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 )

SEMCO ENERGY GAS COMPANY )

for authority to implement a gas cost recovery plan ) Case No. U-17132

and factor for the 12-month period from April 2013 )

through March 2014, and for related approvals. )

)

At the August 13, 2013 meeting of the Michigan Public Service Commission in Lansing,

Michigan.

PRESENT: Hon. John D. Quackenbush, Chairman

Hon. Greg R. White, Commissioner

Hon. Sally A. Talberg, Commissioner

ORDER APPROVING SETTLEMENT AGREEMENT

On December 19, 2012, SEMCO Energy Gas Company (SEMCO) filed an application and

supporting testimony and exhibits requesting approval of a gas cost recovery (GCR) plan and

factors for the 12-month period ending March 31, 2014.

On February 7, 2013, Administrative Law Judge Dennis W. Mack (ALJ) held a prehearing

conference. SEMCO and the Commission Staff participated in the proceedings. The ALJ granted

petitions to intervene filed by the Residential Ratepayer Consortium and the Michigan Department

of the Attorney General. Subsequently, the parties filed a settlement agreement resolving all

issues in the case.

According to the terms of the settlement agreement, attached as Exhibit A, the parties agree

that SEMCO’s 2013-2014 GCR plan and 5-year forecast, as revised, should be approved. The

Page 2

U-17132

parties agree that the Commission should approve a base GCR factor of $4.7299 per dekatherm

(Dth) for SEMCO as set forth in Attachment 2 to the settlement agreement, effective with the first

billing month immediately following the issuance of an order approving the settlement agreement.

The parties agree that the base GCR factor is comprised of a Balancing and Demand Charge of

$0.7617 per Dth to be charged to both GCR and gas customer choice (GCC) customers, and a gas

commodity charge of $3.9682 per Dth. Further, the parties agree that the base GCR factor will be

subject to adjustment in accordance with the contingency matrix set forth in Attachment 3 to the

settlement agreement. The parties agree that any new GCR factor ceiling calculated under the

matrix will not decrease below the base GCR factor of $4.7299 per Dth; however, if the price of

natural gas decreases, SEMCO may elect to bill a lower factor under MCL 460.6h(9).

Finally, the parties agree that, in future GCR plan filings, SEMCO will evaluate its decisions

to obtain gas in the manner described in the plan in light of major alternative gas supplies available

to the company.

The Commission finds that the settlement agreement is reasonable, and in the public interest,

and should be approved.

THEREFORE, IT IS ORDERED that:

A. The settlement agreement, attached as Exhibit A, is approved.

B. SEMCO Energy Gas Company’s 2013-2014 gas cost recovery plan is approved.

C. SEMCO Energy Gas Company is authorized, effective with the first billing month

immediately following the issuance of this order, for the 2013-2014 gas cost recovery plan year, to

incorporate into its rates a base gas cost recovery factor of $4.7299 per dekatherm (Dth), which is

comprised of a commodity charge of $3.9682 per Dth to be charged to gas cost recovery

Page 3

U-17132

customers, and a Balancing and Demand Charge of $0.7617 per Dth to be charged to both gas cost

recovery and gas customer choice customers.

D. SEMCO Energy Gas Company is authorized to implement maximum gas cost recovery

factors for the 2013-2014 plan year as set forth in the settlement agreement and pursuant to the

contingency mechanism set forth in Attachment 3 of the settlement agreement.

E. SEMCO Energy Gas Company shall file, within 30 days of this order, tariff sheets

substantially similar to Attachments 2 and 3 to the settlement agreement.

The Commission reserves jurisdiction and may issue further orders as necessary.

Any party desiring to appeal this order must do so in the appropriate court within 30 days after

issuance and notice of this order, pursuant to MCL 462.26.

MICHIGAN PUBLIC SERVICE COMMISSION

________________________________________

John D. Quackenbush, Chairman

________________________________________

Greg R. White, Commissioner

________________________________________

Sally A. Talberg, Commissioner

By its action of August 13, 2013.

