"On track" was the mantra for Sempra Energy, which reported increased utility and other first quarter earnings results, although accounting requirements caused some of its natural gas trading results to appear to have slipped on a quarter-over-quarter comparative basis. First quarter results showed net income of $228 million, or 86 cents/diluted share, compared with $255 million, or 98 cents/share, for the same period last year.

During a conference call, CEO Donald Felsinger and other senior executives hinted that longer term options for the future of trading operations are still being explored.

The trading unit, Sempra Commodities, earned $71 million in the first quarter, compared with $116 million for the first quarter in 2006, which was a record, but the results were dampened by mark-to-market accounting requirements that prevented $86 million of natural gas storage/transportation profits from being counted in the quarter. Similarly, in the first quarter a year earlier $44 million in gas proceeds had to be deferred.

At one point in the question-and-answer session during a conference call with analysts, Sempra executives indicated they are still pursuing three options for the trading unit, and one might be selected in two or three years after current major liquefied natural gas (LNG) receiving terminal and storage/pipeline projects are in full commercial operation.

"Actually, when you look at our first quarter results for commodities on a mark-to-market basis, this is one of the top performing quarters ever," said Felsinger.

In terms of Sempra trying to maximize what the financial analysts call its "excess balance sheet capacity" now taken up by the collateral and other financial-backing requirements of energy trading, Felsinger reiterated that one of the three options in play for trading is what he called "the status quo," continuing to keep the business performing well with healthy returns, along with looking at establishing a stand-alone credit rating for Sempra Commodities or finding a suitable partner.

"We're still going down the path of looking at all three options," Felsinger said. CFO Mark Snell confirmed that the company is "active in the market" in talking to potential partners and looking at alternative capital structures for the business. "We don't have anything to announce right now, however," he said.

In response to other questions, Snell and Sempra President Neal Schmale indicated that Sempra is continuing to grow its gas and electric trading in Europe, and the metals part of the unit is strong in all global sectors, but most of it is in Europe.

"We're expecting to make a little less this year than last year on commodities," said Snell, noting the company made almost a half-billion dollars in trading for 2006, and he expects profits in the range of $400 million to $500 million for all of 2007. "And what we expect to throw off in cash flows from that unit is about the same as the earnings in the commodities unit. If it earns $400 million or $350 million, we would expect to throw off that much or a little bit more in cash."

In other areas, Sempra's two utilities -- San Diego Gas and Electric Co. and Southern California Gas Co. -- collectively reported a 22% increase in first quarter net income, with $117 million for the first quarter this year compared to $96 million in the same period last year. SDG&E earned $62 million this quarter, compared with $47 million in 2006, and SoCalGas earned $55 million, compared to $49 million in 1Q2006.

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