UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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Commission file number 1-14201
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Sempra Energy
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(Exact name of registrant as specified in its charter)
California 33-0732627
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Ash Street, San Diego, California 92101
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(Address of principal executive offices)
(Zip Code)
(619) 696-2034
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Common stock outstanding on October 31, 1999: 240,351,086
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
SEMPRA ENERGY
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
(Dollars in millions, except per share amounts)
<CAPTION>
Three Months Ended
September 30,
---------------
1999 1998
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<S> <C> <C>
Revenues and Other Income:
Utility revenues:
Natural gas $ 618 $ 583
Electric 437 481
Other operating revenues 166 67
Other income 33 15
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Total 1,254 1,146
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Expenses:
Cost of natural gas distributed 203 165
Purchased power - net 173 39
Electric fuel 7 70
Operating expenses 440 415
Depreciation and amortization 140 207
Franchise payments and other taxes 40 41
Preferred dividends of subsidiaries 3 3
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Total 1,006 940
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Income Before Interest and Income Taxes 248 206
Interest 73 58
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Income Before Income Taxes 175 148
Income Taxes 67 57
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Net Income $ 108 $ 91
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Net Income Per Share of Common Stock (Basic) $0.45 $0.38
====== ======
Net Income Per Share of Common Stock (Diluted) $0.45 $0.38
====== ======
Common Dividends Declared Per Share $0.39 $0.39
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Weighted Average Shares Outstanding (Basic)* 237,353 236,752
====== ======
*In thousands
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
(Dollars in millions, except per share amounts)
<CAPTION>
Nine Months Ended
September 30,
---------------
1999 1998
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<S> <C> <C>
Revenues and Other Income:
Utility revenues:
Natural gas $2,022 $1,998
Electric 1,443 1,454
Other operating revenues 429 231
Other income 68 34
------ ------
Total 3,962 3,717
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Expenses:
Cost of natural gas distributed 769 684
Purchased power - net 327 197
Electric fuel 64 137
Operating expenses 1,313 1,315
Depreciation and amortization 749 758
Franchise payments and other taxes 126 139
Preferred dividends of subsidiaries 9 9
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Total 3,357 3,239
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Income Before Interest and Income Taxes 605 478
Interest 185 161
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Income Before Income Taxes 420 317
Income Taxes 131 108
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Net Income $ 289 $ 209
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Net Income Per Share of Common Stock (Basic) $1.22 $0.88
====== ======
Net Income Per Share of Common Stock (Diluted) $1.22 $0.88
====== ======
Common Dividends Declared Per Share $1.17 $1.17
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Weighted Average Shares Outstanding (Basic)* 237,192 236,253
====== ======
*In thousands
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<CAPTION>
Balance at
------------------------
September 30, December 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 474 $ 424
Accounts receivable - trade 390 586
Accounts and notes receivable - other 95 159
Deferred income taxes 115 93
Energy trading assets 1,470 906
Inventories 152 151
Other 266 139
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Total current assets 2,962 2,458
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Investments and other assets:
Regulatory assets 670 1,056
Nuclear-decommissioning trusts 509 494
Investments 1,158 548
Other assets 457 459
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Total investments and other assets 2,794 2,557
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Property, plant and equipment:
Property, plant and equipment 11,017 11,235
Less accumulated depreciation and amortization (5,634) (5,794)
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Total property, plant and equipment - net 5,383 5,441
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Total assets $ 11,139 $10,456
===========================
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<CAPTION>
Balance at
------------------------
September 30, December 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 85 $ 43
Accounts payable - trade 730 702
Accrued income and other taxes 84 27
Energy trading liabilities 1,229 805
Dividends and interest payable 154 168
Regulatory balancing accounts - net 432 120
Long-term debt due within one year 229 330
Other 254 271
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Total current liabilities 3,197 2,466
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Long-term debt:
Long-term debt 2,804 2,795
Debt of Employee Stock Ownership Plan 130 --
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Total long-term debt 2,934 2,795
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Deferred credits and other liabilities:
Customer advances for construction 74 72
Post-retirement benefits other than pensions 234 240
Deferred income taxes 535 634
Deferred investment tax credits 110 147
Deferred credits and other liabilities 956 985
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Total deferred credits and other liabilities 1,909 2,078
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Preferred stock of subsidiaries 204 204
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Commitments and contingent liabilities (Note 3)
Shareholders' Equity:
Common Stock 1,885 1,883
Retained earnings 1,083 1,075
Other (73) (45)
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Total shareholders' equity 2,895 2,913
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Total liabilities and shareholders' equity $11,139 $10,456
===========================
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
(Dollars in millions)
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 289 $ 209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 749 758
Portion of depreciation arising from
sales of generating plants (295) --
Application of balancing accounts to stranded costs (66) (86)
Deferred income taxes (54) (86)
Non-cash rate reduction bond revenue - net (50) (67)
Other - net (105) 51
Net changes in other working capital components 415 407
-------------------------
Net cash provided by operating activities 883 1,186
-------------------------
Cash Flows From Investing Activities:
Net proceeds from sales of generating plants 454 --
Expenditures for property, plant and equipment (401) (276)
Investment in Chilquinta Energia and Luz del Sur (528) --
Other (109) (311)
-------------------------
Net cash used in investing activities (584) (587)
-------------------------
Cash Flows From Financing Activities:
Common stock dividends (281) (230)
Sale of common stock 2 30
Repurchase of common stock -- (1)
Redemption of preferred stock -- (75)
Issuance of long-term debt 176 75
Payment on long-term debt (188) (399)
Increase(decrease) in short-term debt - net 42 (354)
-------------------------
Net cash used in financing activities (249) (954)
-------------------------
Increase (decrease) in Cash and Cash Equivalents 50 (355)
Cash and Cash Equivalents, January 1 424 814
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Cash and Cash Equivalents, September 30 $ 474 $ 459
========================
Supplemental Disclosure of Cash Flow Information:
Interest payments (net of amounts capitalized) $ 242 $ 163
========================
Income tax payments (net of refunds) $ 168 $ 258
========================
Real estate investments acquired $ 38 $ 37
Cash paid (4) (7)
------------------------
Liabilities assumed $ 34 $ 30
========================
See notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
This Quarterly Report on Form 10-Q is that of Sempra Energy (the
Company), a California-based Fortune 500 energy services company.
