(d)







Consumers certification of the CFO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(32)(a)







CMS Energys certifications pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002(32)(b)







Consumers certifications pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002     *
    
    Obligations of only CMS Energy but not of Consumers.   CO-11




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  CMS
    Energy  Parent Company
  Condensed Statements
    of Income (Loss)
  Years Ended December 31

2008


2007


2006In MillionsDividends from Consolidated Subsidiaries

$
1,247


$
251


$
147Operating ExpensesDepreciation and amortization


(3
)


(3
)


(3
)Gain on asset sales, net






81



Shareholder class action settlement










(125
)Other operating income (deductions)


(5
)


(10
)


13(8
)


68



(115
)Total Operating Income


1,239



319



32Other Income (Deductions)Equity in undistributed earnings of subsidiaries


(814
)


(393
)


(55
)Interest income


1



3



Other deductions


(4
)


(24
)


(6
)(817
)


(414
)


(61
)Fixed ChargesInterest on long-term debt


119



144



156Interest on preferred securities


14



14



14Intercompany interest expense and other


48



70



24181



228



194Income (Loss) Before Income Taxes


241



(323
)


(223
)Income Tax Benefit


(59
)


(138
)


(155
)Income (Loss) From Continuing Operations


300



(185
)


(68
)Loss From Discontinued Operations






(30
)


(11
)Net Income (Loss)


300



(215
)


(79
)Preferred Dividends


11



11



11Redemption Premium on Preferred Stock






1



Net Income (Loss) Available to Common Stockholders

$
289


$
(227
)

$
(90
)    CO-12




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  CMS
    Energy  Parent Company
  Statements of Cash
    Flows
  Years Ended December 31

2008


2007


2006In MillionsCash Flows From Operating ActivitiesNet income (loss)

$
300


$
(215
)

$
(79
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Loss (earnings) of equity method subsidiaries


(433
)


142



(92
)Dividends received from subsidiaries


1,247



251



147Depreciation and amortization


3



3



3Gain on sale of assets






(81
)


Shareholder class action settlement expense










125Decrease (increase) in accounts receivable






11



(2
)Increase (decrease) in accounts payable


(2
)


(3
)


2Shareholder class action settlement payment






(125
)


Change in other assets and liabilities


(60
)


(58
)


2Net cash provided by (used in) operating activities


1,055



(75
)


106Cash Flows From Investing ActivitiesInvestment in subsidiaries


(22
)


(660
)


(216
)Changes in notes receivable, net






42



(15
)Net cash used in investing activities


(22
)


(618
)


(231
)Cash Flows From Financing ActivitiesProceeds from bank loans and notes


665



400



Proceeds from issuance of common stock


9



15



8Retirement of bank loans and notes


(570
)


(958
)


(75
)Redemption of preferred stock


(1
)


(1
)


Payment of common stock dividends


(82
)


(45
)


Payment of preferred stock dividends


(11
)


(11
)


(11
)Debt issuance costs and financing fees






(1
)


(5
)Changes in notes payable, net


(1,043
)


1,294



208Net cash provided by (used in) financing activities


(1,033
)


693



125Net Change in Cash and Temporary Cash Investments

$



$



$
Cash and Temporary Cash Investments, Beginning of Period

$



$



$
Cash and Temporary Cash Investments, End of Period

$



$



$
    CO-13




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  CMS
    Energy  Parent Company
  Condensed Balance
    Sheets
  December 31

2008


2007In MillionsAssetsProperty, Plant and Equipment, at cost

$
16


$
16Less accumulated depreciation


(15
)


(12
)1



4Investment in Subsidiaries


4,913



5,593Current AssetsCash and temporary cash investments






Notes and accrued interest receivable


1



1Accrued taxes receivable


41



Accounts receivable, including intercompany and related parties


4



4Deferred income taxes


5



6151



66Non-current AssetsDeferred income taxes


348



320Other investment  SERP


16



22Other


40



81404



423Total Assets

$
5,369


$
6,086    CO-14




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  CMS
    Energy  Parent Company
  Condensed Balance
    Sheets
  December 31

2008


2007In MillionsStockholders Investment and LiabilitiesCapitalizationCommon stockholders equity

$
2,463


$
2,130Nonredeemable preferred stock


243



250Long-term debtSenior Notes


1,808



1,564Related Party


178



178Unamortized Discount


(4
)


