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SEMCO ENERGY, Inc. Reports Earnings for the Second Quarter 2000

PORT HURON, Mich., July 24 /PRNewswire/ -- SEMCO ENERGY (NYSE: SEN) today reported a net loss of $3.1 million or $.17 per share for the second quarter of the year 2000, compared to net income of $.1 million or $.01 per share for the second quarter of 1999.

The lower earnings for the second quarter of 2000 were primarily due to higher interest expense related to the financing of the ENSTAR acquisition partially offset by an overall increase in operating income.

William L. Johnson, Chairman, President and Chief Executive Officer, explained that, "the financing costs related to ENSTAR are incurred fairly evenly throughout the year while the majority of the operating income for the Gas Distribution business is earned during the first and fourth quarters of the year. As a result, an increased loss for the second quarter of 2000 was anticipated."

Johnson further stated that as the Company's Construction Services business enters its profitable summer and fall construction season and the Gas Distribution business moves into its heating season in the fourth quarter, the Company should close out the year 2000 with strong operating results.

Net income for the first six months of 2000 was $8.9 million or $.50 per share compared to $10.5 million or $.60 per share for the same period of 1999. The effect of warmer weather during the first quarter of 2000 was the principal reason for the decrease in earnings. On a weather-normalized basis, net income for the first six months of 2000 would have been $12.3 million or $.69 per share compared to $12.5 million or $.71 per share for the first six months of 1999.

SECOND QUARTER BUSINESS SEGMENT RESULTS:

GAS DISTRIBUTION

The Gas Distribution business reported operating income of $5.3 million for the second quarter of 2000 compared to $4.1 million for same period of 1999.

The increase in operating income is primarily attributed to the operations of ENSTAR, which was acquired after the second quarter of 1999, the impact of colder weather and new customers on sales, and lower expenses for the Michigan operation. Partially offsetting this increase were income items recorded in the second quarter of 1999 that did not recur in 2000 including profits on the sale of excess gas in storage and prior year property tax refunds.

Although weather during the second quarter of 2000 was approximately 16 percent colder than during the second quarter of 1999, it was still 10 percent warmer than normal, which reduced net income by approximately $.7 million or $.04 per share. Volumes of gas sold and transported increased from 9.8 Bcf in the second quarter of 1999 to 19.9 Bcf in the second quarter of 2000. The increase was attributable primarily to ENSTAR and cooler temperatures in Michigan.

ENGINEERING SERVICES

The Engineering Services business reported operating income of $.1 million in the second quarter of 2000 compared to an operating loss of $.5 million in the second quarter of 1999. Revenues increased from $3.7 million in the second quarter of 1999 to $6.0 million in 2000. The improvement in operating results was primarily due to an increase in the number of available projects compared to 1999, when operating results were down because customers delayed various projects due to lower oil prices and other factors. The Company anticipates that the turnaround in business will continue, albeit at a moderate pace, as new or delayed projects are released.

CONSTRUCTION SERVICES

Construction Services reported an operating loss of $.6 million for the second quarter of 2000 compared to operating income of $.3 million for the same period in 1999. Revenues during the second quarter of 2000 more than doubled when compared to the second quarter of 1999 primarily due to revenues from recent acquisitions and an increase in construction projects.

The decrease in operating income was partially due to expected higher operating costs related to revenue growth during the slow construction season in the first half of the year. During this time of the year, costs frequently exceed revenues as crews and equipment are staged at worksites and may not be 100 percent productive for a period of time. In contrast, during the summer and fall construction season, revenues exceed construction costs, as crews are fully productive.

The decrease in operating income also was due to higher fuel costs and operating costs incurred on various construction projects delayed by rain and other events. Work already has started on many of these projects and management anticipates that all planned projects will be completed by year- end.

PROPANE, PIPELINES & STORAGE

The Propane, Pipelines and Storage business reported operating income of $.3 million for the second quarter of 2000, which was essentially unchanged from the second quarter of 1999.

CAPITAL INVESTMENTS

For the second quarter of 2000 SEMCO ENERGY had capital expenditures for property additions of $20.1 million in comparison to $7.7 million for the second quarter of 1999. For the six months ended June 30, 2000, the Company had capital expenditures for property additions of $29.1 million compared to $13.5 million for the same period in 1999. The increased capital expenditures in 2000 are due in large part to additional expenditures related to ENSTAR and certain construction businesses, which were not part of the Company in early 1999.

Capital expenditures for business acquisitions during both the three months and six months ended June 30, 2000 were $1.8 million compared to $2.1 million and $4.0 million respectively, during the same periods in 1999.

SEMCO ENERGY, Inc. is a diversified energy and infrastructure company that distributes natural gas to more than 350,000 customers combined in Michigan and Alaska. It owns and operates businesses involved in gas engineering and quality assurance services, pipeline construction services, propane distribution, intrastate pipelines and natural gas storage in various regions of the United States. In addition, it provides information technology and outsourcing services, specializing in the mid-range computer market.