Sempra Energy's principal subsidiaries are San Diego Gas & Electric
Company (SDG&E) and Southern California Gas Company (SoCalGas),
collectively referred to herein as the California utilities. The
financial statements herein are the Consolidated Financial Statements
of Sempra Energy and its subsidiaries.
The accompanying Consolidated Financial Statements have been prepared
in accordance with the interim-period-reporting requirements of Form
10-Q. Results of operations for interim periods are not necessarily
indicative of results for the entire year. In the opinion of
management, the accompanying statements reflect all adjustments
necessary for a fair presentation. These adjustments are only of a
normal recurring nature. Certain changes in classification have been
made to prior presentations to conform to the current financial
statement presentation.
The Company's significant accounting policies, as well as those of
its subsidiaries, are described in the notes to Consolidated
Financial Statements in the Company's 1998 Annual Report. The same
accounting policies are followed for interim reporting purposes.
This Quarterly Report should be read in conjunction with the
Company's 1998 Annual Report and its Quarterly Reports on Form 10-Q
for the three-month periods ended March 31, and June 30, 1999.
SDG&E and SoCalGas have been accounting for the economic effects of
regulation on all utility operations in accordance with Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS No. 71), as described in the notes
to Consolidated Financial Statements in the Company's 1998 Annual
Report. In conformity with generally accepted accounting principles
for regulated enterprises and the policies of the California Public
Utilities Commission (CPUC), SDG&E has ceased the application of SFAS
No. 71 to its generation business, in accordance with the conclusion
of the Financial Accounting Standards Board that the application of
SFAS No. 71 should be discontinued when legislation is issued that
determines that a portion of an entity's business will no longer be
subject to cost-based regulation. The discontinuance of SFAS No. 71
did not result in a write-off of SDG&E's generation assets, since the
CPUC also approved the recovery of the stranded costs related to
these assets by the distribution portion of its business. (See
further discussion in Note 3.)
2. BUSINESS COMBINATIONS
PE/Enova
On June 26, 1998 (pursuant to an October 1996 agreement) Enova
Corporation(Enova), the parent company of San Diego Gas & Electric,
and Pacific Enterprises(PE), the parent company of the Southern
California Gas Company, completed a business combination in which the
companies became subsidiaries of a new company named Sempra Energy.
As a result of the combination, (i) each outstanding share of common
stock of Enova was converted into one share of common stock of Sempra
Energy, (ii) each outstanding share of common stock of PE was
converted into 1.5038 shares of common stock of Sempra Energy and
(iii) the preferred stock and/or preference stocks of SDG&E, PE and
SoCalGas remained outstanding. Additional information on the business
combination is discussed in the Company's 1998 Annual Report.
KN Energy
On February 22, 1999, Sempra Energy and KN Energy, Inc. (KN Energy)
announced that their respective boards of directors had approved
Sempra Energy's acquisition of KN Energy, subject to approval by the
shareholders of both companies and by various federal and state
regulatory agencies. On June 21, 1999, Sempra Energy and KN Energy
announced that they had agreed to terminate the proposed acquisition.
Expenses incurred in connection with the above matters were $9.9
million, after tax, and $67 million, after tax, for the nine-month
periods ended September 30, 1999 and 1998, respectively.
Chilquinta Energia S.A. and Luz del Sur S.A.
On June 10, 1999, the international subsidiaries of Sempra Energy and
Public Service Enterprise Group (PSEG) announced the completion of
the joint purchase (on a 50/50 basis) of Chilquinta Energia S.A.
(Energia) from its parent company, Chilquinta S.A. for $840 million.
Sempra Energy and PSEG completed the acquisition of 90 percent of
Energia and will tender for the remaining 10 percent later this year.
Sempra Energy invested $260 million for the purchase of stock and
refinanced $160 million of Energia's long-term debt outstanding. In
September 1999, Sempra Energy and PSEG completed their acquisition of
47.5 percent of the outstanding shares of Luz del Sur S.A., a
Peruvian electric company. Sempra Energy's share of the transaction
was $108 million in cash. This acquisition, combined with the 37-
percent already owned through Energia, increases the companies' total
joint ownership to 84.5 percent of Luz del Sur S.A.
3. MATERIAL CONTINGENCIES
ELECTRIC INDUSTRY RESTRUCTURING -- CALIFORNIA PUBLIC UTILITIES
COMMISSION
In September 1996, the State of California enacted a law
restructuring California's electric utility industry (AB 1890). The
legislation adopted the December 1995 CPUC policy decision
restructuring the industry to stimulate competition and reduce rates.
Beginning on March 31, 1998, customers of California investor-owned
utilities (IOUs) were given the opportunity to choose to continue to
purchase their electricity from the local utility under regulated
tariffs, to enter into contracts with other energy-service providers
(direct access) or to buy their power from the independent Power
Exchange (PX) that serves as a wholesale power pool allowing all
energy producers to participate competitively. The PX obtains its
power from qualifying facilities, from nuclear units and, lastly,
from the lowest-bidding suppliers. The California IOUs are obligated
to sell their power supply, including owned generation and purchased-
power contracts, to the PX. The IOUs are also obligated to purchase
from the PX the power that they distribute. SDG&E's obligation to bid
into and purchase from the PX after the conclusion of the rate freeze
continued during the interim post-rate-freeze period (discussed
below). An Independent System Operator (ISO) schedules power
transactions and access to the transmission system. The local utility
continues to provide distribution service regardless of which energy
source the customer chooses. Purchases from the PX/ISO are included
in purchased-power expenses and PX/ISO power revenues have been
netted therein on the Statements of Consolidated Income presented
herein. Revenues from the PX/ISO reflect sales at market prices of
energy from SDG&E's power plants and from long-term purchased-power
contracts to the PX/ISO commencing April 1, 1998.
As discussed in the notes to Consolidated Financial Statements
contained in the Company's 1998 Annual Report, the IOUs have been
given a reasonable opportunity to recover their stranded costs via a
competition transition charge (CTC) to customers through December 31,
2001. In June 1999, SDG&E completed the recovery of its stranded
costs, other than the above-market portion of qualifying facilities
and other purchased-power contracts that were in effect at December
31, 1995, and San Onofre Nuclear Generating Station (SONGS) costs as
described below. These costs will continue to be collected in rates.
