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 March 31, 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 April 30, 1999: 240,119,972
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ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
SEMPRA ENERGY
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
(Dollars in millions, except per share amounts)
<CAPTION>
Three Months Ended
March 31,
---------------
1999 1998
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<S> <C> <C>
Revenues and Other Income:
Utility revenues:
Natural gas $ 698 $ 761
Electric 360 497
Other operating revenues 111 77
Other income 22 15
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Total 1,191 1,350
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Expenses:
Cost of natural gas distributed 291 330
Purchased power - net 66 96
Electric fuel 35 31
Operating expenses 389 377
Depreciation and amortization 142 275
Franchise payments and other taxes 45 51
Preferred dividends of subsidiaries 3 4
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Total 971 1,164
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Income Before Interest and Income Taxes 220 186
Interest 58 55
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Income Before Income Taxes 162 131
Income Taxes 63 44
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Net Income $ 99 $ 87
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Net Income Per Share of Common Stock (Basic) $0.42 $0.37
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Net Income Per Share of Common Stock (Diluted) $0.42 $0.37
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Common Dividends Declared Per Share $0.39 $0.32
====== ======
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<CAPTION>
Balance at
------------------------
March 31, December 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 622 $ 424
Accounts receivable - trade 512 586
Account and note receivable - other 180 159
Deferred income taxes 77 93
Energy trading assets 839 906
Inventories 90 151
Other 168 139
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Total current assets 2,488 2,458
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Investments and other assets:
Regulatory assets 1,060 1,056
Nuclear-decommissioning trusts 495 494
Investments 587 548
Other assets 514 459
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Total investments and other assets 2,656 2,557
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Property, plant and equipment:
Property, plant and equipment 11,289 11,235
Less accumulated depreciation and amortization (5,901) (5,794)
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Total property, plant and equipment - net 5,388 5,441
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Total assets $10,532 $10,456
===========================
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<CAPTION>
Balance at
------------------------
March 31, December 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 38 $ 43
Accounts payable - trade 571 702
Accrued income taxes 35 27
Energy trading liabilities 677 805
Dividends and interest payable 163 168
Regulatory balancing accounts - net 461 120
Long-term debt due within one year 349 330
Other 258 271
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Total current liabilities 2,552 2,466
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Long-term debt 2,762 2,795
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Deferred credits and other liabilities:
Customer advances for construction 71 72
Post-retirement benefits other than pensions 220 240
Deferred income taxes 648 634
Deferred investment tax credits 137 147
Deferred credits and other liabilities 1,017 985
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Total deferred credits and other liabilities 2,093 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 1,886 1,883
Retained earnings 1,080 1,075
Deferred compensation relating to
Employee Stock Ownership Plan (45) (45)
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Total shareholders' equity 2,921 2,913
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Total liabilities and shareholders' equity $10,532 $10,456
===========================
See notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
SEMPRA ENERGY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
(Dollars in millions)
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 99 $ 87
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 142 275
Deferred income taxes and investment tax credits 4 (57)
Other - net (64) (124)
Net changes in other working capital components 267 572
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Net cash provided by operating activities 448 753
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Cash Flows From Investing Activities:
Expenditures for property plant and equipment (73) (78)
Acquisitions of subsidiaries -- (119)
Contributions to decommissioning trusts (5) (5)
Other (30) 8
-------------------------
Net cash used in investing activities (108) (194)
-------------------------
Cash Flows From Financing Activities:
Common stock dividends (94) (76)
Sale of common stock 3 9
Repurchase of common stock -- (1)
Redemption of preferred stock -- (75)
Issuance of long-term debt 10 76
Payment on long-term debt (56) (201)
Decrease in short-term debt - net (5) (272)
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Net cash used in financing activities (142) (540)
-------------------------
Increase in Cash and Cash Equivalents 198 19
Cash and Cash Equivalents, January 1 424 814
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Cash and Cash Equivalents, March 31 $ 622 $ 833
========================
Supplemental Disclosure of Cash Flow Information:
Interest payments (net of amounts capitalized) $ 63 $ 59
========================
Income tax payments (net of refunds) $ 24 $ 7
========================
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). 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 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, which includes the Consolidated
Financial Statements and notes thereto, and the annual "Management's
Discussion & Analysis of Financial Condition and Results of
Operations."
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
has not resulted in a write-off of SDG&E's generation assets, since
the CPUC has approved the recovery of the stranded costs related to
these assets by the distribution portion of its business, subject to
a rate cap. (See further discussion in Note 3.)
2. BUSINESS COMBINATIONS
PE/Enova
On June 26, 1998 (pursuant to an October 1996 agreement) Enova (the
parent corporation of San Diego Gas & Electric) and PE (the parent
corporation 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 stock of SDG&E, PE and SoCalGas remain outstanding.
Additional information on the business combination is discussed in
the Company's 1998 Annual Report.
Expenses incurred in connection with the business combination were
$0.5 million, after tax, and $1.4 million, after tax, for the three-
month periods ended March 31, 1999 and 1998, respectively. These
costs consisted primarily of employee-related costs, and investment
banking, legal, regulatory and consulting fees.
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. If the transaction is approved, holders of KN
Energy common stock will receive 1.115 shares of Sempra Energy common
stock or $25 in cash, or some combination thereof, for each share of
KN Energy common stock. In the aggregate, the cash portion of the
transaction will constitute not more than 30 percent of the total
consideration. The transaction will be treated as a purchase for
accounting purposes. On March 30, 1999, Sempra Energy was notified
that the U.S. Federal Trade Commission had granted the Company's
request for early clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to the proposed
merger.
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
adopts the December 1995 CPUC policy decision that restructures the
industry to stimulate competition and reduce rates.
Beginning on March 31, 1998, customers 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
investor-owned electric utilities (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. 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 as presented. 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. Excluding the costs of purchased power and other costs whose
recovery is not limited to the pre-2002 period, the balance of
SDG&E's stranded assets at March 31, 1999 is $600 million, consisting
of $400 million for the power plants (see the following paragraph)
and $200 million of related deferred taxes and undercollections.
During the 1998-2001 period, recovery of transition costs is limited
by a rate cap (discussed below).
In November 1997 SDG&E announced a plan to auction its power plants
and other generation assets. This plan includes the divestiture of
SDG&E's fossil power plants and combustion turbines, its 20-percent
interest in the San Onofre Nuclear Generating Station (SONGS) and its
portfolio of long-term purchased-power contracts. The power plants
have a net book value as of March 31, 1999 of $400 million ($300
million for SONGS and $100 million for the fossil plants) and a
combined generating capacity of 2,400 megawatts. The proceeds from
the sales will be applied directly to SDG&E's transition costs. The
fossil-fuel assets' auction is being separated from the auction of
SONGS and the purchased-power contracts. In October 1998, the CPUC
issued an interim decision approving the commencement of the fossil
fuel assets' auction.
On December 11, 1998 contracts were executed for the sale of SDG&E's
South Bay Power Plant, Encina Power Plant and 17 combustion-turbine
generators. In early 1999, the CPUC issued its final approvals of
these transactions. 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 Encina Power Plant
and the combustion-turbine generators are being sold to a special-
purpose entity owned equally by Dynegy Power Corp. and NRG Energy,
Inc. for $350 million. This transaction is expected to close by mid
1999. SDG&E will continue to operate the facilities for the next two
years.
AB 1890 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.
AB 1890 includes a rate freeze for all customers. Beginning in 1998,
system-average rates were fixed at 9.43 cents per kwh. The rate
freeze could stay in place until January 1, 2002. However, SDG&E
recently filed with the CPUC for an interim mechanism to deal with
electric rates after the rate freeze ends, noting the possibility
that the SDG&E rate freeze could end in 1999. A subsequent SDG&E
filing requests expedited treatment from the CPUC to end the rate
freeze and to set interim rates effective July 1, 1999, as well as a
request for adoption of final rates. SDG&E is requesting authority to
reduce base rates (the portion of the rate that SDG&E controls) to
all electric customers. If approved, base electric rates will
decrease by an additional five percent to 15 percent, depending on
the customer class, 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. Once the rate
freeze is lifted, except for the interim protection mechanism
described below, customers will no longer be protected from commodity
price spikes. The request to end the rate freeze is based on a
projection of SDG&E's recovering all applicable electric
restructuring transition costs before July 1, 1999.
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 the rate freeze lifting. Included in the
settlement is an interim customer-protection mechanism for
residential and small commercial customers that would temporarily cap
rates between July 1999 and September 1999, regardless of how high
the PX price moves during that period. Any resulting undercollection
would be recovered through a balancing account mechanism. An interim
CPUC decision is expected no later than June 24, 1999.
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. SDG&E 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. The
IOUs pay to the PX an up-front restructuring charge (in four annual
installments) and an administrative-usage charge for each megawatt-
hour of volume transacted. SDG&E's share of the restructuring charge
is approximately $10 million, which is being recovered as a
transition cost. The IOUs have guaranteed $300 million of commercial
loans to the ISO and PX for their development and initial start-up.
SDG&E's share of the guarantee is $30 million.
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
customers prior to January 1, 2000; the CPUC continues to study the
issue. During the implementation moratorium, the CPUC will hold
hearings throughout the state and intends to give the legislature a
draft ruling before adopting a final market-structure policy. SDG&E
and SoCalGas will actively participate in this effort.
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 17 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 has been involved in negotiations and litigation with four
Canadian suppliers concerning contract terms and prices. SDG&E has
settled with three of the suppliers. One of the three is delivering
natural gas under the terms of the settlement agreement through 2003;
the other two have ceased deliveries and the contracts were
terminated. The fourth supplier has ceased deliveries pending legal
resolution. 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 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
During 1993, PE completed a strategic plan to refocus on its natural
gas utility and related businesses. The strategy included the
divestiture of the Company'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
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 periods ended March 31, 1999 and 1998 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 nationwide wholesale trading and
marketing of natural gas, power and petroleum. 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 primarily based on rates set by the CPUC and the
FERC. There were no significant changes in segment assets for the
three months ended March 31, 1999. See Note 3 regarding the sale of
the Company's power plants. Segment information of SoCalGas and SDG&E
is provided in the Quarterly Report on Form 10-Q for the three-month
period ended March 31, 1999 of each of these companies.
- ------------------------------------------------------------
Three months ended
March 31,
---------------------------
(Dollars in millions) 1999 1998
- ------------------------------------------------------------
Operating Revenues:
San Diego Gas & Electric $ 461 $ 606
Southern California Gas 607 664
Sempra Energy Trading 73 9
Intersegment revenues (14) (11)
All other 64 82
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Total $1,191 $ 1,350
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Net Income:
San Diego Gas & Electric* $ 53 $ 48
Southern California Gas* 47 47
Sempra Energy Trading 1 (8)
All other (2) -
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Total $ 99 $ 87
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* 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, debt securities and guarantees 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. Because any debt
securities issued by Holdings will be guaranteed by Sempra Energy,
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 March 31, At December 31,
1999 1998
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Current assets $1,396 $1,470
Non-current assets 587 544
Current liabilities 1,367 1,452
Non-current liabilities 139 140
Three Months Ended
March 31,
------------------
1999 1998
------------------
Operating revenues $ 114 $ 111
Operating expenses 129 131
Net loss 10 11
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; 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 and the KN Energy
proposed merger. See "International Operations" below for a
discussion of the planned acquisition of Chilquinta Energia S.A.
CAPITAL RESOURCES AND LIQUIDITY
The Company's 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. Cash requirements
primarily include utility capital expenditures, repayments and
retirements of long-term debt, and costs related to the proposed
acquisitions of KN Energy and Chilquinta Energia S.A. Major changes
in cash flows not described elsewhere are described below. Cash and
cash equivalents at March 31, 1999 are available for investment in
energy-related domestic and international projects, the retirement of
debt, and other corporate purposes.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operations decreased primarily due to greater working
capital requirements and to a decrease in collections on regulatory
balancing accounts compared to 1998. Overcollected balancing accounts
increased for both periods due to actual natural gas costs' being
lower than amounts collected in rates.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment are estimated
to be $420 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.
In January 1998 PE and Enova jointly acquired CES/Way International,
Inc. for a total of $79 million. CES/Way 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 due to greater long-
term and short-term debt repayments and the repurchase of preferred
stock in 1998. The decrease was partially offset by higher dividends
paid on common stock in 1999.
Dividends paid on common stock were $94 million during the three-
month period ended March 31, 1999, compared to $76 million during the
same period in 1998. The increase in 1999 is the result 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 7-
3/4% Series Preferred Stock for a total cost of $75 million,
including unpaid dividends.
RESULTS OF OPERATIONS
The increases in net income and net income per share for the three
months ended March 31, 1999 are primarily due to higher net income at
SDG&E due to property sales and improved results at Sempra Energy
Trading (SET) due to higher trading gains. SoCalGas' net income for
the three-month period ended March 31, 1999 was consistent with net
income for the same period in 1998.
Income tax expense increased for the three-month period ended March
31, 1999, compared to the corresponding period in 1998, due to the
increase in income before taxes. The increase in income before taxes,
coupled with a relatively unchanged level of income tax credits,
resulted in an increase in the Company's income tax rate.
UTILITY OPERATIONS
Utility natural gas revenues decreased 8 percent for the three-month
period ended March 31, 1999 compared to the same period in 1998. The
decrease was primarily due to a decrease in the average cost of
natural gas and lower utility electric generating sales, partially
offset by a slight increase in sales to residential customers due to
colder weather and customer growth in 1999.
