Steve Player speaks with Joe Householder, SVP, controller, and chief accounting officer of Sempra Energy.

Steve Player: Let's talk a little bit about Sempra Energy, because I think that it's a new name for some people. How did Sempra come together?

Joe Householder: Well, this year marks Sempra's 10th anniversary. It came together through a merger involving Pacific Enterprises, which is the holding company that owns Southern California Gas Company, the largest gas distribution company in the United States. The other company was San Diego Gas & Electric, which is the regional gas and electric distribution company here in San Diego.

Since the merger, we've grown dramatically. Our market value has nearly doubled and our assets have more than tripled. We've been growing at a very fast pace and continue to look forward to that kind of a growth going forward.

SP: I notice that you guys are now ranked number 232 on the 2008 Fortune 500 list. Are you primarily just based in Southern California or are you reaching beyond?

Householder: We're reaching out beyond that. Our two major utilities are here in Southern California. They go from the Central Valley all the way down to the Mexican border, and from the coast to the eastern side of California. But then we have actually engaged in a number of projects that have spread us throughout the country and around the globe. We have four generation plants that we've built in the Southwest.

We have a couple of billion dollars' worth of investment in Baja, Mexico, across the border near us here in San Diego. And we have a commodity trading business that spans the globe and has operations in London and Geneva and in Asia. Earlier this year, we formed a joint venture with The Royal Bank of Scotland and took our commodity trading business into it on April 1; we now own approximately a 50 percent interest in that business with The Royal Bank of Scotland. This will help that business grow dramatically. So we are truly a global company. We also own some utilities in South America.

SP: In terms of the commodities, are you trading gas? Electricity? What's the extent of the products that you trade?

Householder: It's the whole span of commodities in the energy sector, so natural gas and power are the primary commodities. But we also trade oil, and we trade metals -- not so much precious metals, but aluminum and copper and metals like that.

SP: It's a fascinating scope, coming from energy roots. How much pressure does this put on your finance organization?

Householder: Well, quite a lot, but we're up to the task. We have a very solid finance organization. We have about 175 people in the finance organization, and we have a really top-notch group. We have well-educated people with extensive backgrounds, so while there is some stress on us, we're up to the task.

SP: Let's talk a little about the role that finance plays at Sempra.

Householder: The one thing that I really value about Sempra, and the reason I came here, is that the finance organization is really embedded in the business. Mark Snell, our CFO, and I sit on the internal boards of directors of all of our major operating companies. He sits on some, I sit on others. So we are very involved in the decision-making around what kinds of projects we do and what kinds of investments we make.

The business units look to us to help them decide whether they're going to get the right return from these investments, help them to understand the tax issues, the accounting issues and the rate of return, and the risk management issues. We have a very solid risk management background as a result of owning the commodity business for the past 10 years. We've stressed risk management, and it creates a solid foundation for us and for the business unit, so it's a very collaborative process. We're not in the back room doing accounting.

SP: How did you go about creating that kind of role? A lot of finance organizations would like to play that role but often find themselves stuck with the paying of the bills and the normal transaction stuff. How did you earn your seat at that business table?

Householder: This is an interesting question, but it's a real easy one for me to answer. Our president and COO, Neal Schmale, was the chief financial officer at the inception of Sempra 10 years ago, and I had worked with him at UNOCAL Corporation for many years. Neal had grown up in the finance organization and in corporate development work and was the CFO there. But he also has been the president of a number of businesses. He focuses on cash flow and he understands the value of finance. He just embeds the finance organization into the operating organization.

So now, as the president and COO of the company, he just makes sure that every time somebody wants to make a decision, he asks them, "Have you talked to so and so? Did you talk to the tax people? Did you talk to the accounting people?" And now that's just so ingrained with everybody here. But in addition to Neal, Sempra CFO Mark Snell and I have had very multidimensional careers in which we've had different jobs and we both have done a lot of mergers and acquisitions activity. We've both been in accounting firms, so we also have the same philosophy as Neal. We understand the value. I think that the organization just embraces us because we help them to do a good job and we help them to make money.

SP: I want to come back to your background in just a minute, but beforehand I want to spend a little bit more time on the processes. Can you describe these collaborative processes and what might be unique about them?

Householder: I don't know if there's anything unique about them. I think that they're the kinds of processes that every finance organization would use if they were able to get involved in the business decisions early enough. The common complaint is that they find out about a deal after it's announced or they find out about an investment decision after somebody broke ground. We just use the same processes as everybody else.

