In an article on the Porter Ranch gas leak, The San Diego Union Tribune’s
Dan McSwain considers the possible reasons for Sempra’s un-phased
stock price. Sempra, the parents company of Southern California Gas Company,
is responsible for the historically large gas leak in the San Fernando
Valley area. The leak, which according to McSwain “could be the
biggest human-caused leak of natural gas in U.S. History,” has led
to the displacement of thousands in the Porter Ranch area and has caused
a significant spike in California’s CO2 emission levels.
Despite the severe consequences of the gas leak on the environment and
the Porter Ranch community, Sempra’s stock price has been relatively
un-phased, dropping by only 6.7 percent. This 6.7 percent nearly matches
the 6.6 percent drop of the S&P 500 index over the same period. This
drop in comparison to BP’s 55 percent drop following its deep water
oil spill in 2010 is negligible. This implies that investors are simply
unconcerned or unaware of the consequences relating to the gas leak.
McSwain comes up with three possible reasons for Sempra’s sturdy
The first; that the market is simply wrong about the value of the stock.
He points out that the national media has only recently started to address
the leak, so perhaps investors are still unaware of the financial and
legal risk that the leak poses to Sempra.
The second is that the leak may simply not be extraordinarily severe. While
Methane can be deadly in large amounts, nobody has died from the leak.
In quoting Mark S. Brownstein, vice president for climate and energy policy
at the Environmental Defense Fund, McSwain points out that Gas leaks are
generally common and widely ignored. Perhaps this is grounds to believe
that the San Fernando Valley leak will not significantly hurt Sempra.
The third reason, and the one that McSwain seems to most credit, regards
the nature of regulators and gas companies generally. Firstly, upgrades
are usually funded by consumers and utilities earn a 10 percent return
a year for decades on their equity half of the cost. This creates an incentive
to build, enhance, and fix. Additionally, utilities have a lot of political
power so their mistakes tend to be forgiven by government. Given these
conditions, it seems that Sempra’s $1 billion insurance policy will
be enough to pay the damages.
Source: The San Diego Union Tribune, Dan McSwain