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Sempra's Earnings Beat Wall Street's Forecast

Savvy energy purchases, tighter cost controls and higher power sales lifted Sempra Energy's profits by 10% in the last three months of 2008, easily surpassing Wall Street's expectations.

Quarterly net income rose to $319 million ($1.23/share) from 4Q2007's $289 million ($1.10). Sempra's profits rose 6.5% in 2008 to $1.11 billion ($4.43/share) from earnings of $1.10 billion ($4.16) in 2007. Revenues in 4Q2008 fell to $2.29 billion from $3.11 billion in 4Q2007. Wall Street had pegged Sempra's earnings at 91 cents/share on revenue of $2.55 billion.

"Despite the challenging economic environment, our businesses have excelled and we've achieved major milestones in our long-term strategy," said CEO Donald Felsinger. "We launched operations at our Mexican liquefied natural gas (LNG) terminal, completed our commodities joint venture and added new Gulf Coast natural gas assets with the acquisition of EnergySouth. We also received state regulatory approval on San Diego Gas & Electric's Sunrise Powerlink transmission line and both of our utilities' rate cases. Additionally, we completed a $1 billion share-repurchase program, increased our dividend and maintained a strong balance sheet."

At subsidiary San Diego Gas & Electric (SDG&E), higher operating margins and a lower tax rate lifted quarterly earnings to $81 million, compared with $47 million in the year-ago quarter. The California Public Utilities Commission in December approved SDG&E's application to build the $1.9 billion, 500-kV Sunrise Powerlink transmission line project. Preconstruction has begun; completion is expected in 2012.

Sempra's other California utility, Southern California Gas Co., saw its profits fall in the final period to $54 million from $58 million a year earlier.

Quarterly earnings also dropped year/year at RBS Sempra Commodities, Sempra's energy trading joint venture with UK-based RBS (see NGI, April 7, 2008). Global banking fortunes were battered at the end of 2008, and RBS, which now controls Sempra's energy trading business, suffered. Still, Sempra earned $164 million in 4Q2008 from its partnership stake. In 4Q2007, when Sempra still controlled the energy trading unit, the business earned $186 million.

Lower income expenses lifted profits at Sempra Generation, which reported quarterly net income of $60 million, compared with 4Q2007 net income of $40 million. Last December the unit completed its first solar power project, a 10 MW facility near Las Vegas, which is said to be the largest thin-film solar generating plant in North America.

Sempra Pipelines & Storage also performed well in the final period of 2008, mostly on the operation of the western portion of the Rockies Express Pipeline, in which Sempra is a stakeholder. Earnings from Sempra's Mexico pipelines also contributed. The unit earned $22 million, up from $14 million in 4Q2007.

Only Sempra LNG reported substantial losses in the period, with a loss of $13 million. For the same period of 2007, the LNG unit reported a net loss of $19 million.

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