Recovery of the other stranded costs was effected by, among other
things, the sale of SDG&E's fossil power plants and combustion
turbines during the quarter ended June 30, 1999. The South Bay Power
Plant sale to the San Diego Unified Port District for $110 million
was completed on April 23, 1999. Duke South Bay, a subsidiary of Duke
Energy Power Services, will manage the plant for the Port District.
The sale of the Encina Power Plant and 17 combustion-turbine
generators to Dynegy Inc. and NRG Energy Inc. for $356 million was
completed on May 21, 1999. SDG&E will operate and maintain both the
South Bay and Encina facilities for the new owners until April 2001
and May 2001, respectively.
Stranded costs included the cost of SONGS as of December 31, 1995.
SDG&E retains ownership of its 20-percent interest in SONGS.
Subsequent SONGS costs are recoverable only from the sales of power
produced therefrom, at rates previously fixed by the CPUC through
December 31, 2002 and as determined by the market thereafter. If
approved by the CPUC, SDG&E is planning to auction its interest in
SONGS. A major issue being addressed is how to handle the
decommissioning trust to ensure that adequate funding is available at
the time the plant is decommissioned.
AB 1890 also required a 10-percent reduction of residential and small
commercial customers' rates beginning in January 1998, and provided
for the issuance of rate-reduction bonds by an agency of the State of
California to enable the IOUs to achieve this rate reduction. In
December 1997, $658 million of rate-reduction bonds were issued on
SDG&E's behalf at an average interest rate of 6.26 percent. These
bonds are being repaid over 10 years by SDG&E's residential and small
commercial customers via a non-bypassable charge on their electric
bills. In 1997, SDG&E formed a subsidiary, SDG&E Funding LLC, to
facilitate the issuance of the bonds. In exchange for the bond
proceeds, SDG&E sold to SDG&E Funding LLC all of its rights to
revenue streams collected from such customers. Consequently, the
transaction is structured to cause such revenue streams not to be the
property of SDG&E nor to be available to satisfy any claims of
SDG&E's creditors.
The sizes of the rate-reduction bond issuances were set so as to make
the IOUs neutral as to the 10-percent rate reduction, and were based
on a four-year period to recover stranded costs. Because SDG&E
recovered its stranded costs in only 18 months (due to the greater-
than-anticipated plant-sale proceeds), it is deemed that its bond
issuance should have been smaller. Accordingly, SDG&E will return to
its customers over $400 million that it has collected or will collect
from its customers. The timing of the return will differ from the
timing of the collection, but the specific timing of the repayment
and the interest rate thereon are the subject of a CPUC proceeding
and are expected to be resolved in early 2000. This refund will not
affect SDG&E's net income, except to the extent that the interest
associated with the refund (12.63 percent if not reduced as a result
of the CPUC proceeding) differs from the return earned by the Company
on the funds. The bonds and their repayment schedule are not affected
by this refund.
AB 1890 also includes a rate freeze for all IOU customers. Beginning
in 1998, SDG&E's system-average rates were fixed at 9.43 cents per
kwh. The rate freeze would have stayed in place until January 1,
2002. However, in connection with completion of its stranded cost
recovery (described above), SDG&E filed with the CPUC for a mechanism
to deal with electric rates after the end of the rate freeze. SDG&E
is requesting authority to reduce base rates (the non-commodity
portion of rates) to all electric customers. If approved, base
electric rates will decrease beyond the original 10-percent rate
reduction described above. The portion of the electric rate
representing the commodity cost is simply passed through to customers
and will fluctuate with the price of electricity from the PX. Except
for the interim protection mechanism described below, customers will
no longer be protected from commodity price spikes.
In April 1999, SDG&E filed an all-party settlement (including energy
service providers, the CPUC's Office of Ratepayer Advocates (ORA),
and the Utility Consumers Action Network (UCAN)) detailing proposed
implementation plans for lifting the rate freeze. Included in the
settlement is an interim customer-protection mechanism for
residential and small commercial customers that capped rates between
July 1999 and September 1999, regardless of how high the PX price had
moved during that period. The resulting undercollection (which
amounted to less than $1 million) is being recovered through a
balancing account mechanism. A CPUC decision adopting the all-party
settlement was issued in May 1999 and became effective July 1, 1999.
The interim rate-freeze period runs until the CPUC issues its
decision on the pending legal and policy issues of ending the rate
freeze. This decision is expected during the first quarter of 2000.
Thus far, electric-industry deregulation has been confined to
generation. Transmission and distribution have remained subject to
traditional cost-of-service regulation. However, the CPUC is
exploring the possibility of opening up electric distribution to
competition. During 1999, the CPUC will be conducting a rulemaking,
one objective of which may be to develop a coordinated proposal for
the state legislature regarding how various distribution competition
issues should be addressed. The Company will actively participate in
this effort.
ELECTRIC INDUSTRY RESTRUCTURING -- FEDERAL ENERGY REGULATORY
COMMISSION
In October 1997, the Federal Energy Regulatory Commission (FERC)
approved key elements of the California IOUs' restructuring proposal.
This included the transfer by the IOUs of the operational control of
their transmission facilities to the ISO, which is under FERC
jurisdiction. The FERC also approved the establishment of the
California PX to operate as an independent wholesale power pool.
NATURAL GAS INDUSTRY RESTRUCTURING
The natural gas industry experienced an initial phase of
restructuring during the 1980s by deregulating natural gas sales to
noncore customers. On January 21, 1998, the CPUC released a staff
report initiating a project to assess the current market and
regulatory framework for California's natural gas industry. The
general goals of the plan are to consider reforms to the current
regulatory framework emphasizing market-oriented policies benefiting
California's natural gas consumers.
In August 1998, California enacted a law prohibiting the CPUC from
enacting any natural gas industry restructuring decision for core
(residential and small commercial) customers prior to January 1,
2000; the CPUC continues to study the issue. During the
implementation moratorium, the CPUC has been holding hearings
throughout the state and intends to give the legislature a draft
ruling before adopting a final market-structure policy. SDG&E and
SoCalGas have been actively participating in this effort and have
argued in support of competition intended to maximize benefits to
customers rather than to protect competitors.
