MPSC Issues Summer Energy Appraisal

LANSING -- The Michigan Public Service Commission last week issued the "Michigan Energy Appraisal: Summer 2013." The appraisal, published since 1978, reviews the projected prices and availability of energy in Michigan over the coming months.

The appraisal is available online at www.dleg.state.mi.us/mpsc/reports/energy/13summer/ea-summer13.pdf.

The demand for energy in Michigan is projected to be relatively flat overall when compared to previous years, but with modest year-over-year changes due to a number of economic and weather related factors. An increase in industrial production is primarily responsible for demand growth in both distillate fuels and electricity. In contrast, natural gas use is expected to decrease, as the assumption of normal weather will result in less use in the electric power sector over the summer months. Gasoline consumption is also expected to decline as increased vehicle fuel efficiency and sustained high gasoline prices place downward pressure on demand.

Electricity -- Assuming normal summer temperatures, Michigan's total electric sales are projected to remain relatively flat with only a slight increase of 0.2 percent in 2013. Increases are expected primarily in the industrial sector as a result of steady growth in manufacturing. Overall consumption is expected to be counterbalanced, however, by slight decreases in commercial sector use. Given the anticipated demand and reserve margins within the Midcontinent Independent System Operator Inc. and PJM Interconnection footprints, there should be an adequate supply of electricity over the summer.

Natural Gas -- Total annual natural gas sales in Michigan for 2013 are projected to be 731.7 billion cubic feet (Bcf), a 5 percent decrease from 2012 sales. This decline is based on an expected reduction in the use of natural gas for electricity production in 2013, due to higher natural gas prices and an assumed return to normal summer weather. In contrast, demand among the residential, commercial and industrial sectors are all expected to see modest increases this year, but will not be enough to overcome the decrease in the generation market assuming normal summer weather.

Petroleum -- According to the U.S. Energy Information Administration, world liquid fuels consumption grew by 0.7 million barrels per day in 2012 to reach 89.0 million barrels per day. Growth is expected to be higher over the next two years because of a moderate recovery in global economic growth and increased demand from China and other countries not part of the Organisation for Economic Co-operation and Development. Compared to past years, the average price of West Texas Intermediate crude in 2013 has remained relatively constant and is expected to drop only slightly to $93 per barrel for the remainder of the year. U.S. crude oil production averaged almost 6.5 million barrels per day in September 2012, the highest volume in nearly 15 years. This trend is expected to continue with an average of 7.4 million bbl/d in 2013 and 8.2 million bbl/d in 2014.

Motor Gasoline -- In 2013, gasoline sales in Michigan are expected to decrease about one percent following a decline of 1.7 percent in 2012. Modest increases in annual highway travel, 0.7 percent higher than 2012, are projected to be offset by increases in fleet-wide fuel efficiency. In addition, sustained gasoline prices above $3 per gallon have continued to put downward pressure on demand. During the April-through-September summer driving season, regular gasoline retail prices are forecast to average about $3.53 per gallon according to the EIA.

Distillate Fuel Oil -- Distillate sales in Michigan are projected to increase by 0.9 percent to 1,053.1 million gallons in 2013, following a similar increase of 0.5 percent in 2012. This demand increase is due primarily to growth in industrial production as well as an uptick in heating oil usage earlier in the year. Industrial production is an important determinant of sales since the trucking and railroad industries are large consumers of diesel fuel. According to the EIA, on-highway diesel fuel retail prices, which averaged $3.95 per gallon in 2012, will fall to an average of $3.88 per gallon in 2013.

The Michigan Energy Appraisal is prepared every six months.

The MPSC is an agency within the Department of Licensing and Regulatory Affairs.