Sempra Earnings Increase Due To Sunrise Powerlink Financing

3/31/2009 - Dow Jones Newswires
By Cassandra Sweet and Tess Stynes,

SAN FRANCISCO (Dow Jones)--Sempra Energy (SRE) sees earnings next year growing 15% from this year's estimate, putting 2010 expectations above Wall Street's, as the parent of San Diego Gas & Electric anticipates much lower capital spending for the next five years.

Sempra projected per-share earnings of $5 to $5.25 for 2010, compared to expectations of $4.91 a share by analysts polled by Thomson Reuters.

The company also anticipates capital spending of $2.4 billion a year over the next five years, compared with $3.14 billion last year. Many other electricity utilities also have announced plans in recent months to cut near-term capital spending to preserve capital.

Much of the spending, and increase in earnings, will be tied to construction of SDG&E's $2 billion Sunrise Powerlink transmission line.

While utility customers will foot the bill for the new line, SDG&E will earn a guaranteed 11.5% rate of return for operating it, under federal regulations. The company could earn $1.5 billion over the life of the project, according to regulatory estimates.

Sempra also expects to collect between $15 million and $25 million over the next five years from California incentives tied to gas storage, managing gas procurement costs and achieving savings from energy efficiency at its utilities. In addition, the company sees its natural gas businesses growing as the lower-carbon fuel gains currency from climate change regulations proposed by Congress and the Obama administration,said Chief Executive Don Felsinger.

"In this environment, low to no-carbon fuels are going to have an advantage," Felsinger said, speaking with analysts in New York.

"There's no question in my mind there's a dramatic change in the movement of natural gas," Felsinger said. "New pipelines and storage will be needed and new transmission investments will also be needed to bring it to market."

In February, Sempra reported 2008 earnings of $4.43 a share, including fourth-quarter net income of $319 million, or $1.30 a share, up 10% from a year earlier. The company has offered 2009 earnings guidance of $4.35 to $4.60 a share.

In addition to its natural gas businesses, Sempra has been moving into various alternative-energy ventures.

SDG&E announced this week it's working with Nissan Motor Co. (NSANY) to figure out the best way to build charging stations for electric vehicles throughout San Diego.

In December, Sempra Generation signed a 20-year power purchase agreement with PG&E Corp. (PCG) for the output from a 10-megawatt Nevada solar plant that the company plans to expand.

Felsinger said the departure announced this week of David A. Messer, who headed the company's commodities joint venture with Royal Bank of Scotland (RBS), was expected since the venture was formed in April 2008.

"David Messer has done a fantastic job of building this franchise," Felsinger said. He added that compensation wasn't a factor in Messer's departure and that the company would offer a competitive salary to Messer's successor. Sempra Chief Financial Officer Mark A. Snell and Jeremy Wright, chief administrative officer of RBS' markets business, will manage the commodities business until Messer is replaced.

Sempra shares were up 3% at $44.23 in recent trading.

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