<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1994
Commission file number 1-40
PACIFIC ENTERPRISES
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 95-0743670
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
555 West Fifth Street, Los Angeles, California 90031-1001
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(213) 895-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock and Associated New York Stock Exchange
Common Stock Purchase Rights Pacific Stock Exchange
Preferred Stock
$7.64 dividend
$4.75 dividend
$4.50 dividend American Stock Exchange
$4.40 dividend Pacific Stock Exchange
$4.36 dividend
Securities registered pursuant to Section 12(g) of the Act: None
<PAGE>
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Registrant's voting stock (Common Stock and Voting
Preferred Stock) held by non-affiliates at March 14, 1995, was approximately
$2.2 billion. This amount excludes the market value of 141,737 shares of
Common Stock held by Registrant's directors and executive officers.
Registrant's Common Stock outstanding at March 14, 1995, numbered 84,541,092
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in this Annual Report is incorporated by reference to
information contained or to be contained in other documents filed or to be filed
by Registrant with the Securities and Exchange Commission. The following table
identifies the information so incorporated in each Part of this Annual Report on
Form 10-K and the document in which it is or will be contained.
Information Incorporated
by Reference and Document
Annual Report in Which Information is or
On Form 10-K will be Contained
------------- --------------------------
Part II - Information contained under the captions
"Financial Review -- Management's Discussion
and Analysis", "Quarterly Financial Data",
"Range of Market Prices of Capital Stock" and
"Selected Financial Data and Comparative
Statistics 1984-1994", in Registrant's 1994
Annual Report to Shareholders.
Part III - Information contained under the captions
"Election of Directors", "Share Ownership of
Directors and Executive Officers" and
"Executive Compensation" in Registrant's
Proxy Statement for its Annual Meeting of
Shareholders scheduled to be held on May 4,
1994.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 5
Pacific Enterprises. . . . . . . . . . . . . . . . . . 5
Southern California Gas Company . . . . . . . . . . . 5
Operating Statistics . . . . . . . . . . . . 5
Service Area . . . . . . . . . . . . . . . . 7
Utility Services . . . . . . . . . . . . . . 8
Demand for Gas . . . . . . . . . . . . . . . 8
Competition . . . . . . . . . . . . . . . . 9
Supplies of Gas. . . . . . . . . . . . . . . 10
Rates and Regulation . . . . . . . . . . . . 12
Properties . . . . . . . . . . . . . . . . . 13
Environmental Matters .. . . . . . . . . . . 13
Interstate Pipeline Operations . . . . . . . . . . . . 14
Alternate Energy Operations . . . . . . . . . . . . . 14
Employees . . . . . . . . . . . . . . . . . . . . . . 15
Management . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . 17
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters . . . . . . . . 18
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 18
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . . . 18
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . 18
PART III
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 19
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . 19
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . 19
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . . . . 20
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<PAGE>
PART I
ITEM 1. BUSINESS
PACIFIC ENTERPRISES
Pacific Enterprises is a Los Angeles-based utility holding company
primarily engaged in supplying natural gas throughout most of southern and
portions of central California. These operations are conducted through Southern
California Gas Company, the nation's largest natural gas distribution utility.
Through other subsidiaries, Pacific Enterprises is also engaged in interstate
and offshore natural gas transmission and in alternate energy development.
Pacific Enterprises was incorporated in California in 1907 as the
successor to a corporation organized in 1886. Its principal executive offices
are located at 555 West Fifth Street, Los Angeles, California 90013-1011 and its
telephone number is (213) 895-5000.
SOUTHERN CALIFORNIA GAS COMPANY
Pacific Enterprises' principal subsidiary is Southern California Gas
Company ("SoCalGas"), a public utility owning and operating a natural gas
distribution, transmission and storage system that supplies natural gas in 535
cities and communities throughout most of southern California and parts of
central California. SoCalGas is the nation's largest natural gas distribution
utility, providing gas service to approximately 17 million residential,
commercial, industrial, utility electric generation and wholesale customers
through approximately 4.7 million meters in a 23,000-square mile service area.
SoCalGas is subject to regulation by the California Public Utilities
Commission (CPUC) which, among other things, establishes rates SoCalGas may
charge for gas service, including an authorized rate of return on investment.
Under current ratemaking policies, SoCalGas' future earnings and cash flow will
be determined primarily by the allowed rate of return on common equity, the
growth in rate base, noncore market pricing and the variance in gas volumes
delivered to these noncore customers versus CPUC-adopted forecast deliveries and
the ability of management to control expenses and investment in line with the
amounts authorized by the CPUC to be collected in rates. The impact of any
future regulatory restructuring, such as performance based ratemaking ("PBR")
(See "Rates and Regulation"), and increased competitiveness in the industry,
including the continuing threat of customers bypassing SoCalGas' system and
obtaining service directly from interstate pipelines, and electric industry
restructuring may also affect SoCalGas' future performance.
For 1995, the CPUC has authorized SoCalGas to earn a rate of return on
rate base of 9.67 percent and a 12.00 percent rate of return on common equity
compared to 9.22 percent and 11.00 percent, respectively, in 1994. Growth in
rate base for 1994 was approximately 3 percent. Rate base is expected to remain
at the same level in 1995. SoCalGas has achieved or exceeded its authorized
return on rate base for the last twelve consecutive years.
OPERATING STATISTICS
The following table sets forth certain operating statistics of SoCalGas from
1990 through 1994.
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OPERATING STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gas Sales, Transportation & Exchange
Revenues (thousands of dollars):
Residential $1,712,899 $1,652,562 $1,483,654 $1,673,837 $1,547,492
Commercial/Industrial 798,180 853,579 836,672 977,065 1,057,030
Utility Electric Generation 118,353 147,208 194,639 148,573 235,102
Wholesale 98,354 116,737 128,881 144,779 164,716
Exchange 690 3,745 5,863 7,482 8,496
---------- ---------- ---------- ---------- ----------
Total in rates 2,728,476(1) 2,773,831 2,649,709 2,951,736 3,012,836
Regulatory balancing accounts
and other (141,952) 37,243 190,216 (21,430) 199,789
---------- ---------- ---------- ---------- ----------
Operating Revenue $2,586,524 $2,811,074 $2,839,925 $2,930,306 $3,212,625
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Volumes (millions of cubic feet):
Residential 256,400 247,507 243,920 249,522 261,887
Commercial/Industrial 347,419 339,706 363,124 460,368 436,330
Utility Electric Generation 260,290 212,720 220,642 170,043 158,985
Wholesale 146,279 147,978 149,232 141,931 139,034
Exchange 10,002 16,969 23,888 25,604 30,246
---------- ---------- ---------- ---------- ----------
Total 1,020,390 964,880 1,000,806 1,047,468 1,026,482
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Core 341,469 338,795 334,630 351,432 372,677
Noncore 678,921 626,085 666,176 696,036 653,805
---------- ---------- ---------- ---------- ----------
Total 1,020,390 964,880 1,000,806 1,047,468 1,026,482
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Sales 362,624 352,052 355,177 411,414 515,757
Transportation 647,764 595,859 621,741 610,450 480,479
Exchange 10,002 16,969 23,888 25,604 30,246
---------- ---------- ---------- ---------- ----------
Total 1,020,390 964,880 1,000,806 1,047,468 1,026,482
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Revenues (per thousand cubic feet):
Residential $6.68 $6.68 $6.08 $6.71 $5.91
Commercial/Industrial $2.30 $2.51 $2.30 $2.12 $2.42
Utility Electric Generation $0.45 $0.69 $0.88 $0.87 $1.48
Wholesale $0.67 $0.79 $0.86 $1.02 $1.18
Exchange $0.07 $0.22 $0.25 $0.29 $0.28
Customers
Active Meters (at end of period):
Residential 4,483,324 4,459,250 4,445,500 4,429,896 4,381,563
Commercial 187,518 187,602 189,364 193,051 193,409
Industrial 23,505 23,924 24,419 25,642 26,530
Utility Electric Generation 8 8 8 8 8
Wholesale 3 3 2 2 2
---------- ---------- ---------- ---------- ----------
Total 4,694,358 4,670,787 4,659,293 4,648,599 4,601,512
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Residential Meter Usage (annual average):
Revenues $383 $371 $334 $380 $356
Volumes (thousands of cubic feet) 57.4 55.6 55.0 56.6 60.3
System Usage (millions of cubic feet):
Average Daily Sendout 2,795 2,611 2,717 2,881 2,824
Peak Day Sendout 4,350 4,578 4,547 4,356 5,267
Sendout Capability (at end of period) 7,570 7,351 7,419 7,073 7,073
Degree Days(2):
Number 1,438(3) 1,203 1,258 1,409 1,432
Average (20 Year) 1,418 1,430 1,458 1,474 1,506
Percent of Average 101.4% 84.1% 86.3% 95.6% 95.1%
Population of Service Area
(estimated at year end) 17,070,000 15,600,000 15,600,000 15,600,000 15,100,000
<FN>
(1) Beginning January 1, 1994, rates included the ratepayer's portion of the
Comprehensive Settlement (the amount included in rates for 1994 was $119
million).
(2) The number of degree days for any period of time indicates whether the
temperature is relatively hot or cold. A degree day is recorded for each
degree the average temperature for any day falls below 65 degrees
Fahrenheit.
(3) Estimated calendar degree days.
</TABLE>
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<PAGE>
SERVICE AREA
SoCalGas distributes natural gas throughout a 23,000-square mile
service territory with a population of approximately 17 million people. As
indicated by the following map, its service territory includes most of southern
California and parts of central California.
[MAP OF SOUTHERN CALIFORNIA GAS COMPANY SERVICE TERRITORY]
Natural gas service is also provided on a wholesale basis to the distribution
systems of the City of Long Beach, San Diego Gas & Electric Company and
Southwest Gas Company.
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<PAGE>
UTILITY SERVICES
SoCalGas' customers are separated, for regulatory purposes, into core
and noncore customers. Core customers are primarily residential and small
commercial and industrial customers, without alternative fuel capability.
Noncore customers primarily include utility electric generation, wholesale and
large commercial and industrial customers. Noncore customers are sensitive to
the price relationship between natural gas and alternate fuels, and are capable
of readily switching from one fuel to another, subject to air quality
regulations.
SoCalGas offers two basic utility services, sale of gas and
transmission of gas. Residential customers and most other core customers
purchase gas directly from SoCalGas. Noncore customers and large core customers
have the option of purchasing gas either from SoCalGas or from other sources
(such as brokers or producers) for delivery through SoCalGas' transmission and
distribution system. Smaller customers are permitted to aggregate their gas
requirements and also to purchase gas directly from brokers or producers, up to
a limit of 10 percent of SoCalGas' core market. SoCalGas generally earns the
same margin whether SoCalGas buys the gas and sells it to the customer or
transports gas already owned by the customer. (See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Results.")
SoCalGas continues to be obligated to purchase reliable supplies of
natural gas to serve the requirements of its core customers. However, the only
gas supplies that SoCalGas may offer for sale to noncore customers are the same
supplies that it purchases to serve its core customers.
SoCalGas also provides a gas storage service for noncore customers on
a bid basis. The storage service program provides opportunities for customers
to store gas on an "as available" basis during the summer to reduce winter
purchases when gas costs are generally higher, or to reduce their level of
winter curtailment in the event temperatures are unusually cold. During 1994,
SoCalGas stored approximately 24 billion cubic feet of customer-owned gas.
DEMAND FOR GAS
Natural gas is a principal energy source in SoCalGas' service area for
residential, commercial and industrial uses as well as utility electric
generation (UEG) requirements. Gas competes with electricity for residential
and commercial cooking, water heating and space heating uses, and with other
fuels for large industrial, commercial and UEG uses. Demand for natural gas in
southern California is expected to continue to increase but at a slower rate due
primarily to a slowdown in housing starts, new energy efficient building
construction and appliance standards and general recessionary business
conditions.
During 1994, 97 percent of residential energy customers in SoCalGas'
service territory used natural gas for water heating and 94 percent for space
heating. Approximately 78 percent of those customers used natural gas for
cooking and 72 percent for clothes drying.
Demand for natural gas by noncore customers such as large volume
commercial, industrial and electric generating customers is very sensitive to
the price of alternative competitive fuels. These customers number only
approximately 1,200; however, during 1994, accounted for approximately 17
percent of total gas revenues, 67 percent of total gas volumes delivered and
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14 percent of the authorized gas margin. Changes in the cost of gas or
alternative fuels, primarily fuel oil, can result in significant shifts in this
market, subject to air quality regulations. Demand for gas for UEG use is also
affected by the price and availability of electric power generated in other
areas and purchased by SoCalGas' UEG customers. See "Competition" below.
COMPETITION
Since interstate pipelines began operations in SoCalGas' service
territories, SoCalGas' throughput to customers in the Kern County area who use
natural gas to produce steam for enhanced oil recovery projects has decreased
significantly because of the bypass of SoCalGas' system. The decrease in
revenues from enhanced oil recovery customers is subject to full balancing
account treatment, except for a five percent incentive to SoCalGas for attaining
certain throughput levels, and therefore, does not have a material impact on
earnings. However, bypass of other Company markets also may occur. SoCalGas is
fully at risk for lost noncore volumes due to competition, and would not receive
balancing account treatment except in the enhanced oil recovery market.
In order to respond to certain bypass threats, SoCalGas has received
authorization from the CPUC for expedited review of price discounts proposed for
long-term gas transportation contracts with some noncore customers. The CPUC
has also approved changes in the methodology for allocating SoCalGas' costs
between core and noncore customers to reduce the subsidization of core customer
rates by noncore customers. These have resulted in a reduction of noncore rates
and a corresponding increase in core rates that better reflects the cost of
serving each customer class and, together with price discounting authority, has
enabled SoCalGas to better compete with new interstate pipelines for noncore
customers. In addition, in August 1993 a capacity brokering program was
implemented. Under the program, for a fee, SoCalGas provides to noncore
customers, or others, a portion of its control of interstate pipeline capacity
to allow more direct access to producers. Also, the Comprehensive Settlement
(See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Comprehensive Settlement of Regulatory Issues.") will
help improve SoCalGas' competitiveness by reducing the cost of transportation
service to noncore customers.
Historically, environmental laws have favorably impacted the use of
natural gas in SoCalGas' service territory, particularly by utility electric
generation customers. However, increasingly complex administrative requirements
may discourage natural gas use by large commercial and industrial customers.
In April 1994, the CPUC announced it would review the structure of
California's electric utility service, a review that could lead to significant
changes in the way investor-owned utilities conduct business, including the
amount of electricity purchased from out-of-state suppliers. The CPUC's
proposed deregulation of electricity sales by the year 2002 may affect the
future volumes of natural gas SoCalGas transports for electric utilities.
Utility electric generation customers currently account for 26 percent of
SoCalGas' annual throughput. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operation - Factors Influencing Future
Performance."
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SUPPLIES OF GAS
In 1994, SoCalGas delivered approximately 1 trillion cubic feet of
natural gas through its system. Approximately 65 percent of these deliveries
were customer-owned gas for which SoCalGas provided transportation services,
compared to 64 percent in 1993. The balance of gas deliveries was gas purchased
by SoCalGas and resold to customers.
Most of the natural gas delivered by SoCalGas is produced outside of
California. These supplies are delivered to the California border by interstate
pipeline companies (primarily El Paso Natural Gas Company and Transwestern
Natural Gas Company) that provide transportation services for supplies purchased
from other sources by SoCalGas or its transportation customers. These supplies
enter SoCalGas' intrastate transmission system at the California border for
delivery to customers.
SoCalGas currently has paramount rights to daily deliveries of up to
2,200 million cubic feet of natural gas over the interstate pipeline systems of
El Paso Natural Gas Company (up to 1,450 million cubic feet) and Transwestern
Pipeline Company (up to 750 million cubic feet). The rates that interstate
pipeline companies may charge for gas and transportation services and other
terms of service are regulated by the Federal Energy Regulatory Commission
(FERC).
Existing interstate pipeline capacity into California exceeds current
demand by over 1 billion cubic feet per day. Up to 2 billion cubic feet per day
of capacity on the El Paso and Transwestern interstate pipeline systems,
representing over $175 million and $55 million, respectively, of reservation
charges annually, may be relinquished within the next few years based on
existing contract reduction options and contract expirations. Some of this
capacity may not be resubscribed. Current FERC regulation could permit costs of
unsubscribed capacity to be allocated to remaining firm service customers,
including SoCalGas. Under existing regulation in California, SoCalGas would
have the opportunity to include its portion of any such reallocated costs in its
rates. If competitive conditions did not support higher rates resulting from
these reallocated costs, then SoCalGas would be at risk for lost revenues in the
noncore market.
SoCalGas, as a part of a coalition of customers who hold 90 percent of
the firm transportation capacity rights on the El Paso and Transwestern systems,
has offered a proposal for market based rates with balanced incentives to El
Paso and Transwestern to resolve the issue of unsubscribed capacity. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors Influencing Future Performance."
The following table sets forth the sources of gas deliveries by
SoCalGas from 1990 through 1994.
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SOURCES OF GAS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gas Purchases: (Millions of Cubic Feet)
Market Gas:
30-Day 98,071 84,696 20,695 139,649 148,849
Other 148,371 159,197 198,049 168,486 225,710
---------- ---------- ---------- ---------- ----------
Total Market Gas 246,442 243,893 218,744 308,135 374,559
Affiliates 101,276 96,559 99,226 98,566 103,406
California Producers &
Federal Offshore 36,158 28,107 42,262 39,613 52,633
---------- ---------- ---------- ---------- ----------
Total Gas Purchases 383,876 368,559 360,232 446,314 530,598
Customer-Owned Gas and
Exchange Receipts 658,293 622,307 641,080 629,038 531,263
Storage Withdrawal
(Injection) - Net (9,299) (9,498) 14,379 (8,451) (13,288)
Company Use and
Unaccounted For (12,480) (16,488) (14,885) (19,432) (22,091)
---------- ---------- ---------- ---------- ----------
Net Gas Deliveries 1,020,390 964,880 1,000,806 1,047,469 1,026,482
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Gas Purchases: (Thousands of dollars)
Commodity Costs $ 643,865 $ 815,145 $ 805,550 $1,071,445 $1,371,854
Fixed Charges* 368,516 397,714 397,579 358,294 405,233
---------- ---------- ---------- ---------- ----------
Total Gas Purchases $1,012,381 $1,212,859 $1,203,129 $1,429,739 $1,777,087
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average Cost of Gas Purchased
(Dollars per Thousand Cubic Feet)** $1.68 $2.21 $2.24 $2.40 $2.59
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<FN>
* Fixed charges primarily include pipeline demand charges, take or pay
settlement costs and other direct billed amounts allocated over the quantities
delivered by the interstate pipelines serving SoCalGas.
** The average commodity cost of gas purchased excludes fixed charges.
</TABLE>
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Market sensitive gas supplies (supplies purchased on the spot market
as well as under longer-term contracts and ranging from one month to ten years
based on spot prices) accounted for approximately 64 percent of total gas
volumes purchased by SoCalGas during 1994, as compared with 66 percent and 61
percent, respectively, during 1993 and 1992. These supplies were generally
purchased at prices significantly below those for other long-term sources of
supply.
