SEMCO ENERGY GAS COMPANY Freezes Gas Recovery Rate for Three Years

PORT HURON, Mich., Sept. 14 /PRNewswire/ -- SEMCO ENERGY GAS COMPANY today announced it has received approval from the Michigan Public Service Commission (MPSC) to reduce and freeze gas costs to its 240,000 Michigan customers.

In the same ruling, the MPSC approved a plan to expand the company's current program allowing customers to select their natural gas supplier.

The Aggregated Transportation Service (ATS) was initiated in October 1997 and followed SEMCO's Option Plus program, which was successfully piloted in the gas company's Battle Creek Division.

The freeze approved by the MPSC allows the company to reduce the Gas Cost Recovery (GCR) factor for its natural gas customers by almost 10 percent for the duration of the program. The plan is effective for the April 1999 billing cycle and continues through March 2002.

Under this plan, the average gas company customer will save about 5 percent, or $38 a year, on their total gas bill.

"This plan, which won quick approval from the MPSC, includes an incentive clause to encourage the gas company to be more efficient and share the efficiency gains with our customers after a certain point," said William L. Johnson, Chairman, President and Chief Executive Officer of SEMCO ENERGY, Inc. The gas company, a subsidiary of SEMCO ENERGY, Inc. (Nasdaq: SMGS), has been granted permission to place a three-year freeze on the GCR factor. The GCR factor is a regulated charge which allows the gas company to recover the costs of buying the gas it supplies to its customers.

The plan provides an incentive for SEMCO ENERGY GAS COMPANY to reduce its purchased gas cost below a prescribed level and, if the company is successful, to share a portion of the savings with its customers if the company's return exceeds levels approved by the MPSC.

SEMCO ENERGY GAS COMPANY will reduce the GCR rate to $3.24 per thousand feet (Mcf) and freeze the rate for three years. The GCR rate currently is $3.57 Mcf.

"The decision to freeze the GCR is twofold," said Jon A. Kosht, Vice President of Rates and Regulatory Affairs.

First, the company is positioning itself for the completion of the shift of utilities operating from regulated monopolies to competitive status.

As a regulated monopoly, a utility's profitability is determined by the MPSC. In the approaching deregulated environment, returns on investments will be increasingly determined by the same market forces that control other business sectors.

"This is the first time the gas company has been allowed to be a competitor on the open market," Kosht said. "The company will face risks, but this also presents new opportunities as well as incentives to operate more efficiently."

The second factor is the company's stated mission to become the low-cost natural gas provider in Michigan after deregulation is completed.

The ATS program allows the customer to choose to continue receiving natural gas supplied by SEMCO ENERGY GAS COMPANY or to select another supplier. SEMCO will continue to provide gas transportation during the three- year program, which ends March 31, 2002.

The ATS program will be opened to residential customers on a first-come first-served basis with enrollment of up to 7,000 each year in the regulated territories.

Neither the GCR freeze nor the ATS program will have an impact on staffing levels at the gas company.

SEMCO ENERGY GAS COMPANY is one of three subsidiaries of SEMCO ENERGY, Inc. The energy-focused holding company also owns SEMCO ENERGY SERVICES, an unregulated division which markets natural gas throughout the United States and in parts of Canada; and SEMCO ENERGY VENTURES, which operates and acquires companies involved in natural gas pipeline and distribution system construction, construction engineering and propane operations.
CONTACT: Roberta S. Floyd of SEMCO, 810-987-2200, ext. 4188, or fax, 810-989-4098

"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.