October 10, 2007

The Michigan Public Service Commission (MPSC) today released the "Michigan Energy Appraisal: Winter 2007/2008." The appraisal, published since 1978, reviews the projected prices and availability of energy in Michigan over the winter months.

The outlook this winter shows that energy supplies in Michigan will be adequate to meet anticipated demand, but at prices that will be higher. Residential natural gas prices are currently 2 percent higher than last winter. Residential #2 heating oil prices are up sharply due to increases in crude oil prices that have affected the price of all petroleum products. As of October 8, 2007, the average price of residential #2 heating oil is up 20 percent from last winter's average, and residential propane prices are up by 8 percent.

Winter weather that is either colder or warmer than last year will affect actual monthly usage and bills. The National Weather Service is projecting that the temperatures in the Great Lakes region will be warmer than normal from October 2007 through March 2008. This would continue a trend seen over the last six heating seasons in Michigan where heating degree days have averaged 5 percent warmer than normal. This in turn would mean somewhat lower heating bills than estimates based on normal temperatures.

Electricity - Michigan electricity sales for 2007 are projected to increase by 1.5 percent compared to 2006. This compares to a calendar year 2006 decrease of 0.8 percent over 2005. This year's summer temperatures were not as hot as 2006, 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.

Natural Gas - For the 2007-2008 winter heating season, assuming normal weather, a typical Michigan resident can expect their winter bill over the November to March period to be around $764, based on October 2007 prices. This represents a 2 percent increase in residential prices, plus a 6 percent increase in usage assuming normal winter temperatures. The combination of higher prices and increased usage could cause natural gas bills to rise by as much as 8 percent this year compared to last winter.

Total annual natural gas sales in Michigan for 2007 are projected to be 836 billion cubic feet (Bcf), almost 9 percent greater than the 2006 total, but still 4.5 and 5.9 percent lower than 2005 and 2004 levels, respectively. Natural gas storage levels are normally built up during the summer months and are projected to be at 618.2 Bcf in October 2007, about 96.5 percent of total capacity, which should be sufficient to meet anticipated demand for the coming winter.

Petroleum - Despite continued higher crude oil prices, world oil demand continues to see growth. During the fourth quarter of 2007, the Energy Information Administration (EIA) projects that world oil consumption will increase 1.8 million barrels per day (b/d). Total world oil demand is projected to rise from 85.5 million b/d in 2006, to 87.5 in 2007, and 88.4 in 2008. These increases in demand, coupled with moderate growth in production, leave the market vulnerable to continued price uncertainty and potential supply disruptions. As seen in recent years, severe weather activity along the Gulf Coast, security concerns in the Middle East and pipeline disruptions, can all have a dramatic affect on crude oil prices and petroleum supplies.

In 2007, the cost of crude oil to U.S. refiners is projected to be $65.64 per barrel compared to the $60.08 per barrel average in 2006. The projected cost for 2008 is $70 per barrel.

Motor Gasoline - Gasoline prices in Michigan reached a new record high on May 26, 2007 when AAA Michigan reported an average price of $3.53 per gallon, topping the previous record high on August 2, 2006 of $3.09 per gallon. Prices have retreated from these record levels and according to AAA as of October 9, 2007, the average Detroit area retail gasoline price was $2.86 per gallon, 67 cents below the record high. For 2007, gasoline sales in Michigan are projected to show a continued decline, decreasing 1 percent from 2006. Projected sales for 2007 are 4,633 million gallons, down from 4,678 million gallons in 2006. This is the third consecutive year of declining gasoline sales in Michigan.

Distillate Fuel Oil - For 2007, distillate deliveries are projected to increase by 3.6 percent to 1.13 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 October 8, 2007 was $2.84 per gallon, up 57 cents per gallon from year ago levels and 36 cents since March 2007.

The Michigan Energy Appraisal is prepared every six months. The Energy Appraisal is available on the Commission's Web site at: http://www.dleg.state.mi.us/mpsc/reports/energy. The MPSC is an agency within the Department of Labor & Economic Growth.