On March 16, 1994, the CPUC approved a new process for evaluating
SoCalGas' gas purchases substantially replacing the previous process of
reasonableness reviews. The new "Gas Cost Incentive Mechanism" ("GCIM") is a
three-year pilot program that began in April 1994. The GCIM essentially
compares SoCalGas' cost of gas with a benchmark level. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - SoCalGas Operations - Ratemaking Procedures.
SoCalGas estimates that sufficient natural gas supplies will be
available to meet the requirements of its customers into the next century.
RATES AND REGULATION
SoCalGas is regulated by the CPUC. The CPUC consists of five
commissioners appointed by the Governor of California for staggered six-year
terms. It is the responsibility of the CPUC to determine that utilities operate
in the best interest of the ratepayer with an opportunity to earn a reasonable
profit. The regulatory structure is complex and has a very substantial impact
on the profitability of SoCalGas.
Under current ratemaking procedures, the return that SoCalGas is
authorized to earn is the product of the authorized rate of return on rate base
and the amount of rate base. Rate base consists primarily of net investment in
utility plant. Thus, SoCalGas' earnings are affected by changes in the
authorized rate of return on rate base and the growth in rate base and by
SoCalGas' ability to control expenses and investment in rate base within the
amounts authorized by the CPUC in setting rates. In addition, SoCalGas' ability
to achieve its authorized rate of return is affected by other regulatory and
operating factors. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Ratemaking Procedures."
SoCalGas' operating and fixed costs, including return on rate base,
are allocated between core and noncore customers under a methodology that is
based upon the costs incurred in serving these customer classes. For 1995,
approximately 89 percent of the CPUC-authorized gas margin has been allocated to
core customers and 11 percent to noncore customers, including wholesale
customers. Under the current regulatory framework, costs may be reallocated
between the core and the noncore markets once every other year in a biennial
cost allocation proceeding (BCAP).
During 1994, SoCalGas began exploring a new approach for setting rates
to its customers known as "Performance Based Ratemaking" ("PBR"). This new
approach would maintain cost based rates but would link financial performance
with increases and decreases in productivity and generally would allow for rates
to increase by the rate of inflation, less an agreed upon adjustment for
productivity improvements. SoCalGas proposes to file a PBR application with the
CPUC in 1995, and if approved, the change would not take effect until January 1,
1997, at the earliest. Although PBR could result in increased earnings
volatility, SoCalGas would have the opportunity to improve financial performance
to the extent it was able to reduce expenses,
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increase energy deliveries and generate profits from new products and services.
See also "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors Influencing Future Performance."
PROPERTIES
At December 31, 1994, SoCalGas owned approximately 3,040 miles of
transmission and storage pipeline, 42,683 miles of distribution pipeline and
42,647 miles of service piping. It also owned 13 transmission compressor
stations and 6 underground storage reservoirs (with a combined working storage
capacity of approximately 116 billion cubic feet) and general office buildings,
shops, service facilities, and certain other equipment necessary in the conduct
of its business.
Southern California Gas Tower, a wholly owned subsidiary of SoCalGas,
has a 15 percent limited partnership interest in a 52-story office building in
downtown Los Angeles. SoCalGas occupies about half of the building. See also
"Item 2. Properties."
ENVIRONMENTAL MATTERS
SoCalGas has identified and reported to California environmental
authorities 42 former gas manufacturing sites for which it (together with other
utilities as to 21 of the sites) may have remedial obligations under
environmental laws. As of December 31, 1994, eight of the sites have been
remediated, of which five have received certification from the California
Environmental Protection Agency. Preliminary investigations, at a minimum, have
been completed on thirty-three of the sites, including those sites at which the
remediations described above have been completed. In addition, SoCalGas is one
of a large number of major corporations that have been identified as a
potentially responsible party for environmental remediation of three industrial
waste disposal sites and a landfill site. These 46 sites are in various stages
of investigation or remediation. It is anticipated that the investigation, and
if necessary, remediation of these sites will be completed over a period of from
ten years to twenty years.
In May 1994, the CPUC approved a collaborative settlement between
SoCalGas and other California utilities and the Division of Ratepayer Advocates
which provides for rate recovery of 90 percent of environmental investigation
and remediation costs without reasonableness review. In addition, the utilities
have the opportunity to retain a percentage of any insurance recovery to offset
the 10 percent of costs not recovered in rates.
At December 31, 1994, SoCalGas' estimated remaining liability for
investigation and remediation for the 46 sites was approximately $65 million,
which it is authorized to recover through the rate recovery mechanism described
above. The estimated liability is subject to future adjustment pending further
investigation. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- SoCalGas Operations - Environmental
Matters." Because of current and expected rate recovery, Pacific Enterprises
believes that compliance with environmental laws and regulations will not have a
material adverse effect on its financial statements.
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INTERSTATE PIPELINE OPERATIONS
Pacific Enterprises is engaged, through Pacific Interstate Company, in
interstate and offshore purchase and transmission of natural gas which is resold
to SoCalGas under long-term supply contracts. Two subsidiaries own and operate
pipelines and related facilities for deliveries to SoCalGas of gas produced from
offshore fields near Santa Barbara, California. Another subsidiary has an
interest in pipeline facilities for deliveries to SoCalGas of gas from Western
Canada. During 1994, these operations accounted for approximately 26% of the
total volume of gas purchased by SoCalGas and 10% of SoCalGas' total throughput.
The gas is purchased under long-term contracts which have been restructured in
conjunction with the Comprehensive Settlement (See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Comprehensive Settlement of Regulatory Issues.").
ALTERNATE ENERGY OPERATIONS
Through Pacific Energy, Pacific Enterprises develops and operates
electricity generating plants fueled by renewable energy sources, including gas,
from landfills, waste wood plants, hydroelectric dams and geothermal hot water.
Electricity produced by these plants is sold to electric utilities under
long-term contracts generally providing for escalating fixed prices for ten
years with pricing thereafter at the utility's short-run avoided cost. The
fixed pricing periods for Pacific Energy's existing contracts expire between
1995 and 2000 and Pacific Enterprises anticipates that avoided cost pricing will
result in substantially lower prices for its electrical production than the
fixed prices currently being received.
Pacific Energy also develops and operates centralized heating and air
conditioning plants. These plants supply heated and chilled water for heating
and cooling major office buildings, hotels and apartments.
-14-
<PAGE>
EMPLOYEES
Pacific Enterprises and its subsidiaries employ approximately 8,500
persons. Of these, approximately 8,200 are employed by SoCalGas.
Most field, clerical and technical employees of SoCalGas are
represented by the Utility Workers' Union of America or the International
Chemical Workers' Union. Collective bargaining agreements covering these
approximately 5,560 employees expire with respect to wages and working
conditions on March 31, 1996 and with respect to medical benefits on December
31, 1995. The agreement with respect to all benefits except medical expires on
March 31, 1995, and SoCalGas is currently in the process of negotiating a new
agreement.
-15-
<PAGE>
MANAGEMENT
The executive officers of Pacific Enterprises are as follows:
Name Age Position
- ---- --- --------
Willis B. Wood, Jr. 60 Chairman of the Board and Chief
Executive Officer
Richard D. Farman 59 President and Chief Operating
Officer
Lloyd A. Levitin 62 Executive Vice President and Chief
Financial Officer
Warren I. Mitchell 57 President, Southern California Gas
Company
Frederick E. John 49 Senior Vice President
Christopher R. Sherman 42 Senior Vice President
Debra L. Reed 38 Senior Vice President, Southern
California Gas Company
Lee M. Stewart 49 Senior Vice President, Southern
California Gas Company
Leslie E. LoBaugh, Jr. 49 Vice President and General Counsel
Ralph Todaro 44 Vice President and Controller
Executive officers are elected annually and serve at the pleasure of
the Board of Directors.
All of Pacific Enterprises' executive officers have been employed by
Pacific Enterprises or its subsidiaries in management positions for more than
five years.
There are no family relationships between any of Pacific Enterprises'
executive officers.
-16-
<PAGE>
ITEM 2. PROPERTIES
Pacific Library Tower, a wholly-owned subsidiary of Pacific
Enterprises, has a 25% ownership interest in a 72-story office building in
downtown Los Angeles that was completed in late 1990. Pacific Enterprises and
its subsidiaries lease twelve floors of the building.
Information with respect to the properties of other Pacific
Enterprises' subsidiaries is set forth in Item 1 of this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Except for the matters referred to in the financial statements filed
with or incorporated by reference in Item 8 or referred to elsewhere in this
Annual Report, neither Pacific Enterprises nor any of its subsidiaries is a
party to, nor is their property the subject of, any material pending legal
proceedings other than routine litigation incidental to its businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1994 to a vote
of Pacific Enterprises' security holders.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Pacific Enterprises' Common Stock is traded on the New York and
Pacific Stock Exchanges. Information as to the high and low sales prices for
such stock as reported on the composite tape for stocks listed on the New York
Stock Exchange and dividends paid for each quarterly period during the two years
ended December 31, 1994 is set forth under the captions "Financial Review--Range
of Market Prices of Capital Stock" and "Quarterly Financial Data" in Pacific
Enterprises' 1994 Annual Report to Shareholders filed as Exhibit 13.01 to this
Annual Report. Such information is incorporated herein by reference.
At December 31, 1994, there were 43,139 holders of record of Pacific
Enterprises' Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth under the caption
"Financial Review - Selected Financial Data and Comparative Statistics
1984-1994" in Pacific Enterprises' 1994 Annual Report to Shareholders filed as
Exhibit 13.01 to this Annual Report. Such information is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is set forth under the caption
"Financial Review - Management's Discussion and Analysis" in Pacific
Enterprises' 1994 Annual Report to Shareholders filed as Exhibit 13.01 to this
Annual Report. Such information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pacific Enterprises' consolidated financial statements and schedules
required by this Item are listed in Item 14(a)1 and 2 in Part IV of this Annual
Report. The consolidated financial statements listed in Item 14(a)1 are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-18-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to the Company's
directors is set forth under the caption "Election of Directors" in the
Company's Proxy Statement for its Annual Meeting of Shareholders scheduled to be
held on May 4, 1994. Such information is incorporated herein by reference.
Information required by this Item with respect to the Company's
executive officers is set forth in Item 1 of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is set forth under the caption
"Election of Directors" and "Executive Compensation" in the Company's Proxy
Statement for its Annual Meeting of Shareholders scheduled to be held on May 4,
1994. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is set forth under the caption
"Election of Directors" in the Company's Proxy Statement for its Annual Meeting
of Shareholders scheduled to be held on May 4, 1994. Such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Not applicable.
-19-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1.01 Report of Deloitte & Touche LLP,
Independent Certified Public Accountants
(Contained in Exhibit 13.01).
1.02 Statement of Consolidated
Income for the years ended
December 31, 1994, 1993 and 1992
(Contained in Exhibit 13.01).
1.03 Consolidated Balance Sheet at
December 31, 1994 and 1993
(Contained in Exhibit 13.01).
1.04 Statement of Consolidated Cash Flows
for the years ended December 31, 1994,
1993 and 1992 (Contained in Exhibit 13.01).
1.05 Statement of Consolidated Shareholders'
Equity for the years ended
December 31, 1994, 1993 and 1992
(Contained in Exhibit 13.01).
1.06 Notes to Consolidated Financial
Statements (Contained in Exhibit 13.01).
3. ARTICLES OF INCORPORATION AND BY-LAWS:
3.01 Articles of Incorporation of
Pacific Enterprises
(Note 22; Exhibit 4.1).
3.02 Bylaws of Pacific Enterprises
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS:
(Note: As permitted by Item 601(b)(4)(iii) of Regulation S-K, certain
instruments defining the rights of holders of long-term debt for which the
total amount of securities authorized thereunder does not exceed ten
percent of the total assets of Southern California Gas Company and its
subsidiaries on a consolidated basis are not filed as exhibits to this
Annual Report. The Company agrees to furnish a copy of each such
instrument to the Commission upon request.)
4.01 Specimen Common Stock Certificate of
Pacific Enterprises (Note 16; Exhibit 4.01).
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<PAGE>
4.02 Specimen Preferred Stock Certificates of Pacific
Enterprises (Note 8; Exhibit 4.02).
4.03 Specimen Remarketed Preferred Stock
Certificate (Note 17; Exhibit 4.03).
4.04 First Mortgage Indenture of Southern California
Gas Company to American Trust Company dated
October 1, 1940 (Note 1; Exhibit B-4).
4.05 Supplemental Indenture of Southern California Gas
Company to American Trust Company dated as of
July 1, 1947 (Note 2; Exhibit B-5).
4.06 Supplemental Indenture of Southern California
Gas Company to American Trust Company dated as
of August 1, 1955 (Note 3; Exhibit 4.07).
4.07 Supplemental Indenture of Southern California
Gas Company to American Trust Company dated as
of June 1, 1956 (Note 4; Exhibit 2.08).
4.08 Supplemental Indenture of Southern California
Gas Company to Wells Fargo Bank, National
Association dated as of August 1, 1972 (Note 6;
Exhibit 2.19).
4.09 Supplemental Indenture of Southern California
Gas Company to Wells Fargo Bank, National
Association dated as of May 1, 1976 (Note 5;
Exhibit 2.20).
4.10 Supplemental Indenture of Southern California
Gas Company to Wells Fargo Bank, National
Association dated as of September 15, 1981
(Note 9; Exhibit 4.25).
4.11 Supplemental Indenture of Southern California
Gas Company to Manufacturers Hanover Trust
Company of California, successor to Wells
Fargo Bank, National Association, and Crocker
National Bank as Successor Trustee dated as
of May 18, 1984 (Note 11; Exhibit 4.29).
4.12 Supplemental Indenture of Southern California
Gas Company to Bankers Trust Company of
California, N.A., successor to Wells Fargo Bank,
National Association dated as of January 15,
1988 (Note 13; Exhibit 4.11).
-21-
<PAGE>
4.13 Supplemental Indenture of Southern California Gas
Company to First Trust of California, National
Association, successor to Bankers Trust Company
of California, N.A. (Note 18; Exhibit 4.37).
4.14 Rights Agreement dated as of March 7, 1990
between Pacific Enterprises and Security
Pacific National Bank, as Rights
Agent (Note 19; Exhibit 4).
10. MATERIAL CONTRACTS
10.01 Sale and Purchase Agreement, dated
as of May 22, 1992, as amended between
TCH Corporation and Pacific Enterprises
(Note 19; Exhibit 1).
10.02 Sale and Purchase Agreement, dated
as of May 22, 1992, as amended, among
Big 5 Holdings, Inc., Pacific Enterprises
and Thrifty Corporation (Note 19; Exhibit 2).
10.03 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Enterprises
Oil Company (USA) (Note 19; Exhibit 1).
10.04 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Enterprises
Mineral Company (Note 20; Exhibit 2).
10.05 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Enterprises
Oil Company (Western) (Note 20; Exhibit 3).
10.06 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Gas
Gathering Company (Note 6; Exhibit 4).
10.07 Form of Indemnification Agreement
between Pacific Enterprises and each of
its directors and officers
(Note 21; Exhibit 10.07).
-22-
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.08 Restatement and Amendment of Pacific
Enterprises 1979 Stock Option Plan
(Note 7; Exhibit 1.1).
10.09 Pacific Enterprises Supplemental Medical
Reimbursement Plan for Senior Officers
(Note 8; Exhibit 10.24).
10.10 Pacific Enterprises Financial Services
Program for Senior Officers (Note 8;
Exhibit 10.25).
10.11 Pacific Enterprises Supplemental
Retirement and Survivor Plan (Note 11;
Exhibit 10.36).
10.12 Pacific Enterprises Stock Payment
Plan (Note 11; Exhibit 10.37).
10.13 Pacific Enterprises Pension Restoration
Plan (Note 8; Exhibit 10.28).
10.14 Southern California Gas Company Pension
Restoration Plan For Certain Management
Employees (Note 8; Exhibit 10.29).
10.15 Pacific Enterprises Executive Incentive
Plan (Note 13; Exhibit 10.13).
10.16 Pacific Enterprises Deferred Compensation
Plan for Key Management Employees (Note 12;
Exhibit 10.41).
10.17 Pacific Enterprises Employee Stock
Ownership Plan and Trust Agreement
as amended in toto effective October 1, 1992.
(Note 21; Exhibit 10.18).
10.18 Pacific Enterprises Stock Incentive Plan
(Note 15; Exhibit 4.01).
10.19 Pacific Enterprises Retirement Plan for
Directors (Note 21; Exhibit 10.20).
10.20 Pacific Enterprises Director' Deferred
Compensation Plan (Note 21; Exhibit 10.21).
10.21 Pacific Enterprises Employee Stock Option Plan
(Note 23; Exhibit 4.01).
-23-
<PAGE>
11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.01 Pacific Enterprises Computation of
Earnings per Share (see Statement of
Consolidated Income contained in Exhibit 13.01).
13. ANNUAL REPORT TO SECURITY HOLDERS
13.01 Pacific Enterprises 1994 Annual
Report to Shareholders. (Such
report, except for the portions
thereof which are expressly
incorporated by reference in this
Annual Report, is furnished for the
information of the Securities and
Exchange Commission and is not to
be deemed "filed" as part of this
Annual Report).
21. SUBSIDIARIES OF THE REGISTRANT
21.01 List of subsidiaries of Pacific Enterprises.
23. CONSENTS OF EXPERTS AND COUNSEL
23.01 Consent of Deloitte & Touche LLP,
Independent Certified Public Accountants.
24. POWER OF ATTORNEY
24.01 Power of Attorney of Certain Officers
and Directors of Pacific Enterprises
(contained on signature pages).
27. FINANCIAL DATA SCHEDULE
27.01 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the last quarter of 1994.
- ------------------------
NOTE: Exhibits referenced to the following notes were filed with the
documents cited below under the exhibit or annex number following
such reference. Such exhibits are incorporated herein by
reference.
Note
Reference Document
--------- --------
1 Registration Statement No. 2-4504 filed by Southern California Gas
Company on September 16, 1940.
2 Registration Statement No. 2-7072 filed by Southern California Gas
Company on March 15, 1947.
-24-
<PAGE>
3 Registration Statement No. 2-11997 filed by Pacific Lighting
Corporation on October 26, 1955.
4 Registration Statement No. 2-12456 filed by Southern California Gas
Company on April 23, 1956.
5 Registration Statement No. 2-56034 filed by Southern California Gas
Company on April 14, 1976.
6 Registration Statement No. 2-59832 filed by Southern California Gas
Company on September 6, 1977.
7 Registration Statement No. 2-66833 filed by Pacific Lighting
Corporation on March 5, 1980.
8 Annual Report on Form 10-K for the year ended December 31, 1980,
filed by Pacific Lighting Corporation.
9 Annual Report on Form 10-K for the year ended December 31, 1981,
filed by Pacific Lighting Corporation.
10 Annual Report on Form 10-K for the year ended December 31, 1983,
filed by Pacific Lighting Corporation.
11 Annual Report on Form 10-K for the year ended December 31, 1984,
filed by Pacific Lighting Corporation.
12 Annual Report on Form 10-K for the year ended December 31, 1985,
filed by Pacific Lighting Corporation.
13 Annual Report on Form 10-K for the year ended December 31, 1987,
filed by Pacific Enterprises.
14 Current Report on Form 8-K dated March 7, 1990, filed by Pacific
Enterprises.
15 Registration Statement No. 33-21908 filed by Pacific Enterprises on
May 17, 1988.
