S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

Transcription

1 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the Application of ) MICHIGAN CONSOLIDATED GAS COMPANY ) for approval of a Gas Cost Recovery Plan, ) MPSC Case No. U Year Forecast and Monthly GCR Factor ) for the 15-month period ending March 2005 ) QUALIFICATIONS AND DIRECT TESTIMONY OF ROBERT G. LAWSHE

2 MICHIGAN CONSOLIDATED GAS COMPANY QUALIFICATIONS OF ROBERT G. LAWSHE No Q. Please state your name, address, and by whom you are employed. A. My name is Robert G. Lawshe. My business address is 500 Griswold Street, Detroit, Michigan I am employed by Michigan Consolidated Gas Company ( MichCon or Company ) as Gas Supply Specialist Q. Please describe your educational background and business experience. A. I received a Bachelor of Science Degree in Civil Engineering from Michigan State University in 1976 and a Masters Degree in Business Administration from the University of Detroit in MichCon hired me in June 1976, in the capacity of Construction Engineer in the Production, Transmission and Storage Department at MichCon s main office in Detroit, Michigan. In July 1978, I became a Construction and Technical Coordinator and in June 1979, transferred to MichCon s Romeo Office as Construction and Technical Coordinator and Division Supervisor of Repair Mechanics, Instrument Mechanics and Stock Department. In February 1982, I accepted the position of Administrator, Gas Purchase Contracts in the Gas Acquisition Department. For a 12-month period beginning September 1986, I participated in a job rotation program and held the position of Planner III in MichCon s Strategic Planning Department. In September 1987, I returned to the Gas Acquisition Department and have remained there to the present. I held various positions in that department including Manager, Gas Supply 1

3 No. 1 2 R.G. LAWSHE and Transportation Services, and have participated in all aspects of MichCon s gas acquisition and supply planning activities Q. What are your primary responsibilities at MichCon? A. I am responsible for MichCon s natural gas supply portfolio, including gas purchases and purchase of interstate pipeline transportation services Q. Have your previously provided testimony before the Michigan Public Service Commission ( MPSC or the Commission )? A. Yes. I sponsored testimony in an Act 9 price change case in 1985, MPSC Case No. U In addition, I have provided support for MichCon s Gas Supply witnesses since the 1984 GCR Plan Case Q. What is the purpose of your testimony in this proceeding? A. My testimony will address the implementation of MichCon s natural gas supply plan ( the Plan ) over the next five years plus 3 months, January 2004 through March 2009 ( the Plan Period ). I will describe MichCon s gas supply strategy, the purchases that MichCon has made and plans to make over the Plan Period, the source, contract, and forecasted price for such supplies, existing and planned transportation arrangements, and the actions that the Company plans to take to execute this Plan Q. Are you sponsoring any exhibits in this proceeding? 2

4 No. 1 2 R.G. LAWSHE A. Yes. I am sponsoring the following exhibits, prepared by me or under my direction: A- (RGL-1) A- (RGL-2) A- (RGL-3) A- (RGL-4) A- (RGL-5) A- (RGL-6) A- (RGL-7) A- (RGL-8) A- (RGL-9) A- (RGL-10) Projected NYMEX and Basis Prices Fixed Price Purchase Guidelines Summary of Gas Purchases Under Contract Intrastate Purchase Contract Summaries Summary of Transport Contracts Analysis of Transport Renegotiations Summary of Projected Gas Purchase Costs Summary of Projected Transport Costs Summary of Projected Total Supply Costs Projected Supply Costs for Contingency Factor 3

5 MICHIGAN CONSOLIDATED GAS COMPANY DIRECT TESTIMONY OF ROBERT G. LAWSHE No Q. Please give a brief overview of MichCon s supply plan. A. MichCon s 5-year supply plan is predicated on the volume requirements described in the testimony of Witness Borra. The Plan features a reasonably flexible portfolio of geographically diverse sources of supply under short to mid-term supply and transportation contracts with a diverse range of reliable suppliers and interstate transport providers. The supply plan also contains a comprehensive pricing strategy intended to achieve 3 goals: (a) reduce high winter price volatility through dollar cost averaging, (b) capture low prices as far as 3 years forward by locking in fixed prices when the market falls below the historical median, and (c) minimize high price purchases by securing all remaining requirements at spot related pricing. The details of MichCon s supply plan and resulting portfolio are more fully described throughout my testimony PRICE FORECAST Q. What methodology did MichCon use to forecast gas prices for this GCR Plan Case? A. The 5-year price forecast is found in Exhibit A- (RGL-1) and is a longterm price projection for the market. Column B contains the settlement prices for the natural gas contracts traded on the New York Mercantile Exchange ( NYMEX ) at the close of trading on September 11, The remaining columns show the forecasted basis adjustments and resulting 4

6 No R.G. LAWSHE prices for the indicated purchase locations. All prices are stated in dollars per Dth. Throughout this testimony, I assume a heating value of Dth per Mcf. This is the same conversion factor that MichCon has used in previous filings and represents the approximate heating value of gas delivered to the MichCon system Q. Please briefly explain what NYMEX is and why MichCon used the settlement prices on September 11, 2003 for its forecast of market prices. A. NYMEX is the world s largest physical commodity futures exchange and the predominant trading forum for North American energy futures, including natural gas. NYMEX provides the market s collective assessment of the current future value for natural gas. NYMEX trades reveal the value, in dollars per dekatherm, which the market places on gas delivered to the Henry Hub trading point located in Louisiana for a future delivery month. The settlement prices on September 11, 2003, were the most recent natural gas traded prices at the time the Plan was prepared Q. Why does MichCon use NYMEX for its market price forecast? A. MichCon uses NYMEX for its market price forecast because NYMEX is an industry-wide recognized price reference point. The price of gas at different geographic locations is measured through basis prices. Basis prices, as used here, represent the difference in price for gas delivered at the 5

7 No. 1 2 R.G. LAWSHE indicated geographic location and the price for gas at Henry Hub as traded on the NYMEX Q. How does MichCon forecast the basis prices and the resulting price it will pay for gas at various supply points? A. MichCon periodically collects information on the basis prices being offered by its suppliers. The basis prices shown on Exhibit A- (RGL-1) reflect these prices. The forecasted basis prices are then added to the forecasted NYMEX price by month to arrive at projected gas prices at the indicated supply points Q. How are projected gas prices at these supply points used in your gas supply forecast? A. These prices are used in calculating the cost of gas purchased by MichCon on the spot market for supplies that are tied to NYMEX or monthly indices and for forecasted supplies that have not yet been placed under contract FIXED PRICE PURCHASE GUIDELINES Q. Mr. Lawshe, how does MichCon plan to price its required gas supply for 2004 and beyond? A. The attached Exhibit A- (RGL-2) outlines the guidelines that MichCon intends to follow for pricing gas supply for 2004 and beyond. Generally, MichCon plans to lock in fixed prices, up to three years forward. The 6

