Letter to Shareholders
Fellow Shareholders,
With the historic disruptions in global financial markets over the past year, many investors have searched for a safe harbor. At Sempra Energy®, we have charted a strategic course that we believe gives our shareholders an excellent opportunity to weather the storm.
The first part of our strategy involves investment in our California utilities, Southern California Gas Co. (SoCalGas®) and San Diego Gas & Electric® (SDG&E®), which provide essential safe and reliable energy service every day to 24 million people.
The second part focuses on our competitive energy businesses—Sempra Generation, Sempra Pipelines & Storage and Sempra LNG—which are developing and operating critical new infrastructure to meet North America’s growing energy needs. We invest in quality assets with a focus on contracted revenue streams that should produce predictable earnings and provide ample returns. And our new commodities-marketing joint venture, RBS Sempra Commodities, is structured to reduce our risk and provide increasingly predictable earnings.
In 2008, our earnings per diluted share rose 6.5 percent to $4.43 on net income of $1.11 billion, up from $4.16 per diluted share on net income of $1.10 billion in 2007—solid financial results, with all of our businesses performing well. Additionally, we announced our intention to maintain a targeted dividend payout ratio of 35 percent to 40 percent. This new policy resulted in a 13-percent increase in our dividend in 2008.
In the past year, we celebrated the 10th anniversary of the formation of Sempra Energy and achieved a number of significant milestones to advance our growth plans.
In July, SoCalGas and SDG&E both received approval from the California Public Utilities Commission (CPUC) of their rate cases, providing us with predictable revenue for the next three years. In December, the CPUC approved SDG&E’s Sunrise Powerlink, a $1.9 billion transmission line under regulatory review since 2005. The 500-kilovolt power line, which will add critical system reliability and provide access to developing renewable-energy resources in desert areas east of San Diego, is expected to be operational in 2012.
Responding to climate-change concerns, both utilities are actively testing and deploying sustainable technologies. Over the next decade, SDG&E is committed to acquiring one-third of its power from renewable resources and reducing its greenhouse-gas emissions to 1990 levels. In July, SDG&E announced the largest solar-power initiative in San Diego’s history, a $250 million plan to install photovoltaic panels at municipal, commercial and institutional sites around its service territory capable of powering as many as 50,000 homes.
In October, our Sempra Pipelines & Storage unit acquired EnergySouth Inc., a Mobile, Ala.-based energy company with valuable natural gas storage assets and a local gas distribution utility, Mobile Gas. These assets will significantly expand our presence on the Gulf Coast, a critical natural gas market hub in the United States. Over the past year, Sempra Pipelines & Storage and its project partners also completed the western half of the $6.2 billion Rockies Express Pipeline and started construction on the eastern portion. The entire 1,600-mile transcontinental natural gas pipeline will be operational later this year.
Energía Costa Azul, our Mexican liquefied natural gas (LNG) terminal, began commercial operations last summer as the first LNG receipt facility on the west coast of North America and was officially dedicated by Mexico President Felipe Calderón. Later this year, Energía Costa Azul is scheduled to begin receiving regular shipments of LNG from Indonesia. Our Louisiana terminal, Cameron LNG, will be operational in 2009.
In December, Sempra Generation completed its first solar-power project, a 10-megawatt facility outside Las Vegas. The project, which was completed in only six months, represents the largest installation to date of thin-film solar technology in North America. Sempra Generation also is pursuing other solar and wind projects, especially in the Pacific Southwest.
President Obama and his administration are emphasizing the need to develop clean energy resources, reduce greenhouse-gas emissions and increase energy efficiency. More than 30 states, including California, already have adopted renewable energy requirements or goals.
Our business, which is focused on utility operations, natural gas infrastructure, renewable resources and energy efficiency, aligns well with the new administration’s public policy agenda. And our power-generation facilities utilize the most advanced technology, giving us one of the smallest carbon footprints in the U.S. energy sector.
Natural gas is the cleanest-burning fossil fuel. As more solar and wind energy sources are added to the energy mix, natural gas will continue to serve a critical role as the round-the-clock generating fuel of choice, especially for times when nature does not allow solar and wind power to be produced. We are a major player in nearly all parts of the natural gas value chain, including import, transport, storage, marketing and distribution.
SDG&E and SoCalGas have been national leaders in promoting energy efficiency, operating in a state—California—which has made energy efficiency a policy priority for more than 30 years. It’s estimated that California’s energy-efficiency efforts have saved consumers more than $56 billion in electricity and natural gas costs since 1978 and eliminated the need to build as many as 15 new power plants. Over the next five years, energy efficiency is expected to save another $23 billion. And, of course, every kilowatt or therm of energy not used reduces our carbon footprint and the impact on our environment.
Beyond our environmental focus, we continue to be active in the communities we serve. Late in 2007, we established a new charitable giving arm, the Sempra Energy Foundation, which concentrates on supporting causes that promote sustainability and advancement of new energy and environmental technologies; infrastructure development and improvement; and assistance for people and communities in need.
Reflecting on our accomplishments of the past year, I am proud that our employees have, once again, produced excellent financial results for you, our shareholders, and also delivered on their service promise to our customers around the world. On behalf of all of our employees, please accept our sincere thanks for your ongoing confidence in, and support for, our company.
Sincerely,
Donald E. Felsinger
Chairman and
Chief Executive Officer