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Sempra to Satisfy California Pipeline Probe, CEO Says

While reporting robust earnings growth quarter over quarter, San Diego-based Sempra Energy's senior officials predicted Monday that the holding company's two major California utilities will satisfy an ongoing state probe on pressure testing natural gas transmission pipelines without any adverse impact on earnings.

Sempra reported 1Q2011 profits of $258 million ($1.07/diluted share) compared with $106 million (42 cents) in 1Q2010. The 2010 results included an after-tax charge of $96 million, or 38 cents/diluted share, related to a litigation settlement.

In response to the California Public Utilities Commission's (CPUC) investigation of the state's gas transmission pipelines following the rupture last September of a line in San Bruno, CA, Sempra's two utilities have been "actively participating" in the ongoing review process to make sure pressure tests support the ongoing operating pressures being used on the various pipelines, particularly segments in heavily populated areas, according to Sempra CEO Don Felsinger.

Felsinger said the CPUC-mandated review of operating pressures and records by Southern California Gas Co. (SoCalGas) and San Diego Gas and Electric Co. (SDG&E) has "renewed our confidence that the maximum pressures on our system have been appropriately set and that we are operating our system safely." Felsinger's remarks ran counter to recent communications between the CPUC safety staff and Sempra's utilities which indicated there may be sections of the pipeline system that still need hydrostatic testing (see Daily GPI, May 9).

Noting that SoCalGas and SDG&E collectively operate about 4,000 miles of intrastate gas transmission pipelines, Felsinger said the utilities' records review has covered about 1,600 miles of pipelines in high consequence areas. About 500 miles of those pipelines were installed after 1970, and thus require pressure testing.

"Our records give us a very high degree of confidence that all of the pipeline has been pressure tested and is operating safely, " Felsinger said. Of the remaining 1,100 miles of pipe installed prior to 1970, Sempra has uncovered records that indicate that more than 700 miles of pipe was pressure tested, he said. The other 400 miles had operating pressures determined by using "alternate procedures" allowed under state and federal regulations.

What Felsinger called "extensive construction and/or operating records" uncovered by the utilities have supported the maximum operating pressure for all of those pipelines. In addition, the utilities are "adding a further margin of safety" by reducing operating pressure in some pipeline segments, conducting pipeline strength tests and replacing certain segments.

"The cost we have incurred so far is less than $2 million and we don't expect our utility earnings to be impacted by these efforts," according to Felsinger, who said it is unclear what new pipeline requirements the CPUC will establish, but he expects the utilities to be able to recover in rates whatever added costs would be created.

SoCalGas CEO Mike Allman said the utilities have completed "a substantial review of our records and we're in pretty good shape so far. I am pretty happy with where we are." Allman said the utilities' expenses have been "relatively low so far," but earlier in the month they asked to establish a special account to track those expenses.

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