Electric revenues decreased 28 percent in 1999 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 ECAC
and ERAM balancing accounts at December 31, 1997. In addition, there
was a decrease in retail revenues as a result of a decrease in sales
to other utilities, due to the start-up of the PX. The PX is
described further under "Factors Influencing Future Performance".
Cost of natural gas distributed decreased 12 percent for the three-
month period ended March 31, 1999. The decrease was primarily due to
the decrease in the average cost of natural gas purchased and lower
utility electric generating sales, offset by higher volumes. 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 decreased 48 percent for the three-
month period ended March 31, 1999, compared to the same period in
1998 due to the January 1998 application of the ITCBA to stranded
cost recovery as discussed above.
The tables below summarize the components of natural gas and electric
volumes and revenues by customer class for the three months ended
March 31, 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 115 $ 724 1 $ 1 116 $ 725
Commercial and industrial 32 178 81 66 113 244
Utility electric generation* 12 5 16 7 28 12
Wholesale - - 8 2 8 2
--------------------------------------------------------------
159 $ 907 106 $ 76 265 983
Balancing accounts and other (285)
--------
Total $ 698
- ------------------------------------------------------------------------------------------
1998:
Residential 109 $ 809 1 $ 4 110 $ 813
Commercial and industrial 30 186 86 71 116 257
Utility electric generation* 10 2 23 11 33 13
Wholesale - - 9 2 9 2
--------------------------------------------------------------
149 $ 997 119 $ 88 268 1,085
Balancing accounts and other (324)
---------
Total $ 761
- ------------------------------------------------------------------------------------------
* The portion representing SDG&E's sales for electric generation includes
margin only.
</TABLE>
<TABLE>
Electric Distribution
(Dollars in millions, volumes in millions of Kwhrs
<CAPTION>
1999 1998
------------------------------------------
Volumes Revenue Volumes Revenue
------------------------------------------
<S> <C> <C> <C> <C>
Residential 1,685 $ 170 1,631 $ 167
Commercial 1,518 125 1,632 134
Industrial 489 31 814 48
Direct access 657 21 - -
Street and highway lighting 19 2 22 2
Off-system sales 26 - 595 13
------------------------------------------
4,394 349 4,694 364
Balancing and other 11 133
------------------------------------------
Total 4,394 $ 360 4,694 $ 497
------------------------------------------
</TABLE>
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 have now been consolidated into Sempra Energy's overall Year
2000 readiness effort. Sempra Energy has 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 IT and non-IT systems (including
embedded systems) that might not be Year 2000 ready and categorizing
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 are being 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 and the
company estimates that all critical systems will be Year 2000 Ready
by 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, readiness and
development of contingency plans is subject to change depending upon
the remediation and testing phases of the Company's compliance effort
and upon developments that may arise as the Company continues to
assess its computer-based systems and operations. In addition, 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.
The Costs to Address the Company's Year 2000 Issues
Sempra Energy's budget for the Year 2000 program is $48 million, of
which $40 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
reasonably likely worst case 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. Under these efforts, participating utilities are
working together to assess specific vendors' system problems and to
test plans. These assessments will be 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 critical third party suppliers and customers. The
Company continues to contact its critical 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
Sempra Energy's contingency plans for Year-2000-related interruptions
are being incorporated in the Company's existing overall emergency
preparedness plans. To the extent appropriate, such plans will
include emergency backup and recovery procedures, remediation of
existing systems parallel with installation of new systems, replacing
electronic applications with manual processes, identification of
alternate suppliers and increasing inventory levels. These
contingency plans are well underway and the Company plans to be
completed by June 30, 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 SDG&E and SoCalGas. 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.
KN Energy and Chilquinta Energia S.A. Acquisitions
See discussion of the proposed KN Energy acquisition in Note 2 of the
notes to Consolidated Financial Statements. See "International
Operations" below for a discussion of the planned acquisition of
Chilquinta Energia 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
In November 1997 SDG&E adopted a plan to auction its power plants and
other electric-generation assets, so that it could continue to
concentrate its business on the transmission and distribution of
electricity and natural gas as California opens its electric-utility
industry to competition. This is described in Note 3 of the notes to
Consolidated Financial Statements. In addition, the March 1998 CPUC
decision approving the Enova/PE business combination required, among
other things, the divestiture by SDG&E of its fossil-fueled
generation units. The proceeds from the sales will be applied
directly to SDG&E's transition costs.
As described in Note 3 of the notes to Consolidated Financial
Statements, AB 1890 requires a 10-percent reduction of residential
and small commercial customers' rates beginning in January 1998, as
well as a rate freeze for all customers. The rate freeze could stay
in place until January 1, 2002. However, SDG&E recently filed with
the CPUC for an interim mechanism to deal with electric rates after
the rate freeze ends, noting the possibility that the SDG&E rate
freeze could end in 1999. If approved, base electric rates (the
portion of the rate that SDG&E controls) will decrease by an
additional five percent to 15 percent, depending on the customer
class, 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. Once the rate freeze is lifted, except
for the interim protection mechanism described in Note 3 of the notes
to Consolidated Financial Statements, customers will no longer be
protected from commodity price spikes.
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 (BCAP) application which is
anticipated to become effective at year-end 1999. SDG&E continues to
participate in PBR for its electric and natural gas distribution
business. During early 1998 SDG&E filed an application with the CPUC
proposing a new distribution PBR mechanism since the base rate PBR
mechanism would terminate at the end of 1998. The results of SDG&E's
1999 Cost of Service study form the basis for the new mechanism's
starting-point rates. In December 1998, the Cost of Service
settlement agreement among SDG&E, ORA and UCAN was approved by the
CPUC, 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. Also in January 1999, an administrative law judge's proposed
decision was released on the PBR design issues of SDG&E's
distribution PBR application. The proposed decision recommends a
revenue-per-customer indexing mechanism rather than the rate-indexing
mechanism proposed by SDG&E. Revenue or base margin per customer
would be indexed based on inflation less an estimated productivity
factor. The proposed decision also recommends much tighter earnings
sharing bands than previously in effect for SDG&E. In March 1999, a
CPUC commissioner issued an alternate decision which, among other
things, would approve the rate-indexing proposal. On May 13, 1999,
the CPUC adopted a decision incorporating the rate-indexing
mechanism.
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 seeks to establish new, separate rates
of return for SDG&E's electric distribution and natural gas
businesses. The application proposes a 12.00 percent ROE, which would
produce an overall ROR of 9.33 percent. The ORA, UCAN and other
intervenors have filed testimony recommending significantly lower
RORs. A final CPUC decision is expected by mid 1999.
OTHER OPERATIONS
Sempra Energy Solutions (Solutions), formed in 1997 as a joint
venture of PE and Enova, incorporates several existing unregulated
businesses from each of PE and Enova. It is pursuing a variety of
opportunities, including buying and selling natural gas for large
users, integrated energy-management services targeted at large
governmental and commercial facilities, and consumer market products
and services. CES/Way International, Inc. (CES/Way), which was
acquired by Solutions in January 1998, provides energy-efficiency
services including energy audits, engineering design, project
management, construction, financing and contract maintenance.
Solutions' net losses were $8 million and $9 million for the three-
month periods ended March 31, 1999 and 1998. The losses are primarily
due to start-up costs.
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
period ended March 31, 1999, SET recorded after-tax income of $1
million, compared to a net loss of $7 million in the first quarter of
1998. The increase in income was primarily due to SET's acquisition
of CNG Energy Services Corporation, a subsidiary of Pittsburgh-based
Consolidated Natural Gas Company, in July 1998. [P] Effective April
1999, PE transferred its ownership interest in SET to Sempra Energy.
INTERNATIONAL OPERATIONS
On April 13, 1999 Sempra Energy announced that the board of directors
of Chilquinta S.A. approved an offer by Sempra Energy and Public
Service Enterprise Group (PSEG) to acquire, under a 50-50
partnership, the shares of Chilquinta S.A.'s subsidiary, Chilquinta
Energia S.A., for $830 million. The acquisition will be funded by
$510 million in equity provided equally by the two partners and $320
million in non-recourse debt provided by a syndicate of banks at the
time of closing. Chilquinta S.A., a leading energy company based in
Santiago, Chile, has operations in Chile, Argentina and Peru. The
combination remains subject to approval by Chilquinta Energia's
shareholders and regulatory notifications in Chile and is expected to
close in mid 1999.
The net losses for international operations for the three-month
periods ended March 31, 1999 and 1998 were $2 million and $3 million,
respectively. The losses are primarily due to expenses related to the
evaluation of international opportunities.
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 March 31, 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 4. SUBMISSION OF MATTERS TO VOTE
Sempra Energy's 16-member board of directors is divided into three
classes whose terms are staggered so that the term of one class
expires at each Annual Meeting of Shareholders. At the annual meeting
on May 4, 1999, the shareholders of Sempra Energy elected five
directors for a three-year term expiring in 2002. The name of each
nominee and the number of shares voted for or withheld were as
follows:
Nominees Votes For Votes Withheld
- -------------------------------------------------------------------
Hyla H. Bertea 203,205,326 8,544,424
Ann L. Burr 203,353,651 8,396,099
Richard A. Collato 203,347,298 8,402,452
Daniel W. Derbes 203,341,955 8,407,795
Ignacio E. Lozano, Jr. 202,892,606 8,857,144
The results of the voting on the following additional items, all of
which were approved, were as follows:
(a) A proposal to approve a Non-Employee Directors' Stock Plan.
In Favor 147,829,901
Opposed 26,325,417
Abstained 5,762,468
Broker Non-Vote 31,831,964
(b) A proposal to approve an Executive Incentive Plan for
executive officers.
In Favor 182,329,656
Opposed 23,468,861
Abstained 5,951,233
(c) A proposal to approve a Long Term Incentive Plan for officers
and other key employees of Sempra Energy and its subsidiaries.
In Favor 96,458,669
Opposed 77,611,943
Abstained 5,847,175
Broker Non-Vote 31,831,963
Additional information concerning the election of the board of
directors and the other proposals is contained in Sempra Energy's
Notice of 1999 Annual Meeting of Shareholders and Proxy Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2 - Plan of acquisition
2.1 Agreement and Plan of Merger, dated as of February 20,
1999, among Sempra Energy, Cardinal Acquisition Corp. and KN
Energy, Inc. (incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K filed by Sempra Energy with the
Securities and Exchange Commission on February 23, 1999).
Exhibit 10 - Material Contracts - Compensation
10.1 Form of Sempra Energy Severance Pay Agreement
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 three months ended
March 31, 1999.
(b) Reports on Form 8-K
A Current Report on Form 8-K filed February 23, 1999
announced the agreement entered into by Sempra Energy,
Cardinal Acquisition Corp. and KN Energy, Inc. to merge
KN Energy, Inc. with and into Cardinal Acquisition Corp.,
a wholly owned subsidiary of Sempra Energy.
A Current Report on Form 8-K filed April 2, 1999 announced
the early termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended,
with respect to the proposed acquisition of KN Energy.
A Current Report on Form 8-K filed April 14, 1999 announced
the approval by Chilquinta S.A.'s board of directors of the
offer by Sempra Energy and Public Service Enterprise Group to
acquire, on a 50-50 basis, Chilquinta S.A.'s subsidiary,
Chilquinta Energia S.A.
A Current Report on Form 8-K filed May 5, 1999 announced that
Sempra Energy Holdings would be filing a shelf registration
of debt securities to be offered pursuant to Rule 415 under
the Securities Act of 1933 and provided certain financial
information for Sempra Energy Holdings.
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: May 14, 1999 By: /s/ F. H. Ault
----------------------------
F. H. Ault
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,189
<OTHER-PROPERTY-AND-INVEST> 1,281
<TOTAL-CURRENT-ASSETS> 2,488
<TOTAL-DEFERRED-CHARGES> 1,234
<OTHER-ASSETS> 340
<TOTAL-ASSETS> 10,532
<COMMON> 1,841
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,080
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,921
25
179
<LONG-TERM-DEBT-NET> 2,700
<SHORT-TERM-NOTES> 38
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 343
0
<CAPITAL-LEASE-OBLIGATIONS> 62
<LEASES-CURRENT> 6
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,258
<TOT-CAPITALIZATION-AND-LIAB> 10,532
<GROSS-OPERATING-REVENUE> 1,169
<INCOME-TAX-EXPENSE> 63
<OTHER-OPERATING-EXPENSES> 971 <F1>
<TOTAL-OPERATING-EXPENSES> 1,034
<OPERATING-INCOME-LOSS> 135
<OTHER-INCOME-NET> 22
<INCOME-BEFORE-INTEREST-EXPEN> 157
<TOTAL-INTEREST-EXPENSE> 58
<NET-INCOME> 99
0 <F1>
<EARNINGS-AVAILABLE-FOR-COMM> 99
<COMMON-STOCK-DIVIDENDS> 94
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 448
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<FN>
<F1> PREFERRED DIVIDEND OF SUBSIDIARY INCLUDED IN OTHER OPERATING
EXPENSE
</TABLE>
EXHIBIT 10.1
SEMPRA ENERGY
SEVERANCE PAY AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of December 1, 1998 (the
"Effective Date") is made by and between SEMPRA ENERGY, a California
corporation, and __________________ (the "Executive").