The following is a "Safe-harbor" statement under the Private Securities Litigation Reform Act of 1995. This release contains forward-looking statements that involve risks and uncertainties including, but not limited to, statements involving the Company's expectations regarding operating revenues and expenses, operating income, returns on invested assets, regulatory approval processes, success in obtaining new business, success in integrating acquired businesses, and other risks detailed from time to time in the Company's Securities and Exchange Commission filings.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)
                   (in thousands, except per share amounts)

                                Three Months Ended        Six Months Ended
                                     June 30,                  June 30,
                                 2000        1999         2000         1999

    Financial Summary

    Operating Revenues(a)      $76,478     $51,229     $206,780     $235,109

    Operating Expenses(a)      $71,805     $47,761     $175,838     $214,294

    Operating Income            $4,673      $3,468      $30,942      $20,815

    Other Income and (Deductions)
      Business Divestitures(b)(c)   $-          $-           $-       $1,122
      Interest Expense          (9,405)     (3,775)     (18,101)      (7,670)
      Other                        608         574        1,668          946
        Total Other Income
         and (Deductions)      $(8,797)    $(3,201)    $(16,433)     $(5,602)
    Income Taxes               $(1,807)       $146       $4,832       $4,688

    Income before Dividends on
     Trust Preferred
     Securities                $(2,317)       $121       $9,677      $10,525

    Dividends on Trust Preferred
     Securities, Net of
     Income Taxes                 $757          $-         $757           $-

    Net Income (Loss) Available
     to Common Shareholders    $(3,074)       $121       $8,920      $10,525

    Net Income (Loss) -
     Weather Normalized        $(2,401)     $1,421      $12,325      $12,492

    Earnings Per Share -
     Basic and Diluted          $(0.17)      $0.01        $0.50        $0.60

    Earnings Per Share - Basic
     and Diluted - Weather
     Normalized                 $(0.13)      $0.08        $0.69        $0.71

    Cash Dividends Per Share(d) $0.210      $0.255       $0.415       $0.454

    Average Number Of Common
     Shares Outstanding         17,992      17,703       17,954       17,571

    Return on Average Common
     Shareholders' Equity:
       As Reported
       Weather Normalized


                                Twelve Months Ended
                                      June 30,
                                 2000        1999
                    (in thousands, except per share amounts)
    Financial Summary

    Operating Revenues(a)     $356,434    $534,844

    Operating Expenses (a)    $304,417    $500,881

    Operating Income           $52,017     $33,963

    Other Income and (Deductions)
        Business
         Divestitures(b)(c)         $-      $4,690
         Interest Expense      (31,006)    (15,252)
         Other                   3,349         782
           Total Other Income
            and (Deductions)  $(27,657)    $(9,780)

    Income Taxes                $7,549      $9,550

    Income before Dividends
     on Trust Preferred
     Securities                $16,811     $14,633

    Dividends on Trust Preferred
     Securities, Net of
     Income Taxes                 $757          $-

    Net Income (loss) Available
     to Common Shareholders    $16,054     $14,633

    Net Income (Loss) - Weather
     Normalized                $21,132     $19,820

    Earnings Per Share - Basic
     and Diluted                 $0.90       $0.85

    Earnings Per Share - Basic
     and Diluted - Weather
     Normalized                  $1.18       $1.15

    Cash Dividends Per
     Share(d)                   $0.824      $0.836

    Average Number Of Common
     Shares Outstanding         17,887      17,183

    Return on Average Common
     Shareholders' Equity:
       As Reported                11.6%       11.9%
       Weather Normalized         15.3%       16.1%

(a) The decrease in operating revenues and expenses for the six months and twelve months ended June 30, 2000 is due primarily to the energy marketing business, which was sold effective March 31, 1999, offset partially by the results of new business acquisitions.

(b) The six months and twelve months ended June 30, 1999 include a gain of $1,122 ($729 after taxes or $0.04 per share) related to the divestiture of the Company's energy marketing business.

(c) The twelve months ended June 30, 1999 includes a gain related to the divestiture of the NOARK investment. After tax adjustments, the gain had essentially no impact on net income for the twelve months ended June 30, 1999.

