With energy trading an established profit center and its South American utility assets on the sales block, Sempra Energy banks its immediate future on its two large California utilities and its looming liquefied natural gas (LNG)/storage business, Sempra’s CEO Steve Baum told analysts Wednesday. Baum indicated Sempra is poised to grow no matter what happens in California’s still undecided energy market debate.

In answering questions from the Wall Street audience attending the Lehman Brothers energy/power conference in New York City , Baum indicated he thinks California Gov. Arnold Schwarzenegger will veto the legislature’s recently passed law returning power utilities to more close state regulatory oversight (AB 2006), but if the governor signs it, Sempra’s utilities could count on even more rate base on which to earn double-digit authorized profit levels. Regardless, he sees the opportunity for both the utility and merchant power sectors to build new plants in California starting in the 2006-2008 period.

“We have a foot in each camps,” Baum said. “AB 2006, if it were not to be vetoed, provides a greater opportunity for rate-based generation in the utilities, which is not a bad thing. However, I think it would be less conducive to competitive markets in California, which we endorse.

“There is also the question of what will occur in the 2010-2011 period when the (California Department of Water Resources) DWR contracts are completed. California’s utilities – under the current structure – will have to fill up their resource plans, and they’ll have to start doing that in about 2006 or 2007, given the lead time for building. So, should we be in that mode, it provides an opportunity for our existing facilities that serve California markets to be bid into, or bought by, utility companies.”

Sempra increasingly has gotten into the merchant energy plant business, with pre-sold contracts for up to 80% of the plants’ future 5,000 MW output. Coal plants in Texas and a second power plant in southern Nevada near Las Vegas are two of the most likely new plants that Sempra’s merchant unit will pursue, said Baum, with the latter selling into Nevada and Arizona markets, as well as into California.

Generally, LNG developments promise to be a big stimulus to the expansion of rate base for Sempra’s two California utilities — San Diego Gas and Electric and Southern California Gas — which last week received approval from the California Public Utilities Commission for joint receipt points for receiving LNG supplies from North Baja in Mexico or from coastal receipt points in the state.

“The CPUC has accepted our natural gas framework,” said Baum, noting that the utility holding company is expecting more than $200 million in pipeline infrastructure upgrades prompted by the proposed LNG projects and another $600 million in added rate base from a new power plant in North San Diego County that is being built by a nonutility affiliate to be turned over to SDG&E in 2006.

In Texas, Sempra currently is looking at expanding its acquired lignite-fired power plant, perhaps with coal from Colorado or Wyoming’s Powder River Basin. “We’re quite interested in the coal opportunity in the Texas (electricity) market sold against the relatively high-priced gas-fired generation in that state. That goes along with our recent purchase (on a joint venture basis) of the coal-fired plant in south Texas (Coleto Creek),” Baum said.

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