New Sempra Boss Has a Vision
In the midst of bullish earnings projections for the second
quarter in early July, San Diego-based Sempra Energy's new boss,
CEO Steve Baum, has been busy outlining his vision for employees
and the financial community. In a nutshell, it calls for emphasis
on growing a nationwide energy retail operation, de-emphasizing
regulated utility operations and accelerating the change to
competitive energy markets nationwide. It also may include
unloading start-up LDCs.
Baum, who in September becomes Sempra's chairman and CEO when
Dick Farman retires, told employees in a prepared
question-and-answer published in late June that developing growth
from more competitive nonutility ventures to enhance shareholder
value is his principal strategic focus. He likes the cash flow and
steady earnings stream from his two large distribution utilities -
Southern California Gas Co. and San Diego Gas and Electric Co. -
but ultimately they should narrow their focus to being "premier
energy-delivery companies," or the so-called "pipes and wires"
businesses that state-regulated distribution utilities are destined
to be in the restructured energy world.
The higher growth, Baum told Sempra employees, will come from:
(a) building "robust retail businesses," (b) expanding utility
businesses in faster growing foreign markets (Sempra is heavily
involved in northern Mexico and (c) expanding energy trading). It
was principally because of sizable recent profits in trading that
Sempra on Monday released a pre-second quarter earnings
announcement that it expects the quarterly and annual earnings to
exceed current consensus estimates. It will report second quarter
earnings July 27.
In previewing its better-than-expected results, Sempra officials
pointed out that it expects earnings to fluctuate more from quarter
to quarter as it moves more heavily into the nonutility sector and
as the regulated monopolies make up a proportionally smaller part
of the overall corporate earnings.
"Sempra Energy continues to expect earnings at its [utilities]
that are flat to slightly lower for the year due to industry
restructuring," the earnings projection announcement stated.
Baum told his employees that "successful utilities" must focus
on delivering the energy commodity safely and reliably. "Likewise,
they must unbundle the commodity and nonessential services so that
these can be offered by unregulated energy service providers,
including Sempra Energy. These steps are essential to creating open
and competitive markets that provide customer choice."
Unlike some of the nation's other large energy firms, Sempra
will only selectively get into new merchant power generation
projects where it can bolster trading and energy services
He categorically said Sempra would not go after any large
acquisitions, citing last year's aborted KN Energy (now Kinder
Morgan) deal that went sour. He also said Sempra is abandoning
earlier plans to develop new domestic local distribution utilities
in North America, except for Nova Scotia where it is already
committed. He also hinted that the company might be selling some of
its businesses, such as existing and local LDCs it has created in
North Carolina and Maine.
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