(5
)4,688



4,117Current LiabilitiesCurrent portion of long-term debt






150Accounts and notes payable, including intercompany and related
    parties


615



1,660Accrued interest, including intercompany


34



36Accrued taxes






97Other


11



5660



1,948Non-Current LiabilitiesPostretirement benefits


21



21Total Stockholders Investment and Liabilities

$
5,369


$
6,086    CO-15




---



##### Table of Contents



CMS ENERGY
    CORPORATION
  SCHEDULE I 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  CMS
    Energy  Parent Company
  Notes to Condensed
    Financial Statements
  1:
    Summary
    of Significant Accounting Policies  Corporate Structure and Basis of Presentation:
  Use of Estimates:
  2:
    Contingencies  Securities Class Action Lawsuits:
  3:
    Financings      Payments Due2009


2010


2011


2012


2013(In Millions)Long-term debt and long-term debt  related parties

$



$
300


$
300


$
255


$
150    CO-16




---



##### Table of Contents



4:
    Related
    Party Transactions  Common Stock:
  Cash Dividends Paid:
  2008


2007


2006(In Millions)Dividends:Consumers Energy

$
297


$
251


$
147Enterprises


950







Total

$
1,247


$
251


$
147   5:
    Guaranty   CO-17




---



##### Table of Contents



CMS ENERGY
    CORPORATION
    SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
    AND RESERVES
    YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
  Balance at


Charged


Charged/Accrued





BalanceBeginning


to


to other





at EndDescription

of Period


Expense


Accounts


Deductions


of Period(In Millions)Accumulated provision for uncollectible accounts:2008

$
21


$
51


$



$
46


$
262007

$
25


$
37


$
7


$
34


$
212006

$
25


$
30


$



$
30


$
25Deferred tax valuation allowance:2008

$
32


$



$
7


$
7


$
322007

$
72


$



$
81


$
121


$
322006

$
10


$
31


$
42


$
11


$
72Allowance for notes receivable, including related parties:2008

$
33


$



$
1


$



$
342007

$
101


$



$
1


$
69


$
332006

$
49


$
55


$
1


$
4


$
101   CONSUMERS ENERGY
    COMPANY
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 YEARS ENDED
    DECEMBER 31, 2008, 2007 AND 2006
  Balance at


Charged


Charged/Accrued





BalanceBeginning


to


to other





at EndDescription

of Period


Expense


Accounts


Deductions


of Period(In Millions)Accumulated provision for uncollectible accounts:2008

$
16


$
47


$



$
39


$
242007

$
14


$
33


$



$
31


$
162006

$
13


$
30


$



$
29


$
14Deferred tax valuation allowance:2008

$



$



$



$



$
2007

$
15


$



$
8


$
23


$
2006

$



$
16


$



$
1


$
15  CO-18




---



##### Table of Contents



(This page
    intentionally left blank)
  CO-19




---



##### Table of Contents



SIGNATURES
      By
    /s/  David
    W. Joos       Signature

Title(i)

Principal executive officer:/s/  David
    W. JoosDavid
    W. Joos

President and Chief Executive Officer(ii)

Principal financial officer:/s/  Thomas
    J. WebbThomas
    J. Webb

Executive Vice President and Chief Financial Officer(iii)

Controller or principal accounting officer:/s/  Glenn
    P. BarbaGlenn
    P. Barba

Vice President, Controller and Chief Accounting Officer(iv)

A majority of the Directors:*Merribel
    S. Ayres

Director*Jon
    E. Barfield

Director*Richard
    M. Gabrys

Director*David
    W. Joos

Director*Philip
    R. Lochner, Jr.

Director*Michael
    T. Monahan

Director CO-20




---



##### Table of Contents



Signature

Title*Joseph
    F. Paquette, Jr.

Director*Percy
    A. Pierre

Director*Kenneth
    L. Way

Director*Kenneth
    Whipple

Director*John
    B. Yasinsky

Director*By

/s/  Thomas
    J. WebbThomas
    J. Webb,
    Attorney-in-Fact  CO-21




---



##### Table of Contents



SIGNATURES
      By
    /s/  David
    W. Joos       Signature

Title(i)

Principal executive officer:/s/  David
    W. JoosDavid
    W. Joos

Chief Executive Officer(ii)

Principal financial officer:/s/  Thomas
    J. WebbThomas
    J. Webb

Executive Vice President and
    Chief Financial Officer(iii)

Controller or principal accounting  officer:/s/  Glenn
    P. BarbaGlenn
    P. Barba

Vice President, Controller
    and Chief Accounting Officer(iv)

A majority of the Directors:*Merribel
    S. Ayres

Director*Jon
    E. Barfield

Director*Richard
    M. Gabrys

Director*David
    W. Joos

Director*Philip
    R. Lochner, Jr.

Director*Michael
    T. Monahan

Director*Joseph
    F. Paquette, Jr.

