UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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CMS Energy Corporation
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SEC 1913 (02-02)
[CMS ENERGY LOGO]
CMS ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 2006
To Fellow Shareholders of CMS Energy Corporation:
Our annual meeting of shareholders of CMS Energy Corporation (the "Corporation")
will be held on Friday, May 19, 2006, at 9:00 A.M., Eastern Daylight Saving
Time, at our corporate headquarters located at One Energy Plaza, Jackson,
Michigan 49201. The purposes of the annual meeting are to:
(1) Elect eleven members to the Corporation's Board of Directors;
(2) Consider a proposal to ratify the appointment of an independent
registered public accounting firm to audit the Corporation's
consolidated financial statements for the year ending December 31, 2006;
and
(3) Transact such other business as may properly come before the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2. The proxy
holders will use their discretion on other matters that may arise at the annual
meeting.
Our annual report to the shareholders for the year 2005, including the Form 10-K
with our consolidated financial statements, previously has been furnished to
you.
All shareholders are invited to attend our annual meeting. If you were a
shareholder of record at the close of business on March 31, 2006, you are
entitled to vote. Every vote is important. Please vote using a touch-tone
telephone, the Internet, or by signing and returning the enclosed proxy card.
You can help minimize our costs by promptly voting via telephone or the
Internet.
By Order of the Board of Directors
Michael D. VanHemert
Corporate Secretary
CMS Energy Corporation
One Energy Plaza
Jackson, Michigan 49201
April 14, 2006
PROXY STATEMENT
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TABLE OF CONTENTS
INTRODUCTION
General................................................... Page 1
Proposals Subject To Shareholder Vote..................... Page 2
Ways To Vote Your Proxy................................... Page 2
Proxy Voting Confidentiality Policy....................... Page 2
CORPORATE GOVERNANCE
Background................................................ Page 2
Majority Voting Policy.................................... Page 3
Director Nominations and Retirements...................... Page 4
Director Communication Process............................ Page 4
Shareholder Recommendation Process........................ Page 5
Director Independence..................................... Page 5
Code Of Ethics............................................ Page 5
Board And Committee Information........................... Page 6
PROPOSAL 1: ELECT ELEVEN MEMBERS TO THE CORPORATION'S BOARD
OF DIRECTORS.............................................. Page 11
VOTING SECURITY OWNERSHIP................................... Page 14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... Page 15
BUSINESS RELATIONSHIPS...................................... Page 15
COMPENSATION OF DIRECTORS................................... Page 16
COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT........... Page 17
EXECUTIVE COMPENSATION...................................... Page 20
AUDIT COMMITTEE REPORT...................................... Page 23
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM...................................................... Page 24
PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM.................................... Page 25
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG CMS,
S&P 500 INDEX & DOW JONES UTILITY INDEX................... Page 26
2007 PROXY STATEMENT INFORMATION............................ Page 26
OTHER MATTERS............................................... Page 27
PROXY STATEMENT
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INTRODUCTION
GENERAL
The Board of Directors of CMS Energy Corporation ("CMS" or the "Corporation")
solicits your proxy for our annual meeting of shareholders. Your shares will be
voted as you request if your proxy voting instructions are received prior to the
annual meeting. You may revoke your proxy at any time before it is voted at the
annual meeting.
As of March 31, 2006, the Corporation's only outstanding securities entitled to
vote at the annual meeting consisted of a total of 220,998,137 shares of Common
Stock ($.01 par value). Each outstanding share is entitled to one vote on all
matters that come before the annual meeting. All shares represented by valid
proxies will be voted at the annual meeting.
The presence of the holders of a majority of the shares of CMS Common Stock in
person or by proxy at the annual meeting will constitute a quorum, which is
needed to transact any business. The determination of approval of corporate
action by the shareholders is based on votes "for" and "against" (or "withhold
authority" in the context of the election of directors). In general, abstentions
are not counted as "against" or "withhold authority" votes but are counted in
the determination of a quorum. With respect to Proposal 1 below, the election of
each director requires approval from a plurality of the shares voted. On
Proposal 2, approval requires votes "for" by a majority of the shares voted.
Although Michigan law provides for the election of directors by a plurality of
voted shares as described above, the CMS Board of Directors recently adopted a
majority voting policy in order to offer our shareholders a meaningful
alternative to plurality voting. Under this policy, any director nominee who
receives less than a majority of the votes cast by our shareholders shall tender
his or her resignation for a determination by disinterested members of the Board
whether to accept or decline that director's resignation. This policy is
described in greater detail later in this proxy statement under the heading
CORPORATE GOVERNANCE -- Majority Voting Policy.
The terms "we" and "our" as used in this proxy statement generally refer to CMS
Energy Corporation and its collective affiliates, including its principal
subsidiary Consumers Energy Company ("Consumers"). While established, operated
and regulated as separate legal entities and publicly traded companies, CMS and
Consumers historically have had the same individuals serve as members of both
Boards of Directors and Committees of the Board, adopted coordinated director
and executive compensation arrangements and plans as well as auditing
relationships. The two companies also historically have significant overlap in
executive management. Thus, in certain contexts in this proxy statement, the
terms "our" and "we" refer to each of CMS and Consumers and satisfy their
respective disclosure obligations. In addition, the disclosures frequently
reference "Boards" and "Committees" and similar plural presentations to reflect
these parallel structures of CMS and Consumers.
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PROPOSALS SUBJECT TO SHAREHOLDER VOTE
1) Elect eleven members to the Corporation's Board of Directors; and
2) Ratify the appointment of an independent registered public accounting firm to
audit the Corporation's consolidated financial statements for the year ending
December 31, 2006.
Detailed descriptions of each of these proposals can be found later in this
proxy statement.
WAYS TO VOTE YOUR PROXY
PLEASE VOTE USING A TOUCH-TONE TELEPHONE, THE INTERNET, OR BY SIGNING AND
RETURNING THE ENCLOSED PROXY CARD. YOU CAN HELP MINIMIZE OUR COSTS BY PROMPTLY
VOTING VIA TELEPHONE OR THE INTERNET.
PROXY VOTING CONFIDENTIALITY POLICY
CMS shareholder voting is confidential (except as may become necessary to meet
applicable legal requirements or in the event a proxy solicitation in opposition
to the election of the Corporation's Board nominees is initiated). This is true
for all beneficial holders, including employees and retirees who are
shareholders through participation in the Employee Savings Plan (our 401(k)
plan). Confidentiality of the proxy voting process means:
- Anyone who has access to voting information will not discuss how any
individual shareholder votes;
- Proxy cards and proxy forms are to be kept in a secure area so that no one has
access to them except for the persons assigned to handle and tabulate the
proxies;
- Whether a shareholder has or has not voted is confidential, just as is how a
shareholder votes;
- Any comments provided by shareholders are confidential. Certain specific
comments and summaries of comments are provided to management, but there is no
disclosure of who made the comments;
- Proxy voting tabulations will be provided to management and to others as
appropriate, but the results provided will be only totals and meaningful
subtotals; and
- The confidentiality policy discussed above relates to all beneficial holders,
although banks and brokers who hold shares on behalf of others will continue
to be subject to proxy solicitation rules as is standard in the industry.
CORPORATE GOVERNANCE
BACKGROUND
In March of 2003, the CMS and Consumers Boards of Directors adopted Corporate
Governance Principles (the "Principles") that generally formalized long-standing
corporate and Board practices, although with various updated aspects reflecting
developing best practices as well as Securities and Exchange Commission ("SEC")
and New York Stock Exchange ("NYSE") standards. The Principles detail the role
of the Boards and their Committees, the selection and role of the Chief
Executive Officer, the composition and meeting procedures of the Boards and
their Committees, as well as Board and Committee compensation and
self-evaluation guidelines. At the same time, the Boards adopted, upon the
recommendations of their Governance and Public Responsibility Committees as well
as
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the applicable Committees, Charters for each of their standing Committees that
detailed their purposes and duties, composition, meetings, performance
evaluations, resources and authority as well as other aspects of Committee
activities.
In March of 2005 the Boards approved an amendment and restatement of the
Principles and several Committee Charters pursuant to the Governance and Public
Responsibility Committees' recommendations. The changes to the Principles
included a refinement in the respective duties of the separate offices of
non-executive Chairman of the Board and Chief Executive Officer for each of CMS
and Consumers. In addition, the Principles were amended to make mandatory the
companies' recommended director retirement age of 75, as well as to establish
limits on the number of public company boards on which CMS and Consumers'
directors can serve, such that our Chief Executive Officer and Vice Chairman
only can serve on two such other boards, and our other directors only can serve
on five such other boards.
The current versions of our Principles and Charters, as well as other corporate
governance information, are available through our Website at www.cmsenergy.com.
Effective March 1, 2006, the CMS Board elected the incumbent Corporate Secretary
as the Corporation's inaugural Chief Governance Officer, in the context of
distinguishing the responsibilities of the Corporation's newly designated Chief
Legal Officer and General Counsel. The primary responsibility of the Chief
Governance Officer is to provide a point of accountability for ensuring that CMS
and Consumers fulfill all legal and regulatory requirements for public company
governance, as well as to assist the Boards and management in maintaining
governance best practices at all levels of the Corporation.
MAJORITY VOTING POLICY
At a March 2006 meeting of the Governance and Public Responsibility Committees,
the Committees continued their deliberations on the topic of enhancing director
accountability by means of some form of shareholder majority voting practice.