16 Annual Report on Form 10-K for the year ended December 31, 1988,
filed by Pacific Enterprises.
17 Annual Report on form 10-K for the year ended December 31, 1989,
filed by Pacific Enterprises.
18 Registration Statement No. 33-50826 filed by Southern California
Gas Company on August 13, 1992.
19 Current Report on Form 8-K dated September 25, 1992, filed by
Pacific Enterprises.
20 Current Report on Form 8-K dated January 5, 1993, filed by Pacific
Enterprises.
21 Annual Report on Form 10-K for the year ended December 31, 1992,
filed by Pacific Enterprises.
22 Registration Statement No. 33-61278 filed by Pacific Enterprises on
April 20, 1993.
23 Registration Statement No. 33-54055 filed by Pacific Enterprises on
June 9, 1994.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PACIFIC ENTERPRISES
By: /s/ Willis B. Wood, Jr.
-------------------------
Name: Willis B. Wood, Jr.
Title: Chairman of the Board and
Chief Executive Officer
Dated: March 17, 1995
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<PAGE>
Each person whose signature appears below hereby authorizes Willis B.
Wood, Jr., Richard D. Farman, and Lloyd A. Levitin, and each of them, severally,
as attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, and file all amendments to this Annual Report.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Willis B. Wood, Jr.
- --------------------------- Chairman of the Board, March 17, 1995
(Willis B. Wood, Jr.) Chief Executive Officer and
Director (Principal Executive
Officer)
/s/ Lloyd A. Levitin
- --------------------------- Executive Vice President and March 17, 1995
(Lloyd A. Levitin) Chief Financial Officer
(Principal Financial Officer)
/s/ Ralph Todaro
- --------------------------- Vice President and Controller March 17, 1995
(Ralph Todaro)
/s/ Hyla H. Bertea
- --------------------------- Director March 17, 1995
(Hyla H. Bertea)
/s/ Herbert L. Carter
- --------------------------- Director March 17, 1995
(Herbert L. Carter)
/s/ Richard D. Farman
- --------------------------- Director March 17, 1995
(Richard D. Farman)
/s/ Wilford D. Godbold, Jr.
- --------------------------- Director March 17, 1995
(Wilford D. Godbold, Jr.)
/s/ Ignacio E. Lozano, Jr.
- --------------------------- Director March 17, 1995
(Ignacio E. Lozano, Jr.)
/s/ Harold M. Messmer, Jr.
- --------------------------- Director March 17, 1995
(Harold M. Messmer, Jr.)
/s/ Paul A. Miller
- --------------------------- Director March 17, 1995
(Paul A. Miller)
/s/ Joseph R. Rensch
- --------------------------- Director March 17, 1995
(Joseph R. Rensch)
/s/ Diana L. Walker
- --------------------------- Director March 17, 1995
(Diana L. Walker)
-27-
<PAGE>
EXHIBIT 3.02
BYLAWS
OF
PACIFIC ENTERPRISES
MARCH 1, 1995
<PAGE>
BYLAWS
OF
PACIFIC ENTERPRISES
_____
ARTICLE I
PRINCIPAL OFFICE
SECTION 1. The principal executive office of the Company is located at
555 West Fifth Street, City of Los Angeles, County of Los Angeles, California.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. All Meetings of Shareholders shall be held either at the
principal executive office of the Company or at any other place within or
without the state as may be designated by resolution of the Board of Directors.
SECTION 2. An Annual Meeting of Shareholders shall be held each year on
such date and at such time as may be designated by resolution of the Board of
Directors.
SECTION 3. At an Annual Meeting of Shareholders, only such business shall
be conducted as shall have been properly brought before the Annual Meeting. To
be properly brought before an Annual Meeting, business must be (a) specified in
the notice of the Annual Meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
Annual Meeting by a Shareholder. For business to be properly brought before an
Annual Meeting by a Shareholder, including the nomination of any person (other
than a person nominated by or at the direction of the Board of Directors) for
election to the Board of Directors, the Shareholder must have given timely and
proper written notice to the Secretary of the Company. To be timely, the
Shareholder's written notice must be received at the principal executive office
of the Company not less than sixty nor more than one hundred twenty days in
advance of the date corresponding to the date of the last Annual Meeting;
provided, however, that in the event the Annual Meeting to which the
Shareholder's written notice relates is to be held on a date which differs by
more than sixty days from the date corresponding to the date of the last Annual
Meeting, the Shareholder's written notice to be timely must be so received not
later than the close of business on the tenth day following the date on which
public disclosure of the date of the Annual Meeting is made or given to
Shareholders. To be proper, the
<PAGE>
Shareholder's written notice must set forth as to each matter the Shareholder
proposes to bring before the Annual Meeting (a) a brief description of the
business desired to be brought before the Annual Meeting, (b) the name and
address of the Shareholder as they appear on the Company's books, (c) the class
and number of shares of the Company which are beneficially owned by the
Shareholder, and (d) any material interest of the Shareholder in such business.
In addition, if the Shareholder's written notice relates to the nomination at
the Annual Meeting of any person for election to the Board of Directors, such
notice to be proper must also set forth (a) the name, age, business address and
residence address of each person to be nominated, (b) the principal occupation
or employment of each such person, (c) the number of shares of capital stock
beneficially owned by each such person, and (d) such other information
concerning each such person as would be required under the rules of the
Securities and Exchange Commission in a proxy statement soliciting proxies for
the election of such person as a Director, and must be accompanied by a consent,
signed by each such person, to serve as a Director of the Company if elected.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at an Annual Meeting except in accordance with the procedures set
forth in this Section 3.
SECTION 4. Each Shareholder of the Company shall be entitled to elect
voting confidentiality as provided in this Section 4 on all matters submitted to
Shareholders by the Board of Directors and each form of proxy, consent, ballot
or other written voting instruction distributed by the Company to Shareholders
shall include a check box or other appropriate mechanism by which Shareholders
who desire to do so may so elect voting confidentiality.
All inspectors of election, vote tabulators and other persons appointed or
engaged by or on behalf of the Company to process voting instructions (none of
whom shall be a Director or Officer of the Company or any of its affiliates)
shall be advised of and instructed to comply with this Section 4 and, except as
required or permitted hereby, not at any time to disclose to any person (except
to other persons engaged in processing voting instructions), the identity and
individual vote of any Shareholder electing voting confidentiality; provided,
however, that voting confidentiality shall not apply and the name and individual
vote of any Shareholder may be disclosed to the Company or to any person (i) to
the extent that such disclosure is required by applicable law or is appropriate
to assert or defend any claim relating to voting or (ii) with respect to any
matter for which votes of Shareholders are solicited in opposition to any of the
nominees or the recommendations of the Board of Directors unless the persons
engaged in such opposition solicitation provide Shareholders of the Company with
voting confidentiality (which, if not otherwise provided, will be requested by
the Company) comparable in the opinion of the Company to the voting
confidentiality provided by this Section 4.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. The Board of Directors shall have power to:
a. Conduct, manage and control the business of the Company, and make
rules consistent with law, the Articles of Incorporation and the Bylaws;
- 2 -
<PAGE>
b. Elect, and remove at their discretion, Officers of the Company,
prescribe their duties, and fix their compensation;
c. Authorize the issue of shares of stock of the Company upon lawful
terms: (i) in consideration of money paid, labor done, services actually
rendered to the Company or for its benefit or in its reorganization, debts
or securities cancelled, and tangible or intangible property actually
received either by this Company or by a wholly-owned subsidiary; but
neither promissory notes of the purchaser (unless adequately secured by
collateral other than the shares acquired or unless permitted by
Section 408 of the California Corporations Code) nor future services shall
constitute payment or part payment for shares of this Company, or (ii) as a
share dividend or upon a stock split, reverse stock split,
reclassifications of outstanding shares into shares of another class,
conversion of outstanding shares into shares of another class, exchange of
outstanding shares for shares of another class or other change affecting
outstanding shares;
d. Borrow money and incur indebtedness for the purposes of the Company,
and cause to be executed and delivered, in the Company name, promissory
notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations or other evidences of debt;
e. Elect an Executive Committee and other committees.
SECTION 2. The Board of Directors shall elect an Executive Committee from
the Directors, which shall consist of six members including the Chairman of the
Board and the President. The Board may designate one of the members of the
Executive Committee as the Chairman of the Executive Committee and may also
designate one or more Directors as alternate members of the Executive Committee,
who may replace any absent member at any meeting of the Executive Committee.
Subject to change by resolution adopted by the Board of Directors or the
Executive Committee, meetings of the Executive Committee shall be called and
held at times and places fixed by the Chairman of the Board, the Chairman of the
Executive Committee, or any two members of the Executive Committee; notice of
meetings shall be given in the manner described in the Bylaws for giving notice
of special meetings of the Board of Directors; the Chairman of the Executive
Committee shall preside and, in his absence, the Chairman of the Board shall be
the presiding officer. The Executive Committee shall have all the authority of
the Board of Directors except with respect to (a) the approval of any action for
which California General Corporation Law also requires shareholders' approval or
approval of the outstanding shares; (b) the filling of vacancies on the Board or
in any committee; (c) the fixing of compensation of the Directors for serving on
the Board or on any committee; (d) the amendment or repeal of Bylaws or the
adoption of new bylaws; (e) the amendment or repeal of any resolution of the
Board which by its express terms is not so amendable or repealable; (f) a
distribution, except at a rate, in a periodic amount or within a price range set
forth in the Articles of Incorporation or determined by the Board; (g) the
appointment of other committees of the Board or the members thereof; and (h) the
fixing of compensation of officers of the Company or its subsidiaries. A
majority of the authorized number of members of the Executive Committee shall
constitute a quorum for the transaction of business.
- 3 -
<PAGE>
SECTION 3. The Board of Directors shall consist of not less than nine nor
more than seventeen members. The exact number of Directors shall be fixed from
time to time, within the limits specified, by a resolution duly adopted by the
Board of Directors. A majority of the authorized number of Directors shall
constitute a quorum of the Board.
ARTICLE IV
MEETING OF DIRECTORS
SECTION 1. Meetings of the Board of Directors shall be held at any place
which has been designated by resolution of the Board of Directors, or by written
consent of all members of the Board. In the absence of such designation,
regular meetings shall be held in the principal executive office.
SECTION 2. Immediately following each Annual Meeting of Shareholders
there shall be a regular meeting of the Board of Directors for the purpose of
organization, election of Officers and the transaction of other business. In
all months other than May in which the Annual Meeting of Shareholders is held
there shall be a regular meeting of the Board of Directors on the first Tuesday
of each month at such hour as shall be designated by resolution of the Board of
Directors. Notice of regular meetings of the Directors shall be given in the
manner described in these Bylaws for giving notice of special meetings. No
notice of the regular meeting of Board of Directors which follows the Annual
Meeting of Shareholders need be given.
SECTION 3. Special meetings of the Board of Directors for any purpose may
be called at any time by the Chairman of the Board or, if he is absent or unable
or refuses to act, by the President, any Vice President who is a Director, or by
any seven Directors. Notice of the time and place of special meetings shall be
given to each Director. In case notice is mailed or telegraphed, it shall be
deposited in the United States mail or delivered to the telegraph company in the
city in which the principal executive office is located at least twenty hours
prior to the time of the meeting. In case notice is given personally or by
telephone, it shall be delivered at least six hours prior to the time of the
meeting.
SECTION 4. The transactions of any meeting of the Board of Directors,
however called or noticed, shall be as valid as though in a meeting duly held
after regular call and notice if a quorum be present and each of the Directors,
either before or after the meeting, signs a written waiver of notice, a consent
to holding such meeting, or an approval of the minutes thereof or attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such Director. All such waivers, consents or approvals shall be made
a part of the minutes of the meeting.
SECTION 5. If any regular meeting of Shareholders or of the Board of
Directors falls on a legal holiday, then such meeting shall be held on the next
succeeding business day at the same hour. But a special meeting of Shareholders
or Directors may be held upon a holiday with the same force and effect as if
held upon a business day.
- 4 -
<PAGE>
ARTICLE V
OFFICERS
SECTION 1. The Officers of the Corporation shall be a Chairman of the
Board, a President, Vice President, one or more of whom, in the discretion of
the Board of Directors, may be appointed Executive Vice President, a Secretary
and a Treasurer. The Company may have, at the discretion of the Board of
Directors, any other Officers and may also have, at the discretion of and upon
appointment by the Chairman of the Board, one or more Assistant Secretaries and
Assistant Treasurers. One person may hold two or more offices.
ARTICLE VI
THE CHAIRMAN OF THE BOARD AND THE PRESIDENT
SECTION 1. The Chairman of the Board of Directors shall be a member of
the Board and the Chief Executive Officer of the Company and shall preside at
all Meetings of Shareholders and the Board. The Chairman of the Board shall
have general charge and supervision of the Company's business and all of its
Officers, employees and agents and he shall have all of the powers and perform
all of the duties inherent in that office. The Chairman of the Board shall have
additional powers and perform further duties as may be prescribed by the Board
of Directors.
SECTION 2. The President shall be a member of the Board and the Chief
Operating Officer of the Company. The President shall have all of the powers
and perform all of the duties inherent in that office. The President shall have
additional powers and perform further duties as may be prescribed by the Board
of Directors.
ARTICLE VII
VICE PRESIDENTS
SECTION 1. In the Chairman's and the President's absence, disability or
refusal to act, the Vice Presidents in order of their rank shall perform all of
the duties of the Chairman and the President and when so acting shall have all
of the powers and be subject to all of the restrictions of the Chairman and the
President. The Vice Presidents shall have such other powers and perform such
additional duties as may be prescribed by the Board of Directors or the Chief
Executive Officer.
ARTICLE VIII
SECRETARY
SECTION 1. The Secretary shall keep at the principal executive office, a
book of minutes of all meetings of Directors and Shareholders, which shall
contain a statement of the time and place of the meeting, whether it was regular
or special and, if special, how authorized and the
- 5 -
<PAGE>
notice given, the names of those present at Directors' meetings, the number of
shares present or represented by written proxy at Shareholders' meetings and the
proceedings.
SECTION 2. The Secretary shall give notice of all meetings of
Shareholders and the Board of Directors required by the Bylaws or by law to be
given, and shall keep the seal of the Company in safe custody. The Secretary
shall have such other powers and perform such additional duties as may be
prescribed by the Board of Directors or the Chief Executive Officer.
SECTION 3. It shall be the duty of the Assistant Secretaries to help the
Secretary in the performance of the Secretary's duties. In the absence or
disability of the Secretary, the Secretary's duties may be performed by an
Assistant Secretary.
ARTICLE IX
TREASURER
SECTION 1. The Treasurer shall have custody and account for all funds or
moneys of the Company which may be deposited with the Treasurer, or in banks, or
other places of deposit. The Treasurer shall disburse funds or moneys which
have been duly approved for disbursement. The Treasurer shall sign notes, bonds
or other evidences of indebtedness for the Company as the Board of Directors may
authorize. The Treasurer shall perform such other duties which may be assigned
by the Board of Directors or the Chief Executive Officer.
SECTION 2. It shall be the duty of the Assistant Treasurers to help the
Treasurer in the performance of the Treasurer's duties. In the absence or
disability of the Treasurer, the Treasurer's duties may be performed by an
Assistant Treasurer.
ARTICLE X
RECORD DATE
SECTION 1. The Board of Directors may fix a time in the future as a
record date for ascertaining the Shareholders entitled to notice and to vote at
any meeting of Shareholders, to give consent to corporate action in writing
without a meeting, to receive any dividend, distribution, or allotment of rights
or to exercise rights related to any change, conversion, or exchange of shares.
The selected record date shall not be more than sixty nor less than 10 days
prior to the date of the Meeting nor more than sixty days prior to any other
action or event for the purposes for which it is fixed. When a record date is
fixed, only Shareholders of Record on that date are entitled to notice and to
vote at the Meeting, to give consent to corporate action, to receive a dividend,
distribution, or allotment of rights, or to exercise any rights in respect of
any other lawful action, notwithstanding any transfer of shares on the books of
the Company after the record date. The record date for determining
Shareholders, entitled to give consent to corporate action in writing without a
Meeting, when no prior action by the Board has been taken, shall be the sixtieth
calendar day following the day on which the first consent is delivered to the
Secretary.
- 6 -
<PAGE>
ARTICLE XI
INDEMNIFICATION OF AGENTS OF THE COMPANY;
PURCHASE OF LIABILITY INSURANCE
SECTION 1. For the purposes of this Article, "agent" means any person who
is or was a Director, Officer, employee or other agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Company or of another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative, or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing a
right to indemnification under Section 4 or paragraph (d) of Section 5 of this
Article.
SECTION 2. The Company shall indemnify any person who was or is a party,
or is threatened to be made a party, to any proceeding (other than an action by
or in the right of the Company to procure a judgment in its favor) by reason of
the fact that such person is or was an agent of the Company, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
Company, and, in the case of a criminal proceeding, had no reasonable cause to
believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the Company or that the person had
reasonable cause to believe that the person's conduct was unlawful.
SECTION 3. The Company shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action by or in the right of the Company to procure a judgment in its favor by
reason of the fact that such person is or was an agent of the Company, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in good faith and in a
manner such person believed to be in the best interests of the Company and its
Shareholders.
No indemnification shall be made under this Section 3 for any of the
following:
a. In respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Company in the performance of such
person's duty to the Company and its Shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
expenses and then only to the extent that the court shall determine;
- 7 -
<PAGE>
b. Of amounts paid in settling or otherwise disposing of a pending action
without court approval;
c. Of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
SECTION 4. To the extent that an agent of the Company has been successful
on the merits in defense of any proceeding referred to in Section 2 or 3 or in
defense of any claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection
therewith.
SECTION 5. Except as provided in Section 4, any indemnification under
this Article shall be made by the Company only if authorized in the specific
case, upon a determination that indemnification of the agent is proper in the
circumstances because the agent has met the applicable standard of conduct set
forth in Section 2 or 3, by any of the following:
a. A majority vote of a quorum consisting of Directors who are not
parties to such proceeding;
b. If such a quorum of Directors is not obtainable, by independent legal
counsel in a written Opinion;
c. Approval of the Shareholders, with the shares owned by the person to
be indemnified not being entitled to vote thereon;
d. The court in which such proceeding is or was pending upon application
made by the Company or the agent or the attorney or other person rendering
services in connection with the defense, whether or not such application by
the agent, attorney or other person is opposed by the Company.
SECTION 6. Expenses incurred in defending any proceeding may be advanced
by the Company prior to the final disposition of such proceeding upon receipt of
an undertaking by or on behalf of the agent to repay such amount if it shall be
determined ultimately that the agent is not entitled to be indemnified as
authorized in this Article.
SECTION 7. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any agreement, vote of Shareholders or disinterested Directors
or otherwise, to the extent such additional rights to indemnification are
authorized in the Articles of Incorporation of the Company. The rights to
indemnity under this Article shall continue as to a person who has ceased to be
a Director, Officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of the person.
- 8 -
<PAGE>
SECTION 8. No indemnification or advance shall be made under this
Article, except as provided in Section 4 or paragraph (d) of Section 5, in any
circumstance where it appears:
a. That it would be inconsistent with a provision of the Articles of
Incorporation, these Bylaws, a resolution of the Shareholders or an
agreement in effect at the time of the accrual of the alleged causes of
action asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits
indemnification;
b. That it would be inconsistent with any condition expressly imposed by
a court in approving a settlement.