In October 1999, the State of California enacted a law (AB 1421)
which requires that gas utilities provide "bundled basic gas service"
(including transmission, storage, distribution, purchasing, revenue-
cycle services and after-meter services) to all core customers,
unless the customer chooses to purchase gas from a non-utility
provider. The law prohibits the CPUC from unbundling distribution-
related gas services (metering, billing, etc.) and after-meter
services (leak investigation, inspecting customer piping and
appliances, pilot relighting, carbon monoxide investigation, etc.)
for most customers. The objective is to preserve both customer safety
and customer choice.
NUCLEAR INSURANCE
SDG&E and the co-owners of SONGS have purchased primary insurance of
$200 million, the maximum amount available, for public-liability
claims. An additional $9.5 billion of coverage is provided by the
Nuclear Regulatory Commission Secondary Financial Protection Program
and provides for loss sharing among utilities owning nuclear reactors
if a costly accident occurs. SDG&E could be assessed up to $36
million in the event of a nuclear incident involving any of the
licensed commercial reactors in the United States if the amount of
the loss exceeds $200 million. In the event the public-liability
limit stated above is insufficient, the Price-Anderson Act provides
for Congress to enact further revenue-raising measures to pay claims
which could include an additional assessment on all licensed reactor
operators.
Insurance coverage is provided for up to $2.75 billion of property
damage and decontamination liability. Coverage is also provided for
the cost of replacement power, which includes indemnity payments for
up to three years, after a waiting period of 12 weeks. Coverage is
provided primarily through mutual insurance companies owned by
utilities with nuclear facilities. If losses at any of the nuclear
facilities covered by the risk-sharing arrangements were to exceed
the accumulated funds available from these insurance programs, SDG&E
could be assessed retrospective premium adjustments of up to $4.5
million.
CANADIAN NATURAL GAS
SDG&E had been involved in negotiations and litigation with four
Canadian suppliers concerning contract terms and prices. SDG&E has
settled with all of the suppliers. One of the four is delivering
natural gas under the terms of the settlement agreement through 2003;
the other three have ceased deliveries and the contracts were
terminated. Although these contracts were intended to supply SDG&E to
a level approximating the related committed long-term pipeline
capacity, SDG&E intends to continue using the pipeline capacity in
other ways, including the transport of replacement natural gas and
the release of a portion of this capacity to third parties.
QUASI-REORGANIZATION
In 1993 PE completed a strategic plan to refocus on its natural gas
utility and related businesses. The strategy included the divestiture
of PE's merchandising operations and all of its oil and gas
exploration and production business. In connection with the
divestitures, PE effected a quasi-reorganization for financial-
reporting purposes, effective December 31, 1992. Certain of the
liabilities established in connection with discontinued operations
and the quasi-reorganization will be resolved in future years.
Management believes the provisions previously established for these
matters are adequate.
4. COMPREHENSIVE INCOME AND OTHER SHAREHOLDERS' EQUITY
In conformity with generally accepted accounting principles, the
Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." Comprehensive income for the
three-month and nine-month periods ended September 30, 1999 was $80
million and $261 million, respectively, due to foreign currency
translation adjustments of $28 million after tax. The $28 million is
included in "Other Shareholders' Equity" on the September 30, 1999
balance sheet, along with the previously existing $45 million of
deferred compensation relating to Employee Stock Ownership Plan.
Comprehensive income for all prior periods was equal to net income.
5. SEGMENT INFORMATION
The Company, primarily an energy-services company, has three
separately managed reportable segments comprised of SDG&E, SoCalGas
and Sempra Energy Trading (SET). The two utilities operate in
essentially separate service territories under separate regulatory
frameworks and rate structures set by the CPUC. As described in the
notes to Consolidated Financial Statements in the Company's 1998
Annual Report, SDG&E provides electric and natural gas service to San
Diego and southern Orange counties. SoCalGas is a natural gas
distribution utility, serving customers throughout most of southern
California and part of central California. SET is based in Stamford,
Connecticut and is engaged in the wholesale trading and marketing of
natural gas, power and petroleum in the U.S. and in other countries.
The accounting policies of the segments are the same as those
described in the notes to Consolidated Financial Statements in the
Company's 1998 Annual Report, and segment performance is evaluated by
management based on reported net income. Intersegment transactions
generally are recorded the same as sales or transactions with third
parties. Utility transactions are based primarily on rates set by the
CPUC and FERC. There were no significant changes in segment assets
for the nine months ended September 30, 1999, except as described in
Note 3 regarding the sale of SDG&E's power plants. Segment
information of SoCalGas and SDG&E is provided in their individual
Quarterly Reports on Form 10-Q for the nine-month period ended
September 30, 1999.
- ---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------------------------
(Dollars in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------
Operating Revenues:
San Diego Gas & Electric $ 520 $ 563 $1,720 $1,738
Southern California Gas 562 520 1,793 1,762
Sempra Energy Trading 116 29 298 62
Intersegment revenues (22) (17) (45) (44)
Other 78 51 196 199
----------------------------------------
Total $1,254 $1,146 $3,962 $3,717
----------------------------------------
Net Income:
San Diego Gas & Electric* $ 59 $ 62 $ 159 $ 136
Southern California Gas* 48 54 141 119
Sempra Energy Trading 5 (4) 9 (11)
Other (4) (21) (20) (35)
----------------------------------------
Total $ 108 $ 91 $ 289 $ 209
----------------------------------------
* after preferred dividends
6. SEMPRA ENERGY HOLDINGS
On May 5, 1999, Sempra Energy and its wholly owned subsidiary, Sempra
Energy Holdings (Holdings), jointly filed a shelf registration of
common stock, preferred stock and debt securities of Sempra Energy;
debt securities of Holdings; and certain other securities to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933. Any debt securities issued by Holdings
will be fully guaranteed by Sempra Energy. Subsequent to September
30, 1999 Holdings entered into commercial paper obligations, the
highest balance to date being $140 million, with maturities of up to
91 days from the date of issue. Summarized financial information of
Holdings is provided below. Additional financial information of
Holdings is provided in Sempra Energy's Current Report on Form 8-K
filed May 5, 1999.
(Dollars in millions)
At September 30, At December 31,
1999 1998
------------- --------------
Current assets $1,816 $1,470
Non-current assets 1,227 544
Current liabilities 1,760 1,452
Non-current liabilities 311 140
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
------------------ ------------------
Operating revenues $177 $126 $448 $361
Operating expenses 175 138 461 429
Net income (loss) 4 (10) (3) (48)
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements contained in this Form 10-Q and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1998 Annual Report.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The words "estimates," "believes," "expects,"
"anticipates," "plans" and "intends," variations of such words, and
similar expressions are intended to identify forward-looking
statements that involve risks and uncertainties which could cause
actual results to differ materially from those anticipated.