8 No R.G. LAWSHE quantity to be locked in at fixed prices is a function of both timing and available market prices. The lower the market price and the nearer the term of delivery, the greater the volume that will be locked in at fixed prices. Conversely, the higher the market price and the more distant the term of delivery, less volumes will be locked in at fixed prices. All fixed prices will be locked in using either one or both of the following two methods, both of which are more fully described in the attached guidelines: (a) Dollar-Cost- Averaging, and (b) Quartile Indices Q. How does MichCon plan to price its remaining supply requirements for 2004 and beyond that are not priced at fixed prices? A. Generally, all gas that is not locked in at fixed prices will be priced either on the spot market (i.e. a price that is negotiated no longer than a month prior to delivery), a monthly Spot Index related price or at the NYMEX settlement price plus a fixed basis Q. Has MichCon already secured fixed priced supplies under this new methodology for 2004 and beyond? A. No. However, MichCon has secured a portion of its 2004 supplies under fixed prices pursuant to the hurdle-pricing plan outlined in MichCon s 2003 GCR filed testimony. MichCon has also secured a portion of its 2004 supplies under fixed prices pursuant to the Settlement Agreement approved by the MPSC in its Opinion and Order dated July 23, 2003 in Case No. U- 7

9 No. 1 2 R.G. LAWSHE Exhibit A- (RGL-3) shows all supplies currently under contract and their related price, term, delivery point and volume Q. How does MichCon intend to transition from the old hurdle pricing methodology to the new fixed price methodology? A. MichCon has presently changed to the new fixed price methodology and the new GCR fiscal period for deliveries commencing in April 2004, and beyond. Consistent with the July 23, 2003 Settlement Agreement, MichCon has already locked in the price of MMDth of gas to be delivered in January, February and March of 2004, see Exhibit A- (RGL-3) page 3 of 5 row 14 column F. MichCon has also locked in the price of 22 MMDth of gas to be delivered in April through December 2004 using the old hurdle pricing methodology, see Exhibit A- (RGL-3) page 5 of 5 row 10 column O. MichCon will treat this 22 MMDth of fixed price gas as secured under the new Quartile Range Indices guidelines. However, because these fixed prices were locked in for the calendar year period, and the new fixed price methodology is effective for the new April through March fiscal period, a variance in fixed prices or volumes may result in the January through March 2005 transition period INTRASTATE SUPPLY Q. Please describe intrastate supply. A. From the early days of Michigan gas production until the mid-1980 s, 8

10 No R.G. LAWSHE MichCon actively pursued the long-term purchase of wellhead dedicated gas produced in Michigan. This gas is classified as intrastate supply. Most of these long-term contracts have expired and the remainder will expire by July Supply from these intrastate contracts have declined over the years to where they now provide less than 1% of MichCon s overall supply requirements. Exhibit A- (RGL-4), contains detailed summaries of each of the 5 remaining contracts that produce in excess of 7,500 Mcf per month Q. Does MichCon intend to replace the expiring intrastate supply with additional Michigan produced gas? A. No. Replacement supplies will be purchased at MichCon City Gate or interstate delivery points INTERSTATE TRANSPORTATION AND SUPPLY Q. Please describe the pipeline capacity you have assumed in the GCR Plan Case for the period January 2004 through March A. Exhibit A- (RGL-5) shows all interstate transport currently under contract and their related capacity, term, and receipt and delivery points. Exhibit A- (RGL-8), pages 1 and 2 of 6 also summarizes the pipeline capacity by maximum daily quantity ( MDQ ) and includes the associated projected costs of that capacity by month. The projected costs include both reservation and commodity charges assessed by the pipelines. 23 9

11 No R.G. LAWSHE Q. Describe the changes in interstate pipeline capacity since MichCon s 2003 GCR Plan Case. A. The Panhandle Eastern Pipe ( PEPL ) transport capacity of 40,000 Dth/day will expire the end of March 2004 and several ANR transportation contracts expire by the end of October Expiration of MichCon s ANR contract entitlements will result in a 100,000 Dth/day total reduction in annual interstate entitlement: 83,500 Dth/day from the Gulf Coast and 16,500 Dth/day from the mid-continent. Additionally, MichCon s winter-only shaped service expired February This service provided up to 70,000 Dth/day: up to 42,000 Dth/day from ANR s interconnect with Alliance Pipeline in the Chicago area with deliveries to Georgetown and up to 28,000 Dth/day of transport from Detroit A with deliveries to Sparta-Muskegon Q. Does MichCon plan to enter into new interstate transport contracts? A. Yes Q. How does MichCon plan to secure future gas supplies that were previously purchased and transported under the expiring ANR contracts? A. MichCon has completed negotiations for 100,000 Dth/day of ANR transport capacity for a 3-year period commencing November 2003, at discounted 100% Load Factor ( 100% LF ) rates of $0.30/Dth on ANR/SW and $0.27/Dth on ANR/SE. This capacity consists of 50,000 Dth/day on 10

12 No. 1 2 R.G. LAWSHE ANR/SW and 50,000 Dth/day on ANR/SE, all with primary deliveries to serve the growing markets in the Grand Rapids area Q. How does MichCon plan to secure future gas supplies upon the expiration of the PEPL contract? A. MichCon intends to replace the 40,000 Dth/day of capacity on PEPL that expires March 2004, with similar transport on PEPL or any of the competing pipelines. For forecasting purposes, MichCon assumes that the 40,000 Dth/day of capacity will be renewed at the same rate. Additionally, MichCon has completed negotiations for 25,000 Dth/day of PEPL transport capacity for a 3-year period commencing November 2003 at a discounted 100% Load Factor rate of $0.30/Dth. An integral part of these negotiations included PEPL s agreement to construct, own and operate, at their sole expense, the new Southern Station interconnect meter located near Flat Rock, Michigan. Furthermore, since an existing 2,000 Dth/day PEPL transport contract from Defiance to Chelsea with a term expiring October, 2008, will become redundant to this new capacity, PEPL has terminated that service in exchange for MichCon s contracting for 10,000 Dth/day of combined PEPL-Trunkline capacity for a 1-year period commencing November 2003 at a combined discounted 100% LF rate of $0.25/Dth Q. Why is MichCon agreeable to replacing the 2,000 Dth/day of PEPL mentioned above with 10,000 Dth/day of combined PEPL-Trunkline 11