SECTION 9. The Company shall have the power to purchase and maintain
insurance on behalf of any agent of the Company against any liability asserted
against or incurred by the agent in such capacity or arising out of the agent's
status as such whether or not the Company would have the power to indemnify the
agent against such liability under the provisions of this Article.
SECTION 10. This Article does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
such person's capacity as such, even though such person may also be an agent of
the Company as defined in Section 1. Nothing contained in this Article shall
limit any right to indemnification to which such a trustee, investment manager
or other fiduciary may be entitled by contract or otherwise, which shall be
enforceable to the extent permitted by applicable law.
ARTICLE XII
SEAL
SECTION 1. The Company shall have a common seal upon which shall be
inscribed:
"Pacific Enterprises
Incorporated May 21, 1907
California"
- 9 -
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Pacific Enterprises (the Company), is a holding company whose primary subsidiary
is Southern California Gas Company (SoCalGas), a public utility engaged in
natural gas distribution, transmission and storage in a 23,000-square-mile
service area in southern California and parts of central California. This
section includes management's analysis of operating results from 1992 through
1994, and is intended to provide additional information about the Company's
financial performance. This section also focuses on the major factors expected
to influence future operating results and discusses future investment and
financing plans. This section should be read in conjunction with the
Consolidated Financial Statements.
RESULTS OF CONSOLIDATED OPERATIONS
Net income for 1994 was $172 million, or $1.95 per share of common stock,
compared to net income of $181 million, or $2.06 per share, in 1993 and a net
loss of $550 million, or $7.57 per share, in 1992. The decrease of $9 million
during 1994 is due primarily to a federal tax benefit of $8 million recognized
in 1993 and lower earnings at SoCalGas, partially offset by lower interest
expense. Although SoCalGas' authorized rate of return on common equity was
reduced from 11.90 percent in 1993 to 11.00 percent in 1994 this reduction was
substantially offset by continued reductions in operating expenses, higher
earnings from the noncore market and the growth in rate base. The net loss in
1992 resulted from losses from discontinued operations of $686 million, or $9.17
per share, partially offset by income from continuing operations of $136 million
or $1.60 per share.
In 1993, the Company completed a strategic restructuring to refocus on its
natural gas utility and related businesses. This restructuring included
divestiture of its retailing and oil and gas operations in late 1992 and early
1993, substantial reduction of its corporate overhead and sale of 8 million
shares of common stock, the proceeds of which were used to repay all of the bank
debt at the holding company, excluding debt related to the employee benefit
plans, and for other general corporate purposes. The Company resumed its
dividend at a $1.20 per common share annual rate in the third quarter of 1993
after having suspended the regular quarterly dividend in the second quarter of
1992. The dividend was subsequently increased to a $1.28 annual rate in the
second quarter of 1994.
In 1992, the loss from discontinued operations was primarily due to losses
on disposal of retailing operations of $475 million after-tax and of oil and gas
operations of $156 million after-tax and a provision for downsizing the
Company's corporate operations of $37 million after-tax. In addition, operating
losses from these units were $18 million after-tax. In connection with the
divestitures, the Company effected a quasi-reorganization for financial
reporting purposes effective December 31, 1992. Assets and liabilities were
adjusted to their fair values and the accumulated deficit in retained earnings
was eliminated by a charge to common stock. Fair value adjustments charged to
common stock totaled $190 million.
The weighted average number of shares of common stock outstanding increased
2 percent to 81.9 million in 1994, following an 8 percent increase in 1993. The
increase in 1994 was due primarily to the full year's impact of 8 million shares
issued in a second quarter public offering in 1993, partially offset by the
effect of the adoption in 1994 of the American Institute of Certified Public
Accountants' Statement of Position No. 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" (SOP 93-6). For further discussion of SOP 93-6, see Note
12 of Notes to Consolidated Financial Statements. The increase in 1993 was due
primarily to the shares issued in the public offering.
Book value per share was $14.74, $12.19 and $9.44 at December 31, 1994,
1993 and 1992, respectively.
SOCALGAS OPERATIONS
SoCalGas markets are separated into core customers and noncore customers. Core
customers consist of approximately 4.7 million customers (4.5
PAGE 20.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
[Bar Chart]
Allowed vs. Achieved Return on Rate Base (Percent)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Allowed 10.75 10.79 10.49 9.99 9.22
Achieved 10.83 10.94 11.01 10.27 9.74
million residential and 0.2 million smaller commercial and industrial
customers). The noncore market consists of approximately 1,200 customers which
primarily include utility electric generation, wholesale, and large commercial
and industrial customers. Many noncore customers are sensitive to the price
relationship between natural gas and alternate fuels, and are capable of readily
switching from one fuel to another, subject to air quality regulations.
FINANCIAL RESULTS
Under current utility ratemaking policies, the return that SoCalGas is
authorized to earn is the product of an authorized rate of return on rate base
and the amount of rate base. Rate base consists primarily of net investment in
utility plant. Thus, SoCalGas' earnings are affected by changes in the
authorized rate of return on rate base and the growth in rate base and by
SoCalGas' ability to control expenses and investment in rate base within the
amounts authorized by the California Public Utilities Commission (CPUC) in
setting rates. In addition, achievement of the authorized rate of return is
affected by other regulatory and operating factors. SoCalGas is exploring a new
approach for setting rates to its customers as discussed in Factors Influencing
Future Performance.
Key financial and operating data for SoCalGas are highlighted in the table
below.
<TABLE>
<CAPTION>
(Dollars in Millions) 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
(after preferred
dividends) $ 180 $ 184 $ 188
Authorized return
on rate base 9.22% 9.99% 10.49%
Authorized return
on common equity 11.00% 11.90% 12.65%
Weighted average
rate base $2,862 $2,769 $2,720
Growth in weighted
average rate base
over prior period 3.4% 1.8% 2.1%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
SoCalGas net income decreased $4 million in 1994 due primarily to a
reduction in SoCalGas' authorized rate of return on common equity from 11.90
percent in 1993 to 11.00 percent in 1994 partially offset by reductions in
operating expenses, higher earnings from the noncore market and the growth in
rate base. During 1993, net income decreased $4 million due primarily to a
reduction in SoCalGas' authorized rate of return on common equity and lower
earnings from the noncore market, partially offset by reductions in SoCalGas'
cost of service, including operating and financing costs, and growth in rate
base.
SoCalGas has achieved or exceeded the rate of return on rate base
authorized by the CPUC for 12 consecutive years. In 1994, SoCalGas achieved a
9.74 percent return on rate base compared to a 9.22 percent authorized return
and a 12.33 percent return on equity compared to an 11.00 percent authorized
return. The improved returns were primarily due to more efficient operations
through aggressive reductions in operating expenses, noncore earnings and a
conservation award. SoCalGas plans to continue efforts to reduce costs in 1995.
In 1995, SoCalGas is authorized to earn 9.67 percent on rate base and 12.00
percent on common equity. Rate base is expected to remain at the same level as
1994.
SoCalGas' operating revenues decreased $224 million in 1994. The decrease
reflects a reduction in authorized gas margin and the average unit cost of gas
partially offset by the growth in rate base and an increase in noncore volumes
transported. SoCalGas' cost of gas distributed decreased $195 million in 1994.
The decrease reflects a lower average unit cost of gas in 1994 partially offset
by a slight increase in core volumes delivered. Core volumes increased as a
result of colder weather in 1994 compared to 1993. SoCalGas' operating revenues
decreased $29 million from 1992 to 1993. The decrease reflects a reduction in
authorized gas margin, the average unit cost of gas and noncore volumes
transported partially offset by the growth in rate base. SoCalGas' cost of gas
distributed
PAGE 21.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Management's Discussion and Analysis (continued)
[Bar Chart]
Annual Throughput Volumes (Billions of Cubic Feet)
Transported and Exchanged 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Sold 1,026 1,047 1,001 965 1,020
decreased $20 million in 1993. The decrease reflects a lower average unit cost
of gas in 1993 partially offset by an increase in core volumes delivered. The
average unit cost of gas has declined as a result of lower market prices. The
average commodity cost of gas purchased by SoCalGas, excluding fixed charges,
for 1994 was $1.68 per thousand cubic feet, compared to $2.21 per thousand cubic
feet in 1993 and $2.24 per thousand cubic feet in 1992.
OPERATING RESULTS
The table below summarizes the components of SoCalGas' throughput and rates
charged to customers for the past three years. Beginning January 1, 1994, rates
included the ratepayer portion of the Comprehensive Settlement (See Note 3 of
Notes to Consolidated Financial Statements). The amount included in rates for
1994 was $119 million.
<TABLE>
<CAPTION>
Gas Sales Transportation and Exchange Total
(Dollars in millions, ------------------------- --------------------------- --------------------------
volume in billion cubic feet) Throughput Revenue Throughput Revenue Throughput Revenue
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Residential 254 $1,704 2 $ 9 256 $1,713
Commercial/Industrial 100 592 258 207 358 799
Utility Electric Generation 260 118 260 118
Wholesale 8 21 138 77 146 98
--------------------------------------------------------------------------------------
Total in Rates 362 $2,317 658 $411 1,020 2,728
Balancing and Other (141)
-----------
Total Operating Revenues $2,587
- ------------------------------------------------------------------------------------------------------------------------------
1993:
Residential 244 $1,641 4 $ 12 248 $1,653
Commercial/Industrial 97 610 259 247 356 857
Utility Electric Generation 4 213 143 213 147
Wholesale 11 27 137 90 148 117
--------------------------------------------------------------------------------------
Total in Rates 352 $2,282 613 $492 965 2,774
Balancing and Other 37
-----------
Total Operating Revenues $2,811
- ------------------------------------------------------------------------------------------------------------------------------
1992:
Residential 241 $1,475 3 $ 9 244 $1,484
Commercial/Industrial 100 586 287 256 387 842
Utility Electric Generation 21 221 174 221 195
Wholesale 14 34 135 95 149 129
--------------------------------------------------------------------------------------
Total in Rates 355 $2,116 646 $534 1,001 2,650
Balancing and Other 190
-----------
Total Operating Revenues $2,840
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Although the revenues from transportation throughput are less than for gas
sales, SoCalGas generally earns the same margin whether it buys the gas and
sells it to the customer or transports gas already owned by the customer. For
1995, approximately 89 percent of total margin authorized is contributed by the
core market (residential and smaller commercial and industrial customers), with
11 percent contributed by the noncore market. Throughput, the total gas sales
and transportation volumes moved through SoCalGas' system, has increased during
1994 as a result of greater weather-related demand in noncore volumes, primarily
utility electric generation and large commercial and industrial customers.
During 1993, throughput declined from 1992 levels as a result of bypass of
SoCalGas' system, primarily by enhanced oil recovery customers. (See Factors
Influencing Future Performance).
PAGE 22.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
[Bar Chart]
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Employees Per 1,000 Meters 2.11 2.06 1.99 1.93 1.75
RATEMAKING PROCEDURES
SoCalGas is regulated by the CPUC. It is the responsibility of the CPUC to
determine that utilities operate in the best interest of the ratepayer with the
opportunity to earn a reasonable return on investment. Current ratemaking
procedures are summarized below.
- --> GENERAL RATE CASES General rate applications are filed every three years.
In a general rate case, the CPUC establishes a margin, which is the amount of
revenue authorized to be collected from customers to recover authorized
operating expenses (other than the cost of gas as discussed below, see BCAP),
depreciation, interest, taxes and return on rate base. Rate adjustments from
SoCalGas' next general rate case proceeding would normally be scheduled to go
into effect in 1997, however, SoCalGas has filed a petition for modification
with the CPUC to delay the proceeding and is exploring a new approach for
setting rates to its customers. Known as "Performance Based Ratemaking" (PBR),
this new method would link financial performance with productivity improvements
and generally would allow for rates to increase by the rate of inflation, less
an agreed-upon percentage for productivity improvements. SoCalGas proposes to
file a PBR application with the CPUC in 1995 and if approved, to implement it in
1997 at the earliest. For a further discussion of PBR, see Factors Influencing
Future Performance-Performance Based Ratemaking.
- --> ATTRITION In a process referred to as the annual attrition allowance, the
CPUC annually adjusts rates for years between general rate cases to cover the
changes in rate base and the effects of inflation as adjusted by a productivity
improvement factor. Separate proceedings are held annually to review SoCalGas'
cost of capital, including return on common equity, interest costs and changes
in capital structure. The CPUC has authorized annual allowances for operational
attrition for 1995 and 1996 to the extent that the annual inflation rate for
those years exceeds 2 percent and 3 percent, respectively, for operating and
maintenance expenses. This compares to a 3 percent productivity adjustment
authorized for 1994. The rate base attrition will continue based upon a three
year rolling average of recorded net utility plant additions. For further
discussion of annual attrition allowances, see Note 3 of Notes to Consolidated
Financial Statements.
- --> GCIM On March 16, 1994, the CPUC approved a new process for evaluating
SoCalGas' gas purchases substantially replacing the previous process of
reasonableness reviews. The new Gas Cost Incentive Mechanism (GCIM) is a
three-year pilot program that began April 1, 1994. The GCIM essentially compares
SoCalGas' cost of gas with a benchmark level, which represents the average
market price of 30-day firm spot supplies delivered to the SoCalGas service
area.
All savings from gas purchased below the benchmark are shared equally
between ratepayers and shareholders. SoCalGas can recover all costs in excess of
the benchmark but within a tolerance band. If SoCalGas' cost of gas exceeds the
tolerance band, then the excess costs are shared equally between ratepayers and
shareholders. For the first year of the program, the GCIM provides a 4.5 percent
tolerance band above the benchmark. For the second and third years of the
program, the tolerance band decreases to 4 percent. In 1994, since the inception
of the GCIM, SoCalGas' gas purchases were within the tolerance band.
SoCalGas enters into a certain amount of gas futures contracts in the open
market to help reduce gas costs within the GCIM tolerance band. SoCalGas' policy
is to use gas futures contracts to mitigate risk and better manage gas costs.
The CPUC has approved the use of gas futures for managing risk associated with
the GCIM. For the year ended December 31, 1994, gains or losses from gas futures
contracts are not material to the Company's financial statements.
PAGE 23.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Management's Discussion and Analysis (continued)
[Bar Chart]
Average Cost of Gas Purchased, Excluding Fixed Charges
(Dollars Per Thousand Cubic Feet)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
2.59 2.40 2.24 2.21 1.68
- -->BCAP In a biennial cost allocation proceeding (BCAP), the CPUC specifies
for each two-year period the allocation of total authorized revenue requirements
(including cost of gas) to be collected from SoCalGas' core and noncore customer
classes. SoCalGas maintains regulatory accounts to accumulate undercollections
and overcollections from customers and makes periodic filings with the CPUC to
adjust future rates to amortize outstanding balances in those accounts. In the
most recent BCAP decision issued by the CPUC in December 1994, SoCalGas has been
authorized to collect a $130 million revenue increase effective January 1, 1995.
Of this amount, $45 million has been authorized for the 1995 attrition
allowance, $27 million as a result of the increase in the 1995 authorized rate
of return on common equity and rate base, and $58 million for the BCAP. Included
in the BCAP decision was a partial reallocation of costs to further reduce
subsidies by nonresidential core customers to residential customers in order to
better align residential rates with the cost of providing residential service.
For the core market, SoCalGas records margin ratably each month. The BCAP
balancing account procedure, which substantially eliminates the effect on income
of variances in gas costs and volumes sold, allows SoCalGas to increase rates
for increased gas acquisition costs or for revenue shortfalls due to reductions
in demand by core customers, subject to the terms and conditions of the GCIM
mechanism and the Comprehensive Settlement (as discussed below). Conversely,
SoCalGas reduces rates for decreased gas acquisition costs or for higher than
projected revenues from increases in demand by core customers.
RESTRUCTURING OF GAS SUPPLY CONTRACTS
SoCalGas and the Company's gas supply subsidiaries restructured long-term gas
supply contracts with suppliers of California offshore and Canadian gas.
SoCalGas' cost of these supplies had been substantially in excess of its average
delivered cost of gas for all supplies. The new contracts substantially reduced
the ongoing delivered costs of these gas supplies and provided lump sum payments
of $391 million to the suppliers. The expiration date for the Canadian gas
supply contract was also shortened from 2012 to 2003.
COMPREHENSIVE SETTLEMENT OF REGULATORY ISSUES
On July 20, 1994, the CPUC approved a comprehensive settlement (Comprehensive
Settlement) of a number of pending regulatory issues including partial rate
recovery of restructuring costs associated with the long-term gas supply
contracts discussed above. The Comprehensive Settlement permits SoCalGas to
recover in utility rates approximately 80 percent of the contract restructuring
costs of $391 million and accelerated amortization of related pipeline assets of
approximately $140 million, together with interest, over a period of
approximately five years (See Note 3 of Notes to Consolidated Financial
Statements).
FACTORS INFLUENCING FUTURE PERFORMANCE
Under current ratemaking policies, future SoCalGas earnings and cash flow will
be determined primarily by the allowed rate of return on common equity, the
growth in rate base, noncore market pricing and the variance in gas volumes
delivered to noncore customers versus CPUC-adopted forecast deliveries and the
ability of management to control expenses and investment in line with the
amounts authorized by the CPUC to be collected in rates.
The impact of any future regulatory restructuring, such as Performance
Based Ratemaking, increased competitiveness in the industry, including the
continuing threat of customers bypassing SoCalGas' system and obtaining service
directly from interstate pipelines, and electric industry restructuring could
also affect SoCalGas' future performance. The Company's ability to report as
earnings the results from revenues in excess of SoCalGas' authorized return from
noncore customers due to volume increases has been eliminated for the five years
beginning August 1, 1994 as a consequence of the Comprehensive Settlement
PAGE 24.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
[Pie Chart]
1995 Authorized Margin
Core Market 89%
Noncore Market 11%
described above. This is because certain forecasted levels of gas deliveries in
excess of the 1991 throughput levels used to establish noncore rates were
contemplated in estimating the costs of the Comprehensive Settlement at December
31, 1993.
The following discussion addresses each of the major factors expected to
influence future performance:
- --> ALLOWED RATE OF RETURN AND GROWTH IN RATE BASE SoCalGas' earnings for 1995
will be affected by the increase in the authorized rate of return on common
equity, reflecting the overall increase in cost of capital. For 1995, SoCalGas
is authorized to earn a rate of return on rate base of 9.67 percent and a rate
of return on common equity of 12.00 percent compared to 9.22 percent and 11.00
percent, respectively, in 1994. A change in return on equity of 1 percent (100
basis points) impacts earnings approximately $ .17 per share. Rate base is
expected to remain at the same level as 1994.
- --> NONCORE BYPASS Since the completion of the Kern River and Mojave
Interstate Pipelines in February 1992, SoCalGas' throughput to customers in the
Kern County area, who use natural gas to produce steam for enhanced oil recovery
projects, has decreased significantly because of the bypass of SoCalGas' system.
The Kern River and Mojave Interstate Pipelines now deliver natural gas to
customers formerly served by SoCalGas amounting to 350 million to 400 million
cubic feet per day. The decrease in revenues from enhanced oil recovery
customers is subject to full balancing account treatment, except for a 5 percent
incentive to SoCalGas, and therefore, does not have a material impact on
SoCalGas' earnings. However, bypass of other markets may also occur, and
SoCalGas is fully at risk for lost noncore volumes due to competition, and would
not receive balancing account treatment except in the enhanced oil recovery
market.