We have a management committee of our executive vice presidents, CEO, and COO that meets regularly, typically every week or every other week, and reviews investment decisions. Before the business units or the corporate development groups are permitted to bring something to that committee, they have to make sure that they have talked with, and met with, and worked their financial models with the tax group, with the accounting group, and with my financial planning group. So they know they have to do it, but also they want to do it. It's not a hard thing, it's not like there's some formality that causes a bunch of pain -- it's just the process that we have, and it works very well for us.

SP: Are there different stages or gates that you have to go through?

Householder: No, not really. We try to keep it flexible so that if somebody has a project that comes up and needs approval quickly, it doesn't take forever. It's not like a 3- or 4-week process. We can be flexible about it.

We recently acquired EnergySouth, an Alabama natural gas company based in Mobile, with offices in Houston. This deal came to us quite late. EnergySouth was putting itself up for sale -- basically they wanted growth more quickly than they really could achieve -- so they were quietly looking to see if they could find somebody that might be a good strategic partner. We found out about them and quickly got into the process. There were no gates, as you say, to stop that process from going forward. We got engaged, we got all of the people involved, and we determined that it was a good idea for us and strategic for us, and we were able to make the deal.

SP: If you think about this in terms of the overall context of finance, in what ways have you been able to transform finance at Sempra?

Householder: One of the things that we've been doing this year is that we, like many companies, have a 5-year planning process, and we decided that for the long term we will be building a lot of natural gas infrastructure, and these projects are very expensive. We're just finishing two liquefied natural gas (LNG) receipt terminals; one was completed a few months ago, the other one's going be completed next year. They're around a billion dollars each, and they take about 4 years to build.

Well, the 5-year planning horizon isn't long enough to deal with that. Some of the acquisitions like this EnergySouth one have some pretty long-term capital expenditures, too, so we decided that we needed to step out. We're making our 5-year plan both a living plan and a 10-year plan. Now, that's a little ambitious -- you know, what you do in that latter 5-year period, it's pretty far out there. But we're doing that so that we can see what the effects of some of these projects are on our long-term growth and profitability. So that's one step change that we're making.

We're also just in the infancy of looking pretty hard at the international finance and reporting standards area, because this is coming kind of fast for us. We actually have been reporting on that basis in our commodities business as it has transformed into the joint venture with The Royal Bank of Scotland.
The other thing that we've done sort of in a transformational way is that we certainly have a lot of data in our systems. In the past, a lot of that has been reported -- consolidated and reported -- in a paperbound notebook to people, to executives and other senior managers within the businesses. It always takes so long, and when you look at it, if you have a question, then you have to go to somebody in finance and ask it.

We've created an executive portal that uses this data and allows for drill-down capability. I know that a lot of companies are moving in this direction. We've finally just finished this project and are rolling it out to people, and it has two components. One is just to take the normal data that we've been giving to people, but we give it to them electronically and they can actually drill down on a number and go straight down all the way to the general ledger and see what is in that number. If we have a business unit, they can see it by subsidiary if they go across, or they can drill down and see what the components of that number are.

So this is giving all of our finance people a better tool that they can use. As a result, we're not chasing around and asking a lot of questions. It also gives our executives a tool that they can use so that they can look at something quickly and then not have to wait for a day or something for somebody to get back to them.

The other thing we did is about the fact that there's always this concern that corporate overhead is high. Some of the business units want to know what their charges are. So we created as part of this portal a little tool where they can actually drill down and see what they are being charged for, from whom, and so forth. They can see some visibility and transparency in that. And I think that this just goes back to how we're trying to help the executives who are running the business understand what their bottom line is. They can look at it and put some pressure on corporate overhead to control our costs.

SP: What about in the planning process? We've seen a lot of companies moving beyond traditional budgets to a continuous planning and rolling forecast, things like that ...

Householder: What we were doing with our 5-year plan is turning it into kind of living plan. We do an outlook process so that the 1-year plan is called our outlook and we update that twice a year -- once right before the 2nd quarter earnings, and once right before the 3rd quarter earnings. This helps us to get our effective tax rate right based on what we believe our plan is. We have been moving as much as possible away from Excel into using Hyperion tools for both our financial reporting and now planning.

I think that this is an area I keep wanting to stress and push on. Excel's a great tool, but it's usually not the most efficient tool and it doesn't allow for easily shared access in the same way that these other tools do.