13 No. 1 capacity? R.G. LAWSHE A. For several reasons. The 2,000 Dth/day capacity is no longer required to service the Chelsea markets because that market may now be served by the new 25,000 Dth/day PEPL contract. Terminating the 2,000 Dth/day contract will eliminate total reservation fees of $408,000 over the life of the contract. The incremental cost of gas delivered under the 10,000 Dth/day PEPL-Trunkline capacity is comparable to the cost of gas delivered through other interstate pipelines. The new capacity will increase the geographic diversity of supply sources; encourage competition between pipelines serving MichCon, and increase security and reliability of supply. The shortterm nature of this contract will allow MichCon to acquire market knowledge of this new supply source without making a long-term financial commitment Q. Does MichCon plan to make any other changes to its interstate transportation portfolio? A. Yes. MichCon has completed negotiations for additional interstate transportation capacity on Vector Pipeline ( Vector ) and is currently negotiating with Great Lakes Gas Transmission ( GLGT ) Q. Please describe the new contract with Vector Pipeline. A. MichCon has negotiated transportation services on Vector from the Chicago area to MichCon at a discounted 100% LF rate of $0.17/Dth. The capacity consists of 25,000 Dth/day from November 2003 through March 2004, 12

14 No. 1 2 R.G. LAWSHE 50,000 Dth/day from April 2004 through October 2006, and 25,000 Dth/day from November 2006 through March Q. Please describe the proposed backhaul contract with Great Lakes Gas Transmission. A. MichCon is presently negotiating the construction of a new interconnect with GLGT near Segola, Michigan, in the Upper Peninsula. GLGT has indicated that they would agree to construct, own and operate, at its sole expense, a new Sagola Gate Station if MichCon agrees to a minimum throughput of 1 Bcf/year under a $0.07/Dth backhaul agreement. Further, GLGT would be agreeable to cap the transportation rates under our existing 30,390 Dth/day forward haul transport contract at a rate that is approximately 10% above its current maximum tariff rates, if MichCon waives its rights to terminate that contract in October, 2006, and continue service through the primary term of October, Q. Is the Trufant agreement, which starts in January 2005 per Exhibit A- (RGL-8) line 17 pages 2 through 6 of 6, a new interstate transport contract? A. No. The current Trufant agreement is dated November 1, 1993 and the service provided by ANR under that agreement is more fully described by witness K. McCrackin

15 No R.G. LAWSHE Q. Why are there no costs for the Trufant service prior to January 2005? A. There are $3.5 million of annual transport costs for Trufant services that have historically been recovered by MichCon in its base rates. However, as more fully explained by witness K. McCrackin, MichCon is proposing to recover the costs relating to the Trufant agreement through the GCR mechanism. For forecasting purposes, we assume that the Trufant costs will be accounted for under the GCR mechanism beginning January 2005, which is the expected date of final approval of MichCon s base rates in its planned rate case filing Q. What effect would all of the foregoing transport changes have on MichCon s supply portfolio? A. Exhibit A- (RGL-6) compares the November 2004 through October 2005 cost of gas using the supply portfolio held by MichCon for the period November 2002 through October 2003 with the supply portfolio presented in this Plan Case. This analysis shows that the new supply portfolio will reduce the annual cost of gas by approximately $4 million, see Exhibit A- (RGL-6) line 45 column K. Additionally, the new portfolio contains minimal changes to peak-day interstate pipeline entitlement with 375 MDth in January 2004 and 390 MDth in January 2005 and each January thereafter, compared to 385 MDth/day held in January 2003, see Exhibit A- (RGL-8) pages 1 and 2 of 6. Furthermore, the annual interstate pipeline entitlements would increase approximately 23%, or 27 MMDth 14

16 No. 1 2 R.G. LAWSHE ( MMDth = 26.8 MMDth), for the period April 2004 through March 2005, compared to the period April 2002 through April Q. Why does MichCon plan to increase its annual interstate pipeline entitlements and reduce its dependence on City Gate purchases? A. Security of supply, greater price certainty, and increased diversity of supply sources are the primary reasons MichCon plans to increase its interstate entitlements. MichCon s ability to purchase City Gate supplies has been decreasing over the last several years and will continue to decline into the foreseeable future. As reported in the MPSC Summer 2003 Energy Appraisal, Natural gas production in Michigan is projected to decline by 6.5 percent, from Bcf in 2002 to Bcf in 2003, marking the sixth consecutive yearly decline. Many of the largest and most active market participants that historically provided price and volume liquidity are no longer offering this high level of reliable, creditworthy service. These include such entities as Enron, El Paso, Dynegy, PG&E, Mirant, Aquila, CMS, and Reliant. While City Gate and Michigan wellhead purchases accounted for approximately 29% of MichCon s 2003 gas supply (See 2003 GCR filing: 45.5/157.4 Bcf ~ 29%), it is evident that continued purchases at those levels would increase price and supply reliability risks. Additionally, MichCon s total supply requirements for calendar year 2004 have increased approximately 15.3 Bcf ( = 15.3 Bcf) from 2003 Plan Case. These additional supply requirements, if purchased at the MichCon City 15

17 No R.G. LAWSHE Gate, would exacerbate the risk by increasing MichCon s City Gate purchases to over 35% (( )/172.7 ~ 35%) of its supply portfolio. Consequently, MichCon is pursuing a more balanced supply mix that will reduce its reliance on City Gate purchases to a level of approximately 18% of 2004 supply requirements Q. Please describe the regional diversity of the Company s current and proposed transportation portfolio. A. The following table compares the variety of supply basins and percentage of normal weather supply requirements from each location for calendar years 2003 and 2004 (as presented in the 2003 GCR filing and the current 2004 GCR filing). Location Mid-Continent 18% 29% Gulf Coast 34% 27% Canadian 18% 26% Michigan 1% 0% City Gate 27% 18% Total 100% 100% PROJECTED TOTAL SUPPLY AND COSTS Q. What are MichCon s total projected gas purchase quantities and costs for the January 2004 through March 2005 period? 16

