3 Areas Fueling Sempra Energy’s Surprising Growth

Sempra Energy is expected to grow its earnings nearly twice as fast as fellow utilities like Dominion and Exelon. Here’s why.

Jul 14, 2014 at 1:00PM

Sempra Energy (NYSE:SRE) is unique among utilities. It plans to organically grow its earnings at 9%-11% per year through the end of the decade. That's nearly twice as fast as the 5%-6% annual earnings growth rate of Dominion (NYSE:D), while even further ahead of Exelon (NYSE:EXC) as it has struggled to grow its earnings outside of acquisitions. What's surprising about Sempra Energy's growth is that it can achieve this growth while at the same time having an overall risk profile at the same level as its utility peers. It does that by investing in projects that are in growth focused geographies and segments that are also supported by long-term, fixed-price contracts. While a bulk of the company's investments are in its two California utilities, there are three areas in particular that are really fueling the company's surprising growth. Let's take a look.

Cameron LNG
By far the biggest single contributor to Sempra Energy's earnings growth is its Cameron LNG project. The natural gas export facility, which is expected to come online by 2019, will push its earnings growth from an average of 8%-10% through 2018 to an average of 9%-11% though 2019. Overall, the project is expected to deliver $300-$350 million in annual earnings for Sempra Energy during its first 10 years of operations, which is a huge boost for a company that's expected to earn around $1.1 billion this year.

Cameron Lng

Source: Sempra Energy Investor Presentation (link opens a PDF)

While Cameron LNG will fuel a big rise in Sempra Energy's earnings, the company's growth is based on more than just this one facility. In fact, Dominion Energy is investing in its own LNG export facility at Cove Point, however, its earnings growth is only expected to be 5%-6% per year even with earnings from that project. That shows just how strong Sempra Energy's other growth initiatives are in fueling earnings for the company.

While Cameron LNG is fueling earnings growth toward the end of the decade, investments in renewables are providing near-term growth. As the following slide notes Sempra Energy's Broken Bow 2 Wind project and its Copper Mountain Solar 3 project are among the $2 billion in projects entering into service this year that will add to its earnings.

Sempra Energy Near Term

Source: Sempra Energy Investor Presentation 

Sempra Energy has a steady stream of renewable projects coming online after this year as well. Next year the company will see the second half of Broken Bow Wind as well as the second phase of Copper Mountain Solar 2. Then in 2016 the company's Rosamond Solar project is expected to come online. Further, the company has additional renewable projects that aren't yet part of its 2014-2015 plan but are in the process of being green lighted. If the company does move ahead with these projects it would add additional earnings growth above its already planned high rate of growth.

Renewable energy is an area that Exelon is beginning to turn to for growth. The company's nuclear heavy portfolio has struggled in recent years as power prices have plunged due to low natural gas prices. Because of this the company is building 1.5 GW of renewable capacity to complement its 19 GW of nuclear. Despite this, renewables aren't yet moving the needle for Exelon, which is why the company has turned to acquisitions to boost its earnings. 

The third big driver of Sempra Energy's earnings growth this decade is coming from its international operations, which is a growth segment that is not found at Exelon or Dominion. For Sempra Energy it's expecting to see several growth projects coming online in Mexico in 2015 and 2016 that will deliver earnings growth. These projects, which are noted on the same slide as the company's renewables growth above, include its Engeria Sierra Juarez wind project and an ethane pipeline as well as several other projects. Further, the company sees the potential for another wind development adjacent to its Energia Serra Juarez project as well as two natural gas pipelines in Mexico that again could be additive to its current growth rate.

Beyond Mexico the company is also investing in growth opportunities in Peru and Chile as noted on the below slide.

Sempra International

Source: Sempra Energy Investor Presentation 

As the slide notes, the company is completing a hydro plant in Peru. Beyond that Sempra Energy could pursue additional hydro generation in the country as well as combined cycle generation. Meanwhile, it's pursuing transmission projects in Chile that will be complete by 2018.

Investor takeaway
Sempra Energy is loaded with growth projects, which makes it a really unique utility. The company's 9%-11% growth rate is well above peers like Exelon and Dominion, even though both companies have investments in similar projects. The big difference is Sempra Energy has three big growth drivers while these companies really just have one. 

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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