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By Neal Schmale
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EXCELSIOR PLANS
POWER UNITS
Excelsior Energy
Inc. is proceeding
with plans to
invest $1 billion in
clean coal-fired
generation in
Minnesota, with a
decision to come
later this summer.
The company is
hoping to forge a
long-term sales
contract with
Xcel Energy.
Bob Schulte,
vice president of
regulatory affairs
and marketing
at Excelsior,
told Dow Jones
newswires, “We’re
in discussions with
multiple utilities
in the region.”
Excelsior intends
to construct
coal gasification
units that would
produce about 600
megawatts possibly
starting in 2009.
14 ENERGYBIZ MAGAZINE July/August 2005
Energy Business
Sempra’s Schmale:
Drivers to Success
AS CFO OF an energy company, I have had the
opportunity to execute, along with a top-notch management
team, a business philosophy that combines deep
industry expertise with rigorous risk management.
Sempra Energy is a Fortune 500 energy-services
company, serving 29 million consumers worldwide
with more than 13,000 employees. We serve the
largest customer base of any energy utility in the
United States through San Diego Gas & Electric and
Southern California Gas Co.
Our group of competitive energy businesses
builds and operates infrastructure, sells energy and
related commodities, and provides risk-management
services. These diversified assets and competencies
are the cornerstone of our success. Due to our size,
scope, and resources, we’re able to compete in
national and international energy markets.
The results have been superior stockholder returns.
Sempra Energy’s earnings have increased an average
of 20 percent annually every year since the company
was formed seven years ago. As of May 31, total
return over the past five years was 154 percent, as
compared with 8 percent for the S&P Utility Index, and
10 percent for the Dow Jones Industrial Average. For
2004, Sempra Energy generated record earnings of
$895 million, a 38 percent increase over 2003.
How does a company produce results like this?
Through organic growth and strategic acquisitions.
We’ve been methodical, knowing it’s necessary to
maintain a solid balance sheet and strong, investmentgrade
credit ratings. As you begin to own more volatile
businesses, you don’t simultaneously lever up. You
must maintain a certain financial strength to ensure
you’ll survive bumps in the road along the way.
In the wake of a regulatory retrenchment in
many states, faltering deregulation, and financial
scandals, many energy companies have returned to
their utility roots. We’re one of the few companies
that has continued to pursue and effectively execute
an integrated energy services strategy. Because
of our financial stability and commitment to market
research, we’ve been able to stay opportunistic in
the marketplace.
Risk management has been a key for us. We will
not make any major investments in energy infrastructure
without hedging our risks. For example, since
2000, we’ve added more than 3,600 megawatts of
Running an
ethical workplace is
an imperative.
active generation assets to our portfolio — about 80
percent of which is hedged through 2007.
We’ve taken the same approach with the three
new liquefied natural gas (LNG) receipt terminals
we’re developing in Baja California, Mexico, and on
the Gulf Coast. Fully contracted and under construction,
the Mexico terminal should be operational
in early 2008. We’re in the process of finalizing
commercial arrangements for the other two terminals
— one should begin construction by year’s end.
These investments in LNG were driven by
substantial in-house market research. Earlier in this
decade, government and industry experts predicted
that North America’s natural gas supplies would
be adequate for decades to come. We questioned
that conventional wisdom. Given our position in the
marketplace as one of the nation’s largest natural gas
distributors and marketers, we saw aberrations in
the price of natural gas that we believed signaled a
fundamental shift in the supply-demand balance.
Our research confirmed that the widely held
theories about gas supply were incorrect. Not only
was the United States facing a growing natural gas
shortfall, but given the static domestic resource
base, drilling restrictions, and increasing demand, we
forecast a serious market crunch.
Reflecting on my experience at Sempra Energy,
I am struck by what I think of as the drivers of our
success. First comes being ethical, fair, and honest. As
a businessman, looking at the wreckage strewn around
the corporate landscape from ethically and financially
bankrupt firms, I can say that running an ethical
workplace is an imperative. Second, to a significant
extent, we have benefited from challenging conventional
wisdom. Our industry, like many others, tends to have
a pack mentality. We trusted our instincts about the
changes in the natural gas market and have benefited by
assuming a leadership role in the emerging LNG business.
Third, you have to be flexible, because whatever
assumptions you make about the future, the only certain