Sempra Energy’s merchant unit pushed the San Diego-based utility’s earnings up 14% last year, with particularly strong trading gains in natural gas, metals and oil. Sempra, which used a strong balance sheet and creditworthy status to its advantage, reported 2002 earnings of $591 million ($2.87 per diluted share), compared with $518 million ($2.52) for 2001.

Sempra Energy Trading reported fourth quarter net income of $53 million, up from $10 million in 4Q01. Sempra said there was a huge increase in trading activity toward the final half of the year, especially for natural gas, despite volatile market conditions. The results for the quarter also included a $14 million gain (8 cents a share for the year) after it acquired a metals trading business last year.

“We finished 2002 with a healthy balance sheet, liquidity and cash flow to meet our planned operating needs,” said CEO Stephen L. Baum. “We have maintained solid, investment- grade credit ratings and access to capital markets, which enable us to grow our businesses and to take advantage of opportunities in the marketplace.” Baum noted that Sempra was “one of the few credit-worthy players in the industry with demonstrated capability in both physical and financial trading. Customers have recognized this. We are building market share and extending our reach globally.”

Baum said the company is confident that growth will continue this year. Sempra Energy is forecasting a 2003 earnings range of between $2.60 to $2.80. The company also announced a capital budget of $1.3 billion this year.

For the fourth quarter 2002, Sempra reported overall earnings of $148 million (72 cents), compared with $107 million (52 cents) for 4Q01. Excluding gains from the trading business, 4Q02 earnings increased about 25% from 4Q01. Corporate wide, 2002 revenues dropped more than $1 billion from a year earlier, to $6 billion from $7.7 billion in 2001, because of lower commodity prices reflected in subsidiary Sempra Energy Utilities. However, for the fourth quarter, revenues rose to $1.7 billion from $1.3 billion in the same period in 2001, as commodity prices rose and the company improved its wholesale trading sales.

Sempra Energy Utilities earned $415 million in 2002, up from $384 million in 2001. Both Southern California Gas Co. (SoCalGas) and San Diego Gas & Electric (SDG&E) finished the year with strong financial positions and exceeded their authorized returns on equity. Net income for SoCalGas last year increased to $212 million from $207 million in 2001 on lower interest expense. For the fourth quarter 2002, SoCalGas recorded net income of $45 million, compared with $51 million in the same time period in 2001.

Net income for SDG&E for 2002 increased to $203 million, compared with $177 million in 2001. Results in 2002 benefited from a $25 million tax benefit in the second quarter, coming from the resolution of a prior-year tax issue. For the fourth quarter, SDG&E reported net income of $53 million, versus $45 million for the same time period in 2001.

SDG&E’s regulatory balancing account linked to California state law AB 265 was reduced to $215 million as of Dec. 31, 2002. The account, which peaked at $750 million in 2001, represents uncollected wholesale power costs from California’s 2000-2001 energy crisis that SDG&E said it is entitled to recover from customers. The company projects that the entire under-collection will be repaid by 2005.

Sempra Energy Resources, the wholesale power generation subsidiary of Sempra Energy, reported net income of $60 million in 2002, compared with a loss of $27 million in 2001. For the fourth quarter 2002, Sempra Energy Resources reported break-even earnings, compared with a net loss of $13 million for 4Q01. Sales of power under the 10-year supply contract with the California Department of Water Resources (DWR) comprised most of ’02’s earnings.

In 2001, the company incurred a loss under the contract from selling power to the DWR at a discount to market prices. However, through 2005, about 85 percent of the peak-generating capability from Sempra Energy Resources’ facilities is sold forward.

Sempra Energy International, which develops and operates utilities in international markets, reported net income of $26 million in 2002, compared with $25 million in 2001. For the fourth quarter, the international unit posted a $4 million loss, compared with $14 million in earnings in 4Q01, mostly because of higher income taxes associated with foreign operations.

Sempra Energy Solutions, which offers an integrated mix of energy outsourcing and commodity services to large commercial, industrial and institutional customers, recorded net income of $21 million in 2002, up dramatically from net income of $1 million in 2001. Earnings were positively impacted by increased electric commodity sales nationwide. In the fourth quarter, Sempra Energy Solutions earned $10 million, versus earnings of $5 million in the same time period in 2001.

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