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ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES




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ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR OFFICERS OF CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES
 I.
    
    GENERAL PROVISIONS
 1.1
    
    Purpose.The purpose of the Annual Officer Incentive Compensation Plan
(Plan) is to:
 (a)
    
    Provide an equitable and competitive level of compensation that will
permit CMS Energy Corporation (Company) and its subsidiaries to attract, retain
and motivate highly competent Officers.(b)
    
    No payments to Officers in the form of incentive compensation shall
be made unless pursuant to a plan approved by the Committee on Compensation and
Human Resources of the Board of Directors of CMS Energy (the Committee) and
after express approval of the Committee.
 1.2
    
    Effective Date. The initial effective date of the Plan is January 1,
2004. The Plan, as described herein, is amended and restated effective as of January
1, 2007.1.3
    
    Definitions. As used in this Plan, the following terms have the
meaning described below:
 (a)
    
    Adjusted Net Income means generally accepted accounting practices
income excluding asset sale cost, accounting changes, large restructuring and
severance, legal and settlement cost for round-trip trading and gas price
reporting, regulatory recovery for prior year changes, mark to mark greater than
+/- $.05 of budget, and early debt retirement option premiums.(b)
    
    Annual Award means an annual incentive award granted under the
Plan.(c)
    
    Base Salary means the base salary on January 1 of a Performance
Year, except as impacted by a Change in Status as defined in Article V. For
purposes of the Plan, an Officers Base Salary must be subject to annual review
and annual approval by the Committee.(d)
    
    CMS Energy means CMS Energy Corporation.(e)
    
    Code means the Internal Revenue Code of 1986, as amended.(f)
    
    Code Section 162(m) Employee means an employee whose compensation
is subject to the Million Dollar Cap under Code Section 162(m). Generally, this
is the CEO and the three highest paid executive officers of the Company (other
than the CEO and the CFO).
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(g)
    
    Committee means the Committee on Compensation and Human Resources
of the Board of Directors of CMS Energy Corporation.(h)
    
    Company means CMS Energy Corporation.(i)
    
    Corporate Free Cash Flow (CFCF) means CMS Consolidated Cash Flow
from operating activities, excluding restricted cash flow, common dividends,
financing and adjusted for GCR Recovery.(j)
    
    Deferred Annual Award means the amount deferred by an Officer
pursuant to Section 4.2(k)
    
    Disability means that a participant has terminated employment with
the Company or a Subsidiary and is disabled, as that term is defined under Code
Section 409A and any applicable regulations.(l)
    
    Earnings Per Share (EPS) means the amount of adjusted net income
per outstanding CMS Energy Share.(m)
    
    GCR Recovery means actual/forecast incremental GCR recovery during
January and February calculated as actual/forecast GCR cycle billed sales times
above budget GCR factor.(n)
    
    Leave of Absence for purposes of this Plan means a leave of absence
that has been approved by the Plan Administrator.(o)
    
    Officer means an employee of the Company or a Subsidiary in Salary
Grade E-3 or higher.(p)
    
    Payment Event means the date a Deferred Annual Award may be paid
pursuant to Section 4.2.(q)
    
    Payment Term means the length of time for payment of a Deferred
Annual Award under Section 4.2.(r)
    
    Pension Plan means the Pension Plan for Employees of Consumers
Energy and Other CMS Energy Companies.(s)
    
    Performance Year means the calendar year prior to the year in which
an Annual Award is made by the Committee.(t)
    
    Plan Administrator means the Plan Administrator is the Benefits
Administration Committee appointed by the Chief Executive Officer and the Chief
Financial Officer as authorized by the Board of Directors.
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(u)
    
    Retirement means that a Plan participant is no longer an active
employee and qualifies for a retirement benefit other than a deferred vested
retirement benefit under the Pension Plan. For a participant ineligible for
coverage under the Pension Plan and covered instead under the Defined Company
Contribution Plan, retirement occurs when there is a Separation from Service on or
after age 55 with 5 or more years of service.(v)
    
