CONSUMERS ENERGY CO - Quarter Report: 2010 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission		Registrant; State of Incorporation;		IRS Employer
File Number		Address; and Telephone Number		Identification No.
1-9513		CMS ENERGY CORPORATION		38-2726431
		(A Michigan Corporation)
		One Energy Plaza, Jackson, Michigan 49201
		(517) 788-0550
1-5611		CONSUMERS ENERGY COMPANY		38-0442310
		(A Michigan Corporation)
		One Energy Plaza, Jackson, Michigan 49201
		(517) 788-0550

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 þ No o   Consumers Energy Company: Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

CMS Energy Corporation: Yes þ No o   Consumers Energy Company: Yes þ No o

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.

CMS Energy Corporation:

Large accelerated filer þ		Accelerated filer o		Non-Accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Consumers Energy Company:

Large accelerated filer o		Accelerated filer o		Non-Accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

CMS Energy Corporation: Yes o No þ   Consumers Energy Company: Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at October 19, 2010:

CMS Energy Corporation:

CMS Energy Common Stock, $0.01 par value					244,575,698

Consumers Energy Company:

Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation					84,108,789

 

 

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CMS Energy Corporation
Consumers Energy Company

Quarterly Reports on Form 10-Q to the Securities and Exchange Commission for the Period Ended
September 30, 2010

TABLE OF CONTENTS

		Page
Glossary			4
Filing Format			8
Forward-Looking Statements and Information			8
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
CMS Energy Corporation			34
Consumers Energy Company			42
Notes to Consolidated Financial Statements			49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures about Market Risk			88
Item 4. Controls and Procedures			88
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			88
Item 1A. Risk Factors			88
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			89
Item 3. Defaults Upon Senior Securities			89
Item 5. Other Information			89
Item 6. Exhibits			90
Signatures			92
EX-10.3
EX-10.4
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-31.3
EX-31.4
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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

2008 Energy Legislation		Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524
2009 Form 10-K		Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2009
ALJ		Administrative Law Judge
AOC		Administrative Order on Consent
AOCL		Accumulated Other Comprehensive Loss
ASU		FASB Accounting Standards Update
Bay Harbor		A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor.
bcf		Billion cubic feet of gas
Beeland		Beeland Group LLC, a wholly owned subsidiary of CMS Land
Big Rock		Big Rock Point nuclear power plant, formerly owned by Consumers
CAIR		The Clean Air Interstate Rule
Cantera Gas Company		Cantera Gas Company LLC, a non-affiliated company
Cantera Natural Gas, Inc.		Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services
CATR		Clean Air Transport Rule
CCB		Coal combustion by-product
CEO		Chief Executive Officer
CFO		Chief Financial Officer
CKD		Cement kiln dust
Clean Air Act		Federal Clean Air Act, as amended
Clean Water Act		Federal Water Pollution Control Act
CMS Capital		CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy
CMS Energy		CMS Energy Corporation, the parent of Consumers and CMS Enterprises
CMS Energy Trust I		A VIE and a wholly owned business trust formed for the sole purpose of issuing preferred securities and lending the proceeds to CMS Energy
CMS Enterprises		CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM		CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises
CMS Field Services		CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission
CMS Gas Transmission		CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises
CMS Land		CMS Land Company, a wholly owned subsidiary of CMS Capital

CMS MST		CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004
CMS Oil and Gas		CMS Oil and Gas Company, a former wholly owned subsidiary of CMS Enterprises
CMS Viron		CMS Viron Corporation, a wholly owned subsidiary of CMS ERM
Consumers		Consumers Energy Company, a wholly owned subsidiary of CMS Energy
Customer Choice Act		Customer Choice and Electricity Reliability Act, a Michigan statute
Detroit Edison		The Detroit Edison Company, a non-affiliated company
D.C.		District of Columbia
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010
DOE		U.S. Department of Energy
DOJ		U.S. Department of Justice
EnerBank		EnerBank USA, a wholly owned subsidiary of CMS Capital
Entergy		Entergy Corporation, a non-affiliated company
EPA		U.S. Environmental Protection Agency
EPS		Earnings per share
Exchange Act		Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FERC		The Federal Energy Regulatory Commission
FLI Liquidating Trust		Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity
FMB		First mortgage bond
FOV		Finding of Violation
GAAP		U.S. Generally Accepted Accounting Principles
GCR		Gas cost recovery
Genesee		Genesee Power Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest
Grayling		Grayling Generating Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest
GWh		Gigawatt-hour (a unit of energy equal to one million kilowatt-hours)
Health Care Acts		Comprehensive health care reform enacted in March 2010, comprising the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act
HYDRA-CO		HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises
IPP		Independent power producer or independent power production
IRS		Internal Revenue Service

ISFSI		Independent spent fuel storage installation
ITC		Income tax credit
kWh		Kilowatt-hour (a unit of energy equal to one thousand watt-hours)
LIBOR		The London Interbank Offered Rate
Ludington		Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison
Marathon		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 company
MD&A		Management’s Discussion and Analysis
MDL		A pending multi-district litigation case in Nevada
MDNRE		Michigan Department of Natural Resources and Environment, which, effective January 17, 2010, is the successor to the Michigan Department of Environmental Quality and the Michigan Department of Natural Resources
MGP		Manufactured gas plant
MISO		The Midwest Independent Transmission System Operator, Inc.
MPSC		Michigan Public Service Commission
MW		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 value
NOMECO		CMS NOMECO Oil & Gas Co., a former wholly owned subsidiary of CMS Enterprises
NOV		Notice of Violation
NREPA		Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation
NSR		New Source Review, a construction-permitting program under the Clean Air Act
NYMEX		The New York Mercantile Exchange
OPEB		Postretirement benefit plans other than pensions
Palisades		Palisades nuclear power plant, formerly owned by Consumers
Panhandle		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 Transmission
PCB		Polychlorinated biphenyl
Pension Plan		Trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers, and CMS Energy
PFD		Proposal for decision
PPA		Power purchase agreement
PSCR		Power supply cost recovery
PSD		Prevention of Significant Deterioration
QSPE		Qualifying special-purpose entity
REC		Renewable energy credit established under the 2008 Energy Legislation
RMRR		Routine maintenance, repair, and replacement

ROA		Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act
SEC		U.S. Securities and Exchange Commission
SERP		Supplemental Executive Retirement Plan
SFAS		Statement of Financial Accounting Standards
Superfund		Comprehensive Environmental Response, Compensation and Liability Act
Supplemental 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 perform
T.E.S. Filer City		T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest
Title V		A federal program under the Clean Air Act designed to standardize air quality permits and the permitting process for major sources of emissions across the U.S.
Trunkline		Trunkline Gas Company, LLC, a former wholly owned subsidiary of CMS Panhandle Holding, LLC
Trust 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 trusts
TSU		Texas Southern University, a non-affiliated entity
Union		Utility Workers Union of America, AFL-CIO
U.S.		United States
VIE		Variable interest entity
XBRL		eXtensible Business Reporting Language
Zeeland		A 935 MW gas-fueled power plant located in Zeeland, Michigan

FILING FORMAT

This combined Form 10-Q is separately filed by CMS Energy and Consumers. Information in this combined Form 10-Q relating to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ securities and holders of such securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities. Similarly, none of Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.

