Sempra Energy shared its vision of the future with industryanalysts last week and said the key to earnings growth lies withunregulated businesses. The company’s goal of growing earnings pershare by 8 to 10% on a compound annual average basis over the nextfour years means it will be looking less and less like a utility.

One key to better performance is Sempra Energy Solutions, whichprovides energy and related services to commercial and industrialcustomers. Spokesman Doug Kline said Sempra has targeted 11 statesin four regions – the Northeast, Gulf Coast, upper Midwest and theWest – where there is a potential market of $80 billion in energyand related services. “No one has a dominant share of the market.In fact, Enron, which probably has the largest share, has about onepercent.”

Sempra will target the commercial and industrial market througha bundled approach, selling “solutions” rather than just the energycommodity. “In some cases we’ll include the commodity. In othercases we may not.” Kline said the company has picked a set ofindustries it will target but would not disclose what they are.Sempra’s goal is to grow revenues in the Solutions business fromabout $200 million today to about $2 billion by the end of 2003.

Through its joint venture with Canada’s Direct Energy Marketing,Energy America, Sempra has 400,000 gas/electric customers at theretail level across six states. Because snaring residential can betough, Energy America uses a door-to-door marketing approach.Because sales agents are all commissioned, Kline said the businessmodel has very low overhead. Currently in Ohio, Michigan,Pennsylvania, New Jersey, Maryland and Georgia, Energy Americaplans to enter six new electric markets a year and four new gasmarkets.

Further, Sempra plans to beef up its generation portfolio tosupport Sempra Energy Solutions’ business and create leverage withits trading operation. “Commercial and industrial customers demandsome access to generation. They want their energy service providersto have some hard assets in generation to guarantee reliability.”The input and output of Sempra’s generators will be managed by thetrading business. Plans call for building or buying 5,000 to 10,000MW of new generation by the end of the decade.

Finally, Kline said Sempra will be entering thetelecommunications arena but has nothing to announce on that frontyet.

PaineWebber said in a research note the for Sempra to achieveits 8 to 10% growth rate, net income from unregulated operationswill need to grow to more than $200 million in 2003. “Specifically,the company expects to achieve approximately $33 million in netincome from its Financial unit, $47 million from its Trading unit,$50 million from its International unit, $15 million from itsGeneration unit, $50 million from its retail unit and $23 millionfrom its Technology unit in 2003.”

While crediting the company for unregulated business growth in1999, particularly in the trading, international and financialbusiness units, PaineWebber said ” …these businesses are still intheir very early stages of development and continue to hold aconsiderable amount of uncertainty.” PaineWebber said it will “waitand see” whether Sempra will be able to achieve its growthtargets.”

Joe Fisher, Houston

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