sempra energy 2007 Annual Report


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sempra energy 2007 Annual Report

  1. 1. It’s not electricity, or natural gas, or wind or sun. It’s not nuclear, geothermal or biomass. Joe Risse Engineering/Construction Program Director
  2. 2. What powers an energy company is the most dynamic and truly inexhaustible resource on the planet: the ingenuity that resides in all of us. 1 Alma Briseno Commercial and Industrial Services Account Executive
  3. 3. Far more than any other natural asset, our resource- fulness in delivering energy in ways that respect our world is of truly limitless potential. 2 Robb Anderson Director of Resource Planning
  4. 4. And at no other time in history have we been in greater need of realizing that potential than we are right now. 3 Dimas Hernandez Energía Costa Azul Terminal Manager
  5. 5. “More than ever before, our employees have embraced the challenge of delivering on our promises.” 4 Donald E. Felsinger Chairman and Chief Executive Officer
  6. 6. groundwork for us to expand our exist- While LNG represents an important Fellow Shareholders, emerging natural gas supply for the ing product lines and move into new United States, Sempra Energy also is markets — while greatly reducing our In 2007, we not only exceeded committed to improving the domestic risk profile. This transaction will enable our financial goals, but we pipeline system for bringing gas to mar- us to benefit from continued growth in also strengthened the foundation ket. We are partners with Kinder the commodities business while freeing for our continued growth in Morgan and ConocoPhillips in the up the company’s balance sheet to Rockies Express Pipeline, a 1,600-mile repurchase common shares and increase the future. our dividend. pipeline that will deliver natural gas We generated record income During the past year, we made “In my 36 years at this from continuing operations in 2007 of considerable progress on our $1.13 billion, or $4.26 per diluted share, company, I’ve never been major infrastructure projects. up from $1.09 billion, or $4.17 per When Energía Costa Azul diluted share, in 2006. Our total share- more excited about our comes online in 2008, it will holder return in 2007 was 13 percent. be the first liquefied natural ability to create long-term gas (LNG) receipt terminal on These results continue a trend of growth the west coast of North value for our shareholders.” in shareholder value that, in 2007, led America. The Baja California, to Sempra Energy® being named for the Mexico, facility will serve elec- first time to the “BusinessWeek 50” list tricity-generating plants, industry and from the Rocky Mountain basins to of top-performing U.S. companies. The utilities in northern Mexico and the the northeastern United States. About company was also recognized in Fortune U.S. Southwest. half of the project is now operational; magazine’s “America’s Most Admired the rest should be completed in 2009. Companies” list in 2007 and again in 2008, Our second LNG terminal, Cameron LNG, ranking No. 2 among electric and gas Renewable-energy development is on the Gulf Coast of Louisiana, utilities in 2008. a growing focus, and in 2007, is targeted for completion at the end Sempra Energy announced its first of 2008. The Cameron LNG facility is only But markets continue to change. That is renewable-energy project, located 35 miles from a major pipeline hub that why we have focused our investment in Baja California’s La Rumorosa area. provides access to nearly two-thirds of strategy over the last several years on The project, which will produce wind all U.S. natural gas markets. In the same North American natural gas infra- power for the California market, could region, our Liberty Gas Storage facility structure and our California utilities. be operational by 2011. will begin operations in 2008, providing These are the areas where we believe added flexibility for LNG shippers, we can produce the most stable Our two California utilities, San Diego producers, local industrial end users financial returns for our shareholders. Gas & Electric® (SDG&E®) and Southern and utilities in the market. California Gas Co. (SoCalGas®), continue Another key part of our strategy centers to set a high standard of service, supplying on an agreement that we reached in reliable and safe energy to more than July 2007 with The Royal Bank of Scotland 23 million Californians. In 2007, we (RBS), one of the largest banks in the completed construction of a new 52-mile world, to form a joint venture that will transmission loop around urban San allow us to expand our commodities- Diego to improve reliability and access marketing business significantly while to new power plants. We also continue capping our risk. The importance of to push for timely regulatory approval this new partnership — in which RBS will of the Sunrise Powerlink project, provide all growth capital, working- which would be the first major new capital requirements and credit support — cannot be overstated. Finalized in (continued on page 6) April 2008, the partnership lays the 246% 5
