October 14, 2004

The Michigan Public Service Commission (MPSC) today issued an order authorizing Consumers Energy Company to increase its annual gas revenues by $58,124,000 using a surcharge. The surcharge, implemented through use of an equal percentage increase by rate class, is conditioned on CMS' and Consumers Energy's agreement to carry through with their stated financial plan.

"The rate increase approved today recognizes Consumers Energy's safety, pension, and health care expenses," noted MPSC Chair J. Peter Lark. "It provides the company with the funds for natural gas storage to meet the heating needs of Michigan citizens this winter. Preserving gas storage will also allow the utility to take advantage of cheaper gas supplies if they become available."

Consumers Energy Company on March 14, 2003 filed an application seeking authority to increase its rates for transportation, storage and distribution of natural gas within its service territories in the annual amount of not less than $155,997,000 and for other relief. On December 18, 2003, the Commission granted Consumers Energy interim rate relief in the annual amount of $19,340,000.

The MPSC in today's order granted the company the authority only to increase its natural gas utility service rates for certain safety-related purposes; pension expenses; employee and retiree health expenses; and gas storage expenses, as outlined in the chart below:

Safety O&M         $19,292,000
Pension                   $3,777,000
Retiree Health         $3,400,000
Employee Health     $4,255,000
Storage                 $27,400,000
Total                     $58,124,000

The surcharge is approved for a two-year period, and the company must file a rate case within two years to allow the Commission to review an appropriate level of revenues and expenses for the company.

To ensure that funds provided for the utility's use will in fact remain with the utility and are used for the approved purposes, the MPSC is conditioning approval of the surcharge on CMS' and Consumers Energy's agreement to meet specified requirements, including carrying through on their stated financial plan - achieving a common equity level of at least $2.3 billion by the end of 2005 and proposing a plan to improve the common equity level after that until the company's target capital structure is reached. The MPSC will review the company's common equity at the end of 2005 and if the $2.3 billion common equity level has not been reached, the MPSC may reexamine the surcharge. In the event that the rate of return on common equity exceeds the company's authorized rate of return on common equity of 11.4 percent, the company will be required to return all excess revenues to ratepayers - either through a reduction in the surcharge amount for the following 12 months or, if the surcharge has ended, through a refund.

The company has 30 days after the conclusion of each 12-month period following the effective date of the surcharge to file a report with the MPSC stating all income from the surcharge by rate class. In addition, the report will list safety-related expenditures funded by the surcharge revenues and how they comply with the company's stated safety-related needs; pension expenditures; retiree and employee healthcare expenses; balances in utility gas sales inventory in dollars and volumes; a statement of retained earnings; a statement of cash flow; a reconciliation of beginning and ending common equity balances; and the rate of return on common equity calculations as provided in the MPSC order.

Consumers Energy has 30 days following the effective date of the surcharge to file revised rate schedules, reflecting the rates approved in today's order.

The Commission last granted the company an annual increase of $55.7 million in its natural gas service rates on Nov. 7, 2002 (Case No. U-13000).

The MPSC is an agency within the Department of Labor & Economic Growth.

Case No. U-13730

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