This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A included in the 2009 Form 10-K.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-Q and other written and oral statements that CMS Energy and Consumers make may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include CMS Energy’s and Consumers’ inability to predict or control the following, all of which are potentially significant:

	•		the price of CMS Energy common stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry;
	•		the impact of the troubled economy, particularly in Michigan, and the risk of future volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their:

	•		revenues;
	•		capital expenditure programs and related earnings growth;
	•		ability to collect accounts receivable from customers;
	•		cost of capital and availability of capital; and
	•		Pension Plan and postretirement benefit plans assets and required contributions;

•

changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;

	•		population decline in the geographic areas where CMS Energy and Consumers conduct business;
	•		changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s and Consumers’ businesses or financial results, including the impact of any future regulations or laws regarding:

	•		carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system;
	•		criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants, including impacts of the CAIR and CATR;
	•		CCBs;
	•		PCBs;
	•		cooling water discharge from power plants or other industrial equipment;
	•		limitations on the use or construction of coal-fueled electric power plants;
	•		renewable portfolio standards and energy efficiency mandates;
	•		energy-related derivatives and hedges under the Dodd-Frank Act; and
	•		any other potential legislative changes, including changes to the ten-percent ROA limit;

	•		national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;
	•		effects of shareholder activity, which is permitted or may be permitted under the Dodd-Frank Act, new SEC interpretations, and related legislative or regulatory changes;
	•		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 those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;
	•		potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including:

•

sufficient and timely recovery of:

	•		environmental and safety-related expenditures for coal-fueled plants and other utility properties;
	•		power supply and natural gas supply costs;
	•		operating and maintenance expenses;
	•		additional utility rate-based investments;
	•		costs associated with the proposed retirement and decommissioning of facilities;
	•		development costs of the proposed coal-fueled plant;
	•		MISO energy and transmission costs; and
	•		costs associated with energy efficiency investments and state or federally mandated renewable resource standards;

	•		actions of regulators with respect to expenditures subject to tracking mechanisms;
	•		actions of regulators to prevent or curtail shutoffs for non-paying customers;
	•		actions of regulators with respect to the implementation of the pilot decoupling mechanism and an uncollectible expense tracking mechanism described in the November 2009 MPSC electric rate case order and the pilot decoupling mechanism described in the May 2010 MPSC gas rate case order;
	•		regulatory orders preventing or curtailing rights to self-implement rate requests;

	•		regulatory orders potentially requiring a refund of previously self-implemented rates; and
	•		implementation of new energy legislation or revisions of existing regulations;

	•		potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times;
	•		loss of customer load to alternative energy suppliers;
	•		potentially adverse regulatory treatment concerning significant matters affecting CMS Energy or Consumers that are presently before the MDNRE, including Bay Harbor;
	•		the ability of Consumers to recover its regulatory assets in full and in a timely manner;
	•		the effectiveness of the electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues;
	•		the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE;
	•		the impact of expanded enforcement powers and investigation activities at FERC;
	•		federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions;
	•		effects of weather conditions, such as unseasonably warm weather during the winter, on sales;
	•		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;
	•		the impact of credit markets, economic conditions, and any new banking regulations on EnerBank;
	•		potential effects of the Dodd-Frank Act on regulation of financial institutions such as EnerBank;
	•		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, and the ability of Consumers to recover the costs of any such insurance from customers;
	•		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 CMS Energy’s and Consumers’ cash flows and working capital;
	•		the effectiveness of CMS Energy’s and Consumers’ strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities;

	•		changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program;
	•		factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction, permitting, and government approvals;
	•		costs and availability of personnel, equipment, and materials for operating and maintaining existing facilities;
	•		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;
	•		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;
	•		the impact of an accident, explosion, or other physical disaster involving Consumers’ high- or low-pressure gas pipelines, overhead or underground electrical lines, or other utility infrastructure;
	•		technological developments in energy production, delivery, usage, and storage;
	•		achievement of capital expenditure and operating expense goals, including the 2010 capital expenditures forecast;
	•		the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections;
	•		potential effects of the Health Care Acts on existing or future health care costs;
	•		the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures;
	•		CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages;
	•		adverse outcomes regarding tax positions;
	•		adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including the F.T. Barr matter and claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions;
	•		the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims;
	•		earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts;
	•		changes in financial or regulatory accounting principles or policies, including possible changes to rules involving fair value accounting;

	•		new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements;
	•		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; and
	•		other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.

For additional details regarding these and other uncertainties, see the “Outlook” section included in MD&A, Note 3, Contingencies and Commitments, Note 4, Utility Rate Matters, Note 10, Income Taxes, and Part II, Item 1A. Risk Factors.

CMS Energy Corporation
Consumers Energy Company

MANAGEMENT’S DISCUSSION AND ANALYSIS

This MD&A is a combined report of CMS Energy and Consumers. It has been prepared in accordance with the instructions to Form 10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction with MD&A contained in the 2009 Form 10-K.

EXECUTIVE OVERVIEW

CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic IPP. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, owns power generation facilities.

CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.

CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services, electric distribution and generation, gas transmission, storage, and distribution, and other energy-related services. Their businesses are affected primarily by:

	•		regulation and regulatory matters;
	•		economic conditions;
	•		weather;
	•		energy commodity prices;
	•		interest rates; and
	•		CMS Energy’s and Consumers’ securities credit ratings.

During the past several years, CMS Energy’s business strategy has emphasized improving its consolidated balance sheet and maintaining focus on its core strength, which is Consumers’ utility operations and service.

In August 2010, CMS Energy announced that it would reduce its planned capital investments by $1 billion over the next five years, which will moderate future rate increases to Consumers’ customers. Consumers still expects to make capital investments of more than $6 billion over the next five years, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency; demand management; expanded use of renewable energy; development of new power plants; pursuit of additional PPAs to complement existing generating sources; potential retirement or mothballing of older generating units; and continued operation of others.

In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession in Michigan, forecasted lower natural gas prices due to recent

developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers has not set a timetable for a future decision about the project.

Consumers’ planned capital investments continue to include renewable energy projects. Consumers expects to spend $650 million on renewable energy investments through 2014. The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. In compliance with this legislation, Consumers filed a renewable energy plan with the MPSC in February 2009 outlining its plans to build or contract for additional renewable energy capacity. At the same time, Consumers filed an energy optimization plan, also called for by the 2008 Energy Legislation, under which Consumers will promote energy efficiency and provide incentives to reduce customer usage. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan. As one of the conditions to the continuation of the electric and gas pilot decoupling mechanisms that were adopted in general rate cases, Consumers must exceed the statutory savings targets specified in the 2008 Energy Legislation for 2011 through 2014. In September 2010, Consumers filed an amended energy optimization plan to recover the additional spending necessary to exceed these savings targets.

Consumers also intends to make a significant capital investment in its smart grid program, which should provide enhanced controls over, and information about, energy usage, as well as timely notification of service interruptions. Consumers plans to follow a phased implementation approach and intends to begin deployment of meters in early 2012.

Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC. In February 2010, the MPSC issued an order requiring that Consumers refund to customers $85 million collected during a rate freeze from 2001 to 2003 plus interest; the MPSC determined that these funds should have been placed in a decommissioning trust fund. Consumers has filed an appeal of this order. In May 2010, the MPSC issued a gas rate order authorizing Consumers to increase its gas rates by $66 million based on an authorized return on equity of 10.55 percent.