  7. 7. part of it. The transaction immediately high-voltage transmission line in nearly will strengthen our balance sheet and 25 years that connects San Diego to provide the flexibility to pursue additional the state’s energy grid. We believe the growth opportunities in the future. Sunrise Powerlink is the most effective In 2008, we also expect to begin realizing way to improve energy reliability, reduce earnings contributions from several costs and meet California’s mandates of our major infrastructure projects as for increased renewable energy and they begin commercial operations. reductions in greenhouse-gas emissions. Both lines are a vital part of SDG&E’s Also, in 2008, we mark the 10-year long-term energy plan, which encom- anniversary of Sempra Energy’s found- passes a balanced mix of energy ing. We are a very different company conservation, renewable resources and today, with a balanced portfolio of regu- new power plants and transmission lines. lated utility and competitive energy businesses, a pipeline of high-quality As we execute our strategy, we are development projects and a solid finan- mindful of the escalating concerns cial foundation to support our growth. about global warming and the future regulation of greenhouse gases. We have taken an environmentally Our success starts with our employees — responsible approach in all our busi- the ingenuity they bring to the market- nesses. Natural gas is the cleanest place and their execution of our strategy. of all fossil fuels, and we expect it will For this reason, we are featuring in this report the insights, ideas and stories play a critical role as a bridge to a of employees from the Sempra Energy “greener” future as renewable sources, companies. More than ever before, such as solar, wind and biomass, our employees have embraced the chal- become a growing part of North America’s lenge of delivering on our promises. energy mix. Our power-generating To our employees, for their sustained facilities at Sempra Generation and commitment to excellence, and to SDG&E employ the latest clean-burning you, our shareholders, for your ongoing natural gas technology to keep support, I offer my heartfelt thanks. emissions low. Additionally, our utilities have been recognized nationally for their leadership in energy efficiency, and SDG&E is working aggressively to contract for new renewable resources. Sincerely, The Sunrise Powerlink will serve as a key transmission gateway to import energy from renewable sources into the San Diego region. Donald E. Felsinger I look at the road ahead with great Chairman and optimism. In my 36 years at this com- Chief Executive Officer pany, I’ve never been more excited about our ability to create long-term value for our shareholders. Our joint venture with RBS is an important 2007 2006 2005 6
  8. 8. Infrastructure. Environment. Planning. Conserving. These are the stories of Sempra Energy. 7
  9. 9. Cameron LNG is a liquefied natural gas receipt terminal under construction “What makes in southwest Louisiana, along the us good at Calcasieu Channel. building major 1.5 billion infrastructure cubic feet per day of natural gas to projects is be supplied from Cameron LNG, with room for expansion putting the right 35 people in the miles from a major right place at pipeline junction that provides access the right time.” to 65 percent of U.S. natural gas markets 2008 construction expected to be complete Joe Risse Engineering/Construction Program Director, Cameron LNG Building Infrastructure 8
  10. 10. During the construction phase itself, We start by partnering with outside Building Infrastructure we tend to be perfectionists in what we experts called owner’s engineers or con- do. We know when something’s not sultants, who essentially become an Coming as he does from right, and we strive to correct it — even extension of our team. For each project, a background in power-plant though, in the big picture of things, it we perform detailed due diligence development, Joe Risse may seem small. We’re very proud of to find firms that have the right people knows big construction. Today, our safety record, too, and that always with the capabilities and desire to remains a top priority in every project align with our specific needs for that as a program director with particular job. The reason we use Sempra LNG, he oversees work owner’s engineers to the extent that on the Cameron LNG project “During the construction we do is that it allows us to remain on the Louisiana Gulf Coast and flexible as an organization, enabling us phase itself, we tend a project team of more than to take advantage of other opportuni- ties as they arise. 