Sempra Signs Twin PPA Agreements

San Diego Gas & Electric (“SDG&E”), a subsidiary of Sempra Energy (SRE - Analyst Report) has entered into two 20-year purchase power agreements (“PPA”) with Silverado Power subsidiaries.

As per the agreement, Sempra Energy will purchase 15 megawatts (‘MW’) of solar energy from Western Antelope Dry Ranch LLC in Lancaster, California, and Victor Mesa Linda B LLC in Victorville, California.

The Lancaster project has the capacity to generate 10 MW of energy and the project at Victorville will generate 5 megawatts, which when combined will power 3,225 homes. Both the contracts are subject to approval from the California Public Utilities Commission. The construction of both the projects is expected to begin in April 2013 and continue through October 2013.

The company seems to be intent on meeting the guidelines of California’s Renewable Portfolio Standard Program, which directs utilities to acquire 33% of their power from renewable sources by 2020. It is working in tandem with its customers, devising ways to save the environment. The Appliance Recycling Program is one such initiative that provides its customers a rebate to recycle their old, working refrigerators, freezers and room air conditioners. In the last two years, as many as 34,000 customers recycled appliances, leading to reduced annual greenhouse emissions corresponding to the amount released by 4,500 passenger vehicles.

These kinds of collaborations result in sustainable projects that create jobs, lessen greenhouse gas emissions and assist in meeting the increasing demand for clean, renewable energy.

The company recently provided its outlook, which reflects its attempt to improve profits through environmental sustainability. The company expects earnings per share to be in the range of $4.00 to $4.30 in fiscal 2012 and in the range of $4.10 to $4.40 in FY13. It aims earnings in the range of $5.50 to $6 per share in 2016.

We believe that Sempra Energy’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks.Its infrastructure improvement programs, focused mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate, position it well for stable earnings.

However, we are concerned due to lack of any near-term positive triggers, along with fluctuating natural gas prices, an ongoing land dispute regarding its LNG terminal in Mexico and pending regulatory cases. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities, and Sempra Global and parent. The company mainly competes with Edison International (EIX - Analyst Report) and PG&E Corp. (PCG - Analyst Report).