The May 2010 gas rate order also adopted a revenue decoupling mechanism. In general, a decoupling mechanism allows a utility to adjust rates due to changes in sales volumes, in order to improve the match between the collection of revenues and the revenue level approved by the utility’s regulator. Consumers’ gas decoupling mechanism, subject to certain conditions, allows Consumers to adjust future gas rates to compensate for changes in sales volumes resulting from energy efficiency, conservation, and other non-weather factors. Consumers’ electric decoupling mechanism, adopted in a November 2009 electric rate order, is similar to the gas decoupling mechanism, but also permits rate adjustments to compensate for changes in sales volumes resulting from weather fluctuations. For additional details regarding Consumers’ electric and gas decoupling mechanisms, see the “Outlook - Consumers’ Electric Utility Business Outlook and Uncertainties - Electric Customer Deliveries and Revenue” and the “Outlook - Consumers’ Gas Utility Business Outlook and Uncertainties - Gas Deliveries” sections included in MD&A.

Further, in July 2010, Consumers self-implemented an electric rate increase in the annual amount of $150 million, subject to refund with interest. In August 2010, Consumers filed an application with the MPSC seeking an annual gas rate increase of $55 million based on an 11 percent authorized return on equity. The filing requested recovery for investments made to enhance safety, system reliability, and operational efficiencies that improve service to customers. In its order allowing Consumers to self-implement the July 2010 electric rate increase, the MPSC expressed concern about utilities repeatedly self-implementing rate increases over short time periods, and before the return of previous overcollections of self-implemented rate increases.

The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from alternative electric suppliers. The 2008 Energy Legislation limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase the limit from ten percent to 25 percent. At September 30, 2010, electric deliveries under the ROA program were at the ten percent limit.

Another area of importance for CMS Energy and Consumers is environmental regulation. There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with fossil-fueled generation. In December 2009, the EPA issued an endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA also issued an Advance Notice of Proposed Rulemaking in April 2010, indicating that it is considering a variety of regulatory actions with respect to PCBs. In June 2010, the EPA proposed a range of alternatives for regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. In July 2010, the EPA released CATR, a proposed

rule that would replace CAIR. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.

CMS Energy will continue to focus its strategy on:

	•		investing in Consumers’ utility system;
	•		growing earnings and operating cash flow while controlling operating and fuel costs; and
	•		maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.

In executing this strategy, CMS Energy and Consumers will need to overcome a Michigan economy that has been impacted adversely by the financial market crisis, uncertainty in Michigan’s automotive industry, high unemployment rates, and a modestly shrinking population. Due to the uncertain progress of economic recovery in Consumers’ service territory, a range of outcomes of CMS Energy’s and Consumers’ strategies are possible. Pressure on regulators to limit rate increases can be expected to mount if Michigan’s economy remains sluggish. Consumers expects that the electric and gas pilot decoupling mechanisms, as well as the electric utility’s uncollectible expense tracking mechanism, will mitigate partially the impacts of these economic conditions on the electric and gas utilities. While CMS Energy and Consumers believe that their sources of liquidity will be sufficient to meet their requirements, they will continue to monitor developments in the financial and credit markets, as well as government policy responses to those developments, for potential implications for CMS Energy’s and Consumers’ businesses and their future financial needs.

RESULTS OF OPERATIONS

CMS Energy’s Consolidated Results of Operations

In Millions (except for per share amounts)
Three months ended September 30		2010				2009				Change
Net Income Available to Common Stockholders		$	134			$	67			$	67
Basic Earnings Per Share		$	0.58			$	0.29			$	0.29
Diluted Earnings Per Share		$	0.53			$	0.28			$	0.25

In Millions
Three months ended September 30		2010				2009				Change
Electric Utility		$	156			$	111			$	45
Gas Utility			2				(12	)			14
Enterprises			9				6				3
Corporate Interest and Other			(33	)			(37	)			4
Discontinued Operations			—				(1	)			1
Net Income Available to Common Stockholders		$	134			$	67			$	67

For the three months ended September 30, 2010, net income available to common stockholders was $134 million, compared with $67 million for 2009. Specific after-tax changes to net income available to common stockholders for the three months ended September 30, 2010 versus 2009 are:

2010 over/(under) 2009
				(In Millions)
•		increase in electric revenues at Consumers due to weather		$	44
•		increase in electric and gas revenues at Consumers due to rate orders			18
•		absence of a premium paid on the retirement of debt in 2009			11
•		other net changes, primarily due to lower expenses at the enterprises and corporate interest and other segments			5
•		other changes at Consumers, primarily lower interest on debt			4
•		decrease in operating and maintenance expenses at Consumers			3
•		decrease in electric revenues at Consumers due to customer shifts to energy-only rates and to ROA			(10	)
•		charge for deferred issuance costs in 2010 on conversion of preferred stock			(8	)
Total change				$	67

In Millions (except for per share amounts)
Nine months ended September 30		2010				2009				Change
Net Income Available to Common Stockholders		$	299			$	212			$	87
Basic Earnings Per Share		$	1.30			$	0.93			$	0.37
Diluted Earnings Per Share		$	1.19			$	0.90			$	0.29

In Millions
Nine months ended September 30		2010				2009				Change
Electric Utility		$	283			$	217			$	66
Gas Utility			69				52				17
Enterprises			51				(6	)			57
Corporate Interest and Other			(87	)			(74	)			(13	)
Discontinued Operations			(17	)			23				(40	)
Net Income Available to Common Stockholders		$	299			$	212			$	87

For the nine months ended September 30, 2010, net income available to common stockholders was $299 million, compared with $212 million for 2009. Specific after-tax changes to net income available to common stockholders for the nine months ended September 30, 2010 versus 2009 are:

2010 over/(under) 2009
				(In Millions)
•		increase in electric and gas revenues at Consumers due to rate orders		$	75
•		increase in electric revenues at Consumers due to weather			51
•		insurance settlement related to a previously sold investment			30
•		decrease in operating and maintenance expenses at Consumers			23
•		absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009			22
•		other changes at Consumers, primarily lower interest on debt			8
•		other net increases, primarily higher sales and prices at the enterprises segment			6
•		decrease in electric revenues at Consumers due to customer shifts to energy-only rates and to ROA			(33	)
•		absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation			(31	)
•		decrease in gas revenues at Consumers due to weather and unfavorable sales mix			(23	)
•		increase in net charges related to refinancing, conversions, and early debt retirements			(15	)
•		higher depreciation expense and sales and use tax at Consumers			(11	)
•		tax adjustments and impairments related to discontinued operations			(8	)
•		costs associated with the voluntary separation plan at Consumers			(7	)
Total change				$	87

Consumers’ Electric Utility Results of Operations

In Millions
September 30		2010				2009				Change
Net Income Available to Common Stockholders:
Three months ended		$	156			$	111			$	45
Nine months ended		$	283			$	217			$	66

		Three Months Ended				Nine Months Ended
Reasons for the change:		September 30, 2010 vs. 2009				September 30, 2010 vs. 2009
Electric deliveries and rate increases		$	85			$	186
Power supply costs and related revenue			—				(11	)
Other income, net of expenses			(8	)			(16	)
Maintenance and other operating expenses			(5	)			(39	)
Depreciation and amortization			(8	)			(20	)
General taxes			3				3
Interest charges			3				(3	)
Income taxes			(25	)			(34	)
Total change		$	45			$	66

Electric deliveries and rate increases: For the three months ended September 30, 2010, electric delivery revenues increased $85 million compared with 2009. The increase was due to $31 million of additional revenues resulting from the July 2010 self-implemented rate increase. Also contributing to the increase was $54 million from higher deliveries, which included the impact of favorable weather in 2010 and increased deliveries in 2010 to Consumers’ high-margin customers, offset partially by the impact of customers switching from demand rates to energy-only rates. These increases were offset partially by a $16 million decrease in revenues resulting from other rate-related items, including the impacts of the decoupling mechanism that became effective in December 2009. Overall, deliveries to end-use customers were 10.5 billion kWh, an increase of 1.2 billion kWh or 12.9 percent compared with 2009.