These statements are necessarily based upon various assumptions
involving judgments with respect to the future including, among
others, local, regional, national and international economic,
competitive, political and regulatory conditions and developments;
technological developments; capital market conditions; inflation
rates; interest rates; exchange rates; energy markets; weather
conditions; business, regulatory or legal decisions; the pace of
deregulation of retail natural gas and electricity industries; the
timing and success of business development efforts; and other
uncertainties -- all of which are difficult to predict and many of
which are beyond the control of the Company. Accordingly, while the
Company believes that the assumptions are reasonable, there can be no
assurance that they will approximate actual experience, or that the
expectations will be realized. Readers are urged to review and
consider carefully the risks, uncertainties and other factors which
affect the Company's business described in this quarterly report and
other reports filed by the Company from time to time with the
Securities and Exchange Commission. Readers are cautioned not to put
undue reliance on any forward-looking statements. For those
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
BUSINESS COMBINATIONS
See Note 2 of the notes to Consolidated Financial Statements
regarding the PE/Enova business combination, the acquisitions of
Chilquinta Energia S.A. and Luz del Sur S.A., and the agreement to
terminate the KN Energy acquisition.
CAPITAL RESOURCES AND LIQUIDITY
The Company's California utility operations continue to be a major
source of liquidity. In addition, working capital requirements are
met through the issuance of short-term and long-term debt. These
capital resources are expected to remain available. Major changes in
cash flows not described elsewhere are described below. Cash and cash
equivalents at September 30, 1999 are available for investment in
utility plant, the retirement of debt, energy-related domestic and
international projects, and other corporate purposes. Of the $474
million in cash and cash equivalents, approximately $409 million is
that of SDG&E and SoCalGas.
CASH FLOWS FROM OPERATING ACTIVITIES
The decrease in cash flows from operations is primarily due to
transactions related to the recovery of stranded electric costs as
described elsewhere herein.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment are estimated
to be $460 million for the full year 1999 and will be financed
primarily by internally generated funds and will largely represent
investment in utility operations. Construction, investment and
financing programs are continuously reviewed and revised in response
to changes in competition, customer growth, inflation, customer
rates, the cost of capital, and environmental and regulatory
requirements.
Included in cash flows from investing activities are the proceeds
from SDG&E's plant sales. See additional discussion in Note 3 of the
notes to Consolidated Financial Statements.
In June 1999, Sempra Energy and Public Service Enterprise Group
(PSEG) finalized the joint purchase (on a 50/50 basis) of Chilquinta
Energia S.A. In September 1999 Sempra Energy and PSEG completed the
acquisition of 47.5 percent of the outstanding shares of Luz del Sur
S.A. See additional discussion in Note 2 of the notes to Consolidated
Financial Statements.
In January 1998, PE and Enova jointly acquired CES/Way International,
Inc. for a total of $79 million and later renamed it Sempra Energy
Services (Services). Services provides energy-efficiency services,
including energy audits, engineering design, project management,
construction, financing and contract maintenance.
In March 1998, PE increased its existing investment in two Argentine
natural gas utility holding companies from 12.5 percent to 21.5
percent by purchasing an additional interest for $40 million.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities decreased primarily due to the
repurchase of preferred stock and greater long-term and short-term
debt repayments in 1998, and greater long-term debt issued in 1999.
This was partially offset by greater dividends paid on common stock
in 1999. The long-term debt issued in 1999 related to the purchase of
Chilquinta Energia S.A. See additional discussion in Note 2 of the
notes to Consolidated Financial Statements.
Dividends paid on common stock were $281 million during the nine-
month period ended September 30, 1999, compared to $230 million
during the same period in 1998. The increase in 1999 is the result of
the full-year effect of the Company's paying dividends on its common
stock at the rate previously paid by Enova, which, on an equivalent-
share basis, is higher than the rate paid by PE.
Dividends currently are paid quarterly to shareholders. The payment
of future dividends is within the discretion of the board of
directors.
On February 2, 1998, SoCalGas redeemed all outstanding shares of its
7-3/4% Series Preferred Stock for a total cost of $75 million,
including unpaid dividends.
RESULTS OF OPERATIONS
The increase in net income and net income per share for the three-
month period ended September 30, 1999 is due to higher earnings at
Sempra Energy Trading and Sempra Energy International, partially
offset by lower earnings at the California utilities. The increase in
net income and net income per share for the nine-month period ended
September 30, 1999 is due to higher earnings at the California
utilities (due to lower business combination costs), Sempra Energy
Trading and Sempra Energy International. See additional discussion in
"California Utility Operations", "Other Operations" and
"International Operations".
Income tax expense increased for the three-month period ended
September 30, 1999, compared to the corresponding period in 1998, due
to higher income before taxes. Income tax expense increased for the
nine-month period ended September 30, 1999, compared to the
corresponding period in 1998, due to the increase in income before
taxes, partially offset by the contribution to a local government
agency of the land related to one of the sold generating plants. (The
reduced income tax expense was fully offset by increased depreciation
expense related to stranded costs.) The land contribution also
resulted in a significant decrease in the Company's effective income
tax rate.
CALIFORNIA UTILITY OPERATIONS
The tables below summarize the components of natural gas and electric
volumes and revenues by customer class for the nine months ended
September 30, 1999 and 1998.
<TABLE>
Gas Sales, Transportation & Exchange
(Dollars in millions, volumes in billion cubic feet)
<CAPTION>
Gas Sales Transportation & Exchange Total
----------------------------------------------------------------------
Throughput Revenue Throughput Revenue Throughput Revenue
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999:
Residential 231 $1,529 2 $ 6 233 $1,535
Commercial and industrial 81 416 240 184 321 600
Utility electric generation 18 7 143 56* 161 63
Wholesale -- -- 16 6 16 6
---------------------------------------------------------------
330 $1,952 401 $252 731 2,204
Balancing accounts and other (182)
--------
Total $2,022
- -------------------------------------------------------------------------------------------
1998:
Residential 215 $1,632 2 $ 9 217 $1,641
Commercial and industrial 73 422 247 209 320 631
Utility electric generation 45 7 120 58* 165 65
Wholesale -- -- 20 4 20 4
---------------------------------------------------------------
333 $2,061 389 $280 722 2,341
Balancing accounts and other (343)
---------
Total $1,998
- -------------------------------------------------------------------------------------------
* The portion representing SDG&E's sales for electric generation includes margin
only.
