Sempra Energy (SRE)

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Sempra Energy (SRE)

Q4 2011 Earnings Call

February 28, 2012 1:00 pm ET

Executives

Steven D. Davis - Vice President of Investor Relations

Debra L. Reed - Chief Executive Officer and Director

Joseph A. Householder - Chief Financial Officer and Executive Vice President

Mark A. Snell - President

Analysts

Stephen Byrd - Morgan Stanley, Research Division

Leslie Rich - J.P. Morgan Asset Management, Inc.

Faisel Khan - Citigroup Inc, Research Division

Michael Goldenberg - Luminus Management, LLC

Greg Gordon - ISI Group Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Ashar Khan

Mark Barnett - Morningstar Inc., Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Vedula Murti

Naaz Khumawala - BofA Merrill Lynch, Research Division

Stephen Huang

Michael S. Worms - BMO Capital Markets U.S.

Neil Stein

Unknown Analyst

Chris Shelton

Presentation

Operator

Good day, everyone, and welcome to the Sempra Energy Fourth Quarter Earnings 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.

Steven D. Davis

Thank you, and good morning. I’m Steve Davis, Vice President of Investor Relations and Corporate Communications. This morning, we'll be discussing Sempra Energy's fourth quarter and full year 2011 financial results. A live webcast of this teleconference and slide presentation is available on our website under the Investors section.

With us today in San Diego are several members of our management team, including Debbie Reed, Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and Chief Financial Officer; and Bruce Folkmann, Acting Controller.

You'll note that Slide 2 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 the earnings per share amounts in our presentation are shown on a diluted basis, and that we'll also be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and the Table A of the financial tables in our fourth quarter and full year 2011 earnings release for reconciliation to GAAP measures.

With that, I'll turn it over to Debbie, who will begin with Slide 3.

Debra L. Reed

Thanks, Steve, and thanks to all of you for joining us today. On today's call, I'd like to accomplish several things. First, we'll review our fourth quarter and year-end financial results. We'll then talk about our dividend increase and I'll give you an operational update on our businesses.

Now to the financial results. Earlier this morning, we reported fourth quarter earnings of $292 million or $1.21 per share compared with $280 million or $1.15 in the same period last year. For the full year 2011, we recorded earnings of approximately $1.4 billion or $5.62 per share compared with 2010 earnings of $739 million or $2.98 per share. On an adjusted basis, earnings for the full year 2011 were $1.1 billion, which excludes a gain of $277 million that we reported in the second quarter to reflect the write up in value of our investments in Chile and Peru. Adjusted earnings per share for the full year 2011 was $4.47 compared to $3.93 per share of adjusted earnings in 2010, which is an increase of 14%.

I'm very pleased with our strong results in both the fourth quarter and for the year. Each of our businesses performed extremely well, enabling us to beat the upper end of our adjusted earnings per share guidance for 2011 which was $4.30.

Now regarding the dividend. I'd like to mention that earlier this morning, we announced that our Board of Directors have authorized a 25% increase in our quarterly dividend, which brings the annualized dividend to $2.40 per share. You may recall that last February, we also increased the dividend by more than 20%. The strong and growing operating cash flows from our utility and contracted infrastructure businesses, we expect to continue to grow the dividend while reinvesting capital to achieve above average long-term earnings growth.

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

Joseph A. Householder

Thank you, Debbie. San Diego Gas & Electric earnings for the fourth quarter were $158 million, up from $105 million in the year-ago quarter. The fourth quarter of 2011 included $50 million of earnings related to increased wildfire insurance premium recovery for an 18-month period and $13 million of higher equity AFUDC earnings compared to the year-ago period.

I'd like to point out that in December of both 2010 and 2011, CPUC approved SDG&E's request to recover the increased cost of wildfire insurance premiums. SDG&E has one additional request pending to recover increased wildfire insurance premiums, which we expect the commission to approve in the second quarter. $15 million of the benefit we recorded in the fourth quarter of 2011 reflects this anticipated cost recovery. Going forward, the anticipated recovery of wildfire insurance is contained in SDG&E's 2012 general rate case.

SDG&E also expects to recover any costs incurred that are associated with the 2007 wildfires in excess of amounts recovered from its insurance coverage and other responsible third parties, as we've disclosed in our 10-Ks and 10-Qs. As of the end of 2011, SDG&E has booked a regulatory assets of $594 million associated with its anticipated recovery.

Full-year 2011 earnings increased to $431 million from $369 million last year. The increase of $62 million was due primarily to $31 million of higher equity AFUDC earnings, net of higher interest expense and $28 million for higher revenues related to wildfire insurance premiums, net of the higher insurance expense.

Moving to Southern California Gas. Fourth quarter 2011 earnings were $79 million compared to $74 million in the fourth quarter of 2010. For the full year 2011, earnings for SoCal were $287 million compared to earnings of $286 million in 2010.

Now let's go to Slide 5. Sempra Pipelines & Storage recorded earnings of $70 million in the fourth quarter of 2011 compared with earnings of $39 million in the same quarter of 2010. The increase was due largely to $24 million of higher earnings from our operations in South America through the accretive acquisition we closed in April of last year. For the full year 2011, Sempra Pipelines & Storage recorded earnings of $527 million compared with earnings of $159 million in 2010. Excluding the $277 million gain that was recorded in the second quarter of 2011, related to the acquisition of controlling interest in the operations in Chile and Peru, earnings were $250 million in 2011. The increase from the prior year was primarily due to $55 million from the increased ownership interest in South America, $13 million of higher earnings from the Mexican pipeline assets that we acquired in April 2010 and $10 million from nonoperating foreign exchange effects related mainly to a U.S. dollar-denominated cash balance, previously held in Chile.

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