Additionally, surcharge revenues and related reserves increased $16 million for the three months ended September 30, 2010 compared with 2009. This increase comprised $6 million from the collection of regulatory assets related to retirement benefits, a $5 million increase related to the energy optimization program, and a $5 million increase in other surcharge revenue.

For the nine months ended September 30, 2010, electric delivery revenues increased $186 million compared with 2009. The increase was due to $46 million of additional revenues resulting from the November 2009 rate order that Consumers self-implemented in May 2009, and $31 million of additional revenues resulting from the July 2010 self-implemented rate increase. Also contributing to the increase was $36 million from higher deliveries, which included the impact of favorable weather in 2010 and increased deliveries to Consumers’ high-margin customers, offset partially by the impact of customers switching from demand rates to energy-only rates. The increase was also due to $13 million of additional revenues resulting from other rate-related items, including the impacts of the decoupling mechanism that became effective in December 2009. Overall, deliveries to end-use customers were 28.6 billion kWh, an increase of 1.9 billion kWh or 7.1 percent compared with 2009.

Additionally, surcharge revenues and related reserves increased $60 million for the nine months ended September 30, 2010 compared with 2009. This increase comprised $32 million from the collection of regulatory assets related to retirement benefits, a $19 million increase related to the energy optimization program, and a $9 million increase in other surcharge revenue.

Power supply costs and related revenue: For the nine months ended September 30, 2010, PSCR revenue decreased $11 million compared with 2009, reflecting an order received from the MPSC that disallowed recovery of certain power supply costs in Consumers’ 2007 PSCR reconciliation case.

Other income, net of expenses: For the three months ended September 30, 2010, other income decreased $8 million compared with 2009, and for the nine months ended September 30, 2010, other income decreased $16 million compared with 2009. These decreases were due to a reduction in interest income recorded on certain regulatory assets and the absence in 2010 of a gain recognized on a sale of land in 2009.

Maintenance and other operating expenses: For the three months ended September 30, 2010, maintenance and other operating expenses increased $5 million compared with 2009. The increase was due to $6 million of higher retirement benefits expenses, which were recovered in revenue in 2010, a $5 million increase associated with the energy optimization program, and a $3 million increase in service restoration expenses. These increases were offset partially by a $5 million reduction in expenses for forestry and tree-trimming services and a $4 million decrease in health care expenses and other net operating expenses.

For the nine months ended September 30, 2010, maintenance and other operating expenses increased $39 million compared with 2009. The increase was due to $32 million of higher retirement benefits expenses, which were recovered in revenue in 2010, a $19 million increase associated with the energy optimization program, and an $8 million increase in uncollectible accounts expense. Also contributing to the increase was $6 million of voluntary separation plan expenses in 2010. These increases were offset partially by an $11 million reduction in expenses for forestry and tree-trimming services and a $15 million decrease in health care expenses and other net operating expenses.

Depreciation and amortization: For the three months ended September 30, 2010, depreciation and amortization expense increased $8 million compared with 2009, and for the nine months ended September 30, 2010, depreciation and amortization expense increased $20 million compared with 2009, due to increased plant in service and higher amortization expense on certain regulatory assets.

General taxes: For the three months ended September 30, 2010, general taxes decreased $3 million compared with 2009, due to lower property tax expense in 2010.

For the nine months ended September 30, 2010, general taxes decreased $3 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment.

Interest charges: For the three months ended September 30, 2010, interest charges decreased $3 million compared with 2009, due to lower debt levels in 2010.

For the nine months ended September 30, 2010, interest charges increased $3 million compared with 2009. The increase resulted from interest related to the State of Michigan’s use tax assessment. Also contributing to the increase was additional interest incurred as a result of an order received from the MPSC that disallowed recovery of certain power supply costs in Consumers’ 2007 PSCR reconciliation case. These increases were offset partially by lower debt levels in 2010.

Income taxes: For the three months ended September 30, 2010, income taxes increased $25 million compared with 2009. The increase reflected $28 million due to higher electric utility earnings, offset partially by a $3 million benefit related to research tax credits.

For the nine months ended September 30, 2010, income taxes increased $34 million compared with 2009. The increase reflected $37 million due to higher electric utility earnings, offset partially by a $3 million benefit related to research tax credits.

Consumers’ Gas Utility Results of Operations

In Millions
September 30		2010				2009				Change
Net Income Available to Common Stockholders:
Three months ended		$	2			$	(12	)		$	14
Nine months ended		$	69			$	52			$	17

		Three Months Ended				Nine Months Ended
Reasons for the change:		September 30, 2010 vs. 2009				September 30, 2010 vs. 2009
Gas deliveries and rate increases		$	14			$	33
Other income, net of expenses			—				4
Maintenance and other operating expenses			1				(8	)
Depreciation and amortization			1				—
General taxes			1				3
Interest charges			—				(7	)
Income taxes			(3	)			(8	)
Total change		$	14			$	17

Gas deliveries and rate increases: For the three months ended September 30, 2010, gas delivery revenues increased $14 million compared with 2009, due to the May 2010 rate order. Gas deliveries, including miscellaneous transportation to end-use customers, were 25.3 bcf, an increase of 0.7 bcf or 2.8 percent compared with 2009.

For the nine months ended September 30, 2010, gas delivery revenues increased $33 million compared with 2009. The increase was due to $44 million of additional revenue resulting from the May 2010 rate order that Consumers self-implemented in November 2009, and $7 million from a favorable sales mix. These increases were offset partially by a decrease of $34 million due to lower deliveries associated with milder weather in 2010. Gas deliveries, including miscellaneous transportation to end-use customers, were 181.2 bcf, a decrease of 14.9 bcf or 7.6 percent compared with 2009.

Additionally, surcharge revenues were $16 million higher for the nine months ended September 30, 2010, due to a $13 million increase related to the energy optimization program and $3 million from the collection of regulatory assets related to retirement benefits.

Other income, net of expenses: For the nine months ended September 30, 2010, other income increased $4 million compared with 2009, due to higher interest income related to secured borrowing agreements.

Maintenance and other operating expenses: For the three months ended September 30, 2010, maintenance and other operating expenses decreased $1 million compared with 2009, due to lower health care expenses in 2010.

For the nine months ended September 30, 2010, maintenance and other operating expenses increased $8 million compared with 2009. The increase was due to additional expenses of $13 million related to the energy optimization program and $4 million of voluntary separation plan expenses. Also contributing to the increase were higher expenses of $3 million associated with retirement benefits, which were recovered in revenue in 2010. These increases were offset partially by lower uncollectible accounts expense of $2 million and a $10 million reduction in health care expenses and other transmission and distribution operating expenses.

General taxes: For the three months ended September 30, 2010, general taxes decreased $1 million compared with 2009, due to lower property tax expense in 2010.

For the nine months ended September 30, 2010, general taxes decreased $3 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment.

Interest charges: For the nine months ended September 30, 2010, interest charges increased $7 million compared with 2009, due primarily to interest related to the State of Michigan’s use tax assessment.