    Separation from Service means an Employee retires or otherwise has
a separation from service from the Company as defined under Code Section 409A and
any applicable regulations. The Plan Administrator will determine, consistent
with the requirements of Code Section 409A and any applicable regulations, to what
extent a person on a leave of absence, including on paid sick leave pursuant to
Company policy, has incurred a Separation from Service.(w)
    
    Subsidiary means any direct or indirect subsidiary of the Company.
 1.4
    
    Eligibility.Officers are eligible for participation in the Plan.1.5
    
    Administration of the Plan.
 (a)
    
    The Plan is administered by the President and Chief Executive Officer
of CMS Energy under the general direction of the Committee.(b)
    
    The Committee, no later than March 30th of the Performance
Year, will approve performance goals for the Performance Year.(c)
    
    The Committee, no later than March 1stof the calendar
year following the Performance Year, will review for approval proposed Annual
Awards for all Officer participants, taking into account the recommendations of
the Chief Executive Officer of the Company. All proposed Annual Awards are
subject to approval of the Committee. Before the payment of any Annual Awards,
the Committee will certify in writing that the performance goals were in fact
satisfied in accordance with Code Section 162(m).(d)
    
    The Committee reserves the right to modify the performance goals with
respect to unforeseeable circumstances or otherwise exercise discretion with
respect to proposed Annual Awards as it deems necessary to maintain the spirit and
intent of the Plan, provided that such discretion will be to decrease or
eliminate, not increase, Annual Awards in the case of any Code Section 162(m)
Employees. The Committee also reserves the right in its discretion to not pay
Annual Awards for a Performance Year. All decisions of the Committee are final.
 II.
    
    CORPORATE PERFORMANCE GOALS
 2.1
    
    In General.The composite Plan Performance Factor will depend on
corporate performance in two areas: (1) the adjusted net income per outstanding CMS
Energy
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share (EPS); and (2) the Corporate Free Cash Flow of CMS Energy (CFCF). Each Component
as well as the composite Plan Performance Factor to be used for payouts will be capped
at a maximum of 200%. A table containing the composite Plan Performance Factors shall
be created by the Committee for each Performance Year. The table for Performance Year
2007 is set forth below.
 (a)
    
    EPS Component.EPS performance shall constitute 50% of the
composite Plan Performance Factor. The 100% EPS goal for the 2007 performance
year is $.85 per share, and the EPS component shall increase or decrease by 25%
for each $.05 per share change in performance. (Mathematical extrapolation shall
be used for actual results not shown in the table.) There will be no payout under
the EPS Component unless at least $.80 per share is achieved.(b)
    
    CFCF Component. CFCF performance shall constitute 50% of
composite Plan Performance Factor. The 100% CFCF goal for the 2007 performance
year is $1,250 million, and the CFCF component shall decrease by 1% for each $2
million change in performance. The CFCF component shall increase by 1% for each $2
million increase in performance from $1,250 million. (Mathematical extrapolation
shall be used for actual results not shown in the table.) There will be no payout
under the CFCF component unless at least $1,150 million is achieved.
 Composite Performance Factors for 2007 Performance Year
 CFCFComponent(Millions)
    
