Preface

TheMichiganEnergyAppraisalisasemiannualassessmentofMichigansenergybaseline.The assessmentassistsindevelopingasituationalawarenessofthestatesenergyenvironment includingrecenteventsimpactingsupplyandprices,expectedconditions,andchangesoverthe nextsixmonths.Additionally,itprovidesthenecessaryinformationtoenableareliable assessmentoftheriskposedbyanenergysupplydisruption. Thescopeoftheanalysisvariesbyenergysource.Michiganselectricityprices,supplyand availabilityarelargelydeterminedbyeventsinMichiganandtheMidwest.Naturalgassupplies andpricesarecloselytiedtonationaltrends.PetroleumproductmarketsinMichiganare affectedbyinternationalmarketconditionsandeventsandregionalrefineryproduction.For theappraisal,recenthistoricalbalancesbetweenMichigansenergyconsumptionandsupply areanalyzed,andconsumptionandsuppliesareprojected.Actualandexpectedenergyprices arereviewedtoidentifychangesimpactingconsumercosts.Generally,thefallappraisal focusesonthewinterheatingseason,andthesummerappraisalfocusesonsummerenergy use,includingpeakelectricitysupplyanddemand,andgasolineforthesummerdrivingseason. ThisreportispreparedbytheOperations&WholesaleMarketsDivisionwithassistancefrom theRegulatedEnergyDivisionoftheMichiganPublicServiceCommission(MPSC),Department ofLicensingandRegulatoryAffairs,StateofMichigan. ProjectManager AlexMorese Author/Editor DavidBinkley Electric DavidBinkley,RaushawnBodiford, Gasoline DavidBinkley DavidBinkley,NoraQuilico,Cindy NaturalGas Creisher DavidBinkley Petroleum Forecasts DavidBinkley DatabaseDevelopment DavidBinkley AmajorsourceofdataandanalysisusedinthisappraisalisfromthefederalEnergyInformation Administration(EIA)athttp://www.eia.doe.gov.TheEIAcollectsnational,stateand internationaldataonenergyusage,prices,supply,etc.,andprovidesexpertanalysisontrends inenergy. TheEnergyAppraisalisavailableat:http://www.dleg.state.mi.us/mpsc/reports/energy/. CommentsorquestionsonthisappraisalarewelcomedandmaybedirectedtoAlexMorese, MichiganPublicServiceCommission,4300W.SaginawHighway,POBox30221,Lansing, Michigan48909,phone(517)2410292,oremailmoresea@michigan.gov

Highlights EnergyAppraisalWinter20132014
EnergysuppliesinMichiganwillbeadequatetomeetanticipateddemandthiswinter.Overall annualdemandfornaturalgasandelectricityareexpectedtodecreasein2013asaresultofa mildsummerthatwas12percentcoolerthannormal.Motorgasolinedemandisalsoexpected toexperienceadecreaseduetoincreasedvehiclefuelefficiencyandsustainedhighgasoline prices.Incontrast,dieselfueldemandisexpectedtorisefromagrowthinindustrial productionandagreateruseoftruckandrailtransport.Lastly,assumingareturntonormal weatherforthe20132014heatingseason,propaneuseisexpectedtoincrease,markinga returntohistoricaldemandlevels. ElectricityMichiganstotalelectricitysalesin2013areexpectedtodecreasebyhalfapercent from2012sales,assumingnormalweatherconditions.Thisdecreaseisduetolowerdemandin theresidentialandcommercialsectorsresultingfrommildsummertemperaturesthatwere12 percentcoolerthannormal.Dropsindemandareprojectedtobecounterbalanced,however, bysteadyincreasesinuseamongindustrialcustomers.Industrialelectricityusageisprojected toincreasebynearlyonepercent,fueledbyincreasedproductionintheautosector. NaturalGasTotalnaturalgassalesinMichiganareprojectedtodecrease3.8percentfrom 2012salesto746Bcf(billioncubicfeet)assumingnormalweather.Thisdecreaseisprimarilya resultofreduceddemandintheelectricpowersectorresultingfromacoolsummerthatwas 12percentbelownormal.Allothersectorsareexpectedtoseeincreaseddemandincalendar year2013.Theweightedaveragepriceforresidentialcustomersofallregulatedutilitiesin Michiganoverthewinterseason(Nov.Mar.)isprojectedtobe$8.08/Mcf(thousandcubic feet),representinga6.2percentdecreaseinnaturalgaspricesfromlastyear.Thetotal residentialpriceofnaturalgasiscomprisedofthewholesalecostofgaspurchasedbyMichigan utilities(alsoknownastheGCRfactor),thecostoftransportinganddeliveringthegasto customers,themonthlycustomercharge,andtheenergyoptimizationsurcharge. PetroleumTheEIAprojectsWestTexasIntermediate(WTI)crudeoilpricestoaverage$101 perbarrelduringthefourthquarterof2013and$96perbarrelduring2014.Crudepricesat thislevelareexpectedtocontributetoadeclineinU.S.liquidfuelconsumptionin2014. Domesticcrudeoilproductionisexpectedtocontinueitsupwardtrajectorydueinpartto increasedoildrilling,specificallyexplorationindevelopingshaleformations.Domestic productionreachedthehighestlevelintwodecadesin2013withTexasandNorthDakotaas thetopproducingstates. MotorGasolineGasolinesalesinMichiganareprojectedtodecreaseby0.7percentin2013 dueprimarilytohigherfuelefficiencyamongthevehiclefleetandchangesinconsumer behaviorresultingfromsustainedhighgasolineprices.Inadditiontothecostofcrude,refinery outages(bothplannedandunplanned)haveputupwardpressureonregularunleadedgasoline priceswhichhavenotdippedbelow$3.20/gallonsinceJanuary,2013.Withtheexceptionof

