REGULATORY MATTERS

Regulation

Detroit Edison and MichCon are subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting and operating-related matters. Detroit Edison is also regulated by the FERC with respect to financing authorization and wholesale electric activities. Regulation results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses.

Regulatory Assets and Liabilities

Detroit Edison and MichCon are required to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Continued applicability of regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulated services and be charged to and collected from customers. Future regulatory changes or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of our businesses and may require the write-off of the portion of any regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment.

The following are balances and a brief description of the regulatory assets and liabilities at December 31:



	2011			2010
	(In millions)
Assets
Recoverable pension and postretirement costs:
Pension	$	2,208		$	1,742
Postretirement costs	778			624
Asset retirement obligation	420			336
Recoverable Michigan income taxes	324			383
Recoverable income taxes related to securitized regulatory assets	316			400
Choice incentive mechanism	166			105
Accrued PSCR/GCR revenue	147			52
Cost to achieve Performance Excellence Process	116			137
Other recoverable income taxes	81			85
Unamortized loss on reacquired debt	64			65
Recoverable restoration expense	58			19
Deferred environmental costs	49			41
Recoverable uncollectible expense	42			90
Enterprise Business Systems costs	18			21
Recoverable revenue decoupling	18			5
Other	48			53
	4,853			4,158
Less amount included in current assets	(314		)	(100		)
	$	4,539		$	4,058

Securitized regulatory assets	$	577		$	729



	2011			2010
	(In millions)
Liabilities
Asset removal costs	$	419		$	479
Refundable Michigan income taxes	—			418
Renewable energy	192			125
Refundable revenue decoupling	127			47
Negative pension offset	120			129
Refundable income taxes	66			77
Energy Optimization	34			27
Refundable uncollectible expense	31			—
Accrued PSCR/GCR refund	26			8
Low Income Energy Efficiency Fund	26			—
Fermi 2 refueling outage	23			3
Refundable self implemented rates	1			52
Refundable costs under PA 141	—			33
Refundable restoration expense	—			15
Other	8			9
	1,073			1,422
Less amount included in current liabilities	(54		)	(94		)
	$	1,019		$	1,328

As noted below, regulatory assets for which costs have been incurred have been included (or are expected to be included, for costs incurred subsequent to the most recently approved rate case) in Detroit Edison or MichCon’s rate base, thereby providing a return on invested costs. Certain regulatory assets do not result from cash expenditures and therefore do not represent investments included in rate base or have offsetting liabilities that reduce rate base.

ASSETS

•

Recoverable pension and postretirement costs — Accounting rules for pension and other postretirement benefit costs require, among other things, the recognition in other comprehensive income of the actuarial gains or losses and the prior service costs that arise during the period but that are not immediately recognized as components of net periodic benefit costs. Detroit Edison and MichCon record the impact of actuarial gains or losses and prior services costs as a Regulatory asset since the traditional rate setting process allows for the recovery of pension and postretirement costs. The asset will reverse as the deferred items are amortized and recognized as components of net periodic benefit costs. (1)


•	Asset retirement obligation — This obligation is primarily for Fermi 2 decommissioning costs. The asset captures the timing differences between expense recognition and current recovery in rates and will reverse over the remaining life of the related plant. (1)

•

Recoverable Michigan income taxes — In July 2007, the Michigan Business Tax (MBT) was enacted by the State of Michigan. State deferred tax liabilities were established for the Company’s utilities, and offsetting regulatory assets were recorded as the impacts of the deferred tax liabilities will be reflected in rates as the related taxable temporary differences reverse and flow through current income tax expense. In May 2011, the MBT was repealed and the Michigan Corporate Income Tax (MCIT) was enacted. The regulatory asset was remeasured to reflect the impact of the MCIT tax rate. (1)


•	Recoverable income taxes related to securitized regulatory assets — Receivable for the recovery of income taxes to be paid on the non-bypassable securitization bond surcharge. A non-bypassable securitization tax surcharge recovers the income tax over a fourteen-year period ending 2015.


•	Choice incentive mechanism (CIM) — Detroit Edison receivable for non-fuel revenues lost as a result of fluctuations in electric Customer Choice sales. The CIM was terminated in the October 20, 2011 MPSC order issued to Detroit Edison.


