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SEMCO ENERGY, City of Battle Creek Reach Agreement on Gas Rate Proposal

PORT HURON, Mich., Feb 01, 2005 /PRNewswire-FirstCall via COMTEX/ -- After several weeks of reviewing a rate case submitted by SEMCO ENERGY GAS COMPANY, City Manager Wayne Wiley says new rates will be proposed to the City Commission during its regular meeting on February 1. Commission action isn't expected until the following meeting on February 15.

"The City has taken a thorough and comprehensive approach to its job in regulating rates. SEMCO ENERGY's original request would have generated an additional $5 million for the company. During intensive meetings and review of the information provided by the company, we were able to negotiate a more reasonable increase," said Wiley.

Eugene N. Dubay, SEMCO ENERGY Senior Vice President and Gas Company Chief Operating Officer, said the agreement is the result of the willingness of both sides to compromise to the benefit of the community.

"As with any negotiated compromise, neither side came away with exactly what they wanted, but I think we have achieved an equitable settlement that saves both the citizens of Battle Creek and SEMCO ENERGY the costs of time- consuming litigation. I appreciate the willingness of the Battle Creek leadership to work with us on this matter."

The base rate proposal will generate an additional $3.55 million, $3.7 million and $3.85 million respectively over the three years of the agreement. This rate proposal recoups costs incurred by the company to maintain its infrastructure and cover the cost of serving customers, such as employee health care, property insurance and regulatory compliance.

Base rates reflect SEMCO ENERGY's costs, while energy charges reflect the cost of gas on the open market that is passed on to customers. Base rates and energy rates combine to create a total monthly bill for customers.

Residents will see a $4 per month increase to the customer charge, a flat charge assessed to all customers, to a total of $11. SEMCO ENERGY's original request was to raise this fee by $8 to total $15. SEMCO ENERGY also requested an increase to the distribution charge, which is based on usage. Under the new proposal, there will be no increase in residential distribution charges. The new rates go into effect with the April billing cycle.

Fees will increase, including turn on, shut off and non-payment fees. Commercial, industrial and transport customers will also see increases in base rates totaling $1.07 million, $1.22 million and $1.37 million over the three years.

In addition to the increases in base rates charged by SEMCO ENERGY, Battle Creek area customers will also be facing an increase in the commodity price of gas after April 1, 2005. That's because a frozen rate agreement, designed by the City and SEMCO ENERGY in 2002 when rates were low, is ending. Gas is a commodity and its price goes up and down based on market prices. This cost is passed on directly to consumers with no markup.

Both the City and SEMCO ENERGY have agreed to monitor the market and to again enter into a frozen rate agreement if market conditions improve. This approach has benefited Battle Creek area customers by saving an average of $544 per household since 2002. In the meantime, however, Battle Creek residents will pay market prices after enjoying three years of rates averaging half what other communities pay.

"We took a risk in 2002, but our assessment of the market turned out to be right. We locked in prices when they were slightly higher than the market, but it paid off when market prices soared late in the first year of the agreement," said Mayor John Godfrey. "Right now prices are high and expecting to drop, so it isn't a good time for a fixed rate agreement."

Both the City and SEMCO ENERGY recognize that increasing rates will affect low-income residents the most. The United Way of Greater Battle Creek recently identified an unmet need in the area of utility assistance, which is one of the top three reasons residents call 211 for help. Contributions to Battle Creek community heating assistance programs are built into the rate.

Low-income assistance from SEMCO ENERGY will be $150,000 in year one, and $100,000 in years two and three for a total of $350,000 donated.

"SEMCO ENERGY believes we have an obligation to contribute to the communities we serve and in which we live. Contributing towards a community heating assistance program, and encouraging others to join us, is not just a strategic objective from a business perspective, but it is the right thing to do as a corporate neighbor," said SEMCO ENERGY City President Colleen Starring.

"We can't prevent the cost of natural gas from going up, but we've worked hard to serve the best interests of the community and to protect the most vulnerable. SEMCO ENERGY has been a strong corporate citizen and their willingness to partner on this issue continues that tradition," said Wiley. "The City has been a very responsive regulator and I believe this new proposal will give the commission a very good option for proceeding."

Rate regulation is complex and is not the same as contracting for service, although the similar terminology may confuse residents, said City Attorney Clyde Robinson.

"SEMCO ENERGY GAS COMPANY is a regulated business that, like any private business, needs to make a profit, defined as a reasonable rate of return, on its investment. The City's role in this case is to set just and reasonable rates that protect both the rights of the company and the public," said Robinson. "We can't control competition, nor can the City be unreasonable in its regulation. Private business has rights, but we also have the right to regulate protections for residents. These competing rights create both the tension and the room for compromise between private business and government."

Process summary: The new rate proposal will be presented during the February 1 meeting in a public hearing continued from January 18. Action on the rate proposal is expected at the February 15 meeting.

Media Note: New rates will go into effect with the April billing cycle, which will apply new rates to gas consumed in March for some customers. This overlap is caused by the timing of billing cycles and ensures equity across all customers when rates change. All customers received the benefit of fixed rates for 36 months, as the same overlap occurred in 2002.

SEMCO ENERGY, Inc. distributes natural gas to more than 392,000 customers combined in Michigan, as SEMCO ENERGY GAS COMPANY, and in Alaska, as ENSTAR Natural Gas Company. It also owns and operates businesses involved in propane distribution, intrastate pipelines and natural gas storage in various regions of the United States.

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. Statements that are not historic facts, including statements about the Company's outlook, beliefs, plans, goals and expectations, are forward-looking statements. Factors that may impact forward-looking statements include, but are not limited to, the effects of weather, the economic climate, competition, commodity prices, changing conditions in the capital markets, regulatory approval processes, success in obtaining new business, success in defending claims against the Company, and other risks detailed from time to time in the Company's Securities and Exchange Commission filings.


Battle Creek Media Contacts: Michelle Reen, Assistant to the City Manager,
+1-269-966-3373, Wayne Wiley, City Manager, +1-269-966-3378, Mayor John Godfrey,
+1-269-962-7928; SEMCO ENERGY Contacts: Timothy J. Lubbers, Director of Marketing an
Corporate Communications, +1-810-887-4208, Analysts Contact: Thomas Connelly,
Director of Investor Relations, +1-248-458-6163
"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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