Summary of CMS ENERGY CORP

MANAGEMENT'S DISCUSSION AND ANALYSIS
This MD&A is a consolidated report of CMS Energy. The terms "we" and "our" as used in this report refer to CMS Energy and its subsidiaries as a consolidated entity, except where it is clear that such term means only CMS Energy. This MD&A 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 the MD&A contained in CMS Energy's Form 10-K for the year ended December 31, 2007.
FORWARD-LOOKING STATEMENTS AND INFORMATION This Form 10-Q and other written and oral statements that we make contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our intention with the use of words such as "may," "could," "anticipates," "believes," "estimates," "expects," "intends," "plans," and other similar words is to identify forward-looking statements that involve risk and uncertainty. We designed this discussion of potential risks and uncertainties to highlight important factors that may impact our business and financial outlook. We 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 our actual results to differ materially from the results anticipated in these statements. Such factors include our inability to predict or control:
• the price of CMS Energy Common Stock, capital and financial market conditions and the effect of such market conditions on our postretirement benefit plans, interest rates, and access to the capital markets including availability of financing (including our accounts receivable sales program and revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry,

• the impact of the continued downturn in the economy and the sharp downturn and extreme volatility in the financial and credit markets on CMS Energy including its:

• revenues,

• capital expenditure program and related earnings growth,

• ability to collect accounts receivable from our customers,

• access to capital, and

• contributions to the Pension Plan,

• market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates,

• credit ratings of CMS Energy or Consumers,

• factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints,

• changes in federal or state laws or regulations or in the interpretation of existing laws and regulations that could have an impact on our business,

• the impact of any future regulations or laws regarding carbon dioxide and other greenhouse gas emissions,

• national, regional, and local economic, competitive, and regulatory policies, conditions and developments,

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• adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with such interpretations or decisions, including but not limited to those that may affect Bay Harbor,

• potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant questions currently or potentially before the MPSC, including:

• recovery of Clean Air Act capital and operating costs and other environmental and safety-related expenditures,

• recovery of power supply and natural gas supply costs,

• timely recognition in rates of additional equity investments and additional operation and maintenance expenses at Consumers,

• adequate and timely recovery of additional utility rate-based investments,

• adequate and timely recovery of higher MISO energy and transmission costs,

• timely recovery of costs associated with energy efficiency investments and any state or federally mandated renewables resource standards,

• recovery of Big Rock decommissioning funding shortfalls,

• authorization of a new clean coal plant, and

• implementation of new energy legislation,

• adverse consequences resulting from a past or future assertion of indemnity or warranty claims associated with previously owned assets and businesses, including claims resulting from attempts by the governments of Equatorial Guinea and Morocco to assess taxes on past operations or transactions,

• the ability of Consumers to recover nuclear fuel storage costs due to the DOE's failure to accept spent nuclear fuel on schedule, including the outcome of pending litigation with the DOE,

• the impact of expanded enforcement powers and investigation activities at the FERC,

• federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of our market-based sales authorizations in wholesale power markets without price restrictions,

• energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity and certain related products due to lower or higher demand, shortages, transportation problems, or other developments,

• the impact of natural gas prices and coal prices on our cash flow and working capital,

• the impact of construction material prices,

• the availability of qualified construction personnel to implement our construction program,

• earnings volatility resulting from the GAAP requirement that we apply mark-to-market accounting to certain energy commodity contracts, including electricity sales agreements, and interest rate swaps,

• potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for such events,

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• 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,

• technological developments in energy production, delivery, usage, and gas storage,

• achievement of capital expenditure and operating expense goals,

• changes in financial or regulatory accounting principles or policies, including a possible future requirement to comply with International Financial Reporting Standards,

• changes in tax laws or new IRS interpretations of existing or past tax laws,

• the impact of our new integrated business software system on our operations, including customer billing, finance, purchasing, human resources and payroll processes, and utility asset construction and maintenance work management systems,

• the impact of credit market and economic conditions on EnerBank,

• the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations or claims, including those resulting from the investigation by the DOJ regarding round-trip trading and price reporting, and the pending appeal of the Quicksilver litigation, and

• other business or investment considerations that may be disclosed from time to time in CMS Energy's or Consumers' SEC filings, or in other publicly issued written documents.