•	Accrued PSCR revenue — Receivable for the temporary under-recovery of and a return on fuel and purchased power costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.


•	Accrued GCR revenue — Receivable for the temporary under-recovery of and a return on gas costs incurred by MichCon which are recoverable through the GCR mechanism.


•	Cost to achieve Performance Excellence Process (PEP) — The MPSC authorized the deferral of costs to implement the PEP. These costs consist of employee severance, project management and consultant support. These costs are amortized over a ten-year period beginning with the year subsequent to the year the costs were deferred.


•	Other recoverable income taxes — Income taxes receivable from Detroit Edison’s customers representing the difference in property-related deferred income taxes and amounts previously reflected in Detroit Edison’s rates. This asset will reverse over the remaining life of the related plant. (1)


•	Unamortized loss on reacquired debt — The unamortized discount, premium and expense related to debt redeemed with a refinancing are deferred, amortized and recovered over the life of the replacement issue.


•	Recoverable restoration expense — Receivable for the MPSC approved restoration expense tracking mechanism that tracks the difference between actual restoration expense and the amount provided for in base rates, recognized pursuant to the MPSC authorization. The restoration expense tracking mechanism was terminated in the October 20, 2011 MPSC order issued to Detroit Edison.


•	Deferred environmental costs — The MPSC approved the deferral of investigation and remediation costs associated with Gas Utility’s former MGP sites. Amortization of deferred costs is over a ten-year period beginning in the year after costs were incurred, with recovery (net of any insurance proceeds) through base rate filings.


•	Recoverable uncollectible expense (UETM) — Detroit Edison and MichCon receivable for the MPSC approved uncollectible expense tracking mechanism that tracks the difference in the fluctuation in uncollectible accounts and amounts recognized pursuant to the MPSC authorization. The UETM was terminated in the October 20, 2011 MPSC order issued to Detroit Edison.


•	Enterprise Business Systems (EBS) costs — The MPSC approved the deferral and amortization over 10 years beginning in January 2009 of EBS costs that would otherwise be expensed.

•

Recoverable revenue decoupling — Amounts recoverable from Detroit Edison customers for the change in revenue resulting from the difference between actual average sales per customer compared to the base level of average sales per customer established by the MPSC. Amounts recoverable from MichCon customers for the change in revenue resulting from the difference in weather-adjusted average sales per customer compared to the base level of average sales per customer established by the MPSC.

•

Securitized regulatory assets — The net book balance of the Fermi 2 nuclear plant was written off in 1998 and an equivalent regulatory asset was established. In 2001, the Fermi 2 regulatory asset and certain other regulatory assets were securitized pursuant to PA 142 and an MPSC order. A non-bypassable securitization bond surcharge recovers the securitized regulatory asset over a fourteen-year period ending in 2015.

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(1) Regulatory assets not earning a return.

LIABILITIES


•	Asset removal costs — The amount collected from customers for the funding of future asset removal activities.

•

Refundable Michigan income taxes — In July 2007, the MBT was enacted by the State of Michigan. State deferred tax assets were established for the Company’s utilities, and offsetting regulatory liabilities were recorded as the impacts of the deferred tax assets will be reflected in rates. In May 2011, the MBT was repealed and the MCIT was enacted. The state deferred tax assets were eliminated under the MCIT and related regulatory liabilities were remeasured to zero.


•	Renewable energy — Amounts collected in rates in excess of renewable energy expenditures.

•

Refundable revenue decoupling — Amounts refundable to Detroit Edison customers for the change in revenue resulting from the difference between actual average sales per customer compared to the base level of average sales per customer established by the MPSC. Amounts refundable to MichCon customers for the change in revenue resulting from the difference in weather-adjusted average sales per customer compared to the base level of average sales per customer established by the MPSC.


•	Negative pension offset — MichCon’s negative pension costs are not included as a reduction to its authorized rates; therefore, the Company is accruing a regulatory liability to eliminate the impact on earnings of the negative pension expense accrued. This regulatory liability will reverse to the extent MichCon’s pension expense is positive in future years.


•	Refundable income taxes — Income taxes refundable to MichCon’s customers representing the difference in property-related deferred income taxes payable and amounts recognized pursuant to MPSC authorization.


