Executive perspectives

Strong, six-month performance, plus improved expectations drive up 2005 earnings guidance

08/03/05
by Don Felsinger
President and Chief Operating Officer, Sempra Energy

Two important words describe Sempra Energy's first six months of 2005: strong performance. As we've reported, our earnings increased to $344 million in that span, which is $26 million above our reported earnings for the same period of 2004.

This is great news for the company and its shareholders, but it's only part of the story going forward. That's because, along with our strong, six-month performance, we have increased our earnings guidance for the second half the year, mainly due to higher expectations at Sempra Commodities and the Sempra utilities.

Our new 2005 earnings-per-share guidance is $3.20 to $3.40 from our prior range of $3.10 to $3.30.

Regulatory approvals
Our increased earnings guidance is based on major assumptions that will drive our results in the second half of the year.

First, at the Sempra utilities, we expect two major regulatory approvals later this year that should contribute about $55 million in net income.

In December 2004, the California Public Utilities Commission's (CPUC) Office of Ratepayer Advocates approved a settlement with the Sempra utilities for outstanding awards related to demand-side management and energy-efficiency programs. If the commission approves the settlement as submitted, the utilities will recognize about $30 million in net income in 2005.

The second issue relates to a settlement between San Diego Gas & Electric (SDG&E) and the California Independent System Operator (CAISO) for the recovery of charges associated with the 500-kilovolt electrical transmission line that connects San Diego to Arizona. If the settlement is approved by the Federal Energy Regulatory Commission (FERC), SDG&E will record about $25 million in net income.

The Sempra utilities strong performance year to date and the expectations of these two items taking place this year, led us to increase the net-income range to $450 million to $470 million for the utilities on a combined basis.

Range increased
Secondly, at Sempra Commodities, we have increased our expected net-income range to $180 million to $220 million. That's because we continue to grow our business base in Europe in both the power and natural gas markets, and we are seeing increased profitability in our North American power business.

Our Commodities group had about $50 million of unrecognized mark-to-market, after-tax profits at the end of the second quarter, and we expect most of that amount to be recognized in net income in the second part of the year.

So, on a mark-to-market basis, Sempra Commodities is ahead of last year's pace with $129 million for the first six months of 2005 compared with $99 million for the first six months of 2004.

Other business units
At Sempra Generation, our increased net-income range of $150 million to $170 million reflects increased operating efficiencies related to higher "spark spreads" in the West and Texas, and our recent acquisition of an extra 240 megawatts at El Dorado Energy in Nevada.

The business outlooks for the year for Sempra Pipelines & Storage and Sempra LNG have not changed from our prior guidance levels.

Our outlook for Parent & Other, which includes Sempra Financial, has been adjusted to reflect the $43 million tax benefit received in the first quarter and the improved performance from Sempra Financial.

Delivering results
So, when you combine our solid year-to-date results with our identified prospects in the second half, we are confident that we can deliver results for earnings per share in the $3.20 to $3.40 range for the year.

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