REVOLVING NOTE

On or before November 16, 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 U.S. BANK NATIONAL ASSOCIATION (herein called “ Bank ”), at the office of Bank at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, 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 SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000.00), 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 (as hereafter defined), 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 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 written request for an advance, in form acceptable to Bank, which request shall specify (i) the date and aggregate amount of the proposed Advance (which shall be at least Five Hundred Thousand Dollars ($500,000)), (ii) the maturity date (each a “ Repayment Date ”) for repayment of such Advance (which Repayment Date may be overnight or shall be agreed to by Bank and the Borrower, but in no event later than the Maturity Date), and (iii) any other terms to be applicable to such Advance. Any Advance requested by telephonic notice shall be confirmed by Borrower that same day by submission to Bank, either by first class mail or telefax, of a written request for such Advance. 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 who Bank reasonably believes to be authorized to request advances.

Interest on each Advance hereunder shall accrue at an annual rate equal to the Bid Margin (as hereafter defined) plus the Quoted Rate in effect as of the day such Advance is made. The term “ Quoted Rate ” means the one-month LIBOR rate quoted by Bank from Telerate Page 3750 or any successor thereto, which is that one-month LIBOR rate in effect and reset each New York Banking Day, adjusted for any reserve requirement and any subsequent costs arising from a change in governmental regulations. The term “ New York Banking Day ” means any day (other than a Saturday or Sunday) on which commercial banks are open for business in New York, New York. Bank’s internal records of applicable interest rates shall be determinative in the absence of manifest error . Interest will be computed for the actual number of days principal is unpaid, using a daily factor obtained by dividing the stated interest rate by three hundred sixty (360). Principal and interest not paid when due shall bear interest from and after maturity until paid computed at a rate equal to two percent (2.0%) per annum plus the prime rate announced by Bank as in effect from time to time (“ Default Interest ”). Default Interest shall be payable as provided herein or otherwise upon demand.

Unless sooner accelerated in accordance with the terms of this Note, interest is payable beginning December 1, 2006, and on the first day of each consecutive month thereafter, plus a final interest payment on the Maturity Date.

Each Advance hereunder shall be payable upon the respective Repayment Date therefor (unless sooner accelerated in accordance with the terms of this Note). In the event that any Repayment Date occurs on any day which is not a Business Day, such Repayment Date shall be extended to the next succeeding Business Day, except that if the next succeeding Business Day falls in another calendar month, the Repayment Date applicable thereto shall occur on the next preceding Business Day, and, to the extent applicable, interest shall continue to accrue and be payable during any such extensions of any Repayment Date.

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