18 No R.G. LAWSHE A. MichCon s total projected gas purchase quantities and costs are summarized in Exhibit A- (RGL-7). This exhibit reflects projected purchases by location and is further subdivided by contracted fixed price, contracted not fixed price, and supply not yet under contract. The totals of these subdivisions are added to arrive at the total expected gas purchase quantity of approximately 38.9 MMDth (page 1, line 6 column E) and a total expected gas purchase cost of approximately $247 million (page 1, line 10, column E) for the January 2004 through March 2004 period; and approximately MMDth (page 2, line 16, column N) and approximately $852 million (page 2, line 20, column O) respectively for the April 2004 through March 2005 period. These cost are inclusive of all pipeline fuel retention and conversion from Dth (energy quantity) to Mcf (volumetric quantity) at a factor of Dth/Mcf (heating value), but do not include pipeline transportation costs Q. What are MichCon s total projected transportation costs for the January 2004 through March 2005 period? A. MichCon s total projected transportation costs are summarized in Exhibit A- (RGL-8). This exhibit reflects projected transportation cost by month. The total expected transportation cost is approximately $8.6 million (page 1, line 19, column E) for the January 2004 through March 2004 period and approximately $39.8 million (page 1, line 20, column N) for the April 2004 through March 2005 period. These cost are inclusive of pipeline reservation 17

19 No. 1 2 R.G. LAWSHE and commodity charges and conversion from Dth (energy quantity) to Mcf (volumetric quantity) at a factor of Dth/Mcf (heating value) Q. What are MichCon s total projected supply costs for the period January 2004 through March 2005? A. Total projected supply costs are presented on Exhibit A- (RGL-9) and reflect the sum of projected gas purchase and transport costs. MichCon s total projected supply costs for January 2004 through March 2004 are approximately $256 million, Exhibit A- (RGL-9) line 4 column E. MichCon s total projected supply costs for April 2004 through March 2005 are approximately $892 million, Exhibit A- (RGL-9), line 8 column N PROJECTED SUPPLY COSTS FOR CONTINGENCY FACTOR Q. What are the projected total supply costs assuming NYMEX increased $0.10 per Dth for every month in the January 2004 through March 2005 period? A. The total projected supply costs assuming NYMEX increased $0.10 per Dth for every month in the January 2004 through March 2005 period are summarized on Exhibit A- (RGL-10) and total $1,167 million. These costs are used by witness Jennifer Schmidt in calculating the GCR contingency factor GAS ACQUISITION FOR APRIL 2005 AND BEYOND 18

20 No R.G. LAWSHE Q. How does MichCon plan to purchase its required gas supply for April 2005 and beyond? A. MichCon s proposed natural gas supply acquisition strategy for 2005 and beyond is essentially the same as that used for It will include the indicated quantities of fixed price gas that is locked-in using the guidelines presented in this testimony. For forecasting purposes we have assumed that all interstate pipeline capacity is renewed at current levels with the same provider, except for the Viking-ANR capacity that expires October On or before November 1, 2003, MichCon will exercise its right not to renew the 50 MDth/day of Viking capacity (this contract expires 10/31/05). For forecasting purposes, that capacity has been replaced by increases in other interstate pipeline entitlements. For any expiring pipeline capacity not specifically addressed elsewhere in this testimony, it is MichCon s intent to consider all replacement alternatives before selecting the transportation provider of choice. MichCon will continue to stay abreast of North American supply sources and available transportation routes. Long-term sources from locations such as the Rockies Basin, Liquefied Natural Gas ( LNG ), Alaska and Mackenzie Delta Basins are being considered in addition to long-term transportation alternatives such as Alliance, Northern Border, Foothills, Nova and various proposed upstream pipelines in the Rockies Basin. MichCon intends to maintain a flexible portfolio by contracting for supplies and transporting in the short to midterm time frame of 1 to 3 years forward. This should allow MichCon to react to changes in all aspects of the natural 19

21 No. 1 2 R.G. LAWSHE gas industry, including production, transportation, storage, markets, prices and providers of service and supply Q. Does MichCon plan to utilize financial instruments to manage price risk? A. MichCon considers financial instruments as another available tool that may be used to implement its fixed price purchase program. While there are no specific plans at this time to directly trade in financial products, MichCon does not intend to exclude their use in its fixed price purchase program Q. Have you made a projection of gas purchase and transportation costs for the period April 2005 through March 2009? A. Yes. Projected gas purchase costs for the period April 2005 through March 2009 are calculated on Exhibit A- (RGL-7). Projected transportation costs for that same period are calculated on pages 3 through 6 of Exhibit A- (RGL-8) and the total projected supply costs (the sum of purchase and transport costs) are calculated on Exhibit A- (RGL-9) Q. Does this conclude your pre-filed testimony? A. Yes

22 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the Application of ) MICHIGAN CONSOLIDATED GAS COMPANY ) for approval of a Gas Cost Recovery Plan, ) MPSC Case No. U Year Forecast and Monthly GCR Factor ) for the 15-month period ending March 2005 ) EXHIBITS OF ROBERT G. LAWSHE