(d) The three months, six months and twelve months ended June 30, 1999 include a special one-time dividend of $0.05 per share paid in May 1999.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)
               (dollars in thousands, except per share amounts)

                                Three Months Ended        Six Months Ended
                                      June 30,                June 30,
                                 2000         1999        2000         1999

    Business Segment Information

    Operating Revenues
      Gas Distribution         $49,928     $36,709     $161,616     $113,688
      Engineering Services       5,979       3,659       11,528        9,379
      Construction Services     24,391      12,032       38,944       16,716
      Propane,Pipelines &
       Storage                   1,228       1,284        3,289        3,228
      Energy Marketing(e)            -           -            -       96,904
      Corporate and Other(f)    (5,048)     (2,455)      (8,597)      (4,806)
        Total Operating
         Revenues              $76,478     $51,229     $206,780     $235,109

    Operating Income (Loss)
      Gas Distribution          $5,348      $4,064      $34,007      $21,931
      Engineering Services         142        (544)         212          (92)
      Construction Services       (567)        321       (2,845)        (925)
      Propane, Pipelines &
       Storage                     276         371          748        1,167
      Energy Marketing(e)            -           -            -         (341)
      Corporate and Other(f)      (526)       (744)      (1,180)        (925)
        Total Operating
         Income                 $4,673      $3,468      $30,942      $20,815

    Operating Statistics

    Gas Distribution:
      Volumes Sold (MMcf)        9,272       4,319       32,521       20,194
      Volumes Transported
       (MMcf)                   10,654       5,527       26,664       14,821
      Number of Customers at
       End of Period           361,149     249,610      361,149      249,610
      Degree Days                1,024         734        4,164        3,973
      Percent Colder (Warmer)
       Than Normal                (9.5)%     (25.3)%      (10.4)%       (7.5)%
      Increase (Decrease)
       From Normal In:
        Net Income
         (in thousands)          $(650)    $(1,200)     $(3,350)     $(1,800)
        Earnings Per Share      $(0.04)     $(0.07)      $(0.19)      $(0.10)

    Engineering Services:
      Billed Hours              94,000      95,000      188,000      192,000

    Construction Services:
      Feet of Pipe
       Installed             1,930,000   1,479,000    2,927,000    2,176,000

    Propane Distribution:
      Volumes Sold (Gallons)   639,000     591,000    2,312,000    2,235,000
      Degree Days                1,212       1,191        4,729        4,945
      Percent Colder (Warmer)
       Than Normal               (12.3)%     (14.6)%      (11.5)%       (8.0)%
      Increase (Decrease)
       From Normal In:
        Net Income
         (in thousands)           $(23)      $(100)        $(55)       $(167)
        Earnings Per Share          $-          $-           $-       $(0.01)


                               Twelve Months Ended
                                     June 30,
                                 2000         1999
                              (dollars in thousands, except per share amounts)
    Business Segment Information

    Operating Revenues
      Gas Distribution        $264,758    $192,050
      Engineering Services      19,634      38,354
      Construction Services     80,500      33,394
      Propane, Pipelines &
       Storage                   6,345       6,111
      Energy Marketing(e)            -     278,190
      Corporate and Other(f)   (14,803)    (13,255)
        Total Operating
         Revenues             $356,434    $534,844

    Operating Income (Loss)
      Gas Distribution         $52,209     $30,260
      Engineering Services        (208)      1,698
      Construction Services        691         261
      Propane, Pipelines &
       Storage                   1,922       2,004
      Energy Marketing(e)            -       2,269
      Corporate and Other(f)    (2,597)     (2,529)
        Total Operating
         Income                $52,017     $33,963

    Operating Statistics

    Gas Distribution:
      Volumes Sold (MMcf)       51,572      32,219
      Volumes Transported
       (MMcf)                   44,260      26,905
      Number of Customers at
       End of Period           361,149     249,610
      Degree Days                6,841       6,061
      Percent Colder (Warmer)
       Than Normal                (8.6)%     (12.7)%
      Increase (Decrease)
       From Normal In:
        Net Income
         (in thousands)        $(5,000)    $(4,950)
        Earnings Per Share      $(0.28)     $(0.29)

    Engineering Services:
      Billed Hours             355,000     532,000

    Construction Services:
      Feet of Pipe
       Installed             6,959,000   5,039,000

    Propane Distribution:
      Volumes Sold
       (Gallons)             4,409,000   4,048,000
      Degree Days                7,672       7,651
      Percent Colder (Warmer)
       Than Normal               (12.1)%     (12.9)%
      Increase (Decrease)
       From Normal In:
        Net Income
         (in thousands)           $(78)      $(237)
        Earnings Per Share          $-      $(0.01)


    (e)  The Energy Marketing business was sold effective March 31, 1999.
    (f)  Includes intercompany eliminations.

SOURCE SEMCO ENERGY, Inc.
Web site: http: //www.semcoenergy.com
CONTACT: Media: Francis R. Lieder, Manager of Corporate Communications & Media Relations, 810-987-2200, ext. 4186, fax, 810-989-4098, or Analysts: Sebastian Coppola, Senior Vice President & Chief Financial Officer, 810-989-4101, fax, 810-989-4099, both of SEMCO ENERGY, Inc.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding SEMCO Energy's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

 
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