SEMCO ENERGY Reports Higher Earnings in 1999

PORT HURON, Mich., Jan. 20 /PRNewswire/ -- SEMCO ENERGY, Inc. (NYSE: SEN) today reported net income of $17.7 million, or $1.00 per share, for the year ending December 31, 1999. The 1999 earnings increased 59 percent from the $.63 per share on net income of $10.0 million for the year 1998.

William L. Johnson, Chairman and Chief Executive Officer, said, "I am extremely pleased with the earnings we have reported for 1999. It demonstrates that our strategies are beginning to impact the bottom line. Had it not been for warmer than normal weather, we would have reported record earnings of approximately $1.20 per share in 1999 compared to weather- normalized earnings of $1.08 per share in 1998."

GAS DISTRIBUTION

The Gas Distribution business reported net income of $16.4 million, or $.93 per share, for the year 1999 compared to net income of $9.8 million, or $.62 per share for the year 1998. The increased earnings are primarily attributed to results from the Alaska gas distribution business which was acquired on November 1,1999 ($2.6 million), increased sales from more favorable weather than in 1998, higher revenues from continued customer growth and the profits from a third party gas supply and storage arrangement.

The number of customers in Michigan increased by 2.7 percent. The continued healthy economy was chiefly responsible for the growth, which continues at more than twice the industry average.

Volumes of gas sold and transported increased from 56.0 Bcf in 1998 to 71.5 Bcf in 1999. The increase is primarily attributed to two months of operations from the recent acquisition in Alaska and colder weather. Temperatures for 1999 were approximately 7 percent warmer than normal (earnings impact of $0.19 per share) but colder than 1998 when temperatures were approximately 20 percent warmer than normal (earnings impact of $0.44 per share).

DIVERSIFIED BUSINESSES

The Diversified Businesses reported net income of $0.9 million for 1999, or $0.05 per share, compared to net income of $1.2 million, or $0.07 per share for 1998. The decline in net income was primarily attributed to losses incurred in the engineering business and increased interest expense, which were partly offset by increased earnings in the construction business and proceeds from a corporate insurance claim.

CONSTRUCTION SERVICES -- The Construction Services business reported operating income of $2.6 million for 1999 compared to a $0.1 million operating loss for 1998. The improvement in operating income is due primarily to earnings from four construction companies acquired during 1999 and the absence of losses incurred in 1998 from start-up operations in Florida. The quantity of pipeline installed increased 37 percent in 1999 to 6.2 million feet. The Construction Business, through the acquisitions made during 1999, expanded its customer base to five more states. Additionally the scope of offered services was broadened to include customers in the telecommunications industry, water industry and other related surface construction businesses. The Company expects further growth in 2000 both from additional acquisitions and internal operations.

ENGINEERING SERVICES -- The Engineering Services business reported an operating loss of $.5 million for 1999, compared to operating income of $2.9 million for 1998. The operating results reflect a decrease in engineering projects in various sectors of the energy industry. Many pipeline construction and engineering projects scheduled for 1999 were cut back or delayed because of gas market uncertainty and lower oil prices in 1998 and early 1999. Petroleum prices have since recovered significantly. Billed hours declined 39 percent from the previous year. Results for the year also reflect expenses related to a turnkey pipeline project completed in 1998. The Company anticipates a turn around in business for 2000 as new and delayed engineering projects are beginning to be released. The Company has already received work commitments for 2000 substantially equivalent to 1999 revenue levels.

PROPANE, PIPELINES and STORAGE -- The Propane, Pipelines and Storage businesses reported operating income of $2.3 million for 1999 compared to $1.6 million for 1998. The increase in operating income is due primarily to operating expense reductions and a full year of results from the propane business.

In March 1999, the Company sold its Energy Marketing Business for a gain of $0.7 million, or $0.04 per share. Net income contribution, including the gain, was $0.4 million or $0.02 per share for 1999 compared to a net loss in 1998 of $1.0 million or $0.06 per share.

FOURTH QUARTER RESULTS

Net income for the fourth quarter of 1999 was $9.3 million, or $0.52 per share compared to $6.5 million or $0.37 per share for the same period of 1998. On a weather-normalized basis, earnings would have been $0.58 per share for 1999 compared to $0.52 for 1998.

The Gas Distribution business produced net income of $8.5 million or $0.48 per share for the fourth quarter compared to $4.8 million of $0.28 per share for the same period in 1998. The increase in net income was primarily attributed to earnings from the newly acquired gas distribution business in Alaska, profits from a third party gas supply and storage arrangement, and increased sales from more favorable weather in 1999.

The Diversified Businesses earned $0.8 million or $0.04 per share for the fourth quarter of 1999 compared to $0.7 million or $0.04 per share for the same period in 1998. Higher earnings in the construction business offset lower earnings in the engineering business.

CAPITAL INVESTMENTS

For the year 1999, the Company had capital expenditures for property additions of $36.1 million compared to $25.3 million for the year 1998. Capital expenditures for business acquisitions for 1999 were $305.1 million versus $20.4 million for 1998. The increase reflects the acceleration of the implementation of the Company's strategic growth plan and includes $290 million to acquire the Alaskan gas distribution business.

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. Its subsidiary, SEMCO ENERGY VENTURES, 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.

