Sempra’s Profit Slips on Estimate of Legal Costs
Sempra Energy reported Wednesday that it increased its accounting reserves for litigation costs, leading to a 4% decline in third-quarter profit, and Chief Executive Stephen Baum said he hoped to resolve all of the utility owner’s energy-crisis lawsuits by the end of the year.
Baum’s statement was the strongest indication yet that Sempra expected to settle a high-stakes antitrust lawsuit that was being tried before a jury in San Diego County Superior Court. In that case, large energy customers are seeking treble damages of up to $23 billion from Sempra and its utilities for allegedly squeezing natural gas supplies during the state’s 2000 to 2001 energy market disaster.
Over the weekend, San Diego-based Sempra agreed to pay more than $4.6 million to settle the charges with Los Angeles County and 11 other plaintiffs. Baum reiterated to financial analysts that he believed the pending cases had no merit, but he added, “On the other hand, we are in front of a jury in San Diego that went through the energy crisis and the plaintiffs have an appealing story.”
Sempra is pursuing settlements of energy-crisis litigation, “not because we are guilty of anything, but because we believe in risk management,” said Baum, who has announced that he will retire in February. “It’s one of my written goals with the board of directors to reach satisfactory resolution before the end of the year of the energy-crisis litigation, and I expect to meet my goals,” he said, describing settlement talks as having “evolved and become more pointed.”
The San Diego trial, which concerns only a small number of the total plaintiffs, is scheduled to last as long as six months.
Sempra, parent company of regulated utilities Southern California Gas Co. and San Diego Gas & Electric Co., said third-quarter profit slipped to $221 million, or 86 cents a share, from $231 million, or 98 cents, for the same period last year. Sempra’s third-quarter revenue rose to $2.7 billion from $2.2 billion.
The company increased its pretax reserves for legal costs by $319 million in the third quarter, a move that reduced earnings by $189 million after taxes. With the increase, Sempra’s reserves for energy-crisis-related litigation totaled $554 million.
Excluding such one-time adjustments, Sempra posted income equal to $1.07 a share, up from 96 cents in the third quarter of 2004 and above analyst expectations of $1.01 a share, according to a survey by Thomson Financial.
Based on strong results from the company’s commodities trading arm, Sempra on Wednesday raised its 2005 earnings estimate to a range of $3.40 to $3.60 a share, up from its earlier guidance of $3.20 to $3.40 a share. The company’s stock fell 15 cents to $43.
Also Wednesday, PG&E; Corp. said tax gains helped boost its third-quarter profit by 11% to $252 million, or 65 cents a share, up from $228 million, or 53 cents, in the year-earlier quarter. San Francisco-based PG&E;, which owns California’s largest utility, Pacific Gas & Electric Co., said revenue for the period rose 7% to $2.8 billion.
The quarterly results were aided in part by $13 million in tax benefits from a former subsidiary. Excluding special items, PG&E; posted income of 62 cents a share, up from 57 cents in the third quarter of 2004 and a penny higher than the 61 cents a share expected by analysts polled by Thomson Financial.