October 2, 2006

The Michigan Public Service Commission (MPSC) today released the “Michigan Energy Appraisal: Winter 2006/2007.” The appraisal, published since 1978, reviews the projected prices and availability of energy in Michigan over the winter months.

The outlook this winter suggests that energy supplies in Michigan will be adequate to meet anticipated demand. Compared to last winter, natural gas prices for home heating will be 12 percent lower. Of course, weather that is colder, or warmer, than last year will affect actual monthly savings. Motorists have also seen a substantial drop in the price of gasoline due to lower crude oil prices and declines in usage over the last year.

Natural Gas – Even with a return to normal weather, residential natural gas bills will be down this winter compared to last. Currently, natural gas prices are down 12 percent from last winter’s average. Because last winter was warmer than normal, a return to normal weather would offset some of these savings. The National Weather Service is projecting a better than 70 percent chance of normal or warmer than normal weather this winter. Over the last four heating seasons temperatures have averaged 3 percent warmer than normal.

Customers of all Michigan gas utilities will see lower bills this winter. Statewide, monthly bills could be about $20 less than last year, assuming normal weather.

Total annual natural gas sales in Michigan for 2006 are projected to be 809 billion cubic feet (Bcf), almost 9 percent less than the 2005 total of 887.3 Bcf. Consumption during the first part of this year was down due to much warmer than normal weather. Natural gas storage levels are normally built up during the summer months and are projected to be at 603.5 Bcf in October 2006, about 90 percent of capacity, which should be sufficient to meet anticipated demand for the coming winter.

Electricity – Michigan electricity sales for 2006 are projected to fall by 0.8 percent compared to 2005. This compares to a calendar year 2005 increase of 4 percent over 2004. This year’s summer temperatures were not as hot as 2005, which reduced air conditioning use and lowered the overall sales figure. The outlook for this winter shows no supply shortages or transmission constraints that would impact the ability of Michigan utilities to meet winter peak electric demand.

Petroleum – The rate of growth in world oil markets has slowed from previous projections due to higher crude oil prices. For 2006, the Energy Information Administration expects world petroleum use to increase by 1.2 million barrels per day (m/b/d) to a total of 85 m/b/d. For 2007, an increase of 1.7 m/b/d is projected to bring the total to 86.7 m/b/d. Last year’s hurricanes disrupted U.S. oil and gas production and were a primary contributor to higher oil prices.

Continuing political tensions in the Middle East contributed to sustaining oil prices at high levels. The temporary shut down of half the production from the Alaskan North Slope also contributed to sustaining price levels, as did the uncertainty of this year’s hurricane season. As these risks have eased, so have crude oil prices. Projections by EIA show that the price of West Texas Intermediate grade crude oil is expected to average around $70 per barrel in 2006 and in 2007, with a wide range of possible outcomes ranging from the mid $50 per barrel to over $80. As of September 1, the average world crude oil price was $64.49; down from the high of $71.45 on August 11, 2006, but still up from the $55.12 seen at the beginning of this year.

Motor Gasoline – Gasoline prices in Michigan reached a new record high on August 2, when AAA Michigan reported an average price of $3.09 per gallon. This price exceeded the previous record high on September 5, 2005 of $3.05 per gallon. Prices have now retreated from record levels and, according to AAA, as of September 25, the average Detroit area retail gasoline was $2.17 per gallon, 92 cents below the record high. During the period May to August 2006, expenditures for gasoline in Michigan totaled an estimated $4.8 billion. If retail gasoline prices were to remain at current levels through the end of the year, given the projected demand, Michigan motorists will pay $1.2 billion less for gasoline than they did over the prior four months.

For 2006, gasoline sales in Michigan are pro­jected to continue to decline, decreasing 1.6 percent from 2005. Projected sales for 2006 are 4.7 billion gallons, down from 4.8 billion gallons in 2005.

Distillate Fuel Oil - For 2006, distillate deliveries are projected to decrease by 5.3 percent to 1.122 billion gallons. The three principal factors affecting distillate usage in Michigan are industrial production, winter weather, and price. The average residential price in Michigan for home heating oil on September 26 was $2.30 per gallon, down $0.45 per gallon from year ago levels and 3 cents since March 2006.