CMS Energy and its subsidiaries provide retirement benefits under a number of different plans, including certain health care and life insurance benefits under its postretirement benefit plans other than pensions for retired employees (OPEB), benefits to certain management employees under its Supplemental Executive Retirement Plan (SERP), and benefits to substantially all its employees under a trusteed, non-contributory, defined benefit pension plan of Consumers and CMS Energy (Pension Plan), and a defined contribution 401(k) plan.

Amounts presented below for the Pension Plan include amounts for employees of CMS Energy and nonutility affiliates which were not distinguishable from the plan's total assets.

Retiree health care costs at December 31, 1998 are based on the assumption that costs would increase 6.5 percent in 1999, then decrease gradually to 5.5 percent in 2005 and thereafter.

Net Pension Plan, SERP and OPEB costs consist of:

The health care cost trend rate assumption significantly affects the amounts reported. A one percentage point change in the assumed health care cost trend assumption would have the following effects:

The funded status of CMS Energy's Pension Plan, SERP and OPEB plans is reconciled with the liability recorded at December 31 as follows:

SERP benefits are paid from a trust established in 1988. SERP is not a qualified plan under the Internal Revenue Code, and as such, earnings of the trust are taxable and trust assets are included in consolidated assets. At December 31, 1998 and 1997, trust assets were $53 million and $44 million, respectively, and were classified as other noncurrent assets. The accumulated benefit obligation for SERP was $31 million in 1998 and $25 million in 1997.

Contributions to the 40l(k) plan are invested in CMS Energy Common Stock. Amounts charged to expense for this plan were $18 million in 1998, $20 million in 1997, and $18 million in 1996.

Beginning January 1, 1986, the amortization period for the Pension Plan's unrecognized net transition asset is 16 years and 11 years for the SERP's unrecognized net transition obligation. Prior service costs are amortized on a straight-line basis over the average remaining service period of active employees.

CMS Energy and its subsidiaries adopted SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, effective as of the beginning of 1992 and Consumers recorded a liability of $466 million for the accumulated transition obligation and a corresponding regulatory asset for anticipated recovery in utility rates (see Note 2, Utility Regulation). The MPSC authorized recovery of the electric utility portion of these costs in 1994 over 18 years and the gas utility portion in 1996 over 16 years. At December 31, 1998, Consumers had a recorded FERC regulatory asset and liability of $6 million. The FERC has authorized recovery of these costs.

CMS Energy, Consumers, and Enterprises lease various assets, including vehicles, rail cars, aircraft, construction equipment, computer equipment, nuclear fuel and buildings. Consumers' nuclear fuel capital leasing arrangement expires in November 2000, yet provides for additional one-year extensions upon mutual agreement by the parties. Upon termination of the lease, the lessor would be entitled to a cash payment equal to its remaining investment, which was $72 million as of December 31, 1998. Consumers is responsible for payment of taxes, maintenance, operating costs, and insurance.

Minimum rental commitments under CMS Energy's noncancelable leases at December 31, 1998 were:

Consumers recovers lease charges from customers and accordingly charges payments for its capital and operating leases to operating expense. Operating lease charges, including charges to clearing and other accounts for the years ended December 31, 1998, 1997 and 1996, were $19 million, $10 million and $8 million, respectively.

Capital lease expenses for the years ended December 31, 1998, 1997 and 1996 were $42 million, $43 million and $46 million, respectively. Included in these amounts for the years ended 1998, 1997 and 1996 are nuclear fuel lease expenses of $23 million, $31 million and $25 million, respectively.

Consumers is responsible for providing its share of financing for the jointly owned utility facilities. The direct expenses of the joint plants are included in Consumers' operating expenses. The following table indicates the extent of Consumers' investment in jointly owned utility facilities:

CMS Energy operates principally in the following six reportable segments: electric utility; gas utility; independent power production; oil and gas exploration and production; natural gas transmission, storage and processing; and energy marketing, services and trading.

