Everything is relative as evidenced by Sempra Energy senior management feeling good about a $740 million settlement of more than $1.36 billion in lawsuits and writing down another $64 million against second quarter earnings to account for part of an underground natural gas storage project that proved uneconomic. All in all, the San Diego-based energy holding company last Friday posted solid, if reduced, results quarter-over-quarter (see Daily GPI, Aug. 3).
Sempra CEO Don Felsinger referred to the actions as “really positive developments” in the second quarter, reaching settlement (about 57 cents on the dollar) with some of the insurance companies for various homeowners who lost homes in the devastating wildfires during the past two years that struck in parts of Sempra’s San Diego Gas and Electric Co. (SDG&E) service area, and convincing a California Superior Court judge to deny class action status for the pending litigation.
“The fact that we were able to settle for a significant piece of the claims [$740 million], we think going forward with the homeowners the $940 million reserve that we have at this time appears to be accurate with the information we have,” Felsinger told financial analysts in response to a question on a conference call last Friday.
“Going forward with the remaining claims of nonhomeowners, governmental entities and firefighters, we aren’t able to determine an exact number [of potential liability], but if you look at the fact that we have additional insurance coverage and a claim against Cox Cable, and at the end of the process if we need additional recovery, we would apply to the California Public Utilities Commission [CPUC] for relief.
“So we feel pretty good about where we are at this time, although it obviously has several more years to play out. We like where we are now, though.”
As part of still ongoing investigations and proceedings at the CPUC, it was reiterated in May that utility power lines appear to have caused at least four of the major wildfires that ravaged Los Angeles and San Diego counties during the past two years. Southern California Edison Co. and SDG&E are on the hot seat about whether violations and fines should be assessed for the past fires, and what should be done to prevent fires in the future.
Separately, Sempra began reporting problems at Liberty Gas Storage in Louisiana late last year with the caveat it might have to write off up to $65 million for the project if it could not find an engineering solution to cavern development problems (see Daily GPI, Nov. 11, 2008). The two-salt dome project is part of broader storage development in conjunction with a 35-mile takeaway transmission pipeline from Sempra’s liquefied natural gas terminal that just started commercial operations at Cameron, LA, along the Gulf of Mexico. Sempra Pipeline & Storage owns 75% of the Liberty project.
The problems, described by Felsinger as “subsystem problems at the northern facility,” prompted Sempra in the second quarter to take a $64 million write-off after determining “this portion of the project will not provide future economic benefits.” But Sempra and its partner are still moving forward on developing an added 17 Bcf of capacity in the southern dome, Felsinger said.
Felsinger noted that Sempra’s earnings guidance given to analysts in March did not include the storage project write-off. He nevertheless reaffirmed that guidance ($4.35-4.50/share). “We feel the increased expectations in other areas of the business should mitigate the impact of the write-off,” he said.
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