Despite a relatively strong balance sheet compared to the energy sector’s many fallen giants, San Diego-based Sempra Energy still faced mixed reviews from credit rating agencies last week, and its prospects for re-negotiating its $6.6 billion 10-year power supply deal with California’s Department of Water Resources were uncertain despite the ongoing federal regulatory proceedings on the DWR contracts as a whole.

Although a local business journal reported last Monday that the Federal Energy Regulatory Commission’s chief administrative law judge, Curtis Wagner, thinks Sempra Energy Resources and DWR eventually will re-do the deal, a San Diego-based spokesperson for the company Friday said there was no indication of any imminent announcements coming out of the confidential talks. And at the end of last month, Sempra CEO Steve Baum told analysts at an energy industry forum on Wall Street that the current plans of the DWR to turn its contract over to Southern California Edison Co. prevents Sempra from re-doing its deal, given Edison’s below investment-grade credit ratings.

Earlier in the week, Sempra indicated that the holding company was not surprised by a downgrade from Moody’s Investors Service for it and one of its two major utilities, San Diego Gas and Electric Co. Sempra pointed out that Moody’s maintained the “stable” outlook and an investment-grade level rating, and the company attributed the action to the general energy sector’s troubles, rather than weaknesses in its businesses or strategies.

The energy holding company, which has active trading, commercial energy service and international operations, in addition to SDG&E and Southern California Gas Co., doesn’t expect the other rating agencies to follow suit, according to a San Diego-based corporate spokesperson.

“All three rating agencies have given Sempra a stable outlook, and we continue to maintain strong liquidity with cash and committed credit lines in excess of $2 billion,” the spokesperson said. “We can’t predict what the rating agencies will do, but we are maintaining an ongoing dialogue with them.” Sempra recently had another meeting with Moody’s.

In contrast, Sempra’s SoCalGas utility unit based in Los Angeles was given an A+ rating by Standard & Poor’s last Wednesday for a $250 million bond refunding offering. The utility’s bonds are rated the same as S&P rates Sempra’s corporate credit.

Proceeds will be used to refund about a third of the $685 million in debt now carried by the nation’s largest natural gas distribution utility. Some of the money also will be used for working capital requirements, including what S&P called “building gas storage” in anticipation of the upcoming winter heating season.

For the corporation, Moody’s said its latest action “reflects the continuing shift in the company’s business mix, which includes a greater reliance on non-regulated cash flows, including cash flows from its trading and marketing, international and wholesale power businesses.” The rating agency noted that it considers the cash flows from the non-utility operations–particularly trading–to be “significantly more volatile than the cash flow historically generated from regulated businesses” at SoCalGas and SDG&E.

However, for SDG&E, the rating change reflects “the still challenging and less predictable regulatory environment that exists for the electric business within the state of California.” It noted that SDG&E’s uncollected past power costs continue to decline (now about $318 million) and state legislation gives them greater assurance of collecting all of their wholesale power costs going forward, what Moody’s called “a number of unresolved state and federal regulatory and marketplace issues remain for all electric participants” in the state. Thus, it thinks financial results will be more consistent with its new lowered rating.

On the plus side, Moody’s noted that SDG&E is scheduled to resume its “net short” wholesale power buying from the state beginning next year, and that should be “manageable” for the utility, given it represents about 5% of its total power needs. “SDG&E’s liquidity appears to be strong, with no short-term debt and sizeable cash balances at the utility,” Moody’s said in its announcement.

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