However, 1998 was an exceptional year of development for the future as $6 billion of acquisitions and new "greenfield" projects were successfully secured. These projects involve more than $3.5 billion of CMS Energy investment that will contribute greatly to our earnings growth over the next five years.

Net income in 1998 increased 17 percent to $285 million, and earnings per share grew 11 percent to $2.65. The common dividend was increased 10 percent to $1.32 annually--the sixth straight year of double-digit increases. This financial growth reflects strong performances by our utility and diversified energy businesses. Pretax operating income from diversified energy operations increased 33 percent, even though our exploration and production business suffered from the lowest oil prices in 13 years.

In Michigan, where our Consumers Energy utility operates, weather in 1998 was the warmest in more than 75 years. This dramatically reduced home heating sales and caused a 14 percent drop in total natural gas deliveries. However, electricity sales were strong, with deliveries increasing nearly 6 percent and operating earnings up 10 percent. That, and operational improvements in both the gas and electric businesses, helped the utility increase pretax operating income nearly 3 percent.

Acquisition Positions CMS Atop Midwest Market
The single most important development for CMS Energy last year was the agreement to acquire the Panhandle Companies for $2.2 billion--a strategically important group of natural gas pipelines and related facilities. The transaction was just completed in March of this year.

This purchase establishes CMS Energy as the premier energy company serving the Midwest. The 10,400 miles of gas pipeline connect CMS production, gathering and processing facilities in the Texas and Oklahoma Panhandle with our Michigan gas distribution and storage operations. The result is a seamless energy network that covers the entire energy spectrum, from the wellhead to the customer, from the Mid-Continent and South all the way to the Midwest.

This diversity will give CMS Energy important advantages as the country's utility industry is deregulated. That effort is already underway in Michigan, where Consumers Energy is midway through a three-year natural gas pilot program to test customer reaction.

Electric deregulation is also progressing in Michigan. In March of this year, the Michigan Public Service Commission issued a final order that phases in competition beginning this fall, while providing Consumers Energy with full recovery of its stranded costs. The transition culminates in 2002, when all customers will have the opportunity to shop among competing electricity providers.

Record Growth for Diversified Energy
CMS Energy's nonutility energy business, of course, is already highly competitive. CMS Energy again in 1998 proved that it is an industry leader, both in the U.S. and abroad. New business development reached $6 billion of acquisitions and new projects, including about $3.5 billion of CMS Energy investment. In addition to the Panhandle acquisition already discussed, these new acquisitions and development projects by CMS Energy or CMS-led consortia include: