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SEMCO ENERGY, Inc. Reports Third Quarter Earnings

PORT HURON, Mich., Oct. 31 /PRNewswire/ -- SEMCO ENERGY (NYSE: SEN) today reported a net loss of $4.7 million or $.26 per share for the third quarter of 2000, compared to a net loss of $2.2 million or $.12 per share for the third quarter of 1999. Losses during the third quarter are typical for the Company due to the seasonal nature of its natural gas distribution business.

The higher loss during the third quarter of 2000 was primarily due to higher trust preferred dividends and interest expense related to the financing of the November 1999 acquisition of ENSTAR, partially offset by an overall increase in operating income.

William L. Johnson, Chairman, President and Chief Executive Officer, stated that, "We had anticipated a larger loss for the third quarter because the financing costs related to the Company's ENSTAR acquisition are incurred evenly throughout the year, while most of ENSTAR's operating income is earned during the colder first and fourth quarters of the year." He added, "I am pleased to see, after a slow start in 2000, the anticipated ramp up in our Construction Services business during the third quarter with a 112 percent increase in operating income compared to last year. I expect this performance trend to continue into the fourth quarter completing a successful year for this business segment."

Net income for the first nine months of 2000 was $4.2 million or $.23 per share compared to $8.4 million or $.47 per share for the same period of 1999. Increased financing costs partially offset by increased operating income were the principal reasons for the decrease in earnings. Year to date, warmer than normal weather has negatively impacted earnings by approximately $3.4 million or $0.19 per share. On a weather-normalized basis, net income for the first nine months of 2000 would have been $7.6 million or $.42 per share compared to $10.9 million or $.62 per share for the first nine months of 1999.

THIRD QUARTER BUSINESS SEGMENT RESULTS:

GAS DISTRIBUTION

The Gas Distribution business reported operating income of $1.1 million for the third quarter of 2000 compared to an operating loss of $2.0 million for the same period of 1999.

The $3.1 million increase in operating income is primarily attributed to the operations of ENSTAR (which was acquired after the third quarter of 1999), increased sales in Michigan as a result of new customer additions and cooler weather compared to 1999, and property tax reductions recorded during the third quarter of 2000.

Volumes of gas sold and transported increased from 7.0 Bcf in the third quarter of 1999 to 15.2 Bcf in the third quarter of 2000. The increase was attributable primarily to ENSTAR and cooler temperatures in Michigan.

In line with its cost-cutting objectives, the Company offered an early retirement program during the third quarter to select employees at its gas distribution operations and corporate offices in Michigan and Alaska. Sixty- three employees, or approximately 10 percent of the combined workforce for those operations, elected to take the early retirement offer.

CONSTRUCTION SERVICES

Construction Services reported operating income of $3.7 million for the third quarter of 2000, which was more than double the $1.7 million of operating income during the same period of 1999. Revenues during the third quarter of 2000 were $33.2 million compared to $18.8 million during the third quarter of 1999. The increase in operating income and revenues was primarily due to the operating results of recent acquisitions and an increase in construction projects. These increases were offset partially by additional operating costs incurred on various construction projects as a result of some delays, increased fuel costs and other factors. The Company expects the third quarter performance trend to continue into the fourth quarter completing a successful year for the Construction Services business.

ENGINEERING SERVICES

Operating income for the Engineering Services business increased by approximately $.3 million in the third quarter of 2000 when compared to the third quarter of 1999. Revenues increased from $3.4 million in the third quarter of 1999 to $4.9 million in 2000. The improvement in operating results was primarily due to more profitable projects compared to 1999.

The Company anticipates that business activity will continue to increase, albeit at a moderate pace, as new or delayed projects are released.

PROPANE, PIPELINES & STORAGE

The Propane, Pipelines and Storage business reported operating revenue and operating income of $1.3 million and $.2 million, respectively for the third quarter of 2000, which was essentially unchanged from the third quarter of 1999.

CAPITAL INVESTMENTS

For the third quarter of 2000 SEMCO ENERGY had capital expenditures for property additions of $20.7 million in comparison to $8.2 million for the third quarter of 1999. For the nine months ended September 30, 2000, the Company had capital expenditures for property additions of $49.9 million compared to $21.8 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 during the first half of 1999.

There were no capital expenditures for business acquisitions during the third quarter of 2000 compared to $10.3 million during the third quarter of 1999. During the nine months ended September 30, 2000 and 1999, capital expenditures for business acquisitions were $1.8 million and $14.3 million respectively.

REVIEW OF STRATEGIC ALTERNATIVES

The Company also reported that it continues its review of strategic alternatives with the assistance of Banc of America Securities LLC. According to Johnson, "We are in the midst of our process of reviewing strategic alternatives to enhance shareholder value. I still anticipate completing our review by year end."

