The Michigan Public Service Commission (MPSC) today released the "Michigan Energy Appraisal: Winter 2008/2009."  The appraisal, published since 1978, reviews the projected prices and availability of energy in Michigan over the winter months.

The outlook shows that energy supplies in Michigan this winter will be adequate to meet anticipated demand, but at prices that will be much higher.  Residential natural gas prices are projected to be 21 percent higher than last winter.  Residential #2 heating oil prices are up sharply due to increases in crude oil prices earlier this year but should come down to reflect the reduction in crude oil prices seen since July 2008.  As of September 22, 2008, the average price of residential #2 heating oil is $3.60 per gallon and residential propane price is $2.45 per gallon on average.

Winter weather that is either colder or warmer than last year will affect actual monthly usage and bills.  The Climate Prediction Center of the National Weather Service is projecting that the temperatures in the Great Lakes region will be warmer than normal from October 2008 through March 2009.  This would continue a trend seen over the last five 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's electricity sales are expected to decrease by 1.4 percent in 2008.  This decline is due to a reduction in electricity demand in all sectors; residential, commercial and industrial.  Weather remains a major determinant of summer electricity demand.  In 2008, Michigan weather was within normal ranges. No supply shortages or transmission constraints are expected to affect the ability of Michigan utilities to meet winter peak electric demand, which is normally at least 25 percent lower than the summer peak demand.

Natural Gas - Total natural gas sales in Michigan for 2008 are projected to be 822.7 billion cubic feet (Bcf), about 2.6 percent greater than 2007.   These projections assume normal weather that would increase demand over last winter, which was 4 percent warmer than normal.  Natural gas storage levels are normally built up during the summer months and are projected to be at 634 Bcf in October 2008, which means Michigan's storage capacity will be 98 percent filled.  This should be sufficient to meet anticipated demand for the coming winter.

Petroleum - The summer of 2008 saw volatile petroleum markets.  Crude oil prices started to climb in January and rose to an all time high of over $147 per barrel in July.  During this time, crude oil prices continued to climb even though petroleum demand was falling.  As the market rebalanced supply and demand, crude oil prices began to decline. In August, the price of crude oil began to slide, bringing down the price of gasoline.  The price of crude oil has dropped below $100 per barrel in trading on the New York Mercantile Exchange (NYMEX) for the first time in almost six months.

Motor Gasoline - Gasoline prices in Michigan reached a record high on July 17, 2008 when AAA Michigan reported an average price of $4.21 per gallon, topping the previous high of $3.94 per gallon set on May 16, 2008.  A price spike occurred in Michigan the day before Hurricane Ike made landfall, driven in part by concerns of much higher prices to come.   The damage to Gulf Coast refineries was far less than expected, and prices have been retreating.  Further price declines are expected as refineries return to service.  According to AAA, as of September 24, 2008, the average Michigan retail gasoline price was $3.85 per gallon, 86 cents above the price a year ago and 27 cents below the record high.  Gasoline sales in Michigan are projected to continue their decline, dropping 5.3 percent from 2007.  This will mark the fifth straight year of declining gasoline sales in the State.  Projected sales for 2008 are 4,252.2 million gallons, down from 4,492 million gallons in 2007. The last year in which gasoline use increased was 2004.  Since that time, Michigan will have seen gasoline consumption decline by a total of 625 million gallons by the end of 2008.

Distillate Fuel Oil -  For 2008, distillate deliveries are projected to decrease by 0.2 percent to 1.13 billion gallons.  The three principal factors affecting distillate usage in Michigan are industrial production, winter weather, and price.  Diesel fuel accounts for approximately 93 percent of the total distillate consumption on average.  Diesel fuel sales should decrease 2.3 percent over the level seen in 2007.  Price is a main driver of diesel fuel demand, and this drop is a response to the higher prices this summer.

Propane -  According to the EIA, Michigan uses more propane for residential space heating than any other state in the country.  Michigan consumed 430.8 million gallons of propane in 2007. About 60 percent was used in the residential sector.  Propane is used in approximately 9 percent (375,000) of Michigan homes, according to the 2006 Census.  The industrial and commercial sectors have shares of 27 percent and 11 percent, respectively.  Transportation is the smallest share, at 2 percent.

Winter Heating Bills -   This winter, heating bills will be much higher in Michigan and across the country.   Since the National Weather Service is expecting this coming winter to be warmer than normal, and if one assumes this will mean temperatures comparable to last winter, then consumption would also be similar to last year. 

For the 2008-2009 winter heating season based on the average price of natural gas, residential customers in Michigan can expect their winter bills over the November to March period to be around $922, based on October 2008 prices.  This represents a 21 percent increase in residential prices.  The average residential price in Michigan for home heating oil on September 22, 2008 was $3.60 per gallon, up 13 percent from last year's average price.  Propane has also increased slightly.  The average residential propane price on September 22, 2008 was $2.45 per gallon, up 3 percent from last year's average. 

In Michigan, for space heating, 79 percent of Michigan homes use natural gas, 9 percent use propane/LPG, 7 percent use electricity, 3 percent fuel oil and the remaining 1 percent use wood, solar, and other fuels.

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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.