WHEREAS, the Executive is currently employed by Sempra Energy or a
subsidiary of Sempra Energy (Sempra Energy and its subsidiaries are
hereinafter collectively referred to as the "Company") as ______
(Title); and
WHEREAS, the Board of Directors of Sempra Energy (the "Board") has
determined that it is in the best interests of the Company to
institute formalized severance arrangements for certain of the
executives of the Company, including the Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company and the Executive hereby agree as
follows:
Section 1. Definitions. For purposes of this Agreement, the
following capitalized terms have the meanings set forth below:
"Affiliate" has the meaning ascribed to such term in Rule 12b-2
promulgated under the Exchange Act.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
"Cause" means (i) the willful and continued failure by the Executive
to substantially perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for
Good Reason by the Executive pursuant to Section 2 hereof), or (ii)
the Executive's commission of one or more acts of moral turpitude
that constitute a violation of applicable law (including but not
limited to a felony) which have or result in an adverse effect on the
Company, monetarily or otherwise, or one or more significant acts of
dishonesty. For purposes of clause (i) of this definition, no act,
or failure to act, on the Executive's part shall be deemed "willful"
unless done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed
terminated for Cause pursuant to clause (i) of this definition unless
and until the Executive shall have been provided with reasonable
notice of and, if possible, a reasonable opportunity to cure the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment for Cause.
A "Change in Control" of Sempra Energy shall be deemed to have
occurred when:
(a) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of Sempra Energy representing twenty
percent (20%) or more of the combined voting power of Sempra Energy's
then outstanding securities; or
(b) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
the Effective Date, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including, but not
limited to, a consent solicitation, relating to the election of
directors of Sempra Energy) whose appointment or election by the
Board or nomination for election by Sempra Energy's shareholders was
approved or recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was
previously so approved or recommended; or
(c) There is consummated a merger or consolidation of Sempra Energy
or any direct or indirect subsidiary of Sempra Energy with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of Sempra Energy outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of Sempra Energy or
any subsidiary of Sempra Energy, at least sixty percent (60%) of the
combined voting power of the securities of Sempra Energy or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of Sempra Energy (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Sempra Energy (not including
in the securities beneficially owned by such Person any securities
acquired directly from Sempra Energy or its affiliates other than in
connection with the acquisition by Sempra Energy or its affiliates of
a business) representing twenty percent (20%) or more of the combined
voting power of Sempra Energy's then outstanding securities; or
(d) The shareholders of Sempra Energy approve a plan of complete
liquidation or dissolution of Sempra Energy or there is consummated
an agreement for the sale or disposition by Sempra Energy of all or
substantially all of Sempra Energy's assets, other than a sale or
disposition by Sempra Energy of all or substantially all of Sempra
Energy's assets to an entity, at least sixty percent (60%) of the
combined voting power of the voting securities of which are owned by
shareholders of Sempra Energy in substantially the same proportions
as their ownership of Sempra Energy immediately prior to such sale.
"Change in Control Date" means the date on which a Change in Control
occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" has the meaning assigned thereto in Section 2
hereof.
"Disability" has the meaning set forth in the SERP (as defined
below), as in effect from time to time; provided, however, that in no
event shall the Executive be deemed to have incurred a Disability
hereunder if there exists a reasonable expectation that the Executive
will return to work on a full-time basis within ninety (90) days of
the events giving rise to the Disability.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the applicable rulings and regulations thereunder.
"Good Reason" means:
(a) Prior to a Change in Control, the occurrence of any of the
following without the prior written consent of the Executive, unless
such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination (as discussed in
Section 2 below):
(I) the assignment to the Executive of any duties materially
inconsistent with the range of duties and responsibilities
appropriate to a senior executive within the Company (such range
determined by reference to past, current and reasonable practices
within the Company);
(ii) a material reduction in the Executive's overall standing and
responsibilities within the Company, but not including (A) a mere
change in title, or (B) a transfer within Company, which, in the case
of both (A) and (B), does not adversely affect the Executive's
overall status within the Company;
(iii) a material reduction by the Company in the Executive's
aggregate annualized compensation and benefits opportunities, except
for across-the-board reductions (or modifications of benefit plans)
similarly affecting all similarly situated executives (both of the
Company and of any Person then in control of the Company) of
comparable rank with the Executive;
(iv) the failure by the Company to pay to the Executive any portion
of the Executive's current compensation and benefits or any portion
of an installment of deferred compensation under any deferred
compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 2 hereof; for purposes of this Agreement, no
such purported termination shall be effective;
(vi) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume
and agree to perform the Company's obligations under this Agreement,
as contemplated in Section 8(a) hereof; or
(vii) the failure by the Company to comply with any material
provision of this Agreement.
(b) From and after a Change in Control, the occurrence of any of
the following without the prior written consent of the Executive,
unless such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination (as discussed in
Section 2 below):
(I) an adverse change in the Executive's title, authority, duties,
responsibilities or reporting lines as in effect immediately prior to
the Change in Control;
(ii) a reduction of ten percent (10%) or more by the Company in the
Executive's aggregate annualized compensation and benefits
opportunities, except for across-the-board reductions (or
modifications of benefit plans) of less than ten percent (10%)
similarly affecting all similarly situated executives (both of the
Company and of any Person then in control of the Company) of
comparable rank with the Executive;
(iii) the relocation of the Executive's principal place of employment
immediately prior to the Change in Control Date (the "Principal
Location") to a location which is both further away from Executive's
residence and more than thirty (30) miles from such Principal
Location, or the Company's requiring the Executive to be based
anywhere other than such Principal Location (or permitted relocation
thereof), or a substantial increase in the Executive's business
travel obligations outside of the Southern California area as of the
Effective Date other than any such increase that (A) arises in
connection with extraordinary business activities of the Company and
(B) is understood not to be part of the Executive's regular duties
with the Company;
(iv) the failure by the Company to pay to the Executive any portion
of the Executive's current compensation and benefits or any portion
of an installment of deferred compensation under any deferred
compensation program of the Company within thirty (30) days of the
date such compensation is due;
(v) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 2 hereof; for purposes of this Agreement, no
such purported termination shall be effective;
(vi) the failure by the Company to obtain a satisfactory agreement
from any successor of the Company requiring such successor to assume
and agree to perform the Company's obligations under this Agreement,
as contemplated in Section 8(a) hereof; or
(vii) the failure by the Company to comply with any material
provision of this Agreement.
From and after a Change in Control, the Executive's determination
that an act or failure to act constitutes Good Reason shall be
presumed to be valid unless such determination is deemed to be
unreasonable by an arbitrator. The Executive's right to terminate
the Executive's employment for Good Reason shall not be affected by
the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or
a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
"Involuntary Termination" means (a) a termination of employment by
the Company other than for Cause, death, or Disability, or (b) the
Executive's resignation of employment with the Company for Good
Reason; provided, however, that, except as provided in the last
paragraph of Section 4, a termination of the Executive's employment
by reason of his or her retirement prior to a Change in Control shall
not constitute an Involuntary Termination hereunder.
"Notice of Termination" has the meaning assigned thereto in Section 2
hereof.
"Person" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that
such term shall not include (i) the Company or any of its Affiliates,
(ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii)
an underwriter temporarily holding securities pursuant to an offering
of such securities, (iv) a corporation owned, directly or indirectly,
by the shareholders of Sempra Energy in substantially the same
proportions as their ownership of stock of Sempra Energy, or (v) a
person or group as used in Rule 13d-1(b) under the Exchange Act.
