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Awaiting rate case decision, Sempra sees growth opportunities in LNG, Mexico

After a longer-than-expected wait, Sempra Energy officials expect regulators will soon issuea decision on the 2016-2018 general rate case for its two California electric andgas utility subsidiaries, SouthernCalifornia Gas Co. and SanDiego Gas & Electric Co. But in the meantime, the company said itsbooks for the first quarter were negatively affected by the delay in the rate case.

Sempra reported first-quarter earnings of $319 million, or $1.27per diluted share, compared with $437 million, or $1.74 per diluted share, in thefirst quarter of 2015. If the general rate cases for SoCalGas and SDG&E hadbeen finalized by the California Public Utilities Commission, the company's utilityearnings would have been in line with the first quarter of 2015, Sempra Chairmanand CEO Debra Reed said May 4 during the company's first-quarter earnings call.Sempra has been given every indication that the PUC will be issuing a general ratecase decision consistent with a settlementagreement the Sempra utilities signed with stakeholders in late 2015,she said.

Revenues for SoCalGas and SDG&E are being recorded basedon 2015 authorized amounts and, when the PUC issues a final decision, the impactof the 2016 authorized margin will be recorded retroactive to Jan. 1, 2016, thecompany said. Reed attributed the delay in a decision to "lack of resources"at the PUC, especially in the administrative law judge division. Due to the delay,Sempra opted to delay its analyst conference. The analyst conference will likelybe held sometime in July in New York City, Reed told the analysts on the earningscall.

While the rate case delay contributedto lower first-quarter earnings, Sempra officials noted that the companyfaced no material impact on its quarterly earnings from the leak at SoCalGas' AlisoCanyon underground natural gas storage facility near Los Angeles. SoCalGassaid its updated estimate of the costs related to the Aliso Canyon leak is $665million.

In its earnings release, the company said its Sempra U.S. Gas& Power subsidiary is expected to receive cash proceeds of about $323 million,subject to normal closing adjustments, from the sale of MobileGas Service Corp. and WillmutGas & Oil Co. to Laclede Group Inc., a St. Louis-headquartered companythat changed its name to Spire late April. As part of the deal, Spire also will assume existing debt of $67million.

Sempra said the first-quarter results included a $27 millionafter-tax loss related to an agreement to sell Sempra U.S. Gas & Power's stakein Rockies Express Pipeline LLCand $24 million of deferred tax expense related to the planned sale of the Termoeléctricade Mexicali power plant in Baja California, Mexico.

The company's Mexico unit reported first-quarter earnings of$17 million, compared with $47 million in 2015, primarily due to foreign currencyeffects and $24 million in deferred tax expense in 2016 related to the planned saleof the power plant. Sempra Energy's Mexican subsidiary, IEnova, announced the plannedsale of the plant in February.

With the sale of its stake in Rockies Express and the dealwith Spire for its Mobile Gas and Willmut Gas & Oil subsidiaries, Reed saidSempra is "well-positioned for strong growth over the next five years"and plans to use the proceeds to invest in projects and assets with stronger growthprospects. The Rockies Express, Southeast utilities and Mexico power plant werenot a "strategic fit" for Sempra, she said.

Sempra U.S. Gas & Power expects the Rockies Express transactionto close in the second quarter and intends to permanently release uncontracted pipelinecapacity that it holds. The permanent capacity release is expected to result ina charge to earnings of between $100 million and $120 million in second quarter2016, representing an acceleration of expected losses that otherwise would be realizedover the contract term.

Reed said the Cameron LNG project in Louisiana is 43% completeand slightly ahead of construction. The project's first train is still expectedto be completed in early 2018, she said. Sempra jointly owns Cameron LNG with several other companies. The companysees opportunities to develop new pipelines and storage facilities in the Gulf Coastregion that could serve the Cameron LNG export terminal and natural gas-fired powerplants in the region, according to Reed.

Sempra also views great growth potential in Mexico, where Reedsaid Sempra has a "wonderful foundation of assets." Petróleos Mexicanos,or Pemex, "has a number of assets that we would be interested in acquiring,"including renewable energy projects and liquids pipelines, she said. The company'srenewable energy subsidiary, Sempra Renewables, had first-quarter earnings of $13million in 2016, unchanged from last year's first quarter.

Sempra on May 4 also revised its 2016 adjusted earnings-per-share guidance rangeto $4.60 to $5, reflecting an anticipated reduction in 2016 earnings of approximately$60 million, or 24 cents per diluted share, related to the pending sale of the company'sinterest in Rockies Express. Sempra also set its 2020 earnings-per-share guidancerange at $7.20 to $7.80, reflecting an expected compound annual growth rate in adjustedearnings of 12% from 2016 through 2020.