Sempra Energy Management Discusses Q2 2012 Results - Earnings Call Transcript

Sempra Energy (SRE)

Q2 2012 Earnings Call

August 02, 2012 1:00 pm ET

Executives

Richard A. Vaccari - Vice President of Investor Relations

Debra L. Reed - Chief Executive Officer, Director and Chairman of Executive Committee

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

Mark A. Snell - President

Analysts

Naaz Khumawala - BofA Merrill Lynch, Research Division

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

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

Paul Patterson - Glenrock Associates LLC

Kit Konolige

Kit Konolige - Konolige Research, LLC

Presentation

Operator

Good day, everyone, and welcome to the Sempra Energy Second Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rick Vaccari. Please go ahead.

Richard A. Vaccari

Good morning, and thank you for joining us. I'm Rick Vaccari, Vice President of Investor Relations. This morning, we'll be discussing Sempra Energy's second quarter 2012 financial results. 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, Debbie Reed, Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and CFO; Trevor Mihalik, Controller and Chief Accounting Officer; and Bruce Folkmann, Assistant Controller.

Before starting, I'd like to remind everyone that we will be discussing forward-looking statements on this call within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. Factors that could cause our actual result to differ materially are discussed in the company's reports filed with the SEC. It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis and that we will be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our second quarter 2012 earnings release for a reconciliation to GAAP measures. I'd also like to note that the forward-looking statements contained in this presentation speak only as of today, August 2, 2012, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With that, I will turn it over to Debbie.

Debra L. Reed

Thanks, Rick, and thanks to all of you for joining us today. You may have noticed a new name in the list of introductions Rick just made, so let me introduce Trevor Mihalik, our new Controller and Chief Accounting Officer. He has extensive industry experience in the energy business and also a strong accounting background, and he is going to make a great addition to the already strong management team that we have here at Sempra. I'd also like to mention that Bruce Folkmann, who has been our Acting Controller since October of last year, will become the Vice President and Controller of our U.S. Gas & Power business starting next week.

On today's call, we'll review our second quarter financial results and then we'll give you a regulatory and operational update on our businesses.

Let's begin with our financial results. Earlier this morning, we recorded second quarter earnings of $62 million or $0.25 per share, excluding a $179 million non-cash charge related to our investment in the Rockies Express Pipeline, or REX. Adjusted earnings for the second quarter of 2012 were $241 million or $0.98 per share. In the second quarter of 2011, we recorded adjusted earnings of $226 million or $0.94 per share, which excluded the $277 million remeasurement gain we booked when we completed our acquisition of South American Utilities.

As many of you are aware, Kinder Morgan, a 50% owner of REX, is in the process of selling its interest in the pipeline as a result of its merger with El Paso. The REX pipeline is contracted through late 2019. The current market conditions for the pipeline are weak due to low gas prices and low basis differential. The sale by Kinder Morgan, coupled with the weak market conditions, led us to determine it was appropriate to record an impairment at this time. Joe will provide more details on this a little later in the call.

After adjusting for the REX impairment, our businesses are performing well and consistent with the plans we shared with you at our Analyst Conference. Given our performance through the first 6 months of the year, we continue to expect to meet our earnings guidance for 2012, which is $4 to $4.30 per share. The full-year guidance excludes both the charge related to the REX and a tax benefit related to a change we've made in the holding period for the life insurance contracts we own. Joe will also discuss this change in more detail and in fact, let me just hand things over to him now to take you through details of the financial results, beginning with Slide 4.

Joseph A. Householder

Thanks, Debbie, and thank you, all, for joining us again. At San Diego Gas & Electric, earnings for the second quarter were $95 million, up from $71 million in the year-ago quarter. This increase was primarily due to higher earnings from Sunrise Powerlink, which was put into service in June of this year. In addition, the earnings comparison was impacted by the timing of wildfire insurance premium recovery. During 2011, insurance premiums expensed in the second quarter were not recovered in revenues until the fourth quarter when the CPUC issued a decision approving the recovery.

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