Sempra takes write-down on 2007 San Diego wildfire costs

Oct. 30--Sempra Energy -- the parent company of San Diego Gas & Electric -- disclosed during its third-quarter earnings call Monday it is taking a $208 million after-tax write-down in case the California Public Utilities Commission (CPUC) rejects SDG&E's request to pass $379 million in costs from 2007's deadly wildfires to ratepayers.

"Under the accounting rules, we would have to take the impairment," Debra Reed, Sempra president and CEO, told utilities and energy analysts.

But at the same time, Sempra executives said the San Diego-based Fortune 500 company will fight hard against a recommendation by a pair of CPUC administrative law judges to turn down SDG&E's request.

"We vehemently disagree" with the proposed decision, Reed said, and "it is something we will put through the court system if the commission does not rule in our favor."

The administrative law judges in August said SDG&E's management and control of leading up to the October 2007 wildfires were "imprudent" and "unreasonable."

The recommendation can be accepted, rejected or altered by the CPUC's five commissioners, who are scheduled to vote on the SDG&E request Nov. 9.

If the CPUC votes in favor of the utility passing along $379 million to ratepayers, SDG&E has estimated the average customer will pay $1.67 more per month if costs are spread out over a six-year period.

Sempra reported Monday that SDG&E recorded a net loss of $28 million in the third quarter due primarily to the $208 million impairment. By comparison, SDG&E racked up earnings of $183 million in the third quarter of last year.

The 2007 wildfires killed two, destroyed more than 1,300 homes and forced tens of thousands to seek temporary shelter at Qualcomm Stadium.

Critics of SDG&E have said the $379 million not covered by insurance should be shouldered by the company's shareholders, not customers.

But SDG&E has argued that California courts have ruled utilities can spread their costs of damages, and Reed said the Federal Energy Regulatory Commission "looked at the same set of facts and believed we were a reasonable utility operator."

Sempra reported earnings of $57 million for the third quarter, compared to third-quarter earnings of $622 million in 2016. Sempra's stock ended the trading day up $1.81 to $117.45.

Another focus of Monday's call centered on Sempra's biggest deal in its 19-year history -- a $9.45 billion bid to buy Oncor Electric Delivery, an energy company based in Dallas that delivers power to more than 10 million customers in Texas.

Sempra's offer is before the Texas Public Utilities Commission. Earlier this month, Sempra revised its financing for the deal to allay potential concerns about funding, but last week one of the commission's members raised issues about Sempra's debt load.

"Our concern should be to ensure that Oncor is not being permitted to hop from one frying pan into another or even just into a simmering pot," Ken Anderson said in a memo, alluding to the fact that Oncor's current owner filed for bankruptcy in 2014.

Reed said she was unfazed by the memo, saying, "I would expect commissioners and intervenors to be diligent." The Texas commission is expected to make a decision by early April and any deal would also need to be approved by federal authorities and a bankruptcy court.

"It is an attractive offer by a financially stable company and Sempra has already gone out of its way to try to satisfy the conditions that Oncor and commission has asked for," said Andy Smith, a senior analyst who follows utilities for Edward Jones. "So if (the Texas commission) were to turn them down, it would certainly make it less likely that another company would want to get involved, given the lengths that Sempra has already gone to in order to get Oncor."

Sempra executives also said Monday that recent hurricane activity in the Gulf of Mexico has not led to further delays in the Cameron liquefied natural gas (LNG) project, which is scheduled to go online in two years in Hackberry, Louisiana.

"The good thing is we're still going to report earnings of $300 (million) to $350 (million) in 2020" at Cameron, said Joseph Householder, Sempra's corporate group president for infrastructure businesses.

Sempra also has plans to partner in the construction of an LNG facility in Port Arthur, Texas, that is estimated to be up and running in 2021 or 2022.

Along with a slew of ambitious projects undertaken by IEnova, Sempra's subsidiary in Mexico, Reed said the Oncor and LNG projects are part of a larger corporate effort.

"Our strategic vision for the Texas Gulf Coast region is to be a major player in these growing energy markets," Reed said. "We expect the addition of Oncor, coupled with our existing presence in the natural gas markets to position us well to be a leading player in the Gulf Coast and the cross-border energy markets."

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ALSO

Why two other utilities have joined SDG&E in its fight to recover $379 million from 2007 wildfires

Why is it taking so long for the CPUC to rule on the 2007 wildfires?

Sempra revises financing on $9.5 billion deal to buy Oncor

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