23 Michigan Consolidated Gas Company GCR Plan Projected NYMEX and Basis Prices -$/Dth MPSC Case No. U Exhibit No. A - (RGL-1) Witness:R.G. Lawshe Page 1 of 3 NYMEX ANR Louisiana ANR Oklahoma Emerson (Canada) MichCon City Gate Chicago City Gate Panhandle OK/TX Trunkline,ELA No. Month Forecast Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate ( A ) ( B ) ( C ) ( D ) ( E ) ( F ) ( G ) ( H ) ( I ) ( J ) ( K ) ( L ) ( M ) ( N ) ( O ) ( P ) 1 Jan-04 $5.43 ($0.04) $5.39 ($0.22) $5.21 ($0.03) $5.40 $0.27 $5.70 $0.15 $5.58 ($0.30) $5.13 ($0.07) $ Feb-04 $5.37 ($0.04) $5.33 ($0.22) $5.15 ($0.03) $5.34 $0.27 $5.64 $0.15 $5.52 ($0.30) $5.07 ($0.07) $ Mar-04 $5.27 ($0.04) $5.23 ($0.22) $5.05 ($0.03) $5.24 $0.27 $5.54 $0.15 $5.42 ($0.30) $4.97 ($0.07) $ Apr-04 $4.84 ($0.08) $4.76 ($0.18) $4.66 ($0.12) $4.72 $0.20 $5.04 $0.08 $4.92 ($0.23) $4.61 ($0.11) $ May-04 $4.75 ($0.08) $4.67 ($0.18) $4.57 ($0.12) $4.63 $0.20 $4.95 $0.08 $4.83 ($0.23) $4.52 ($0.11) $ Jun-04 $4.76 ($0.08) $4.68 ($0.18) $4.58 ($0.12) $4.64 $0.20 $4.96 $0.08 $4.84 ($0.23) $4.53 ($0.11) $ Jul-04 $4.76 ($0.08) $4.68 ($0.18) $4.58 ($0.12) $4.64 $0.20 $4.96 $0.08 $4.84 ($0.23) $4.53 ($0.11) $ Aug-04 $4.76 ($0.08) $4.68 ($0.18) $4.58 ($0.12) $4.64 $0.20 $4.96 $0.08 $4.84 ($0.23) $4.53 ($0.11) $ Sep-04 $4.75 ($0.08) $4.67 ($0.18) $4.57 ($0.12) $4.63 $0.20 $4.95 $0.08 $4.83 ($0.23) $4.52 ($0.11) $ Oct-04 $4.76 ($0.08) $4.68 ($0.18) $4.58 ($0.12) $4.64 $0.20 $4.96 $0.08 $4.84 ($0.23) $4.53 ($0.11) $ Nov-04 $4.92 ($0.05) $4.87 ($0.20) $4.72 ($0.03) $4.89 $0.25 $5.17 $0.14 $5.05 ($0.25) $4.67 ($0.08) $ Dec-04 $5.07 ($0.05) $5.02 ($0.20) $4.87 ($0.03) $5.04 $0.25 $5.32 $0.14 $5.21 ($0.25) $4.82 ($0.08) $ Jan-05 $5.15 ($0.04) $5.11 ($0.22) $4.93 ($0.03) $5.12 $0.27 $5.42 $0.15 $5.30 ($0.30) $4.85 ($0.07) $ Feb-05 $5.11 ($0.04) $5.07 ($0.22) $4.89 ($0.03) $5.08 $0.27 $5.38 $0.15 $5.26 ($0.30) $4.81 ($0.07) $ Mar-05 $4.95 ($0.04) $4.91 ($0.22) $4.73 ($0.03) $4.92 $0.27 $5.22 $0.15 $5.10 ($0.30) $4.65 ($0.07) $4.88 (1) NYMEX Close at September 11, 2003 Note:Total may not equal due to rounding

24 Michigan Consolidated Gas Company GCR Plan Projected NYMEX and Basis Prices -$/Dth MPSC Case No. U Exhibit No. A - (RGL-1) Witness:R.G. Lawshe Page 2 of 3 NYMEX ANR Louisiana ANR Oklahoma Emerson (Canada) MichCon City Gate Chicago City Gate Panhandle OK/TX Trunkline,ELA No. Month Forecast Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate ( A ) ( B ) ( C ) ( D ) ( E ) ( F ) ( G ) ( H ) ( I ) ( J ) ( K ) ( L ) ( M ) ( N ) ( O ) ( P ) 1 Apr-05 $4.63 ($0.08) $4.55 ($0.18) $4.45 ($0.12) $4.51 $0.20 $4.83 $0.08 $4.71 ($0.23) $4.40 ($0.11) $ May-05 $4.53 ($0.08) $4.45 ($0.18) $4.35 ($0.12) $4.41 $0.20 $4.73 $0.08 $4.61 ($0.23) $4.30 ($0.11) $ Jun-05 $4.53 ($0.08) $4.45 ($0.18) $4.35 ($0.12) $4.41 $0.20 $4.73 $0.08 $4.61 ($0.23) $4.30 ($0.11) $ Jul-05 $4.53 ($0.08) $4.45 ($0.18) $4.35 ($0.12) $4.41 $0.20 $4.73 $0.08 $4.61 ($0.23) $4.30 ($0.11) $ Aug-05 $4.53 ($0.08) $4.45 ($0.18) $4.35 ($0.12) $4.41 $0.20 $4.73 $0.08 $4.61 ($0.23) $4.30 ($0.11) $ Sep-05 $4.53 ($0.08) $4.45 ($0.18) $4.35 ($0.12) $4.41 $0.20 $4.73 $0.08 $4.61 ($0.23) $4.30 ($0.11) $ Oct-05 $4.56 ($0.08) $4.48 ($0.18) $4.38 ($0.12) $4.44 $0.20 $4.76 $0.08 $4.64 ($0.23) $4.33 ($0.11) $ Nov-05 $4.75 ($0.05) $4.70 ($0.20) $4.55 ($0.03) $4.72 $0.25 $5.00 $0.14 $4.88 ($0.25) $4.50 ($0.08) $ Dec-05 $4.94 ($0.05) $4.89 ($0.20) $4.74 ($0.03) $4.91 $0.25 $5.19 $0.14 $5.08 ($0.25) $4.69 ($0.08) $ Jan-06 $5.02 ($0.04) $4.98 ($0.22) $4.80 ($0.03) $4.99 $0.27 $5.29 $0.15 $5.17 ($0.30) $4.72 ($0.07) $ Feb-06 $5.00 ($0.04) $4.96 ($0.22) $4.78 ($0.03) $4.97 $0.27 $5.27 $0.15 $5.15 ($0.30) $4.70 ($0.07) $ Mar-06 $4.87 ($0.04) $4.83 ($0.22) $4.65 ($0.03) $4.84 $0.27 $5.14 $0.15 $5.02 ($0.30) $4.57 ($0.07) $ Apr-06 $4.61 ($0.08) $4.53 ($0.18) $4.43 ($0.12) $4.49 $0.20 $4.81 $0.08 $4.69 ($0.23) $4.38 ($0.11) $ May-06 $4.52 ($0.08) $4.44 ($0.18) $4.34 ($0.12) $4.40 $0.20 $4.72 $0.08 $4.60 ($0.23) $4.29 ($0.11) $ Jun-06 $4.51 ($0.08) $4.43 ($0.18) $4.33 ($0.12) $4.39 $0.20 $4.71 $0.08 $4.59 ($0.23) $4.28 ($0.11) $ Jul-06 $4.50 ($0.08) $4.42 ($0.18) $4.32 ($0.12) $4.38 $0.20 $4.70 $0.08 $4.58 ($0.23) $4.27 ($0.11) $ Aug-06 $4.50 ($0.08) $4.42 ($0.18) $4.32 ($0.12) $4.38 $0.20 $4.70 $0.08 $4.58 ($0.23) $4.27 ($0.11) $ Sep-06 $4.48 ($0.08) $4.40 ($0.18) $4.30 ($0.12) $4.36 $0.20 $4.68 $0.08 $4.56 ($0.23) $4.25 ($0.11) $ Oct-06 $4.50 ($0.08) $4.42 ($0.18) $4.32 ($0.12) $4.38 $0.20 $4.70 $0.08 $4.58 ($0.23) $4.27 ($0.11) $ Nov-06 $4.67 ($0.05) $4.62 ($0.20) $4.47 ($0.03) $4.64 $0.25 $4.92 $0.14 $4.81 ($0.25) $4.42 ($0.08) $ Dec-06 $4.87 ($0.05) $4.82 ($0.20) $4.67 ($0.03) $4.84 $0.25 $5.12 $0.14 $5.01 ($0.25) $4.62 ($0.08) $ Jan-07 $4.99 ($0.04) $4.95 ($0.22) $4.77 ($0.03) $4.96 $0.27 $5.26 $0.15 $5.14 ($0.30) $4.69 ($0.07) $ Feb-07 $4.93 ($0.04) $4.89 ($0.22) $4.71 ($0.03) $4.90 $0.27 $5.20 $0.15 $5.08 ($0.30) $4.63 ($0.07) $ Mar-07 $4.83 ($0.04) $4.79 ($0.22) $4.61 ($0.03) $4.80 $0.27 $5.10 $0.15 $4.98 ($0.30) $4.53 ($0.07) $4.76 (1) NYMEX Close at September 11, 2003 Note:Total may not equal due to rounding

