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SP Remains Critical of Sempra EnergySouth Buy

While otherwise positive toward a utility bond sale, Standard & Poor's Ratings Services on Friday reiterated its distaste for Sempra Energy's purchase last year of EnergySouth for its storage plays in the Gulf of Mexico region. It assigned a negative outlook to Sempra utility San Diego Gas and Electric Co.'s (SDG&E) "A+" rated sale of $176.26 million industrial development revenue refunding bonds as fixed-rate instruments to refund bonds sold five years ago.

Just last month S&P expressed confidence in Sempra's two major California utilities -- SDG&E and Southern California Gas Co. -- but said it was a bit more skeptical about the risk levels at its parent corporation or their competitive affiliates, citing the poor credit metrics of the $510 million EnergySouth purchase (see Daily GPI, May 14).

Absorbed into Sempra Pipelines & Storage, the EnergySouth acquisition gives Sempra a majority ownership in two large, high-cycle underground gas storage facilities that when fully developed will have a combined capacity of 57 Bcf (see Daily GPI, Oct. 3, 2008). At the time Sempra CEO Donald Felsinger said the Gulf Coast is a critical hub for North America and these new assets allow the area "to quickly expand our natural gas infrastructure business in the region."

Noting that SDG&E had nearly $3 billion in adjusted debt as of last March 31, S&P assigned its high A-level rating, but said the "negative outlook reflected parent Sempra Energy's weaker financial profile and key credit metrics due to EnergySouth," which includes Bay Gas Storage and Mississippi Hub Storage, along with a small gas distribution utility.

The rating agency indicated that it appreciated the stability the two California utilities provide, but Sempra was putting its emphasis on its independent merchant operations, which raises its risk profile considerably. In the past it has cited SDG&E's risk profile as "excellent," reflecting a positive regulatory environment and a good resource planning program in place that allows for timely recovery of project costs.

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