1. Energy Business Solutions Michigan IRP Working Group Meeting July 25, 2005

2. Energy Business Solutions Proprietary and Confidential Agenda Introduction (Proudfoot)Suggested Time Mgt. External Market Modeling (Adkins)20 Minutes Energy Equilibrium Methodology Preliminary Results Michigan Model Representation (Gaskill)30 Minutes 2006 System Summary External Market Flows Preliminary Expansion Plan (Hughes)45 Minutes Proview Methodology Review Options Bridge for study reserve margins Preliminary Plan review External Market influence LOL Analysis for the UP (Konidena)25 Minutes

3. Energy Business Solutions Proprietary and Confidential External Market Modeling MAPP MAAC Ontario Upper Peninsula ITC METC MAIN TVA VACAR TN 3000 MW 600 MW 3350 MW 2850 MW 0** MW O*MW 350 MW 3200 MW 3050 MW 2900 MW 2800 MW

4. Energy Business Solutions Proprietary and Confidential External Energy Modeling NY/NE IMO PJM E PJM W MI PJM S SERC FRCC SPP MISO ECAR MISO MAIN PJM COM MISO MAPP NON MISO MAPP

5. Energy Business Solutions Proprietary and Confidential 2006 Price Curve for Michigan On-Peak average price 43.15 $/Mwh (55.19 $/MWh in July) Off-Peak average price is 31.38 $/MWh Approximate escalation 2006 to 2024 is 5.5%

6. Energy Business Solutions Proprietary and Confidential Base Case Representation Simplified External Market Model Current Resource Mix 2006 Base Case Results Unit Capacity Factors Economy Imports/Exports Seasonal Summary Report Current Load and Resources

7. Energy Business Solutions Proprietary and Confidential Base Case Transfer Capability MAPP MAAC Ontario Upper Peninsula ITC METC MAIN TVA VACAR TN 3000 MW 600 MW 3350 MW 2850 MW 0** MW O*MW 350 MW 3200 MW 3050 MW 2900 MW 2800 MW

8. Energy Business Solutions Proprietary and Confidential “Simplified” External Market Model Ontario Upper Peninsula ITC METC Market Price West Market Price South TN 3000 MW 600 MW 3350 MW 2850 MW 0** MW O*MW 350 MW

9. Energy Business Solutions Proprietary and Confidential Resource Mix by Region

10. Energy Business Solutions Proprietary and Confidential 2006 Unit Capacity Factors: METC JanFebMarAprMayJunJulAugSepOctNovDec Combined Cycle18%17%16%20%22%27%33%30%23%17%16% CT Gas0% 1% 0% CT Oil0% Interruptible0% Landfill70% 69% 71%72%71%70%69% 70% Nuclear90% Coal82%80%77% 79%84%88%87%82%78% 80% St Gas0% 1% 0% St Oil0% 2%5%4%1%0% Other0% Hydro34%35%45%54%47%40%33%31%34% 36%37% Pumped Storage3%1% 2%6%5%8%5%7%1%2% Alt. Generation99% 100% Avg CF33%32%31%32%34%36%40%38%35%32%31%32%

11. Energy Business Solutions Proprietary and Confidential 2006 Unit Capacity Factors: ITC JanFebMarAprMayJunJulAugSepOctNovDec Combined Cycle22%20%13%19%15%20%27%26%16%17%14%16% CT Gas0% 1% 2%3% 1% CT Oil0% Interruptible0% Landfill91%90% 89%90%93%94% 92%90% 91% Nuclear90% 44%0%17%90% Coal81%79%78%77%76%81%85%83%78%77% 79% St Gas2% 1%3% 6%11%10%4% 2% St Oil6%5%1% 2%5%4%1% 2% Other0% Hydro63%65%69%68%64%59%54%52%53%56%61%64% Pumped Storage0% Alt Generation0% Avg CF56%54%49%45%47%57%60%59%55%54%53%54%

12. Energy Business Solutions Proprietary and Confidential 2006 Unit Capacity Factors: Upper Peninsula JanFebMarAprMayJunJulAugSepOctNovDec Combined Cycle0% CT Gas0% CT Oil4% 2%1%2%4%6%5%3%2% 3% Interruptible0% Landfill0% Nuclear0% Coal71%70%65%60%66%71%78%79%71%67% 70% St Gas0% St Oil0% Other0% Hydro67% 68%79%80%71%63%60% 63%69%70% Pumped Storage0% Alt Generation0% Avg CF50%49%46%45%48%51%54% 49%47% 50%

13. Energy Business Solutions Proprietary and Confidential System Economy Transfer

14. Energy Business Solutions Proprietary and Confidential 2006 Seasonal Summary

15. Energy Business Solutions Proprietary and Confidential Existing Loads & Resources

16. Energy Business Solutions Proprietary and Confidential Expansion Plan

17. Energy Business Solutions Proprietary and Confidential Screening Curves

18. Energy Business Solutions Proprietary and Confidential PROVIEW Methodology For each year of the optimization PROVIEW generates all possible combinations of alternatives Each combination is tested against the constraints for that year and only those combinations that meet all the constraints are passed; these are the feasible states Cumulative Capital and operations costs are calculated for each feasible state Feasible states from year X are the starting points for generating new combinations for year X+1 Repeat to end of Optimization Horizon

19. Energy Business Solutions Proprietary and Confidential PROVIEW Methodology The State Space Problem 9 Alternatives: 3 available in 2007 (the CT’s) 3 more in 2008 (the CC’s) 3 more in 2011 (coal) Resultant potential states: Problem: only have a limited available State Space!

20. Energy Business Solutions Proprietary and Confidential Limiting the Solution State Space Constrain the problem such that the resulting set of solution states will fit in the available State Space, but not unduly limit those solutions Reserve Margins: Company and System Wide Do not allow “extra” units not needed to meet Reserve Margin minimums Split off the Upper Peninsula since it is not directly connected with the Lower Peninsula, AND it has a capacity surplus through 2018 (i.e. – greater that 15% reserves)

21. Energy Business Solutions Proprietary and Confidential Iterative Solution “Fix” the solution for the UP: 1 CT in 2019 Require that LP meet the “system” minimum reserve margin of 15% from 2014 on Only CT’s and CC’s are available from 2007/2008 through 2010, so “lock in” a plan from 2007 through 2010: 2007 – 2 CT’s in ITC 2008 – 1 CT and 1 CC in ITC 2009 – 1 CC in METC and 1 in ITC 2010 – 1 CT in METC, 1 CT and 1 CC in ITC Re-optimize through 2019 and temporarily “lock in” the best plan from this run Next, optimize for 2020 to 2024 to find a “back fill” plan for capacity needs at the end of the time horizon, “lock in” this plan for 2020 to 2024 Re-open the constraints for 2011 through 2019 and run full optimization for this period

22. Energy Business Solutions Proprietary and Confidential Preliminary Base Case Plan – Lower Peninsula PV (k$ 2005) = $ 58,754,232

23. Energy Business Solutions Proprietary and Confidential Preliminary Base Case Plan

24. Energy Business Solutions Proprietary and Confidential External Market influence

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