25 Michigan Consolidated Gas Company GCR Plan Projected NYMEX and Basis Prices -$/Dth MPSC Case No. U Exhibit No. A - (RGL-1) Witness:R.G. Lawshe Page 3 of 3 NYMEX ANR Louisiana ANR Oklahoma Emerson (Canada) MichCon City Gate Chicago City Gate Panhandle OK/TX Trunkline,ELA No. Month Forecast Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate Basis Rate ( A ) ( B ) ( C ) ( D ) ( E ) ( F ) ( G ) ( H ) ( I ) ( J ) ( K ) ( L ) ( M ) ( N ) ( O ) ( P ) 1 Apr-07 $4.62 ($0.08) $4.54 ($0.18) $4.44 ($0.12) $4.50 $0.20 $4.82 $0.08 $4.70 ($0.23) $4.39 ($0.11) $ May-07 $4.63 ($0.08) $4.55 ($0.18) $4.45 ($0.12) $4.51 $0.20 $4.83 $0.08 $4.71 ($0.23) $4.40 ($0.11) $ Jun-07 $4.63 ($0.08) $4.55 ($0.18) $4.45 ($0.12) $4.51 $0.20 $4.83 $0.08 $4.71 ($0.23) $4.40 ($0.11) $ Jul-07 $4.65 ($0.08) $4.57 ($0.18) $4.47 ($0.12) $4.53 $0.20 $4.85 $0.08 $4.73 ($0.23) $4.42 ($0.11) $ Aug-07 $4.67 ($0.08) $4.59 ($0.18) $4.49 ($0.12) $4.55 $0.20 $4.87 $0.08 $4.75 ($0.23) $4.44 ($0.11) $ Sep-07 $4.65 ($0.08) $4.57 ($0.18) $4.47 ($0.12) $4.53 $0.20 $4.85 $0.08 $4.73 ($0.23) $4.42 ($0.11) $ Oct-07 $4.64 ($0.08) $4.56 ($0.18) $4.46 ($0.12) $4.52 $0.20 $4.84 $0.08 $4.72 ($0.23) $4.41 ($0.11) $ Nov-07 $4.75 ($0.05) $4.70 ($0.20) $4.55 ($0.03) $4.72 $0.25 $5.00 $0.14 $4.89 ($0.25) $4.50 ($0.08) $ Dec-07 $4.86 ($0.05) $4.81 ($0.20) $4.66 ($0.03) $4.83 $0.25 $5.11 $0.14 $5.00 ($0.25) $4.61 ($0.08) $ Jan-08 $4.96 ($0.04) $4.92 ($0.22) $4.74 ($0.03) $4.93 $0.27 $5.23 $0.15 $5.11 ($0.30) $4.66 ($0.07) $ Feb-08 $4.90 ($0.04) $4.86 ($0.22) $4.68 ($0.03) $4.87 $0.27 $5.17 $0.15 $5.05 ($0.30) $4.60 ($0.07) $ Mar-08 $4.82 ($0.04) $4.78 ($0.22) $4.60 ($0.03) $4.79 $0.27 $5.09 $0.15 $4.97 ($0.30) $4.52 ($0.07) $ Apr-08 $4.69 ($0.08) $4.61 ($0.18) $4.51 ($0.12) $4.57 $0.20 $4.89 $0.08 $4.77 ($0.23) $4.46 ($0.11) $ May-08 $4.71 ($0.08) $4.63 ($0.18) $4.53 ($0.12) $4.59 $0.20 $4.91 $0.08 $4.79 ($0.23) $4.48 ($0.11) $ Jun-08 $4.71 ($0.08) $4.63 ($0.18) $4.53 ($0.12) $4.59 $0.20 $4.91 $0.08 $4.79 ($0.23) $4.48 ($0.11) $ Jul-08 $4.74 ($0.08) $4.66 ($0.18) $4.56 ($0.12) $4.62 $0.20 $4.94 $0.08 $4.82 ($0.23) $4.51 ($0.11) $ Aug-08 $4.77 ($0.08) $4.69 ($0.18) $4.59 ($0.12) $4.65 $0.20 $4.97 $0.08 $4.85 ($0.23) $4.54 ($0.11) $ Sep-08 $4.78 ($0.08) $4.70 ($0.18) $4.60 ($0.12) $4.66 $0.20 $4.98 $0.08 $4.86 ($0.23) $4.55 ($0.11) $ Oct-08 $4.76 ($0.08) $4.68 ($0.18) $4.58 ($0.12) $4.64 $0.20 $4.96 $0.08 $4.84 ($0.23) $4.53 ($0.11) $ Nov-08 $4.83 ($0.05) $4.78 ($0.20) $4.63 ($0.03) $4.80 $0.25 $5.08 $0.14 $4.97 ($0.25) $4.58 ($0.08) $ Dec-08 $4.91 ($0.05) $4.86 ($0.20) $4.71 ($0.03) $4.88 $0.25 $5.16 $0.14 $5.04 ($0.25) $4.66 ($0.08) $ Jan-09 $4.97 ($0.04) $4.93 ($0.22) $4.75 ($0.03) $4.94 $0.27 $5.24 $0.15 $5.12 ($0.30) $4.67 ($0.07) $ Feb-09 $4.92 ($0.04) $4.88 ($0.22) $4.70 ($0.03) $4.89 $0.27 $5.19 $0.15 $5.07 ($0.30) $4.62 ($0.07) $ Mar-09 $4.86 ($0.04) $4.82 ($0.22) $4.64 ($0.03) $4.83 $0.27 $5.13 $0.15 $5.01 ($0.30) $4.56 ($0.07) $4.79 (1) NYMEX Close at September 11, 2003 Note:Total may not equal due to rounding