Income taxes: For the three months ended September 30, 2010, income taxes increased $3 million compared with 2009, and for the nine months ended September 30, 2010, income taxes increased $8 million compared with 2009, due primarily to higher gas utility earnings.

Enterprises Results of Operations

In Millions
September 30		2010				2009				Change
Net Income Available to Common Stockholders:
Three months ended		$	9			$	6			$	3
Nine months ended		$	51			$	(6	)		$	57

For the three months ended September 30, 2010, the enterprises segment reported net income of $9 million compared with $6 million for the same period in 2009. The $3 million increase was due to the recognition of a gain on an option related to the 2007 sale of certain Argentine investments, and to lower expenses.

For the nine months ended September 30, 2010, the enterprises segment reported net income of $51 million compared with a net loss of $6 million for the same period in 2009. The $57 million change reflected after-tax income of $30 million from the settlement of an insurance claim related to a previously sold South American investment, the absence of an environmental remediation charge of $22 million recorded in 2009 related to Bay Harbor, and $4 million related to asset sales. An additional increase of $1 million reflected greater demand for power at higher prices and a net increase in mark-to-market gains, offset largely by higher maintenance and other operating expenses, the absence of a gain recorded in 2009 on the expiration of an indemnity provided in connection with a previous asset sale, and the absence of benefits related to a 2009 legal settlement associated with a gas sale and purchase contract.

Corporate Interest and Other Results of Operations

In Millions
September 30		2010				2009				Change
Net Loss Available to Common Stockholders:
Three months ended		$	(33	)		$	(37	)		$	4
Nine months ended		$	(87	)		$	(74	)		$	(13	)

For the three months ended September 30, 2010, corporate interest and other net expenses decreased $4 million compared with 2009, due to the absence of an $11 million premium paid in 2009 on the early retirement of debt and due to a $3 million benefit from higher net earnings at EnerBank and lower expenses. These items were offset partially by an $8 million charge for deferred issuance costs on the mandatory conversion of convertible preferred stock and by a $2 million increase in interest expense due to higher debt levels at higher average interest rates.

For the nine months ended September 30, 2010, corporate interest and other net expenses increased $13 million compared with 2009, due to the absence of an $18 million gain recognized in 2009 on the early retirement of long-term debt, related parties. Also contributing to the change was an $8 million charge for deferred issuance costs on the mandatory conversion of convertible preferred stock and a $6 million increase in interest expense due to higher debt levels at higher average interest rates. These items were offset partially by the absence of an $11 million premium paid in 2009 on the early retirement of debt and by an $8 million benefit from higher net earnings at EnerBank and lower expenses.

Discontinued Operations

For the three months ended September 30, 2010, the net loss from discontinued operations was less than $1 million. Discontinued operations recorded a loss of $1 million in 2009 due primarily to unfavorable operating results of assets held for sale.

For the nine months ended September 30, 2010, a loss of $17 million was recorded from discontinued operations, compared with income of $23 million in 2009. The $40 million change was due to the absence of a $28 million gain recognized in 2009 on the expiration of an indemnity provided in connection with a 2007 asset sale, the recognition in 2010 of $10 million in additional tax expense resulting from an IRS audit adjustment related to a 2003 asset sale, and a $3 million increase in a liability for a 2007 asset sale indemnity. These decreases were offset slightly by lower losses in 2010 related primarily to assets held for sale.

CAPITAL RESOURCES AND LIQUIDITY

Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing opportunities, if needed. Recent major financing transactions and commitments are as follows:

		Principal				Interest
		(in Millions)				Rate				Issue Date				Maturity Date
Debt Issuances:
CMS Energy
Senior notes		$	300				6.25	%		January 2010				February 2020
Senior notes (a)			250				4.25	%		September 2010				September 2015
Consumers
FMBs			250				5.30	%		September 2010				September 2022
FMBs			50				6.17	%		September 2010				September 2040
FMBs			50				2.60	%		October 2010				October 2015
FMBs			100				3.21	%		October 2010				October 2017
FMBs (b)			100				3.77	%		October 2010				October 2020
FMBs (b)			50				4.97	%		October 2010				October 2040

In addition, in September 2010, CMS Energy’s $131 million of 3.375 percent senior notes and $288 million of 2.875 percent senior notes became convertible at the holders’ option for the fourth quarter of 2010.

CMS Energy and Consumers expect to continue to have access to the financial and capital markets.

Recent and upcoming credit renewals are as follows:

Amount of

Facility

Last Renewed

Expiration Date

(in Millions)

Credit Renewals:

CMS Energy

Revolving credit facility

April 2007

April 2012

$

550

Consumers

Accounts receivable sales program

February 2010

February 2011

250

Letter of Credit Reimbursement Agreement

September 2010

September 2011

30

Revolving credit facility

March 2007

March 2012

500

Revolving credit facility

August 2010

August 2013

150

Recent and upcoming maturities of senior notes and bonds are as follows:

		Principal				Interest
		(in Millions)				Rate				Maturity Date
Debt Maturities:
CMS Energy
Senior notes		$	67				7.75	%		August 2010
Senior notes			214				8.50	%		April 2011
Senior notes			150				6.30	%		February 2012
Consumers
FMBs			250				4.00	%		May 2010
FMBs			300				5.00	%		February 2012
Tax-exempt pollution control revenue bonds			58			Various				June 2010

CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will be sufficient to meet cash requirements. If access to the capital markets were to become diminished or otherwise restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 5, Financings.

Cash Position, Investing, and Financing

At September 30, 2010, CMS Energy had $719 million of consolidated cash and cash equivalents, which included $23 million of restricted cash and cash equivalents. At September 30, 2010, Consumers had $256 million of consolidated cash and cash equivalents, which included $23 million of restricted cash and cash equivalents.

CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $259 million in common stock dividends to CMS Energy for the nine months ended September 30, 2010. For details on dividend restrictions, see Note 5, Financings.

Operating Activities: Specific components of net cash provided by operating activities for the nine months ended September 30, 2010 and 2009 were:

In Millions
Nine months ended September 30		2010				2009				Change
CMS Energy, including Consumers
•     Net income		$	318			$	229			$	89
•     Non-cash transactions (a)			864				675				189
		$	1,182			$	904			$	278
•     Sale of gas purchased in the prior year			475				577				(102	)
•     Purchase of gas in the current year			(608	)			(654	)			46
•     Accounts receivable sales, net			(50	)			(170	)			120
•     Change in other core working capital (b)			325				275				50
•     Other changes in assets and liabilities, net			(326	)			(298	)			(28	)
Net cash provided by operating activities		$	998			$	634			$	364
Consumers
•     Net income		$	355			$	272			$	83
•     Non-cash transactions (a)			749				636				113
		$	1,104			$	908			$	196
•     Sale of gas purchased in the prior year			475				577				(102	)
•     Purchase of gas in the current year			(608	)			(654	)			46
•     Accounts receivable sales, net			(50	)			(170	)			120
•     Change in other core working capital (b)			325				278				47
•     Other changes in assets and liabilities, net			(346	)			(240	)			(106	)
Net cash provided by operating activities		$	900			$	699			$	201

For the nine months ended September 30, 2010, net cash provided by operating activities at CMS Energy increased $364 million compared with 2009. The increase was due primarily to higher net income, net of non-cash transactions, and to changes affecting Consumers’ cash provided by operating activities described in the following paragraph.

