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SEMCO ENERGY Reports 2000 Earnings

PORT HURON, Mich., Jan. 31 /PRNewswire/ -- SEMCO ENERGY, Inc. (NYSE: SEN) today reported net income of $12.5 million, or $0.65 per share for the fourth quarter of 2000 compared to $9.3 million or $0.52 per share for the same period of 1999. The items contributing to the increase in income were higher operating income, primarily from the gas distribution and construction business segments, offset partially by increased financing costs.

According to William L. Johnson, Chairman, President and Chief Executive Officer, "I am very pleased to see our businesses finish the year on a strong note. As anticipated, the Construction Service business had a late year and a much better fourth quarter in 2000. We were also pleased to see the return of colder weather in Michigan in December to cap a good year for our Michigan Gas Distribution business."

Net income for the year ended December 31, 2000 was $16.7 million or $.90 per share compared to $17.7 million or $1.00 per share for the year ended December 31, 1999. The decrease in earnings for the year 2000 was due to higher interest and other financing costs only partially offset by an increase in overall operating income. The results for the gas distribution business were also impacted by warmer than normal weather. Johnson said, "Warmer weather during the past three years has had a significant impact on earnings, which has obscured the Company's true earning power. While weather during December 2000 in Michigan was colder than normal, we still ended the year 2000 approximately six percent warmer than normal overall for the year, including our Alaska operations. If weather had been normal, net income would have been approximately $20.7 million or $1.11 per share in 2000."

He added, "Year 2000 earnings also did not reach the level we had expected due to project delays and other events in the Engineering and Construction businesses, and the suspension of our acquisition program during our strategic review in 2000. For 2001, expected increases in construction and engineering projects should further grow revenues and improve the profitability of this business. As we look to 2001 overall, all our businesses are positioned for a better year, obviously with some help from the weather."

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The Gas Distribution business reported operating income of $62.9 million for the year 2000 compared to operating income of $40.1 million for 1999. The $22.8 million increase in operating income is attributed in part to the operations of ENSTAR, which was acquired in November of 1999. Increased sales in Michigan, mainly from new customer additions and cooler weather compared to 1999, and property tax reductions recorded during 2000 also contributed to the increase in operating income.

Volumes of gas sold and transported increased from 71.7 Bcf in 1999 to 109.8 Bcf in 2000. The increase is attributed primarily to a full year of ENSTAR, slightly cooler weather in Michigan and the addition of 9,779 customers, which represents a 2.7 percent customer growth rate. This business also benefited from a fixed price supply arrangement with TransCanada Gas Services, which allowed it to earn a profit margin and fix the price of gas to its customers. In fact, given the rise in gas prices during the year 2000, customers saved nearly $40 million in lower gas bills as a result of this gas supply arrangement.

CONSTRUCTION SERVICES

Construction Services reported operating income of $3.7 million for 2000, or an increase of 42 percent when compared to operating income of $2.6 million for 1999. Revenues during 2000 were $105.2 million compared to $58.3 million during 1999. The increase in operating income and revenues was due primarily to the operating results of recent acquisitions and an increase in project work. 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. Prospects for additional construction projects, primarily in the southeast region of the country, and further emphasis on high profit margin work should improve profitability of this business in 2001.

ENGINEERING SERVICES

Operating income for the Engineering Services business improved to breakeven in 2000, compared to an operating loss of $.5 million in 1999. Revenues increased 18 percent from $17.5 million in 1999 to $20.7 million in 2000. Operating results improved primarily as a result of more profitable projects. One such project involved engineering and construction management for a seven-mile transmission pipeline to a power plant in Western Michigan. For 2001, a healthy level of outstanding bids for engineering projects and a resurgence of inspection and quality assurance projects also bode well for higher earnings in this business segment.

PROPANE, PIPELINES & STORAGE

The Propane, Pipelines and Storage business reported operating income of $1.5 million in 2000 compared to $2.3 million in 1999. The decrease is due primarily to the absence during 2000 of operating income from a pipeline that was sold in 1999 and lower margins on propane sales.

CAPITAL INVESTMENTS

During 2000 SEMCO ENERGY expended $66.6 million for property additions in comparison to $35.0 million during 1999. The increased level of capital expenditures in 2000 was due in large part to additional expenditures related to ENSTAR and certain construction businesses, which were not part of the Company during a portion of 1999.

