Aug. 06–Sempra, the San Diego-based Fortune 500 energy giant, Monday reported a loss for the quarter because of costs related to its planned sale of some natural gas storage and renewable energy assets.
Sempra said it had a net loss of $561 million, or $2.11 a share, in the quarter, after earnings of $259 million, or $1.03 a share, in the year-earlier quarter. Revenue rose to $2.564 billion from $2.533 billion,
The costs were largely related to the planned sale of the company’s U.S. holdings in wind assets, as well as gas storage facilities in the Deep South.
Without those costs, Sempra would have earned $361 million, or $1.35 per share, during the quarter, the company said. That compares to $1.10 in the second quarter of 2017.
“I think it was a decent quarter,” said Andy Smith, a senior analyst who follows utilities for Edward Jones. “I don’t think it was great.”
The quarterly report was the first since a group of activist investors, controlling a 4.9 stake in Sempra, went public with criticism of the company’s management strategy, saying Sempra should streamline its portfolio to improve the bottom line.
The activist investors group, Elliott Management and Bluescape Resources, declined comment on the second quarter numbers.
Sempra CEO Jeff Martin said he and three members of the company’s board of directors met face-to-face with the activist group in New York City. Martin did not offer specifics but said, “the tone of the conversations are good, all the right people are engaged and I remain very optimistic about it.”
Martin opened the earnings call with energy analysts by saying the company’s strategic vision is aimed at becoming “the premier North American energy infrastructure company” and said the company successfully completed a $1.85 billion stock offering to help wrap up the biggest deal in Sempra’s history, the acquisition of Oncor, the largest utility in Texas.
Sempra stock finished the trading day at $115.35, down 1.23 percent.
The earnings call came on the same day the California Legislature came back from summer recess. One of the major issues in Sacramento involves the financial responsibility of utilities in the state in regards to wildfires. Sempra is the parent company of San Diego Gas & Electric and Southern California Gas.
As interpreted by California courts, the legal concept known as “inverse condemnation” finds that utilities can be held liable for damages caused by wildfires linked to their own equipment — even if the companies followed accepted safety procedures.
Supporters of inverse condemnation say it makes sure that power companies act responsibly but utilities say it’s an unfair standard that could lead them to bankruptcy.
Gov. Jerry Brown two weeks ago inserted himself into the debate, calling for an alteration of the doctrine that would balance “the public benefit of the electrical infrastructure” with the damage caused by a wildfire while also determining if “the utility acted reasonably.”
Sempra officials Monday said they are hopeful a legislative fix can be put in place by the time the legislative session wraps up at the end of the month.
“The governor wants healthy utilities,” said Joseph Householder, Sempra’s chief operating officer.
Another priority centers around Sempra’s efforts to become a global player in the growing liquefied natural gas export market.
The company’s Cameron project in Louisiana is expected to begin producing LNG next year while permitting and planning is proceeding apace for projects in Port Arthur, Texas, and Baja, Mexico.
The projected cash distributions after debt service for Cameron to Sempra are expected to be more than $11 billion during the project’s 20-year contract period.
“People have been waiting for several years for the LNG facility to start producing and start shipping,” said Smith. “That’s when (Sempra’s) earnings should increase significantly.”
Last Friday, China included LNG as part of proposed tariffs on $60 billion on U.S. goods in retaliation for the Trump administration’s plan to impose $200 billion in duties on Chinese imports.
Sempra has no LNG contracts with firms in China and Martin downplayed the long-term implications of a budding trade war.
“LNG is an important part of China’s future,” Martin said. “We certainly see that as the key fuel that will help push coal off of their grid and frankly, the United States will always be on of the lowest-cost suppliers and we thinks this bodes well for the future.”
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