</TABLE>
Utility natural gas revenues increased 6 percent and 1 percent for the
three-month and nine-month periods ended September 30, 1999 compared to
the same periods in 1998, respectively. The increase for the three-
month period is primarily due to higher sales to residential customers.
The increase for the nine-month period is primarily due to lower
overcollections in 1999, partially offset by a decrease in residential
and commercial and industrial revenues. The decrease in residential and
commercial and industrial revenues is due to lower gas rates.
<TABLE>
Electric Distribution
(Dollars in millions, volumes in millions of Kwhrs)
<CAPTION>
1999 1998
------------------------------------------
Volumes Revenue Volumes Revenue
------------------------------------------
<S> <C> <C> <C> <C>
Residential 4,753 $ 491 4,766 $ 484
Commercial 4,733 446 5,195 500
Industrial 1,523 116 2,496 190
Direct access 2,304 88 438 30
Street and highway lighting 57 5 64 6
Off-system sales 290 7 661 14
------------------------------------------
13,660 1,153 13,620 1,224
Balancing and other 290 230
------------------------------------------
Total 13,660 $1,443 13,620 $1,454
------------------------------------------
</TABLE>
Electric revenues decreased 9 percent and 1 percent for the three-
month and nine-month periods ended September 30, 1999 compared to the
same periods in 1998, respectively. The decrease for the three-month
period is primarily due to the reduction in base electric rates from
the elimination of the rate freeze effective July 1, 1999. The
decrease for the nine-month period is primarily due to the January
1998 application to stranded cost recovery of the $130 million
balance in the Interim Transition Cost Balancing Account (ITCBA),
which had been transferred from the then-discontinued Energy Cost
Adjustment Clause (ECAC) and Electric Revenue Adjustment Mechanism
(ERAM) balancing accounts at December 31, 1997 and the decrease in
base electric rates, as discussed above.
Cost of natural gas distributed increased 23 percent and 12 percent
for the three-month and nine-month periods ended September 30, 1999
compared to the corresponding periods in 1998. The increases were
primarily due to higher natural gas prices. Under the current
regulatory framework, changes in revenue resulting from changes in
core-market volumes and the cost of natural gas do not affect net
income.
As discussed in Note 3, PX/ISO power revenues have been netted
against purchased-power expenses, including purchases from the
PX/ISO. The PX/ISO began operations in April 1998.
Depreciation and amortization expense decreased 32 percent and 1
percent for the three-month and nine-month periods ended
September 30, 1999, compared to the same periods in 1998. The
decrease for the three-month period is due to the accelerated
recovery of generation assets due to the sale of SDG&E's fossil
power plants and combustion turbines. As a result of the sale,
there was no depreciation expense recorded in the third quarter
of 1999 related to stranded generation facilities. The nine-month
results include the accelerated recovery of generation assets
discussed above, offset by the January 1998 application to
stranded cost recovery of the ITCBA.
YEAR 2000 ISSUES
Most companies are affected by the inability of many automated
systems and applications to process the year 2000 and beyond. The
Year 2000 issues are the result of computer programs and other
automated processes using two digits to identify a year, rather than
four digits. Any of the Company's computer programs that include
date-sensitive software may recognize a date using "00" as
representing the year 1900, instead of the year 2000, or "01" as
1901, etc., which could lead to system malfunctions. The Year 2000
issue impacts both Information Technology ("IT") systems and also
non-IT systems, including systems incorporating embedded processors.
To address this problem, in 1996, both Pacific Enterprises and Enova
Corporation established company-wide Year 2000 programs. These
programs were consolidated into Sempra Energy's overall Year 2000
readiness effort. Sempra Energy established a central Year 2000
Program Office, which reports to the Company's Chief Information
Technology Officer and reports periodically to the audit committee of
the Board of Directors.
The Company's State of Readiness
Sempra Energy has identified all significant IT and non-IT systems
(including embedded systems) that might not be Year 2000 ready and
categorized them in the following areas: IT applications, computer
hardware and software infrastructure, telecommunications, embedded
systems, and third parties. The Company evaluated its exposure in all
of these areas. These systems and applications are being tracked and
measured through four key phases: inventory, assessment,
remediation/testing, and Year 2000 readiness. The Company has
prioritized so that, when possible, critical systems were assessed
and modified/replaced first. Critical systems are those applications
and systems, including embedded processor technology, which, if not
appropriately remediated, may have a significant impact on energy
delivery, revenue collection, or the safety of personnel, customers
or facilities. The Company's Year 2000 testing effort includes
functional testing of Year 2000 dates and validating that changes
have not altered existing functionality. The Company uses an
independent, internal review process to verify that the appropriate
testing has occurred.
The Company's Year 2000 project is currently on schedule, with
critical energy delivery systems for both SoCalGas and SDG&E Year
2000 Ready since June 30, 1999. The Company defines "Year 2000 Ready"
as suitable for continued use into the year 2000 with no significant
operational problems.
Sempra Energy's current schedule for Year 2000 testing and readiness
for non-critical systems is to be completed by the end of 1999. In
certain cases, this schedule is dependent upon the efforts of third
parties, such as suppliers (including energy producers) and
customers. Accordingly, delays by third parties may cause the
Company's schedule to change. In addition, a continued readiness
management process has been implemented to monitor and review the
progress of Year 2000 readiness of the Company's systems.
The Costs to Address the Company's Year 2000 Issues
Sempra Energy's budget for the Year 2000 program is $48 million, of
which $44 million has been spent. As the Company continues to assess
its systems and as the remediation and testing efforts progress, cost
estimates may change. The Company's Year 2000 readiness effort is
being funded entirely by operating cash flows.
The Risks of the Company's Year 2000 Issues
Based upon its current assessment and testing of the Year 2000 issue,
the Company believes the reasonably likely worst case Year 2000
scenarios to have the following impacts upon Sempra Energy and its
operations. With respect to the Company's ability to provide energy
to its domestic utility customers, the Company believes that the
scenario is for small, localized interruptions of utility service
which are restored in a time frame that is within normal service
levels. With respect to services that are essential to Sempra
Energy's operations, such as customer service, business operations,
supplies and emergency response capabilities, the scenario is for
minor disruptions of essential services with rapid recovery and all
essential information and processes ultimately recovered.
