One On One With Sempra Energy CEO Don Felsinger
Thursday, August 03, 2006
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SUSIE GHARIB: The nationwide heat wave is an important issue for the nation`s largest utility, Sempra Energy, the parent company of Southern California Gas and San Diego Gas and Electric. Despite the power strains, Sempra reported today that its second quarter earnings tripled, much better than analyst estimates. Joining us now, Sempra Chairman and CEO Don Felsinger. Mr. Felsinger, welcome to NIGHTLY BUSINESS REPORT.
DONALD FELSINGER, CHAIRMAN & CEO, SEMPRA ENERGY: Good evening, Susie.
GHARIB: Let`s begin talking a little bit about this heat wave. What has been the impact of it on your business?
FELSINGER: Well, the good news is there`s been some relief here on the weather so things have cooled off a bit, but on the impact on our business, Susie, we don`t make any money on electricity sales or gas sales. Those are a pass-through cost to our customers. As a matter of fact, this heat wave probably ended up costing us money because we had to go out and replace transformers and power cables that failed. But the thing about a heat wave like we saw last week was we get a chance to exercise and test our system to see where the weak points are and we learned a lot about our system.
GHARIB: What did you learn and what are you doing to improve the system?
FELSINGER: Well, first of all, we set a new all-time peak in San Diego of 4,502 megawatts. And what was unusual was this peak occurred on a Saturday, on a weekend. Typically a peak will occur during the work day when businesses and industry are operating their equipment. So we don`t know yet what a peak could be during a work day when all of the businesses are in operation. The good news, though, is in California having come out of the energy crisis in 2001, 2002, the state has done a lot to install new infrastructures, so new power plants, new transmission lines allowed California to get through the last two weeks without any real major outages that lasted for long durations. So California`s on a path to recovery and I think this is a good sign. GHARIB: Do you believe that all of those improvements are enough that if you get hit with another week of very high temperatures and high demand, that could California experience blackouts?
FELSINGER: Well, I don`t know if we could experience blackouts, but there`s no doubt that we need to have more infrastructure in place. The reserve margins in San Diego got down to around 8 percent at one point in time and they should be about twice that. We are proposing to build new infrastructure like electric transmission lines that will allow new sources of electricity to come to San Diego. One of those lines is called the sun rise power link and today it just got the approval from the independent system operator to go forward. So now we`re going to wait for utility commission approval. But that`s needed infrastructure for this part of southern California.
GHARIB: Now a big part of your business is in trading commodities and I saw that your profits in this commodities part of your business doubled in the second quarter. Do you expect that kind of performance to continue for the rest of the year and do you think that natural gas and oil prices are going to hit new records sometime later this year?
FELSINGER: Well, this business helps customers manage their energy cost. And in times of high energy prices and volatility like we`re seeing right now in oil and natural gas, it makes more money and so in the near term, I don`t see any relief. I look at natural gas fundamentals and there`s no relief coming until new LNG supplies come to the shores of North America and the same with electricity. So I think this business will continue to perform well to the end of this decade.
GHARIB: You reported really strong earnings today and also of this trading and commodities. That division did really well, but we didn`t see that reflected in your stock and, in fact, it`s pretty much at the same level where it started 2006. What`s going on?
FELSINGER: Well, utilities are a defensive stock and so today when you saw the S&P and the Dow Jones Industrial Average going up, a lot of people moved their money from utilities into more of those growth funds. One day does not affect our stock price. I look over the long term that we`ve got a very good company. Our stock is all set to move forward with some of the investments we`re making in infrastructure, LNG terminals, pipeline storage, transmission lines. So longer term this stock is going to continue to grow.
GHARIB: All right. Well thank you very much for coming on the program. We appreciate you doing that.
FELSINGER: Thank you, Susie. GHARIB: We`ve been speaking with Don Felsinger, chairman and CEO of Sempra Energy.