2010,gasolinesalesinMichiganhavedecreasedeveryyearsince2004,resultingina14.5 percentnetreductionindemand. DistillateFuelOilTotaldistillatesalesinMichiganareprojectedtoincreaseby1percentto 1.04billiongallonsin2013.Demandhasdecreasedforthepasttwoyears,butincreased industrialproductionisexpectedtoboostlevelstoathreeyearhigh.Industrialproduction growthincreasedanaverageof4.6percentyearoveryearforthefirsttwoquartersof2013. PropaneTheupcoming20132014heatingseason(NovemberMarch)isprojectedtoseean increaseinpropaneuseof5.7percentoverlastyear,assumingnormalweather.Colderthan normaltemperaturesattheendofthe20122013heatingseasoncausedpropaneuseto reboundclosertohistoricaldemandvolumesaftertwopreviousmildwinters.Thisupcoming seasonwouldbethesecondconsecutiveyearofincreaseddemand,althoughpropanedemand hasbeenonalongtermdownwardtrajectory.Anestimated9percentofhouseholdsin Michiganusepropaneastheprimaryspaceheatingfuel. WinterHeatingBillsAssumingnormalweather,itisexpectedthatresidentialheatingbillsfor naturalgas,propaneandheatingoilwillbelowerthiswinterduetolowerprices counterbalancingtheeffectsofincreasedconsumption.Normalweathermeansincreased consumptionofheatingfuelscomparedtolastwinter,whichwas4percentwarmerthan normal.AsofOctober7,2013,theaveragepriceofresidentialpropanepricewas$1.90per gallon,4centsbelowthesametimelastyear.Thecostofthesefuelsmayvaryfromprojections overtheupcomingwintermonthsastheyaredrivenbydynamicsupplyanddemandconditions suchasweather. October9,2013 MichiganPublicServiceCommission DepartmentofLicensingandRegulatoryAffairs

 DEMAND Michiganstotalelectricitysalesin2013areexpectedtodecreasebyhalfapercentfrom2012 sales,assumingnormalweatherconditions.Thisdecreaseisduetolowerdemandinthe residentialandcommercialsectorsresultingfrommildsummertemperaturesthatwere12 percentcoolerthannormal.Dropsindemandareprojectedtobecounterbalanced,however, bysteadyincreasesinuseamongindustrialcustomers.Industrialelectricityusageisprojected toincreasebynearlyonepercent,fueledbyincreasedproductionintheautosector.While overallelectricityuseisexpectedtobelowerin2013,theselevelsarestillabovethoseseenin 2011andcontinueatrendofrelativelyflatdemand.Extremesummerheatwasresponsiblefor thespikeindemandseenin2012andwasnotindicativeofchangingconsumptionpatterns.

Electricity

Michiganscombinedsummerpeakdemandwasapproximately19,248megawatts(MW). ConsumersEnergyCompanys(ConsumersEnergy)peakelectricdemandthissummer, includingchoicecustomers,was8,509MWwhichoccurredonJuly17,2013.Thisexceededthe projectedsummerpeak,whichassumednormalsummerweather. DTEElectricspeakdemandfor2013,includingchoicecustomerswas10,739MW,which occurredonJuly18,2013.Thispeakwasbelowitspreviousrecordhighof12,778MWseton August2,2006. SUPPLY MildtemperaturesdidnotplacestressontheMidcontinentIndependentSystemOperator Inc.s(MISO)orPJMInterconnections(PJM)abilitytomeetpeakdemandforthemajorityof thesummer.Coolertemperatureskeptusagewellwithintheestablishedreservemargins.A

lateheatwave,however,didcauseshortages forPJMonSeptember11,leadingtothe curtailmentof1,000Michigancustomersinthe Southwestportionofthestate.Transmission congestionwascitedastheprimarycausefor theshortfallinelectricitysupply. Nosupplyshortagesortransmissionconstraints areexpectedtoaffecttheabilityofMichigan utilitiestomeetwinterpeakelectricdemand, whichcanbeupto25percentlowerthanthe summerpeak.Inadditiontopowerthatthey generate,Michiganutilitiescanpurchase externalelectricitysupplyfromwholesale marketsadministeredbyMISOandPJMas needed.

CoalMarketUpdate
Demandforcoalwashigherandsupply waslowerinthefirsthalfof2013 comparedtothesameperiodlastyear. Despitethismismatchinfundamentals, thespotpriceforcoaldidnotincrease forthefollowingreasons: Electriccompanieschosetoburn offlargeinventoriesinsteadof buyingmorecoal Weakerinternationalpricesput downwardpressureontheexport market

PRICES

Electricitypriceshaveincreasedforthestateslargesttwoutilitycompaniesin2013.These increasescanbeattributedtonumerousfactorsincluding:asmallercustomerbase,decreased demand,increasedtransmissionandtransportationcosts,increasedcapitalinvestment, environmentalcompliancecosts,andacontinuationofelectricchoicewithcustomersfully subscribedatthe10percentcappedlevel.Furthercontributingtohigherresidentialratesis theeffectofratedeskewing,ortheeliminationofhistoricalsubsidiesthatbenefittedthe residentialsectorattheexpenseofthecommercialandindustrialsector.1

ConsumersEnergysratesincludethecompanysapprovedrateincreaseof$89.9millionand DTEElectricsratesreflectrecoveriesofpastundercollectedcharges,bothofwhichare recoveredthroughbaseratesandthePowerSupplyCostRecovery(PSCR)mechanism.2New cases,whichdeterminethecompanysPSCRrelatedcosts,arerequiredtobefiledbytheendof September2013.