The Chief Governance Officer highlighted certain considerations detailed in the
background and recent developments white paper that previously had been mailed
to the Committee members, including the differences between Michigan law
mandating the Corporation's election of directors by "plurality vote" absent
explicit authority in its articles of incorporation to do otherwise, and the
provisions of Delaware law that allowed companies incorporated thereunder to
effectively implement mandatory majority voting provisions by means of bylaw
amendments. Upon the Committees' recommendation, the Board on March 30, 2006
adopted a director resignation policy that will be embodied in the Corporation's
amended Principles effective with the May 2006 annual meeting of shareholders.
Pending approval of such amended Principles, the director resignation policy
will be posted separately on the Corporation's website.
Under the Board's majority voting policy, any director nominee who receives less
than a majority of the votes cast by the Corporation's shareholders at a regular
election shall promptly tender his or her resignation. For this purpose, a
majority of the votes cast means that the number of shares voted "for" a
director must exceed 50% of the votes cast with respect to that director,
without regard to the effect of abstentions. Upon receipt of such a tendered
resignation, the Governance and Public Responsibility Committees shall consider
and recommend to the Boards whether to accept or decline it. The Boards will act
on the Committees' recommendation within 90 days following certification of the
shareholder vote, and contemporaneously with that action will cause the
Corporation to publicly disclose the Board's decision whether to accept or
decline such director's resignation offer (and the reasons for rejecting the
resignation offer, if appropriate). The director who tenders his or her
resignation pursuant to the policy will not be
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involved in either the Committees' recommendation or the Boards' decision on
accepting or declining the resignation. Due to complications that arise in the
event of a contested election of directors, this policy would not apply in that
context, and the underlying plurality vote requirement of Michigan law would
control director elections.
DIRECTOR NOMINATIONS AND RETIREMENTS
In March of 2006, the Governance and Public Responsibility Committees
recommended to the Boards the nominations of eleven continuing directors to
serve on the Boards of CMS and Consumers, effective with their proposed election
by shareholders at the May 19, 2006 annual meeting. Mr. Barfield, who was
appointed to the Boards effective September 1, 2005, was brought to the
Governance and Public Responsibility Committees' attention by a director search
firm retained for that purpose. He also was known to the Chairman and Vice
Chairman of the Boards, as well as several other directors, due to their common
service on various civic and charitable boards and activities in Michigan. Mr.
Smith is not being re-nominated to the Boards as a result of having reached the
director mandatory retirement age of 75, as described above. Mr. Holton, another
current member of the Boards and their presiding director, decided not to seek
re-election due to his desire to reduce his corporate board responsibilities in
light of his charitable and civic commitments. Thus, the Boards approved a
decrease in their size by two members, for a total of eleven directors each,
effective with the 2006 annual meeting of shareholders.
DIRECTOR COMMUNICATION PROCESS
CMS and Consumers shareholders, employees or third parties can communicate on
any topic with the Boards of Directors, Committees of the Boards or an
individual director, including our Chairman of the Boards, or our presiding
director at executive sessions of the Boards, by sending written communications
c/o the Corporate Secretary, CMS Energy Corporation or Consumers Energy Company,
One Energy Plaza, Jackson, MI 49201. The Corporate Secretary will review and
forward such communications to the Boards or the appropriate Committees or
director. Further information regarding shareholder, employee or other
third-party communications with the Boards or their Committees or individual
members can be accessed at the Corporation's Website.
Any shareholder, employee or third party who wishes to submit a compliance
concern to the Boards or applicable Committees, including complaints regarding
accounting, internal accounting controls or auditing matters to the Audit
Committees, may do so by any of the following means:
- send correspondence or materials addressed to the appropriate party c/o the
Chief Compliance Officer, CMS Energy Corporation or Consumers Energy Company,
One Energy Plaza, Jackson, MI 49201;
- send an e-mail or other electronic communication via our external Website
www.ethicspoint.com, again addressed to the appropriate party; or
- call the CMS and Consumers Compliance Hotlines at either 1-800-CMS-5212 (an
internally monitored line) or 1-866-ETHICSP (monitored by an external vendor).
All such communications initially will be reviewed by the Chief Compliance
Officer (who reports directly to the Boards) prior to being forwarded to the
Boards or applicable Committees or directors.
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SHAREHOLDER RECOMMENDATION PROCESS
Shareholders can submit recommendations of nominees for election to the Boards
of Directors. Shareholders' recommendations will be provided to the Governance
and Public Responsibility Committees for consideration. The recommendations
should include (a) the qualifications of the proposed nominee to serve on the
Boards, (b) the principal occupation and employment of the proposed nominee for
the past five years, (c) each directorship, trustee position or similar position
currently held by the proposed nominee, and (d) a statement from the proposed
nominee that he or she has consented to the submission of the recommendation.
Shareholders should send their written recommendations of nominees c/o the
Corporate Secretary, CMS Energy Corporation or Consumers Energy Company, One
Energy Plaza, Jackson, MI 49201.
DIRECTOR INDEPENDENCE
The Boards undertook their annual review of director and Committee member
independence, including a review of each director's charitable affiliations
vis-a-vis CMS and Consumers charitable contributions, at their March 2006
meetings. The Boards affirmed the "independent" status (in accordance with the
listing standards of NYSE) of all of their non-employee directors (with the
exception of Mr. Whipple who served as the Chief Executive Officer of CMS and
Consumers from May 2002 through his resignation effective at the end of
September 2004) based upon the following:
- No non-employee director has a material relationship with CMS or Consumers
(either directly or as a partner, shareholder or officer of an organization
that has a relationship with CMS or Consumers).
- During the last three years, no non-employee director or his or her family
member:
- received more than $100,000 in direct compensation from CMS or Consumers (in
excess of payments for Board and Committee service);
- was affiliated with or employed by the present or former auditors of CMS or
Consumers;
- was employed as an executive officer by another company that has an
interlocking compensation committee with CMS or Consumers;
- was an officer or employee of a company to which CMS or Consumers made or
received payments of $1 million, or 2% of the other company's consolidated
gross revenues; and
- has been an employee of CMS or Consumers.
CODE OF ETHICS
CMS has adopted a code of ethics that applies to its Chief Executive Officer,
Chief Financial Officer and Chief Accounting Officer, as well as all other
officers and employees of the Corporation and its affiliates, including
Consumers. The code of ethics is included in our Code of Conduct and Statement
of Ethics Handbook, which can be found on our Website at www.cmsenergy.com. Our
Code of Conduct and Statement of Ethics, including the code of ethics, is
administered by the Chief Compliance Officer, who reports directly to the Audit
Committees of our Boards of Directors.
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BOARD AND COMMITTEE INFORMATION
The CMS Board of Directors met 11 times and Consumers' Board of Directors met 7
times during 2005. In addition, the CMS Board took action by written consent in
lieu of additional meetings 2 times in 2005, and the Consumers Board did so 4
times. All incumbent directors attended more than 75% of the CMS Board and
assigned committee meetings during 2005. Our Principles state the expectation
that all Board members attend all scheduled board and committee meetings, as
well as the annual meeting of shareholders. All Board members attended the 2005
annual meeting of shareholders except for Mr. Gabrys, who was newly elected at
that meeting but had a previous commitment.
The various standing committees of the Boards of Directors are listed below.
Each committee is composed entirely of "independent" directors, as that term is
defined by the NYSE listing standards described above, other than the Executive
Committees of which Mr. Whipple serves as Chair. Employee directors served on no
other committees during 2005.
On a regularly scheduled basis, the independent directors meet in executive
session (that is, with no employee director present) and may invite such members
of management to attend as they determine appropriate. Mr. Whipple is often
invited to attend such sessions, especially since he became non-executive
Chairman effective October 1, 2004. At least once each year, the independent
directors meet in executive session without Mr. Whipple present in conformance
with the NYSE listing standards.
AUDIT COMMITTEES
Members: Michael T. Monahan (Chair), Richard M. Gabrys, Joseph F. Paquette, Jr.,
and Kenneth L. Way
Meetings during 2005: CMS 9; Consumers 8
Each of the members of the Audit Committees is an independent director, and each
qualifies as an "audit committee financial expert" based upon the following
qualifications:
- Educational background;
- Prior service as chief financial officer and/or chief executive officer
actively supervising accounting activities;
- Understanding of generally accepted accounting principles and financial
statements; and
- Membership on various audit committees.
The primary functions of the Audit Committees are to:
- Assure the integrity of CMS' and Consumers' consolidated financial statements
and financial information, the financial reporting process and the system of
internal accounting and financial controls;
- Assure CMS' and Consumers' compliance with applicable legal requirements,
regulatory requirements, and NYSE rules;
- Appoint, compensate and terminate CMS' and Consumers' independent auditors;
- Pre-approve all audit and non-audit services provided by the independent
auditors;
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- Assure the independent auditors' qualifications and independence;
- Review the performance of the internal audit function and independent
auditors;
- Review CMS' and Consumers' risk management policies, controls and exposures;
- Prepare the Audit Committee Report for inclusion in the annual proxy
statement;
- Assure compliance with the Corporation's Code of Conduct and Statement of
Ethics Handbook including approval of any waiver of the provisions applicable
to executive officers and receipt of periodic reports from the Chief
Compliance Officer concerning compliance activities relating to the Code and
Statement; and
- Perform their duties in a manner consistent with the Audit Committee Charters
adopted by the Boards of Directors.
