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Unregulated Side Key To Sempra's Growth

Unregulated Side Key To Sempra's Growth

Sempra Energy shared its vision of the future with industry analysts last week and said the key to earnings growth lies with unregulated businesses. The company's goal of growing earnings per share by 8 to 10% on a compound annual average basis over the next four years means it will be looking less and less like a utility.

One key to better performance is Sempra Energy Solutions, which provides energy and related services to commercial and industrial customers. Spokesman Doug Kline said Sempra has targeted 11 states in four regions - the Northeast, Gulf Coast, upper Midwest and the West - where there is a potential market of $80 billion in energy and related services. "No one has a dominant share of the market. In fact, Enron, which probably has the largest share, has about one percent."

Sempra will target the commercial and industrial market through a bundled approach, selling "solutions" rather than just the energy commodity. "In some cases we'll include the commodity. In other cases we may not." Kline said the company has picked a set of industries it will target but would not disclose what they are. Sempra's goal is to grow revenues in the Solutions business from about $200 million today to about $2 billion by the end of 2003.

Through its joint venture with Canada's Direct Energy Marketing, Energy America, Sempra has 400,000 gas/electric customers at the retail level across six states. Because snaring residential can be tough, Energy America uses a door-to-door marketing approach. Because sales agents are all commissioned, Kline said the business model has very low overhead. Currently in Ohio, Michigan, Pennsylvania, New Jersey, Maryland and Georgia, Energy America plans to enter six new electric markets a year and four new gas markets.

Further, Sempra plans to beef up its generation portfolio to support Sempra Energy Solutions' business and create leverage with its trading operation. "Commercial and industrial customers demand some access to generation. They want their energy service providers to have some hard assets in generation to guarantee reliability." The input and output of Sempra's generators will be managed by the trading business. Plans call for building or buying 5,000 to 10,000 MW of new generation by the end of the decade.

Finally, Kline said Sempra will be entering the telecommunications arena but has nothing to announce on that front yet.

PaineWebber said in a research note the for Sempra to achieve its 8 to 10% growth rate, net income from unregulated operations will need to grow to more than $200 million in 2003. "Specifically, the company expects to achieve approximately $33 million in net income from its Financial unit, $47 million from its Trading unit, $50 million from its International unit, $15 million from its Generation unit, $50 million from its retail unit and $23 million from its Technology unit in 2003."

While crediting the company for unregulated business growth in 1999, particularly in the trading, international and financial business units, PaineWebber said " ...these businesses are still in their very early stages of development and continue to hold a considerable amount of uncertainty." PaineWebber said it will "wait and see" whether Sempra will be able to achieve its growth targets."

Joe Fisher, Houston

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