SP: Let's segue way into your background. You have a fairly varied background, coming to finance really from the legal side and from the tax side ...

Householder: Yes, I thought I would be an accountant, and I actually went to work for a large regional CPA firm for a short time. And then I switched to work for a local CPA firm, where I was mostly doing normal audit work for small companies.

But I always had it in the back of my mind that I might like to go to law school. My father had gone to law school at night while he was working, and it always kind of intrigued me. So, after a few years, I decided that I would pursue my law degree. I did that at Loyola Law School at night while I was working as a CPA. As I started to go to law school, I got intrigued with tax -- so I switched to become a manager working in the tax area.

After I finished up, I went to work in downtown Los Angeles for a law firm in kind of a corporate environment, and it just didn't seem right to me. I felt bored. One day, I read an ad in The Wall Street Journal. UNOCAL, which had just fought a takeover battle with T. Boone Pickens, was looking for a tax lawyer to come in and run its master limited partnership. I really enjoyed partnerships, so I sent in a resume and the next thing I knew, I was over there in the tax group.

It turned out to be just wonderful for me. I was there for about 14 years, and I just got to do such a wide variety of activities. Because of the takeover attempt, the company took on a lot of debt, so we had to sell a lot of assets. We were investing a lot overseas, so I traveled a lot. I got to do a lot of international finance work, and a lot of M&A activity, and it just was a wonderful place. This is where I met Neal Schmale and he became my mentor. I worked closely with him, and it was a great company. Much like Sempra, it had very high ethical standards and it felt kind of like a family.

SP: What role do you think mentors play in talent development?

Householder: I think that mentors are very helpful. I try to be hands-on and work closely with people and help them to understand things. What I look for are people who, number one, have high ethics, but number two, who are inquisitive. I don't really want the kind of person who's just going to kind of come in and do their job that day and follow some task book. I want people who are naturally inquisitive and want to think about things and understand the business.

We have an accounting and finance leadership program that's for new hires. We bring people out of college and we put them through a 3-year program. We're trying to start them all in internal audit because we think that this will be a good way to give them exposure to the whole company. We then move them through a variety of jobs and give them a lot of educational training. We hope that they'll become really top-notch finance people as they move into the jobs within the company.

I'm trying to do the same thing in a less formal program with my direct reports and the managers within the finance organization, to actually get them to rotate. Too often, I see people get pigeonholed, and they say, "Well, I just want to do this." That's great, if you know what you want to do. If you want to be the best cost accountant in the world, then find the best cost accountant in the world and be under that person and learn all you can ... that's fine.

SP: What's the typical time frame that you like to rotate people within?

Householder: Well, it really does depend on the job. Some jobs require somebody to be in there for a little while. I think probably as a minimum we would want them there 18 to 24 months. But I hate to see somebody in a job for 5 years. You know, if they haven't mastered it and fixed that area and gone on, I think that they've been there too long.

But if you want to be the CFO, I think that you need a broad variety of experiences. So I'm trying to encourage people to take risk and move around. I've taken some of our best people and moved them within the organization. Last year, we moved about eight people who are pretty senior. It's a little uncomfortable for them, but I'll tell you -- I know for myself, for our CFO, and for our COO -- we've all moved around into different jobs a lot of times and have a lot of experiences. We're all the sum of our experiences.

SP: Are there other development programs for people above entry level?

Householder: Well, that's one of the things I just worked on with our organizational development group, which is our HR group. It helps people with their careers and to do succession planning. I just worked with the chief financial officer from our utility group. We spent a lot of time on thinking about how people develop and how individuals have to take ownership of their careers. We've reviewed every job within finance and have put together the critical skills that each job teaches people or that you need for that job.

We've put them on a Web site. Then, when people have their reviews and their manager or their peers say, "You're doing great in these five areas, but you need this experience," they can go and say "Oh, I need that kind of experience. What jobs could I get? What lateral job could I take that would help me with that?" The senior manager can say, "Hey, this other job over here would be really good for you." So we're kind of trying to put a little bit more science and less art into career management. How can people get the right experience to go where they want to go?

SP: How big an effort was it to get all these jobs defined and all that mapping done?

Householder: It was a bit of an effort, but we have a small but great team of professionals in our organizational development group. It's just about two or three people there, but they went and interviewed all of the directors, and managers, and vice presidents, and built this electronic tool. We just rolled it out this year, and I am really excited to see over the next year or two how it works.