For additional information regarding these and other uncertainties, see the "Outlook" section included in this MD&A, Note 4, Contingencies, and Part II, Item 1A. Risk Factors.

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EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan. We are the parent holding company of several subsidiaries, including Consumers and Enterprises. Consumers is a combination electric and gas utility company serving Michigan's Lower Peninsula. Enterprises, through its subsidiaries and equity investments, is engaged primarily in domestic independent power production. We manage our businesses by the nature of services each provides and operate principally in three business segments: electric utility, gas utility, and enterprises.
We earn our revenue and generate cash from operations by providing electric and natural gas utility services, electric power generation, gas distribution, transmission, and storage, and other energy-related services. Our businesses are affected primarily by:
• weather, especially during the normal heating and cooling seasons,

• economic conditions, primarily in Michigan,

• regulation and regulatory issues that affect our electric and gas utility operations,

• energy commodity prices,

• interest rates, and

• our debt credit rating.

During the past several years, our business strategy has emphasized improving our consolidated balance sheet and maintaining focus on our core strength:
utility operations and service.
Our forecast calls for investing about $6.7 billion in the utility over the period from 2009 through 2013, with a key aspect of our strategy being our Balanced Energy Initiative. Our Balanced Energy Initiative is a comprehensive energy resource plan to meet our projected short-term and long-term electric power requirements with energy efficiency, demand management, expanded use of renewable energy, development of new power plants, and pursuit of additional power purchase agreements to complement existing generating sources. In October 2008, the Michigan governor signed into law a comprehensive energy reform package. We plan to file an updated Balanced Energy Initiative with the MPSC in order to conform it to various aspects of this new legislation. Significant features of the new legislation include:
• a provision to streamline the regulatory process by generally allowing utilities to self-implement rates six months after filing and requiring the MPSC to issue an order 12 months after filing or the rates as-filed become permanent,

• reform of the Customer Choice Act to limit generally alternative energy suppliers to 10 percent of our weather-adjusted sales,

• establishment of a certificate-of-necessity process at the MPSC for proposed power plants, power purchase agreements, and projects costing more than $500 million,

• a requirement that 10 percent of power come from renewable sources by 2015 with specific interim targets, and

• new programs and incentives to encourage greater energy efficiency among customers, along with the requirement of the utility to prepare energy cost savings optimization plans.

In June 2008, the MPSC approved a settlement agreement that provides for an amended and restated MCV PPA and resolves the issues concerning our September 2007 exercise of the regulatory-out provision. The revised MCV PPA also provides more certainty of our access to 1,240 MW of the MCV Facility capacity through March 2025. The amended and restated MCV PPA took effect in October 2008.
As we work to implement plans to serve our customers in the future, the cost of energy and managing cash flow continue to challenge us. Natural gas prices and eastern coal prices have been fluctuating substantially. These costs are recoverable from our utility customers; however, as prices increase, the amount we pay for these commodities will require additional liquidity due to the lag in cost recoveries.

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In July 2008, we implemented an integrated business software system for customer billing, finance, work management, and other systems. We are also developing an advanced metering infrastructure system that will provide enhanced controls and information about our customer energy usage and notification of service interruptions. We expect to develop integration software and pilot this new technology over approximately the next two to three years. In the future, we will focus our strategy on:
• continuing investment in our utility business,

• growing earnings while controlling operating and fuel costs and parent debt,

• managing cash flow, and

• maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.

As we execute our strategy, we will need to overcome a Michigan economy that has been hampered by the continued downturn in Michigan's automotive industry and limited growth in the non-manufacturing sectors of the state's economy. There also has been a sharp downturn, uncertainty, and extreme volatility in the financial and credit markets resulting from the subprime mortgage crisis, bank failures and consolidation, and other market weaknesses. While we believe that our sources of liquidity will be sufficient to meet our requirements, we continue to monitor closely developments in the financial and credit markets and government response to those developments for potential implications for our business.