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, operating expenses, operating income, returns on invested assets, regulatory approval processes, success in obtaining new business and other risks detailed from time to time in the Company's Security and Exchange Commission filings.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)


                                 Three Months Ended     Twelve Months Ended
                                    December 31,           December 31,
                                  1999       1998       1999          1998
                                 (in thousands, except per share amounts)
    FINANCIAL SUMMARY

    Operating Revenues (a)      $109,657   $186,659   $384,763      $637,485

    Operating Expenses (a)       $87,316   $173,513   $342,873      $613,290

    Operating Income             $22,341    $13,146    $41,890       $24,195

    Other Income and (Deductions)
    Business Divestitures             $-     $3,568     $1,122        $5,048
    Interest Expense              (8,959)    (3,837)   (20,575)      (14,811)
    Other                            761       (187)     2,234           643
    Total Other Income and
     (Deductions)                $(8,198)     $(456)  $(17,219)      $(9,120)

    Income Taxes                  $4,844     $6,225     $7,012        $6,320

    Net Income
    Gas Distribution (b)          $8,512     $4,804    $16,398        $9,832
    Diversified Businesses (c)       787        681        900         1,169
    Energy Marketing (d)               -        980        361          (961)
    Total Net Income              $9,299     $6,465    $17,659       $10,040

    Net Income - Weather
     Normalized                  $10,409     $9,005    $21,299       $17,220

    Earnings Per Share - Basic and Diluted
    Gas Distribution (b)           $0.48      $0.28      $0.93         $0.62
    Diversified Businesses (c)      0.04       0.04       0.05          0.07
    Energy Marketing (d)               -       0.05       0.02         (0.06)
    Total Earnings Per Share -
     Basic and Diluted             $0.52      $0.37      $1.00         $0.63

    Earnings Per Share - Basic and Diluted - Weather
     Normalized (b) (c) (d)        $0.58      $0.52      $1.20         $1.08

    Cash Dividend Per Share       $0.204     $0.200     $0.863        $0.744

    Average Number of Common Shares
     Outstanding                  17,878     17,340     17,697        15,906

    Return on Average Common Shareholder's Equity:
    As Reported                                          12.86%         8.83%
    Weather Normalized                                   15.51%        15.15%


(a) The decrease in operating revenues and expenses 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 twelve months ended December 31, 1998 includes after-tax income of $1,784 ($0.11 per share) from a change in the method of accounting for property taxes.

(c) The twelve months ended December 31, 1998 includes an after-tax charge of $499 ($0.03 per share) from an early retirement of long-term debt and after-tax income of $1,708 ($0.11 per share) related to the divestiture of the Company's NOARK investment.

(d) The twelve months ended December 31, 1999 includes after-tax income of $729 ($0.04 per share) related to the divestiture of the Company's energy marketing business.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)

                              Three Months Ended     Twelve Months Ended
                                  December 31,          December 31,
                                1999       1998       1999         1998
                             (dollars in thousands, except per share amounts)

    BUSINESS SEGMENT INFORMATION

    Operating Revenues
     Gas Distribution          $83,849    $54,003    $216,831    $184,221
     Engineering Services        4,719     19,022      17,486      41,366
     Construction Services      22,804      9,042      58,272      25,904
     Propane/Pipelines/Storage   1,838      1,697       6,284       4,852
     Energy Marketing (e)            -    106,407      96,904     397,888
     Corporate and Other (f)    (3,553)    (3,512)    (11,014)    (16,746)
        Total Operating
         Revenues             $109,657   $186,659    $384,763    $637,485

    Operating Income (Loss)
     Gas Distribution          $20,219    $10,015     $40,134     $22,363
      Engineering Services          73      1,026        (513)      2,938
      Construction Services      1,800        878       2,611        (102)
      Propane/Pipelines/Storage    906        588       2,341       1,585
      Energy Marketing (e)           -      1,854        (341)       (696)
      Corporate and Other (f)     (657)    (1,215)     (2,342)     (1,893)
        Total Operating Income $22,341    $13,146     $41,890     $24,195

    OPERATING STATISTICS

    Gas Distribution:
      Volumes Sold (MMcf)       16,969      9,833      39,245      32,247
      Volumes Transported
       (MMcf)                   12,802      7,202      32,266      23,791
      Number of Customers at
       End of Period                                  356,439     247,950
      Degree Days                2,546      2,009       6,672       5,566
      Percent Colder (Warmer)
       Than Normal                (3.3)%    (17.1)%      (6.5)%     (19.7)%
      Increase (Decrease) From Normal In:
        Net Income
         (in thousands)        $(1,100)   $(2,500)    $(3,450)    $(7,000)
        Earnings Per Share      $(0.06)    $(0.15)     $(0.19)     $(0.44)

    Engineering Services:
      Billed Hours              93,000    170,000     359,000     586,000

    Construction Services:
      Feet of Pipe
       Installed             2,054,000  1,643,000   6,208,000   4,531,000

    Propane Distribution:
      Volumes Sold (Gallons) 1,462,000  1,339,000   4,332,000   2,367,000
      Degree Days                2,654      2,504       7,888       3,733
      Percent Colder (Warmer)
       Than Normal               (10.7)%    (15.3)%     (10.2)%     (22.4)%
      Increase (Decrease) From Normal In:
        Net Income (in thousands) $(10)      $(40)      $(190)      $(180)
        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.
CONTACT: Analysts, Edric R. Mason, Jr., 810-989-4104, fax, 810-989-4098, or Media, Francis R. Lieder, 810-987-2200, ext. 4186, fax, 810-989-4098, 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.