Fitch Rates Consumers Energy Co.'s $175MM FMB Issuance 'BBB-'; Outlook Stable.

CHICAGO -- Fitch Ratings has assigned a rating of 'BBB-' to Consumers Energy Co.'s (Consumers) $175 million issuance of 5.80% first mortgage bonds, due Sept. 15, 2035. Proceeds from the issuance will be used to redeem the outstanding portion of the company's 9.00% trust originated preferred securities due 2031 through a legal defeasance. The Rating Outlook is Stable.

The ratings for Consumers reflect the company's stable and predictable earnings and cash flow, as well as a relatively constructive regulatory environment in Michigan. The company benefits from low business risk as a regulated electric and gas utility in a solid service territory. Equity infusions from parent CMS Energy (CMS, senior unsecured rated 'B+', Outlook Positive by Fitch) have allowed Consumers to meet a requirement contained in the company's most recent gas rate order. The rate order imposed a requirement on Consumers to attain $2.3 billion of equity in its capital structure as a precondition of obtaining the annual $58 million gas surcharge. The equity infusions along with internally generated earnings have allowed Consumers to meet this precondition.

Near-term credit metrics are forecasted to improve marginally once the rate freeze for residential customers currently in place ends at year-end 2005. However, the utility's rating continues to be constrained by the legacy issues and high leverage of parent CMS.

Consumers has a number of regulatory filings pending with the Michigan Public Service Commission (MPSC), including a $320 million electric base rate increase and a $568 million recovery of regulatory assets, primarily related to Clean Air Act expenditures. In June 2005, the MPSC staff made its filing in the electric-rate case and recommended a $98 million increase. A final decision from the MPSC could occur by year-end. Recently, the administrative law judge in the regulatory asset recovery proceeding recommended recovery of $320 million. Assuming the final order is consistent with this recommendation, Consumers will recoup this amount over a five-year period. An MPSC decision is anticipated within the next few months. Most recently, Consumers filed an application with the MPSC for a $132 million gas base rate increase. Additionally, the company has requested an interim gas rate increase of $75 million by year-end 2005, the majority of which relates to higher gas prices, higher rate base, and increased equity levels. The prehearing conference is set for later on this month. Fitch notes that decisions on these matters will be important components of future rating actions.

Consumers, the principle subsidiary of CMS Energy, is a combination electric and natural gas utility that serves approximately 1.77 million electric and 1.67 million gas customers in Michigan's Lower Peninsula.

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