Director CO-22




---



##### Table of Contents



Signature

Title*Percy
    A. Pierre

Director*Kenneth
    L. Way

Director*Kenneth
    Whipple

Director*John
    B. Yasinsky

Director*By

/s/  Thomas
    J. WebbThomas
    J. Webb,
    Attorney-in-Fact  CO-23




---



##### Table of Contents



EXHIBITS
  CO-24




---



##### Table of Contents



CMS ENERGYS
    AND CONSUMERS EXHIBIT INDEX
  Exhibits



Description(3)(b)




CMS Energy Corporation Bylaws, amended and restated as of
    January 22, 2009(3)(d)




Consumers Energy Company Bylaws, amended and restated as of
    January 22, 2009(4)(f)




Certificate of Designation of 4.50% Cumulative Convertible
    Preferred Stock dated as of December 20, 2004, corrected
    February 27, 2006(10)(b)




Amendment No. 2 dated as of January 23, 2009 to
    $300 million CMS Energy Seventh Amended and Restated Credit
    Agreement(10)(l)




Amendment to the Deferred Salary Savings Plan dated
    December 21, 2008(10)(m)




Annual Officer Incentive Compensation Plan for CMS Energy
    Corporation and its Subsidiaries effective January 1, 2004,
    amended and restated effective as of January 1, 2008(10)(n)




Amendment to the Officers Incentive Compensation Plan
    dated December 21, 2008(10)(p)




Amendment to the Defined Benefit Supplemental Executive
    Retirement Plan dated December 21, 2008(10)(r)




Amendment to the Defined Contribution Supplemental Executive
    Retirement Plan dated December 21, 2008(10)(s)




2009 Form of Change in Control Agreement(10)(t)




2009 Form of Officer Separation Agreement(10)(tt)




First Amendment to Reimbursement Agreement dated as of
    September 25, 2008(10)(ww)




Receivables Purchase Agreement dated as of May 22, 2003
    among Consumers Receivables Funding II, LLC, Consumers
    Energy Company, Falcon Asset Securitization Corporation, The
    Financial Institutions from time to time parties hereto, as
    Financial Institutions, and Bank One, NA, as Administrative
    Agent, as amended by Amendment No. 1 dated as of
    August 18, 2003, Amendment No. 2 dated, as of
    October 10, 2003, Amendment No. 3 dated as of
    May 20, 2004, Amendment No. 4 dated, as of
    September 28, 2004, Amendment No. 5 dated as of
    May 19, 2005, Amendment No. 6 dated as of
    September 8, 2005, Amendment No. 7 dated as of
    December 22, 2005, Amendment No. 8 dated as of
    March 13, 2006, Amendment No. 9 dated as of
    May 18, 2006, Amendment No. 10 dated as of
    August 15, 2006, Amendment No. 11 dated as of
    May 18, 2007, Amendment No. 12 dated as of
    August 14, 2007, Amendment No. 13 dated as of
    August 12, 2008, Amendment No. 14 dated as of
    November 5, 2008, and Amendment No. 15 dated as of
    February 12, 2009(10)(xx)




Receivables Sale Agreement, dated as of May 22, 2003,
    between Consumers Energy Company, as Originator and Consumers
    Receivables Funding II, LLC, as Buyer, as amended by Amendment
    No. 1 dated as of May 20, 2004 and as amended by
    Amendment No. 2 dated as of August 15, 2006(12)(a)




Statement regarding computation of CMS Energys Ratio of
    Earnings to Fixed Charges and Combined Fixed Charges and
    Preferred Dividends(12)(b)




Statement regarding computation of Consumers Ratio of
    Earnings to Fixed Charges and Combined Fixed Charges and
    Preferred Dividends(21)




Subsidiaries of CMS Energy and Consumers(23)(a)




Consent of PricewaterhouseCoopers LLP for CMS Energy(23)(b)




Consent of Ernst & Young LLP for CMS Energy(23)(c)




Consent of PricewaterhouseCoopers LLP for CMS Energy re: MCV(23)(d)




Consent of PricewaterhouseCoopers LLP for Consumers Energy(23)(e)




Consent of Ernst & Young LLP for Consumers Energy(23)(f)




Consent of PricewaterhouseCoopers LLP for Consumers Energy re:
    MCV(24)(a)




Power of Attorney for CMS Energy(24)(b)




Power of Attorney for Consumers(31)(a)




CMS Energys certification of the CEO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(31)(b)




CMS Energys certification of the CFO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(31)(c)




Consumers certification of the CEO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 CO-25




---



##### Table of Contents



Exhibits



Description(31)(d)




Consumers certification of the CFO pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002(32)(a)




CMS Energys certifications pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002(32)(b)




Consumers certifications pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002  CO-26