The Audit Committee Charters were amended and restated in each of April 2004 and
February 2005. The amendments and restatements were responsive to the
requirements of the Sarbanes-Oxley Act of 2002, the corresponding subsequently
enacted rules and regulations of the SEC, the 2003 and 2004 revisions to the
listing standards of the NYSE, as well as continuing refinement of the Audit
Committees' functions in response to developments at the Corporation and in
corporate governance generally. The Audit Committee Charter, as amended and
restated from time-to-time, is available on our Website.
COMPENSATION AND HUMAN RESOURCES COMMITTEES
Members: John B. Yasinsky (Chair), Jon E. Barfield, Earl D. Holton, Philip R.
Lochner, Jr., and Percy A. Pierre
Meetings during 2005: CMS 6; Consumers 5
The primary functions of these committees are to:
- Annually review the Corporation's executive compensation structure and
policies, including the establishment and adjustment of executive officers'
base salaries, annual and long-term incentive targets and incentive payments
consistent with the achievement of such targets as well as produce an annual
report on such compensation to shareholders in accordance with the rules and
regulations of the SEC and other appropriate regulatory agencies (The
Compensation and Human Resources Committee Report and related executive
compensation disclosures can be found beginning on page 17 of this proxy
statement.);
- Review and approve corporate goals and objectives relevant to the Chief
Executive Officer's compensation, evaluate the Chief Executive Officer's
performance in view of those goals and objectives, and set the Chief Executive
Officer's compensation level based on this evaluation;
- Annually determine corporate financial and business goals and target awards
pursuant to the Corporation's incentive plans, and approve the payment of cash
performance bonuses to employees in the aggregate, consistent with achievement
of such goals;
- Approve the grant of stock, stock options and other stock-based awards
pursuant to the Corporation's incentive plans, and the terms thereof,
including the vesting schedule, performance goals, exercisability and term, to
the Corporation's employees, including officers;
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- Review and recommend to the Boards of Directors incentive compensation plans,
equity-based plans, and tax qualified retirement and investment plans and
amendments thereto, with the exception of certain amendments which are
delegated to specified officers of the Corporation or administrators under the
terms of the plans, including supplemental retirement plans, change-in-control
severance agreements, deferred compensation programs, stock award programs,
employment, separation and management agreements;
- Review and approve management proposals regarding other compensation and
benefit programs, plans and guidelines;
- Annually review and advise the Boards of Directors concerning the
Corporation's management succession plan, including long-range plans for
development and selection of key managers and plans for emergency succession
in case of unexpected disability or departure of a senior executive officer;
- Review organizational and leadership development plans and programs, and
programs designed to identify, attract and retain high potential employees;
- Review and monitor CMS' and Consumers' policies and objectives related to
equal employment opportunity;
- Review CMS' and Consumers' policies to comply with federal and state laws and
regulations affecting personnel matters;
- Perform such other functions as may be allocated to the Committee under the
terms of the Corporation's employee benefit and executive compensation plans;
and
- Carry out additional functions and adopt additional policies and procedures as
may be appropriate in light of changing business, legislative, regulatory,
legal or other conditions.
FINANCE AND PENSION COMMITTEES
Members: Kenneth L. Way (Chair), Merribel S. Ayres, Richard M. Gabrys, Michael
T. Monahan, and Percy A. Pierre
Meetings during 2005: CMS 3; Consumers 3
The Finance and Pension Committees review and make recommendations to the Boards
concerning the financing and investment plans and policies of the Corporation.
These committees have the authority, acting for and on behalf of the Boards and
consistent with the protection of the interests of investors, to consider and
recommend to the Boards as appropriate:
- Short- and long-term financing plans, including the sales or repurchases of
common and preferred equity and long-term debt;
- Financial policies including cash flow, capital structure, and dividends;
- Risk management policies including foreign exchange management, hedging, and
insurance; and
- Investment performance, funding, and asset allocation policies for employee
benefit plans and nuclear decommissioning trusts.
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GOVERNANCE AND PUBLIC RESPONSIBILITY COMMITTEES
Members: Joseph F. Paquette, Jr. (Chair), Merribel S. Ayres, Jon E. Barfield,
Earl D. Holton, Philip R. Lochner, Jr., and John B. Yasinsky
Meetings during 2005: CMS 6; Consumers 5
The primary functions of these committees are to:
- Develop and recommend to the Boards of Directors such corporate and Board
governance principles as may be deemed necessary by the Committees to ensure
that the Corporation effectively protects and enhances shareholder value;
- Monitor the practices of the Boards of Directors to ensure compliance with the
Corporation's Corporate Governance Principles;
- Evaluate and review the performance of the Boards of Directors as a whole in
order to increase the overall effectiveness of the Boards of Directors, and
report the results of their evaluation to the Boards of Directors annually;
- Recommend ways in which the Boards of Directors could improve their
performance;
- Conduct continuing study of the size, structure, composition and compensation
of the Boards and any committees thereof;
- Seek possible candidates to fill Board positions, and aid in attracting
qualified candidates to the Boards;
- Make recommendations to the Boards of Directors regarding significant
environmental matters affecting CMS' and Consumers' operations;
- Advise the Boards on the adoption and evaluation of policies designed to
maintain CMS' and Consumers' position of corporate responsibility;
- Assess, on a regular basis, the personal characteristics and business
experience needed by the Boards in the context of the current composition of
the Boards;
- Recommend, prior to the solicitation of proxies, a slate of qualified
candidates for election to the Boards at any meeting of shareholders at which
directors are to be elected and, in case of a vacancy on a Board (including a
vacancy created by an increase in the size of the Board), a candidate to fill
that vacancy. Such recommendations should consider the above-referenced
characteristics and experience as well as:
- The interplay of the candidate's experience with the experience of other
Board members;
- Attendance at meetings of directors;
- A balanced range of business experiences; and
- Other matters relevant to the appropriate representation of the interests of
the shareholders in carrying out the Corporation's responsibilities to the
public;
- Consider the nomination by any shareholder of a candidate for election as a
director of the Corporation, provided that the shareholder has submitted a
written request and related information to the Secretary of the Corporation at
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the required time prior to any meeting of shareholders at which directors are to
be elected, together with the written consent of such person to serve as a
director;
- Review periodically and recommend to the Boards modifications, as appropriate,
to the tenure policy; and
- Determine from time to time other criteria for selection and retention of
Board members.
EXECUTIVE COMMITTEES
Members: Kenneth Whipple (Chair), Michael T. Monahan, Joseph F. Paquette, Jr.,
Kenneth L. Way, and John B. Yasinsky
Meetings during 2005: CMS 0; Consumers 0
The primary function of these committees is to:
- Exercise the power and authority of the Boards of Directors as may be
necessary during the intervals between meetings of the Boards, subject to such
limitations as are provided by law or by resolution of the Boards.
AD HOC OR SPECIAL COMMITTEES
The standing committees listed above have continuing duties. In addition, the
Boards of Directors have, from time to time, established ad hoc or special
committees to address specific major issues facing CMS and/or Consumers. Ad hoc
or special committees do not have continuing duties; they exist only until they
complete their specified duties. The most significant such committee that was
active during 2005 was the Boards' Special Litigation Committee, as discussed
below.
Special Litigation Committee
The CMS Board of Directors established this special committee in December 2002
and confirmed its duties in January 2003. The purpose of the Special Litigation
Committee was to investigate and evaluate the allegations and issues raised by a
shareholder who had requested that the Corporation institute a derivative
proceeding against certain of our directors and officers, and to make a good
faith determination whether the maintenance of the derivative proceedings was in
the Corporation's best interests, in accordance with Michigan law.
The Special Litigation Committee was granted the full power and authority of the
Board of Directors with respect to investigating, evaluating and taking action
regarding the shareholder demand and the allegations and issues raised therein,
including without limitation the power and authority to assert claims and to
initiate and pursue litigation on the Corporation's behalf relating to such
matters, to settle or compromise any such claim or lawsuit, and to seek
dismissal of any related derivative proceeding pursuant to Michigan law. The
Board designated two "disinterested" and "independent" directors under Michigan
law to serve as members of this committee.
On July 7, 2005, the parties to the derivative proceeding and the Special
Litigation Committee signed a settlement agreement in the form of a Stipulation
of Settlement. The terms of the settlement, including a $12 million payment to
CMS under its directors and officers liability insurance program to pay related
legal costs, as well as certain corporate governance measures taken by CMS, were
subject to court approval. The court entered the Final Order
10
and Judgment approving the proposed settlement on August 26, 2005. This Final
Order and Judgment effectively ended the duties of the Special Litigation
Committee.
Pursuant to the indemnification requirements of the CMS Restated Articles of
Incorporation, as well as applicable Board resolutions and provisions of
Michigan law, the Corporation has paid the expenses (including attorney's fees)
of certain of its current and former officers and directors incurred in
connection with the proceedings described above, as well as those incurred in
other completed regulatory investigations. The Corporation continues to pay
similar expenses related to pending legal proceedings. These investigations and
proceedings are further described in CMS' Annual Report on Form 10-K for the
year ended December 31, 2005. Each of these individuals has provided an
undertaking to repay all amounts advanced if it is ultimately determined that he
or she is not entitled to be indemnified under Michigan law. The Corporation
maintains directors, officers and fiduciaries insurance coverage that may allow
for reimbursement for some or all of these advanced amounts.