800 contractors and employees. to be perfectionists in Once completed in late 2008, what we do.” These experts have the knowledge we Cameron LNG will be Sempra need to help us put together detailed Energy’s largest LNG project. specifications, schedules and budgets, we undertake. In fact, in January 2008, and then aid in our extensive search “As with all Sempra projects, the Cameron LNG project surpassed process to find qualifying contractors, Cameron LNG starts and ends with 2.5 million labor hours worked without which, for any large project, is always managing risk. We do that here by having a lost-time incident. one of the biggest challenges. Once very good people — highly experienced a contractor is selected, we are commit- engineers and project managers — work- One of the more satisfying aspects of ted to managing the relationship in ing with the project developers early in my job is the ‘cross-pollination’ we have a mutually rewarding way throughout the planning stage, where they offer among different projects, whereby the course of the project, with invaluable insight on even the smallest something we learn at one job site is performance-testing requirements, details of getting the largest projects passed on to teams at another, often guarantees and bonus incentives, as built and running. This includes people resulting in significant process and well as a structured plan for payments, from cross-functional teams like technical improvements. For example, milestones and progress measure- engineering and operations to accounting, the engineers at Sempra LNG’s other ments — all in support of our project goals. permitting and regulatory affairs. LNG receipt terminal, Energía Costa Azul, reported that they were having prob- We are successful in completing these lems with a specialized cryogenic valve; projects because we place an unwaver- we were able to intercept the problem ing focus on project scope, right and correct it in time to minimize its impact from the start. If you have that focus here at Cameron LNG. from the project’s development phase, you are more apt to build in the In the end, it helps to keep sight of both right schedule and budget. the big picture and the little one, too. In the crush of details in a typical day, I’ll sometimes step back and think about what we’re doing here at Cameron LNG, which is constructing an important component of an international energy system that is tied, at one end, to gas resources on the opposite side of the world, and at the other end to a family living in a small town in the midwestern United States. Our terminal will supply clean-burning natural gas to light homes and power business and industry as we move toward a new energy future.” 4.5 million cubic yards of Used to create over soil removed during the dredging 100 acres of new wetlands. process at the terminal. 9
  11. 11. Energía Costa Azul is an LNG receipt terminal on the north- “I’m most proud west coast of Baja California, Mexico. The facility will be of the care we’ve operational in 2008. taken to actively 5,000 and diligently total protected plants relocated to the nursery protect marine at Energía Costa Azul life and native 5 estimated number of vegetation.” years after which the replanted habitats will be self-sufficient 700,000 individual marine organisms within the jetty area relocated to protected areas Dimas Hernandez Terminal Manager, Energía Costa Azul Preserving the Environment 10
  12. 12. protect affected sea life is probably In conjunction with the Mexican Preserving the Environment the best example of this, and one of the environmental agency, SEMARNAT, we identified the native plants on more most important achievements in the There’s not much about the than 70 acres of land surrounding the entire program. Before construction operations at the Energía Costa construction site and mapped their started, we moved about 700,000 sea Azul receipt terminal that exact locations. These plants included urchins, sea cucumbers and sea snails out Dimas Hernandez does not touch the Ferocactus viridescens, a species of the construction area to adjacent under special conservation status in sea banks, where they are continuing to in some way. As terminal man- Costa Azul, and the Agave shawii, which live and reproduce. We also created ager, he has a broad range of a program to teach the operational responsibilities. “When the LNG terminal is local fishing community And yet the careful protection how to harvest the sea completed, we will re-plant the of the native environment urchins in a more responsible manner that around the facility has always native vegetation in the exact protects and propagates been one of his top priorities location it was taken from and the species over time. in the development of the project. identify special conservation The Energía Costa Azul “Right from the beginning of terminal represents a zones to protect the continued this project, we were guided by an long-term commitment extreme sensitivity to the environment. to active environmental growth of its habitats.” Before breaking ground on construc- stewardship. We have tion, we worked with Mexico’s National implemented a compre- Institute of Anthropology and History hensive environmental-protection is found only along the Pacific coast to