Section 2. Date and Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive shall be
communicated by a written notice of termination to the other party
(the "Notice of Termination"). Where applicable, the Notice of
Termination shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated. The
date of the Executive's termination of employment with the Company
(the "Date of Termination") shall be determined as follows: (i) if
the Executive's employment is terminated by the Company, either with
or without Cause, the Date of Termination shall be the date specified
in the Notice of Termination (which, in the case of a termination by
the Company other than for Cause, shall not be less than two (2)
weeks from the date such Notice of Termination is given unless the
Company elects to pay the Executive, in addition to any other amounts
payable hereunder, an amount equal to two (2) weeks of the
Executive's base salary in effect on the Date of Termination), and
(ii) if the basis for the Executive's Involuntary Termination is his
or her resignation for Good Reason, the Date of Termination shall be
determined by the Company, but shall not in any event be less than
fifteen (15) days nor more than sixty (60) days from the date such
Notice of Termination is given. Unless the Board determines
otherwise, notice by Executive of his or her resignation for Good
Reason must be made within 180 days of the act or failure to act the
Executive alleges to constitute Good Reason.
Section 3. Severance Benefits Prior to Change in Control. Except as
provided in Section 4 and Section 12(g) hereof, in the event of the
Involuntary Termination of the Executive, the Company shall pay the
Executive, in one lump sum cash payment as soon as practicable
following such Involuntary Termination, (A) the full amount of any
earned but unpaid base salary through the Date of Termination at the
rate in effect on such date, plus (B) an amount (the "Severance
Payment") equal to the sum of (X) the Executive's annual base salary
as in effect on the Date of Termination and (Y) his or her average
annual bonus payment for the two years immediately preceding the Date
of Termination (or in the event that the Executive has not been
employed for two years, then his target bonus for the year in which
the termination occurs). In addition to the Severance Payment, the
Executive shall be entitled to the following additional benefits:
(I) Equity Based Compensation. The Executive shall retain all
rights to any equity-based compensation awards to the extent set
forth in the applicable plan and/or award agreement.
(ii) Welfare Benefits. Subject to Section 6 below, for a period of
______ following the Date of Termination, the Executive and his or
her dependents shall be provided with health insurance benefits
substantially similar to those provided to the Executive and his or
her dependents immediately prior to the Date of Termination;
provided, however, that such benefits shall be provided on
substantially the same terms and conditions and at the same cost to
the Executive as in effect immediately prior to the Date of
Termination.
(iii) Outplacement Services. The Executive shall receive
outplacement services suitable to his or her position for a period of
eighteen (18) months following the Date of Termination, or if
earlier, until the first acceptance of an offer of employment with a
subsequent employer, in an aggregate amount not to exceed $50,000.
(iv) Financial Planning Services. The Executive shall receive
financial planning services for a period of eighteen (18) months
following the Date of Termination at a level consistent with the
benefits provided under the Company's financial planning program for
the Executive, as in effect immediately prior to the Date of
Termination.
Section 4. Severance Benefits in Connection with and After Change in
Control. Notwithstanding the provisions of Section 3 above, in the
event of the Involuntary Termination of the Executive within two
years following a Change in Control, in lieu of the payments
described in Section 3 above, the Company shall pay the Executive, in
one lump sum cash payment as soon as practicable following such
Involuntary Termination, (A) the full amount of any earned but unpaid
base salary through the Date of Termination at the rate in effect on
such date, plus (B) an amount (the "Change in Control Severance
Payment") equal to ____ the sum of (X) the Executive's annual base
salary as in effect immediately prior to the Change in Control or the
Date of Termination, whichever is greater, and (Y) his or her average
annual bonus payment for the two years immediately preceding the
Change in Control Date or the Date of Termination, whichever is
greater (or in the event that the Executive has not been employed for
two years, then his target bonus for the year in which the Change in
Control or in which the termination occurs, whichever is greater).
In addition to the Change in Control Severance Payment, the Executive
shall be entitled to the following additional benefits:
(I) Equity-Based Compensation. Notwithstanding the provisions of
any applicable equity-compensation plan or award agreement to the
contrary, all equity-based incentive compensation awards (including,
without limitation, stock options, stock appreciation rights,
restricted stock awards, restricted stock units, performance share
awards, section 162(m) awards, and dividend equivalents) held by the
Executive under any annual incentive compensation plan or long-term
incentive compensation plan maintained by the Company shall
immediately vest and become exercisable or payable, as the case may
be, as of the Date of Termination, to be exercised or paid, as the
case may be, in accordance with the terms of the applicable plan and
award agreement, and any restrictions on any such awards shall
automatically lapse; provided, however, that any such awards granted
on or after the Effective Date shall remain outstanding and
exercisable until the earlier of (A) eighteen (18) months following
the Date of Termination or (B) the expiration of the original term of
such award (it being understood that all awards granted prior to the
Effective Date shall remain outstanding and exercisable for a period
that is no less than that provided for in the applicable agreement in
effect as of the date of grant).
(ii) SERP. The Executive shall receive a lump sum cash payment
representing the present value as of the Date of Termination of his
or her Supplemental Executive Retirement Plan ("SERP") benefits, to
be calculated as if the Executive had reached age 62 (or his or her
actual age if older) for service and vesting purposes, and applying
either the applicable early retirement factors under the Company's
tax-qualified retirement plan, if the Executive is less than age 62
but at least 55, or actuarially determined early retirement factors
if the Executive is less than age 55 and the applicable lump-sum
factors under the Company's tax-qualified retirement plan.
(iii) Welfare Benefits. Subject to Section 6 below, for a period of
_____ months following the Date of Termination, the Executive and his
or her dependents shall be provided with life, disability, accident
and health insurance benefits substantially similar to those provided
to the Executive and his or her dependents immediately prior to the
Date of Termination or the Change in Control Date, whichever is more
favorable to the Executive; provided, however, that such benefits
shall be provided on substantially the same terms and conditions and
at the same cost to the Executive as in effect immediately prior to
the Date of Termination or the Change in Control Date, whichever is
more favorable to the Executive.
(iv) Outplacement Services. The Executive shall receive
outplacement services suitable to his or her position for a period of
eighteen (18) months following the Date of Termination, or if
earlier, until the first acceptance of an offer of employment with a
subsequent employer, in an aggregate amount not to exceed $50,000.
(v) Financial Planning Services. The Executive shall receive
financial planning services for a period of eighteen (18) months
following the Date of Termination at a level consistent with the
benefits provided under the Company's financial planning program for
the Executive, as in effect immediately prior to the Date of
Termination or the Change in Control Date, whichever is more
favorable to the Executive.