- --> NONCORE PRICING In order to respond to certain bypass threats, SoCalGas
has received authorization from the CPUC for expedited review of price discounts
proposed through long-term gas transportation contracts with some noncore
customers. In addition, in December 1992, the CPUC approved changes in the
methodology for allocating SoCalGas' costs between core and noncore customers to
reduce subsidization of core customer rates by noncore customers. Effective in
June 1993, the CPUC implemented the new cost allocation policy known as
"long-run marginal cost". The revised methodologies have resulted in a reduction
of noncore rates and a corresponding increase in core rates that better reflects
the cost of serving each customer class and, together with price discounting
authority, has enabled SoCalGas to better compete with new interstate pipelines
for noncore customers. In addition, in August 1993 a capacity brokering program
was implemented. Under the program, for a fee, SoCalGas provides to noncore
customers, or others, a portion of its control of interstate pipeline capacity
to allow more direct access to producers. Also, the Comprehensive Settlement
will help improve SoCalGas' competitiveness by reducing the cost of
transportation service to noncore customers.
- --> NONCORE THROUGHPUT SoCalGas' earnings are subject to variability if gas
throughput to its noncore customers varies from estimates adopted by the CPUC in
establishing rates. There is a continuing risk that an unfavorable variance in
noncore volumes can result from external factors such as weather, the use of
increased hydroelectric power, the price relationship between alternative fuels
and natural gas, competing pipeline bypass of SoCalGas' system and general
economic conditions. In these cases SoCalGas is at risk for the lost revenue. In
addition, although an economic downturn or recession does not affect SoCalGas as
significantly as nonregulated businesses, there exists the risk that an
unfavorable variance in the noncore volumes can result.
PAGE 25.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Management's Discussion and Analysis (continued)
[Bar Chart]
Annual Cost of Appliance Operation
Gas vs. Electric
(Dollars)
Space Water Clothes Cooking
----- ----- ------- -------
Gas 254 134 45 30
Electric 852 531 126 115
- --> MANAGEMENT CONTROL OF EXPENSES AND INVESTMENT Over the past 12 years,
management has been able to control operating expenses and investment within the
amounts authorized to be collected in rates and intends to continue to do so to
remain competitive and reduce the risk of bypass. Future cost reductions are
expected, including employee reductions and productivity gains as a result of
moving to a realigned business unit organization. In connection with the
Comprehensive Settlement, SoCalGas has agreed to absorb a 2 percent and 3
percent productivity adjustment to its authorized level of operating and
maintenance expenses in 1995 and 1996, respectively, before it can seek any rate
recovery due to the effects of inflation.
SoCalGas also bears the risk of nonrecovery of margin or other costs
authorized by the CPUC for the noncore market under the terms of the
Comprehensive Settlement. Unanticipated significant increases in the inflation
rate could also reduce earnings and cash flow.
- --> PERFORMANCE BASED RATEMAKING During 1994, SoCalGas began exploring a new
approach for setting rates to its customers. Known as PBR, the new method would
maintain cost based rates but would link financial performance with increases
and decreases in productivity and generally would allow for rates to increase by
the rate of inflation, less an agreed-upon adjustment for productivity
improvements. Although PBR could result in increased earnings volatility,
SoCalGas would have the opportunity to improve financial performance to the
extent it was able to reduce expenses, increase energy deliveries and generate
profits from new products and services. Under PBR, SoCalGas would be at risk for
changes in interest rates and cost of capital, changes in core volumes not
related to weather, and achieving the productivity improvements. SoCalGas
proposes to file a PBR application with the CPUC in 1995 and if approved, to
implement it in 1997 at the earliest.
- --> ELECTRIC INDUSTRY RESTRUCTURING Demand for natural gas by electric
generation customers is sensitive to the price and availability of electric
power generated in other areas and purchased by these electric generation
customers. In April 1994, the CPUC announced it will review the structure of
California's electric utility service, a review that could lead to significant
changes in the way California's investor-owned electric utilities and
cogenerators conduct business. The CPUC's proposal has no immediate effect on
SoCalGas' operations. However, SoCalGas is closely monitoring the process and
has taken an active role in the proceedings because of its considerable
experience with natural gas deregulation and because future volumes of natural
gas it transports for electric utilities could be adversely affected. In
addition, as a result of restructuring, electric rates could become more
competitive in the future.
The following table indicates the comparative energy cost of gas versus the
energy cost of electricity in 1995 for an average residential customer in
SoCalGas' service territory:
Fuel Price Price/MMBTU
- ---------------------------------------------------------------------------
Natural Gas $.716/Therm $7.16
Electricity $.132/KWH $38.58
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The electric industry restructuring may result in a reduction of electric
rates to core customers, but it is unlikely to overcome the entire cost
advantage of natural gas for residential heating.
- --> EXCESS INTERSTATE PIPELINE CAPACITY Existing interstate pipeline capacity
into California exceeds current demand by over 1 billion cubic feet per day. Up
to 2 billion cubic feet per day of capacity on the El Paso and Transwestern
interstate pipeline systems, representing over $175 million and $55 million,
respectively, of reservation charges annually, may be relinquished within the
next few years based on existing contract reduction options and contract
expirations. Some of this capacity may not be resubscribed. Current FERC
regulation could permit
PAGE 26.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
[Bar Chart]
New Meter Sets Per Year
(Thousands)
1990 1991 1992 1993 1994
----- ---- ---- ---- ----
103.2 75.8 55.8 47.0 43.4
the cost of unsubscribed capacity to be allocated to remaining firm service
customers, including SoCalGas. Under existing regulation in California, SoCalGas
would have the opportunity to include its portion of any such reallocated costs
in its rates. If competitive conditions did not support higher rates resulting
from these reallocated costs, then SoCalGas would be at risk for lost revenues
in the noncore market.
SoCalGas, as a part of a coalition of customers who hold 90 percent of the
firm transportation capacity rights on the El Paso and Transwestern systems, has
offered a proposal for market based rates with balanced incentives to El Paso
and Trans-western to resolve the issue of stranded or unsubscribed capacity.
Negotiations on a settlement of the issue, consistent with the coalition's
proposal, are progressing with Transwestern. Discussions of the proposal with El
Paso are continuing.
- --> ENVIRONMENTAL MATTERS SoCalGas' operations and those of its customers are
affected by a growing number of environmental laws and regulations. These laws
and regulations affect current operations as well as future expansion.
Historically, enviromental laws favorably impacted the use of natural gas in
SoCalGas' service territory, particularly by utility electric generation and
large industrial customers. However, increasingly complex administrative
requirements may discourage natural gas use by commercial and industrial
customers. Environmental laws also require clean up of facilities no longer in
use. Because of current and expected rate recovery, SoCalGas believes that
compliance with these laws will not have a significant impact on its financial
statements. For further discussion of environmental and regulatory matters, see
Note 5 of Notes to Consolidated Financial Statements.
OTHER REGULATED SUBSIDIARIES
The Company's interstate pipeline subsidiaries, certain of which are regulated
by the Federal Energy Regulatory Commission (FERC), purchase natural gas from
producers in Canada and from federal waters offshore California and transport it
for resale to SoCalGas. During 1994, these deliveries from the interstate
pipeline subsidiaries accounted for approximately 26 percent of the total volume
of gas purchased by SoCalGas and approximately 10 percent of SoCalGas' total
throughput. The gas is purchased under long-term contracts which have been
restructured in conjunction with the Comprehensive Settlement. Net income of
other regulated subsidiaries was $4 million in 1993 and 1992. As a result of the
accelerated amortization of the pipeline assets, net income totaled $600,000 in
1994.
OTHER OPERATIONS
Other operations include Pacific Energy, the Company's partnership interest in
its headquarters building and other miscellaneous activities. Pacific Energy
develops and operates alternate energy facilities and operates centralized
heating and air conditioning plants.
Net income of other operations was $12 million in 1994 compared to net income of
$10 million in 1993 and a net loss of $4 million in 1992. The increase from the
prior year is primarily a result of improved operating results at the alternate
energy facilities. The increase in net income in 1993 was due primarily to lower
expense as a result of fair value adjustments at December 31, 1992 under the
quasi-reorganization.
PARENT COMPANY
During 1994, 1993 and 1992, net losses were $20 million, $17 million and $52
million, including $12 million, $17 million and $23 million of interest expense
after-tax, respectively. The smaller loss in 1993 is primarily a result of a tax
benefit of $8 million recognized in 1993 for the change in the federal tax rate.
The decrease from 1992 to 1993 is due to reductions in the parent company's work
force and other cost reduction measures, the tax benefit recognized in 1993 and
provisions for parent downsizing costs recorded in 1992.
PAGE 27.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Management's Discussion and Analysis (continued)
[Bar Chart]
Capital Expenditures
(Millions of Dollars)
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
386 335 329 331 249
CAPITAL EXPENDITURES
Capital expenditures were $249 million, $331 million and $329 million in 1994,
1993 and 1992, respectively. Capital expenditures primarily represent ratebase
investment at SoCalGas. The decline in capital expenditures is due primarily to
the continued sluggishness in the southern California economy, lower amounts
required to replace aging pipeline and fewer large projects. Capital
expenditures are estimated to be $260 million in 1995 and will be financed
primarily by internally generated funds.
LIQUIDITY
Cash and Cash Equivalents at December 31, 1994 was $287 million which includes
$228 million at the parent. Parent cash is available for investment in new
energy-related projects, retirement of remarketed preferred stock and debt and
other corporate purposes during the next few years. Regulatory Accounts
Receivable decreased in 1994 primarily due to overcollections under the BCAP
balancing account procedures due primarily to lower gas prices than forecasted.
Regulatory Accounts Receivable increased in 1993 and 1992 reflecting higher
undercollections due primarily to core market throughput falling below
CPUC-adopted forecast levels. Regulatory Assets decreased in 1994 primarily due
to the recovery of $119 million related to the Comprehensive Settlement. In 1993
Accounts Payable - Other included the liability for lump sum settlement payments
of $375 million to restructure long-term gas supply contracts which were paid in
1994.
- --> PREFERRED STOCK REDEMPTION The Company redeemed $40 million of remarketed
preferred stock in 1994. The Company may retire all of the remaining re-marketed
preferred stock during the next few years.
- --> INTEREST EXPENSE Interest expense for continuing operations was $128
million, $135 million and $157 million in 1994, 1993 and 1992, respectively.
Interest expense in 1994 and 1993 was reduced from the 1992 level as a result of
repayment of nonutility debt and refinancing of SoCalGas debt at lower interest
rates. The Company has two interest rate swap agreements which effectively set
$200 million of variable rate debt to fixed rates and expire in September 1995
(See Note 8 of Notes to Consolidated Financial Statements).
- --> FUTURE BORROWINGS At December 31, 1994, all financing for the
Comprehensive Settlement has been completed. The Company has $330 million of
commercial paper outstanding to finance the Comprehensive Settlement. This
amount is expected to decline over the five year period of the Comprehensive
Settlement as amounts are recovered in rates. The Company anticipates that cash
requirements in 1995 for capital expenditures, dividends and debt requirements
will come from cash generated from operating activities, existing cash balances
and any future refinancing of existing debt. Future refinancings are expected to
include a combination of commercial paper and medium-term notes.
- --> SHAREHOLDER LAWSUITS In January 1994, the Company announced that an
agreement had been reached to settle pending shareholder lawsuits originally
filed in February 1992. After the Federal Court approved the settlement in May,
an appeal of the approval was filed in June, 1994. On February 9, 1995 the 9th
Circuit Court of Appeals affirmed the Federal District Court's approval of the
settlement. The settlement was reflected in prior year's financial statements.
- --> DIVIDENDS In 1994, the Company paid dividends of $104 million on common
stock and $12 million on preferred stock for a total of $116 million. This
compares to $65 million in 1993 and $48 million in 1992. The increase in 1994
was due to the resumption of common dividends effective with the third quarter
of 1993 and the increase in the quarterly dividend rate in the second quarter of
1994 partially offset by lower preferred dividends. The common dividends rate
was $.30 per share in the first quarter of 1994 and $.32 per share in the last
three quarters of 1994.
PAGE 28.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
(Dollars are in millions, except per-share amounts) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES AND OTHER INCOME
Operating Revenues $2,664 $2,899 $2,900
Other 38 24 9
------------------------------------
Total 2,702 2,923 2,909
------------------------------------
EXPENSES
Cost of Gas Distributed 924 1,086 1,081
Operating Expenses 977 1,029 1,048
Depreciation and Amortization 239 243 236
Franchise Payments and Other Taxes 113 113 122
Preferred Dividends of a Subsidiary 10 10 7
------------------------------------
Total 2,263 2,481 2,494
------------------------------------
Income from Continuing Operations Before Interest and Taxes 439 442 415
Interest 128 135 157
------------------------------------
Income from Continuing Operations Before Income Taxes 311 307 258
Income Taxes 139 126 122
------------------------------------
Income from Continuing Operations 172 181 136
------------------------------------
Discontinued Operations:
Loss from discontinued operations (18)
Loss on disposal of discontinued operations (668)
------------------------------------
Total (686)
------------------------------------
Net Income (Loss) 172 181 (550)
Dividends on Preferred Stock 12 15 16
------------------------------------
Net Income (Loss) Applicable to Common Stock $ 160 $ 166 $ (566)
------------------------------------
------------------------------------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Continuing operations $ 1.95 $ 2.06 $ 1.60
Discontinued operations (9.17)
------------------------------------
Total $ 1.95 $ 2.06 $(7.57)
------------------------------------
------------------------------------
Common Dividends Declared Per Share $ 1.26 $ .60 $ .44
------------------------------------
------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (IN THOUSANDS) 81,939 80,472 74,820
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 29.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
---------------------
(Dollars in Millions) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property, Plant and Equipment $5,953 $5,763
Less accumulated depreciation and amortization 2,673 2,476
---------------------
Total property, plant and equipment--net 3,280 3,287
---------------------
Current Assets:
Cash and cash equivalents 287 152
Accounts receivable--trade (less allowance for doubtful receivables
of $13 in 1994 and $19 in 1993) 500 469
Accounts and notes receivable--other 37 50
Income taxes receivable 20
Deferred income taxes 8
Gas in storage 64 53
Other inventories 35 33
Regulatory accounts receivable--net 360 449
Prepaid expenses 40 30
---------------------
Total current assets 1,323 1,264
---------------------
Other Investments 51 51
Other Receivables 30 31
Regulatory Assets 707 918
Other Assets 54 45
---------------------
Total assets $5,445 $5,596
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 30.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
---------------------
(Dollars in Millions) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION
Shareholders' Equity:
Capital stock:
Remarketed Preferred, Series A $ 108 $ 148
Preferred 110 110
Common 1,092 1,048
---------------------
Total capital stock 1,310 1,306
Retained earnings, after elimination of accumulated deficit of $452 million against
common stock at December 31, 1992 as part of the quasi-reorganization 172 116
Less deferred compensation relating to Employee Stock Ownership Plan (54) (138)
---------------------
Total shareholders' equity 1,428 1,284
Preferred Stocks of a Subsidiary 195 195
Long-Term Debt 1,420 1,262
Debt of Employee Stock Ownership Plan 130 132
---------------------
Total capitalization 3,173 2,873
---------------------
LIABILITIES
Current Liabilities:
Short-term debt 278 267
Accounts payable--trade 235 216
Accounts payable--other 234 724
Accrued income taxes 12
Deferred income taxes 34
Other taxes payable 53 52
Long-term debt due within one year 128 58
Accrued interest 42 62
Other 130 84
---------------------
Total current liabilities 1,146 1,463
---------------------
Long-Term Liabilities 255 251
Customer Advances for Construction 44 45
Postretirement Benefits Other than Pensions 245 255
Deferred Income Taxes 157 181
Deferred Investment Tax Credits 70 73
Other Deferred Credits 355 455
Commitments and Contingent Liabilities (Note 5)
---------------------
Total capitalization and liabilities $5,445 $5,596
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 31.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
(Dollars in Millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from Continuing Operations $ 172 $ 181 $ 136
Adjustments to Reconcile Income from
Continuing Operations to
Net Cash Provided by (Used in) Operating Activities:
Depreciation and amortization 239 243 236
Deferred income taxes (37) 95 26
Other (31) (12) 7
Net change in other working capital components (153) (130) (209)
-----------------------------------
Total from continuing operations 190 377 196
-----------------------------------
Loss from Discontinued Operations (686)
Adjustments to Reconcile Loss from Discontinued Operations to
Net Cash Provided by Discontinued Operating Activities:
Provision for losses 668
Changes in operating assets and liabilities of
discontinued operations 65 106 200
-----------------------------------
Total from discontinued operations 65 106 182
-----------------------------------
Net cash provided by operating activities 255 483 378
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Property, Plant and Equipment (249) (331) (329)
Increase in Other Investments (3) (6)
-----------------------------------
Total capital expenditures and other investments (249) (334) (335)
Proceeds from Disposition of Properties 1 2
(Increase) Decrease in Other Receivables,
Regulatory Assets and Other Assets 40 (28) 7
Net Investing Activities Relating to Discontinued Operations 102 109
-----------------------------------
Net cash used in investing activities (208) (260) (217)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock 7 189 43
Redemption of Remarketed Preferred Stock (40)
Sale of Preferred Stock of a Subsidiary 75
Redemption of Preferred Stock of a Subsidiary (75)
Increase in Long-Term Debt 246 931 805
Decrease in Long-Term Debt (20) (1,610) (623)
Increase in Short-Term Debt 11 52 92
Common and Preferred Dividends (116) (65) (48)
Net Financing Activities Relating to Discontinued Operations (96)
-----------------------------------
Net cash provided by (used in) financing activities 88 (503) 173
-----------------------------------
Increase (Decrease) in Cash and Cash Equivalents 135 (280) 334
Cash and Cash Equivalents, January 1 152 432 98
-----------------------------------
Cash and Cash Equivalents, December 31 $ 287 $ 152 $ 432
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 32.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
(Dollars in Millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHANGES IN OTHER WORKING CAPITAL COMPONENTS
(Excluding cash and cash equivalents, short-term debt
and long-term debt due within one year)
Current Assets:
Receivables $ (18) $ 5 $ 24
Inventories (13) (17) 15
Regulatory accounts receivable 237 (113) (107)
Other (10) 32 25
-----------------------------------
Total 196 (93) (43)
-----------------------------------
Current Liabilities:
Accounts payable (454) 38 (135)
Accrued income taxes 32 (49) (1)
Deferred income taxes 46 (23) (10)
Other taxes payable 1 (8) (7)
Other 26 5 (13)
-----------------------------------
Total (349) (37) (166)
-----------------------------------
Net change in other working capital components $(153) $(130) $(209)
-----------------------------------
-----------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid (Refunded) During the Year for:
Interest (net of amount capitalized) $ 130 $ 131 $ 207
Income taxes $ 98 $ (25) $ (91)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 33.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
compensation
Years Ended December 31, Preferred Stock Common Stock relating to
1994, 1993 and 1992 ------------------ ------------------ Employee Stock Total
Number of No par Number of No par Retained Ownership Plan shareholders'
(In millions, except share amounts) shares value shares value earnings (ESOP) equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1991 1,101,903 $258 73,017,441 $1,458 $ 146 $(163) $1,699
Net Loss (550) (550)
Cash Dividends Declared:
Preferred stock (16) (16)
Common stock (32) (32)
Common Stock Sold 2,272,387 43 43
Quasi-Reorganization
(see Note 2 of Notes to
Consolidated Financial
Statements) (642) 452 (190)
Decrease in Deferred
Compensation Relating to ESOP 15 15
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1992 1,101,903 258 75,289,828 859 (148) 969
Net Income 181 181
Cash Dividends Declared:
Preferred stock (15) (15)
Common stock (50) (50)
Common Stock Sold 8,904,387 189 189
Redemption of Preferred Stock (50)
Decrease in Deferred
Compensation Relating to ESOP 10 10
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1993 1,101,853 258 84,194,215 1,048 116 (138) 1,284
Net Income 172 172
Cash Dividends Declared:
Preferred stock (12) (12)
Common stock (104) (104)
Common Stock Sold 337,577 7 7
Quasi-Reorganization Adjustment
(See Note 2 of Notes to
Consolidated Financial Statements) 37 77 114
Redemption of Remarketed
Preferred Stock (400) (40) (40)
Adoption of SOP 93-6
(See Note 12 of Notes to
Consolidated Financial
Statements) (2,575,690)
Common Stock Released from ESOP 155,161 7 7
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1994 1,101,453 $218 82,111,263 $1,092 $ 172 $ (54) $1,428
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED AT DECEMBER 31, 1994 AND 1993 IS
600,000,000. THE NUMBER OF SHARES OF PREFERRED STOCK AND CLASS A PREFERRED STOCK
AUTHORIZED AND OUTSTANDING AT DECEMBER 31, 1994 AND 1993 IS SET FORTH IN NOTE 11
OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 34.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all subsidiaries
of Pacific Enterprises (the Company). Investments in 50-percent-or-less owned
joint ventures and partnerships are accounted for by the equity or cost method,
as appropriate.