•	Energy Optimization (EO) - The EO plan application is designed to help each customer class reduce their electric usage by: 1) building customer awareness of energy efficiency options and 2) offering a diverse set of programs and participation options that result in energy savings for each customer class.


•	Refundable uncollectible expense (UETM )— Detroit Edison and MichCon liability for the MPSC approved uncollectible expense tracking mechanism that tracks the difference in the fluctuation in uncollectible accounts and amounts recognized pursuant to the MPSC authorization. The UETM was terminated in the October 20, 2011 MPSC order issued to Detroit Edison.


•	Accrued PSCR refund — Liability for the temporary over-recovery of and a return on power supply costs and transmission costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.


•	Accrued GCR refund — Liability for the temporary over-recovery of and a return on gas costs incurred by MichCon which are recoverable through the GCR mechanism.


•	Low Income Energy Efficiency Fund (LIEEF) — Escrow of LIEEF funds collected by Detroit Edison and MichCon as ordered by the MPSC pursuant to July 2011 Michigan Court of Appeals decision.


•	Fermi 2 refueling outage — Accrued liability for refueling outage at Fermi 2 pursuant to MPSC authorization.


•	Refundable self implemented rates — Amounts refundable to customers for base rates implemented by Detroit Edison and MichCon in excess of amounts authorized in MPSC orders.


•	Refundable costs under PA 141 — Detroit Edison’s 2007 CIM reconciliation and allocation resulted in the elimination of Regulatory Asset Recovery Surcharge (RARS) balances for commercial and industrial customers. RARS revenues received that exceed the regulatory asset balances are required to be refunded to the affected classes.


•	Refundable restoration expense — Amounts refundable for the MPSC approved restoration expense tracking mechanism that tracks the difference between actual restoration expense and the amount provided for in base rates, recognized pursuant to the MPSC authorization. The restoration expense tracking mechanism was terminated in the October 20, 2011 MPSC order issued to Detroit Edison.

2010 Electric Rate Case Filing

On October 20, 2011, the MPSC issued an order in Detroit Edison's October 29, 2010 rate case filing. The MPSC approved an annual revenue increase of $175 million. Included in the approved increase in revenues was a return on equity of 10.5% on an expected permanent capital structure of 49% equity and 51% debt. Detroit Edison self-implemented a rate increase of $107 million on April 28, 2011. The MPSC stated the net revenue collected due to self-implementation be credited to the 2011 Choice Incentive Mechanism (CIM) regulatory asset, but the order did not define "net revenue." The Company credited the CIM Regulatory Asset for its estimate of the net revenue from self-implementation of approximately $37 million. In November 2011, Detroit Edison petitioned the MPSC for a rehearing and clarification of several issues in the October 2011 MPSC order. On December 20, 2011, the MPSC issued a rehearing order on selected issues, revising the annual revenue increase to $188 million. The rehearing order also affirmed the MPSC's decision to terminate the uncollectible expense tracker mechanism, but deferred ruling on other matters included in Detroit Edison's petition.

Other key aspects of the October 20, 2011 MPSC order include the following:

•

adopt a new Revenue Decoupling Mechanism (RDM) effective April 1, 2012, that will compare actual revenue (excluding the impacts of weather) by rate class with the base established in this rate case. The RDM has an annual collar of 1.5% in the first year and 3% in the second and subsequent years. The RDM established in the previous rate case, which considered the impact of weather, was terminated effective October 31, 2011. Therefore, there will be no RDM in place from November 2011 through March 2012;


•	recognition of the expiration of a wholesale contract. Since the expiration of the wholesale contract was not until December 31, 2011, the MPSC required Detroit Edison to calculate a customer credit for each kWh sold under the wholesale contract from October 29, 2011 through December 31, 2011, with the credit to be applied in its next PSCR reconciliation;


•	the Restoration Expense Tracking Mechanism, Line Clearance Recovery Mechanism, Uncollectible Expense Tracking Mechanism and CIM are terminated as of the date of the order;


•	due to uncertainty resulting from the Michigan Court of Appeals overturning collection of the Low Income Energy Efficiency Fund (LIEEF), the MPSC required the continued collection of LIEEF amounts in base rates and placement into escrow pending further orders by the MPSC;


•	approval of Detroit Edison's proposal to reduce the Nuclear Decommissioning Surcharge by approximately $20 million annually; and


•	implementation of lower depreciation rates previously approved in a June 2011 MPSC order.

