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Sempra Signs Burbank City to Management Deal

Sempra Signs Burbank City to Management Deal

Sempra Energy Trading, the wholesale energy marketing unit of Sempra Energy, announced a two-year electric and gas management agreement with the city of Burbank, CA, last week. The agreement marks a continuation of the type of success that helped turn Sempra's unregulated operations from unprofitable in 1998 to very profitable in 1999.

Under the terms of the deal, Sempra will identify ways that Burbank's Public Service Department (PSD) can save money for its 55,000 residential and commercial customers over the next two years. The company will review the city's energy portfolio of power supply facilities, gas assets and energy contracts, and develop solutions to manage existing and underutilized energy assets more effectively. Sempra will have control over electric and gas purchases under the contract.

"Sempra Energy Trading's depth of asset and risk management experience will enable the city and our residential and commercial customers to reap the rewards of new energy marketplace efficiencies," said Fred Fletcher, assistant general manager for the city of Burbank. "It is our goal to benefit from the changes brought by deregulation in the California energy market. In Sempra Energy Trading, we found a partner that was willing to take a non-traditional approach to the market and utilize our assets to the fullest advantage."

Fletcher put a large annual price tag on the deal with Sempra Trading, noting that his minimum expectations are that the work of Sempra will bring at least a net revenue increase to the city of $1 million annually. Under the contract, Sempra gets to keep 10% of the first added $500,000 and 20% of the next $500,000, Fletcher said. "I expect the changes in electric power marketing to continue over then next 10 years," he added. "And Sempra can help us with those changes by keeping up with what's going on at the (California) ISO and PX and other markets. That is a job that would overwhelm us."

Fletcher noted that Sempra was selected through a competitive bidding process managed by an advisory group established by the city government. Other bidders included Southern California Edison, Los Angeles Department of Water and Power and Williams Energy. After the two-year Sempra deal, he said the city could decide to re-bid for more outside help.

Other prominent Sempra Energy Trading customers include the City of Colton, CA, California's Department of General Services and Connecticut Gas Co.

For 1999, Sempra Energy Trading had a net income of $32 million, which is a 37% rise from the previous year's results. This, along with strong performances from Sempra Energy International, were two of the main reasons why the parent company's non-utility operations posted a net income of $15 million, compared to a net loss of $34 million in 1998.

"We've successfully delivered on our primary performance objectives since Sempra Energy's creation 18 months ago," said Stephen L. Baum, COO Sempra Energy, when Sempra reported its earnings last month. "We exceeded our earnings goal in 1999 and achieved profitability in our unregulated businesses one year ahead of target. We're on track to meet our objective to generate one-third of our earnings from these units by the end of 2003. We're particularly pleased with the progress of our energy trading and our international businesses." John Norris;

Richard Nemec, Los Angeles

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