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Sempra CEO: Emphasis Is on Utility Assets

While not shying away from active trading, independent generation and merchant natural gas pipeline/storage plays, Sempra Energy is charting a course led by its two sizable California utilities, CEO Don Felsinger told financial analysts last week at a company meeting in New York City.

Felsinger told analysts that the current regulatory environment in California is the best in the nation, and he was effusive in his praise of the California Public Utilities Commission (CPUC), which is led by a one-time former top executive at Southern California Edison Co., Michael Peevey.

Sempra's new, increased five-year capital expenditure program calls for spending $12 billion, 75% of which, or $9 billion, will be for its utilities -- San Diego Gas and Electric Co. (SDG&E), Southern California Gas Co. and its recently acquired small Alabama utility that was part of a larger gas storage/pipeline purchase of Energy South.

More than $2 billion of the added capital expenditures are tied to Sunrise Powerlink, a proposed 120-mile, 500-kV transmission line, approved the end of last year in a split (4-1) vote at the CPUC. Felsinger said Sunrise will be Sempra's largest capital project to date, and that is for a company that has major interests in the Rockies Express natural gas pipeline and three separate liquefied natural gas (LNG) receiving terminal projects.

Felsinger said Sempra has raised its estimated average annual growth in earnings for the next five years to slightly more than 7%, and a lot of the projected growth is what Sempra expects to get out of the utilities. He said they are showing "strong growth, and offer a high degree of certainty." The latter, particularly, is valuable in today's chaotic financial world.

"It is all based upon the constructive regulatory compact that California affords us," Felsinger said. "Generally, our plan is grounded on proven results and a focus on execution. We are going to continue to be a partner with the state as we operate in this constructive regulatory environment. And we are going to continue to look at [utility] rate base investment opportunities."

In response to questions about what kind of acquisitions Sempra is considering, Felsinger said it could be combination of utilities, pipelines and generation plants. "Look at the acquisition we made of Energy South," a Mobile, AL-based company, for $510 million in cash, greatly expanding the company's storage infrastructure in the Gulf of Mexico (see Daily GPI, July 29, 2008).

In terms of SDG&E meeting California's renewable portfolio standard (RPS) goals of 20% in 2010 and 33% in 2020, Felsinger said he is confident that his utility -- and the rest of the private-sector ones in the state -- will meet the RPS goals because the state standard allows leeway for the companies "that do all the right things." In Sempra's case, Felsinger said SDG&E has made every reasonable effort to meet the goal and it will have 20% of its power supplies under contract from renewables by next year.

"I'm not concerned about getting to 20% by 2010 or anything around that," he said. "Getting to a higher number in 2020 is going to be a challenge. It will be function of what the state's economy is like and other variables."

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