ResidentialElectricityPriceSummary
2012 MonthlyBill* /kWh ConsumersEnergy $67.86 13.57 DTE $75.87 15.17 2013 MonthlyBill $73.84 $77.80 /kWh 14.77 15.56 Percent Change +8.8% +2.5%

*monthlybill calculations arebasedonusageof500kWh/month

1 2

UnderMichigans2008energylaw,ratesbasedonthecostofserviceforeachcustomerclassarerequired. RateincreaseswererequestedincasenumbersU16794forConsumersEnergyandU16472forDTEElectric.

Michigan Electricity Sales

Michigan Electricity Sales Projection

(Millions of kWh)
Residential Historical 2010 Total 2011 Total 2012 Total 2013 January February March April May June July August September October November December 34,798 34,609 34,439 3,343 2,730 2,926 2,407 2,475 2,883 3,707 3,229 2,418 2,270 2,625 3,257 34,269 -0.5% 3,472 2,826 2,909 2,416 2,536 Commercial 38,390 38,131 38,331 3,156 2,865 3,042 2,852 3,136 3,330 3,621 3,573 3,168 3,161 3,040 3,135 38,079 -0.7% 3,198 2,945 3,048 2,923 3,184 Industrial 30,664 31,074 31,337 2,395 2,481 2,441 2,482 2,561 2,830 2,725 2,786 2,782 2,836 2,692 2,598 31,609 0.9% 2,509 2,605 2,712 2,656 2,795 Total 103,852 103,814 104,107 8,894 8,076 8,409 7,741 8,172 9,043 10,053 9,588 8,368 8,268 8,357 8,990 103,957 -0.1% 9,179 8,377 8,669 7,995 8,515

Projection

2013 Total 2013-2014 change 2014 January February March April May

NOTE:Projectedelectricitysalesarebasedonhistoricaltrends. SOURCES:HistoricalDataEnergyInformationAdministration,U.SDepartmentofEnergy. ProjectionEnergyDataandSecuritySection,MPSC

 DEMAND

NaturalGas

Assumingnormalwinterweather,totalnaturalgas salesinMichiganareprojectedtodecrease3.8 percentto746Bcffrom2012sales.Thisdecreaseis primarilyduetoreduceddemandintheelectric powersectorresultingfromasummerthatwas12 percentcoolerthannormal.In2014,theEIAprojects thepriceofnaturalgasfortheelectricpowersector willapproach$5/Mcf,whichislikelytoplacefurther downwardpressureondemandforpower generation.Allothersectorsareexpectedtosee increaseddemandincalendaryear2013.Below normaltemperatureswereexperiencedandpersisted intoApril,whichboosteddemandforspaceheatingintheresidentialandcommercialsectors. Overallnaturalgasuseinthestateisgreatestamongresidentialcustomers,whereitisusedto heat77percentofMichiganhouseholds.

SUPPLY

StoragelevelsinMichiganareprojectedtobearound593BcfinOctober2013,slightlybelow thefiveyearaverageforthattimeofyear.Lowerinventoriesarearesultofcoldweatherand highwithdrawalswhichpersistedwellintoApril,whennetstorageinjectionsnormallywould havebeguntotakeplace.Michiganhasover10percentofthetotalavailableunderground storagecapacityfornaturalgasinthecountrywhichisusedtomeetwinterdemand.In additiontoavailablestorage,Michigansuppliedanaverageof16.5percentofitsnaturalgas needsthroughinstateproductionwellsthroughouttheyearin2012.Productionfromthese wellsisprojectedtocontinueitsdownwardtrend,fallingby7.1percentin2013.

PRICES
Thissummer,naturalgasprices(AprilOctober) NaturalGasPrices:20092011Levels remainedrelativelystable,although39percenthigher thanlastyearonaverage.Thewholesalepricefornatural NaturalgasspotpricesatHenryHub(akey gas,whichisdeterminedbytradingontheNewYork benchmark andmajortradinglocation) MercantileExchange(NYMEX),averaged$3.84/Mcfthis averaged$3.86/Mcfduringthefirsthalfof summer,rangingfromahighof$4.30/McfinApril,toa 2013, up59percentfromthe$2.44/Mcf lowof$3.53/McfinAugust.Thisoverallstabilityis averagespotpriceforthefirsthalfof2012. primarilyduetoamplesupplyfromshalegasformations. This yearoveryearpriceincrease,however, primarily reflectstheextremelylowprices Residentialnaturalgasbillsonadollarperunitbasisare seenin2012.Spotpricessofarin2013have expectedtobeslightlylowerthiswinter.Thetotal beenaround$4.00/Mcf,verysimilarto residentialpriceofnaturalgasiscomprisedofthe levels seenfrom2009to2011. wholesalecostofgaspurchasedbyMichiganutilities(also knownastheGCRfactor),thecostoftransportingand Someofthemainreasonsforthehigher deliveringthegastocustomers,themonthlycustomer pricesare: charge,andtheenergyoptimizationsurcharge.The Higherdemandfromresidential, projectedtotalcostforresidentialcustomersofall andcommercialcustomersfrom regulatedutilitiesinMichiganovertheNovember2013 coolerwintertemperatures throughMarch2014winteris$8.08/Mcfcomparedtolast Slower productiongrowthwhich yearsactualaverageof$8.61/Mcf.Thisrepresentsa6.2 hasreducedexcesssupply percentdecreaseinnaturalgaspricesfromlastyear.The Lowerinventoriesattheendofthe costofgasmayvaryfromprojectionsovertheupcoming heating season wintermonthsasitisdrivenbydynamicsupplyand demandconditionssuchasweather. Despitealowernaturalgaspriceforregulatedutilities,theresidentialmonthlywinterbillisnot expectedtodecreaseforallcustomers.WhileConsumersEnergyandDTEGasareprojectingdecreases inoverallbills,utilitieswith smallerserviceterritories (SEMCoandMGU)areexpecting toseeanincrease.These utilitieshedgelessoftheir wintersupplythanthelarger utilities.3Thislowerhedged volumeresultedinverylowbills lastwinter,butwillproduce largerbillsthiswinterasthe spotpricefornaturalgasis expectedtobehigherthanlast year.

