Attempting to distance itself from other California utility companies, executives with San Diego-based Sempra Energy, which owns the state’s third largest utility, instead zeroed in Thursday on its 8-10% expected growth, and explained to analysts how they hope to derive more than half of the company’s total income from business units outside the state — with a special focus on Northern Mexico — by 2004. Included in its plans for Mexico is a $500 million LNG terminal it expects to build with CMS Energy in Baja California.

In his strategic outlook, CEO Stephen L. Baum reaffirmed Sempra’s earnings per share (EPS) guidance of $2.50 for 2001 and $2.65 for 2002. Baum also announced that between now and 2006, the company expects to achieve an 8-10% average annual growth in EPS. To do this, Sempra plans to invest almost $5 billion in newer growth businesses that will be grouped under the umbrella of Sempra Energy Global Enterprises, which will focus its efforts in North America, including Northern Mexico, and the “southern cone” of South America, including Chile, Peru and Argentina.

Noting the “terrible” events of Sept. 11, Baum said that for Sempra, “there were no adverse impacts other than the ones you see generally in this economy impacting the markets,” which he expects to “right itself in our strategic plan.” Baum said Sempra’s “disciplined approach to management of assets” would allow the company to increase its goal for its nonregulated earnings contribution to 50% from 33% by 2004. He also said he is dedicated to “unbundling” Sempra’s diversified businesses to unlock what he considers a too-low value of the company’s stock.

“I’ve told you that I’m unhappy with our stock price, which I am,” he said, and blamed some of the problem on the “dissynergy” between California and the energy business, which he believes is on its way toward a positive end. “Sempra enjoys a high degree of liquidity and we are financially sound….We are a stable, financially able company and are poised to split these businesses out” when it can be done. By eventually separating the business units, Baum said he would dedicate himself to “unlocking any values that I can given the financial circumstances.”

To clarify Baum’s push toward creating more value, CFO Neal E. Schmale reported that Sempra has accomplished its goal of balancing its portfolio of businesses “ahead of plan,” and said the company now has the capital available to grow in new directions in the next five years..

Even though its generation unit was in the red this year, “we expect generation to be back in the black in 2002,” said Schmale. Included in the negative 2001 numbers was the startup of its retail business, which consumed $5 million. “We expect to break even in 2002 and grow to the $80 million range by 2006.”

Other units also are on a growth path, said Schmale, who noted that the “picture we are painting is of improving earnings. What you are seeing today is a markedly different picture than what we showed the people a few years ago. I quite frankly couldn’t be more pleased.”

Within its capital expenditure program, Schmale said that between now and 2006, Sempra will invest $700-$750 million in California utility businesses; $500-$700 million in new generation; and its “other nonregulated” businesses will receive $300-$150 million, making total expenditures about $1.6 billion.

“We have a commitment to reliability in California,”Schmale said, however, he noted that new generation projects “constitute the bulk of the capital,” with much of it being spent outside the state.

With an EPS projected to be $4 by 2006, Sempra’s California utilities are expected to earn $375 million in 2001; $350 million in 2002; and $330 million in 2006. The trading unit’s earnings are projected to fall between $200-$230 million this year; $150-$200 million in 2002; and $200-$250 million by 2006. Total earnings are estimated to be $515 million in 2001; $550 million in 2002 and $880 million in 2006.

Baum said Sempra will focus most of its growth in the Southwest, including what he said were the many opportunities in Northern Mexico. Donald E. Felsinger, group president of Sempra whose focus is on international activity, expanded on those comments, and said Sempra is only going after business in Mexico and South America between now and 2006.

“Sempra is in a unique position in Northern Mexico,” said Felsinger. Noting that the region had no natural gas infrastructure before the implementation of the North American Free Trade Agreement, Felsinger said “all of our development activity is targeted on Northern Mexico” now.

CMS Energy Corp. and Sempra announced Friday that they are teaming up to build the first liquefied natural gas (LNG) terminal in Mexico to bring much-needed natural gas supplies into the northern part of that country and southern California.

The 50-50 joint venture already has “secured” a 300-acre-plus site for the LNG terminal about 60 miles south of the U.S.-Mexico border in Mexico and about 12 miles north of Ensenada in Baja California, according to CMS spokesman Kelly Farr. The $400-$500 million LNG complex would have a sendout capacity of 1 Bcf/d, and would include docking facilities, storage tanks and regasification facilities. CMS, which would operate the LNG terminal, and Sempra estimate that it will be in commercial operation by late 2005.

The regasified gas would flow north into Baja and the southwestern U.S. via a new proposed pipeline that would connect the terminal to existing interstate pipelines in the region, said CMS spokesman Kelly Farr. The companies plan to file an application with Mexican regulatory officials later this year, Farr said. CMS already operates the largest LNG terminal in the United States in Lake Charles, LA.

“This new LNG terminal will provide customers in the Baja California/Southern California region with an alternative, long-term source of natural gas and give them greater choice and flexibility,” said Felsinger. “This regional market has been an ‘end-of-the-pipe victim.’ which means customers here often have paid higher costs for natural gas than other areas. This project will put the region at the ‘front’ of the pipe, creating more competition in natural gas supplies.”

Addressing concerns about the security of Sempra’s facilities, Baum said the terrorist attacks had “caused us to renew our concern on our safety and also on our contingency plan. We have gone through a series of exercises that have reviewed our facilities and are taking certain steps to strengthen some of the securities of our companies.” But he said that overall, the company had not found any problems that warranted concern.

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