SEMCO ENERGY Redirects Business Strategy

FARMINGTON HILLS, Mich., Oct. 26 /PRNewswire/ -- SEMCO ENERGY, Inc. (NYSE: SEN) President and Chief Executive Officer Marcus Jackson today announced a redirection of the Company's business strategy.

"Since my arrival in June, I've conducted a thorough assessment of the current corporate strategy, the financial performance of the business segments, the performance of the regulated and unregulated businesses and a review of the organizational structure and business processes. Our priority now is to maximize the profitability of existing units. The Board of Directors, management team and I believe we then will be on a course to capture the benefits of internal growth. Restructuring corporate, business unit, and operational architectures to eliminate redundant functions and personnel will lend itself to efficient business strategy execution. Together, this will position us to realize more of the Company's potential to achieve attractive earnings per share gains and provide a competitive total return to shareholders," he said.

SEMCO will focus on maximizing the value of certain of its existing businesses by concentrating more on profitable growth within these lines of business and less on acquisitions. The redirected strategy will involve the divestiture of certain engineering and construction businesses that are not likely to contribute to additional shareholder value in the near term. The reduction of administrative costs and acceleration of the integration of the remaining construction businesses should further improve profitability. SEMCO also will restructure corporate staff operations and re-deploy those staff resources to increase business effectiveness.

As part of leadership succession, William L. Johnson will retire as Chairman of the Board on February 28, 2002. Marcus Jackson, President and Chief Executive Officer will succeed Johnson as Chairman. The SEMCO ENERGY Board of Directors is currently recruiting a new board member to fill the opening on the Board created by Mr. Johnson's retirement.

In its Gas Distribution business, SEMCO has assigned Jon A. Kosht, current President of SEMCO ENERGY GAS COMPANY, the corporation's Michigan gas utility division, responsibility for the administration and operation of ENSTAR NATURAL GAS COMPANY as well. ENSTAR distributes natural gas to customers in Anchorage, Alaska. Under his leadership, he and ENSTAR President, Tony Izzo, will continue the integration and operation of ENSTAR. Focused efforts now are underway in Michigan to extend for an additional three years a Frozen Gas Rate and Customer Choice Program beyond the sunset date of March 31, 2002 and to satisfactorily resolve a pending rate case in Alaska.

In the Engineering and Construction business segment, currently operating under the brand name NATCOMM, SEMCO will divest itself of the engineering services sector. This part of the business is not expected to grow or make a significant near-term contribution to earnings. SEMCO intends to close its NATCOMM Houston office and consolidate administrative functions in Michigan. The Construction services business is organized into geographic divisions in the Midwest and South. Any under-performing regions that are not likely to improve profitability in the near future will be eliminated. NATCOMM's current president, Robert A. Stone, who had previously announced his intention to retire, will leave in February 2002. The Company has instituted a search for a new NATCOMM president.

NATCOMM's new business strategy will focus on profitable internal growth through expansion of its geographic reach and customer base. Any future capital investments likely will be modest and will supplement internal growth and profitability. Average annual growth in the Construction segment is estimated to be approximately 5 to 7 percent in the next five years from a current operating revenue base of $115 million.

In SEMCO ENERGY's third business segment, Aretech Information Services, the focus will be on supporting existing businesses. Building on its early successes, Aretech's enduring commitment and focus will be on profitable sales to companies desirous of outsourcing their mid-range computer operations. Any future capital investments in this business likely will be modest and supplement internal growth and profitability. Estimated annual operating revenue growth should be in the 10-20 percent range from a current base of approximately $10 million.

In the Propane, Pipelines and Storage segment, SEMCO will continue to pursue business opportunities in areas related to natural gas storage and transmission business which leverage its current assets and management expertise. The propane business will continue to be evaluated for profit- enhancing initiatives and long-term strategic fit.

As a result of its redirected strategy and restructuring, SEMCO ENERGY anticipates taking a one-time after tax charge to earnings in the 4th Quarter, of up to $11 million and expects to reduce annual costs by an estimated $1.8 million after tax beginning in 2002. The Company now expects 2001 earnings per share of $.47 to $.53 exclusive of the one time charge and assuming normal weather for the fourth quarter. The Company expects that, under normal weather conditions, 2002 earnings per share will be $.87 to $.95.

"We've got a solid business foundation," said Jackson. "We have strong leadership and technical expertise, especially so in our core gas distribution business. I intend to deliver shareholder value by redirecting and simplifying the business strategy. By right-sizing the organization and making economic value-added decisions we will strengthen our company's financial stability and be better positioned for growth," Jackson concluded.

SEMCO ENERGY, Inc. is a diversified energy and infrastructure company that distributes natural gas to more than 369,000 Customers 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. 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 statement 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 and other risks detailed from time to time in the company's Securities and Exchange Commission filings.

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CONTACT: Analysts Contact: Thomas Connelly, Director of Investor Relations, +1-248-702-6000, ext. 6240, or Media Contact: Francis R. Lieder, Manager of Media Relations, +1-810-987-2200, ext. 4186, email: , 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.