Pricehedgingallowstheutilitytoutilizefuturescontractsandotherfinancialinstrumentstohelpstabilizeprices.

Michigan Natural Gas Supply & Demand

Michigan Natural Gas Supply and Demand

(Billions of Cubic Feet BCF)

Total Net Interstate Michigan To (From) Demand Deliveries Production Storage Historical 2010 Total 2011 Total 2012 Total 2013 January February March April May June July August September October November December 745.7 745.1 775.9 107.3 100.4 95.0 68.4 42.4 33.5 33.8 35.0 30.3 41.5 64.6 94.1 746.3 -3.8% 115.6 103.6 91.3 65.9 43.7 562.1 681.6 634.1 -25.1 -13.1 -4.7 66.2 95.0 91.5 83.0 85.8 81.9 71.8 34.2 -6.3 560.1 -11.7% -19.8 2.6 39.4 90.9 99.5 141.9 r 134.9 r 127.3 10.4 9.5 9.9 9.9 10.2 9.9 10.1 10.0 9.6 9.8 9.4 9.6 118.3 -7.1% 9.6 8.8 9.2 9.2 9.5 -41.8 71.3 -14.5 -122.0 -104.0 -89.9 7.7 62.9 67.9 59.3 60.7 61.2 40.1 -20.9 -90.8 -67.9 -125.7 -92.3 -42.8 34.1 65.3

Storage Balance 492.7 564.0 549.5 427.4 323.4 233.5 241.2 304.1 371.9 431.2 492.0 553.1 593.2 572.3 481.5 481.5 -12.4% 355.8 263.6 220.8 254.9 320.2

Projection

2013 Total 2013-2014 change 2014 January February March April May

NOTES:Projecteddemandassumesnormalweatherfortheremainderoftheyear.Netinterstatedeliveriesarecalculated usingsaleslessthesumofMichiganproductionandchangeinMichiganstorage.Storagebalanceisendofmonth/year. SOURCES:HistoricalDataDemandandStoragefromtheEnergyInformationAdministration,DOE;Productionfrom Operations&WholesaleMarketsDivision,MPSC;ProjectionEnergyDataandSecuritySection,MPSC.r=reviseddata

 WORLDOUTLOOK

Petroleum

TheEIAsSeptemberShortTermEnergyOutlookpredictsthatglobalconsumptionin countriesoutsideoftheOrganizationforEconomicCooperationandDevelopment(OECD)will growby1.1millionbarrelsperday(bbl/d)in2013andbyanother1.2millionbbl/din2014. ThisrepresentsacontinuationoftheupwardtrendseeninrecentyearsasChina,theMiddle East,CentralandSouthAmericaincreasetheirconsumptionofpetroleumproducts.In particular,NonOECDAsia(mainlyChina)hasbeentheleadcontributortoglobaldemand growthusingaprojected420,000bbl/dofadditionalfuelin2013.Incontrast,projectedOECD liquidfuelsconsumptionisexpectedtodeclineby0.2millionbbl/dinboth2013and2014asa resultoflowerconsumptioninEuropeandJapan. TotalOPECliquidfuelsproductionisprojectedtodeclineby0.8millionbbl/din2013and0.2 millionbbl/din2014.Thesedeclinesareprimarilytheresultofunplannedoutagesofcrudeoil productionamongsomeOPECproducers.Productionissuesweremostprevalentduringthe monthofAugustwherethetotalamountofofflineproductionwasthehighestsinceJanuary, 2011.NonOPECnationshowever,continuetoincreaseproduction,promptinglargeOPEC producerssuchasSaudiArabiatoscaleback.ThelargestsourceofnonOPECsupplyhasbeen NorthAmerica,whereproductionisexpectedtogrowby1.4millionbbl/din2013and1.1 millionbbl/din2014fromU.S.onshoretightoilformationsandCanadianoilsands.OPEC memberscontinuetoserveastheswingproducersintheworldmarketsincetheypossesslarge surpluscrudeoilproductioncapacity. WhilethepriceofWest TexasIntermediate(WTI) crudehasbeenatadiscount comparedtoBrentCrude (theinternational benchmark)overthepast twoyears,itsprice strengthenedin2013with thegapbetweenthetwo narrowingtoanaverageof justabove$3perbarrelin July.Earlierintheyear, however,thespreadwasaswideas$23perbarrel.ThisincreaseintheWTIpricewasprimarily theresultofnewU.S.transportinfrastructureandU.S.refineriesrunningatnearrecordlevels inlatespringandthroughthesummermonths.At16.1millionbbl/dfortheweekendingJuly 5,U.S.crudeoilrunswerethehighestforanyweeksince2007.Additionally,asnew infrastructuremadeWTIcrudemoreavailabletorefineries,importsofBrentcrude(an alternativetoWTI)dropped,puttingdownwardpressureonitsprice.

