Sempra U.S. Gas & Power, a subsidiary of Sempra Energy (SRE), has entered into a definitive agreement to sell one 625-megawatt (MW) block of its 1,250 MW Mesquite Power natural gas-fired power plant to the Salt River Project (:SRP) Agricultural Improvement and Power District for $371 million.
The SRP is the umbrella name for two separate entities: the Salt River Project Agricultural Improvement and Power District, an agency of the state of Arizona that serves as an electrical utility for the Phoenix metropolitan area, and the Salt River Valley Water Users' Association, a utility cooperative that serves as the primary water provider for much of central Arizona. It is one of the primary public utility companies in Arizona.
The SRP Board of Directors approved a management proposal to acquire 100% ownership of the 625 MW block and a 50% undivided interest in the infrastructure facilities. The agreement is subject to approvals from the Federal Energy Regulatory Commission and other regulatory agencies. The companies anticipate receiving these approvals in the first quarter of 2013.
We note that the Mesquite Power project has two 625 MW power blocks. Besides the 100% ownership of one block, SRP also intends to operate the second block. Each block is comprised of two gas turbines and a steam turbine.
Sempra U.S. Gas & Power develops clean power solutions in markets throughout the U.S. with a focus on zero and low-emission fuels. The company operates a number of renewable and natural gas-fueled power plants, including the largest photovoltaic solar facility in the U.S. Its natural gas and renewable plants combined generate power for nearly 1 million homes and businesses. Sempra U.S. Gas & Power also operates 23 billion cubic feet of natural gas storage, along with natural gas pipelines and distribution utilities.
Recently, in October, Sempra Energy was awarded two bids by Comisión Federal Electricidad (“CFE”), Mexico’s state-owned electric utility, to construct a $1 billion natural gas pipeline network in northwestern Mexico. The new pipeline will be comprised of two segments that will interconnect with the U.S. interstate pipeline system and provide natural gas to existing CFE power plants. The capacity for each segment is fully contracted by the CFE for a 25-year term. The first pipeline is expected to begin operations in late 2014.
Moreover, the company’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. However, the above positives are offset by a lack of near-term positive triggers, along with near-term trepidation in natural gas prices and pending regulatory cases.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our 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, Sempra International and Sempra U.S. Gas & Power.
Some of the company’s main competitors are UGI Corp. (UGI) and MDU Resources Group Inc. (MDU).
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