2009 Detroit Edison Depreciation Filing

In compliance with an MPSC order, Detroit Edison filed a depreciation case in November 2009. On June 16, 2011, the MPSC issued an order reducing Detroit Edison's composite depreciation rates from 3.33% to 3.06%, effective for accounting and ratemaking purposes, the day after the issuance of the MPSC order in the 2010 rate case.

Renewable Energy Plan (REP)

In August 2010, Detroit Edison filed its reconciliation for the 2009 plan year indicating that the 2009 actual renewable plan revenues and costs approximated the related surcharge revenues and cost of the filed plan. An MPSC order is expected in the first quarter of 2012.

In June 2011, Detroit Edison filed an amended REP with the MPSC requesting authority to continue to recover approximately $100 million of surcharge revenues. The proposed revenues are necessary in order to continue to properly implement Detroit Edison's 20-year REP, to deliver cleaner, renewable electric generation to its customers, to further diversify Detroit Edison's and the State of Michigan's sources of electric supply, and to address the state and national goals of increasing energy independence. On December 20, 2011, the MPSC issued an order approving the amended REP and authorizing the continuation of the surcharges.

In August 2011, Detroit Edison filed its reconciliation for the 2010 plan year indicating that the 2010 actual renewable plan revenues and costs approximated the related surcharge revenues and cost of the filed plan. An MPSC order is expected in the third quarter of 2012.

Energy Optimization (EO) Plans

In April 2011, Detroit Edison and MichCon filed separate applications for approval of their respective reconciliations of their 2010 EO plan expenses. Specifically, Detroit Edison's EO reconciliation includes a cumulative $21 million net over-recovery at year end 2010 for the 2010 EO plan. MichCon's EO reconciliation includes a cumulative $5.6 million net over-recovery at year end 2010 for the 2010 EO plan. In November 2011, the MPSC approved settlement agreements for Detroit Edison and MichCon which authorized the over-recovery balances be included in the 2011 reconciliations.

In September 2011, Detroit Edison and MichCon filed biennial EO Plans with the MPSC as required. Detroit Edison's EO Plan application proposed the recovery of EO expenditures for the period 2012-2015 of $294 million and further requested approval of surcharges to recover these costs. MichCon's EO Plan application proposed the recovery of EO expenditures for the period 2012-2015 of $103 million and further requested approval of surcharges to recover these costs.

Detroit Edison Restoration Expense Tracker Mechanism (RETM) and Line Clearance Tracker (LCT) Reconciliation

In March 2010, Detroit Edison filed an application with the MPSC for approval of the reconciliation of its 2009 RETM and LCT. The Company's 2009 restoration and line clearance expenses were less than the amount provided in rates. Accordingly, Detroit Edison proposed a refund of approximately $16 million, including interest. On May 10, 2011, the MPSC issued an order approving the proposed refund and Detroit Edison began applying credits to customer bills in July 2011.

In March 2011, Detroit Edison filed an application with the MPSC for approval of the reconciliation of its 2010 RETM and LCT. The Company's 2010 restoration expenses were higher than the amount provided in rates. Accordingly, Detroit Edison requested recovery of $19.5 million. In October 2011, the MPSC approved a settlement agreement reconciling the RETM and approving the LCT report. The MPSC authorized surcharges to recover $19.5 million over a three-month period beginning November 1, 2011.

In January 2012, Detroit Edison filed an application with the MPSC for approval of the reconciliation of its 2011 RETM and LCT. The Company's 2011 restoration expenses were higher than the amount provided in rates. Accordingly, Detroit Edison requested net recovery of approximately $44 million.

Detroit Edison Revenue Decoupling Mechanism (RDM)

In May 2011, Detroit Edison filed an application with the MPSC for approval of its initial pilot RDM reconciliation for the period February 2010 through January 2011, requesting authority to refund to customers approximately $56 million, plus interest. This amount was accrued by Detroit Edison at December 31, 2011. There are various interpretations and alternative calculation methodologies relating to the pilot RDM refund calculation that could ultimately be adopted by the MPSC which may result in a range of customer refund amounts from $56 million to $140 million for this initial reconciliation filing under the pilot RDM.

