Rite Hikes, Affiliated businesses keep Sempra afloat

While California's energy crisis sent one investor owned utility into bankruptcy and the other to its brink, San Diego's Sempra Energy managed to survive:

San Diego-based Sempra, whose 22.8 million California customers stretch from San Luis Obispo to the Mexican border, has had its own problems grappling with the crisis and its aftermath. The company at times has infuriated its customers, vexed Wall Street analysts, drawn the ire of consumer advocates and repeatedly battled with California lawmakers and regulators.

Last week, for instance, state Sen. Joe Dunn (D-Santa Ana) accused Sempra of lying to legislative investigators when Sempra denied that it participated in electricity trading schemes during the state's energy crisis.

Sempra also faces a class- action lawsuit that accuses the company of manipulating the natural gas market and exacerbating the state's electricity problems, because most power plants are fueled with gas. Sempra's potential liability if it loses is $24 billion. The company strongly denies both allegations.

Through it all, Sempra has maintained profitable growth under a multi-prong strategy devised by Baum and Sempra President Donald Felsinger, who is set to become CEO when Baum retires Jan. 31.

With 13,000 employees, Sempra not only delivers electricity and gas via its two traditional utilities, it also runs power generation plants; trades electricity, gas and other commodities; operates energy pipelines and storage; and is expanding into the liquefied natural gas market. The company's relative good health in recent years, when other energy suppliers and traders were struggling to survive, helped Sempra snap up assets on the cheap.

SDG&E and Southern California Gas remain heavily regulated in what they can charge ratepayers. But Sempra's trading, generation and LNG businesses aren't — providing Sempra with potential growth well above the single-digit rates forecast for SDG&E and Southern California Gas.

Customers should be wary, however, about the profitability of this vertical integration, because in the end, they're the ones who pay. So what if retail prices Sempra charges to its customers are regulated if the wholesale prices it charges itself are not?