To assist in preparing for and mitigating these possible scenarios,
Sempra Energy is a member of several industry-wide efforts
established to deal with Year 2000 problems affecting embedded
systems and equipment used by the nation's natural gas and electric
power companies. Successful contingency drills were held with eight
west-coast natural gas pipeline companies on August 24, 1999 and with
the North American Electric Reliability Council (NERC) on September
9, 1999.
Under these efforts, participating utilities are working together to
assess specific vendors' system problems and to test plans. These
assessments are being shared by the industry as a whole to facilitate
Year 2000 problem solving.
A portion of this risk is due to the various Year 2000 Ready
schedules of major suppliers and customers. The Company continues to
contact its major suppliers and customers to survey their Year 2000
remediation programs. While risks related to the lack of Year 2000
readiness by third parties could materially and adversely affect the
Company's business, results of operations and financial condition,
the Company expects its Year 2000 readiness efforts to reduce
significantly the Company's level of uncertainty about the impact of
third party Year 2000 issues on both its IT systems and its non-IT
systems.
The Company's Contingency Plans
The Company's contingency plans for Year-2000-related interruptions
have been completed and were submitted to the CPUC on July 1, 1999.
These plans will continue to be revised and improved during the
remainder of 1999. The contingency plans include emergency backup and
recovery procedures, replacing electronic applications with manual
processes, and identification of alternate suppliers, along with
increasing inventory levels. In addition, the following key
contingency actions will be taken.
? Only critical system changes will be implemented during
December 1999 and January 2000.
? An hour-by-hour plan will be developed to cover key
contingency actions.
? On-site staffing will be in place at key operational and
administrative locations.
? Designated standby staff will be on-call with thirty-minute
availability.
? Emergency Operations Centers will be activated on December
31, 1999.
? Walk-through drills are being held during the fourth quarter
of 1999.
Due to the speculative and uncertain nature of contingency planning,
there can be no assurances that such plans actually will be
sufficient to reduce the risk of material impacts on the Company's
operations due to Year 2000 issues.
FACTORS INFLUENCING FUTURE PERFORMANCE
The Company's performance in the near future will primarily depend on
the results of the California utilities. Because of the ratemaking
and regulatory process, electric and natural gas industry
restructuring, and the changing energy marketplace, there are several
factors that will influence the Company's future financial
performance. These factors are discussed in this section and in
"Other Operations" and "International Operations" below.
Chilquinta Energia S.A. Acquisition
See Note 2 of the notes to Consolidated Financial Statements and
"International Operations" below for a discussion of the acquisition
of Chilquinta Energia S.A. and Luz del Sur S.A.
Industry Restructuring
See discussion of industry restructuring in Note 3 of the notes to
Consolidated Financial Statements.
Electric-Generation Assets and Electric Rates
Note 3 of the notes to Consolidated Financial Statements describes
regulatory and legislative actions that affect SDG&E's electric
rates, and the related sale of its fossil plants and recovery of the
cost of all SDG&E generation-related assets.
Performance-Based Regulation (PBR)
To promote efficient operations and improved productivity and to move
away from reasonableness reviews and disallowances, the CPUC has been
directing utilities to use PBR. PBR has replaced the general rate
case and certain other regulatory proceedings for both SoCalGas and
SDG&E. Under PBR, regulators require future income potential to be
tied to achieving or exceeding specific performance and productivity
goals, as well as cost reductions, rather than relying solely on
expanding utility rate base in a market where a utility already has a
highly developed infrastructure.
SoCalGas' PBR is in effect through December 31, 2002; however, the
CPUC decision allows for the possibility that changes to the PBR
mechanism could be adopted in a decision to be issued in SoCalGas'
1999 Biennial Cost Allocation Proceeding application, which is
expected to become effective during the first quarter of 2000. See
additional discussion in "Biennial Cost Allocation Proceeding" below.
SDG&E continues to participate in PBR for its electric distribution
and natural gas businesses. In December 1998, the CPUC approved
SDG&E's Cost of Service proceeding, resulting in an authorized
revenue increase of $12 million (an electric distribution increase of
$18 million and a natural gas decrease of $6 million). New rates
became effective on January 1, 1999. On May 13, 1999 the CPUC adopted
a decision on the PBR design issues of SDG&E's distribution PBR
application, incorporating the rate-indexing mechanism proposed by
SDG&E, but also approving tighter bands for sharing enhanced earnings
than previously in effect for SDG&E. The decision also adopted an
all-party settlement on various performance incentives, allowing
SDG&E the opportunity to accrue up to $14.5 million annually in
performance rewards or penalties. Certain intervenors requested a
rehearing of the rate-indexing mechanism. On November 4, 1999 the
CPUC denied this request. The new PBR mechanism is effective
retroactive to January 1, 1999 and remains in effect until December
31, 2002. SDG&E must file a new cost of service study and a request
for a new PBR mechanism in December 2001.
Cost of Capital
Under PBR, annual Cost of Capital proceedings were replaced by an
automatic adjustment mechanism if changes in certain indices exceed
established tolerances. For 1999, SoCalGas is authorized to earn a
rate of return on common equity (ROE) of 11.6 percent and a 9.49
percent return on rate base (ROR), unchanged from 1998. For SDG&E,
electric-industry restructuring is changing the method of calculating
the utility's annual cost of capital. SDG&E's May 1998 application to
the CPUC for unbundled rates established new, separate rates of
return for SDG&E's electric distribution and natural gas businesses.
The application proposed a 12.00 percent ROE, which would produce an
overall ROR of 9.33 percent. A CPUC decision in June 1999 granted
SDG&E an ROE of 10.6 percent (overall ROR of 8.75 percent). This
resulted in annual revenue requirement reductions of $14.6 million
and $4.8 million for SDG&E's electric distribution and gas sales,
respectively, effective July 1, 1999. SDG&E filed an Application for
Rehearing of this decision in July 1999, requesting that the ROE be
increased to 10.8 percent after correcting computational errors in
the original decision. The Application for Rehearing is pending.
