Matthew Lickona 2:45 p.m., Dec. 10
Sempra Energy Stock Buyback from RBS Sempra Commodities Asset Sale
Sempra Energy's recent stock buyback announcement in September appears to be consistent with earlier corporate comments of a renewed focus on its energy utilities including San Diego Gas and Electric Company (SDG&E).
The shift in focus comes at the expense of its joint venture RBS Sempra Commodities with Royal Bank of Scotland (RBS), a joint venture that is now in the process of being liquidated despite record spot prices that raise interest in the gold bullion contracts traded in London and Dubai by the joint venture's component RBS Sempra Metals. The liquidation comes after RBS was ordered to dispose of its RBS Sempra Commodities holdings as part of a European bailout related to the Crash of 2008, and after a CBS 60 Minutes report on the conflict gold smuggling from the Congo through Uganda with the smuggling route ending in Dubai.
RBS has been the largest global underwriter of Dubai World investment in resort and entertainment construction projects in Las Vegas and in other international undertakings. The mega-millions in revenues from Sempra Energy's half of the RBS Sempra Commodities venture has been a lucrative addition to its public utility shareholding dividends from SDG&E and other investor owned utility operations. RBS Sempra Metals is well entrenched in the London and Dubai gold bullion trading markets. The CBS 60 Minutes report said that the Dubai conflict gold smuggling route was valued at an estimated $300 million annually, and a subsequent United Nations investigation condemned the Congo conflict gold smuggling trade but failed to identify companies involved. Both CBS and the United Nations found widespread incidents of gold nuggets mined by unpaid workers in deplorable conditions and sold to fund rival armed factions in the Congo, where the conflict nuggets make their way through Kampala in Uganda before making the final leg on the smuggling rout into Dubai. Often, the gold is taken from one smuggler by another at gunpoint along the way. The Dubai commodity trader network with no interest in the mines, conditions of work, or methods of delivery buys up the smuggled gold to fulfill orders on its own futures contracts for bullion delivery, as the conflict-stained nuggets of gold becomes the now-legitimate raw material for fine jewelry, electronic wiring and components, and other industrial applications around the globe.
We should all be happy that Sempra Energy is putting some distance between its assets and those that come at a cost measured in blood. Even happier should be the dividend receiving shareholders of Sempra Energy stock, as current sales negotiations point to Sempra Energy at least doubling the value of its initial RBS Sempra Commodities investment, made only about a decade ago. The new billions will also be invested in Sempra Energy infrastructure. So far, there has been no translation of this new corporate goal into concrete practical proposals by Sempra Energy's SDG&E to put electrical power lines underground on an expedited basis. So far, SDG&E owes millions in uninsured wildfire legal costs and other related expenses from the 2007 San Diego wildfires, and there are now several SDG&E rate hike proposals awaiting California Public Utilities Commission (CPUC) permission to be added to monthly customer bills, with all outstanding SDG&E rate hike proposals citing uninsured wildfire expenses as the main reason to bill customers for the consequences of utility executives' decisions.
Use "Z-Factor", "WEBA" or "PSW/PSH" as terms for SDG&E rate hike proposals in the Reader web site search box at the top of this blog post. None of those rate hikes contain any mention of Sempra Energy's CPUC-mandated first priority conditions to inject capital into public utilities needing it to effectively serve the public.
Unlike Pacific Gas and Electric Company's executive decision to delay gas transmission line replacement until permission was given by CPUC to bill PG&E customers for the work, SDG&E has had no major catastrophic gas line fires such as what happened in San Bruno in the PG&E service area. The only major gas line incident that resulted in federal criminal guilty verdicts in 2007 came from the United States of America v. SDG&E trial in the local district court (use "SDG&E guilty" in the Reader web site search box at the top of this blog post). During SDG&E's requested retrial, key state testing evidence used in the first trial prosecution was later ruled inadmissible as not representative of the original asbestos-containing pipe covering. The asbestos-containing material would have been admissible before it was pulverized into dirty white dust and waste material found years later by residents in the suburban neighborhoods of Encanto and Lemon Grove. Charges of Clean Air Act violations against SDG&E and two individual defendants previously found guilty were dropped in 2009, but area residents remain wary of the potential for lung cancer from friable asbestos exposures. Television advertising from multiple mesothelioma law firms remains a Southeast San Diego neighborhood constant.
Recent international reports show a rise in tensions in and around the Congo, coinciding with the record gold spot prices in global markets at around $1300 per ounce.
Sempra Energy's renewed focus on its utility holdings comes a decade after the California Energy Crisis of 2000, where political repercussions included the eventual recall of California Governor Gray Davis. Sempra Energy and SDG&E recently reached a multi-million-dollar settlement with Attorney General Jerry Brown to quiet allegations of wrongdoing during the 2000 Energy Crisis. The settlement came shortly after former San Diego City Attorney Michael Aguirre intervened in several SDG&E wildfire-related rate increase proposals awaiting CPUC approval, where Aguirre raised concerns about the private-dinner nightclub close relations between SDG&E executives and CPUC commissioners making decisions on rate increases and other matters initially proposed by SDG&E executives and attorneys.
UPDATE: Sempra Energy confirmed on October 7 that the last of the RBS Sempra Commodities assets had been sold to JP Morgan with the transaction valued at $220 million. Sempra Energy claims that the total sale price for all of its RBS Sempra Commodities assets will be about $1.8-1.9 billion, with about $500 million of that to be used in its previously announced stock buyback. The rest will go to infrastructure improvements, but so far, there has been no word on renewed emphasis on putting overhead power lines underground. Sempra will take a Q3 charge on the sale of assets of something in the neighborhood of $100 million, give or take $50 million.