1. Energy Business Solutions Michigan IRP Working Group Meeting June 10, 2005

2. Energy Business Solutions Objectives and Agenda The objective is to close out a number of data and modeling assumptions so that we can move on the next milestone – Representative Market Model of Michigan (6/27/2005) Agenda Data Assumptions Transmission Interface Limits Model Representation Fuel Forecast Firm Gas Transportation Requirements for CC’s and CT’s Emissions – SO 2, NO X, Hg Unit Retirements Demand Side Alternatives Blocks for Land Fill Gas and Digestion Modeling Assumptions Objective Function and Constraints External Capacity Matrix of Scenarios and Sensitivities

3. Energy Business Solutions Transmission Interface Capability ISSUE: The Michigan to ROW transmission interface limits are highly dependent upon loop flows through Michigan and into Ontario Assumption to Resolve Do we take a conservative approach? Assume that 1500 MW of loop flow occurs all the time Do we take a “problem resolved” approach? Assume that loop flow problem does not exist or is corrected by phase shifters Do we take an “in-between” approach? Assume that loop flow happens half the time and take an average of the two previous numbers Do we know a seasonal pattern of loop flow? Assume that loop flow happens for a schedule of particular months

4. Energy Business Solutions Transmission Interface Capability Example: Interface Capability from the Southern Market into Michigan Assumption effects Do we take a conservative approach? 1,450 MW Do we take a “problem resolved” approach? 3,000 MW Do we take an “in-between” approach? 2,225 MW Do we know a seasonal pattern of loop flow?

5. Energy Business Solutions Model Representation MAPP MAAC Ontario Upper Peninsula ITC METC - Areas - Tie Lines MAIN TVA VACAR TN ?? ? ? 0 Interfaces based On Conservative Estimate 1400 ? 1350 1450

6. Energy Business Solutions Fuel Forecasts ISSUE: The EIA Annual Energy Outlook does not represent the recent run up in Appalachian Coal, Gas and Oil prices June 1 2005 NYMEX Henry Hub futures Forecast adjusted monthly based on Platt’s shape

7. Energy Business Solutions Fuel Forecasts ISSUE: The EIA Annual Energy Outlook does not represent the recent run up in Appalachian Coal, Gas and Oil prices. based on May 31, 2004 NYMEX Central Appalachian Coal Futures adjusted for an average heat content of 25.01 MBTU/Ton and.40 $/MMBTU for transportation for a delivered price to PJM

8. Energy Business Solutions Fuel Forecasts Recommendation Use current NYMEX Strip for Appalachian Coal, Henry Hub Gas, and Oil Escalate beyond strip using EIA escalation assumptions, roughly 2.3% Scale Midwest Coal forecast according to ratio of Platt’s Appalachian Coal to Platt’s Midwest Coal The EIA forecast for Powder River Basin looks consistent, use as forecasted.

9. Energy Business Solutions Firm Gas Transportation - CC ISSUE: The current economic assumptions for new Combined Cycle Technology do not include any provisions for reserving firm pipeline capacity to ensure delivery of gas to support CC operations. Failure to reserve gas pipeline capacity may limit energy operations for CC’s. RECOMMENDATION: Include a Firm Gas Transportation charge of $1.71/kW-Month in the CC’s Fixed O&M expenses (represents a blend of reservation charges for ANR and Trunkline). Include a Commodity charge of.014 $/MBTU to CC fuel.

10. Energy Business Solutions Firm Gas Transportation - CT ISSUE: The current economic assumptions for new Combustion Turbine Technology do not include any provisions for reserving firm pipeline capacity to ensure delivery of gas to support CT operations. Failure to reserve gas pipeline capacity may limit energy operations for CT’s Options: Assume dual fuel capability on all new CT’s. This provides CT’s with an alternative fuel to support quick start reserves and peak operation needs. Assume a Firm Gas Transportation charge of $1.71/kW-Month in the CT’s Fixed O&M expenses (represents a blend of reservation charges for ANR and Trunkline) for peak requirement months. Summer Summer and Winter

11. Energy Business Solutions Emissions – SO 2, NO X, Hg Verification of Emission Spreadsheets Mercury Emissions

12. Energy Business Solutions Unit Retirements ISSUE: We have attempted to extend the life of units, such that, we are not seeking capacity alternatives to unit retirements. However, several Michigan unit’s retire prior to the study period and during the study period. The Participants desire to not replace retiring units as a part of this study. RECOMMENDATION: Set retirements of all existing units to beyond the study horizon.

13. Energy Business Solutions Demand Side Alternatives

14. Energy Business Solutions Blocks for Land Fill Gas and Digestion

15. Energy Business Solutions Objective Function and Constraints OBJECTIVE FUNCTION Minimize Utility Cost Minimize Average Rate Subject To: Minimum Reserve Margin of Maximum Reserve Margin of Combinations Restricted Combinations

16. Energy Business Solutions External Capacity ISSUE: Are capacity purchases, external to Michigan, available as resource alternatives to count toward the reserve requirements of Michigan? Point of Clarification: in the Capacity Need Forum Proposed Integration Scenarios there is a footnote associated with a Max Import Sensitivity that indicates capacity pricing based on 50% CT and 50% CC. NewEnergy can generate a capacity and energy price for the various markets represented as an alternative.

17. Energy Business Solutions Other Critical Data Needs Data Review by Lansing Water & Board and Wolverine Review of Assumptions and Model Development