Stepped-up regulation at the Commodity Futures Trading Commission (CFTC) wouldn’t adversely affect Sempra Energy’s joint energy trading venture, company executives said Friday. “It’s probably going to be fine for us,” CFO Mark Snell said during a quarterly earnings conference call.

Sempra’s 2Q2009 earnings results were down quarter/quarter, but the executive team remains bullish about the company’s full-year prospects. A $64 million one-time write-off for part of Sempra’s Liberty Gas Storage project in Louisiana was the main reason cited for the overall earnings decline. Net profit was ($198 million (80 cents/share) in 2Q2009, versus $244 million (98 cents) in the year-ago period.

“Regarding the CFTC, I think the objective of Congress is to try to regulate and put a stop to a lot of speculative trading going on,” said CEO Don Felsinger. “We do a lot of physical delivery of commodities, plus trading activity for customers that need to hedge their supplies or purchases. I sense something is going to happen, but the impact on our business is not going to be as impacted as it could be on people who are just out there simply doing screen trading.”

Snell said he watched the CFTC debate last week closely (see related story). At this point, he thinks there is little agreement on what to do and how future regulation should be shaped. Two things may happen as a result of the current activity, said Snell: there will be increased capital requirements for counterparties, and a push to put most of the derivatives activity — commodities as well as other financial derivatives — on exchanges, creating margin requirements.

Sempra’s trading activities are conducted through RBS Sempra Commodities, a joint venture between Sempra and the Royal Bank of Scotland.

“The push from the commodity traders, such as us, is that there is a recognition that these markets were effectively established for end-users — producers, power plants and those kinds of companies who use these markets to hedge their outputs or their raw materials,” said Snell. “From that perspective, I think those businesses will get some kind of exemption from the margining requirements so they can continue to do that. And that is really what is core to our business.”

The regulatory ideas being tossed around would benefit joint ventures like RBS Sempra, the CFO said. The level of capital that a global commercial bank has is an advantage, he said.

<>”For dealing with customers, our ability to extend credit to those types of end-users will be critical to keeping the market functioning,” Snell said. “All in all, we pretty much support the activity around more transparency and the elimination of systemic risk. We’re just trying to protect our customers in the legislative battle that is going on.”

Up to this point commercial traders of natural gas haven’t commented publicly about the great debate over speculative commodities activity, but not one has come to the defense of speculators, and there have been some background rumblings about the natural gas sandbox getting too crowded.

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