U.S.OUTLOOK Forthefirsthalfof2013,increasesinliquefiedpetroleumgasanddistillatescausedtotalliquid fuelsconsumptiontoriseby4percent(70,000bbl/d)overthesameperiodlastyear.Aportion ofthisincreasecanbeattributedtobelownormaltemperatureslateintheheatingseason. TheEIAprojectsliquidsconsumptionduringthesecondhalfof2013toincreaseby1percent (180,000bbl/d)fromthesameperiodlastyear,withallofthefinishedproducts(i.e.,gasoline, distillates,jetfuel)contributingtothatgrowth.In2014,thesituationisexpectedtochange withdeclinesinmotorgasolineusageoutweighingincreasesindistillateconsumption.High gasolinepricescombinedwithhighervehiclefuelefficiencyarelargelyresponsibleforthe expecteddecreaseingasolineconsumption. U.S.crudeoilproductionincreasedtoanaverageof7.6millionbbl/dinAugustofthisyear,20 percenthigherthanthesameperiodin2012andthehighestmonthlylevelofproductionsince 1989.WithU.S.crudeoilproductionatthehighestlevelintwodecadesandoutstripping currentpipelinecapacity,theUnitedStatesisrelyingmoreonrailroadstomovecrudeoilto refineriesandstoragecenters.Theamountofcrudeoilandrefinedpetroleumproducts transportedbyrailreachedalmost356,000carloadsduringthefirsthalfof2013,up48percent fromthesameperiodin2012,accordingtoAssociationofAmericanRailroads(AAR). Domesticproduction continuestobeledbyTexas (thePermianandEagleFord shaleformations)andNorth Dakota(BakkenFormation) whichbothhaveincreased theirdailyoutputby14 percentoverlevelsin2012. Incontrast,traditional producingstateslikeAlaska andCaliforniahavebeenon thedecline. MIDWESTOUTLOOK AsofSeptember13,2013Midwestcrudeoilstockswere12percentabovethe5yearaverage andtotalrefineryinputswereabovelastyearslevels.ExpertsatColoradoStateUniversityand NOAAhavepredictedanabovenormalhurricaneseasonin2013,withanaboveaverage probabilityofUnitedStatesandCaribbeanmajorhurricanelandfall.Assumingnormalweather andabsentunexpectedsupplyproblems,however,itisexpectedthatthepriceandsupplyof petroleumproductsshouldbestable.

10

Refiner Acquisition Cost of Crude Oil

2009 through 2013 with projections through June 2014

U.S. Petroleum Demand Projections

(Million barrels per day)
1st Demandin50States DomesticCrude Oil Supply
1 2

2012 2nd 3rd 18.65 6.29 8.82 18.67 6.42 8.47 97.50

4th 18.48 7.02 7.87

1st 18.60 7.11 7.46

2013 2nd 3rd 4th PROJECTED 18.61 7.30 7.60 18.88 7.57 7.84 18.64 7.89 6.77

2014 1st 2nd PROJECTED 18.59 8.15 6.55 18.66 8.33 6.83

2012

YearlyAve 2013 2014 18.68 7.47 7.42 18.72 8.43 6.53

18.42 6.22 8.58

18.56 6.49 8.43

Total PetroleumNetImports Crude Oil Price

1

105.00 101.63

97.29 101.15

99.45 110.91 106.00 102.67 103.50

101.00 104.38 101.71

Notes: Includesonlycrudeoilproduction.Additionalsourcesofdomesticpetroleumsupplyincludenaturalgasliquids,alcoholinputs, 2 3 otherhydrocarbons,andprocessinggains. NetImportsincludedeliveriestotheStrategicPetroleumReserve. Indollarsperbarrel. Sources:EnergyInformationAdministration(DOE),ShortTermEnergyOutlookSeptember2013,andPetroleumSupplyMonthly.

U.S. Total Petroleum Demand and Net Imports

Sources:EnergyInformationAdministration(DOE),ShortTermEnergyOutlookSeptember2012,WeeklyPetroleumStatusReport, MonthlyEnergyReview,andotherindustrysources.

11

 DEMAND

MotorGasoline

GasolinesalesinMichiganareprojectedtodecreaseby0.7percentin2013dueprimarilyto higherfuelefficiencyamongthevehiclefleetandchangesinconsumerbehaviorresultingfrom sustainedhighgasolineprices.Inadditiontothecostofcrude,refineryoutages(bothplanned andunplanned)haveputupwardpressureonpriceswhichhavenotdippedbelow$3.20/gallon sinceJanuary2013.Theaveragefueleconomyofthevehiclefleetreached24.9milesper gallon,upnearly5percentfromlastyear.4Withtheexceptionof2010,gasolinesalesin Michiganhavedecreasedeveryyearsince2004,resultingina14.5percentnetreductionin demand.Regionally,gasolinesalesareexpectedtoincreaseslightlyby0.2percentin2013.5

SUPPLY Plannedandunplannedrefinerymaintenanceaswellaslongtermrefineryupgradeprojects havereducedgasolineproductionintheMidwest,significantlyloweringgasolineinventories. Regionalrefineryutilizationaveraged83percentthefirsthalfof2013,down13percentfrom thesameperiodlastyear.WhilegasolineinventorieswerehighinApril,astheytypicallyare beforerefinerymaintenanceseason,anumberofunplannedrefineryoutages(e.g.,FlintHills (277,000bbl/d)inMinnesotaandHollyFrontier(138,000bbl/d)inKansas)andlongerthan

UniversityofMichiganTransportationResearchInstitute

TheregioniscomprisedofIllinois,Indiana,Kentucky,Michigan,Tennessee,andOhio.