The electric utility segment consists of regulated activities associated with the generation, transmission and distribution of electricity in the State of Michigan. The gas utility segment consists of regulated activities associated with the production, transportation, storage and distribution of natural gas in the State of Michigan. The other reportable segments consist of the development and management of electric, gas and other energy-related projects in the United States and internationally, including energy trading and marketing. CMS Energy's reportable segments are strategic business units organized and managed by the nature of the products and services each provides. The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies. CMS Energy's management evaluates performance based on pretax operating income. Intersegment sales and transfers are accounted for at current market prices and are eliminated in consolidated pretax operating income by segment.

The Consolidated Statements of Income show operating revenue and pretax operating income by reportable segment. Revenues from an international energy distribution business and a land development business fall below the quantitative thresholds for reporting. Neither of these segments has ever met any of the quantitative thresholds for determining reportable segments. Other financial data for reportable segments and geographic area are as follows:

In Millions
Years Ended December 31		1998	1997	1996
Investments in Equity Method Investees
	Independent power production	$1,337	$1,205	$683
	Natural gas transmission, storage and processing	494	241	225
	Marketing, services and trading	25	26	-
	Other	217	274	85
		$2,073	$1,746	$993
Earnings from Equity Method Investees(c)
	Independent power production	$158	$89	$91
	Natural gas transmission, storage and processing	9	4	3
	Marketing, services and trading	2	2	-
	Other	2	8	8
		$171	$103	$102

Geographic Areas^(d)

16: Supplemental Cash Flow Information

For purposes of the Consolidated Statements of Cash Flows, all highly liquid investments with an original maturity of three months or less are considered cash equivalents. Other cash flow activities and noncash investing and financing activities were:

Changes in other assets and liabilities as shown on the Consolidated Statements of Cash Flows are described below:

Certain of CMS Energy's investments in companies, partnerships and joint ventures, where CMS Energy's ownership in its affiliates is more than 20 percent but less than a majority, are accounted for by the equity method. Consolidated net income includes undistributed equity earnings of $95 million in 1998, $58 million in 1997, and $55 million in 1996 from these investments. The more significant of these investments are CMS Energy's 50 percent interest in Loy Yang, a 2,000 MW brown coal-fueled power plant and coal mine in Australia, and CMS Energy's 50 percent interest in Jorf Lasfar, a 1,356 MW coal-fueled power plant in Africa. Summarized combined financial information of CMS Energy's equity method investees follows, except for the MCV Partnership, which is disclosed separately in Note 18.

Under the PPA with the MCV Partnership discussed in Note 3, Consumers' 1998 obligation to purchase electric capacity from the MCV Partnership was 15.5 percent of Consumers' owned and contracted capacity. Summarized financial information of the MCV Partnership follows:

19: Subsequent Event

In 1999, CMS Energy completed the acquisition of the Panhandle Companies from Duke Energy Corporation for a cash payment of $1.9 billion and existing Panhandle Companies debt of $300 million. The Panhandle Companies are primarily engaged in the interstate transportation and storage of natural gas. The transaction will be accounted for under the purchase method of accounting.

The acquisition of the Panhandle Companies initially was financed in part with bridge loan facilities negotiated with domestic banks and in part with approximately $800 million of debt securities issued by the Panhandle Companies. CMS Energy expects to permanently finance the acquisition with existing arrangements as well as the sale of approximately $600 million of CMS Energy Common Stock and other CMS Energy securities.

The following unaudited pro forma combined selected financial information assumes: (i) various restructuring, realignment and elimination of activities between the Panhandle Companies and Duke Energy Corporation prior to closing; (ii) adjustments resulting from the acquisition; and (iii) Panhandle Companies and CMS Energy financing transactions (except bridge financing fees) completed to facilitate the acquisition, as if the acquisition had occurred on January 1, 1998. Unaudited pro forma amounts for operating revenue, consolidated net income, basic earnings per share and total assets were $5.6 billion, $319 million, $2.66 and $13.8 billion, respectively.

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