RECLASSIFICATIONS
Certain changes in account classification have been made in the prior years'
consolidated financial statements to conform to the 1994 financial statement
presentation.
REGULATION
Southern California Gas Company (SoCalGas) follows accounting policies
prescribed or authorized by the California Public Utilities Commission (CPUC).
Interstate natural gas transmission subsidiaries follow accounting policies
prescribed or authorized by the Federal Energy Regulatory Commission (FERC). The
regulated subsidiaries apply the provisions of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation."
This statement requires cost-based rate regulated entities that meet certain
criteria to reflect the authorized recovery of costs due to regulatory decisions
in their financial statements.
INVENTORIES
Gas in storage inventory is stated at last-in, first-out (LIFO) cost. As a
result of a regulatory accounting procedure, the pricing of gas in storage does
not have any effect on net income. If the first-in, first-out (FIFO) method of
accounting for gas in storage inventory had been used by SoCalGas, inventory
would have been higher than reported at December 31, 1994 and 1993 by $34
million and $58 million, respectively. Other inventories are generally stated at
the lower of cost, determined on an average cost basis, or market.
PROPERTY, PLANT AND EQUIPMENT
The costs of additions, renewals and improvements to utility plant are charged
to the appropriate plant accounts. These costs include labor, material, other
direct costs, indirect charges, and an allowance for funds used during
construction. The cost of utility plant retired or otherwise disposed of, plus
removal costs and less salvage, is charged to accumulated depreciation.
Depreciation is recorded on the straight-line remaining-life basis.
REGULATORY ACCOUNTS RECEIVABLE -- NET
Authorized regulatory balancing accounts are maintained to accumulate
undercollections and overcollections from the revenue and cost estimates adopted
by the CPUC in setting rates. SoCalGas makes periodic filings with the CPUC to
adjust future gas rates to account for such variances.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the cost of funds used to finance the construction of utility
plant and is added to the cost of utility plant. Interest expense of $4 million
in 1994, $7 million in 1993 and $6 million in 1992 was capitalized.
OTHER
Cash equivalents include short-term investments purchased with maturities of
less than 90 days. Certain assets and liabilities of a real estate finance
subsidiary, which is being phased out, are shown on a net basis. Other major
accounting policies are included in the following notes.
2. DISCONTINUED OPERATIONS AND QUASI-REORGANIZATION
During 1993, the Company completed a strategic plan to refocus on its natural
gas utility and related businesses. The strategy included the divestiture of its
retailing operations and substantially all of its oil and gas exploration and
production business. In connection with the divestitures, the Company effected a
quasi-reorganization for financial reporting purposes effective December 31,
1992. Fair value adjustments charged to common stock totaled $190 million. These
after-tax adjustments represented $53
PAGE 35.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
million related to the Company's ownership and occupancy of the Company's
headquarters building, $50 million for undeveloped mineral interests and real
estate, $43 million for alternate energy plants, $18 million for financial
instruments and $26 million for other adjustments, including gas contract
issues. Additionally, the accumulated deficit in retained earnings of $452
million at December 31, 1992 was eliminated by a reduction in the common stock
account.
The Company resumed its common dividend at a $.30 per share quarterly rate
in the third quarter of 1993 after having suspended the regular quarterly
dividend in the second quarter of 1992. In April 1994, the Company increased the
quarterly dividend to $.32 per share.
In connection with the sale of its retailing operations, the Company
assumed Thrifty's Employee Stock Ownership Plan (ESOP) and related indebtedness
(see Notes 8 and 12). In addition, Thrifty's buyer agreed to reimburse the
Company for a portion of the ESOP quarterly debt service. In April 1994, the
Company received a $65 million payment from the buyer. This payment primarily
reflected the settlement of the buyer's remaining debt service obligation. It
also canceled a warrant granted to the Company in connection with the Thrifty
sale to purchase approximately 10 percent of the buyer's common stock. Since the
sale of the retailing operations was recorded prior to the quasi-reorganization,
the settlement and resolution of other contingencies related to the ESOP
resulted in a $114 million increase to shareholders' equity, of which $37
million was to common stock.
In 1992, the Company provided charges of $730 million ($475 million
after-tax, or $6.45 per share) and $232 million ($156 million after-tax, or
$2.09 per share) for the losses on disposal of the remaining retailing
operations and discontinued oil and gas exploration and production operations,
respectively.
Revenues from the retailing operations were $2,091 million for 1992
(through September 25, the date of sale). The loss from the discontinued
retailing operations was $28 million for 1992, net of related income tax
benefits of $12 million. Revenues from the oil and gas operations were $232
million for 1992. The income from the discontinued oil and gas operations was
$10 million for 1992, net of related income tax expense of $4 million.
Costs of downsizing corporate operations of $37 million were also charged
to the loss on disposal of discontinued operations in 1992, net of related
income tax benefits of $24 million. Interest expense of $47 million was
allocated to discontinued operations in 1992. The allocation was based on net
assets of the discontinued operations, in relation to consolidated net assets.
The retailing and oil and gas segments have been reported as discontinued
operations in the Consolidated Financial Statements.
Certain of the liabilities established in connection with discontinued
operations and the quasi-reorganization will be resolved in future years. As of
December 31, 1994, the provisions previously established for these matters are
adequate.
3. REGULATORY MATTERS
RESTRUCTURING OF GAS SUPPLY CONTRACTS
In 1993, SoCalGas and the Company's gas supply subsidiaries restructured
long-term gas supply contracts with suppliers of California offshore and
Canadian gas. In the past, SoCalGas' cost of these supplies had been
substantially in excess of its average delivered cost of gas for all gas
supplies.
The restructured contracts substantially reduced the ongoing delivered
costs of these gas supplies and provided lump sum payments totaling $391 million
to the suppliers. The expiration date for the Canadian gas supply contract was
also shortened from 2012 to 2003.
PAGE 36.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
COMPREHENSIVE SETTLEMENT OF REGULATORY ISSUES
On July 20, 1994, the CPUC approved a comprehensive settlement (Comprehensive
Settlement) of a number of pending regulatory issues including rate recovery of
a significant portion of the restructuring costs associated with long-term gas
supply contracts discussed above. The Comprehensive Settlement permits SoCalGas
to recover in utility rates approximately 80 percent of the contract
restructuring costs of $391 million and accelerated amortization of related
pipeline assets of approximately $140 million, together with interest, over a
period of approximately five years. In addition to the gas supply issues, the
Comprehensive Settlement addresses the following other regulatory issues:
- --> NONCORE CUSTOMER RATES The Comprehensive Settlement changed the procedures
for determining noncore rates to be charged by SoCalGas to its customers for the
five-year period commencing August 1, 1994. Rates charged to the customers are
established based upon SoCalGas' recorded throughput to these customers for
1991. SoCalGas will bear the full risk of any declines in noncore deliveries
from 1991 levels. Any revenue enhancement from deliveries in excess of 1991
levels will be limited by a crediting account mechanism that will require a
credit to customers of 87.5 percent of revenues in excess of certain limits.
These annual limits above which the credit is applicable increase from $11
million to $19 million over the five-year period from August 1, 1994 through
July 31, 1999. The Company's ability to report as earnings the results from
revenues in excess of SoCalGas' authorized return from noncore customers due to
volume increases has been eliminated for the five years beginning August 1, 1994
as a consequence of the Comprehensive Settlement described above. This is
because forecasted deliveries in excess of the 1991 throughput levels used to
establish noncore rates were contemplated in estimating the costs of the
Comprehensive Settlement at December 31, 1993.
- --> REASONABLENESS REVIEWS The Comprehensive Settlement includes settlement of
all pending reasonableness reviews with respect to SoCalGas' gas purchases from
April, 1989 through March, 1992, as well as certain other future reasonableness
review issues. The Comprehensive Settlement also allows recovery of future
excess interstate pipeline capacity costs in SoCalGas rates.
- --> GAS COST INCENTIVE MECHANISM On March 16, 1994, the CPUC approved a new
process for evaluating SoCalGas' gas purchases, substantially replacing the
previous process of reasonableness reviews. The new Gas Cost Incentive Mechanism
(GCIM) is a three-year pilot program beginning April 1, 1994. The GCIM
essentially compares SoCalGas' cost of gas with a benchmark level, which is the
average market price of 30-day firm spot supplies delivered to the SoCalGas
service area.
All savings from gas purchased below the benchmark are shared equally
between ratepayers and shareholders. SoCalGas can recover all costs in excess of
the benchmark but within a tolerance band. If SoCalGas' cost of gas exceeds the
tolerance band, then the excess cost will be shared equally between ratepayers
and shareholders. For the first year of the program, the GCIM provides a 4.5
percent tolerance band above the benchmark. For the second and third years of
the program, the tolerance band decreases to 4 percent. In 1994, since the
inception of the GCIM, SoCalGas' gas purchases were within the tolerance band
(See Note 9).
- --> ATTRITION ALLOWANCES The Comprehensive Settlement authorizes SoCalGas
annual allowances for operational attrition for 1995 and 1996 to the extent that
the annual inflation rate for those years exceeds 2 percent and 3 percent,
respectively, for operating and maintenance expenses. This compares to a 3
percent productivity adjustment authorized for 1994.The rate base attrition will
continue based upon a three year rolling average of recorded net utility plant
PAGE 37.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
additions. This is a departure from past regulatory practice of allowing
recovery of the full effect of inflation on operating and maintenance expenses
in rates. SoCalGas intends to continue to attempt to control operating expenses
and investment in those years to amounts authorized in rates to offset the
effect of this regulatory change.
The Company recorded the impact of the Comprehensive Settlement in 1993
and, upon giving effect to liabilities previously recognized at the Company and
SoCalGas, the costs of the Comprehensive Settlement, including the restructuring
of gas supply contracts, did not result in any additional charge to the
Company's consolidated earnings.
Regulatory Accounts Receivable and Regulatory Assets include a total of
approximately $327 million and $465 million in 1994 and 1993, respectively, for
the recovery of costs as provided in the Comprehensive Settlement. At December
31, 1993 Accounts Payable-Other included the remaining liability for settlement
payments of $375 million, which were paid in 1994, to restructure the long-term
gas supply contracts. The CPUC authorized the borrowing of up to $425 million
primarily to provide for funds needed under the Comprehensive Settlement. As of
December 31, 1994, SoCalGas has $524 million in commercial paper outstanding, of
which $330 million relates to the Comprehensive Settlement (See Note 7).
4. INCOME TAXES
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," the effect of which was not material to
the financial statements.
A reconciliation of the difference between computed statutory federal
income tax expense and actual income tax expense for continuing operations is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
(Dollars in Millions) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Computed statutory
federal income
tax expense $109 $108 $ 88
Increases (reductions)
resulting from:
Depreciation and other items
not deferred -- SoCalGas 17 18 17
Capitalized expenses not
deferred -- SoCalGas (6)
Federal income tax rate change (8)
State income taxes -- net of
federal income tax benefit 17 16 13
Research and development
credit (6)
Investment tax credits (3) (4) (4)
Other -- net 5 2 8
------------------------
Income tax expense from
continuing operations $139 $126 $122
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The components of income tax expense for continuing operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
(Dollars in Millions) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 79 $ 59 $ 20
Deferred 34 38 82
------------------------
113 97 102
------------------------
State
Current 26 17 24
Deferred 12 (4)
------------------------
26 29 20
------------------------
Total
Current 105 76 44
Deferred 34 50 78
------------------------
$139 $126 $122
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
PAGE 38.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
The principal components of net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------
(Dollars in Millions) Assets Liabilities Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation
for tax purposes $(417) $(417)
Comprehensive Settlement $212 212
Regulatory accounts
receivable (151) (151)
Postretirement benefits 95 95
Restructuring costs
deferred for tax purposes 78 78
Deferred investment
tax credits 31 31
Partnership income (45) (45)
Customer advances for
construction 26 26
Regulatory asset (243) (243)
Other regulatory 109 (62) 47
AMT carryforward 93 93
Other 100 (17) 83
-------------------------------
Total deferred income
tax assets (liabilities) $744 $(935) $(191)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------
(Dollars in Millions) Assets Liabilities Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation
for tax purposes $(382) $(382)
Net operating loss
carryforward $ 83 83
Regulatory accounts
receivable (162) (162)
Restructuring costs deferred
for tax purposes 80 80
Deferred investment tax credits 32 32
Partnership income (36) (36)
Customer advances for
construction 22 22
Regulatory asset (45) (45)
Other regulatory 154 (57) 97
AMT Carryforward 69 69
Other 123 (54) 69
-------------------------------
Total deferred income
tax assets (liabilities) $563 $(736) $(173)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In 1994, the Company utilized all of its remaining net operating loss
carryforward for federal income tax purposes. No valuation allowance has been
provided for deferred tax assets since they are expected to be realized through
either reversal of existing temporary differences or future taxable income.
SoCalGas generally provides for income taxes on the basis of amounts
expected to be paid currently, except for the provision for deferred taxes on
regulatory accounts, customer advances for construction and accelerated
depreciation of property placed in service after 1980. In addition, SoCalGas
recognizes certain other deferred tax liabilities (primarily accelerated
depreciation of property placed in service prior to 1981 and deferred investment
tax credits) which are expected to be recovered through future rates. At
December 31, 1994 and 1993, $97 million and $109 million, respectively, of
deferred income taxes have been offset by an equivalent amount in regulatory
assets.
5. COMMITMENTS AND CONTINGENT LIABILITIES
ENVIRONMENTAL OBLIGATIONS
SoCalGas has identified and reported to California environmental authorities 42
former manufactured gas plant sites for which it (together with other utilities
as to 21 of these sites) may have environmental obligations under environmental
laws. As of December 31, 1994, eight of these sites have been remediated, of
which five have received certification from the California Environmental
Protection Agency. Preliminary investigations, at a minimum, have been completed
on 33 of the gas plant sites, including those sites at which the remediations
described above have been completed. In addition, SoCalGas has been named as a
potentially responsible party of one landfill site and three industrial waste
disposal sites.
PAGE 39.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
On May 4, 1994, the CPUC approved a collaborative settlement between
SoCalGas and other California energy utilities and the Division of Ratepayer
Advocates which provides for rate recovery of 90 percent of environmental
investigation and remediation costs without reasonableness review. In addition,
the utilities have the opportunity to retain a percentage of any insurance
recoveries to offset the 10 percent of costs not recovered in rates.
At December 31, 1994, SoCalGas' estimated remaining investigation and
remediation liability was approximately $65 million which it is authorized to
recover through the mechanism discussed above. The estimated liability is
subject to future adjustment pending further investigation. In 1993 and 1992 the
Company charged $7 million and $5 million, respectively, to income and the
remaining amount is included in Regulatory Assets. There were no related charges
to income in 1994. The Company believes that any costs not ultimately recovered
through rates, insurance or other means, upon giving effect to previously
established liabilities, will not have a material adverse effect on the
Company's financial statements.
LITIGATION
The Company is a defendant in various lawsuits arising in the normal course of
business. Management believes that the resolution of these pending claims and
legal proceedings will not have a material adverse effect on the Company's
financial statements.
OTHER COMMITMENTS AND CONTINGENCIES
At December 31, 1994, commitments for capital expenditures were approximately
$33 million.
On January 17, 1994, SoCalGas' service area was struck by a major
earthquake. The result was a disruption in service to 150,000, or less than 3
percent, of its customers, and damage to some facilities. The financial impact
of the damages related to the earthquake not recovered by insurance is expected
to be recovered in rates under an existing balancing account mechanism, and
should have no material impact on the Company's financial statements.
6. LEASES
The Company and its subsidiaries have leases on real and personal property
expiring at various dates from 1995 to 2011. The rentals payable under these
leases are determined on both fixed and percentage bases and most leases contain
options to extend which are exercisable by the Company or the subsidiaries.
Rental expense under operating leases was $63 million, $63 million and $62
million in 1994, 1993 and 1992, respectively.
The following is a schedule of future minimum operating lease commitments
as of December 31, 1994:
<TABLE>
<CAPTION>
Future Minimum
(Dollars in Millions) Lease Payments
- ---------------------------------------------------------------------------
Year Ending December 31:
<S> <C>
1995 $ 53
1996 47
1997 48
1998 46
1999 46
Later years 473
----
Total $713
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In connection with the quasi-reorganization and loss on disposal of
discontinued operations (see Note 2), the Company established reserves of $102
million to fair value operating leases related to its headquarters and other
leases at December 31, 1992. The amount of these reserves was $91 million at
December 31, 1994.
PAGE 40.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
7. COMPENSATING BALANCES AND SHORT-TERM BORROWING ARRANGEMENTS
The parent has $400 million of unsecured revolving credit with banks, of which
$200 million is a multi-year credit agreement requiring annual fees of .11
percent and $200 million is a 364 day credit agreement requiring annual fees of
.075 percent. SoCalGas has an additional $750 million of unsecured revolving
lines of credit, of which $350 million is a multi-year credit agreement
requiring annual fees of .10 percent and $400 million is a 364 day credit
agreement requiring annual fees of .07 percent. The interest rates on these
lines vary and are derived from formulas based on market rates and the
Companies' credit ratings. The multi-year credit agreements expire on February
8, 2000. At December 31, 1994, all bank lines of credit were unused. The unused
bank lines of credit support SoCalGas' commercial paper program and provide
liquidity for the Company.
