Sempra Energy's senior management team told a roomful of financial analysts on Wednesday that the company has developed a winning strategy in marrying major California and Texas utilities to at least three liquefied natural gas (LNG) export projects to create the prospect for near double-digit growth over the next five years.
Sempra CEO Jeff Martin said the gas utility and infrastructure holding company is in a definite "growth mode," calling for increased investments in California, Texas and Mexico. Plans would be lifted by additional noncore assets sales, historically high capital investment plans of $25 billion over the period and high expectations for its Cameron, LA, LNG export facility that should start initial operations later this year.
The company also discussed how it's exploring ways to expand the proposed capacity and expedite development of its Energía Costa Azul (ECA) LNG project once the second phase is underway in Mexico’s Baja California state. The project, which has long been on the drawing board, is a joint venture between Sempra LNG & Midstream and Infraestructura Energética Nova. It would convert Sempra’s existing ECA import terminal into an export facility.
Martin said Sempra is in the midst of building a "high performance" culture throughout all of its businesses with the goal of molding what he called a 21st Century energy company. "We think there is a once-in-a-generation opportunity to be part of something that, over the next decade, we expect the energy market to change more than it has in the last 10 years," he said. "We're building a brand around innovation, technology and leadership."
Martin and Sempra's Utilities President Patti Wagner told attendees at an analysts' day in San Diego that they are confident safety and reliability issues involving the two major California utilities will be resolved satisfactorily through ongoing discussions with state legislators, the governor and regulators. Threats of more credit rating downgrades for San Diego Gas and Electric Co. (SDG&E) don't worry them.
"We are operating our businesses safely every day," said Martin, adding that California is fortunate that new Gov. Gavin Newsom has stepped up to the plate in addressing the wildfire issue. "He walked into a difficult situation and raised his hand to be a big part of solving the problem, and that is very important," he said.
Martin called last year's legislative attempt at a solution, Senate Bill 901, "terrific," but he says there is something better that SDG&E is working on -- operating safely, continuing to challenge leadership in the state and industry, and the outcome should result in a better risk environment from a regulatory standpoint.
SDG&E CEO Kevin Sagara said it is clear one of the solutions has to include "clear and objective rules for utility rate recovery" from the governor's strike team that is charged with coming up with recommendations, and then the legislature will need to act, perhaps in a special session.
Wagner said that Newsom has created what she called "positive momentum" around the issue, and the strike team has reached out to stakeholders across the state. "We're in active discussions, and I mean we're working this on a daily basis." She is convinced that there will be a "comprehensive solution" for both the state and the utilities' cost and liability issues.
Sempra's senior executives touted SDG&E as being apart from California's two other major electric utilities as a national leader in wildfire preparedness based on its serious experiences more than a decade ago with several fires that raged through Southern California in the fall of 2007. The Sempra combination utility is still challenging a regulatory denial of its recovery of $379 million in costs.
"We have been investing more than $1.5 billion annually since 2007 in our wildfire mitigation efforts," Wagner said.
In addition to the billions of dollars spent years ago, Martin noted that more recently SDG&E has undertaken undergrounding a major transmission line through the Cleveland National Forest that is now 60% complete. "No other utility in the country has that much transmission underground, and also in the national forest we took 80% of our 69-kV units from wood to steel, put the conductors higher off the ground and spread them around more," he said.
"So, in the highest risk fire areas, we have the cumulative benefits of 10 years investment in technology innovations."
While earlier in the year Sempra announced plans to sell its South American utilities, which Martin calls one of the best "cash-on-cash investments the company has ever made," its senior leaders see a "bigger opportunity" concentrating on North America, and particularly U.S. utilities.
Sempra's combined utilities -- SDG&E, Southern California Gas Co. and Texas-based Oncor -- serve more than 35 million customers. Utilities represent $22 billion of the company’s five-year $25 billion capital budget. Over the five years, Sempra expects an overall average annual rate base growth of 9%.