PROPOSAL 1: ELECT ELEVEN MEMBERS TO THE CORPORATION'S BOARD OF DIRECTORS
As previously detailed in this proxy statement under the heading "INTRODUCTION",
the nominees for directors are proposed to serve on the parallel Boards of
Directors of each of CMS and Consumers, to hold office until the next annual
meeting or until their successors are elected and qualified. Unless a
shareholder votes to "withhold authority" for the election of directors as
provided in the enclosed proxy card, the returned proxy will be voted for the
listed nominees. The Boards believe that the nominees will be available to
serve, but in the event any nominee is unable to do so, the CMS proxy will be
voted for a substitute nominee designated by the Board, or the number of
directors constituting the full Board will be reduced accordingly.
All of the nominees are presently serving as directors and were previously
elected by shareholders, except for Jon E. Barfield, who is proposed to be newly
elected to the Boards at the annual meeting of shareholders. Mr. Barfield, who
was appointed to the Boards in August 2005, was brought to the Governance and
Public Responsibility Committees' attention by a director search firm retained
for that purpose. He also was known to the Chairman and Vice Chairman of the
Boards, as well as several other directors, due to their common service on
various civic and charitable boards and activities in Michigan. Mr. Smith is not
being re-nominated to the Boards as a result of having reached the director
mandatory retirement age of 75, as described above. Mr. Holton, another current
member of the Boards and their presiding director, decided not to seek
re-election due to his desire to reduce his corporate board responsibilities in
light of his charitable and civic commitments. Thus, the Boards approved a
decrease in their size by two members, for a total of eleven directors each,
effective with the annual meeting of shareholders.
MERRIBEL S. AYRES, 54, has served since 1996 as President of Lighthouse
Consulting Group, LLC. Lighthouse provides governmental affairs and
communications expertise, as well as management consulting and business
development services, to a broad spectrum of international clients. Ms. Ayres
served from 1988 to 1996 as Chief Executive Officer of the National Independent
Energy Producers, a Washington, D.C., trade association representing the
competitive power supply industry. She is a member of the Aspen Institute Energy
Policy Forum and the Dean's Alumni Leadership Council of Harvard University's
Kennedy School of Government. She is a director of the United States Energy
Association (USEA). She has been a director of CMS and of Consumers since 2004.
JON E. BARFIELD, 54, has served since 1981 as the President and since 1995 as
the Chairman of The Bartech Group based in Livonia, Michigan, which specializes
in the placement of engineering and information technology professionals and
managing the staffing requirements of regional and global corporations. Mr.
Barfield currently
11
serves as a director on the public boards of BMC Software, Inc., Granite
Broadcasting Corporation, Tecumseh Products Company and National City
Corporation. He is also a director of Blue Cross Blue Shield of Michigan,
Detroit Renaissance Inc., and Kettering University. He has been a director of
CMS and of Consumers since August 2005.
RICHARD M. GABRYS, 64, Interim Dean of the School of Business Administration of
Wayne State University; retired Vice Chairman of Deloitte & Touche LLP. Mr.
Gabrys served for 42 years with Deloitte & Touche in public accounting serving a
variety of publicly held companies, especially automotive manufacturing
companies, financial services institutions and health care entities. Mr. Gabrys
serves on the boards of Dana Corporation, the Detroit Institute of Arts, the
Karmanos Cancer Institute, the Manufacturing Institute, Ave Maria College and
Ave Maria University. He has been a director of CMS and of Consumers since May
2005.
DAVID W. JOOS, 53, has served since October 2004 as President and Chief
Executive Officer of CMS and Chief Executive Officer of Consumers. He served
from 2001 to 2004 as President and Chief Operating Officer of CMS and Consumers;
2000 to 2001 as Executive Vice President and Chief Operating Officer
-- Electric of CMS; and from 1997 to 2000 as President and Chief Executive
Officer -- Electric of Consumers. He is a director of Steelcase, Inc., the
Edison Electric Institute (EEI), the Nuclear Management Co. and of the Michigan
Manufacturers Association. He has been a director of CMS and of Consumers since
2001.
PHILIP R. LOCHNER, JR., 63, served from 1991 through 1998 as Senior Vice
President and Chief Administrative Officer of Time Warner Inc. Immediately
preceding that employment, Mr. Lochner served as a commissioner of the SEC. He
is a director of Apria Healthcare Group Inc., GTech Holdings Inc., CLARCOR Inc.,
Solutia Inc., and Adelphia Communications Corporation. He has been a director of
CMS and Consumers since May 2005.
MICHAEL T. MONAHAN, 67, has served since 1999 as President of Monahan
Enterprises, LLC, a Bloomfield Hills, Michigan-based consulting firm. He was
Chairman of Munder Capital Management, an investment management company, from
October 1999 to December 2000 and Chairman and Chief Executive Officer of Munder
Capital from October 1999 until January 2000. Prior to that, he was President
and a director of Comerica Bank from 1992 to 1999 and President and a director
of Comerica Inc. from 1993 to 1999. He is a director of The Munder Funds, Inc.,
a director of Engineered Machined Products, Inc., as well as a member of the
Boards of Trustees of Henry Ford Health Systems, Inc. and of the Community
Foundation for Southeastern Michigan. He has been a director of CMS and of
Consumers since December 2002.
JOSEPH F. PAQUETTE, JR., 71, served from 1988 to 1995 as Chairman and Chief
Executive Officer and from 1995 until his retirement in 1997 as Chairman of PECO
Energy, formerly the Philadelphia Electric Company, a major supplier of electric
and gas energy. He is a director of USEC, Inc. and Mercy Health Systems. He has
been a director of CMS and of Consumers since December 2002. He had previously
served as a director of CMS and Consumers and as President of CMS from 1987 to
1988.
PERCY A. PIERRE, 67, has served since 1990 as Professor of Electrical and
Computer Engineering at Michigan State University, East Lansing, Michigan. He is
also Vice President Emeritus for Research and Graduate Studies at Michigan State
University. Dr. Pierre is a former Assistant Secretary of the Army for Research,
Development and Acquisition. He is also a former President of Prairie View A&M
University. He also serves as a member of the Board of Trustees for the
University of Notre Dame. He has been a director of CMS and of Consumers since
1990.
KENNETH L. WAY, 66, served from 1988 through 2002 as Chairman of Lear
Corporation, a Southfield, Michigan-based supplier of automotive interior
systems to the automotive industry. In addition, he served from 1988 to 2000 as
Chief Executive Officer of Lear Corporation. He is a director of Comerica Inc.,
WESCO International, Inc., and Cooper
12
Standard Automotive. He also serves as a member of the Board of Trustees for the
Henry Ford Health System, Inc. He has been a director of CMS and of Consumers
since 1998.
KENNETH WHIPPLE, 71, Chairman of the Board, he served from May of 2002 through
September of 2004 as Chairman and Chief Executive Officer of CMS and Consumers.
He served from 1988 until his retirement in 1999 as Executive Vice President of
Ford Motor Company, Dearborn, Michigan, a world-wide automotive manufacturer,
and President of the Ford Financial Services Group. In addition, he served from
1997 to 1999 as Chairman and Chief Executive Officer of Ford Motor Credit
Company. He is a director of AB Volvo and Korn/Ferry International, as well as a
trustee of certain mutual funds in the JPMorgan family of mutual funds. He has
been a director of CMS and of Consumers since 1993.
JOHN B. YASINSKY, 66, served from 1999 until his retirement in 2000 as Chairman
and Chief Executive Officer and continued as Chairman until February 2001 of
OMNOVA Solutions Inc., a Fairlawn, Ohio-based developer, manufacturer, and
marketer of emulsion polymers, specialty chemicals, and building products. He
served from 1995 to 1999 as Chairman, Chief Executive Officer and President of
GenCorp. He is a director of A. Schulman, Inc. He has been a director of CMS and
of Consumers since 1994.
YOUR BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE.
13
VOTING SECURITY OWNERSHIP
We have received a copy of a Schedule 13G filed with the SEC by each of the
following companies which indicate their December 31, 2005 holdings of CMS
Common Stock as follows:
Name and Address of
Beneficial Owner Amount of Shares Percent Ownership
------------------- ---------------- -----------------
FMR Corp................. 21,674,946 9.8%
82 Devonshire Street
Boston, MA 02109
Lord, Abbett & Co. LLC... 21,566,495 9.8%
90 Hudson Street
Jersey City, NJ 07302
Each of these Schedule 13G filings indicate that these shares were acquired in a
fiduciary capacity in the ordinary course of business for investment purposes.
To the knowledge of our management, no other person or entity currently owns
beneficially more than 5% of any class of our outstanding voting securities.
