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This post has been updated.
I’ve got a newsletter filled with hot energy market goss’ this week. It’s important because, if you care about climate change, you should care about who keeps your lights on and with what.
Yeah, sure, California’s cars produce 41 percent of the greenhouse gas emissions that speed up the warming of the planet. But the rest of it is the other kind of power we use every day, much of it provided by private companies competing on an international marketplace to which most people don’t pay attention.
A while back, I wrote about Warren Buffett’s company Berkshire Hathaway entering the ring as a contender to take over the city of San Diego’s electric and natural gas lines. That system is currently owned by San Diego Gas and Electric, which enjoyed an energy monopoly in the region until recently.
A reader asked: If SDG&E lost the bid, would it be forced to sell its vast network of poles, wires and gas lines?
Short answer, not necessarily.
Erik Caldwell, the city’s deputy chief operating officer, followed up and here’s a summary.
The city has three options: It can accept a bid from another company to take over; buy the transmission and distribution lines itself, called “municipalizing,” which would probably be quite expensive and not the city’s preference in the past; or it would have to negotiate some kind of intermediary extension of its agreement with SDG&E to make sure everyone still gets their power until the city can relaunch the bidding process to find a new company. So, it could get awkward.
(Disclosure: Mitch Mitchell, SDG&E’s vice president of state governmental affairs and external affairs, sits on Voice of San Diego’s board of directors.)
SDG&E’s Parent Company in Hot Water With Wall Street
On the topic of energy and infrastructure, Sempra Energy Co., SDG&E’s parent company, is in a little hot water with Wall Street. As a result, it appears to be shifting away from the heavily regulated California market and a focus in Latin America to more freewheelin’ energy states like Texas.
OK, quick Wall Street 101. Publicly traded companies like Sempra are given ratings by crediting agencies like Fitch, Moody’s and Standard & Poor’s. They assess how financially healthy a company is and act as an independent gauge, letting investors in a company know how likely that company is to pay back its debt, for instance.
Sempra stood at a Baa1 rating, which is middle of the pack in terms of credit risk. On April 15, Moody’s let Sempra know it was going to lower its rating due to $9 billion in debt. The company was actually placed on review for a downgrade back in 2018 but that never crystalized until now.
Moody’s finally kicked Sempra’s rating down a step, to Baa2.
What does that mean? The company needs to find cash fast to pay down its debts. (Don’t we all … )
Before the downgrade, Sempra started making deals to sell its stake in two major Latin American investments to cut its debt in half.
One, in a Chilean electric and natural gas supply company called Chilquinta Energia S.A. and another large stake in a Peruvian electricity distributor called Luz del Sur. It plans to sell ownership to Chinese companies.
(That’s an interesting shift in and of itself. China, once the world’s greatest lender to struggling governments, is rolling back its program of direct government loans. Instead, state-owned Chinese companies are buying up projects directly.)
Both deals are supposed to close at the end of the month.
The company shifted its focus away from South America toward the United States, plunging cash instead in Texas-based projects like Oncor Electric Delivery, the state’s once bankrupt and largest transmission and distribution electric utility.
It was apparently the biggest deal in Sempra’s history, according to the San Diego Union-Tribune’s Rob Nikolewski. (Also interesting: Warren Buffett’s company and San Diego’s newest suitor for the franchise fee agreement battled Sempra a few years ago to acquire Oncor.)
Jeffrey Martin, the Sempra CEO, characterized the shift away from Latin America as “getting higher quality earnings and … a lower-risk profile,” during a May 4 quarterly earnings call.
The same seems to be true about its shift from California toward Texas.
Moody’s mentioned California’s utilities are subject to “a high level of political risk and public scrutiny,” in other words, a tougher place to do business. So, it appears Sempra is becoming less invested in California. Martin even said so.
“We’re coming much more weighted toward U.S. utilities with less focus on California, more going toward Texas,” Martin told investors.
In 2017, 70 percent of Sempra’s earnings came from California utilities, Martin said. Sempra confirmed Monday that’s shifted. Last year, California carried 58 percent of the company’s earnings and Texas about 21 percent, Kelli Mleczko, a Sempra spokesperson said in an email.
The Texas marketplace “very much reflects how we think about the best risk-reward for our stakeholders,” Martin said.
Moody’s indicated that if the company’s debt continued to swell, it might downgrade its credit rating further. That could have implications for the health of its subsidiaries like SDG&E.
Telecommuting Might Be Bigger Climate Change Solution Than We Thought
Remember when we found that working from home cut San Diego’s harmful air pollutants from tailpipes by as much as a quarter?
Well, scientists said we need to slash global emissions by about 7.6 percent every year for a decade to keep the Earth from warming beyond 1.5 degrees Celsius. That’s the amount the United Nations has agreed would prevent catastrophic climate change – like seas that swallow whole coastal cities, really, really bad wildfires and unbearable droughts.
Under COVID-19 stay-at-home conditions, we’re on track to hit a 5.5 percent reduction in global carbon emissions. Not quite there, but it’s a start.
But smart people in think tanks like the Brookings Institution believe telecommuting trends will likely continue even after the pandemic.
Telecommuting becomes popular in a crisis. Interest spiked following 9/11 and the anthrax scares. Christchurch, New Zealand, transitioned to telework after earthquakes rocked the country in 2010 and 2012. Companies like Twitter will allow some of its workforce to continue working from home forever if they want.
The pandemic cut emissions in China by 25 percent, a country that surpassed the United States as the largest emitter in the world.
Ask your company whether telecommuting is now a permanent option and get back to me.
Let’s also acknowledge many essential workers, powering our grocery stores, utilities and salons can’t do their job from home so they’re at higher risk of infection. Telecommuters are generally those who are higher paid and better off, and also the biggest polluters. And, a small percent of the population in the private sector can do so.
But if you’re one of those privileged few, the solutions are: Drive less. Stay home. Wear a mask.
In Other News
- Three black holes crashed into each other and a robot named Fritz Zwicky at Palomar Mountain observatory near San Diego detected it. Black holes emit no light or sound, but somehow scientists were able to see and hear this phenomena, reports Dennis Overbye, the New York Times’ cosmic affairs correspondent (and my new life goal.) The findings, reported in a newly published paper, could “elucidate the conditions inside the crackling turnstile of fire and fury through which matter passes on its way to black-hole doom.” No biggie.
- San Diego County supervisors unanimously agreed to create an Office of Equity and Racial Justice but exactly what it will do isn’t clear. But the County Air Pollution Control Board already has a new steering committee working on environmental justice issues in San Diego’s portside communities.
- The Center for Biological Diversity and Endangered Habitats League is fighting to protect a butterfly they say lost most of their habitat to development.
Update: This post has been updated to include information from a Sempra representative provided after this post initially published.