12

anticipatedplannedmaintenancecausedgasolineinventoriestodeclinequickly.Betweenmid AprilandmidMay,Midwestgasolineinventoriesdroppedby6millionbarrels(11%)before recoveringasrefineriesreturnedtonormaloperationsandasgasolinesuppliedfromother regionsreachedtheMidwest.Regionalproductionlevelsareexpectedtoendtheyear3.1 percenthigherthan2012,butlowerthanin2011. Exportsoffinishedgasolineand blendingcomponentssetnew recordsforthefirsthalfof2013, exceedinghighssetin2011. Regionalrefineriesexportedan averageof4.6millionbarrelsper dayduringthissixmonthperiod.A largecontributingfactorwerehigh gasolineinventoriesearlyinthe year(JanuaryMarch)whichwere 3percentabovethefiveyear average.Continuedweak domesticdemandandgrowing demandfromLatinAmericahave alsocontributedtothehighexportlevels. PRICES AccordingtotheAAA,theaveragepriceforagallon ofregularunleadedgasolineinMichiganpeakedat $4.25pergallononJune25,2013anddidnotdrop below$3.40pergallonfortheentiresummer drivingseason.Evenafterthechangeovertowinter gradefuel,priceshaveremainedbetween$3.50and $3.75pergallon.Highcrudeoilpricesandreduced productionfromrefineryoutageshavebeenthe maindriversofgasolinepricesin2013.

TheEIAexpectsthepriceofregularunleaded gasolinefortheMidwestregiontoaverage$3.36 pergallonforthefourthquarterof2013,whichis fourcentslessthanlastyearduringthesame period.Nationally,pricesarepredictedtoaverage slightlyhigherat$3.44pergallon.

RegionalDifferences:TheMidwestvs. theEastCoast WhiletheMidwestregionexperienced refineryissuesandlowinventoriesthis spring,EastCoastmarketssawthe oppositesituation.Highrefinery utilizationratesandstrongimports fromtheGulfCoastpushedinventories tomaximumlevels.Theregionhasalso beenthedestinationofEuropean imports,furtheraddingtostocks. Althoughproductionhasincreased,the EastCoastregionhasseenthelargest consumptiondecreasesinthenation thisyear.Almostallofthenational declinesindemandarearesultofEast Coastmarkets.ExcludingtheEastern Region,U.S.2013demandactually increasedJanuarythroughApril comparedtothesameperiodin2012.

13

Michigan Gasoline Sales

Michigan Gasoline Sales Projections
(Millions of Gallons)

Total All Grades Historical 2010 2011 2012 2013 Total Total Total January February March April May June July August September October November December

Historical (prior year)

% Change 1.2% -1.6% -1.7%

4,344 4,277 4,202 338.7 319.5 348.2 342.8 378.3 358.5 362.5 365.0 334.7 353.1 331.4 338.7
4,171.5 -0.7%

4,293
4,344 4,277

Projection

334.5 324.2 344.5 338.5 364.3 362.9 365.6 373.9 336.1 368.4 345.5 343.8
4,202.2 -0.7%

2013 Total 2013-2014 Change 2014 January February March April May

323.2 304.2 331.7 323.8 347.4

338.7 319.5 348.2 342.8 378.3

NOTE:TheseprojectionsarebasedonmoderategrowthinMichiganseconomyandstablegasprices. SOURCE:HistoricaldataEnergyInformationAdministration,U.S.DepartmentofEnergy.
Projections Energy Data and Security Section, MPSC.

14

Regional Gasoline Supply and Demand

Regional Gasoline Supply and Demand

(Millions of Gallons)
Production Historical 2010 2011 2012 2013 Average Average Average January February March April May June July August September October November December 2013 2013-2014 change 2014 Average Inventories Demand

1,808.4 1,817.8 1,746.9 1,684.0 1,529.8 1,822.3 1,773.7 1,948.5 1,919.2 1,898.7 1,895.1 1,799.6 1,812.3 1,731.3 1,803.8
1,801.5 3.1%

271.9 234.2 243.4 226.6 222.1 210.0 194.8 201.6 211.2 198.8 241.8 251.4 269.4 263.3 194.2
223.8 -8.1%

1,813.7 1,752.7 1,765.5 1,714.3 1,590.2 1,758.3 1,748.0 1,869.3 1,800.2 1,843.3 1,858.6 1,696.7 1,834.8 1,731.5 1,781.7
1,768.9 0.2%

Projection

January February March April May

1,779 1,662 1,748 1,747 1,848

280.0 247.9 215.5 222.9 211.1

1,679.0 1,550.9 1,732.2 1,711.4 1,833.6

NOTE: Production projections are based on refinery utilizations and recent trends. The region is comprised of Illinois, Indiana, Kentucky, Michigan, Tennessee, and Ohio. SOURCE: Historical data - Energy Information Administration, U.S. Department of Energy. Projections Energy Data and Security Section, MPSC

15

 DEMAND

DistillateFuels

TotaldistillatesalesinMichiganareprojectedtoincreaseby1percentto1.04billiongallonsin 2013.Demandhasdecreasedforthepasttwoyears,butincreasedindustrialproductionis expectedtoboostlevelstoathreeyearhigh.Industrialproductiongrowthincreasedan averageof4.6percentyearoveryearforthefirsttwoquartersof2013.Largeautomakers, FordandChryslerbothannouncedproductionexpansionsthisyeartoaccommodateincreasing sales.Productionisdirectlylinkedtodistillatesalesastruckingandrailroadindustriesarelarge consumersofdieselfuel.Dieselfuelaccountsforover98percentofthetotaldistillate consumptiononaverage,withtheremainderconsistingofheatingoil,kerosene,andNo.1 distillate.