The following chart shows the beneficial ownership of CMS Common Stock by the
directors and named executive officers of both CMS and Consumers:
Shares
Name Beneficially Owned*
---- -------------------
Merribel S. Ayres......................... 6,537
Richard M. Gabrys......................... 3,056
Earl D. Holton............................ 17,895
David W. Joos............................. 398,880
Philip R. Lochner, Jr. ................... 3,056
Michael T. Monahan........................ 10,480
Joseph F. Paquette, Jr. .................. 14,780
Percy A. Pierre........................... 24,752
S. Kinnie Smith, Jr. ..................... 229,505
Kenneth L. Way............................ 66,150
Kenneth Whipple........................... 61,960
John B. Yasinsky.......................... 14,087
Thomas J. Webb............................ 176,811
John G. Russell........................... 124,958
Thomas W. Elward.......................... 103,822
Robert A. Fenech.......................... 50,203
All directors and executive officers**.... 1,590,761
* All shares shown above are as of March 31, 2006. At such date, Mr. Barfield
did not beneficially own any CMS Common Stock. In addition to the shares
shown above, Messrs. Joos, Smith, Webb, Russell, Elward and Fenech, as well
as all other executive officers of CMS and Consumers as a group, owned
options to acquire
14
473,000; 165,000; 150,000; 34,000; 70,000; 66,900; and 598,212 shares,
respectively, as of March 31, 2006. Mr. Whipple has not been granted any
options to acquire CMS Common Stock, however, as of March 31, 2006, he held
171,654 phantom stock units payable in cash but valued in an amount
equivalent to the same number of shares of CMS Common Stock. Mr. Whipple
had earned or been awarded these and previously paid-out phantom stock
units pursuant to his employment agreement during the period he served as
CMS and Consumers Chief Executive Officer. As of March 31, 2006, Messrs.
Holton and Paquette had accrued balances in the Directors' Deferred
Compensation Plan's CMS Common Stock fund equivalent to 18,540 and 26,470
shares, respectively, as further described in this proxy statement under
the section entitled "COMPENSATION OF DIRECTORS".
** All directors and executive officers includes executive officers of both
CMS and Consumers; the directors of CMS and Consumers are the same
individuals, as disclosed earlier in this proxy statement. As of March 31,
2006, the directors and executive officers of CMS and Consumers together
own less than 1% of the outstanding shares of CMS Common Stock.
Shares of CMS Common Stock shown as beneficially owned include:
- Shares to which a person has or shares voting power and/or investment power.
- The number of shares and share equivalents represented by interests in or
pursuant to the:
- Employee Savings Plan (our 401(k) plan);
- Deferred Salary Savings Plan; and
- Performance Incentive Stock Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the federal securities laws requires our directors and
executive officers to file with the SEC reports of beneficial ownership and
changes in such ownership of any of CMS or Consumers equity securities or
related derivative securities. To management's knowledge, during the year ended
December 31, 2005, our executive officers and directors made all required
Section 16(a) filings on a timely basis.
BUSINESS RELATIONSHIPS
On May 1, 2002, Consumers sold its electric transmission system to Michigan
Transmission Holdings, LLP, a non-affiliated limited partnership whose general
partner is a subsidiary of Trans-Elect, Inc. Michigan Transmission Holdings
purchased the Consumers electric transmission system in a competitive bidding
process for approximately $290 million in cash. Consumers provided no financial
or credit support for the sale. A Trans-Elect, Inc. subsidiary provides
interstate electric transmission service to Consumers pursuant to agreements
entered into at the time of the sale. The Federal Energy Regulatory Commission
approved the rates and other terms of the service prior to the sale and they
remain subject to the Commission's jurisdiction. During 2005, Consumers paid a
total of $77 million to Trans-Elect, Inc.'s subsidiary for electric transmission
services.
From May 15, 2002 until June 30, 2002, S. Kinnie Smith, Jr. served as Vice
Chairman of Trans-Elect, Inc. Mr. Smith had served as a director of Trans-Elect,
Inc. since its organization in 1998. Mr. Smith resigned as Vice Chairman and
director of Trans-Elect, Inc. upon becoming Vice Chairman and a director of CMS
and Consumers, as well as General Counsel of CMS, in July of 2002. In 2005, Mr.
Smith sold all 20,000 shares of Convertible Preferred A Stock of Trans-Elect,
Inc., owned by him.
15
COMPENSATION OF DIRECTORS
In 2005, directors who were not CMS or Consumers employees received an annual
retainer fee of $30,000, $1,500 for attendance at each Board meeting, $750 per
meeting for special telephonic meetings of the Board (or one-half the regular
Board meeting rates) and $1,250 for attendance at each committee meeting. The
Chair of the Audit Committee received an annual retainer fee of $7,500 and
$1,250 for attendance at each Audit Committee meeting during 2005, and each
other Audit Committee member received an annual retainer fee of $2,000 and
$1,250 for attendance at each Audit Committee meeting. The Chairs of the
Compensation and Human Resources Committee, Finance and Pension Committee, and
the Governance and Public Responsibility Committee each received an annual
retainer fee of $5,000, and the attendance fee for the Chairs and members of all
committees was $1,250 per meeting. Effective January 1, 2006, the attendance fee
for the Chairs and members of all committees was increased to $1,500 per meeting
due to increased demands on their time as a result of expanded corporate
governance responsibilities at CMS and Consumers. Effective April 1, 2006, the
annual retainer fee for the Chair of the Audit Committee was increased to
$10,000 and for all other Committee Chairs to $7,500.
In May 2005, all of the non-employee directors were granted a number of shares
of restricted stock with a fair market value at the time of grant of
approximately $40,000. In 2006, the annual restricted stock award will have a
fair market value at the time of the May grant of $45,000. These restricted
shares must be held for at least three years from the date of grant. Stock
ownership guidelines have been adopted by the Board that align further the
interests of the directors with the shareholders. Board members are required to
hold CMS Common Stock equivalent in value to five times their annual cash
retainer within five years of becoming a director.
Directors are reimbursed for expenses incurred in attending Board or committee
meetings and other company business. Directors who are CMS or Consumers
employees do not receive retainers or meeting fees for service on the Board or
as a member of any Board committee. Non-employee directors receive a single
retainer fee and restricted share award for service on the CMS and Consumers
Boards and each of their committees, as well as a single meeting attendance fee
for concurrent meetings of the CMS and Consumers Boards or committees.
Pursuant to the Directors' Deferred Compensation Plan, a CMS or Consumers
director who is not an employee may, at any time prior to a calendar year in
which a retainer and fees are to be earned, irrevocably elect to defer payment,
through written notice to CMS or Consumers, of all or a portion of any of the
retainer and fees which would otherwise be paid to the director. Any amount
deferred will either, at the director's election, (a) accrue interest at the
prime rate or the rate for 10-year Treasury Notes (whichever is greater), (b) be
treated as if it were invested as an optional cash payment in the CMS Stock
Purchase Plan, or (c) be treated as if it were invested in a Standard & Poor's
500 stock index fund. Accrued amounts will be distributed in a lump sum or in
annual installments in cash, as specified in the director's prior election. In
connection with amending the Directors' Deferred Compensation Plan, as well as
several employee plans, to bring them into compliance with recent Internal
Revenue Code Section 409A requirements as to deferred compensation arrangements,
the Board authorized management to move the administration of this Directors'
Plan from CMS employees to an independent record keeper. It is the present
intention of the Board and management to transfer such administration to
Fidelity Investments, which currently administers the Corporation's Employee
Savings Plan (i.e., its 401(k) plan), so as to provide more diversified
investment options and consistent administration for all such deferred
compensation plans.
Effective with the annual meeting in May of 2004, the Boards' retirement
payments policy was discontinued. Although certain current and previously
retired directors' accrued benefits under the policy will be preserved, no
further years of service will be accrued nor will future increases in the cash
retainer impact the preserved payments under this policy. Prior to its
discontinuance, the directors' retirement payments policy provided those
directors who
16
retire with five years of service on the Board, with annual retirement payments
equal to the retainer. These payments continue for a period of time equal to the
director's years of service on the Board. All preserved payments will cease at
the death of the retired director.
All non-employee directors historically had been offered optional life insurance
coverage, business-related travel accident insurance, and optional health care
insurance, and CMS and Consumers paid the premiums associated with participation
by directors. These insurance coverages will not be provided by the Corporation
to directors who had not elected the optional coverages prior to the annual
meeting in 2004. The imputed income for the life insurance coverage in 2005 was:
Messrs. Monahan, $2,818; Paquette, $5,140; Pierre, $2,818; Whipple, $5,140; and
Yasinsky, $2,818. The imputed income for health insurance coverage in 2005 was:
Messrs. Holton, $8,319; and Yasinsky, $8,319.
In connection with Mr. Whipple's resignation as CMS and Consumers Chief
Executive Officer effective October 1, 2004, and the termination of his
employment agreement and its ongoing compensatory elements as an employee, each
of the Compensation and Human Resources Committees and the Governance and Public
Responsibility Committees reviewed his new responsibilities as non-executive
Chairman of CMS and Consumers. After review of peer compensation data for such
positions and in consultation with the Board's independent compensation
consultant, the Committees recommended, and the Board approved, that Mr. Whipple
receive the various elements of the regular non-employee director compensation
program, as well as an additional annual cash retainer fee of $120,000 as
Chairman of the Board. It should be noted, however, that Mr. Whipple does not
serve on any of the standing committees of the Board, other than the Executive
Committees, and thus does not receive the committee meeting fees or retainers
described above.
COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT
COMPENSATION PHILOSOPHY
CMS' and Consumers' executive compensation program is directed by our
Compensation and Human Resources Committees (the "Committee"), which are
composed entirely of independent directors. The Committee is responsible for
determining and administering executive compensation policies and plans as well
as reviewing and recommending officer appointments to the Board of Directors.
