MASTER REVOLVING NOTE

TAX I.D. No. 38-2144267  

On or before October 1, 2007 (herein called the “Maturity Date”), FOR VALUE RECEIVED, the undersigned, SEMCO ENERGY, INC., a Michigan corporation (herein called the "Borrower"), promises to pay to the order of COMERICA BANK, a Michigan banking corporation (herein called "Bank"), at the principal office of Bank at Comerica Tower at Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226, or at such other office as Bank notifies Borrower in writing from time to time, in lawful currency of the United States of America, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000.00), or so much of said sum as has been advanced and is then outstanding hereunder, together with interest thereon as hereinafter set forth.

This Note is a note under which Advances, repayments and new Advances may be made from time to time, provided that Bank shall not be obligated to make any Advance hereunder (notwithstanding anything expressed or implied herein or elsewhere to the contrary), and the Bank, at any time and from time to time, without notice, and in its sole and absolute discretion, may refuse to make Advances to Borrower hereunder without incurring any liability whatsoever and without in any way affecting Borrower's liability hereunder for all amounts advanced. Advances hereunder may be requested in Borrower's discretion by telephonic notice to Bank or by submission to Bank of a Request for Advance in form annexed hereto as Exhibit "A". Any Advance requested by telephon-ic notice shall be confirmed by Borrower that same day by submission to Bank, either by first class mail or telefax, of the written Request for Advance aforementioned. Borrower acknowledges that if Bank makes an Advance based on a telephonic request, it shall be for Borrower's convenience and all risks involved in the use of such procedure shall be borne by Borrower, and Borrower expressly agrees to indemnify and hold Bank harmless therefor. Bank shall have no duty to confirm the authority of anyone requesting an Advance by telephone.

Each Quoted Rate Advance hereunder shall be in a minimum principal amount of Five Hundred Thousand Dollars ($500,000.00).

Each Prime-based Advance outstanding under this Note shall bear interest at the Prime-based Rate, and each Quoted Rate Advance outstanding under this Note shall bear interest at the applicable Quoted Rate. Each Advance hereunder shall be payable upon the respective Repayment Date therefor (unless sooner accelerated in accordance with the terms of this Note), unless Bank, in its sole and absolute discretion, and subject to all other terms and conditions of this Note, agrees to allow the continuation of an outstanding Advance as the same type of Advance or the conversion of an outstanding Advance to another type of Advance, in which case, that portion of such Advance which is not so continued or converted, as the case may be, shall be repaid on such Repayment Date. Interest shall be computed on a daily basis using a year of 360 days and shall be assessed for the actual number of days elapsed, and in such computations, effect shall be given to any change in the interest rate as a result of any change in the Prime-based Rate on the date of each such change in the Prime-based Rate. Unless sooner accelerated in accordance with the terms of this Note, accrued and unpaid interest on each Prime-based Advance shall be payable monthly, in arrears, on the first Business Day of each month and on the Maturity Date, and, in the case of Quoted Rate Advances, on the respective Repayment Date therefor.

The amount, applicable interest rate, and Repayment Date of each Advance shall be noted on Bank's books and records, which books and records will be conclusive evidence thereof; provided , however , any failure on the part of Bank to make any such notation shall not relieve Borrower of its obligations to repay Bank all amounts owing under this Note when due in accordance with the terms hereof.

If Borrower makes any payment of principal with respect to any Quoted Rate Advance on any day other than the applicable Repayment Date therefor (whether voluntarily, by acceleration, or otherwise), or if Borrower fails to borrow a Quoted Rate Advance after notice has been given by Borrower to Bank in accordance with the terms of this Note requesting such Advance and Bank has agreed to make such Quoted Rate Advance, or if Borrower fails to make any payment of principal or interest in respect of any Quoted Rate Advance when due, Borrower shall reimburse Bank, on demand, for any resulting loss, cost or expense incurred by Bank as a result thereof, including, without limitation, any such loss, cost or expense incurred in obtaining, liquidating, employing or redeploying deposits from third parties, but excluding any portion of such loss attributable to the Bank’s margin, as determined by the Bank which determination shall be conclusive absent manifest error. Calculation of any amounts payable to Bank under this paragraph shall be made as though Bank shall have actually funded or committed to fund the relevant Quoted Rate Advance through the purchase of an underlying deposit in an amount equal to the amount of such Advance and having a maturity date comparable to the applicable repayment date of such Quoted Rate Advance; provided , however , Bank may fund any Quoted Rate Advance in any manner it deems fit and the foregoing assumption shall be utilized only for the purpose of the calculation of amounts payable under this paragraph. Prime-based Advances may be prepaid at any time without penalty or premium.

If (a) Borrower fails to pay the principal amount of this Note, or any part thereof, when due, by maturity, acceleration or otherwise, or fails to pay any interest, fees or other amounts (other than principal) owing under this Note when due or upon demand, as applicable, and continuance thereof for more than three (3) Business Days; or (b) Borrower fails to comply with any of the terms or provisions of any agreement between Borrower and Bank (taking into account applicable periods of notice and cure, if any); or (c) Borrower becomes insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy, or a reorganization, arrangement or c