________________________________

Mary Jo Kunkle, Executive Secretary

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * *

In the matter of the application of )SEMCO ENERGY GAS COMPANY ) Case No. U-17132for authority to implement a gas cost recovery planand factor for the 12-month period from April 2013through March 2014, and for related approvals.

))))

SETTLEMENT AGREEMENT

Pursuant to MCL 24.278 and Rule 333 of the Rules of Practice and Procedure before the

Michigan Public Service Commission (“MPSC” or the “Commission”), R 460.17333, SEMCO

Energy Gas Company (“SEMCO Gas” or the “Company”), Residential Ratepayer Consortium

(“RRC”), Attorney General Bill Schuette (“Attorney General”), and the MPSC Staff (“Staff”)

agree as follows:

1. On December 19, 2012, SEMCO Gas filed its application, testimony and exhibits

of Walter E. Fitzgerald, Marc A. Simone, Tamara L. Spencer, and James A. Van Sickle, and

5-year forecast. On March 11, 2013, SEMCO Gas filed its Revised Exhibit A-6 and Revised

Exhibit A-11.

2. On January 9, 2013, the Commission’s Executive Secretary issued the Notice of

Hearing in this proceeding directing SEMCO Gas to mail a copy of the Notice of Hearing to all

cities, incorporated villages, townships and counties in its service area. Further, SEMCO Gas

was directed to publish the Notice of Hearing in daily newspapers of general circulation

throughout its service area. On January 22, 2013, SEMCO Gas electronically filed its affidavit

of mailing and proofs of publication.

EXHIBIT A

2

3. On February 7, 2013, Administrative Law Judge (“ALJ”) Dennis W. Mack

conducted a prehearing conference. SEMCO Gas and Staff participated in the proceedings. The

ALJ granted intervenor status to the RRC and the Attorney General.

4. On May 16, 2013, the RRC filed the direct testimony and exhibits of Frank J.

Hollewa and the Attorney General filed the direct testimony and exhibits of Sebastian Coppola.

5. On June 18, 2013, SEMCO Gas filed the rebuttal testimony and exhibits of

Mr. Fitzgerald and Ms. Spencer. No other party filed rebuttal testimony.

6. The parties have reached agreement for a final settlement in this case. It is the

opinion of the signatories hereto that this settlement agreement is reasonable, prudent, will aid in

the expeditious conclusion of this proceeding, and will minimize the expense which would

otherwise have to be devoted by the Commission and the parties.

7. The parties agree:

a. That SEMCO Gas’s 2013-2014 filed GCR plan, as revised by Attachment

1 herein and the understandings reflected herein, is reasonable and prudent, and should be

approved by the Commission.

b. Pursuant to MCL 460.6h(10), the Commission should approve, effective

with the first billing month immediately following the issuance of an order approving this

settlement agreement through March 31, 2014, a base GCR factor of $4.7299 per dekatherm

(Dth). It is agreed that the base GCR factor at $4.7299 per Dth is comprised of a $3.9682 per

Dth commodity charge to GCR customers and a Balancing and Demand Charge of $0.7617 per

Dth, which would be implemented to both GCR and GCC customers. Attachment 2 hereto is the

tariff sheet which reflects the agreed upon base GCR factor.

3

c. The base GCR factor will be subject to adjustment according to the

revised contingency matrix described in the Plan and reflected in the tariff sheet that is attached

to this settlement as Attachment 3. Any new GCR factor ceiling calculated pursuant to the

matrix will not decrease below the base GCR of $4.7299 per Dth.

d. The parties will convene a technical conference in October 2013 for the

purpose of discussing the proposed Moving Average – Relative Strength Index (“MARSI”)

methodology as a possible replacement to the existing Quartile Methodology (“QM”) for

securing Fixed Priced Purchases (“FPP”). It is further agreed that SEMCO Gas will continue

with the existing QM methodology for the 2014-2015 GCR period and will secure 20% of its

winter purchases at fixed prices, as well as 20% fixed price supply for the summer period for

SEMCO Gas’ 2014-2015 FPP program. (See Attachment 1).

e. The parties accept SEMCO Gas’s 5 year forecast, as revised herein, as

satisfying the requirements of Section 6h(4) of 1982 PA 304. In future GCR plan filings,

SEMCO Gas will evaluate its decisions to obtain gas in the manner described in the plan, in light

of major alternative gas supplies available to the Company.