prepare for the possibility that items program that encompasses the local earth of Baja California. We carefully of archeological significance might be and marine ecosystems. Additionally, transplanted each and every plant and uncovered. And indeed, during the as part of normal facility operations, we its surrounding ecosystem — 5,000 course of our work, we discovered ancient in all — to a special nursery created to continually remind our employees of bones, seashells and tools — all of the important role we play in protecting simulate the exact environment which were carefully excavated by the the environment. they lived in. During construction, we’ve institute and taken to a location not only protected these plants, but where they could be safely preserved We take our environmental stewardship also propagated the species. When the and studied. very seriously. Yes, we are bringing LNG terminal is completed, we will a new, clean source of critically needed re-plant the native vegetation in the exact energy to the region. But more impor- location it was taken from and identify tantly, we are doing it in a responsible special conservation zones to protect the way that will preserve the local habitat continued growth of its habitats. Not for my grandchildren and their children, only that, we have implemented well into the future.” educational programs in local schools to teach children the importance of appreciating and preserving these native plants. We also were extremely diligent in our approach to minimizing the impact of the project on marine life — both plants and animals. The action we took to Benefits of the project for the region during construction: 3,114 Jobs jobs were created at the peak of construction. Local $324 million Purchases in the purchase of products and services has been spent in Mexico.* * as of 2/29/08 11
  13. 13. Planning for the Future SDG&E’s long-term energy plan provides a balance of infra- structure, resources and conservation programs to meet the “No single energy region’s energy needs. resource will 20,000 number of new cus- be the key to tomers added to SDG&E’s system delivering power. each year The trick is to 487 targeted megawatts find just the right of reduced energy consumption through balance of conservation by 2016 – the equivalent of the production all of them.” capabilities of one major power plant 2020 California’s deadline to reduce green- house gas emissions to 1990 levels Robb Anderson Director of Resource Planning, SDG&E Photo taken with permission from the Campo Kumeyaay Nation. 12
  14. 14. The variety of locations of our balanced Our energy-efficiency and demand- Planning for the Future mix of energy sources calls for a net- response programs help customers work of transmission lines to transport conserve energy. And, thanks to tech- As one of the key people the power to customers, often from nology, in the near future charged with developing San we will be able to offer Diego’s long-term energy “Our goal always is to have customers new tools such plan, Robb Anderson sees his as our smart meter pro- adequate capacity to gram. Smart meters provide job as finding ways to fit a secure two-way commu- together the pieces of a puzzle: move the power to wherever nications channel with our integrating the resources of customers that will provide our customers are.” SDG&E with the state of California’s those customers with energy policies. The goal is to near-real-time energy use facilities hundreds of miles away. Our information. These initiatives not only provide the company’s utility proposed Sunrise Powerlink transmis- help reduce greenhouse gases, customers with safe and reliable sion line would add a second major but also help customers manage their energy at reasonable costs. electric ‘superhighway’ to our region costs and save energy, while at the and offer a new, reliable pathway for same time lessening the potential for “The fact is, as Southern renewable energy being produced east power interruptions. California continues to grow, energy of San Diego. In addition to gaining demand here — and throughout the access to renewable-energy sources, As California has mandated that utilities United States — is also growing. That’s SDG&E’s transmission network is supply 20 percent of their energy why, as the organization responsible built around responding to demand from renewable sources by 2010, we are for long-term energy planning for San growth. Our goal always is to have moving aggressively to meet this Diego, we must look ahead and deter- adequate capacity to move the power to goal. We are contracting for wind and mine how to meet future demand and wherever our customers are. To this biomass power from existing and keep the lights on. end, we have been actively upgrading planned projects in San Diego County, our system, with projects such as as well as geothermal, solar and After the unsuccessful attempt at the recently completed Otay-Metro wind energy being developed to the east. deregulation earlier this