The Committee also has the responsibility for approving both annual compensation
plans and payouts, as well as compensation awards under our long-term incentive
stock plan. In doing so, the Committee relies to a large degree on incentive
compensation including stock-related awards to attract and retain outstanding
officers. It is our philosophy to target salary, annual and long-term incentives
at the 50th percentile of the market, as defined by a Committee-approved
seventeen company peer group of energy companies of comparable business focus
and size to CMS. The Committee has implemented stock ownership guidelines for
officers of CMS and its subsidiaries ranging from an amount of CMS Common Stock
equivalent to base salary for more junior officers to several multiples of base
salary for more senior officers. All of these programs seek to enhance the
Corporation's shareholder value by aligning the financial interests of CMS'
officers with those of its shareholders.
Direct compensation for Mr. Joos and the other executive officers consists of
(i) base salary, which is intended to be at the 50th percentile of the amounts
paid to executives with equivalent positions at other energy companies of
comparable size (the aforementioned seventeen company peer group), and (ii)
substantial annual and long-term incentive compensation, also at the 50th
percentile of the seventeen company peer group, that closely ties to our success
in achieving earnings, cash flow, stock appreciation and other performance
goals. The incentive programs
17
are considered variable "at risk" compensation and are intended to result in
above-median compensation only in years when Committee-approved performance
goals are exceeded.
ANNUAL COMPENSATION
The Committee reviews the base salary for Mr. Joos and the other officers and
approves annual salaries for them based on industry, peer group, and national
surveys, as well as the Committee's collective judgment as to the past and
expected future contributions of each individual.
The annual incentive compensation (i.e., bonus) payment, if any, is based on our
success in meeting challenging CMS adjusted earnings per share and free cash
flow goals set by the Committee before March 31 of each year. Following the end
of each year, the Committee compares the actual CMS results to the prior year's
goals to determine the appropriate awards. The maximum payout of the Officer
Incentive Compensation Plan is 200% of target amounts based on the officers'
base salaries. Under the Officer Incentive Compensation Plan for 2005, CMS'
performance resulted in bonus payments to all eligible employees at a level of
139% of their individual target awards. (See the "Bonus" column in the Summary
Compensation Table for the amounts of the 2005 bonuses paid to the named
officers in March 2006.)
LONG-TERM COMPENSATION
The last direct pay element of executive compensation the Committee considers
during each year is long-term incentive awards, typically restricted awards of
CMS Common Stock under our Performance Incentive Stock Plan, which most recently
was approved by shareholders at the 2004 annual meeting. The Committee believes
such equity awards are desirable in encouraging CMS Common Stock ownership by
executives, thus linking their interests directly to that of other shareholders.
The Committee believes long-term incentive awards should be made annually on a
generally consistent basis. In determining awards, the Committee weighs a number
of factors including prior awards, peer company comparable award levels and
corporate performance. In 2005, the Committee awarded restricted stock to the
officers that will vest in 2008 assuming certain total shareholder return
targets are met. These awards could vest, if at all, in increments ranging from
50% to 150% of the specified target level of total shareholder return over the
three-year performance period. It is the Committee's intent to use
performance-based restricted stock as the primary form of long-term compensation
in the foreseeable future, as it believes such awards will be more effective
than stock options or alternative equity awards in successful implementation of
our strategy. Other than the performance-based restricted stock awards of the
type described above, no stock options or other forms of equity compensation
were granted to the officers in 2004 or 2005.
OFFICER STOCK OWNERSHIP GUIDELINES
CMS and Consumers have adopted a stock ownership guidelines policy to encourage
CMS Common Stock ownership by our officers. The purpose of this policy is to
align the interests of the officers more closely with those of shareholders by
requiring specific stock ownership levels for each officer grade level. The
Committee recommended, and the Boards approved, guideline amounts that require
the Chief Executive Officer to hold shares of CMS Common Stock equivalent in
value to five times his base salary, the Vice Presidents to hold such shares
equal in value to their respective base salaries, and the intermediate officers
(such as Senior Vice Presidents and subsidiary Presidents) to hold such shares
equivalent in value to multiples of two and three times their respective base
salaries. The determination of compliance with the stock ownership guidelines
will be based on the officer's base salary effective on January 1 of each year,
although the targeted ownership levels are being phased in over a five-year
period that commenced in August 2004.
18
OTHER EXECUTIVE BENEFITS
Executive perquisites such as long-term disability insurance coverage and
financial planning advice are provided to officers. The Committee's compensation
consultant has determined that our executive benefits are limited but
appropriate in terms of scope and compared to industry practice.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Joos' annual salary in 2005 was $910,000 and in March 2006 he received an
annual incentive award (i.e., bonus) of $822,185 based on CMS' earnings per
share and free cash flow performance in 2005. He received a restricted award of
125,000 shares of CMS Common Stock that will vest in 2008 contingent upon CMS
meeting certain total shareholder return targets compared to the aforementioned
peer group of companies. Based on a review by the Committee's compensation
consultant, Mr. Joos is below the median of the peer group market total direct
compensation (total direct compensation consists of salary, target annual
incentive and long-term incentives adjusted to 2006). The comparison assumes
that the stock price of each restricted share grant remains unchanged. Thus, Mr.
Joos' actual compensation could be less or greater than the amounts reflected in
the peer group comparison, as well as the Summary Compensation Table that
follows this report.
COMPENSATION DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code limits the tax deductibility of
compensation in excess of $1 million paid to a corporation's chief executive
officer and to the other four highest-paid executive officers unless such
compensation qualifies as "performance-based" and is approved by shareholders.
Approval of the material terms of the performance goals under the Performance
Incentive Stock Plan and the Executive Incentive Compensation Plan (since
renamed the Officer Incentive Compensation Plan) by CMS shareholders in prior
years permitted compensation paid under these plans to be deductible by the
Corporation. Incentive awards under the terms of the Officer Incentive
Compensation Plan and awards of stock options under the Performance Incentive
Stock Plan qualify as performance-based compensation. Awards of restricted stock
may qualify as performance-based, if the grant includes performance-based
vesting criteria, as was the case with the 2004 and 2005 awards to the named
officers.
Generally, the Committee attempts to ensure the deductibility of all
compensation paid; however, the Committee may pay nondeductible compensation if
necessary or desirable to achieve the goals of our compensation philosophy.
COMPENSATION CONSULTANT
In connection with its ongoing independent review of executive compensation, the
Committee has over the past two years retained Watson Wyatt Worldwide LLC,
recognized compensation and benefit consultants, to assist the Committee in
evaluating the appropriateness and competitiveness of the Corporation's
compensation policies and programs.
Submitted as of March 30, 2006 by the members of the Compensation and Human
Resources Committees: John B. Yasinsky (Chair), Jon E. Barfield, Earl D. Holton,
Philip R. Lochner, Jr., and Percy A. Pierre.
19
EXECUTIVE COMPENSATION
The following charts and descriptions contain information concerning annual and
long-term compensation, including the 2006 confirmation of a bonus relating to
the Corporation's 2005 performance under our Officer Incentive Compensation Plan
as well as long-term incentive awards under our Performance Incentive Stock
Plan. The charts include Mr. Joos as the Chief Executive Officer and the next
three most highly compensated executive officers as of year-end 2005 who are
dual officers of CMS and Consumers, as well as a fifth most highly compensated
executive officer for each of CMS and Consumers.
SUMMARY COMPENSATION TABLE
Long-Term Compensation(1)
--------------------------
Awards
--------------------------
Annual Compensation Restricted Securities
---------------------- Stock Underlying All Other
Name and Principal Position Year Salary(2) Bonus Awards($) Options Compensation
--------------------------- ---- --------- -------- ---------- ---------- ------------
DAVID W. JOOS............................ 2005 $910,000 $822,125 $ 0(3) 0 $29,120(6)
President and CEO, CMS; 2004 841,250 665,365 0(3) 0 0
CEO, Consumers 2003 795,000 734,103(4) 635,000(5) 100,000 0
S. KINNIE SMITH, JR. .................... 2005 650,000 542,100 0(3) 0 7,000(6)
Vice Chairman, CMS and Consumers; 2004 650,000 503,100 0(3) 0 0
Chief Legal Officer of CMS 2003 630,000 581,742(4) 381,000(5) 100,000 0
THOMAS J. WEBB........................... 2005 575,000 439,588 0(3) 0 7,394(6)
Executive Vice President and 2004 555,000 393,772 0(3) 0 0
CFO, CMS and Consumers 2003 535,000 459,351(4) 381,000(5) 100,000 0
JOHN G. RUSSELL.......................... 2005 415,000 317,268 0(3) 0 13,280(6)
President and COO, Consumers; 2004 364,583 245,566 0(3) 0 0
deemed CMS executive officer 2003 324,000 257,191(4) 127,000(5) 76,000 0
THOMAS W. ELWARD......................... 2005 370,000 257,150 0(3) 0 11,840(6)
President and COO, 2004 350,040 225,776 0(3) 0 0
CMS Enterprises 2003 336,000 266,749(4) 127,000(5) 76,000 0
ROBERT A. FENECH......................... 2005 328,000 205,164 0(3) 0 10,496(6)
Senior Vice President, 2004 321,000 186,340 0(3) 0 0
Consumers 2003 315,000 229,635(4) 76,200(5) 51,000 0
(1) Aggregate non-performance-based restricted CMS Common Stock held as of
December 31, 2005 by the named officers: Mr. Joos, 100,000 shares with a
year-end market value of $1,451,000; Mr. Smith, 61,250 shares with a
year-end market value of $888,738; Mr. Webb, 57,500 shares with a year-end
market value of $834,325; Mr. Russell, 19,500 shares with a year-end market
value of $282,945; Mr. Elward, 20,000 shares with a year-end market value of
$290,200: and Mr. Fenech, 12,000 shares with a year-end market value of
$174,120. No dividends were paid on CMS Common Stock during 2005.