SUPPLY

Regionalrefineriesareexpectedtoproduceanaverageof741.2milliongallonsofdistillatefuel oilpermonthin2013,adecreaseof2.3percentover2012.Thedecreaseislargelybecauseof lowerrefineryutilizationratesresultingfrommaintenanceandunplannedoutages.Forthe weekendingSeptember13,2013,nationalinventoriesofdistillateoilwere131.1million barrels,2.3percentabovelastyearslevels,butstilltowardthebottomofthefiveyear averagerangeforthistimeofyear.Distillatestockshaveremainedeitherbelowortowardthe bottomofthefiveyearrangesincemid2012asexportdemandhasmaintaineditsupward trend.Theworldmarketfordistillatefuelshascontinuedtogrow,offeringfavorablewholesale

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pricestodomesticrefiners.TheU.S.EnergyInformationAdministration(EIA)monthlydatafor Juneofthisyearindicatedthatnetexportsofdistillatefuelsreachednearly1.2millionbarrels perday(bbl/d),thehighestvolumesincemonthlyU.S.tradedatahasbeenrecorded.Global demandfordistillatefuelshasremainedespeciallystronginLatinAmericaandwasthe destinationforover60percentofexportsforthefirstsixmonthsof2013.

PRICES

DieselfuelpricesinMichiganaveraged$3.97pergallonthissummerdrivingseason(June August),10centshigherthanlastyear.Pricespeakedat$4.23pergallononFebruary21,2013, andremainedabove$4.00/gallonuntiltheendofApril.Thispriceincreasewasaresultof refinerymaintenanceandoutageswhichproducedasimilareffectontherefinedgasoline market.TheEIAexpectsthatnationalonhighwaydieselfuelretailpriceswillaverage$3.96per gallonthisyearand$3.82pergallonin2014. TheprincipalpricedriverforNo.2distillatefueloil(heatingoil)istherefineracquisitioncostof crude,whichhasremainedabove$90abarrelsinceFebruary,2011.6Pricespeakedthisyearin Augustatanaverageof$112/barrel.Otherfactorsaffectingthepriceofheatingoilincludethe seasonalityofdemandfromweatherconditions,competitioninlocalmarketsandregional operatingcosts.

Therefineracquisitioncostofcrudeoilisthecostofcrudeoil,includingtransportationandotherfeespaidbythe refiner.Thecompositecostistheweightedaverageofdomesticandimportedcrudeoilcosts.

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Michigan Distillate Fuel Oil Sales

Michigan Distillate Fuel Oil Sales Projection

(Millions of Gallons)
Other * Distillate 45.9 47.5 11.8 1.9 1.5 1.1 0.4 0.2 0.2 0.2 0.3 1.9 0.8 0.6 4.4 13.4 2.6 0.7 0.2 0.2 0.2 Diesel Fuel 999.5 991.0 1,019.2 80.2 72.1 77.5 84.7 96.2 85.7 83.2 89.9 88.4 99.5 87.3 83.0 1,027.7 84.2 78.3 82.7 82.9 89.7 Total 1,045.5 1,038.5 1,030.9 82.2 73.5 78.5 85.0 96.5 85.9 83.4 90.2 90.3 100.4 87.8 87.4 1,041.1 86.9 79.0 82.9 83.1 89.9 Prior Year 961.6 1,045.5 1,038.5 79.3 75.7 78.3 82.9 95.2 90.1 88.2 93.1 85.2 99.9 87.6 75.3 1,030.9 82.2 73.5 78.5 85.0 96.5 1.0% % Change 8.7% -0.7% -0.7%

Historical

2010 2011 2012 2013

Total Total Total January February March April May June July August September October November December Total January February March April May

Projection

2013 2014

NOTES:Theseprojectionsassumenormalheatingdegreedayaccumulationsfortheremainderoftheyear. SOURCES:HistoricaldataEnergyInformationAdministration,DOE.ProjectionsEnergyDataandSecuritySection, MPSC,*=OtherDistillateiscomprisedof:Kerosene,No.1DistillateandNo.2FuelOil

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Regional Distillate Fuel Supply and Demand

Regional Distillate Fuel Oil Supply and Demand

(Millions of Gallons)
Production Historical 2010 2011 2012 2013 Average Average Average January February March April May June July August September October November December Average January February March April May 706.8 740.6 758.3 741.6 641.5 666.4 691.4 673.0 777.1 797.0 809.2 762.4 767.1 765.6 801.5 741.2 758.7 682.6 687.8 716.6 784.1 Inventories 512.0 514.6 506.9 540.5 533.2 504.9 491.9 485.6 478.2 496.1 503.4 515.5 478.5 495.8 553.3 506.4 575.5 566.0 523.5 518.0 522.4 Demand 737.3 743.5 741.4 745.6 663.0 730.3 753.2 783.7 752.5 742.4 791.4 778.0 854.9 778.8 758.8 761.0 774.1 718.0 781.6 770.6 782.2

Projection

2013 2014

NOTES:Productionprojectionsbasedonexpectedrefinerycapacityutilization,recenttrends,andnormalweather. SOURCES:HistoricaldataEnergyInformationAdministration,DOE;ProjectionEnergyDataandSecuritySection, MPSC

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 DEMAND

Propane

Theupcoming20132014heatingseason(NovemberMarch)isprojectedtoseeanincreasein propaneuseof5.7percentoverlastyear,assumingnormalweather.Colderthannormal temperaturesattheendofthe20122013heatingseasoncausedpropaneusetorebound closertohistoricaldemandvolumesaftertwopreviousmildwinters.Thisupcomingseason wouldbethesecondyearofincreaseddemand,althoughpropanedemandhasbeenonalong termdownwardtrajectoryoverall.AccordingtotheEIA,about6percentofU.S.households heatwithpropane;howeverinMichiganitisestimatedtobenearly9percent.Whileweather remainsthelargestdeterminantofpropaneuseforresidents,adepressedhousingmarketin recentyearsanddecliningusepercustomerresultingfromgreaterenergyefficiencyhasalso contributedtoreducedresidentialpropanesalesoverall.