In addition, Detroit Edison has accrued a pilot RDM liability for February 2011 through October 2011 of approximately $71 million, plus interest. Detroit Edison terminated the pilot RDM effective October 2011, and has requested a rehearing on this issue asserting that for reconciliation purposes, the pilot RDM should have been considered terminated in April 2011, when the Detroit Edison self-implemented rates, consistent with prior MPSC orders. An April 2011 termination would result in a decrease to the liability. However, there can be no assurance that Detroit Edison will prevail in this matter. Similar to the initial reconciliation case, there are various interpretations and alternative calculation methodologies that could be adopted which may result in a range of refund obligations in excess of the amount accrued. Considering these variables, the potential customer refund amount could range from $10 million to $130 million for the second and final pilot RDM period.

The primary uncertainties involved in the calculation methodologies of the pilot RDM for both reconciliation periods include customer class groupings and treatment of fixed customer charges. The Company believes that the calculation methodology used and the resulting refund estimates recorded follow the requirements and intent of the MPSC orders and represent the most probable amount of Detroit Edison's pilot RDM refund liability as of December 31, 2011. An MPSC order on the initial filing is expected in the first half of 2012. Detroit Edison is required to file an application with the MPSC for approval of its RDM reconciliation for the period February 2011 through October 2011 by May 2012. A newly designed RDM will be in effect beginning April 2012.

Detroit Edison Uncollectible Expense True-Up Mechanism (UETM)

In March 2011, Detroit Edison filed an application with the MPSC for approval of its UETM for 2010 requesting authority to refund approximately $7 million consisting of costs related to 2010 uncollectible expense. In August 2011, the MPSC approved a settlement agreement for the 2010 UETM authorizing a refund of approximately $7 million to be applied as credits to customer bills beginning September 1, 2011.

Detroit Edison Choice Incentive Mechanism (CIM)

In March 2011, Detroit Edison filed an application with the MPSC for approval of its CIM reconciliation for 2010 requesting recovery of approximately $105 million. On December 6, 2011, the MPSC approved a settlement agreement for the 2010 CIM authorizing surcharges of approximately $105 million effective on a service rendered basis for the 12-month period beginning January 1, 2012.

On January 17, 2012, Detroit Edison filed an application with the MPSC for approval of its CIM reconciliation for the period from January 1, 2011 through October 28, 2011. The termination date of the CIM pursuant to the October 20, 2011 MPSC rate order is October 20, 2011. Detroit Edison requested recovery of approximately $73 million, net of the self implementation credit applied per MPSC order.

Power Supply Cost Recovery Proceedings

The PSCR process is designed to allow Detroit Edison to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. Detroit Edison's power supply costs include fuel and related transportation costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowances costs, urea costs, transmission costs and MISO costs. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.

2010 PSCR Year - In March 2011, Detroit Edison filed the 2010 PSCR reconciliation calculating a net under-recovery of $52.6 million that includes an over-recovery of $15.6 million for the 2009 PSCR year. In addition, the 2010 PSCR reconciliation includes an under-recovery of $7.1 million for the reconciliation of the 2007-2008 Pension Equalization Mechanism, and an over-refund of $3.8 million for the 2011 refund of the self-implemented rate increase related to the 2009 electric rate case filing.

2011 Plan Year - In September 2010, Detroit Edison filed its 2011 PSCR plan case seeking approval of a levelized PSCR factor of 2.98 mills/kWh below the amount included in base rates for all PSCR customers. The filing supports a total power supply expense forecast of $1.2 billion. The plan also includes approximately $36 million for the recovery of its projected 2010 PSCR under-recovery. An MPSC order was issued on December 6, 2011 approving the 2011 PSCR.

2012 Plan Year - In September 2011, Detroit Edison filed its 2012 PSCR plan case seeking approval of a levelized PSCR factor of 4.18 mills/kWh above the amount included in base rates for all PSCR customers. The filing supports a total power supply expense forecast of $1.4 billion. The plan also includes approximately $158 million for the recovery of its projected 2011 PSCR under-recovery.

