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California

Energy Trading Lifts Sempra Profit 58%

Utilities: First-quarter gain is linked to increased volatility in commodity markets, higher volumes.

April 27, 2001|From Reuters

Sempra Energy, parent of Southern California Gas Co. and San Diego Gas & Electric Co., said Thursday that first-quarter net income rose 58%, boosted by increased profit from energy trading.

The San Diego-based company also increased its earnings guidance for 2001 to about $2.50 a share from $2.20 to reflect expected "continued robust results from Sempra Energy Trading."

The company said it earned $178 million, or 88 cents a share, in its first quarter compared with $113 million, or 49 cents a share in the year-ago period.

Sempra's earnings included a one-time gain of 10 cents a share from the sale of the company's stake in Energy America Inc., a retail energy marketing firm.

Analysts expected Sempra to earn 50 cents to 65 cents a share, with a consensus estimate of 59 cents, according to market research firm First Call/Thomson Financial.

Sempra shares rose 74 cents to close at $27.15 on New York Stock Exchange.

The company said earnings from SDG&E and the Gas Co. essentially were unchanged.

"The 58% growth in corporate earnings was driven by newer subsidiaries that are broadening Sempra Energy's earnings base and extending its global reach," the company said.

Sempra Energy Trading contributed $86 million to Sempra Energy's net income, an increase of $68 million over the same period a year ago, driven by increased volatility in energy commodity markets worldwide and higher trading volumes.

Chief Executive Stephen Baum said in a conference call with analysts that he was "very frustrated" at the performance of the company's stock, which he said did not fully reflect the value of Sempra Energy Trading or another unit, Sempra Energy Resources, which is building a group of power plants.

"I am dedicated to finding a way of realizing the value that exists in the resources and trading businesses," Baum said. "The time frame is the end of the year or the beginning of next to see something happen."

Baum said the company was talking to its advisors about options. "There are a variety of options we are considering, which would include an IPO and [spinoff]," he said.

The company remains in negotiations with California for the sale of SDG&E's electric transmission assets, he said.

Baum said the state was offering about $1 billion, plus the assumption of about $200 million of debt for the assets that have a book value of $433 million, so a sale would generate a pretax gain of about $800 million.

Earnings from the assets are about $20 million a year.

The company said its earnings outlook does not reflect the effects of a potential sale of the transmission assets.

SDG&E has been affected by soaring wholesale power prices, which state legislation prevents the company from fully passing on to its customers.

Baum said the utility's "undercollection" totaled $747 million at the end of the first quarter.

The pace of growth in that total has, however, been slowed significantly by an agreement with the California Department of Water Resources, under which the state agency has taken responsibility for buying for its full net short position through 2002.

The full net short position is the difference between the amount of electricity consumed by the utility's customers and the amount produced by the utility's power plants. SDG&E had been buying that power on the wholesale market at sky-high prices.

Baum estimated that the undercollected balance would grow at about $15 million a month, partly because of interest accruing on the current balance.

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