26 Case No. U Witness: R. G. Lawshe Exhibit No. A- (RGL-2) Page No. 1 of Fixed Price Purchase Guidelines These guidelines are premised on conversion to an April through March GCR period. Modifications to these guidelines would be required if MichCon remains on a calendar year GCR period. Quartile/DCA Portfolio Targets for Fixed Price Contracts For Michigan Consolidated Gas Company April-March GCR Year First Second Current Complete Following GCR Period GCR Period GCR Period n n+1 n+2 Dollar Cost Averaging (Winter) Smaller of 50% or Percent of Winter Purchases (75%-prior fixed) Within the Second Quartile Range Percent of total Purchases %-50% 10%-30% Within the First Quartile Range Percent of total Purchases %-75% 30%-50% At or Below the Zero Percentile %+ 50%+ Objective: To create a two tiered purchasing strategy that effectively manages the impact of natural gas market volatility while emphasizing the purchase of fixed-price forward contracts having prices in the range of historically low prices levels. Definitions: 1 Quartile Indices method a procedure that incorporates into contract purchase decision making, the potential risk associated with entering into fixed-price contracts for future GCR periods. Price risk is reduced by creating a nexus between purchase quantities and a comparison of contract prices in relation to a ranking of historical NYMEX 12-month futures strips, over a rolling 36-month data period. The 36-month ranking incorporates an arithmetic average of the 12-month NYMEX future strip on the date of the monthly contract settlement. The 0 th percentile, the 25 th percentile (first quartile), and the 50 Th percentile (second quartile) are identified as key price indices. Only prices at or below the second quartile invoke a buy signal. The Second Quartile Range is defined to be the interval between the second quartile and the first quartile, inclusive of the median. The First Quartile Range is defined to be the interval between the first quartile and the 0 th percentile, inclusive of the first quartile data-point.

27 Case No. U Witness: R. G. Lawshe Exhibit No. A- (RGL-2) Page No. 2 of Dollar Cost Averaging (DCA) method a procedure that requires the purchase of a target quantity of forward contracts for a specified future delivery period. The target quantity is divided into equal purchase increments over a prior period. The purchases are made irrespective of NYMEX futures prices in order to achieve an average futures price for the overall target quantity. Guideline specifics: 1 Fixed-price purchases made within a given GCR annual period, via the Quartile Indices method, are cumulative across quartile ranges. Thus, if NYMEX futures prices drop from the Second Quartile Range into the First Quartile Range, then all purchases made to achieve initial target levels apply toward the succeeding target. 2 Quartile Range purchase targets are on a sliding scale so as to allow for a smooth transition between quartile ranges: specific targets within the stated range are at the Company s discretion. Prior purchases, within the year, apply toward subsequent larger sliding targets within a quartile range. 3 New, or higher purchase targets may, but are not required to be executed immediately upon a drop in futures prices into the Quartile Range associated with such higher target. In all cases, however, the Company shall schedule the acquisition of fixed-price gas supply contracts in a prudent manner, taking into account the rate of change in market prices, price trends, or any other factors that in its discretion are deemed appropriate. It is anticipated that Quartile Indices targets may not be fully achieved due to unanticipated gas market volatility. 4 On the first day of April each year, the future GCR annual period that was designated the Second Following GCR Period now becomes the First Complete GCR Period and what was formerly designated the First Complete GCR Period now becomes the Current GCR Period. In order to take optimum advantage of historically low NYMEX prices, fixed-price purchases made to achieve the former Quartile Indices targets for a particular GCR annual period, are not combined with any new purchases when making a determination of whether or not the new target levels created by the designation roll-over are achieved. All purchases are combined, however, for purposes of determining whether or not an overall target-limit of 75% may be exceeded. 5 Quartile Indices targets are capped to the extent that the sum of the prior years purchases and the given year s target, for a particular future GCR annual period, exceed an overall target-limit of 75%. 6- NYMEX futures prices below the lowest price in the 36-month historical ranking (the 0 th percentile), allow, but do not require, the Company to exceed the overall target-limit of 75%.

28 Case No. U Witness: R. G. Lawshe Exhibit No. A- (RGL-2) Page No. 3 of Quartile Indices purchases for the current GCR period cease on the 1 st day of the current GCR Period. 8 - To the extent that the sum of Quartile Indices purchases for the current GCR period fall short of the winter target-limit of 75%, Dollar cost averaging (DCA) purchases in the current GCR period will be used to make up the shortfall, but are capped at 50% of total winter purchases. 9 - DCA purchases begin in the first quarter of the current GCR annual period. The Company has the discretion to determine when within the first quarter, (April, May, or June), to commence DCA purchases Once DCA purchases begin, the purchases shall be prorated in equal increments over a minimum of five consecutive months during the remainder of the off-season period, so as to achieve the DCA winter target. The off- season period is defined as April through October Intra-year fixed-price contracts may be entered into during the current GCR period, in order to complete an annual target-limit of 75%. The specific criteria and/or indices used to establish intra-year fixed-price purchases are at the Company s discretion. DCA purchases will be accelerated when First Quartile ranges are reached within the current GCR period The DCA or quartile purchase targets may be met either through fixed-price physical contracts, NYMEX futures contracts, swaps, or call options at the Company s discretion. 13 Percentage targets are based upon normalized purchase requirements projected in the Five-Year Forecast of the latest GCR Plan, and may be adjusted to comport with standardized contract increments. 14 Purchase targets should be adjusted to take into account the loss of GCR load as a result of customer migration to the Company s Customer Choice Program.