The Company expended $1.8 million for business acquisitions during 2000 compared to $305.1 million during 1999, which included approximately $290 million for ENSTAR. For 2001, the Company anticipates capital expenditures of approximately $50 million, excluding acquisitions.

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 Ended  Twelve Months Ended
                                          December 31,        December 31,
                                         2000      1999      2000      1999

    Financial Summary

      Operating Revenues               $145,487  $109,657  $422,593  $384,763

      Operating Expenses                115,194    87,316   357,335   342,873

      Operating Income                   30,293    22,341    65,258    41,890

      Other Income and (Deductions)
        Business Divestitures (a)             -         -         -     1,122
        Interest Expense                 (8,509)   (8,959)  (34,913)  (20,575)
        Other                             1,277       761     2,958     2,627
          Total Other Income and
           (Deductions)                  (7,232)   (8,198)  (31,955)  (16,826)

      Income Taxes                        8,395     4,844    11,606     7,405

      Income before Dividends on Trust
       Preferred Securities              14,666     9,299    21,697    17,659

      Dividends on Trust Preferred
       Securities, Net of Income Taxes    2,144         -     5,004         -

      Net Income (loss) Available to
       Common Shareholders              $12,522    $9,299   $16,693   $17,659

      Net Income (Loss) - Weather
       Normalized                       $13,131   $10,409   $20,688   $21,299

      Earnings Per Share
        Basic                             $0.69     $0.52     $0.93     $1.00
        Diluted                           $0.65     $0.52     $0.90     $1.00

      Earnings Per Share - Weather
       Normalized
        Basic                             $0.73     $0.58     $1.15     $1.20
        Diluted                           $0.68     $0.58     $1.11     $1.20

      Cash Dividends Per Share (b)       $0.210    $0.204    $0.835    $0.863

      Average Number Of Common Shares
       Outstanding
        Basic                            18,049    17,878    17,999    17,697
        Diluted                          19,401    17,892    18,619    17,720

      Return on Average Common
       Shareholders' Equity:
        As Reported                                           12.0%     12.9%
        Weather Normalized                                    14.9%     15.5%


(a) The twelve months ended December 31, 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.

(b) The twelve months ended December 31, 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   Twelve Months Ended
                                       December 31,          December 31,
                                     2000       1999       2000       1999

    Business Segment Information

      Operating Revenues
        Gas Distribution           $110,243    $83,849   $307,851   $216,831
        Construction Services        33,047     22,804    105,231     58,272
        Engineering Services          4,216      4,719     20,655     17,486
        Propane, Pipelines &
         Storage                      2,379      1,838      6,949      6,284
        Energy Marketing (c)              -          -          -     96,904
        Corporate and Other (d)      (4,398)    (3,553)   (18,093)   (11,014)
          Total Operating Revenues $145,487   $109,657   $422,593   $384,763

      Operating Income (Loss)
        Gas Distribution            $27,759    $20,219    $62,876    $40,134
        Construction Services         2,843      1,800      3,676      2,611
        Engineering Services             (4)        73         25       (513)
        Propane, Pipelines &
         Storage                        533        906      1,530      2,341
        Energy Marketing (c)              -          -          -       (341)
        Corporate and Other (d)        (838)      (657)    (2,849)    (2,342)
          Total Operating Income    $30,293    $22,341    $65,258    $41,890

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)          22,461     16,969     61,054     39,245
        Volumes Transported
         (MMcf)                      12,936     12,705     48,706     32,417
        Number of Customers at End
         of Period                  367,157    357,378    367,157    357,378
        Weather Statistics:
          Degree Days                 2,714      2,546      7,293      6,650
          Percent Colder (Warmer)
           Than Normal                  (.8)%     (3.3)%     (5.9)%     (6.7)%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in
             thousands)               $(605)   $(1,100)   $(3,935)   $(3,450)
            Earnings Per Share -
             Basic                   $(0.04)    $(0.06)    $(0.22)    $(0.19)
            Earnings Per Share -
             Diluted                 $(0.03)    $(0.06)    $(0.21)    $(0.19)

      Engineering Services:
        Billed Hours                 51,000     93,000    292,000    359,000

      Construction Services:
        Feet of Pipe Installed    2,522,000  2,054,000  7,969,000  6,208,000

      Propane Distribution:
        Volumes Sold (Gallons)    1,588,000  1,462,000  4,492,000  4,332,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in
           thousands)                   $(4)      $(10)      $(60)     $(190)
          Earnings Per Share -
           Basic and Diluted             $-         $-         $-     $(0.01)


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

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