    <$1150
    
    $1150
    
    $1200
    
    $1250
    
    $1300
    
    $1350
    
    $1400
    
    $1450EPSComponent$.79
    
    No Payout
    
    
    25
    %
    
    
    38
    %
    
    
    50
    %
    
    
    63
    %
    
    
    75
    %
    
    
    88
    %
    
    
    100
    %$.80
    
    
    38
    %
    
    
    63
    %
    
    
    75
    %
    
    
    88
    %
    
    
    100
    %
    
    
    113
    %
    
    
    125
    %
    
    
    138
    %$.85
    
    
    50
    %
    
    
    75
    %
    
    
    88
    %
    
    
    100
    %
    
    
    113
    %
    
    
    125
    %
    
    
    138
    %
    
    
    150
    %$.90
    
    
    63
    %
    
    
    88
    %
    
    
    100
    %
    
    
    113
    %
    
    
    125
    %
    
    
    138
    %
    
    
    150
    %
    
    
    163
    %$.95
    
    
    75
    %
    
    
    100
    %
    
    
    113
    %
    
    
    125
    %
    
    
    138
    %
    
    
    150
    %
    
    
    163
    %
    
    
    175
    %$1.00
    
    
    88
    %
    
    
    113
    %
    
    
    125
    %
    
    
    138
    %
    
    
    150
    %
    
    
    163
    %
    
    
    175
    %
    
    
    188
    %$1.05
    
    
    100
    %
    
    
    125
    %
    
    
    138
    %
    
    
    150
    %
    
    
    163
    %
    
    
    175
    %
    
    
    188
    %
    
    
    200
    %
 100% 200%
 III.
    
    ANNUAL AWARD FORMULA
 3.1
    
    Officers Annual Awards. Annual Awards for each eligible Officer will
be based upon a standard award percentage of the Officers Base Salary for the
Performance
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Year. The standard award percentages are set forth in the table below. The maximum
amount that can be awarded under this Plan for any Code Section 162(m) Employee will
not exceed $2.5 Million in any one Performance Year. The total amount of an Officers
Annual Award shall be computed according to the annual award formula set forth in
Section 3.2.
 Salary
    
    Std Award as aPosition
    
    Grade
    
    % of Base SalaryPresident & CEO
    
    
    E-9
    
    
    
    65
    %1President, Subsidiary  Ex Vice Pres
    
    
    E-7
    
    
    
    55
    %2President, Subsidiary  Ex Vice Pres
    
    
    E-6
    
    
    
    50
    %Senior Vice President
    
    
    E-5
    
    
    
    45
    %Vice President
    
    
    E-4
    
    
    
    40
    %Vice President
    
    
    E-3
    
    
    
    35
    %
 3.2
    
    Annual Awards for Officers will be calculated and made as follows:
 Individual Award = Base Salary timesStandard Award % times Performance Factor %
 In addition, each Annual Award for Officers of Consumers Energy Company will be
modified based on the results achieved for the Consumers Energy Annual Employee
Incentive Compensation Plan. If the Consumers Energy Annual Employee Incentive
Compensation Plan pays out an award for the same Performance Year, then there is no
modification of awards under this plan. If however, there is no award under the
Consumers Energy Annual Employee Incentive Compensation Plan, then whatever Annual
Award, if any, earned under this plan will be reduced by 25%.
 IV.
    
    PAYMENT OF ANNUAL AWARDS
 4.1
    
    Cash Annual Award.All Annual Awards for a Performance Year will be
paid in cash after certification by the outside auditors of the Company that the
performance goals have been satisfied, but not later than March 15th of the
calendar year following the Performance Year provided that the Annual Award for a
particular Performance Year has not been deferred voluntarily pursuant to Section 4.2.
The amounts required by law to be withheld for income and employment taxes will be
deducted from the Annual Award payments. All Annual Awards become the obligation of
the company on whose payroll the Officer is enrolled at the time the Committee makes
the Annual Award.
 4.2
    
    Deferred Annual Awards.
 (a)
    
    The payment of all or any portion (rounded to an even multiple of
10%) of a cash Annual Award may be deferred voluntarily at the election of an
individual
 
 1
    
    100% effective January 1, 20082
    
    60% effective January 1, 2008 5




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Plan participant. Any such deferral will be net of any applicable FICA or FUTA
taxes. A separate irrevocable election must be made prior to the Performance
Year. Any Annual Award made by the Committee after termination of employment of a
participant or retirement of a participant will be paid in accordance with any
deferral election made within the enrollment period.(b)
    
    At the time the participant makes a deferral election he or she must
select the payment options (including the Payment Event as set forth at (c) below
and the Payment Term as set forth at (d) below) applicable to the Deferred Annual
Award for the Performance Year, as well as any earnings or income attributable to
such amounts. The payment options elected will apply only to that years Deferred
Annual Award and will not apply to any previous Deferred Annual Award or to any
subsequent Deferred Annual Award. Any participant who elects to defer all or a
portion of an Annual Award and who fails to select a Payment Event or a Payment
Term will be presumed to have elected a Payment Event of Separation from Service
in accordance with paragraph (c)(i) below and/or a Payment Term of a single sum.(c)
    