29 Michigan Consoldated Gas Company Summary of Gas Purchases Under Contract MPSC Case No. U Exhibit No. A- (RGL-3) Witness:R.G. Lawshe Page: 1 of 3 A B C D E F No. Supplier Price ($/Dth) Jan-04 Feb-04 Mar-04 Total 1 Intrastate Supply: 2 Various Various 93,094 72,853 67, ,452 3 Subtotal 93,094 72,853 67, ,452 4 MichCon City Gate: 5 A FOM+$ , , , ,000 6 A FOM+$ , ,000 7 B FOM +$ , , , ,000 8 B FOM +$ , ,000 9 C FOM+$ , , , , D FOM + $ , , , , E FOM + $ ,700 78,300 83, , F FOM + $ , , , , G FOM+$ , , , , G FOM+$ , , , , H FOM+$ , , H FOM + $ , , , , I FOM + $ , , , , I FOM + $ , , I FOM + $ , , , , Subtotal 4,423,700 2,978,300 3,183,700 10,585, Great Lakes - Emerson 22 C N + $ , , ,000 1,820, J N + $ , , ,000 1,001, Subtotal 961, , ,000 2,821, Viking - Emerson 26 A $ , , , , A $ , , , , B N + $ , , ,000 1,820, J N + $ , , ,000 1,092, Subtotal 1,612,000 1,508,000 1,612,000 4,732, Vector - Chicago 32 K N + $ , , ,000 1,820, K FOM + $ , , , , Subtotal 775, , ,000 2,275,000

30 Michigan Consoldated Gas Company Summary of Gas Purchases Under Contract MPSC Case No. U Exhibit No. A- (RGL-3) Witness:R.G. Lawshe Page: 2 of 3 A B C D E F No. Supplier Price ($/Dth) Jan-04 Feb-04 Mar-04 Total 1 Panhandle - Field 2 L N - $ , ,000 3 L $ , ,000 4 L $ , ,000 5 L N - $ , , , ,000 6 L N - $ , , , ,000 7 M N - $ , , , ,000 8 N N - $ , , , ,000 9 O N - $ , , ,000 1,820, Subtotal 2,015,000 1,885,000 2,015,000 5,915, Trunkline - E/LA 12 P $ , , P $ , , P $ , , Subtotal 310, , , , ANR/SW 17 L $ , , L $ , , L $ , , G $ , , , , Q FOMI + $ , , , , M $ , , M $ , , M $ , , S $ , , , , Subtotal 1,426,000 1,334,000 1,426,000 4,186,000

31 Michigan Consoldated Gas Company Summary of Gas Purchases Under Contract MPSC Case No. U Exhibit No. A- (RGL-3) Witness:R.G. Lawshe Page: 3 of 3 A B C D E F No. Supplier Price ($/Dth) Jan-04 Feb-04 Mar-04 Total 1 ANR/SE 2 L $ , , , ,000 3 A $ , , , ,000 4 R $ , , , ,000 5 R FOM + $ , , , ,000 6 B $ , , , ,000 7 T $ , , , ,000 8 Q $ , ,000 9 Q $ , , Q $ , , Q FOM + $ , , , , P FOM + $ , , , , Subtotal 2,480,000 2,320,000 2,480,000 7,280, Subtotal Fixed Price 4,185,000 3,915,000 3,875,000 11,975, Subtotal Not Fixed Price 9,910,794 8,097,153 8,955,205 26,963, Total 14,095,794 12,012,153 12,830,205 38,938,152

32 MICHIGAN CONSOLIDATED GAS COMPANY INTRASTATE PURCHASE CONTRACT SUMMARIES Case No. U Witness: R. G. Lawshe Exhibit No. A- (RGL-4) Page No. 1 of 6 Page Number Contract Number Seller Contract Date Expiration Date ATW, INC. 01-Jul Jul BROWN, H. L., ET AL 01-Jan Jan FEDERATED OIL & GAS PROPERTIES 01-Mar Mar MARATHON OIL CO. 01-Apr Apr SCANDIA ENERGY COMPANY, INC. 01-Jul Jul-06

33 MICHIGAN CONSOLIDATED GAS COMPANY INTRASTATE PURCHASE CONTRACT SUMMARIES Case No. U Witness: R. G. Lawshe Exhibit No. A- (RGL-4) Page No. 2 of 6 SELLER: ATW DATE: July 1, 1984 AREA: Central Michigan--Isabella 11 Field EXPIRATION: July 1, 2004 CONTRACT NUMBER: 126 PRICING: The maximum price on 1/1/04 will be $ /Mcf escalating 2% quarterly. The minimum price is $2.80/Mcf for the term of the contract. The price payable, subject to the minimum and maximum, is equal to ANR Pipeline Gas Component less 5. Due to the termination of ANR sales service on and after November 1, 1993, the price payable, subject to the minimum and maximum, will be equal to a Gulf Coast Spot gas index. TAXES: Taxes are deducted from the above price paid for gas. COMPRESSION: Seller provides all compression and fuel. QUANTITY: Seller delivers all gas that may be produced under the contract up to a maximum of 5,000 Mcf/day or the market demand of Buyer's system, whichever is less. CHANGES: None in the past two years.

34 MICHIGAN CONSOLIDATED GAS COMPANY INTRASTATE PURCHASE CONTRACT SUMMARIES Case No. U Witness: R. G. Lawshe Exhibit No. A- (RGL-4) Page No. 3 of 6 SELLER: H. L. Brown, et al DATE: January 1, 1986 AREA: Central Michigan--Reed City Deep Field EXPIRATION: January 1, 2006 CONTRACT NUMBER: 161 PRICING: The maximum price will be $ /Mcf on 1/1/04 escalating 1.5% quarterly. The minimum price is $2.60/Mcf for the remainder of the contract. The price payable, subject to the minimum and maximum prices, is equal to the ANR Pipeline Commodity Gas Component. Due to the absence of ANR sales after November 1, 1993, the ANR Commodity Gas Component will be replaced with Gulf Cost Spot gas index. TAXES: MichCon pays all severance taxes and privilege fees in effect at the date of the contract (5% severance and 0.5% privilege) limited to 14.3 per Mcf and such limitation is further reduced by an amount equal to the difference between the price payable and the minimum price; plus MichCon will pay all new or increases in severance taxes and privilege fees after the date of the contract. COMPRESSION: Seller is responsible for all compression and fuel. QUANTITY: Seller delivers from each gas well gas reservoir producing under the contract at least 90% of all gas that may be produced. CHANGES: There have been no changes in the last two years.