decade, Powerloop, which provides dependable Finally, we rely on power-purchase California returned SDG&E and the transmission of power in and around agreements and our own generating state’s other electric utilities to the San Diego area. plants — such as the Palomar Energy their traditional role of planning for Center, which came online in 2006 — to their customers’ energy needs. We have to plan for tomorrow. Figuring produce reliable electricity through The utilities also have been directed out how to fit all the pieces of the plan the use of clean-burning natural gas. to reduce greenhouse gases and together is the real challenge. But it’s increase the use of renewable energy. also the most satisfying part of my job.” At SDG&E, our plan for meeting our customers’ needs and the state’s goals consists of five main elements: energy efficiency, demand response, renewable energy, and new electric generation and transmission. 2009 5% Demand Response SDG&E is implementing customer programs to reduce power power demand demand during periods of peak reduction usage by 5 percent from 2009 through 2016, which reflects the goals set by the California Public Utilities Commission. 2016 13
  15. 15. Conserving Energy Over the last 15 years, SoCalGas has “I love to educate invested heavily in energy efficiency. customers on $465 million how conserving invested in energy efficiency natural resources 228 million+ is not just a matter Therms of natural gas saved by customers of responsibility, 416,000 it’s also estimated number of good business.” homes that could be supplied for a year from this savings Alma Briseno Commercial and Industrial Services Account Executive, SoCalGas 14
  16. 16. The energy evaluation we do for these The best thing about my job? I get to Conserving Energy customers is comprehensive, inspecting learn about so many different indus- all equipment from boilers and furnaces tries. In addition to co-generation and With her background in industrial right down to space heaters. We also steam processing, I’m becoming an engineering and business spend a lot of time talking to the on-site expert in everything from metal plating administration, Alma Briseno facility managers, as well as financial to tortilla manufacturing! And if I can has the perfect resume for executives and even the business help my customers save money, keep owners, to get a big-picture look at how their businesses in California and help consulting with SoCalGas’ com- efficiently their systems work. protect the environment, it’s extremely mercial and industrial customers. gratifying for me. We share the same She gives presentations to Invariably, we find ways for customers earth, after all. It makes me feel that corporate executives, inspects to use their energy more efficiently I’ve made a real difference. boilers in small factories and and save money. We may recommend insulating tanks and pipes, or we At SoCalGas we also practice what we does virtually everything in may suggest replacing older equipment preach. At all of our field operations between to help her customers offices, safety and energy conservation with newer, more efficient models — save on their energy costs. which can earn the customer a rebate in are the highest priorities. Each of us the form of a direct cash payment. holds one another accountable. At one “The first service we provide We may even direct for our customers is a free energy audit. “We find ways for customers them to different types Because even our customers who are of technologies, including tuned in to energy conservation often to use their energy more renewable sources, don’t know where to start. such as micro-turbine efficiently and save money.” co-generation systems. Sometimes we identify customers who could benefit based on some issue they Education is key for all of our customers, of the offices where I work, my col- may be having, for example with air- so we also offer help with long-term leagues are always saying, ‘Alma, quality regulators. Or, the customer may project plans, which we are involved in don’t forget to turn off the lights.’ have participated in one of our audits right from the beginning. Here, we in the past. But, most often, we get leads help companies map out strategies for The thing is, I never forget.” from our service technicians out in the saving energy, including performing field, who work directly on our customers’ cost analysis with economic paybacks equipment on a daily basis. over a period of months or even years, with money-saving incentives from us along the way. We also have a variety of assistance programs that help customers pay their bills in times of difficulty. From structured payment plans to flexible payment arrangements, our goal is to minimize our customers’ energy concerns. SoCalGas is the nation’s largest natu- ral gas distribution utility, serving 20.3 million consumers throughout central and Southern California. Los Angeles San Diego 15