    The Payment Event elected can be either:
 (i)
    
    Separation from Service for any reason other than death.
Payment will be made, or begin, in the later of: (1) January of the year
following the year of the Separation from Service; or (2) the seventh month
after the month of the Separation from Service. Later installments, if any,
will be paid in January of the succeeding years;(ii)
    
    Payment upon attainment of a date certain that is more than
1 year after the last day of the applicable Performance Year. Later
installments, if any, will be paid in January of the succeeding years; or(iii)
    
    The earlier of (i) or (ii) above.
 (d)
    
    Payment Term. At the time of electing to defer an Annual Award, the
participant must also elect how he or she wishes to receive any such payment from
among the following options (the participant may elect a separate Payment Term for
each Payment Event elected):
 (i)
    
    Payment in a single sum upon occurrence of the Payment
Event.(ii)
    
    Payment of a series of annual installment payments over a
period from two (2) years to fifteen (15) years following the Payment Event.
Each installment payment shall be equal to a fractional amount of the balance
in the account the numerator of which is one and the denominator of which is
the number of installment payments remaining. Although initially such
installment payments will be identical, actual payments may vary based
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upon investment performance. For example, a series of 5 installment
payments will result in a payout of 1/5 of the account balance in the first
installment, 1/4 of the account balance (including investment gains or
losses since the first installment date) in the second installment, etc.
 (e)
    
    Changes to Payment Options. Once a payment option has been elected,
subsequent changes which would accelerate the receipt of benefits from the Plan
are not permitted, except that the Plan Administrator may at its discretion
accelerate payments to the extent permitted by Code Section 409A and applicable
regulations. A subsequent election to change the payment options related to a
Payment Event, in order to delay a payment or to change the form of a payment, can
only be made when all of the following conditions are satisfied:
 (i)
    
    such election may not take effect until at least 12 months
after the date on which the election is made;(ii)
    
    the payment(s) with respect to which such election is made
is deferred for a period of not less than 5 years from the date such payment
would otherwise have been made (or, in the case of installment payments under
Section 4.2(d)(ii), 5 years from the date the first installment was scheduled
to be paid); and(iii)
    
    such election must be made not less than 12 months before
the date the payment was previously scheduled to be made (or, in the case of
installment payments under Section 4.2(d)(ii), 12 months before the first
installment was scheduled to be paid), if the participants previous
commencement date was a specified date.
 (f)
    
    Investments. At the time of electing to voluntarily defer payment,
the participant must elect how the Deferred Annual Award will be treated by the
Company or Subsidiary. To the extent that any amounts deferred are placed in a
rabbi trust with an independent record keeper, a participant who has previously
deferred amounts under this Plan will automatically have his or her existing
investment profile apply to this deferral also. All determinations of the
available investment options by the Plan Administrator are final and binding upon
participants. A participant may change the investment elections at anytime prior
to the payment of the benefit, subject to any restrictions imposed by the Plan
Administrator, the Benefit Administration Committee, the plan record keeper or by
any applicable laws and regulations. A participant not making an election will
have amounts deferred treated as if in a Lifestyle Fund applicable to the
participants age 65, rounded up, or such other investment as determined by the
Benefit Administration Committee. All gains and losses will be based upon the
performance of the investments selected by the participant from the date the
deferral is first credited to the nominal account. If the Company elects to fund
its obligation as discussed below, then investment performance will be based on
the balance as determined by the record keeper.
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(g)
    
