A day after it filed for a 35% rate increase, noting growinguncollected power costs, (see Daily GPI, Jan. 25) Sempra Energy reported a 20%increase in earnings in 2000 over 1999. Earnings for the parent of SanDiego Gas & Electric and Southern California Gas totaled $429million, or $2.06/diluted share, compared to $394 million or $1.66 perdiluted share for 1999. Revenues for 2000 increased 30% hitting $7billion.
Big increases in the profits from its energy trading, merchantpower plant and international businesses fueled the earningsgrowth, Earnings contributions from the unregulated businessesamounted to 18% in 2000, compared to 4% a year earlier.
Utility results were down principally because of a third-quartercharge SDG&E had to take as a contingency against regulatorypenalties it may face regarding electricity wholesale purchaseslast summer. Both utilities, however, are exceeding theirauthorized rates of return, according to Sempra officials. Netincome 2000 for SDG&E decreased to $145 million, compared to$193 million in 1999. SoCal Gas inched up from $200 million in 1999to $206 million last year.
The low regulated utility results were offset by Sempra EnergyTrading’s pole vault from $19 million in net income in 1999 to $155million last year. Power trades in the United States and Europeescalated from 19.8 billion kWh in 1999 to 61.6 billion kWh in2000. Natural gas trading volumes went from 5.8 Bcf/d in 1999 to8.9 Bcf/d in 2000.
Likewise Sempra’s independent generating subsidiary made theleap from $5 million in 1999 to $33 million in 2000 with thestartup of its first power plant, a 480 MW plant near Las Vegas,jointly owned with Reliant Energy.
While revenues from its unregulated retail energy servicesoperations, Sempra Energy Solutions, more than doubled to $596million in 2000, net income showed a larger loss in 2000, $23million compared to $11 million in 1999, “due to ongoing startupcosts.”
The company recorded an increase in net income frominternational operations from $2 million in 1999 to $33 million in2000.
Sempra CEO Stephen L. Baum told analysts in a conference calland webcast that he is “very pleased” with the results, but herecognized with the energy turmoil in the state and the financialshattering experienced by the state’s two other major utilitiespresents a major challenge to meet the goal of hitting earnings of$2.20/share this year.
He said Sempra’s SDG&E utility has a “plan and a path (itsrate filing Wednesday) to assure adequate cash and a solid balancesheet.” However, Baum also noted that the size of SDG&E’spotential under-collections has growth to between $1.3 and $1.45billion (in 2002 and 2003, respectively) from $800 million lastfall.
Baum acknowledged that creditworthiness was a major issue forall participants in the California energy market these days,although Sempra remains in, what he calls, a considerably differentposition from the other two major California utilities.
SoCalGas is in “very good financial and supply positions,” Baumsaid, principally because of a combination of adequate storage andforward contracting. It is not facing the extreme price spikes andsupply shortfalls that Pacific Gas and Electric is fighting in itsnatural gas operations, he said.
In terms of acquisitions or spin-offs, Baum acknowledged thatSempra was looking at both but declined to give any details. He hasconstantly reiterated that the Sempra trading and internationaloperations have a lot of “hidden value” that is not reflected inthe parent company’s stock price, and this prompts financialindustry analysts to speculate about those businesses being spunoff in separate IPOs.
In response to some related questions, Baum made it clear thatSempra’s strategy includes looking closely at the western U.S. forthe opportunities to develop new power plants tied to its tradingorganization that would supply the fuel and sell the generationoutput. The power plant developer, Sempra Resources, has planned orunder construction 4,000 MW of new generating plants in the westernstates.
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