Regulated Utilities Look to Big Investments

By Published On: March 5, 2010

Some financiers worry that California regulations could dampen investor-owned utility profits, but the general outlook for 2010 appears positive as far as Wall Street support is concerned. The encouragement, in part, is due to massive spending plans by California utilities. All together, the utilities plan to spend more than $30 billion over the next few years (see sidebar). The state allows utilities more than an 11 percent return on those investments--making utilities a solid bet for potential lenders. The state’s three major utilities reported almost static income from 2008 to last year. With increasing steadfastness, utility executives have stressed their price stabilization to the financial community the last couple years. The California Public Utilities Commission has made an effort to show Wall Street that the state’s utilities remain a solid investment after the financial community lost its faith in California utilities during the 2000-01 energy crisis. Regulators and legislators learned a lesson from the energy crisis, said Tom Bottorff, Pacific Gas & Electric senior vice president, regulatory relations. “No one wants to see that again. I don’t think that’s going to change,” he reassured the financial community. Some on Wall Street were spooked over regulators’ decision in Florida earlier this year that reduced FPL’s income (see story below). Below are the highlights of recent earnings reports: Pacific Gas & Electric--The parent company posted net income in 2009 of $1.234 billion. The utility itself reported income from last year at $1.25 billion. It comprises most of the parent’s income, with the parent company eking out its expenses. For the last quarter of last year, the parent company reported $273 million in income, compared to $517 the same quarter in 2008. Primary income expected in the future includes $946 million for transmission through the Federal Energy Regulatory Commission; $2.1 billion for improving distribution infrastructure over the next six years; $21.6 million for attempts at extending the license of its Diablo Canyon nuclear power plant for an extra 20 years; $24.9 million for compressed air energy storage (matched with Department of Energy funds). These are all considered “incremental” to the utility’s general rate case at the California Public Utilities Commission. The company also noted that shareholders could see a reduction in earnings from 6 cents to 9 cents/share due to its spending on Proposition 16. It is a ballot measure to require municipalities to have a two-thirds vote on community aggregation projects or municipalization of PG&E territory to create public power agencies. Chief executive officer Peter Darbee said the “idea” of the initiative is to “diminish year after year” the amount of money it spends opposing municipalization by requiring a vote. “There’s going to be some flap. Presumably, we’ll mend any broken fences after that.” Edison International--The parent company of Southern California Edison posted a $945 million gain for the year 2009, down from a $1.34 billion net income in 2008. Of that, the utility reported a $1.2 billion net income for last year, compared to a $683 million profit in 2008. For the fourth quarter last year, Edison International reported a $15 million loss, compared to a $5 million loss the same quarter 2008. The utility posted net income of $172 million in the last quarter of 2009. In the same quarter 2008, it reported $141 million in gain. Edison is gearing up for its triennial general rate case at the California Public Utilities Commission in which regulators review the utility’s spending in detail for its efficacy. “It’s a regulatory and political balancing act,” said Jim Scilacci, executive vice president and chief financial officer. For increased income, “We’re looking for longer-term earnings” from energy efficiency investments through programs at the California Public Utilities Commission, said Edison chief executive officer Ted Craver to the financial community. Sempra--The parent company to two regulated utilities and several unregulated firms has been busy financially the last quarter, as well as the last year. For 2009, Sempra posted income of $1.12 billion, compared to $1.11 billion in 2008. For its regulated utilities, San Diego Gas & Electric reported a year-end income of $344 million, slightly up from $339 million in 2008. For the fourth quarter in 2009, SDG&E posted $67 million in net income compared to $81 million in the same quarter in 2008. SoCal Gas posted a 2009 income of $273 million, up from $244 million the year before. For the fourth quarter 2009, it reported $75 million, compared to $54 million in the same time frame in 2008. Unregulated generation (for instance, investments in Mexican power plants) noted a $162 million income for last year, compared to profits of $222 million in 2008. Sempra’s pipeline business showed last year’s income at $101 million, slightly down from 2008’s $106 million. The liquefied natural gas subsidiary reported a $16 million gain, compared to a former losing streak in which it lost $46 million in 2008. The big news for this spring is that Sempra is disposing of its trading arm for $800 million as of February 16--with a $2 billion gain, according to the company. The commodities subsidiary was half-owned by RBS, which has been in financial trouble in Scotland and required to divest. Sempra executives said that it would be more beneficial to take the sale profits and invest in new ventures than to acquire the RBS share of the company. Sempra left the new prospects vague, but noted it could use up to $1 billion in stock repurchase. While it’s disposing of one company, Sempra’s acquiring more assets in another. On February 24, Sempra Pipelines & Storage announced acquisition of a Mexican natural gas pipeline for $300 million. The infrastructure adds to Sempra’s California-Mexico cross-border facilities, including other pipelines and Sempra LNG’s terminal in Baja California.

Share this story

Not a member yet?

Subscribe Now