California's new law on wildfire liability has greatly improved the operating environment and financial health of electric utilities like San Diego Gas & Electric Co., its parent company, Sempra Energy, said Aug. 2 on its second-quarter earnings call.
Sempra also touted progress on its LNG export facilities, noting that the first train of its Cameron LNG project in will launch commercial operations in mid-August. The company has also signed contracts for nearly 65% of the capacity at its proposed Port Arthur facility, Sempra officials said Aug. 2.
There are several key parts of California's new wildfire law, enacted in July, that will help utilities, Sempra COO Joseph Householder said. "We believe these new laws substantially improve the regulatory model in California," he said on the earnings call.
First, the law creates a wildfire fund that will pay claims that exceed insurance coverage, he said. Of the $21 billion fund, San Diego Gas & Electric's, or SDG&E's, share is $323 million up front, plus $13 million annually over a 10-year period, he said.
The law also outlines an annual safety certification, which SDG&E received July 26, Householder said. A utility's action is deemed reasonable if it has this certification, unless there are serious doubts about the utility's conduct, he explained in a presentation.
The law creates a new prudency standard of review, more comparable to the federal standard, he said. There is a shareholder liability cap for future wildfire damages under the prudency review, and SDG&E's liability cap is about $825 million, he said. Finally, there is increased safety spending, and SDG&E's share of this spending is $215 million, he said.
Sempra also completed the sale of its U.S. wind assets, and recycled some of the money into acquisitions in Texas, where subsidiary Oncor Electric Delivery Co. LLC is located, company CEO Jeff Martin said. And the company continues to work to sell its South American businesses, which will help it move more money into its North American growth markets, he said. Earlier this year, Sempra made clear the company is relying more heavily now on three regulated businesses, Oncor, SDG&E and Southern California Gas Co.
Sempra reaffirmed its fiscal-year adjusted earnings per common share guidance range of $5.70 to $6.30. It reported a second-quarter 2019 adjusted EPS of $1.10 and year-to-date adjusted EPS of $3.03. In comparison, second-quarter 2018 adjusted EPS was $1.35. The unfavorable change in this second quarter's figure relative to the previous year is driven by fluctuations in the Mexican peso, the impact of pending general rate cases and the loss of earnings due to the Sempra Renewables sale, Sempra's presentation said.
Kate Winston is a reporter with S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.