(2) A portion of the 2003 salary amounts shown include the 2003 merit increases;
the receipt of those portions was deferred until their payout in cash in the
first quarter of 2005 pursuant to the Corporation's Salaried Employees'
Merit Plan.
20
(3) Long-term compensation approved by the Compensation and Human Resources
Committee in 2005 (as was the case in 2004) took the form of
performance-based restricted awards of CMS Common Stock and are reported in
the Long-Term Incentive Plans -- Awards Table later in this proxy statement.
(4) Bonuses for 2003 for Messrs. Joos, Smith, Webb, Russell and Elward were
deferred and were paid out in the first quarter of 2005 consistent with the
payouts from the Corporation's Salaried Employees' Merit Plan. The 2003
bonus for Mr. Fenech was paid out in the first quarter of 2004.
(5) Messrs. Joos, Smith, Webb, Russell, Elward and Fenech were awarded 100,000,
60,000, 60,000, 20,000, 20,000 and 12,000 non-performance-based restricted
shares of CMS Common Stock, respectively, in 2003.
(6) The 2005 amounts represent employer matching contribution to the
Corporation's defined contribution plans. No employer matching contributions
were made in 2003 or 2004.
EMPLOYMENT ARRANGEMENTS
Agreements with the executive officers named above provide for payments equal to
three times annual cash compensation if there is a change of control and adverse
change of responsibilities (including termination), as well as payments equal to
two times annual cash compensation if employment is terminated by the company,
other than for cause, in the absence of a change of control. CMS and Consumers
also provide long-term disability insurance policies for all executive officers
which would provide payment of up to 60% of compensation in the event of
disability. We do not have a "poison pill" plan and are not considering the
adoption of such a plan.
AGGREGATED OPTION EXERCISES IN 2005 AND YEAR-END OPTIONS VALUES
Number of Securities Value of Unexercised
Shares Acquired Value Underlying Unexercised In-the-Money Options
Name On Exercise Realized Options at Year End(1) at Year End(2)
---- --------------- -------- ---------------------- --------------------
David W. Joos.............. 0 $ 0 473,000 $1,455,000
S. Kinnie Smith, Jr........ 0 0 165,000 1,231,350
Thomas J. Webb............. 0 0 150,000 1,135,500
John G. Russell............ 94,000 594,804 34,000 0
Thomas W. Elward........... 0 0 70,000 127,800
Robert A. Fenech........... 0 0 66,900 76,680
(1) All options to acquire CMS Common Stock listed in this table are
exercisable. The named officers have no unexercisable options.
(2) Based on the December 31, 2005 closing price of CMS Common Stock as shown in
the report of the New York Stock Exchange Composite Transactions ($14.51).
21
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2005
Estimated Future Payouts Under
Non-Stock Price Based Plans
(Shares)(1)
-------------------------------
Name Number of Shares Period Until Payout Threshold Target Maximum
---- ---------------- ------------------- --------- ------ -------
David W. Joos................. 125,000 3 Years 62,500 125,000 187,500
S. Kinnie Smith, Jr........... 45,000 3 Years 22,500 45,000 67,500
Thomas J. Webb................ 45,000 3 Years 22,500 45,000 67,500
John G. Russell............... 50,000 3 Years 25,000 50,000 75,000
Thomas W. Elward.............. 35,000 3 Years 17,500 35,000 52,500
Robert A. Fenech.............. 10,000 3 Years 5,000 10,000 15,000
(1) Under CMS' Performance Incentive Stock Plan, these restricted awards of CMS
Common Stock for the above officers vest 100% after three years assuming the
achievement of pre-established total shareholder return ("TSR") goals.
One-half of the award is based on the achievement of an absolute TSR level
and one-half of the award is based on a relative comparison to a utility
industry peer group.
PENSION PLAN TABLE
The following table shows the aggregate annual pension benefits at normal
retirement date presented on a straight life annuity basis under our qualified
Pension Plan and non-qualified Supplemental Executive Retirement Plan (offset by
a portion of Social Security benefits).
Years of Service
--------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
5$00,000.... $157,500 $210,000 $247,500 $ 285,000 $ 322,500
800,000.... 252,000 336,000 396,000 456,000 516,000
1,100,000.. 346,500 462,000 544,500 627,000 709,500
1,400,000.. 441,000 588,000 693,000 798,000 903,000
1,700,000.. 535,500 714,000 891,500 969,000 1,096,500
2,000,000.. 630,000 840,000 990,000 1,140,000 1,290,000
"Remuneration" in this table is the average of Salary plus Bonus, as shown in
the Summary Compensation Table, for the five years of highest earnings. The
estimated years of service for each named executive is: Mr. Joos, 34.39 years;
Mr. Smith, 22.88 years; Mr. Webb, 6.99 years; Mr. Russell, 25.17 years; Mr.
Elward 35.00 years; and Mr. Fenech, 25.88 years. Under the Supplemental
Executive Retirement Plan, an officer's years of service for purposes of
calculating benefits thereunder are earned at double the period of actual
service during the first ten years of service.
22
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
to be Issued Weighted-Average Equity Compensation
upon Exercise of Exercise Price of Plans (Excluding
Outstanding Options, Outstanding Options, Securities Reflected
Plan Category Warrants and Rights Warrants and Rights in Column (a))
------------- -------------------- -------------------- -----------------------
(a) (b) (c)
--- --- ---
Equity compensation
plans approved by
security holders.... 3,155,698 $20.35 4,943,630
Equity compensation
plans not approved
by security
holders............. 0 0 0
--------- ------ ---------
Total............... 3,155,698 $20.35 4,943,630
========= ====== =========
An amendment to the Performance Incentive Stock Plan was approved by
shareholders on May 28, 2004, with an effective date of June 1, 2004. The
amendment established a 5-year term for the Plan. Under the amended Plan, shares
of CMS Common Stock awarded or subject to options, phantom shares and
performance units may not exceed a total of 6 million shares from June 2004
through May 2009. Shares as to which payment or exercise is in cash, as well as
shares or options that are forfeited, may be awarded or granted again under the
Plan. All grants under this amended Plan have been in the form of restricted
shares of CMS Common Stock. At March 31, 2006, awards of up to 4,943,630 shares
of CMS Common Stock could be issued.
AUDIT COMMITTEE REPORT
CMS' and Consumers' audit activities are directed by our Audit Committees, which
are composed entirely of independent directors. The Audit Committees are
responsible for overseeing the preparation of external financial reports, the
adequacy of internal controls, the internal and external audit process, the
independence and performance of the independent auditors, and compliance with
applicable legal and regulatory requirements.
We have reviewed and discussed with management CMS' and Consumers' audited
financial statements as of and for the year ended December 31, 2005.
We have discussed with our independent registered public accounting firm, Ernst
& Young LLP, the matters required to be discussed by Statement on Auditing
Standards No. 61, Communication with Audit Committees, as amended.
We have received and reviewed the written disclosures and the letter from the
independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with Ernst & Young LLP the auditors' independence.
23
We have considered the provision of all of Ernst & Young LLP's services to CMS
and Consumers in 2005 and the fees paid for all such services, and have
concluded that all current arrangements are compatible with maintaining the
independence of Ernst & Young LLP.
In addition, we reviewed key initiatives and programs aimed at strengthening the
effectiveness of the CMS and Consumers internal and disclosure control
structure. As part of this process, we continued to monitor the scope and
adequacy of the internal auditing program and the steps taken to implement
recommended improvements in internal procedures and controls.
Based on the reviews, discussions and assessments referred to above, we
recommended to the Boards of Directors that the consolidated financial
statements referred to above be included in CMS' and Consumers' Annual Reports
on Form 10-K for the year ended December 31, 2005.
Submitted as of February 21, 2006 by the members of the Audit Committees:
Michael T. Monahan (Chair), Richard M. Gabrys, Joseph F. Paquette, Jr., and
Kenneth L. Way.
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP is the independent registered public accounting firm for CMS
and Consumers. Fees, including expenses, for professional services provided by
Ernst & Young LLP in each of the last two fiscal years, in each of the following
categories are:
2005 2004
---- ----
Audit Fees.................................................. $8,990,000 $ 9,787,000
Audit-Related Fees.......................................... 132,000 68,000
Tax Fees.................................................... 0 565,000
---------- -----------
Total Fees Total Fees..................................... $9,122,000 $10,420,000
========== ===========
Amounts reported above include fees paid by Consumers.
Fees for audit services include fees associated with the annual audit, the
reviews of our quarterly reports on Form 10-Q, comfort letters, required
statutory audits, fees related to the audit of our internal controls over
financial reporting as required by the Sarbanes-Oxley Act of 2002 and other
attest services. Of the aggregate audit fees disclosed above, fees related to
the audits of internal controls over financial reporting were $3,014,000 in 2005
and $3,037,000 in 2004. Audit-related fees include fees associated with audits
of employee benefit plans and accounting consultation on proposed transactions.
Tax fees include fees for tax compliance, tax advice, and tax planning.