For the nine months ended September 30, 2010, net cash provided by operating activities at Consumers increased $201 million compared with 2009. The increase was due primarily to higher net income, net of non-cash transactions, and higher accounts receivable collections from customers in 2010.

Investing Activities: Specific components of cash used in investing activities for the nine months ended September 30, 2010 and 2009 were:

In Millions
Nine months ended September 30		2010				2009				Change
CMS Energy, including Consumers
•          Capital expenditures		$	(611	)		$	(617	)		$	6
•          Cash effect of deconsolidation of partnerships			(10	)			—				(10	)
•          Cost to retire property			(31	)			(33	)			2
•          Increase in EnerBank loans receivable			(75	)			(41	)			(34	)
•          Other investing			1				16				(15	)
Net cash used in investing activities		$	(726	)		$	(675	)		$	(51	)
Consumers
•          Capital expenditures		$	(608	)		$	(612	)		$	4
•          Costs to retire property and other			(32	)			(23	)			(9	)
Net cash used in investing activities		$	(640	)		$	(635	)		$	(5	)

For the nine months ended September 30, 2010, net cash used in investing activities at CMS Energy increased $51 million compared with 2009. The change was due primarily to an increase in EnerBank consumer lending. For the nine months ended September 30, 2010, net cash used in investing activities at Consumers increased $5 million compared with 2009. The increase was due primarily to the absence of proceeds from the sale of assets in 2009.

Financing Activities: Specific components of net cash provided by (used in) financing activities for the nine months ended September 30, 2010 and 2009 were:

In Millions
Nine months ended September 30		2010				2009				Change
CMS Energy, including Consumers
•          Issuance of FMBs, convertible senior notes, senior notes, and other debt		$	1,043			$	1,262			$	(219	)
•          Retirement of debt and other debt maturity payments			(524	)			(1,160	)			636
•          Payments of common and preferred stock dividends			(111	)			(93	)			(18	)
•          Other financing activities			(73	)			2				(75	)
Net cash provided by financing activities		$	335			$	11			$	324
Consumers
•          Issuance of FMBs		$	300			$	500			$	(200	)
•          Retirement of debt and other debt maturity payments			(335	)			(377	)			42
•          Stockholder’s contribution			250				100				150
•          Payments of common and preferred stock dividends			(261	)			(235	)			(26	)
•          Other financing activities			(20	)			(23	)			3
Net cash used in financing activities		$	(66	)		$	(35	)		$	(31	)

For the nine months ended September 30, 2010, net cash provided by financing activities at CMS Energy totaled $335 million, and for the nine months ended September 30, 2009, net cash provided by financing activities totaled $11 million. The $324 million change was due primarily to a decrease in net debt retirements.

For the nine months ended September 30, 2010, net cash used in financing activities at Consumers totaled $66 million, and for the nine months ended September 30, 2009, net cash used in financing

activities totaled $35 million. The $31 million change was due primarily to debt maturities and a decrease in net proceeds from borrowings, offset partially by a stockholder’s contribution from CMS Energy.

For additional details on long-term debt activity, see Note 5, Financings.

Retirement Benefits

The following table provides estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and cash contributions through 2012.

														In Millions
		Pension Cost				OPEB Cost				Pension Contribution				OPEB Contribution
CMS Energy, including Consumers
2010		$	107			$	61			$	100			$	71
2011			134				70				127				61
2012			128				79				186				70
Consumers
2010		$	104			$	63			$	97			$	70
2011			130				72				123				60
2012			124				81				180				69

In March 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers. Actual future pension cost and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan participants.

In April 2010, Consumers reached an agreement with the Union on a new five-year contract for operating, maintenance, and construction employees. The agreement changed postretirement health benefits under the OPEB plan for qualifying retired employees. As a result, CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010.

For additional details on retirement benefits, see Note 9, Retirement Benefits.

Obligations And Commitments

Revolving Credit Facilities: For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 5, Financings.

Dividend Restrictions: For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 5, Financings.

Off-Balance-Sheet Arrangements

CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. Indemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional

details on these and other guarantee arrangements, see Note 3, Contingencies and Commitments, “Guarantees.”

OUTLOOK

Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see “Forward-Looking Statements and Information,” Note 3, Contingencies and Commitments, and Part II, Item 1A. Risk Factors.

Consumers’ Electric Utility Business Outlook and Uncertainties

Balanced Energy Initiative: Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its projected short-term and long-term electric power requirements through:

	•		energy efficiency;
	•		demand management;
	•		expanded use of renewable energy;
	•		development of new power plants and pursuit of additional PPAs to complement existing generating sources; and
	•		potential retirement or mothballing of older generating units.

In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers will monitor customer demand, fuel and power prices, and other market conditions, but has not set a timetable for a future decision about the project. Consumers’ alternatives to constructing the proposed coal-fueled plant include constructing new gas-fueled generation, relying on additional market purchases, as well as continued operation of several existing generating units; however, Consumers continues to believe that new clean coal generating capacity will be in the long-term best interests of its customers as part of a balanced energy portfolio.

Renewable Energy Plan: Consumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Legislation. This legislation requires Consumers to obtain RECs in an amount equal to at least ten percent of its electric sales volume (estimated to be 3.6 million RECs annually) by 2015. RECs represent proof that the associated electricity was generated from a renewable energy resource. The legislation also requires Consumers to obtain 500 MW of capacity from renewable energy resources by 2015, either through generation resources owned by Consumers or through agreements to purchase capacity from other parties.

Under its renewable energy plan, Consumers expects to secure its required RECs each year with a combination of newly generated RECs and previously generated RECs carried over from prior years. Presently, Consumers generates and purchases 1.6 million RECs per year, which represent 44 percent of its long-term REC needs.

To meet its renewable capacity requirements, Consumers expects to add 500 MW of owned or contracted renewable capacity by 2015. Consumers has secured more than 78,000 acres of land easements in Michigan’s Mason, Huron, and Tuscola Counties for the potential development of wind generation, and is presently collecting wind speed and other meteorological data at those sites. Consumers has entered into a contract to purchase wind turbine generators for the construction of a 100 MW wind farm in Mason County, the Lake Winds Energy Park, which Consumers expects to be operational in late 2012. Consumers will continue to seek opportunities for wind generation development in support of the renewable capacity standards.

In June 2010, Consumers executed agreements with four renewable energy suppliers for the purchase of 243 MW of capacity. In its July 2010 order, the MPSC approved these agreements, granting Consumers’ request to recover the full costs of these contracts from its customers.

Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from economic and financial instability in the automotive and real estate sectors.

Consumers expects weather-adjusted electric deliveries to increase in 2010 by 1.5 percent compared with 2009. Consumers’ outlook for 2010 includes continuing growth in deliveries to its largest customer, which produces energy-related components. Consumers has a long-term contract with this customer to provide electricity at a discounted rate for economic development purposes. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 2010 to be at a similar level to 2009. Consumers’ outlook reflects the impact of reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of Michigan’s economic conditions.

Consumers believes economic conditions have stabilized. Consumers’ present outlook for electric delivery growth is about two percent on average through 2015. This reflects growth in electric deliveries offset by the predicted effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will depend on:

	•		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.

In its 2009 electric rate case order, the MPSC authorized Consumers to adopt a pilot decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The MPSC’s order also adopted an uncollectible expense tracking mechanism, which allows future rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense. Consumers expects these mechanisms to reduce volatility of electric utility revenue.