8. This settlement agreement is entered into for the sole and express purpose of

reaching a compromise among the parties. All offers of settlement and discussions relating to

this settlement are considered privileged under MRE 408. If the Commission approves this

settlement agreement without modification, neither the parties to the settlement nor the

Commission shall make any reference to, or use this settlement agreement or the order approving

it, as a reason, authority, rationale or example for taking any action or position or making any

subsequent decision in any other case or proceeding; provided however, such references may be

4

made to enforce or implement the provisions of this settlement agreement and the order

approving it.

9. Pursuant to Rule 333(6) of the Commission’s Rules of Practice and Procedure,

R 460.17333(6) the parties agree any order approving this settlement agreement shall not

establish precedent for future proceedings and shall not be used as such. This settlement

agreement is based on the facts and circumstances of this case and is intended as the final

disposition of Case No. U-17132 only. If the Commission approves this settlement agreement,

without modification, the undersigned parties agree not to appeal, challenge or otherwise contest

the Commission order approving this settlement agreement.

10. This settlement agreement is not severable. Each provision of this settlement

agreement is dependent upon all other provisions of this settlement agreement. Failure to

comply with any provision of this settlement agreement constitutes failure to comply with the

entire settlement agreement. If the Commission rejects or modifies this settlement agreement or

any provision of this settlement agreement, this settlement agreement shall be deemed to be

withdrawn, shall not constitute any part of the record in this proceeding or be used for any other

purpose, and shall not operate to prejudice the pre-negotiation positions of any party.

11. The parties agree to waive Section 81 of the Administrative Procedures Act of

1969 (MCL 24.281), as it applies to the issues in this proceeding, if the Commission approves

this settlement agreement without modification.

SEMCO ENERGY GAS COMPANY

Dated: July 30, 2013 By:Its AttorneySherri A. Wellman (P38989)Miller, Canfield, Paddock and Stone, P.L.C.One Michigan Avenue, Suite 900Lansing, MI 48933

Digitally signed by: Sherri A. WellmanDN: CN = Sherri A. Wellman C = AD O = MillerCanfieldDate: 2013.07.30 15:04:12 -04'00'

Sherri A.

Wellman

AB

CD

EF

GH

I

SE

MC

OE

ne

rgy

Ga

sC

om

pa

ny

20

14

-20

15

Fix

ed

Pri

ce

dP

urc

ha

se

Pla

n

Su

mm

er

Win

ter

An

nu

al

To

tal

To

tal

To

tal

20

14

-20

15

Dth

Dth

Dth

1G

CR

Dem

an

d8

,34

4,3

80

24

,446

,78

73

2,7

91

,167

2In

jection

s1

2,7

20

,00

00

12

,72

0,0

00

3W

ith

dra

wals

0(1

2,5

88,9

31

)(1

2,5

88

,93

1)

4S

up

ply

Req

(Pu

rch

ases)

21

,06

4,3

80

11

,857

,85

63

2,9

22

,236

5 6 7S

um

me

rW

inte

rA

nn

ua

l

8F

ixe

dP

ric

eP

urc

ha

se

To

tal

To

tal

To

tal

9T

ier

Sc

he

du

leP

urc

ha

se

Ind

ica

tor

Dth

Dth

Dth

10

11

Year

On

e-

Su

mm

er

Oct

ob

er

1-

Marc

h3

11

st

Qu

art

ileor

Belo

w4

,21

2,8

76

12

13

14

15

Cu

rren

tY

ear

-W

inte

rM

ay

1-

Octo

ber

31

1st

Qu

art

ileor

Belo

w2

,371

,57

1

16

17

18

To

tals

4,2

12

,87

62

,371

,57

16

,58

4,4

47

19

20

An

nu

al/

Se

aso

na

l%

20

%2

0%

20

%

21

22

Att

ach

men

t1

Case

No.:

U-1

71

32

Attachment 2Case No.: U-17132

Attachment 3Case No.: U-17132