The Audit Committees have adopted a policy that requires advance approval for
all audit, audit-related, tax services, and other services performed by the
independent registered public accounting firm. The policy provides for pre-
approval by the Audit Committees of specifically defined audit and non-audit
services. Unless the specific service has been previously pre-approved with
respect to that year, the Audit Committees must approve the permitted service
before the independent registered public accounting firm is engaged to perform
it. The Audit Committees have delegated to the Chair of the Audit Committees
authority to approve permitted services, provided that the Chair reports any
decisions to the Committees at their next scheduled meeting.
24
PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committees of the Corporation's and Consumers' Boards of Directors
have adopted the following policy:
The Audit Committee's selection of the Corporation's independent auditor
shall be submitted to the Corporation's shareholders for their ratification
at the Corporation's Annual Meeting of Shareholders. If a majority of shares
voted do not ratify the Audit Committee's selection, the Audit Committee
will consider the shareholder views when considering its selection of a
different independent auditor for the Corporation or its continued retention
of its existing auditor for that year. This policy will be in effect
commencing with the Corporation's 2004 Annual Meeting of Shareholders.
The Audit Committees have selected Ernst & Young LLP, independent registered
public accounting firm, to audit our consolidated financial statements for the
year 2006. Ernst & Young LLP also served as our registered public accounting
firm for the year 2005. A representative of Ernst & Young LLP will be present at
the annual meeting of shareholders and will have an opportunity to make a
statement and respond to appropriate questions.
The Audit Committee believes it is very important to the Corporation, Consumers
and our shareholders to retain Ernst & Young LLP as independent registered
public accounting firm for the 2006 audit cycle. Ernst & Young LLP has gained a
significant understanding of the Corporation's business processes and issues, as
well as our internal controls over financial reporting.
Approval of this proposal requires the affirmative vote of the holders of a
majority of shares of CMS Common Stock voting on the proposal.
YOUR BOARD RECOMMENDS RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP.
25
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CMS, S&P 500 INDEX & DOW JONES UTILITY INDEX
[PERFORMANCE GRAPH]
INDEXED RETURN
---------------------------------------
COMPANY/INDEX 2000 2001 2002 2003 2004 2005
------------- ---- ---- ---- ---- ---- ----
CMS 100 80 34 31 38 52
S & P 500 100 88 69 88 98 103
DOW JONES UTILITY 100 74 57 74 96 120
These cumulative total returns assume reinvestment of dividends (except for CMS
in the 36-month period through December 31, 2005 when we have not paid a
dividend on CMS Common Stock). The calculations also assume the value of the
investment in CMS Common Stock and each index was $100 on December 31, 2000.
2007 PROXY STATEMENT INFORMATION
A shareholder who wishes to submit a proposal for consideration at the 2007
annual meeting pursuant to the applicable rules of the SEC must send the
proposal to reach our Corporate Secretary on or before December 15, 2006. In any
event, if we have not received written notice of any matter to be proposed at
that meeting by February 28, 2007, the holders of the proxies may use their
discretionary voting authority on any such matter. The proposals should be
addressed to: Corporate Secretary, CMS Energy Corporation, One Energy Plaza,
Jackson, Michigan 49201.
26
OTHER MATTERS
The Board of Directors knows of no other matters that might be presented to the
meeting except matters incident to the conduct of the meeting. However, if any
other matters (including matters incident to the conduct of the meeting) do come
before the meeting, it is intended that the holders of the proxies will vote
thereon in their discretion.
The cost of solicitation of proxies will be borne by CMS. Proxies may be
solicited by officers and other employees of CMS or its subsidiaries or
affiliates, personally or by telephone, facsimile, Internet, or mail. We have
arranged for Morrow & Co., Inc., 445 Park Avenue, New York, New York 10022, to
solicit proxies in such manner, and it is anticipated that the cost of such
solicitations will not exceed $10,000, plus incidental expenses. We may also
reimburse brokers, dealers, banks, voting trustees or other record holders for
postage and other reasonable expenses of forwarding the proxy material to the
beneficial owners of CMS Common Stock held of record by such brokers, dealers,
banks, voting trustees or other record holders.
In some instances, only one annual report or proxy statement is being delivered
to multiple security holders sharing an address unless we have received contrary
instructions from one or more of the shareholders. A shareholder wishing to
receive a separate annual report or proxy statement can so notify CMS at the
address or telephone number below. Similarly, shareholders currently receiving
multiple copies of these documents can request the elimination of duplicate
documents by contacting our Investor Services Department, One Energy Plaza,
Jackson, Michigan 49201, telephone 517-788-1868.
27
(CMS ENERGY LOGO)
Thank you for being a CMS Energy shareholder.
Please take a moment now to vote your shares for the upcoming annual
shareholders' meeting.
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
OPTION 1: VOTE BY TELEPHONE: Call TOLL FREE 1-888-297-9641 using a touch
tone phone 24 hours a day, 7 days per week. Have your attached
proxy card at hand when you call and then follow the instructions.
If you wish to vote as recommended by the Board of Directors,
simply press 1. That's all there is to it...End of call. If you do
not wish to vote as the Board recommends, you need only respond to
a few simple prompts.
THERE IS NO CHARGE FOR THIS CALL.
-----------------------------------------
(TELEPHONE (ARROW (COMPUTER
GRAPHIC) GRAPHIC) GRAPHIC)
FOR TOUCH TONE TELEPHONE - 1-888-297-9641
INTERNET VOTING - WWW.PROXYVOTING.COM/CMS
-----------------------------------------
(Your telephone or Internet vote authorizes the voting of your
shares in the same manner as if you had marked, signed and
returned your proxy card.)
OPTION 2: VOTE VIA THE INTERNET: Access WWW.PROXYVOTING.COM/CMS and
respond to a few simple prompts.
THANK YOU FOR VOTING BY TELEPHONE OR INTERNET AND SAVING COSTS!
OPTION 3: If you do not have access to a touch tone phone or to the
Internet, please complete and return the proxy card below.
PLEASE FOLD AND DETACH PROXY CARD AT PERFORATION
(After you vote by phone or Internet, PLEASE THROW AWAY THIS CARD.)
(CMS ENERGY LOGO) COMMON STOCK PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints KENNETH WHIPPLE, DAVID W. JOOS and MICHAEL D.
VANHEMERT, and each of them, proxies with full power of substitution, to vote on
behalf of the undersigned at the annual meeting of shareholders of CMS Energy
Corporation to be held at the Corporate Headquarters located at One Energy
Plaza, Jackson, Michigan, at 9:00 AM Eastern Daylight Saving Time on May 19,
2006 and at any adjournment(s) thereof. Said proxies, and each of them present
and acting at the meeting, may vote upon the matters set forth on the reverse
side hereof and with discretionary authority on all other matters that come
before the meeting, all as more fully set forth in the Proxy Statement received
by the undersigned. The shares represented hereby will be voted on the proposals
as specified. IF THIS PROXY IS RETURNED SIGNED BUT NOT COMPLETED, IT WILL BE
VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS ON ALL ITEMS.
IF YOU CANNOT VOTE BY TOUCH TONE PHONE
OR INTERNET, PLEASE VOTE, SIGN AND
DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED
ENVELOPE. THANK YOU FOR YOUR PROMPT
RESPONSE.
PLEASE VOTE BY TOUCH TONE TELEPHONE OR INTERNET IF POSSIBLE TO MINIMIZE COSTS.
--------------------------------------------------------------------------------
[ ] TO VOTE AS RECOMMENDED by the Board of Directors on all items, PLEASE MARK
THIS BOX, SIGN, DATE AND RETURN THIS PROXY. (No additional boxes need to be
marked. If additional boxes are marked, this box will take precedence.)
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
(1) ELECTION OF [ ] FOR all nominees listed below (except as indicated below)
DIRECTORS [ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(01) Merribel S. Ayres, (02) Jon E. Barfield, (03) Richard M. Gabrys,
(04) David W. Joos, (05) Philip R. Lochner, Jr., (06) Michael T. Monahan,
(07) Joseph F. Paquette, Jr., (08) Percy A. Pierre, (09) Kenneth L. Way,
(10) Kenneth Whipple, and (11) John B. Yasinsky.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
(2) Ratification of independent registered public accounting firm. [ ] [ ] [ ]
IF YOU CANNOT VOTE BY TELEPHONE OR INTERNET,
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE Signed
ENCLOSED ENVELOPE. NO POSTAGE IS NEEDED IF MAILED ------------------------
IN THE UNITED STATES. Dated , 2006
-----------------
[ ] INTERNET ACCESS: I would prefer to access annual reports and proxy
statements on the internet. (No paper copies. You do not need to provide
an E-mail address.)
[ ] ANNUAL REPORTS: I receive more than one CMS annual report. Please do not
send annual reports for this account in the future.
(CMS ENERGY LOGO)
CMS Energy Corporation and
Consumers Energy Company
ANNUAL SHAREHOLDERS
MEETING
CORPORATE HEADQUARTERS
ONE ENERGY PLAZA
Jackson, Michigan
Phone: (517) 788-0550
MAY 19, 2006 AT 9:00 A.M.
website: www.cmsenergy.com
DIRECTIONS TO ONE ENERGY PLAZA
o Take I-94 to Cooper Street, Exit 139, south
o Travel one mile south on Cooper Street then veer right on N. Francis Street
o Turn left on drive into Corporate Headquarters
o Park in parking garage immediately to your right