    The amount of any Deferred Annual Award is to be satisfied from the
general corporate funds of the company on whose payroll the Plan participant was
enrolled prior to the payout beginning and are subject to the claims of general
creditors. This is an unfunded nonqualified deferred compensation plan. To the
extent the Committee elects to place funds with a trustee to pay its future
obligations under this Plan, such amounts are placed for the convenience of the
Company or Subsidiary, remain the property of the Company or Subsidiary and the
participant shall have no right to such funds until properly paid in accordance
with the provisions of this Plan. For administrative ease and convenience, such
amounts may be referred to as participant accounts, but as such are a notional
account only and are not the property of the participant. Such amounts remain
subject to the claims of the creditors of the Company or Subsidiary.(h)
    
    Payment in the Event of an Unforeseeable Emergency. The participant
may request that payments commence immediately upon the occurrence of an
unforeseeable emergency as that term is defined in Code Section 409A and any
applicable regulations. Generally, an unforeseeable emergency is a severe
financial hardship resulting from an illness or accident of the participant or the
participants spouse or dependent, loss of the participants property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the participant. A distribution on
account of unforeseeable emergency may not be made to the extent that such
emergency is or may be relieved through reimbursement or compensation from
insurance or otherwise, by liquidation of the participants assets (without
causing severe financial hardship), or by cessation of deferrals under this
arrangement, the Savings Plan for Employees of Consumers Energy and other CMS
Energy Companies (the Savings Plan) or other arrangements. Distributions because
of an unforeseeable emergency shall not exceed the amount permitted under Section
409A and accordingly are limited to the amount reasonably necessary to satisfy the
emergency need (after use of insurance proceeds, liquidation of assets, etc.) plus
an amount to pay taxes reasonably anticipated as a result of the distribution. In
the event any payment is made due to an unforeseeable emergency, all deferral
elections for the current Performance Year will cease and the participant will not
be eligible to make any deferral elections under this Plan for the following
Performance Year. For any participant receiving a hardship withdrawal under the
Savings Plan, all deferral elections under this Plan for the current Performance
Year will cease and the participant will not be eligible to make any deferral
elections under this Plan for the following Performance Year.
 4.3
    
    Payment in the Event of Death.
 (a)
    
    A participant may name the beneficiary of his or her choice on a
beneficiary form provided by the Company or record keeper, and the beneficiary
shall
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receive, within 90 days of the participants death, in a single sum, all payments
credited to the participant in the event that the participant dies prior to
receipt of either a cash Annual Award or Deferred Annual Awards. If a beneficiary
is not named or does not survive the participant, the payment will be made to the
participants estate. In no event may any recipient designate a year of payment
for an amount payable upon the death of the participant.
 (b)
    
    A participant may change beneficiaries at any time, and the change
will be effective as of the date the plan record keeper or Company accepts the
form as complete. Neither the Company nor the applicable Subsidiary will be
liable for any payments made before receipt and acceptance of a written
beneficiary request.
 V.
    
    CHANGE OF STATUSPayments in the event of a change in status will not be made if no Annual Awards are made
for the Performance Year.
 5.1
    
    Pro-Rata Annual Awards.A new Officer, whether hired or promoted to
the position, or an Officer promoted to a higher salary grade during the Performance
Year will receive a pro rata Annual Award based on the percentage of the Performance
Year in which the employee is in a particular salary grade. An Officer whose salary
grade has been lowered, but whose employment is not terminated, during the Performance
Year will receive a pro rata Annual Award based on the percentage of the Performance
Year in which the employee is in a particular salary grade.5.2
    
    Termination. An Officer whose employment is terminated pursuant to a
violation of the Company code of conduct or other corporate policies will not be
considered for or receive an Annual Award.5.3
    
    Resignation. An Officer who resigns prior to payment (during or after
a Performance Year) will not be eligible for an Annual Award. If the resignation is
due to reasons such as a downsizing or reorganization, or the ill health of the Officer
or ill health in the immediate family, the Officer may petition the Committee and may
be considered, in the discretion of the Committee, for a pro rata Annual Award. The
Committees decision to approve or deny the request for a pro rata Annual Award shall
be final.5.4
    
