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New Sempra Boss Has a Vision

New Sempra Boss Has a Vision

In the midst of bullish earnings projections for the second quarter in early July, San Diego-based Sempra Energy's new boss, CEO Steve Baum, has been busy outlining his vision for employees and the financial community. In a nutshell, it calls for emphasis on growing a nationwide energy retail operation, de-emphasizing regulated utility operations and accelerating the change to competitive energy markets nationwide. It also may include unloading start-up LDCs.

Baum, who in September becomes Sempra's chairman and CEO when Dick Farman retires, told employees in a prepared question-and-answer published in late June that developing growth from more competitive nonutility ventures to enhance shareholder value is his principal strategic focus. He likes the cash flow and steady 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 "premier energy-delivery companies," or the so-called "pipes and wires" businesses that state-regulated distribution utilities are destined to be in the restructured energy world.

The higher growth, Baum told Sempra employees, will come from: (a) building "robust retail businesses," (b) expanding utility businesses in faster growing foreign markets (Sempra is heavily involved in northern Mexico and (c) expanding energy trading). It was principally because of sizable recent profits in trading that Sempra on Monday released a pre-second quarter earnings announcement that it expects the quarterly and annual earnings to exceed current consensus estimates. It will report second quarter earnings July 27.

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

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

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

Unlike some of the nation's other large energy firms, Sempra will only selectively get into new merchant power generation projects where it can bolster trading and energy services businesses.

He categorically said Sempra would not go after any large acquisitions, citing last year's aborted KN Energy (now Kinder Morgan) deal that went sour. He also said Sempra is abandoning earlier plans to develop new domestic local distribution utilities in North America, except for Nova Scotia where it is already committed. He also hinted that the company might be selling some of its businesses, such as existing and local LDCs it has created in North Carolina and Maine.

Richard Nemec

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