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Economic Decline Hits Michigan Demand, Prices, Production

The recession, which has hit Michigan especially hard, will drag residential natural gas prices down 12% and statewide demand down 10% this winter, according to an energy appraisal released Friday by the Michigan Public Service Commission (PSC).

Temperatures in Michigan were 4.8% colder than normal last winter, but forecasters are calling for normal or slightly warmer-than-normal temperatures this winter, which would "directly translate into reduced consumption and a further reduction in heating bills," the PSC said.

The average residential price for natural gas during the winter heating months is expected to be $10.04/Mcf, compared with last winter's $11.46/Mcf. Rate cases pending before the PSC, some of which include increases to delivery and service charges, could still result in higher bills for consumers. If approved by the PSC, rate increases could be implemented by Consumers Energy as soon as December, Michigan Consolidated Gas Co. in January and Michigan Gas Utilities in February.

Assuming normal weather this winter, the PSC projects total natural gas sales in the state to be 690 Bcf in 2009, down 10% from 2008. The decrease is being driven primarily by reduced industrial and commercial activity and population loss due to the economy.

Production in the state is projected to decline 5.5% to 149.3 Bcf in 2009, compared with 158 Bcf in 2008. The downward production trend, which began 12 years ago, "is expected to continue into the foreseeable future as Michigan's existing natural gas wells have reached maturity and production from new wells is not sufficient to offset this decline," the PSC said. Net interstate deliveries are projected to be 619.8 Bcf in 2009. Storage levels are projected to be at around 660 Bcf this month, which means Michigan's storage capacity will be completely filled.

Electricity sales in Michigan are expected to decline 4.3% in 2009 compared with 2008 due to a reduction in demand in all sectors. The state experienced one of the coolest summers on record, drastically reducing the need for air conditioning, and this year's peaks were lower than projected due to lower temperatures and significantly decreased commercial and industrial demand, the PSC said.

The complete winter energy appraisal is available at www.michigan.gov/mpsc.

Approximately 78% of Michigan homes are heated with natural gas, 9% with propane, 7% with electricity, 4% with heating oil and 2% with other fuels.

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