  17. 17. Energy for Others. Sempra Energy While the Foundation’s larger annual Creating Community employees help out in other ways, too, giving represents a variety of worthy Partnerships including initiatives such as Energy partnerships, the company is proud for Others, an in-company non-profit to help the individuals and families — One of the most important areas group that facilitates support of neighbors, colleagues and friends — who of Sempra Energy’s work is the community-based charitable organiza- lost their homes in the fires. Sempra company’s ongoing commitment tions. With its own employee-elected Energy is glad to play some small part board of directors and local advisors, in helping them to rebuild not only their to programs that benefit the the organization grants funds to a wide homes, but their lives. communities in which the com- variety of deserving local organizations, pany does business. with 100 percent of all employee Coastal Cleanup. As an organization contributions going to the charities. committed to the protection of the The Sempra Energy Foundation. environment, in 2007, Sempra Energy The Foundation was conceived to invest Helping others is a way of life at once again was a sponsor of the annual not only in creative ideas for advance- Sempra Energy, and the company is proud California Coastal Cleanup Day — the ment in the energy field, but also to of the efforts made by employees to largest effort of its kind in the world. provide support for people and commu- reach out to those who show promise or In September, more than 800 Sempra nities in need. The California wildfires need a helping hand. Energy employees, family members of October 2007 served as the catalyst and friends gathered to help clean up for the Foundation’s first act of trash at over a dozen beach and river giving: a $5 million fund for those directly sites throughout Southern California impacted by the devastation. and Baja California. Team Sempra did such a good job that its work was reward- ed with the first annual “Cleanup Champion” award. The company was Top: SDG&E employ- honored to be a sponsor in helping to ees work to restore make the world a little cleaner. power in the Rancho Bernardo neighbor- hood of San Diego after the October 2007 wildfires. Right: A Sempra Energy employee and her family pick up trash on a San Diego area beach during the 2007 California Coastal Cleanup Day. Bottom: Sempra Energy employees participate in a local Multiple Sclerosis walk through the company’s Energy for Others program. Creating Community Partnerships 16
  18. 18. Based in San Diego, Sempra Energy is an energy company with 2007 revenues of more than $11 billion. With 13,500 employees worldwide, Sempra Energy companies develop energy infrastructure, operate utilities and provide related products and services to more than 29 million consumers around the world. Sempra Energy common shares trade on the New York Stock Exchange (NYSE) under the symbol “SRE.” Additional information is available on the Web at RBS Sempra Commodities LLP Sempra Generation develops, San Diego Gas & Electric is owns and operates power plants was created by a joint venture a regulated public utility that serving wholesale electricity between Sempra Energy and has been supplying natural markets in North America. These The Royal Bank of Scotland in gas and electric service to the natural gas-powered plants April 2008. The marketing San Diego region since 1881. are among the cleanest and and trading joint venture serves SDG&E serves 3.4 million most advanced in the United customers in natural gas, consumers in communities States. The company is also power, oil and oil products, coal, from Orange County to the developing renewable-energy base metals, plastics and other Mexican border. generation projects. energy and metals products. Southern California Gas Co. Sempra LNG develops, builds has been delivering natural and operates liquefied natural gas to its customers in cen- gas receipt terminals in North tral and Southern California America. The company’s for nearly 140 years. It’s two receipt terminals under the nation’s largest natural construction will have the gas distribution utility, serv- capacity to process up to a total ing 20.3 million consumers. of 2.5 billion cubic feet per day of natural gas. Sempra LNG also has a third facility that is fully permitted. Sempra Pipelines & Storage develops, builds and operates natural gas pipelines and storage facilities in Latin America and the United States. The company and its affiliates operate and/or own more than 1,200 miles of pipelines and are developing an additional 800 miles to help meet North America’s growing demand for energy.
  19. 19. On the Cover The 25 wind turbines on Campo tribal land east of San Diego provide enough electricity to SDG&E per year to power about 30,000 homes. Wind photos taken with permission from the Campo Kumeyaay Nation. This report was printed on recycled paper. 101 Ash Street San Diego, California 92101-3017 © 2008 Sempra Energy. All trademarks belong to their respective owners. All rights reserved.