In the midst of bullish earnings projections for the secondquarter in early July, San Diego-based Sempra Energy’s new boss,CEO Steve Baum, has been busy outlining his vision for employeesand the financial community. In a nutshell, it calls for emphasison growing a nationwide energy retail operation, de-emphasizingregulated utility operations and accelerating the change tocompetitive energy markets nationwide. It also may includeunloading start-up LDCs.

Baum, who in September becomes Sempra’s chairman and CEO whenDick Farman retires, told employees in a preparedquestion-and-answer published in late June that developing growthfrom more competitive nonutility ventures to enhance shareholdervalue is his principal strategic focus. He likes the cash flow andsteady earnings stream from his two large distribution utilities -Southern California Gas Co. and San Diego Gas and Electric Co. -but ultimately they should narrow their focus to being “premierenergy-delivery companies,” or the so-called “pipes and wires”businesses that state-regulated distribution utilities are destinedto be in the restructured energy world.

The higher growth, Baum told Sempra employees, will come from:(a) building “robust retail businesses,” (b) expanding utilitybusinesses in faster growing foreign markets (Sempra is heavilyinvolved in northern Mexico and (c) expanding energy trading). Itwas principally because of sizable recent profits in trading thatSempra on Monday released a pre-second quarter earningsannouncement that it expects the quarterly and annual earnings toexceed current consensus estimates. It will report second quarterearnings July 27.

In previewing its better-than-expected results, Sempra officialspointed out that it expects earnings to fluctuate more from quarterto quarter as it moves more heavily into the nonutility sector andas the regulated monopolies make up a proportionally smaller partof the overall corporate earnings.

“Sempra Energy continues to expect earnings at its [utilities]that are flat to slightly lower for the year due to industryrestructuring,” the earnings projection announcement stated.

Baum told his employees that “successful utilities” must focuson delivering the energy commodity safely and reliably. “Likewise,they must unbundle the commodity and nonessential services so thatthese can be offered by unregulated energy service providers,including Sempra Energy. These steps are essential to creating openand competitive markets that provide customer choice.”

Unlike some of the nation’s other large energy firms, Semprawill only selectively get into new merchant power generationprojects where it can bolster trading and energy servicesbusinesses.

He categorically said Sempra would not go after any largeacquisitions, citing last year’s aborted KN Energy (now KinderMorgan) deal that went sour. He also said Sempra is abandoningearlier plans to develop new domestic local distribution utilitiesin North America, except for Nova Scotia where it is alreadycommitted. He also hinted that the company might be selling some ofits businesses, such as existing and local LDCs it has created inNorth Carolina and Maine.

Richard Nemec

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