While condemning the wholesale gas and power volatility thissummer and profit-hungry generator/marketers, San Diego-basedSempra Energy CEO Steve Baum painted a bright picture last Thursdayfor his company and utility consumers, noting that San Diego Gasand Electric customers are now paying on average less for theirelectricity than they did a year ago.

Speaking to financial analysts in reporting Sempra’s thirdquarter earnings, Baum said he thinks generation and energy tradingwill continue to boom in the next few years because throughout theWest supply shortages will continue to bump up against acceleratingdemand.

He said this same supply/demand imbalance was part of theproblem this summer, but market flaws were the major culpritresulting in skyrocketing wholesale power prices, doubling andtripling of SDG&E retail utility customer bills and ultimatelya “public outcry and political pressure” that resulted in a newstate law capping SDG&E retail rates at 6.5 cents/kwretroactive to June 1, 2000 and assuring Sempra’s utility that itcan eventually collect its under-collections of the wholesalecharges.

With two major refunds earlier in the summer andlegislatively-mandated retail price caps, San Diego customers arenow better off than they were before the whole summer debacleunfolded.

“Ironically, customers in the worst summer of California(energy) pricing have lower overall costs than the did in 1999 whenthere was no spike in the prices,” said Baum, noting that someSDG&E customers are getting zero-balance electricity bills thismonth.

Despite the upbeat notes, Baum acknowledged that Sempra and thetwo other major California energy holding companies have depressedstock prices that he lays in the lap of “California’s regulatorysituation.” In response to questions, he said that the company isconsidering its future options in terms of spinning off the growingnonutility business with an IPO.

“We take a disciplined approach to our planning and look at allthe options we can employ to realize shareholder value,” Baum said.”And part of our planning and consideration does include corporatestructural questions. Other than that, I have nothing further tosay on that subject.”

Baum pointed to a need to move power purchases away from thewholesale spot market into more forward contracting. He saidgenerators and utilities alike will be doing more longer-termdeals.

The Sempra CEO also said he thinks California regulators shoulddo for power buying what they have already done on the natural gasbuying side, namely, provide incentive ratemaking schemes.

“We think incentive-based mechanisms are far more effective thanhindsight reviews that tend to be paralytic in some respects,” saidBaum, noting that the California Public Utilities Commissionearlier rejected a SDG&E proposal for incentive electricitybuying mechanisms and that the new state law assuring SDG&E’sright to recover its wholesale cost under-collections requireshindsight review by the CPUC.

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