A longtime California attorney said a recent proposal to restructure San Diego-based Sempra Energy is a seemingly necessary move.
“Sempra is at the stage of development that requires a more accountable form of management,” Michael Aguirre, a partner with Aguirre & Severson LLP, recently told California Business Daily.
In an attempt to turn around the underperforming utility, shareholders Elliott Management and Bluescape Resources last week called for an overhaul of the company's board of directors and a review of all of its business operations.
With the blessing of the California Public Utilities Company, Sempra also has been investing ratepayer funds in foreign companies in an attempt to increase its profits, a common practice with underperforming utility companies, but one that investors such as Elliott Management and Bluescape Resources are starting to frown upon.
Aguirre, who is a former federal prosecutor and special attorney to the U.S. Senate Subcommittee on Permanent Investigations, said there is a risk of Sempra paying the costs of such investments in utility rates.
“There is also the risks of related party transaction between Sempra, the holding company and its subsidiaries,” Aguirre said.
The recent call for changes by Elliott Management and Bluescape encouraged Sempra to implement a two-step plan. The first step would be replacing six members of its board of directors. The second step would be to form a strategic review committee "empowered to conduct full and unfettered 'no stone unturned' portfolio and operational reviews aimed at identifying value-creation opportunities for all key stakeholders," according to a letter the shareholders sent to Sempra's board and CEO Jeff Martin.
Elliot’s Portfolio Manager Jeff Rosenbaum said that it was not just a matter of simply diverting ratepayers' monies.
"This isn't just take money from the ratepayers and turn around and spend it somewhere else," Rosenbaum told California Business Daily on June 11. "It's an access to capital that these businesses allow. So these are the types of businesses that have good credit profiles, they're steady, safe businesses and you can go out and you can get additional capital to do things. So it's not just a pure siphoning of funds from those businesses into businesses outside those utilities; it's the actual access to capital. That might be a key nuance."
Aguirre said certain laws must be maintained, which is where a massive overhaul of the company at this stage of its growth would be wise.
“The Public Utility Holding Company Act of 1935 prohibits utility holding companies like Sempra from using its regulated utilities to subsidize its unregulated subsidiaries,” he said. “The same prohibitions apply to foreign company investments."