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 also owns and operates businesses involved in natural 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       Nine Months       Twelve Months
                           Ended              Ended              Ended
                        September 30,      September 30,      September 30,
                       2000     1999      2000      1999      2000     1999

    Financial Summary

     Operating
      Revenues(a)    $70,326  $39,997  $277,106  $275,106  $386,763 $461,766

     Operating
      Expenses(a)     66,303   41,263   242,142   255,557   329,457  429,070

     Operating Income  4,023   (1,266)   34,964    19,549    57,306   32,696

     Other Income and (Deductions)
      Business
       Divestitures (b)(c) -        -         -     1,122         -    4,690
      Interest
       Expense        (8,304)  (3,946)  (26,405)  (11,616)  (35,364) (15,452)
      Other               14      920     1,683     1,866     2,443    1,678
        Total Other
         Income and
         (Deductions) (8,290)  (3,026)  (24,722)   (8,628)  (32,921)  (9,084)

     Income Taxes     (1,622)  (2,127)    3,210     2,561     8,054    8,787

     Income before Dividends
      on Trust Preferred
       Securities     (2,645)  (2,165)    7,032     8,360    16,331   14,825

     Dividends on Trust Preferred
      Securities, Net of
       Income Taxes    2,104        -     2,861         -     2,861        -

     Net Income (loss) Available
      to Common
       Shareholders  $(4,749) $(2,165)   $4,171    $8,360   $13,470  $14,825

     Net Income (Loss) -
      Weather
       Normalized    $(4,768) $(1,602)   $7,557   $10,890   $17,966  $19,895

     Earnings Per Share
        Basic         $(0.26)  $(0.12)    $0.23     $0.47     $0.75    $0.84
        Diluted       $(0.26)  $(0.12)    $0.23     $0.47     $0.74    $0.84

     Earnings Per Share - Weather Normalized
        Basic         $(0.26)  $(0.09)    $0.42     $0.62     $1.00    $1.13
        Diluted       $(0.26)  $(0.09)    $0.42     $0.62     $0.99    $1.13

     Cash Dividends
      Per Share(d)    $0.210   $0.204    $0.625    $0.659    $0.830   $0.859

     Average Number Of Common Shares
      Outstanding     18,036   17,763    17,982    17,636    17,956   17,561

     Return on Average Common Shareholders' Equity:
       As Reported                                             10.2%    11.2%
       Weather Normalized                                      13.7%    15.0%

(a) The decrease in operating revenues and expenses for the twelve months ended September 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 nine and twelve months ended September 30, 1999 include a gain of $1,122,000 ($729,000 after taxes or $0.04 per share) related to the divestiture of the Company's energy marketing business.

(c) The twelve months ended September 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 September 30, 1999.

(d) The nine months and twelve months ended September 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       Nine Months       Twelve Months
                          Ended              Ended              Ended
                       September 30,      September 30,      September 30,
                      2000     1999      2000      1999      2000      1999

    Business Segment Information

    Operating Revenues
     Gas
      Distribution  $35,992  $19,294  $197,608  $132,983  $281,456  $186,986
     Construction
      Services       33,239   18,752    72,184    35,468    94,988    44,511
     Engineering
      Services        4,912    3,388    16,439    12,767    21,158    31,789
     Propane, Pipelines
      & Storage       1,281    1,217     4,570     4,445     6,408     6,142
     Energy Marketing(e)  -        -         -    96,904         -   203,310
     Corporate and
      Other(f)       (5,098)  (2,654)  (13,695)   (7,461)  (17,247)  (10,972)
        Total Operating
         Revenues   $70,326  $39,997  $277,106  $275,106  $386,763  $461,766

    Operating Income (Loss)
     Gas
      Distribution   $1,110  $(2,017)  $35,117   $19,915   $55,336   $29,930
     Construction
      Services        3,678    1,736       833       811     2,634     1,688
     Engineering
      Services         (183)    (494)       30      (586)      103       440
     Propane, Pipelines
      & Storage         249      268       997     1,435     1,903     2,022
     Energy Marketing(e)  -        -         -      (341)        -     1,513
     Corporate and
      Other(f)         (831)    (759)   (2,013)   (1,685)   (2,670)   (2,897)
        Total Operating
         Income      $4,023  $(1,266)  $34,964   $19,549   $57,306   $32,696

    Operating Statistics

     Gas Distribution:
      Volumes Sold
       (MMcf)         6,072    2,082    38,592    22,276   55,562     32,108
      Volumes Transported
       (MMcf)         9,106    4,891    35,771    19,712   48,475     26,915
      Number of Customers at End
       of Period    361,228  249,633   361,228   249,633  361,228    249,633
      Degree Days       317      152     4,567     4,124    7,093      6,133
      Percent Colder (Warmer)
       Than Normal      8.6%   (25.9)%    (8.8)%    (8.4)%   (7.2)%    (11.4)%
      Increase (Decrease) From Normal In:
        Net Income
         (in thousands) $20    $(550)  $(3,330)  $(2,350) $(4,430)   $(4,850)
        Earnings Per
         Share           $-   $(0.03)   $(0.19)   $(0.14)  $(0.25)    $(0.28)

     Engineering Services:
       Billed Hours  53,000   74,000   241,000   266,000  334,000    436,000

     Construction Services:
      Feet of Pipe
       Installed  2,521,000 1,966,000 5,448,000 4,142,000 7,514,000 5,685,000

     Propane Distribution:
      Volumes Sold
       (Gallons)    592,000  635,000 2,904,000 2,870,000 4,366,000 4,209,000
      Degree Days       381      289     5,110     5,234     7,764     7,738
      Percent Colder (Warmer)
       Than Normal    (10.1)%  (33.4)%   (11.4)%    (9.9)%   (11.0)%   (11.9)%
      Increase (Decrease) From Normal In:
        Net Income
         (in thousands) $(1)    $(13)     $(56)    $(180)     $(66)    $(220)
        Earnings Per
         Share          $ -      $ -       $ -    $(0.01)      $ -    $(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: Analysts Contact: Sebastian Coppola, Senior Vice President and Chief Financial Officer, 810-989-4104, or Media Contact: Francis R. Lieder, Manager of Corporate Communications & Media Relations, 810-987-2200, ext. 4186, fax, 810-989-4098, email, francis.lieder@semcoenergy.com, 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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