    Death, Disability, Retirement, Leave of Absence. An Officer whose
status as an active employee is changed during the Performance Year due to death,
Disability, Retirement, or Leave of Absence will receive a pro rata Annual Award. An
Officer who retires, is on disability or leave of absence and who becomes employed by a
competitor of CMS Energy or Consumers Energy or their subsidiaries or affiliates prior
to award payout will forfeit all rights to an Annual Award, unless prior approval of
such employment has been granted by the Committee. A competitor
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shall mean an entity engaged in the business of (1) selling (a) electric power or
natural gas at retail or wholesale within the State of Michigan or (b) electric power
at wholesale within the market area in which an electric generating plant owned by a
subsidiary or affiliate of CMS Enterprises is located or (2) developing an electric
generating plant within the State of Michigan or a market area in which an electric
generating plant owned by a subsidiary or affiliate of CMS Enterprises is located.
 5.5
    
    Recoupment of Annual Awards.Annual Awards under the Plan are also
subject to recoupment pursuant to the CMS Energy Recoupment Policy Relating to
Financial Restatements.
 VI.
    
    MISCELLANEOUS
 6.1
    
    Impact on Benefit Plans.Payments made under the Plan will be
considered as earnings for the Supplemental Executive Retirement Plans (Salary Grades
E-3 through E-9) but not for purposes of the Savings Plan, Pension Plan, or other
employee benefit programs.6.2
    
    Impact on Employment. Neither the adoption of the Plan nor the
granting of any Annual Award under the Plan will be deemed to create any right in any
individual to be retained or continued in the employment of the Company or any
corporation within the Companys control group.6.3
    
    Termination or Amendment of the Plan.The Board of Directors of the
CMS Energy Corporation may amend or terminate the Plan at any time. Upon termination,
any amount accrued under the Plan will remain in the Plan and be paid out in accordance
with the payment options previously selected. Notwithstanding the foregoing, the Board
of Directors of CMS Energy Corporation may terminate the Plan and accelerate payment of
any deferred benefits under the Plan if it acts consistent in all respects with the
requirements of Code Section 409A and any applicable regulations with respect to when a
terminated plan may accelerate payment to a participant.6.4
    
    Governing Law. The Plan will be governed and construed in accordance
with the laws of the State of Michigan.6.5
    
    Dispute Resolution. Any disputes related to the Plan must be brought
to the Plan Administrator. The Plan Administrator is granted full discretionary
authority to apply the terms of the Plan, make administrative rulings, interpret the
Plan and make any other determinations with respect to the Plan. If the Plan
Administrator makes a determination and the participant disagrees with or wishes to
appeal the determination, the participant must appeal the decision to the Plan
Administrator, in writing and not later than 60 days from when the determination was
mailed to the participant. If the participant does not timely appeal the original
determination, the participant has no further rights under the Plan with respect to the
matter presented in the claim. If the participant appeals the original determination
and that appeal does not result in a mutually agreeable resolution, then the dispute
shall be subject to
 10




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final and binding arbitration before a single arbitrator selected by the parties to be
conducted in Jackson, Michigan, provided the participant makes such request for
arbitration in writing within 30 days of the final decision by the Plan Administrator.
The arbitration will be conducted and finished within 90 days of the selection of the
arbitrator. The parties shall share equally the cost of the arbitrator and of
conducting the arbitration proceeding, but each party shall bear the cost of its own
legal counsel and experts and other out-of-pocket expenditures. The arbitrator must
use an arbitrary and capricious standard of review when considering any determinations
and findings by the Plan Administrator.
 VII.
    
    AMENDMENT TO REFLECT CODE SECTION 409A
 7.1
    
    Code Section 409A. This Plan has been amended, effective as of January
1, 2005, to comply with the requirements of Section 409A of the Code. To the extent
counsel determines additional amendments may be reasonable or desirable in order to
comply with Code Section 409A, and any other applicable rules, laws and regulations,
such changes shall be authorized with the approval of the Plan Administrator.
 ATTEST:
    
    
    
    CMS ENERGY CORPORATIONVice President and Secretary
    
    
    
    Chief Executive Officer
CMS Energy and Consumers Energy
  11