At December 31, 1994 and 1993, SoCalGas had $524 million and $267 million,
respectively, of commercial paper obligations outstanding. The weighted average
annual interest rate of commercial paper obligations outstanding was 5.96
percent and 3.25 percent at December 31, 1994 and 1993, respectively. At
December 31, 1994, the Company has classified $246 million of the commercial
paper as long-term debt since it is the Company's intent (supported by the $350
million multi-year credit agreement above) to continue to refinance that portion
of the debt on a long-term basis.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
---------------------
(Dollars in Millions) 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
SOUTHERN CALIFORNIA GAS COMPANY
First Mortgage Bonds:
6 1/2% December 15, 1997 $ 125 $ 125
5 1/4% March 1, 1998 100 100
6 7/8% August 15, 2002 100 100
5 3/4% November 15, 2003 100 100
9 3/4% December 1, 2020 18 18
8 3/4% October 1, 2021 150 150
7 3/8% March 1, 2023 100 100
7 1/2% June 15, 2023 125 125
6 7/8% November 1, 2025 175 175
Other Long-Term Debt:
4.69% Notes, June 16, 1995 31 31
8 3/4% Notes, August 4, 1995 20 20
5.03% - 5.05% Notes,
August 28 - September 1, 1995 28 28
5.81% - 5.85% Notes, December 1, 1995 7 7
8 3/4% Notes, July 8, 1996 20 20
5.98% Notes, August 28, 1997 22 22
8 3/4% Notes, July 6, 2000 10 10
SFr. 100,000,000 5 1/8% Bonds,
February 6, 1998 (Foreign
currency exposure hedged
through currency swap at
an interest rate of 9.725%) 47 47
SFr. 150,000,000 7 1/2%
Foreign Interest Payment
Securities, May 14, 1996 75 75
5.96% Commercial Paper,
February 8, 2000 246
---------------------
1,499 1,253
PACIFIC INTERSTATE COMPANIES
7.65% 1995 39 57
OTHER
8.0%-10.0% 1999-2004 26 28
---------------------
Total 1,564 1,338
---------------------
Less:
Long-term debt due within
one year 128 58
Unamortized debt discount
less premium 16 18
---------------------
144 76
---------------------
Long-Term Debt $1,420 $1,262
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
PAGE 41.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
The annual principal payment requirements of long-term debt, including debt
of the Employee Stock Ownership Plan, for the years 1995 through 1999 are $132
million, $127 million, $181 million, $428 million, and $35 million,
respectively. Substantially all of utility plant serves as collateral for the
First Mortgage Bonds, and certain assets of the nonutility subsidiaries are
pledged as collateral for their obligations.
DEBT OF EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (TRUST) (SEE NOTE 12)
The TRUST covers substantially all employees and is used to fund the Company's
retirement savings program. It has an ESOP feature and holds approximately 2.4
million shares of common stock of the Company. The variable rate ESOP debt held
by the TRUST bears interest at a rate necessary to place or remarket the notes
at par. Principal is payable annually and interest is payable monthly through
1999. The TRUST debt is secured by letters of credit issued by banks which
expire in April 1996. The Company is obligated to make contributions to the
TRUST sufficient to satisfy debt service requirements. The debt is scheduled to
mature in 1999. As the Company makes contributions to the TRUST, these
contributions, plus any dividends paid on the unallocated shares of the
Company's common stock held by the TRUST, will be used to repay the debt. As
dividends are increased or decreased, required contributions are reduced or
increased, respectively. Interest on ESOP debt amounted to $5 million in 1994,
$6 million in 1993 and $8 million in 1992. Dividends used for debt service
amounted to $3 million, $2 million and $2 million in 1994, 1993 and 1992,
respectively, and are deductible for federal income tax purposes.
CURRENCY RATE SWAPS
In February 1986, SoCalGas issued SFr. 100 million of 5 1/8 percent bonds which
will mature on February 6, 1998. SoCalGas has entered into a swap transaction
with a major international bank to hedge the currency exposure. The terms of the
swap result in a U.S. dollar liability of $47 million at an interest rate of
9.725 percent with the principal payable on February 6, 1998.
In May 1986, SoCalGas issued SFr. 150 million of 7 1/2 percent Foreign
Interest Payment Securities which are renewable at 10-year intervals at reset
interest rates. Interest is payable in U.S. dollars. The principal was exchanged
into $75 million at an exchange rate of 1.9925, which is also the minimum rate
of exchange for determining the amount of principal repayable in Swiss francs.
INTEREST RATE SWAPS
The Company has entered into interest rate swap agreements to reduce the impact
of fluctuations in interest rates on its floating rate debt. The differential of
interest to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements. The Company is exposed to credit
losses in the event of nonperformance by the other parties to the interest rate
swap agreements. However, the Company does not anticipate nonperformance by the
counterparties.
At December 31, 1994, the Company had outstanding interest rate swaps
related to continuing operations which effectively set $100 million of ESOP debt
to a fixed 7.3 percent until September 15, 1995 and an interest rate swap
related to discontinued operations which set the interest rate on $100 million
of long-term debt to a fixed 9.12 percent until September 5, 1995. At December
31, 1993, the Company also had outstanding an interest rate swap related to
discontinued operations which set the interest rate on $125 million of long-term
debt to a fixed 8.445 percent until December 5, 1994. The swaps related to
continuing operations were adjusted to market value in the 1992
quasi-reorganization. Losses on the swaps related to discontinued operations
were included in the 1992 loss on disposal.
9. FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of those instruments. The Flexible Auction preferred
stocks of SoCalGas approximate fair value since they are remarketed
periodically. The debt of the ESOP approximates fair market value based on rates
currently available to the Company for debt with similar terms and maturity.
PAGE 42.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Interest rate swaps were adjusted to fair value as part of the
quasi-reorganization. The fair value of interest rate swaps is the estimated
amount that the bank would receive or pay to terminate the swap agreements at
the reporting date, taking into account current interest rates and the current
credit worthiness of the swap counterparties. The carrying amount of interest
rate swaps approximates fair value.
The fair value of SoCalGas' long-term debt, 6 percent preferred, 6 percent
Series A preferred and 7 3/4 percent preferred stock is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to SoCalGas for debt of similar remaining maturities. The fair value of
these financial instruments is different from the carrying amount. These
instruments were not adjusted to fair value in the quasi-reorganization because
they represent obligations of the rate regulated subsidiaries which are
recoverable in future rates.
The following financial instruments have a fair value which is different
from the carrying amount as of December 31.
<TABLE>
<CAPTION>
Carrying Fair
(Dollars in Millions) Amount Value
- ---------------------------------------------------------------------------
<S> <C> <C>
1994:
Long-Term Debt of SoCalGas $1,499 $1,377
Preferred Stocks of SoCalGas $ 95 $ 77
1993:
Long-Term Debt of SoCalGas $1,253 $1,272
Preferred Stocks of SoCalGas $ 95 $ 94
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In October, 1994, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 119 (SFAS 119), "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments."
SFAS 119 is effective for financial statements issued for fiscal years ending
after December 15, 1994 and requires certain disclosures about financial
instruments not covered by SFAS 105, "Disclosure of Information about Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk." As a result of the Gas Cost Incentive Mechanism
(GCIM) (See Note 3), SoCalGas enters into a certain amount of gas futures
contracts in the open market to help reduce gas costs within the GCIM tolerance
band. SoCalGas' policy is to use gas futures contracts to mitigate risk and
better manage gas costs. The CPUC has approved the use of gas futures for
managing risk associated with the GCIM. For the year ended December 31, 1994,
gains or losses from gas futures contracts are not material to the Company's
financial statements.
10. PREFERRED STOCKS OF A SUBSIDIARY
The amount of preferred stocks of SoCalGas outstanding at December 31 is as
follows:
<TABLE>
<CAPTION>
Number Millions
of Shares of Dollars
- ---------------------------------------------------------------------------
<S> <C> <C>
1994:
6%, $25 par value 29,642 $ 1
6% Series A, $25 par value 783,032 19
Series Preferred, no par value
Flexible Auction, Series A 500 50
Flexible Auction, Series C 500 50
7 3/4%, $25 Stated Value 3,000,000 75
----
$195
----
----
1993:
6%, $25 par value 29,642 $ 1
6% Series A, $25 par value 783,032 19
Series Preferred, no par value
Flexible Auction, Series A 500 50
Flexible Auction, Series C 500 50
7 3/4%, $25 Stated Value 3,000,000 75
----
$195
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
Each issue of the Flexible Auction Series Preferred Stock is auctioned on
specified dividend dates. The term of each subsequent dividend period is, at
SoCalGas' option, 49 days or longer, not to exceed ten years. The weighted
average dividend rates for the Flexible Auction Preferred Stock for 1994, 1993
and 1992 were: Series A, 3.40 percent, 2.67 percent and 3.21 percent,
respectively; and, Series C, 3.33 percent, 2.75 percent and 3.28 percent,
respectively. Subsequent dividend rates may be affected by general
PAGE 43.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
market conditions and the credit rating assigned to the Flexible Auction Series
Preferred Stock. SoCalGas has the option of redeeming the shares, in whole or in
part, at $100,000 per share plus accumulated dividends on any scheduled dividend
payment date.
11. PREFERRED STOCK
The Company has 1,100 shares of Remarketed Preferred (RP) Stock outstanding with
a liquidation preference of $100,000 per share. The RP shares are remarketed by
designated agents at specified dividend dates. In connection with the
remarketing process, the holders of the shares may elect dividend periods of
seven or 49 days. The dividend rate may be affected by general market conditions
and the credit rating assigned to the RP shares.
The weighted average dividend rates for 1994 and 1993 were 4.9 percent and
6.2 percent, respectively. The Company has the option of redeeming the RP
shares, in whole or in part, at $100,000 per share plus accumulated dividends on
any scheduled dividend payment date.
All or any part of every series of presently outstanding preferred stock is
subject to redemption at the Company's option at any time upon not less than 30
days notice, at the applicable redemption prices for each series, together with
the accrued and accumulated dividends to the date of redemption. None of the
outstanding issues of preferred stock has any conversion rights. During 1994,
the Company repurchased 400 shares of Remarketed, Series A preferred stock.
The number of shares of preferred stock and class A preferred stock authorized
and outstanding is as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Redemption ------------------------- -------------------------
Price Shares Shares Shares Shares
Per Share Authorized Outstanding Authorized Outstanding
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Preferred stock --
cumulative, no par value:
Remarketed, Series A $100,000.00 1,500 1,100 1,500 1,500
$7.64 Dividend 101.00 300,000 300,000 300,000 300,000
$4.75 Dividend 100.00 200,000 200,000 200,000 200,000
$4.50 Dividend 100.00 300,000 300,000 300,000 300,000
$4.40 Dividend 101.50 100,000 100,000 100,000 100,000
$4.36 Dividend 101.00 200,000 200,000 200,000 200,000
$4.75 Dividend 101.00 353 353 353 353
Unclassified 8,898,147 8,898,147
-------------------------------------------------------
Total preferred 10,000,000 1,101,453 10,000,000 1,101,853
-------------------------------------------------------
Class A preferred stock --
cumulative, no par value 5,000,000 5,000,000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 44.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
12. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company and certain subsidiaries have noncontributory defined benefit
pension plans covering substantially all of their employees. Over 90 percent of
the employees covered by the plans are employed by SoCalGas. Benefits are based
on an employee's years of service and compensation during his or her last years
of employment. The Company's policy is to fund the plans annually at a level
which is fully deductible for federal income tax purposes and as necessary on
an actuarial basis to provide assets sufficient to meet the benefits to be paid
to plan members.
Pension expense for continuing operations was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
(Dollars in Millions) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits
earned during
the period $ 36 $ 34 $ 34
Interest cost on projected
benefit obligation 87 84 82
Actual return on plan assets (1) (160) (72)
Net amortization
and deferral (102) 57 (14)
-------------------------
Net periodic pension cost 20 15 30
Special early retirement
program 12 18 12
Regulatory adjustment (3) 1 (9)
-------------------------
Total pension expense $ 29 $ 34 $ 33
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
A reconciliation of the plans' funded status to the pension liability
recognized in the Consolidated Balance Sheet is as follows:
<TABLE>
<CAPTION>
December 31
----------------------
(Dollars in Millions) 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
pension benefit obligations:
Accumulated benefit obligation,
including $824 and $862
in vested benefits at
December 31, 1994 and 1993,
respectively $ 920 $ 981
Effect of future salary increases 215 278
----------------------
Projected benefit obligation 1,135 1,259
Less: plan assets at fair value, primarily
publicly traded common stocks
and equity pooled funds (1,312) (1,348)
Unrecognized net gain 254 161
Unrecognized prior service cost (40) (42)
Unrecognized transition obligation (6) (13)
----------------------
Accrued pension liability
included in the Consolidated
Balance Sheet $ 31 $ 17
----------------------
The plans' major actuarial
assumptions include:
Weighted average discount rate 8% 7%
Rate of increase in future
compensation levels 5% 5%
Expected long-term rate
of return on plan assets 8% 8 1/2%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
POSTRETIREMENT BENEFIT PLAN
In 1992, the Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106). SFAS 106 requires the accrual of the cost of certain postretirement
benefits other than pensions over the active service period of the employee. The
Company previously recorded these costs when paid or funded. SFAS 106 allows
amortization of the cumulative adjustment over 20 years. However, at December
31, 1992, the Company implemented a quasi-reorganization and accrued the
postretirement liability at its entire fair
PAGE 45.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
value. The CPUC and the FERC in late 1992 authorized SFAS 106 amounts to be
recovered in rates for the regulated entities. Therefore, a regulatory asset has
been recorded to reflect the portion of the liability which will be recovered in
future rates. The cumulative impact of $5 million after-tax for the nonregulated
portion of the postretirement liability was charged to common stock as part of
the quasi-reorganization in 1992.
The Company's postretirement benefit plan currently provides medical and
life insurance benefits to qualified retirees. In the past, employee
cost-sharing provisions have been implemented to control the increasing costs of
these benefits. Other changes could occur in the future. The Company's policy is
to fund these benefits at a level which is fully tax deductible for federal
income tax purposes, not to exceed amounts recoverable in rates for regulated
companies, and as necessary on an actuarial basis to provide assets sufficient
to be paid to plan participants. The net postretirement benefit expense was as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
(Dollars in Millions) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
earned during
the period $ 14 $ 12 $ 12
Interest cost on projected
benefit obligation 28 28 26
Actual return on
plan assets (1) (10) (4)
Net amortization
and deferral (10) 3 11
------------------------
Net periodic
postretirement
benefit cost 31 33 45
Regulatory adjustment 13 13 (21)
------------------------
Net postretirement
benefit expense $ 44 $ 46 $ 24
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
A reconciliation of the plan's funded status to the postretirement
liability recognized in the Consolidated Balance Sheet is as follows:
<TABLE>
<CAPTION>
December 31
--------------------
(Dollars in Millions) 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 168 $ 162
Fully eligible active plan participants 189 187
Other active plan participants 19 32
--------------------
376 381
Less: plan assets at fair value, primarily
publicly traded common stocks
and equity pooled funds (147) (114)
Unrecognized net gain (loss) 16 (12)
--------------------
Net postretirement benefit liability
included in the Consolidated
Balance Sheet $ 245 $ 255
--------------------
--------------------
The plan's major actuarial
assumptions include:
Health care cost trend rate 8% 8%
Weighted average discount rate 8% 7%
Rate of increase in future
compensation levels 5% 5%
Expected long-term rate of
return on plan assets 8% 8 1/2%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate is 7 1/2 percent for 1995. The
trend rate is expected to decrease from 1995 to 1998 with a 6 percent ultimate
trend rate thereafter. The effect of a one-percentage-point increase in the
assumed health care cost trend rate for each future year is $7.7 million on the
aggregate of the service and interest cost components of net periodic
postretirement cost for 1994 and $58.3 million on the accumulated postretirement
benefit obligation at December 31, 1994. The estimated income tax rate used in
the return on plan assets is zero since the plan is tax exempt.
PAGE 46.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
POSTEMPLOYMENT BENEFITS
At December 31, 1992, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS
112). SFAS 112 requires the accrual of the obligation to provide benefits to
former or inactive employees after employment but before retirement. There was
no impact on earnings since these costs are currently recovered in rates as
paid, and as such, have been reflected as a regulatory asset. At December 31,
1994 and 1993 the liability was $50 million and $39 million, respectively, and
represents primarily workers compensation and disability benefits.
RETIREMENT SAVINGS PLAN
Upon completion of one year of service, all employees of the Company and certain
subsidiaries are eligible to participate in the Company's retirement savings
plan administered by bank trustees. Employees may contribute from 1 percent to
14 percent of their regular earnings. The Company generally contributes an
amount of cash or a number of shares of the Company's common stock of equivalent
fair market value which, when added to prior forfeitures, will equal 50 percent
of the first 6 percent of eligible base salary contributed by employees. The
employees' contributions, at the direction of the employees, are primarily
invested in the Company's common stock, mutual funds or guaranteed investment
contracts. The Company's contributions, which were invested in the Company's
common stock, were $9 million in 1992. In 1993 and 1994 the Company's
contributions were partially funded by the Pacific Enterprises Employee Stock
Ownership Plan and Trust. The Company's compensation expense was $9 million in
1994, 1993 and 1992.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company retained Thrifty's Profit Sharing Plan and Trust as Pacific
Enterprises Employee Stock Ownership Plan and Trust (TRUST) subsequent to the
sale of the retailing operations in 1992 (See Notes 2 and 8). The TRUST covers
substantially all employees and is used to fund the Company's retirement savings
plan program. All contributions to the TRUST are made by the Company, and there
are no contributions by the participants.
On January 1, 1994, the Company adopted the provisions of the American
Institute of Certified Public Accountants Statement of Position No. 93-6 (SOP
93-6), "Employers' Accounting for Employee Stock Ownership Plans." SOP 93-6 does
not treat unallocated shares held by the ESOP as outstanding for accounting
purposes. As a result, the weighted average shares of common stock outstanding
in 1994 has been reduced by 2.5 million shares, which favorably impacted
earnings per share by $.06 for the year ended December 31, 1994. The adoption of
SOP 93-6 had no impact on earnings. Since the unallocated shares held by the
ESOP are treated as unissued, SOP 93-6 requires that when unallocated shares are
released to employees' accounts they be accounted for at market value as newly
issued shares. As the Company makes contributions to the ESOP, the ESOP debt
service is paid and shares are released proportionately to the total expected
debt service.
Compensation expense is charged and equity is credited for the market value
of the shares released. However, tax deductions are allowed based on the cost of
the shares. Dividends on unallocated shares are used to pay debt service and are
charged against liabilities. The TRUST held 2.4 million and 2.6 million shares
of common stock with a fair value of $51.4 million and $61.2 million at December
31, 1994 and 1993, respectively.
PAGE 47.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by management. The
integrity and objectivity of these financial statements and the other financial
information in the Annual Report, including the estimates and judgments on which
they are based, are the responsibility of management. The financial statements
have been audited by Deloitte & Touche LLP, independent certified public
accountants, appointed by the Board of Directors. Their report is shown on page
49. Management has made available to Deloitte & Touche LLP all of the Company's
financial records and related data, as well as the minutes of shareholders' and
directors' meetings.
Management maintains a system of internal accounting control which it
believes is adequate to provide reasonable, but not absolute, assurance that
assets are properly safeguarded and accounted for, that transactions are
executed in accordance with management's authorization and are properly recorded
and reported, and for the prevention and detection of fraudulent financial
reporting. Management monitors the system of internal control for compliance
through its own review and a strong internal auditing program which also
independently assesses the effectiveness of the internal controls. In
establishing and maintaining internal controls, the Company exercises judgment
in determining that the costs of such controls do not exceed the benefits to be
derived.
