Sempra Energy (SRE)

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Sempra Energy (SRE)

Q1 2010 Earnings Call Transcript

May 4, 2010 1:00 pm ET

Executives

Steve Davis – VP, IR

Don Felsinger – Chairman and CEO

Mark Snell – EVP and CFO

Joe Householder – SVP, Controller and Chief Accounting Officer

Neal Schmale – President and COO

Analysts

Faisel Khan – Citi

Craig Shere – Tuohy Brothers Investment Research

Lasan Johong – RBC Capital Markets

Paul Patterson – Glenrock

Michael Lapides – Goldman Sachs

Vedula Murti – CDP US

Becca Followill – Tudor Pickering Holt

John Ali [ph] – Decade Capital

Presentation

Operator

Good day and welcome to the Sempra Energy first quarter 2010 earnings results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Steve Davis. Please go ahead, sir.

Steve Davis

Good morning and thank you for joining us. I'm Steve Davis, Vice President of Investor Relations. This morning we'll be discussing Sempra Energy's first quarter 2010 financial results. A live webcast of this teleconference and slide presentation is available on our website under the investor section. With us today in San Diego are several members of our management team including Don Felsinger, Chairman and Chief Executive Officer; Neal Schmale, President and Chief Operating Officer; Mark Snell, Executive Vice President and Chief Financial Officer; Debby Reed, Executive Vice President and Joe Householder, Senior Vice President and Controller.

You'll note that slide two contains our Safe Harbor statement. Please remember that this call contains forward-looking statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. As you know, they involve risks, uncertainties and assumptions. So, future results may differ materially from those expressed on our call. These risks, uncertainties and assumptions are described at the bottom of today's press release and are further discussed in the Company's reports filed with the Securities and Exchange Commission. It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis. With that, I'll turn it over to Don, who will begin with slide 3.

Don Felsinger

Thanks. And again, thank you all for joining us. On today's call, I would like to accomplish several things. First review with you our first quarter financial results, then give you an operational update on our utilities and infrastructure businesses. Before I get into our financial results, I would like to spend a moment on the litigation settlement we announced last week.

I realize that some of you may have been surprised by this but I strongly believe the settlement was the best solution to put to rest litigation that has gone on for nearly a decade and could have continued for years to come. I'll discuss the settlement in more detail later in the call.

Now to the financial results. Earlier this morning we reported first quarter earnings of $106 million, or $0.42 per share, compared with $316 million, or $1.29 per share in the same period last year. The decrease in earnings was primarily due to $ 96 million or $0.38 per share impact of the litigation settlement and reduced results from the RBS Sempra Commodities joint venture. Earnings, excluding the settlement amount were $202 million or $0.81 per share. Due to the impact of the litigation settlements and assuming break-even performance at RBS Sempra Commodities, we now expect earnings of $3.15 to $3.40 per share in 2010.

Now, let me hand it over to Mark so he can take you through some of the details of the financial results beginning with slide 4.

Mark Snell

Thanks, Don. At San Diego gas and electric, earnings for the first quarter were $83 million, compared with earnings of $99 million in the year-ago quarter. The decrease was primarily due to $5 million of higher wildfire insurance premiums and a $3 million charge due to the elimination of a tax benefit that was associated with the recent passage of the healthcare bill.

The first quarter of 2009 benefited $5 million from the favorable resolution of a litigation matter. During the first quarter, STG&E recorded a $107 million regulatory asset relating to reserves for wildfire claims that exceeded our $1.1 billion of insurance. We believe that STG&E will ultimately recover substantially all wildfire costs in excess of its insurance limits.

There are codefendants in the litigation and other responsible parties that STG&E has a claim against. In addition, based on our regulatory experience, we believe STG&E will be able to recover substantially all wildfire related costs that exceed our coverage and are not recovered from other responsible parties.

At Southern California gas, first quarter 2010 earnings were $65 million, up from $59 million in the first quarter of 2009. The increase was due to $9 million of higher margin, $3 million of higher regulatory awards and $2 million of lower bad debt expense. These benefits were offset by a $13 million charge due to the passage of the healthcare bill.

Now let's go to slide 5. Our generation business recorded a loss of $53 million in the first quarter, compared with earnings of $43 million in the same quarter in 2009. The decrease for the quarter is primarily the result of an $84 million charge related to the energy crisis litigation settlement. The quarter was also impacted by $12 million of lower earnings from operations, primarily due to increased scheduled maintenance and associated downtime.

Read the rest of this transcript for free on seekingalpha.com