Electric ROA: The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Legislation limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At September 30, 2010, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 800 MW of generation service to ROA customers.

In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase from ten percent to 25 percent the proportion of an electric utility’s sales for which service may be provided by an alternative electric supplier. Consumers is unable to predict the outcome of the proposed legislation.

Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers continues to focus on complying with the Clean Air Act, Clean Water Act, and numerous state and federal environmental regulations. Consumers estimates that it will incur expenditures of $1.9 billion from 2010 through 2017 to comply with these regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters:

Clean Air Interstate Rule/Clean Air Transport Rule: At this time, CAIR remains in effect, pending the EPA’s finalization of a new rule due to a December 2008 court decision that remanded CAIR back to the EPA. In July 2010, the EPA released CATR, a proposed rule that would replace CAIR. Consumers is examining this proposed rule, its potential effects on Consumers’ fossil-fueled power plants, and potential compliance strategies. If adopted in its present form, CATR could result in additional or accelerated environmental compliance costs related to Consumers’ fossil-fueled power plants. In addition, Consumers is monitoring legislative initiatives in the U.S. Senate, which may affect CAIR and CATR. Presently, Consumers’ strategy to comply with CAIR involves the installation of state-of-the-art emission control equipment.

Federal Hazardous Air Pollutant Regulation: The EPA is developing Maximum Achievable Control Technology emission standards for electric generating units, based on Section 112 of the Clean Air Act. Consumers is unable to predict the impact of the proposed rule, but expects to have a better understanding of the potential impact upon release of the proposed rule, which is expected in March 2011. Existing sources must meet the standards generally within three years of issuance of the final rule. The final rule is expected to be issued in November 2011.

Greenhouse Gases: There are numerous legislative and regulatory initiatives at the state, regional, and national levels that involve the regulation of greenhouse gases. Consumers monitors and comments on these initiatives and also follows litigation involving greenhouse gases. Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to predict the form and timing of any final legislation.

In December 2009, the EPA issued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been challenged in the U.S. Court of Appeals for the D.C. Circuit by numerous parties, the EPA determined that current and projected atmospheric concentrations of six greenhouse gases threaten the public health and welfare of current and future generations. The finding alone does not impose any standard or regulation on industry, but it is a precursor for finalizing proposed emissions standards. In April 2010, the EPA issued its final rule that regulates greenhouse gas emissions from motor vehicles under Section 202 of the Clean Air Act. This final action renders carbon dioxide and other greenhouse gases “regulated air pollutants” under the Clean Air Act.

In May 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule. The final rule, which numerous parties have challenged in the U.S. Court of Appeals for the D.C. Circuit, sets limits for greenhouse gas emissions that define when permits are required for new and existing industrial facilities under New Source Review PSD and Title V Operating Permit programs.

Federal laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted, could require Consumers to replace equipment, install additional equipment for emission controls, purchase emission allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or

operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

Coal Combustion By-Products: In June 2010, the EPA proposed rules regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. Michigan already regulates CCBs as low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCBs, including regulation as either a non-hazardous waste or a hazardous waste. If coal ash were regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing coal ash disposal areas could be closed and costly alternative arrangements for coal ash disposal could be required if the upgrades to hazardous waste landfill standards are economically prohibitive. Consumers is unable to predict accurately the full impacts from this wide range of possible outcomes, but significant expenditures are likely.

Water: In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by cooling water intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA issued a request in July 2010 seeking information on how much utility customers are willing to pay to prevent fish from being killed or injured. This information request, as well as a renewed information request announced in August 2010, may indicate the EPA’s willingness to issue a revised draft rule in the near future.

Advance Notice of Proposed Rulemaking on PCBs: In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking, indicating that it is considering a variety of regulatory actions with respect to PCBs. One proposal aims to phase out equipment containing PCBs by 2025. Another proposal eliminates an exemption for small equipment containing PCBs. Consumers could incur substantial costs associated with the regulation of PCBs due to prior installation of electrical equipment potentially containing PCBs.

Other electric environmental matters could have a major impact on Consumers’ outlook. For additional details on these and other electric environmental matters, see Note 3, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies – Electric Environmental Matters.”

Electric Transmission: In June 2010, FERC issued a Notice of Proposed Rulemaking to establish a closer link between regional electric transmission planning and cost allocations to ensure the construction of required transmission facilities. In a related matter, MISO filed a tariff revision with FERC in July 2010, proposing a cost allocation methodology for new transmission projects. Consumers expects to continue to recover transmission expenses, including those associated with this proposal, through the PSCR process.

Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ PSCR, electric rate cases, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning proceedings, electric depreciation cases, renewable energy plan, and energy optimization plan, see Note 4, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”

Consumers’ Gas Utility Business Outlook and Uncertainties

Gas Deliveries: Consumers expects 2010 weather-adjusted gas deliveries to be at a similar level to 2009. In addition, Consumers expects weather-adjusted gas deliveries to decline an average of one percent annually from 2011 through 2015, which includes expected effects of energy efficiency programs and continued conservation. Actual delivery levels from year to year may vary from this trend due to:

	•		fluctuations in weather;
	•		use by IPPs;
	•		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.

In its 2009 gas rate case order, the MPSC authorized Consumers to adopt a decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between base sales per customer established in the order and weather-adjusted sales per customer. Consumers expects this mechanism to mitigate the impacts of energy efficiency programs, conservation, and changes in economic conditions on its gas revenue.

Gas Pipeline Safety: In September 2010, the U.S. House of Representatives passed the Corporate Liability and Emergency Accident Notification Act, which would require oil and natural gas pipeline operators to notify regulators within one hour following the discovery of certain oil spills or natural gas leaks. The bill also would increase civil fines for delayed reporting of oil spills and natural gas leaks and would establish an online searchable database of safety violations by pipeline owner or operator.

In response to the natural gas pipeline explosion that occurred in San Bruno, California in September 2010, the U.S. House of Representatives and the U.S. Senate have proposed bills stipulating stricter regulation of natural gas pipelines nationwide. These proposed bills affect primarily transmission pipelines and contain provisions mandating:

	•		the use of internal inspection devices or comparable methods effective in detecting pipeline deterioration;
	•		the installation of automatic shutoff equipment in high-consequence areas; and,
	•		certain disclosures to homeowners and regulatory agencies.

Consumers continues to comply with laws and regulations governing natural gas pipeline safety. If these proposed laws are put into effect, Consumers could incur significant additional costs related to its natural gas pipeline safety programs. Consumers expects that it would be able to recover some or all of the costs in rates, consistent with the recovery of other reasonable costs of complying with laws and regulations.

Gas Environmental Estimates: Consumers expects to incur investigation and remedial action costs at a number of sites, including 23 former MGP sites. For additional details, see Note 3, Contingencies and Commitments, “Consumers’ Gas Utility Contingencies – Gas Environmental Matters.”

Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ GCR, gas rate cases, and gas depreciation case, see Note 4, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”

Enterprises Outlook and Uncertainties

The primary focus with respect to CMS Energy’s remaining non-utility businesses is to optimize cash flow and maximize the value of their assets.

Trends, uncertainties, and other matters that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:

	•		indemnity and environmental remediation obligations at Bay Harbor;
	•		the outcome of certain legal proceedings;
	•		impacts of declines in electricity prices on the profitability of the enterprises segment’s generating units;
	•		representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with previous sales of assets;
	•		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;
	•		changes in various environmental laws, regulations, principles, practices, or in their interpretation; and
	•		economic conditions in Michigan, including population trends and housing activity.