Low Income Energy Efficiency Fund

The Customer Choice and Electricity Reliability Act of 2000 authorized the creation of the LIEEF administered by the MPSC. The purpose of the fund is to provide shut-off and other protection for low income customers and to promote energy efficiency by all customer classes. Detroit Edison and MichCon collect funding for the LIEEF as part of their base rates and remit the funds to the State of Michigan monthly. In July 2011, the Michigan Court of Appeals issued a decision reversing the portion of MichCon's June 2010 MPSC rate order that permitted MichCon to recover funding for the LIEEF in base rates. In response to the Court of Appeals decision, Detroit Edison and MichCon ceased remitting payments for LIEEF funding to the State of Michigan. In October 2011, the MPSC issued orders directing Detroit Edison and MichCon to continue collecting funds for LIEEF in rates and to escrow the collected funds pending further order by the MPSC. On January 26, 2012, the MPSC issued an order directing Detroit Edison and MichCon to file comprehensive plans by March 1, 2012 for refunding previously escrowed LIEEF funds of $23 million and $3 million, respectively. On December 20, 2011, The Vulnerable Household Warmth Fund (VHWF) was created under Michigan law. The purpose of the fund is to provide payment or partial payment of bills for electricity, natural gas, propane, heating oil, or any other type of fuel used to heat the primary residence of a vulnerable customer during the 2011-2012 heating season. Effective with the new law, Detroit Edison and MichCon are to contribute the amounts collected in their base rates, previously remitted for the LIEEF, to the new VHWF. The monthly payments into the VHWF will cease on the earlier of September 30, 2012 or when $48 million has been is accumulated in the fund from payments by major Michigan electric and gas utilities.

MichCon UETM

In March 2011, MichCon filed an application with the MPSC for approval of its UETM for 2010 requesting recovery of approximately $31 million, consisting of $7 million related to 2010 uncollectible expense and $24 million related to the 2008 UETM under-collection. In September 2011, the MPSC approved a settlement agreement approving the 2010 UETM and the implementation of a surcharge beginning October 1, 2011.

MichCon Revenue Decoupling Mechanism (RDM)

In September 2011, MichCon filed an application with the MPSC for approval of its RDM reconciliation for the period July 1, 2010 through June 30, 2011. MichCon's RDM application proposed the recovery of approximately $20 million.

Gas Cost Recovery Proceedings

The GCR process is designed to allow MichCon to recover all of its gas supply costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.

2009-2010 GCR Year - An MPSC order was issued on December 6, 2011 for the GCR reconciliation for the 12-month period ended March 31, 2010 disallowing recovery of $3.3 million related to the pricing of certain gas purchases from an affiliate. The MPSC also authorized MichCon to include in its 2010-2011 GCR reconciliation beginning balance the net overrecovery of approximately $9 million.

2010-2011 Plan Year - In June 2011, MichCon filed its 2010-2011 GCR plan year reconciliation case calculating a net over-recovery of $1 million, including interest. This over-recovery does not reflect the December 6, 2011 MPSC order on the 2009-2010 plan year reconciliation case.

2011-2012 Plan Year - In December 2010, MichCon filed its GCR plan case for the 2011-2012 GCR plan year. MichCon filed for a maximum base GCR factor of $5.89 per Mcf adjustable monthly by a contingency factor.

2012-2013 Plan Year - In December 2011, MichCon filed its GCR plan case for the 2012-2013 GCR plan year. MichCon filed for a maximum base GCR factor of $5.18 per Mcf adjustable monthly by a contingency factor.

Gas Main Renewal and Gas Meter Move Out Programs

The June 3, 2010 MPSC gas rate case order required MichCon to make filings related to gas main renewal and meter move-out programs. In a July 30, 2010 filing, MichCon proposed to implement a 10-year gas main renewal program beginning in 2012 which would require capital expenditures of approximately $17 million per year for renewing gas distribution mains, retiring gas mains, and where appropriate and when related to the gas main renewal or retirement activity, relocate inside meters to outside locations and renew service lines. In a September 30, 2010 filing, MichCon proposed to implement a 10-year gas meter move out program beginning in 2012 which would require capital expenditures of approximately $22 million per year primarily for relocation of inside meters to the outside of residents' houses. In September 2011, the MPSC issued orders approving both programs and requested MichCon to include the recovery of costs associated with these two programs in future MichCon rate cases.

Other

The Company is unable to predict the outcome of the unresolved regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.