Sempra cuts 2021 earnings outlook on SoCalGas settlement over Aliso Canyon leak

Sempra cut its earnings outlook after its Southern California Gas utility agreed to resolve substantially all remaining civil litigation tied to the 2015 massive leak at its Aliso Canyon storage facility, a key conduit in the supply of gas to the US West Coast.

The unit will take a $1.1 billion after-tax charge, Sempra said in a statement Sept. 27, three days before the end of the third quarter.

The company also said it was preparing to close an investment by private equity firm KKR in a unit that contains Sempra's LNG and related non-utility infrastructure.

The leak forced the storage facility near Los Angeles offline and prevented the utility from replenishing its inventory to bolster the power generation fuel supply serving the Southern California markets for almost two years.

In both the peak cooling and heating season, and at times when the utility asked consumers to conserve their gas use, SoCalGas had to rely largely on its other storage fields, pushing prices higher amid fears of fuel shortages. These shortage concerns also placed a significant amount of importance on SoCalGas' pipeline grid to provide sufficient and consistent volumes. However, regular maintenance activities along the pipeline system limited the amount of gas able to flow onto SoCalGas' grid, further reducing the overall availability of supply. Anytime there were other infrastructure issues or maintenance, the impact was greater because SoCalGas did not have sufficient storage to help backfill any pipeline capacity cuts.

Tens of thousands of residents who were driven from their homes or otherwise affected by the methane emissions in the air sued for damages.

In resolving substantially all remaining litigation, the first agreement is subject to obtaining roughly 97% participation among approximately 36,000 individual plaintiffs and court approval. The second and third agreements involve settlement with a class estimated to include at least 23,000 properties and the dismissal of the named plaintiffs in a putative business class action, both of which are subject to court approval, SoCalGas said in its own statement. Settlement costs will not be borne by ratepayers.

Net after-tax cash outflows for SoCalGas due to the disaster are expected to ultimately be up to approximately $895 million, after taking into consideration insurance and other adjustments, according to Sempra.

The parent company said it was cutting its full-year 2021 earnings per share guidance to $3.83-$4.43, from previous expectations of $7.41-$8.01. Sempra reaffirmed its full-year 2022 earnings per share guidance of $8.10-$8.70.

Infrastructure deal

The KKR deal, announced in April, called for the firm to pay $3.37 billion in cash to buy a 20% stake in a new infrastructure unit that includes Sempra's North American LNG portfolio. In its statement Sept. 27, Sempra said that deal was expected to close Oct. 1.

Amid a challenging environment for adding new liquefaction capacity in North America, especially in the US where banks or investment partners have traditionally been relied upon for the billions of dollars in startup capital, developers are increasingly looking for creative ways to pay for construction.

Sempra has previously further delayed a final investment decision on its proposed Port Arthur LNG project in Texas, while setting as one of its priorities commercializing an expansion at its existing Cameron LNG facility in Louisiana.

The new infrastructure unit also includes Sempra's almost 100% ownership stake in Mexican affiliate IEnova.