San Diego, CA-based Sempra Energy last week reported unaudited 2001 earnings of $518 million, or $2.52/diluted share, compared to $429 million, or $2.06/diluted share in 2000, a 22% increase, including a bigger share from its nonutility companies. Revenues were $8 billion for the full year in 2001, compared with $7 billion the previous year — a 14% rise.

Despite what he described as the possibility of “difficult market conditions” persisting this year, Sempra CEO Stephen Baum stuck with his earlier earnings estimate of $2.65/share for 2002, and he confirmed that the company has moved up its goal of getting half of its earnings from nonutility businesses by 2004, after profits in that sector shot higher, faster last year, accounting for 36% of the overall 2001 earnings.

“We are committed to maintaining solid investment-grade credit ratings,” Baum said. “Sempra Energy’s financial strength and liquidity have helped attract more business and provide assurance to our customers and partners.”

In response to questions on a conference call with analysts, Baum was asked about Sempra’s previously stated interest in buying some of Enron’s assets. He said the company was still interested, but would give no specifics on current discussions, adding that there are three basic areas in which it has interest: (a) pipelines; (b) trading; and (c) contracts.

The company has two possible trouble areas — in energy trading related to now-bankrupt Enron Corp. and in international businesses in financially troubled Argentina — but in both cases 2001 earnings were not impacted, Baum said.

In trading, Sempra profits were up 26% to $196 million for 2001, compared with $155 million in 2000. But for the fourth quarter, trading net income slipped to $10 million, compared with $52 million for the same period the previous year. The company said that fourth-quarter earnings were impacted by lower prices and reduced volatility in energy markets, along with “a depressed economy and after-tax allowance of approximately $5 million for amounts due from Enron.”

Sempra recorded a $155 million, non-cash reduction to shareholder’s equity in the fourth quarter 2001 to reflect the devaluation of the Argentine peso relative to the U.S. dollar, but said the recent political and economic instability in Argentina had no impact on earnings from its two Argentine distribution utility operations, in which it holds 43% interests. Overall, international operations earnings for the year were down from $33 million in 2000 to $25 million in 2001, however, the company said they would have been $50 million without a $25 million after-tax charge taken related to the company’s surrender of its natural gas distribution franchise in Nova Scotia in the third quarter last year.

The only nonutility earnings that were negative came in the energy resources sector, where the wholesale power generation subsidiary, Sempra Energy Resources, showed a net loss of $27 million in 2001, compared with net income of $29 million the previous year. The loss was due to a contract the company has with the California Department of Water Resources (DWR) to sell discounted power in the first years of a multi-year deal, and that negatively affected the 2001 earnings, Baum said.

Surpassing the Tcf milestone again, Southern California Gas Co. racked up all-time records for sendout, receipts and storage in 2001, establishing new standards for its 135-year history. And this year, its officials estimate it will take most of the 12 months to fully implement the state-approved settlement for future unbundling of its in-state transmission and underground storage operations, making them closer to what happens on the Pacific Gas and Electric Co. natural gas system in the northern half of the state.

“Clearly, our system operations numbers in 2001 are the best we’ve ever had,” Lee Stewart, senior vice president for gas transmission in Sempra’s California utilities, said in a report to employees earlier this month.

SoCalGas’s 2001 sendout was 1.171 Tcf (trillion cubic feet), topping the prior record (1.141 Tcf) set in 2000; total gas receipts were 1.199 Tcf, topping the previous record (1.114 Tcf) set the year before; and deliveries to electric generating plants reached an estimated 564 Bcf level, 45 Bcf above the previous record set in 2000.

Based on price and supply crunches in the latter half of 2000, SoCal said its urged its largest customers to store as much gas as they could in 2001, and as a result the first half of last year, customers used “more than 99% of all the firm interstate capacity that brings gas into the SoCalGas system,” according to utility officials, who called it a “level of receipts unheard of” in the company’s long operating history.

This year the nation’s largest gas distribution utility is implementing a major interim settlement approved by the California Public Utilities Commission, allowing all of its largest (non-core) customers to buy firm, tradable rights at any of the utility’s receipt points. SoCal officials told their employees that the new rights are “more reliable than a system regulated by the Federal Energy Regulatory Commission,” giving the CPUC clear control.

The other parts of the unbundling include: (1) adding new options for customers including imbalance trading, a self-balancing or a daily balancing option and “pooling,” allowing marketers to nominate supplies into a pool rather than on behalf of a specific customer; and (2) adding storage options, including tradable rights.

“The [new approach] puts the CPUC in a far better position to address market conditions like the high gas prices we saw last winter at the California-Arizona border,” said Rick Morrow, vice president for customer service with major markets, in a report to SoCalGas employees. CPUC rules and regulations, Morrow said, rather that FERC, set transportation priorities at the border, and regulate the terms and conditions under which the rights can be sold and used.

“It offers the chance for lower overall natural gas costs and greater market certainty,” SoCal officials said.

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