SUPPLY A unique feature of propane is that it is not produced for its own sake, but is a byproduct of natural gas processing and petroleum refining. Until recently, propane was derived nearly equally from each source, but as the production of shale gas has increased in the U.S., the portion of propane derived from natural gas has risen to approximately 70 percent. Domestic production accounts for about 85 percent of total U.S. demand, with propane imports accounting for the remaining 15 percent. Regional propane production for the week ending September13,2013,was297,000bbl/d,up10,000bbl/dfromthesameperiodlastyear.

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 PropaneinventoriesreachtheirhighestlevelsatthebeginningoftheheatingseasoninOctober and are drawn down during the winter months. For the week ending September 13, 2013, Midwest inventories of propane were 22.7 million barrels, 19 percent below last year and 16 percent below the fiveyear average. A late start on building storage volumes resulting from extendedcooltemperaturesthisspringislargelyresponsibleforthebelowaverageinventories. Storage is used to moderate price and weather fluctuations and is combined with imports to meet consumer demand. Michigan benefits from ample underground storage in the form of rockformationsandcaverns,similartowhatisusedfornaturalgas. PRICES Domesticpricesofpropaneareinfluencedbyregionalconditionsaswellastheinternational marketandarecloselytiedtothepriceofcrudeoilandnaturalgas.Sincelate2011,increased naturalgasproductionhasplaceddownwardpressureonpricesandhascontributedtoalarger thanusualspreadbetweenWTIcrudeandpropanespotprices.Thistrendisexpectedto weakentheeffectofcrudeoilmarketvolatilityonpropanepricesovertime.In2013,however, thecombinationofhigheroilpricesandincreaseddemandhascausedpropanepricestorise. FortheweekendingSeptember13,2013,thespotpriceforpropaneatMontBelvieu,TX,was 20percentabovepricesforthesameperiodlastyear,butstillnearly8percentbelowthefive yearaverage.

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Michigan Propane Sales to All Customers

Michigan Propane Sales Projections

(Thousands of Gallons)
Total Demand Historical 2010/11 2011/12 2012/13 Total Total Total November December January February March Total 191.0 155.2 190.7 31.7 43.8 49.9 42.5 33.6 201.5 Historical (prior year) 202.6 191.0 155.2 32.6 38.7 46.9 41.8 30.7 190.7 5.7%

% Change -5.7% -18.7% 22.8%

Projection 2013 2014

2013/14

NOTES:Projecteddemandassumesnormalweatherfortheremainderoftheyear. SOURCES:HistoricalDataEnergyInformationAdministration,DOE; ProjectionEnergyDataandSecuritySection,MPSC.

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MichiganHouseholdWinterHeatingFuelSummary

Actual 2012-2013 Natural Gas Consumption (Mcf) Avg. Price ($/Mcf) Expenditures ($) Heating Oil Consumption (gallons) Avg. Price ($/gallon) Expenditures ($) Propane Consumption (gallons) Avg. Price ($/gallon) Expenditures ($) Heating Degree Days % Departure from Normal
1

72 $8.61 $623

Weather Normalized Projections1 % Change 2013-2014 2012/2013 Actual 75 $8.08 -6% $608 -2%

625 $3.74 $2,340

651 $3.55 $2,311

-5% -1%

810 $2.04 $1,654 -4.0

843 $1.90 $1,602 0

-7% -3%

Projections of usage assume a return to normal weather. The Residential space heating price is based on the average for November to March each season. Natural Gas prices are based on October average rates for Michigan gas utilities, including distribution, customer charge and the cost of gas. Heating oil and propane prices are based on the October 1, 2013 average Michigan residential prices which are assumed to hold constant over the winter. Projected usage is based on a 5-year average provided by the EIA.

TheMichiganHouseholdWinterHeatingFuelSummaryshowsMichiganpricesand consumptionestimatesfromnaturalgasutilities,andpropaneandheatingoilusagefromthe EIAsResidentialConsumptionSurvey.Actualusageforanygivenhomewilldependonmany factorsincludingtherelativeenergyefficiencyofthehome.

Assumingareturntonormalweather,theusageofallheatingfuelsisexpectedtoslightly increase.Despitethisincreaseinusage,however,lowerfuelpricesareexpectedtoresultina reductioninoverallheatingbills.Thecostofthesefuelsmayvaryfromprojectionsoverthe upcomingwintermonthsastheyaredrivenbydynamicsupplyanddemandconditionssuchas weather. Asummaryofwinterfuelpricesusedintheaboveanalysisispresentedbelow:

Theweightedaveragepriceforresidentialnaturalgascustomersofallregulatedutilities (excludescustomerchoice)inMichiganoverthewinterseasonisprojectedtobe$8.08/Mcf, a6percentreduction.Assumingaprojectedwinterconsumptionof75Mcfperhousehold, theaveragenaturalgasbillisprojectedtodecreaseby2percent.

OnOctober7,2013,heatingoilpricesaveraged$3.55/gal,adecreaseof5percentover lastyearsaveragepriceof$3.74(Oct.Mar.).Propanepricesaveraged$1.90/gal,adecrease of7percentfromlastyearsaveragepriceof$2.04(Oct.Mar.).

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MichiganPublicServiceCommission MichiganEnergyAppraisal P.O.Box30221 Lansing,MI48909