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Sempra Energy's Gas Plans Bloom

With the advent of the West Coast's first liquefied natural gas (LNG) terminal opening along the Pacific Coast of Baja California, Mexico, later in the second quarter, San Diego-based Sempra Energy confirmed last Wednesday that the expansion of its North Baja natural gas pipeline has been completed. The pipeline now can carry supplies from the Costa Azul LNG terminal to markets in California and Arizona.

This was one of several announcements Sempra made at its annual analysts' meeting in New York City; it also divulged that Southern California Gas Co. (SoCalGas), one of two California Sempra utilities that basically operate as one, would soon launch a $1 billion, four-year switch to advanced metering, or "smart meters," for its 5.7 million customers.

Generally, the advanced metering systems offer real-time information to customers, have two-way communications capability and allow management of individual appliance energy use. Sempra's CEO for the utilities, Debra Reed, told the analysts that the gas utility transformation to an advanced metering system, as had been outlined last year for San Diego Gas and Electric (SDG&E), is one of four key initiatives she has for the two utilities this year

Meanwhile, the $250 million North Baja expansion included a 45-mile, 42-inch-diameter spur pipeline, along with looping and compression upgrades on the existing 140-mile pipeline. The expansion is now expected to be in operation later in the second quarter.

North Baja is 100% contracted for the next 20 years and "you'll start to see the positive financial impact" from this pipeline, Sempra Pipeline and Storage CEO George Liparidis said. "This is a good example of the advantage of being an incumbent player in a growing market."

Liparidis told analysts in New York that Sempra now can take advantage of another extension, called the Yuma Lateral, to provide gas from the Costa Azul LNG site to gas-fired power plants in the Yuma area operated by major Arizona utilities. Construction is now under way on the lateral, and service through that conduit is expected to start early next year.

In a recent summer outlook meeting between utilities and the Arizona Corporation Commission, Arizona Public Service officials said the Yuma lateral had encountered delays due to some unspecified regulatory issues with the Mexican government. They said the gas could not be counted on for this summer.

Liparidis said Sempra has the pipeline completed and is starting to phase-in operations on the new compression units for the expanded pipeline. Sempra originally developed the North Baja pipeline in conjunction with a unit of PG&E Corp. that is now part of TransCanada, the operator of the part of North Baja on the U.S. side of the border. Sempra operates the Mexican portion of the pipeline through a subsidiary unit. The 30-inch diameter pipeline has a 500 MMcf/d capacity, serving power plants and industrial customers strung along the U.S.-Mexico border.

Overall, Sempra's pipeline storage business is continuing to expand, Liparidis said. He estimated that profits will be in the $100-110 million range this year; up to $125 million next year, and in the $150-170 million range in 2012. Between now and 2012, the unit expects to invest from $350 million to $500 million annually in new capital projects, he said.

All of California's major private-sector utilities now have programs to switch their retail natural gas and electric meters to advanced, so-called "smart" technology with the announcement late last month that SoCalGas, the nation's largest gas distribution utility, will ask state regulators to approve a $1 billion changeout program.

Noting that the gas utility meter switch was not in previous plans for this year, Reed said the SoCalGas advanced meter program is "something that has now become cost-effective, and we will be making a filing later this year [to the California Public Utilities Commission (CPUC)] to put smart meters into the SoCalGas system on a phased basis."

She said the first phase will involve about 4 million meters that would overlap with a smart meter change by Southern California Edison Co. (SCE), which shares the same territory in much of Southern California with the gas utility. "Then we would look at a future phase that would deploy smart meters throughout the rest of the system [which includes the City of Los Angeles that is served for electricity by the nation's large muni, Los Angeles Department of Water and Power]," said Reed. She estimated the first phase costs at $500-600 million, with the total SoCalGas smart meter change at about $1 billion.

Costs of the advanced meters have come down enough recently to enable the Sempra gas utility to provide what Reed called "great benefits to customers" by upgrading the metering.

Since late 2006 Pacific Gas and Electric Co. has started deploying more than 10.3 million advanced electric and gas meters in a $1.7 billion, five-year transformation program; SCE began last year to roll out pilots for its ultimate $1 billion multi-year effort to switch all of its 5.3 million electric meters; and SDG&E is just beginning a $500 million program to change out about 1.3 million electric meters and 800,000 gas meters.

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