(vi) Deferred Compensation. Notwithstanding any election heretofore
or hereafter made by the Executive under any deferred compensation
plan of the Company, the Executive shall receive a lump sum cash
payment in an amount equal to any compensation previously deferred by
the Executive (together with any accrued interest or earnings
thereon) under any deferred compensation plan of the Company.
Notwithstanding anything contained herein, if a Change in Control
occurs and the Executive's employment with the Company is terminated
by reason of an Involuntary Termination prior to the Change in
Control Date, and if such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to
effect the Change in Control or (ii) otherwise arose in connection
with or in anticipation of the Change in Control, then the Executive
shall, in lieu of the payments described in Section 3 above, be
entitled to the Change in Control Severance Payment and the
additional benefits described in this Section 4 as if such
Involuntary Termination had occurred within two years following the
Change in Control.
Section 5. Release. Notwithstanding anything herein to the
contrary, the Company's obligation to make the payments provided for
in this Agreement is expressly made subject to and conditioned upon
(i) the Executive's prior execution of a release substantially in the
form attached hereto as Exhibit A within forty-five (45) days after
the applicable Date of Termination and (ii) the Executive's non-
revocation of such release in accordance with the terms thereof.
Section 6. No Mitigation or Offset.
(a) No Mitigation by Executive. Except as otherwise expressly
provided herein, the Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided
for herein be reduced by any compensation earned by the Executive as
the result of employment by another employer; provided, however, that
if the Executive becomes employed with another employer and is
eligible to receive life, disability, accident and health insurance
benefits under another employer-provided plan, the Executive's
continued plan coverage as set forth in Section 3(ii) or 4(iii)
hereof, as the case may be, shall be secondary to the coverage
provided under such other plan(s) during such applicable period of
eligibility.
(b) No Offset by Company. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others, provided
that nothing herein shall preclude the Company from separately
pursuing recovery from the Executive based on any such claim.
Section 7. Section 280G
(a) Gross-Up. Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received or to be
received by the Executive (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with (A) the
Company, (B) any Person whose actions result in a Change in Control
or (C) any Person affiliated with the Company or such Person) (all
such payments and benefits, including the Change in Control Severance
Payments, being hereinafter called the "Total Payments") would be
subject (in whole or part) to the tax (the "Excise Tax") imposed
under section 4999 of the Code, the Company shall pay to the
Executive such additional amounts (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local
income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on
the date on which the Gross-Up Payment is calculated for purposes of
this section, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder, the Executive
shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of
the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being
repaid by the Executive to the extent that such repayment results in
a reduction in Excise Tax and/or a federal, state or local income tax
deduction) plus interest on the amount of such repayment at the rate
provided in section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account
hereunder (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of
such excess is finally determined. The Executive and the Company
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total
Payments.
(b) Accounting Firm. All determinations to be made with respect to
this Section 7 shall be made by the Company's independent accounting
firm (or, in the case of a payment following a Change in Control, the
accounting firm that was, immediately prior to the Change in Control,
the Company's independent auditor). The accounting firm shall be
paid by the Company for its services performed hereunder.
Section 8. Successors; Binding Agreement.
(a) Assumption by Successor. Sempra Energy will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of Sempra Energy expressly to assume and to agree
to perform its obligations under this Agreement in the same manner
and to the same extent that Sempra Energy would be required to
perform such obligations if no such succession had taken place;
provided, however, that no such assumption shall relieve Sempra
Energy of its obligations hereunder. As used herein, the "Company"
shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid that assumes and agrees to
perform its obligations by operation of law or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of the Executive (and the Executive's
personal representatives and heirs) and the Company and any
organization which succeeds to substantially all of the business or
assets of Sempra Energy, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of Sempra
Energy or otherwise, including, without limitation, as a result of a
Change in Control or by operation of law. This Agreement shall inure
to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
while any amount would still be payable to such Executive hereunder
if he or she had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to his or her devisee, legatee or other designee
or, if there is no such designee, to his or her estate.
Section 9. Confidentiality; Non Solicitation.
(a) Confidentiality. The Executive acknowledges that in the course
of his or her employment within the Company, he or she has acquired
non-public privileged or confidential information and trade secrets
concerning the operations, future plans and methods of doing business
("Proprietary Information") of the Company; and the Executive agrees
that it would be extremely damaging to the Company if such
Proprietary Information were disclosed to a competitor of the Company
or to any other person or corporation. The Executive understands and
agrees that all Proprietary Information the Executive has acquired
during the course of such employment has been divulged to the
Executive in confidence and further understands and agrees to keep
all Proprietary Information secret and confidential (except for such
information which is or becomes publicly available other than as a
result of a breach by the Executive of this provision) without
limitation in time. In view of the nature of the Executive's
employment and the Proprietary Information the Executive has acquired
during the course of such employment, the Executive likewise agrees
that the Company would be irreparably harmed by any disclosure of
Proprietary Information in violation of the terms of this paragraph
and that the Company shall therefore be entitled to preliminary
and/or permanent injunctive relief prohibiting the Executive from
engaging in any activity or threatened activity in violation of the
terms of this paragraph and to any other judicial relief available to
it. Inquiries regarding whether specific information constitutes
Proprietary Information shall be directed to the Company's General
Counsel (or, if such position is vacant, the Company's Chief
Executive Officer); provided, however, that the Company shall not
unreasonably classify information as Proprietary Information.
(b) Non-Solicitation of Employees. The Executive recognizes that
he or she possesses and will possess confidential information about
other employees of the Company, relating to their education,
experience, skills, abilities, compensation and benefits, and
interpersonal relationships with customers of the Company. The
Executive recognizes that the information he or she possesses and
will possess about these other employees is not generally known, is
of substantial value to the Company in developing their business and
in securing and retaining customers, and has been and will be
acquired by him or her because of his or her business position within
the Company. The Executive agrees that for a period of one (1) year
following the Date of Termination, he or she will not, directly or
indirectly, solicit or recruit any employee of the Company for the
purpose of being employed by him or her or by any other competitor of
the Company on whose behalf he or she is acting as an agent,
representative or employee and that he or she will not convey any
such confidential information or trade secrets about other employees
of the Company to any other person; provided, however, that it shall
not constitute a solicitation or recruitment of employment in
violation of this paragraph to discuss employment opportunities with
any employee of the Company who has either first contacted the
Executive or regarding whose employment the Executive has discussed
with and received written approval of the Company's Senior Vice
President, Human Resources (or, if such position is vacant, the
Company's Chief Executive Officer), prior to making such solicitation
or recruitment. In view of the nature of the Executive's employment
with the Company, the Executive likewise agrees that the Company
would be irreparably harmed by any solicitation or recruitment in
violation of the terms of this paragraph and that the Company shall
therefore be entitled to preliminary and/or permanent injunctive
relief prohibiting the Executive from engaging in any activity or
threatened activity in violation of the terms of this paragraph and
to any other judicial relief available to it.