For additional details regarding the enterprises segment’s uncertainties, see Note 3, Contingencies and Commitments.

Other Outlook and Uncertainties

Smart Grid: Consumers’ grid modernization effort continues to move forward. The foundation is installation of advanced metering and the infrastructure to support it. The installation will include smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing systems to manage the data and enable changes to key business processes. It is intended to allow customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in lower peak capacity requirements. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach and intends to begin deployment of meters in early 2012.

Health Care Reform: For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. This legislation resulted in a $3 million increase to CMS Energy’s tax expense for the nine months ended September 30, 2010, and it had no effect on Consumers’ net income. For additional details, see Note 10, Income Taxes.

Union Contracts: In April 2010, the Union ratified a new five-year agreement with Consumers for operating, maintenance, and construction employees. Consumers’ previous Union agreement expired in June 2010. In July 2010, the Union also ratified a new agreement with Consumers for virtual call center employees, which became effective in August 2010 upon the expiration of the previous Union agreement covering these employees. In October 2010, the United Steelworkers ratified a new agreement with Consumers for Zeeland employees, which will become effective in January 2011 upon the expiration of the previous agreement.

Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 3, Contingencies and Commitments and Note 4, Utility Rate Matters.

EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $331 million at September 30, 2010. Its loan portfolio was funded primarily by deposit liabilities of $319 million. Twelve-month rolling average default rates on loans held by EnerBank have declined from 2.1 percent at December 31, 2009 to 1.6 percent at September 30, 2010. EnerBank expects the level of loan defaults to continue to decline in 2010 and return gradually to historical levels of about 1.0 percent.

NEW ACCOUNTING STANDARDS

For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet effective, see Note 1, New Accounting Standards.

CMS Energy Corporation

		In Millions
		Three Months Ended								Nine Months Ended
September 30		2010				2009				2010				2009
Operating Revenue		$	1,443			$	1,263			$	4,750			$	4,592
Operating Expenses
Fuel for electric generation			183				140				472				393
Purchased and interchange power			363				318				955				889
Purchased power — related parties			21				—				63				—
Cost of gas sold			104				123				1,060				1,294
Maintenance and other operating expenses			273				278				844				853
Depreciation and amortization			133				128				436				422
General taxes			49				51				156				164
Insurance settlement			—				—				(50	)			—
Gain on asset sales, net			(2	)			(5	)			(6	)			(13	)
Total operating expenses			1,124				1,033				3,930				4,002
Operating Income			319				230				820				590
Other Income (Expense)
Interest and dividends			5				5				14				13
Allowance for equity funds used during construction			1				1				4				4
Income (loss) from equity method investees			3				(1	)			8				(2	)
Other income			9				11				27				62
Other expense			(2	)			(20	)			(7	)			(25	)
Total other income (expense)			16				(4	)			46				52
Interest Charges
Interest on long-term debt			97				97				293				287
Other interest			6				7				34				23
Allowance for borrowed funds used during construction			(1	)			(1	)			(3	)			(3	)
Total interest charges			102				103				324				307
Income Before Income Taxes			233				123				542				335
Income Tax Expense			87				47				207				129
Income From Continuing Operations			146				76				335				206
Income (Loss) From Discontinued Operations, Net of Tax (Tax Benefit) of $-, $(1), $5 and $15			—				(1	)			(17	)			23
Net Income			146				75				318				229
Income Attributable to Noncontrolling Interests			1				6				3				9
Net Income Attributable to CMS Energy			145				69				315				220
Charge for Deferred Issuance Costs on Preferred Stock			8				—				8				—
Preferred Stock Dividends			3				2				8				8
Net Income Available to Common Stockholders		$	134			$	67			$	299			$	212

		In Millions, Except Per Share Amounts
		Three Months Ended								Nine Months Ended
September 30		2010				2009				2010				2009
Net Income Attributable to Common Stockholders
Amounts Attributable to Continuing Operations		$	134			$	68			$	316			$	189
Amounts Attributable to Discontinued Operations			—				(1	)			(17	)			23
Net Income Available to Common Stockholders		$	134			$	67			$	299			$	212
Income Attributable to Noncontrolling Interests
Amounts Attributable to Continuing Operations		$	1			$	6			$	3			$	9
Amounts Attributable to Discontinued Operations			—				—				—				—
Income Attributable to Noncontrolling Interests		$	1			$	6			$	3			$	9
Basic Earnings Per Average Common Share
Basic Earnings from Continuing Operations		$	0.58			$	0.30			$	1.38			$	0.83
Basic Earnings (Loss) from Discontinued Operations			—				(0.01	)			(0.08	)			0.10
Basic Earnings Attributable to Common Stock		$	0.58			$	0.29			$	1.30			$	0.93
Diluted Earnings Per Average Common Share
Diluted Earnings from Continuing Operations		$	0.53			$	0.29			$	1.26			$	0.80
Diluted Earnings (Loss) from Discontinued Operations			—				(0.01	)			(0.07	)			0.10
Diluted Earnings Attributable to Common Stock		$	0.53			$	0.28			$	1.19			$	0.90
Dividends Declared Per Common Share		$	0.15			$	0.125			$	0.45			$	0.375

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CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)

		In Millions
Nine months ended September 30		2010				2009
Cash Flows from Operating Activities
Net Income		$	318			$	229
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			436				422
Deferred income taxes and investment tax credit			205				131
Postretirement benefits expense			169				136
Allowance for equity funds used during construction			(4	)			(4	)
Capital lease and other amortization			30				31
Bad debt expense			45				46
Gain on expiration of indemnification obligation			—				(50	)
Gain on extinguishment of long-term debt, related parties			—				(28	)
Other non-cash operating activities			(17	)			(9	)
Postretirement benefits contributions			(171	)			(247	)
Changes in other assets and liabilities:
Decrease in accounts receivable, notes receivable, and accrued revenue			239				205
Decrease (increase) in accrued power supply and gas revenue			2				(1	)
Increase in inventories			(88	)			(122	)
Decrease in deferred property taxes			127				122
Decrease in accounts payable			(9	)			(55	)
Decrease in accrued expenses			(187	)			(181	)
Decrease (increase) in other current and non-current assets			(12	)			15
Decrease in other current and non-current liabilities			(85	)			(6	)
Net cash provided by operating activities			998				634
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)			(611	)			(617	)
Cost to retire property			(31	)			(33	)
Cash effect of deconsolidation of partnerships			(10	)			—
Increase in EnerBank loans receivable			(75	)			(41	)
Other investing activities			1				16
Net cash used in investing activities			(726	)			(675	)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt			850				1,188
Proceeds from (retirement of) EnerBank notes, net			105				(12	)
Issuance of common stock			7				7
Retirement of long-term debt			(436	)			(1,074	)
Payment of common stock dividends			(103	)			(85	)
Payment of preferred stock dividends			(8	)			(8	)
Redemption of preferred stock			(13	)			(4	)
Payment of capital and finance lease obligations			(18	)			(17	)
Other financing activities			(49	)			16
Net cash provided by financing activities			335				11
Net Increase (Decrease) in Cash and Cash Equivalents, Including Assets Held for Sale			607				(30	)
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale			(1	)			4
Net Increase (Decrease) in Cash and Cash Equivalents			606				(26	)
Cash and Cash Equivalents, Beginning of Period			90				207
Cash and Cash Equivalents, End of Period		$	696			$	181