Management acknowledges its responsibility to provide financial information
(both audited and unaudited) that is representative of the Company's operations,
reliable on a consistent basis, and relevant for a meaningful financial
assessment of the Company. Management believes that the control process enables
them to meet this responsibility.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of corporate conduct, which is
publicized throughout the Company. The Company maintains a systematic program to
assess compliance with this policy.
The Board of Directors has an Audit Committee composed solely of directors
who are not officers or employees. The Committee recommends for approval by the
full Board the appointment of the independent auditors. The Committee meets
regularly with management, with the Company's internal auditors, and with the
independent auditors. The independent auditors and the internal auditors
periodically meet alone with the Audit Committee and have free access to the
Audit Committee at any time.
/s/ WILLIS B. WOOD, JR.
Willis B. Wood, Jr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ LLOYD A. LEVITIN
Lloyd A. Levitin
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
January 31, 1995
PAGE 48.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
INDEPENDENT AUDITORS' REPORT
[DELOITTE & TOUCHE LLP LOGO]
Pacific Enterprises:
We have audited the consolidated financial statements of Pacific Enterprises and
subsidiaries (pages 29 to 47) as of December 31, 1994 and 1993, and for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Enterprises and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 31, 1995
PAGE 49.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
SELECTED FINANCIAL DATA AND COMPARATIVE
STATISTICS 1984-1994
<TABLE>
<CAPTION>
(Dollars in millions, except per-share amounts) 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED:
Operating revenues from continuing operations $ 2,664 $ 2,899 $ 2,900 $ 3,007
---------------------------------------------
---------------------------------------------
Income from continuing operations $ 172 $ 181 $ 136 $ 167
Income (loss) from discontinued operations (686) (255)
---------------------------------------------
Net income (loss) 172 181 (550) (88)
Dividends on preferred stock 12 15 16 16
---------------------------------------------
Net income (loss) applicable to common stock $ 160 $ 166 $ (566) $ (104)
---------------------------------------------
---------------------------------------------
Net income (loss) per share of common stock:
Continuing operations $ 1.95 $ 2.06 $ 1.60 $ 2.09
Discontinued operations (9.17) (3.54)
---------------------------------------------
$ 1.95 $ 2.06 $ (7.57) $ (1.45)
---------------------------------------------
---------------------------------------------
Cash dividends per share of common stock $ 1.26 $ .60 $ .44 $ 2.62
Book value per share $ 14.74 $ 12.19 $ 9.44 $ 19.74
Capital expenditures of continuing operations $ 249 $ 331 $ 329 $ 335
Total assets $ 5,445 $ 5,596 $ 5,414 $ 5,462
Capitalization:
Short-term debt $ 278 $ 267 $ 215 $ 123
Long-term debt due within one year 128 58 217 25
Long-term debt 1,420 1,262 1,774 1,776
Long-term debt of ESOP 130 132 141 149
Obligations under capital leases
Preferred stocks of a subsidiary:
Redeemable
Nonredeemable 195 195 195 195
Preferred stock 218 258 258 258
Common stock 1,092 1,048 859 1,458
Retained earnings 172 116 146
Less deferred compensation relating to ESOP (54) (138) (148) (163)
---------------------------------------------
Total capitalization $ 3,579 $ 3,198 $ 3,511 $ 3,967
---------------------------------------------
---------------------------------------------
Total capitalization, net of short-term
investments $ 3,314 $ 3,050 $ 3,089 $ 3,873
---------------------------------------------
---------------------------------------------
Number of employees 8,484 9,200 9,884 40,953
SOCALGAS:
GAS REVENUES:
Residential $ 1,713 $ 1,653 $ 1,484 $ 1,674
Commercial/industrial 798 853 836 977
Utility electric generation 118 147 195 149
Wholesale 98 117 129 145
Exchange 1 4 6 7
---------------------------------------------
Gas revenues in rates 2,728 2,774 2,650 2,952
Regulatory balancing accounts and other (141) 37 190 (22)
---------------------------------------------
Total operating revenue $ 2,587 $ 2,811 $ 2,840 $ 2,930
---------------------------------------------
---------------------------------------------
Gas volumes delivered (billion cubic feet):
Residential 256 248 244 249
Commercial/industrial 348 339 363 460
Utility electric generation 260 213 221 170
Wholesale 146 148 149 142
Exchange 10 17 24 26
---------------------------------------------
Total 1,020 965 1,001 1,047
---------------------------------------------
---------------------------------------------
Core 341 339 335 351
Noncore 679 626 666 696
---------------------------------------------
Total 1,020 965 1,001 1,047
---------------------------------------------
---------------------------------------------
Gas volumes sold 362 352 355 411
Gas volumes transported or exchanged 658 613 646 636
---------------------------------------------
Total 1,020 965 1,001 1,047
---------------------------------------------
---------------------------------------------
Number of customers:
Residential 4,483,324 4,459,250 4,445,500 4,429,896
Commercial 187,518 187,602 189,364 193,051
Industrial 23,505 23,924 24,419 25,642
Utility electric generation/wholesale 11 11 10 10
---------------------------------------------
Total number of customers 4,694,358 4,670,787 4,659,293 4,648,599
---------------------------------------------
---------------------------------------------
Gas purchased (billion cubic feet):
Market gas:
30-day 98 85 21 140
Other 149 159 198 168
---------------------------------------------
Total market gas purchased 247 244 219 308
Affiliates 101 97 99 99
Other long-term supplies 36 28 42 39
---------------------------------------------
Total gas purchased 384 369 360 446
---------------------------------------------
---------------------------------------------
Average cost of gas purchased excluding fixed
costs (per thousand cubic feet) $ 1.68 $ 2.21 $ 2.24 $ 2.40
Weighted average rate base $ 2,862 $ 2,769 $ 2,720 $ 2,663
Authorized rate of return on:
Rate base 9.22% 9.99% 10.49% 10.79%
Common equity 11.00% 11.90% 12.65% 13.00%
Degree days 1,438 1,203 1,258 1,409
</TABLE>
PAGE 50.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
Operating revenue from continuing operations $ 3,376 $ 3,344 $ 3,301 $ 3,385 $ 3,691 $ 4,955 $ 4,682
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Income from continuing operations $142 $ 142 $ 142 $ 148 $ 138 $ 105 $ 96
Income (loss) from discontinued operations (201) 64 75 101 (56) 82 69
---------------------------------------------------------------------------------
Net income (loss) (59) 206 217 249 82 187 165
Dividends on preferred stock 17 13 6 6 6 6 6
---------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ (76) $ 193 $ 211 $ 243 $ 76 $ 181 $ 159
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Net income (loss) per share of common stock:
Continuing operations $ 1.78 $ 1.98 $ 2.20 $ 2.40 $ 2.27 $ 1.78 $ 1.69
Discontinued operations (2.87) .99 1.23 1.70 (.96) 1.47 1.30
---------------------------------------------------------------------------------
$ (1.09) $ 2.97 $ 3.43 $ 4.10 $ 1.31 $ 3.25 $ 2.99
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Cash dividends per share of common stock $ 3.48 $ 3.48 $ 3.48 $ 3.48 $ 3.48 $ 3.36 $ 3.20
Book value per share $ 23.07 $ 27.10 $ 28.26 $ 27.05 $ 26.21 $ 27.70 $ 27.38
Capital expenditures of continuing operations $ 386 $ 340 $ 351 $ 328 $ 332 $ 372 $ 381
Total assets $ 5,702 $ 5,874 $ 5,496 $ 4,374 $ 4,584 $ 4,134 $ 4,228
Capitalization:
Short-term debt $ 491 $ 637 $ 572 $ 128 $ 469 $ 81 $ 229
Long-term debt due within one year 30 30 65 72 16 48 87
Long-term debt 1,161 1,045 1,220 1,067 1,194 1,151 1,205
Long-term debt of ESOP 163 173 31 38 44 37
Obligations under capital leases 25 26 27 27
Preferred stocks of a subsidiary:
Redeemable 60 60 60 60 60 60
Nonredeemable 145 70 20 20 20 20 21
Preferred Stock 258 258 110 110 110 110 110
Common Stock 1,385 1,331 1,066 875 855 759 697
Retained Earnings 419 738 770 771 734 838 801
Less deferred compensation relating to ESOP (173) (189) (31) (38) (44) (37)
---------------------------------------------------------------------------------
Total capitalization $ 3,879 $ 4,153 $ 3,908 $ 3,129 $ 3,485 $ 3,094 $ 3,210
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Total capitalization, net of short-term
investments $ 3,703 $ 3,866 $ 3,773 $ 3,086 $ 3,429 $ 3,081 $ 3,140
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Number of employees 42,370 43,891 40,538 27,928 26,571 26,550 25,965
SOCALGAS:
GAS REVENUES:
Residential $ 1,548 $ 1,484 $ 1,482 $ 1,496 $ 1,275 $ 1,596 $ 1,440
Commercial/industrial 1,057 1,016 1,008 1,059 1,068 1,392 1,356
Utility electric generation 235 483 554 662 610 1,380 1,258
Wholesale 165 192 252 302 362 534 524
Exchange 8 8 12 18 19 14 12
---------------------------------------------------------------------------------
Gas revenues in rates 3,013 3,183 3,308 3,537 3,334 4,916 4,590
Regulatory balancing accounts and other 200 92 (86) (225) 274 (120) 30
---------------------------------------------------------------------------------
Total operating revenues $ 3,213 $ 3,275 $ 3,222 $ 3,312 $ 3,608 $ 4,796 $ 4,620
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Gas volumes delivered (billion cubic feet):
Residential 262 255 253 259 234 267 237
Commercial/industrial 436 400 344 269 223 223 203
Utility electric generation 159 202 199 309 225 318 248
Wholesale 139 146 144 159 124 130 118
Exchange 30 30 39 55 55 44 28
---------------------------------------------------------------------------------
Total 1,026 1,033 979 1,051 861 982 834
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Core 372 364 n/a n/a n/a n/a n/a
Noncore 654 669 n/a n/a n/a n/a n/a
---------------------------------------------------------------------------------
Total 1,026 1,033 979 1,051 861 982 834
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Gas volumes sold 515 594 654 759 767 938 806
Gas volumes transported or exchanged 511 439 325 292 94 44 28
---------------------------------------------------------------------------------
Total 1,026 1,033 979 1,051 861 982 834
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Number of customers:
Residential 4,381,563 4,295,838 4,196,010 4,086,365 3,969,671 3,878,861 3,796,332
Commercial 193,409 192,269 190,908 189,611 186,773 189,068 187,010
Industrial 26,530 26,957 27,133 27,227 27,942 29,047 29,267
Utility electric generation/wholesale 10 9 9 8 8 8 8
---------------------------------------------------------------------------------
Total number of customers 4,601,512 4,515,073 4,414,060 4,303,211 4,184,394 4,096,984 4,012,617
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Gas purchased (billion cubic feet):
Market gas:
30-day 149 202 219 271 242 118
Other 226 161 87 48
---------------------------------------------------------------------------------
Total market gas purchased 375 363 306 319 242 118
Affiliates 103 104 118 113 113 116 60
Other long-term supplies 53 149 247 343 421 705 766
---------------------------------------------------------------------------------
Total gas purchased 531 616 671 775 776 939 826
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Average cost of gas purchased excluding
fixed costs (per thousand cubic feet) $ 2.59 $ 2.46 $ 2.39 $ 2.20 $ 2.52 $ 3.31 $ 3.70
Weighted average rate base $ 2,549 $ 2,386 $ 2,268 $ 2,167 $ 2,092 $ 1,968 $ 1,910
Authorized rate of return on:
Rate base 10.75% 10.96% 10.93% 11.51% 12.74% 13.04% 12.92%
Common equity 13.00% 13.00% 12.75% 13.90% 14.60% 15.75% 15.75%
Degree Days 1,432 1,344 1,354 1,498 1,058 1,663 1,245
</TABLE>
PAGE 51.
<PAGE>
PACIFIC ENTERPRISES 1994 ANNUAL REPORT
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
1994
-------------------------------------
(Dollars are in millions, except per-share amounts) Mar 31 Jun 30 Sep 30 Dec 31 Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 705 $ 651 $ 591 $ 717 $ 2,664
Net income $ 38 $ 42 $ 42 $ 50 $ 172
Net income per share of common stock $ .43 $ .47 $ .47 $ .58 $ 1.95
Dividends declared per share of common stock $ .30 $ .64 $ $ .32 $ 1.26
Dividends paid per share of common stock $ .30 $ .32 $ .32 $ .32 $ 1.26
Weighted average number of shares of common stock outstanding (in thousands) 81,717 81,937 81,978 82,096 81,939
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
-------------------------------------
1993
-------------------------------------
(Dollars are in millions, except per-share amounts) Mar 31 Jun 30 Sep 30 Dec 31 Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 773 $ 652 $ 649 $ 825 $ 2,899
Net income $ 38 $ 42 $ 54 $ 47 $ 181
Net income per share of common stock $ .45 $ .49 $ .59 $ .52 $ 2.06
Dividends declared per share of common stock $ $ .30 $ .30 $ $ .60
Dividends paid per share of common stock $ $ $ .30 $ .30 $ .60
Weighted average number of shares of common stock outstanding (in thousands) 75,367 78,673 83,702 84,014 80,472
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RANGE OF MARKET PRICES OF CAPITAL STOCK
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------------------------
Three Months Ended Mar 31 Jun 30 Sep 30 Dec 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $24 1/2 - 20 $23 1/4 - 19 3/4 $22 - 19 1/4 $21 5/8 - 20
Preferred Stock:
$7.64 $101 5/8 - 92 $97 - 88 1/4 $94 3/8 - 87 1/8 $86 7/8 - 79 1/8
$4.75 $66 3/4 - 59 1/4 $60 - 52 $57 7/8 - 53 3/8 $54 - 50
$4.50 $64 3/8 - 55 1/4 $56 - 51 1/4 $55 - 51 1/4 $52 3/8 - 48 1/4
$4.40 $61 1/2 - 56 1/8 $58 7/8 - 52 $54 - 50 1/8 $51 1/2 - 47 7/8
$4.36 $62 5/8 - 53 1/2 $55 - 51 1/8 $53 5/8 - 49 1/2 $50 1/8 - 46 1/4
Remarketed(1)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)SEE NOTE 11 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
1993
--------------------------------------------------------------------------------
Three Months Ended Mar 31 Jun 30 Sep 30 Dec 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $25 - 18 1/2 $25 - 21 3/8 $27 3/8 - 23 7/8 $27 3/8 - 23 5/8
Preferred Stock:
$7.64 $96 7/8 - 86 1/2 $100 1/2 - 93 1/2 $101 3/4- 97 1/2 $102 7/8 - 97
$4.75 $62 5/8 - 52 1/2 $65 3/8 - 60 1/2 $70 3/4 - 63 1/2 $69 1/4 - 65 1/4
$4.50 $62 - 50 1/2 $63 5/8 - 57 3/8 $68 - 60 1/4 $66 1/8 - 61 3/8
$4.40 $62 - 51 1/2 $60 1/2 - 57 7/8 $64 3/4 - 60 1/8 $65 7/8 - 61
$4.36 $61 - 47 3/8 $60 - 55 $63 1/8 - 59 3/4 $64 1/8 - 58 3/4
Remarketed(1)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)SEE NOTE 11 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
MARKET PRICES FOR THE COMMON STOCK ARE AS REPORTED ON THE COMPOSITE TAPE FOR
STOCKS LISTED ON THE NEW YORK STOCK EXCHANGE. MARKET PRICES FOR THE PREFERRED
STOCK WERE OBTAINED FROM THE AMERICAN STOCK EXCHANGE. THE NUMBER OF SHAREHOLDERS
OF COMMON STOCK AT DECEMBER 31, 1994 IS 43,139.
PAGE 52.
<PAGE>
EXHIBIT 21.01
LIST OF SUBSIDIARIES
OF PACIFIC ENTERPRISES
Burney Mountain Power
Central Plants, Inc.
Coalition Undertaking Remedial Efforts, Inc.
EcoTrans Aftermarket Corporation
EcoTrans OEM Corporation
FTM Sports Corporation
Landfill Control Technologies
Mammoth Geothermal Company
Mammoth Power Company
Mt. Lassen Power
Pacific Bio-Energy Company
Pacific Energy
Pacific Energy Resources Incorporated
Pacific Enterprises
Pacific Enterprises ABC Corporation
Pacific Enterprises Commercial Loans, Inc.
Pacific Enterprises International
Pacific Enterprises Leasing Company
Pacific Enterprises LNG Company
Pacific Enterprises Oil Company
Pacific Enterprises Oil Company (Canada)
Pacific Enterprises Oil Company (USA)
Pacific Enterprises Oil Company (Western)
Pacific Enterprises Minerals Company
Pacific Gas Gathering Company
Pacific Geothermal Company
Pacific Hydropower Company
Pacific Interstate Company
Pacific Interstate Mojave Company
Pacific Interstate Offshore Company
Pacific Interstate Transmission Company
Pacific Interstate Transmission Company (Arctic)
Pacific Library Tower
Pacific Lighting Corporation
Pacific Lighting Gas Development Company
Pacific Lighting Land Company
Pacific Lighting Real Estate Group
Pacific Offshore Pipeline Company
Pacific Oroville Power, Inc.
Pacific Penobscot Power Company
Pacific Recovery Corporation
Pacific Synthetic Fuel Company
Pacific Western Resources Company
Pacific Wood Fuels Company
Pacific Wood Power
Pay'n Save Drug Stores, Incorporated
<PAGE>
Penstock Power Company
Presley ASW Finance Co., Inc.
Presley Financial Corporation
Presley-Home Mac Finance Co., Inc.
Presley RAC Finance Co., Inc.
Southern California Gas Company
Southern California Gas Tower
Southern California Conservation Financing Company
8309 Tujunga Avenue Corp.
<PAGE>
Exhibit 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
2-96782, 33-26357, 2-66833, 2-96781, and 33-21908 of Pacific Enterprises on
Forms S-8 and Registration Statement Nos. 33-24830 and 33-44338 of Pacific
Enterprises on Forms S-3 of our reports dated January 31, 1994, appearing in and
incorporated by reference in this Annual Report on Form 10-K of Pacific
Enterprises for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 17, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY 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.
</LEGEND>
<CIK> 0000075527
<NAME> PACIFIC ENTERPRISES
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,280
<OTHER-PROPERTY-AND-INVEST> 51
<TOTAL-CURRENT-ASSETS> 1,323
<TOTAL-DEFERRED-CHARGES> 707
<OTHER-ASSETS> 84
<TOTAL-ASSETS> 5,445
<COMMON> 1,092
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 172
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,210
0
218
<LONG-TERM-DEBT-NET> 1,420
<SHORT-TERM-NOTES> 278
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 128
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,191
<TOT-CAPITALIZATION-AND-LIAB> 5,445
<GROSS-OPERATING-REVENUE> 2,702
<INCOME-TAX-EXPENSE> 139
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 977
<OPERATING-INCOME-LOSS> 0
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 128
<NET-INCOME> 172
12
<EARNINGS-AVAILABLE-FOR-COMM> 160
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 255
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 0
</TABLE>