(c) Survival of Provisions. The obligations contained in this
Section 9 shall survive the termination or expiration of the
Executive's employment within the Company and shall be fully
enforceable thereafter. If it is determined by a court of competent
jurisdiction in any state that any restriction in this Section 9 is
excessive in duration or scope or is unreasonable or unenforceable
under the laws of that state, it is the intention of the parties that
such restriction may be modified or amended by the court to render it
enforceable to the maximum extent permitted by the law of that state.
Section 10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to Sempra Energy, 101 Ash Street, San
Diego, CA 92101, Attn: Human Resources Administrator, or to the
Executive at the address in the records of the Company, or to such
other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
Section 11. Administration Prior to Change in Control. Prior to a
Change in Control, the compensation committee of the Board (the
"Compensation Committee") shall have full and complete authority to
construe and interpret the provisions of this Agreement, to determine
an individual's entitlement to benefits under this Agreement, to make
in its sole and absolute discretion all determinations contemplated
under this Agreement, to investigate and make factual determinations
necessary or advisable to administer or implement this Agreement, and
to adopt such rules and procedures as it deems necessary or advisable
for the administration or implementation of this Agreement. All
determinations made under this Agreement by the Compensation
Committee shall be final and binding on all interested persons.
Prior to a Change in Control, the Compensation Committee may delegate
responsibilities for the operation and administration of this
Agreement to one or more officers or employees of the Company. The
provisions of this Section 11 shall terminate and be of no further
force and effect upon the occurrence of a Change in Control.
Section 12. Miscellaneous.
(a) No Right of Employment. Nothing in this Agreement shall be
construed as giving the Executive any right to be retained in the
employ of the Company or shall interfere in any way with the right of
the Company to terminate the Executive's employment at any time, with
or without Cause.
(b) Unfunded Obligation. The obligations under this Agreement
shall be unfunded. Benefits payable under this Agreement shall be
paid from the general assets of the Company. The Company shall have
no obligation to establish any fund or to set aside any assets to
provide benefits under this Agreement.
(c) Rules of Construction. As used herein, the masculine gender
shall be deemed to include the feminine and the singular form shall
be deemed to encompass the plural, unless the context requires
otherwise. Headings of sections (other than the definitions) are
included solely for convenience of reference and shall not govern or
control the meaning of the text of this Agreement. The invalidity or
unenforceability of any provision of this Agreement shall not affect
the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
(d) Tax Withholding. All amounts paid under this Agreement shall
be subject to all applicable federal, state and local wage and
employment tax withholding.
(e) Exclusive Benefit. The Severance Payment, the Change in
Control Severance Payment and all other benefits provided hereunder
shall be in lieu of any other severance payments to which the
Executive is entitled under any other severance plan or arrangement
sponsored by the Company, as well as pursuant to any individual
employment or severance agreement that was entered by the Executive
and the Company, and, upon the Effective Date of this Agreement, all
such plans, programs, agreements and arrangements are hereby
automatically superseded and terminated.
(f) Dispute Resolution. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this
Agreement or contemplated in this Agreement or the breach,
termination or invalidity thereof shall be settled by final and
binding arbitration administered by JAMS/Endispute in San Diego,
California in accordance with the then existing JAMS/Endispute
Arbitration Rules and Procedures for Employment Disputes. In the
event of such an arbitration proceeding, the Executive and the
Company shall select a mutually acceptable neutral arbitrator from
among the JAMS/Endispute panel of arbitrators. In the event the
Executive and the Company cannot agree on an arbitrator, the
Administrator of JAMS/Endispute will appoint an arbitrator. Neither
the Executive nor the Company nor the arbitrator shall disclose the
existence, content, or results of any arbitration hereunder without
the prior written consent of all parties. Except as provided herein,
the Federal Arbitration Act shall govern the interpretation,
enforcement and all proceedings. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the state
of California, or federal law, or both, as applicable and the
arbitrator is without jurisdiction to apply any different substantive
law. The arbitrator shall have the authority to entertain a motion
to dismiss and/or a motion for summary judgment by any party and
shall apply the standards governing such motions under the Federal
Rules of Civil Procedure. The arbitrator shall render an award and a
written, reasoned opinion in support thereof. Judgment upon the
award may be entered in any court having jurisdiction thereof. The
Executive and the Company shall generally each be responsible for
payment of one-half the amount of the arbitrator's fee; provided,
however, that the Company shall pay to the Executive all legal fees
and expenses (including but not limited to fees and expenses in
connection with any arbitration) incurred by the Executive in
disputing in good faith any issue arising under this Agreement
relating to the termination of the Executive's employment in
connection with a Change in Control or in seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement on
account of a Change in Control unless the arbitrator or court
determines that the Executive had no reasonable basis for such claim.
(g) Amendment and Termination. No provision of this Agreement may
be amended or terminated unless it is agreed to in writing and signed
by both parties hereto. Notwithstanding anything contained herein,
this Agreement shall automatically terminate and be of no further
force and effect and no benefits shall be payable hereunder in the
event that the Company sells or otherwise disposes of any part of the
business or assets of Sempra Energy or a subsidiary of Sempra Energy
(other than such a sale or disposition which is part of a transaction
or series of transactions which would result in a Change in Control)
and as a result of such transaction, the Executive is no longer
employed by the Company or any of its Affiliates.
(h) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
(I) Governing Law. This Agreement shall be governed by the laws of
the State of California, without giving effect to conflicts of laws
principles thereof.
(j) Nonexclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation
in any benefit, plan, program, policy or practice provided by the
Company and for which the Executive may qualify (except with respect
to any benefit to which the Executive has waived his rights in
writing), nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any other contract or
agreement entered into after the Effective Date with the Company.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into with, the
Company shall be payable in accordance with such benefit, plan,
policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
SEMPRA ENERGY
By: ________________________
Richard D. Farman
Chairman & Chief Executive Officer
EXECUTIVE
________________________
________________________
<TABLE>
EXHIBIT 12.1
SEMPRA ENERGY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)
<CAPTION>
Three Months
Ended
March 31,
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 $ 59
Interest Portion of
Annual Rentals 35 32 28 25 20 5
Preferred dividends
of subsidiaries (1) 53 50 37 31 18 5
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Total Fixed Charges
and Preferred Stock
Dividends For Purpose
of Ratio $ 325 $ 309 $ 270 $ 265 $ 248 $ 69
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Earnings:
Pretax income from
continuing operations $ 634 $ 665 $ 727 $ 733 $ 432 $ 162
Add:
Fixed charges
(from above) 325 309 270 265 248 69
Less: Fixed charges
capitalized 4 6 5 3 3 -
-------- -------- -------- -------- -------- --------
Fixed charges net of
capitalized charges 321 303 265 262 245 69
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Total Earnings for
Purpose of Ratio $ 955 $ 968 $ 992 $ 995 $ 677 $ 231
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Ratio of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividends 2.94 3.13 3.67 3.75 2.73 3.35
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(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.
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