Biennial Cost Allocation Proceeding (BCAP)
The BCAP determines how a utility's costs are allocated among various
customer classes (residential, commercial, industrial, etc.). The
utilities filed the 1999 BCAP application in October 1998, with
hearings held during the first half of 1999. At the conclusion of
hearings, a joint BCAP recommendation was reached proposing, among
other things, an overall natural gas rate reduction of $229 million
for SoCalGas and $11 million for SDG&E. A CPUC decision is expected
during the first quarter of 2000.
INTERNATIONAL OPERATIONS
As discussed in Note 2 of the notes to Consolidated Financial
Statements, in June 1999 and in September 1999, Sempra Energy
invested in two additional utility companies in South America.
Results for international operations for the three-month and nine-
month periods ended September 30, 1999 were net income of $7 million
and $6 million, respectively, compared to breakeven for the three-
month period and a net loss of $3 million for the nine-month period
in 1998. The losses were primarily due to expenses related to the
evaluation of international opportunities. The increase in net income
during the three-month and nine-month periods ended September 30,
1999 are primarily due to income from Chilquinta Energia S.A., and
lower operating costs and increased sales (as a result of colder
weather) in Argentina.
Accounting for international operations has resulted in foreign
currency translation adjustments, as further discussed in Note 4 of
the notes to Consolidated Financial Statements.
OTHER OPERATIONS
Sempra Energy Trading Corp. (SET), a leading natural-gas power
marketing firm headquartered in Stamford, Connecticut, was jointly
acquired by PE and Enova on December 31, 1997. For the three-month
and nine-month periods ended September 30, 1999, SET recorded net
income of $5 million and $9 million, compared to net losses of $4
million and $11 million for the same periods in 1998. The increase in
income was primarily due to greater penetration of all customer
segments resulting in higher volumes traded in 1999. In addition, new
European crude oil and natural gas trading contributed to 1999
earnings.
Sempra Energy Financial (SEF) invests as a limited partner in
affordable-housing properties and alternative-fuel projects. SEF's
portfolio includes over 1,250 properties throughout the United
States, Puerto Rico and the Virgin Islands. These investments are
expected to provide income-tax benefits (primarily from income-tax
credits) over the next several years. For the three-month and nine-
month periods ended September 30, 1999, SEF recorded net income of $6
million and $20 million, compared to net income of $4 million and $16
million for the same periods in 1998.
ITEM 3. MARKET RISK
There have been no significant changes in the risk issues affecting
the Company subsequent to those discussed in the Annual Report on
Form 10-K for 1998 except as to the sale of the power plants and
related impact on stranded costs, and the significant expansion into
international operations. "ITEM 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" herein
includes discussion of various risk issues.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters referred to in the Company's 1998 Annual
Report or referred to elsewhere in this Quarterly Report on Form 10-Q
for the three months ended September 30, 1999, neither the Company
nor any of its affiliates is a party to, nor is its property the
subject of, any material pending legal proceedings other than routine
litigation incidental to its businesses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedule for the nine months ended
September 30, 1999.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SEMPRA ENERGY
-------------------
(Registrant)
Date: November 12, 1999 By: /s/ F. H. Ault
----------------------------
F. H. Ault
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENT OF CONSOLIDATED INCOME, BALANCE SHEET,
AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<CIK> 0001032208
<NAME> SEMPRA ENERGY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,019
<OTHER-PROPERTY-AND-INVEST> 2,032
<TOTAL-CURRENT-ASSETS> 2,962
<TOTAL-DEFERRED-CHARGES> 952
<OTHER-ASSETS> 174
<TOTAL-ASSETS> 11,139
<COMMON> 1,812
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,083
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,895
25
179
<LONG-TERM-DEBT-NET> 2,921
<SHORT-TERM-NOTES> 85
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 217
0
<CAPITAL-LEASE-OBLIGATIONS> 13
<LEASES-CURRENT> 12
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,792
<TOT-CAPITALIZATION-AND-LIAB> 11,139
<GROSS-OPERATING-REVENUE> 3,894
<INCOME-TAX-EXPENSE> 131
<OTHER-OPERATING-EXPENSES> 3,357 <F1>
<TOTAL-OPERATING-EXPENSES> 3,488
<OPERATING-INCOME-LOSS> 406
<OTHER-INCOME-NET> 68
<INCOME-BEFORE-INTEREST-EXPEN> 474
<TOTAL-INTEREST-EXPENSE> 185
<NET-INCOME> 289
0 <F1>
<EARNINGS-AVAILABLE-FOR-COMM> 289
<COMMON-STOCK-DIVIDENDS> 281
<TOTAL-INTEREST-ON-BONDS> 104
<CASH-FLOW-OPERATIONS> 883
<EPS-BASIC> 1.22
<EPS-DILUTED> 1.22
<FN>
<F1> PREFERRED DIVIDEND OF SUBSIDIARY INCLUDED IN OTHER OPERATING
EXPENSE
</TABLE>
<TABLE>
EXHIBIT 12.1
SEMPRA ENERGY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)
<CAPTION>
Nine Months
Ended
September 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges and Preferred
Stock Dividends:
Interest $ 237 $ 227 $ 205 $ 209 $ 210 $ 200
Interest Portion of
Annual Rentals 35 32 28 25 20 13
Preferred dividends
of subsidiaries (1) 53 50 37 31 18 13
-------- -------- -------- -------- -------- --------
Total Fixed Charges
and Preferred Stock
Dividends For Purpose
of Ratio $ 325 $ 309 $ 270 $ 265 $ 248 $ 226
======== ======== ======== ======== ======== ========
Earnings:
Pretax income from
continuing operations $ 634 $ 665 $ 727 $ 733 $ 432 $ 420
Add:
Fixed charges
(from above) 325 309 270 265 248 226
Less: Fixed charges
capitalized 4 6 5 3 3 3
-------- -------- -------- -------- -------- --------
Fixed charges net of
capitalized charges 321 303 265 262 245 224
-------- -------- -------- -------- -------- --------
Total Earnings for
Purpose of Ratio $ 955 $ 968 $ 992 $ 995 $ 677 $ 643
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividends 2.94 3.13 3.67 3.75 2.73 2.84
======== ======== ======== ======== ======== ========
(1) In computing this ratio, "Preferred dividends of subsidiaries" represents the
before-tax earnings necessary to pay such dividends, computed at the effective tax
rates for the applicable periods.
</TABLE>
