SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1995
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Exact
Name of
Commission Registrant IRS Employer
File as specified State of Identification
Number in its charter Incorporation Number
- ---------- -------------- -------------- --------------
1-3779 SAN DIEGO GAS &
ELECTRIC COMPANY California 95-1184800
1-11439 ENOVA CORPORATION California 33-0643023
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619)696-2000
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
San Diego Gas & Electric Company
Preference Stock (Cumulative)
Without Par Value (except $1.70 and $1.7625 Series) American
Cumulative Preferred Stock, $20 Par Value (except 4.60% Series) American
Enova Corporation
Common Stock, Without Par Value New York and Pacific
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
San Diego Gas & Electric Company None
Enova Corporation None
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. [ ]
Exhibit Index on page 34. Glossary on page 42.
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 31, 1996:
Enova Corporation Common Stock $2.8 Billion
San Diego Gas & Electric Company Preferred Stock $18 Million
Common Stock outstanding without par value as of January 31, 1996:
Enova Corporation: 116,563,375
San Diego Gas & Electric Company: Wholly owned by Enova Corporation
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV.
Portions of the March 1996 Proxy Statement prepared for the April 1996 annual
meeting of shareholders are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 26
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 27
Item 4. Submission of Matters to a Vote of Security Holders. 31
Executive Officers of the Registrant . . . . . . . . 31
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . 32
Item 6. Selected Financial Data . . . . . . . . . . . . . . 32
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 32
Item 8. Financial Statements and Supplementary Data . . . . 32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 32
PART III
Item 10. Directors and Executive Officers of the Registrant . 33
Item 11. Executive Compensation . . . . . . . . . . . . . . . 33
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 33
Item 13. Certain Relationships and Related Transactions . . . 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . 34
Independent Auditors' Consent . . . . . . . . . . . . . . . . 41
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 42
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
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PART I - Enova Corporation:
Part I - San Diego Gas & Electric Company beginning on page 3 of this Annual
Report on Form 10-K incorporated herein by reference.
PART I - San Diego Gas & Electric Company:
ITEM 1. BUSINESS
Description of Business
On December 6, 1995 San Diego Gas & Electric Company announced the formation
of Enova Corporation as the parent company for itself and its subsidiaries. On
January 1, 1996 Enova Corporation became the parent of SDG&E. SDG&E's
outstanding common stock was converted on a share-for-share basis into Enova
Corporation common stock. SDG&E's debt securities, preferred stock and
preference stock were unaffected and remain with SDG&E. On January 31, 1996
SDG&E's ownership interests in its subsidiaries were transferred to Enova
Corporation at book value, completing the organizational restructuring into
the new parent company framework. Thus, the consolidated financial statements
of SDG&E incorporated herein, which include SDG&E and its subsidiaries, also
reflect what is now Enova Corporation and its subsidiaries. Beginning on
January 1, 1996, SDG&E's financial statements for periods prior to 1996 will
be restated to reflect the net results of nonutility subsidiaries as
discontinued operations in accordance with Accounting Principles Board Opinion
No. 30 "Reporting the Effects of a Disposal of a Segment of Business."
SDG&E is an operating public utility engaged in the electric and gas
businesses. It generates and purchases electric energy and distributes it to
1.2 million customers in San Diego County and an adjacent portion of Orange
County, California. It also purchases and distributes natural gas to 700,000
customers in San Diego County and also transports gas for others in SDG&E's
service territory. Factors affecting SDG&E's utility operations include
regulation, deregulation, competition, nonutility generation, customers'
bypass of its electric and gas systems, population growth, changes in interest
and inflation rates, and environmental and other laws.
SDG&E has diversified into other businesses. Enova Financial, Inc. invests in
limited partnerships representing approximately 800 affordable-housing
projects located throughout the United States. Califia Company leases computer
equipment. The investments in Enova Financial and Califia are expected to
provide income tax benefits over the next several years. Enova Energy, Inc. is
an energy management consulting firm offering services to utilities and large
consumers. Pacific Diversified Capital Company is the parent company for non-
utility subsidiaries, Phase One Development, Inc., which is engaged in real
estate development, and Enova Technologies, Inc. Enova Technologies, whose
ownership was transferred directly to Enova Corporation after December 31,
1995, is in the business of developing new technologies generally related to
utilities and energy, including certain research transferred from the utility.
Enova Technologies has entered into a joint venture with Philips Home Services
to establish a new electronic consumer network using the Philips screen phone
as the network platform. Enova International was formed after December 31,
1995 to develop and operate natural-gas and power projects outside the United
States.
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As a result of the formation of Enova Corporation and the subsequent
restructuring, Enova and its subsidiaries have more flexibility to pursue non-
regulated business opportunities than in the past. As new non-regulated
businesses are undertaken, risks will increase. The intent is for rewards to
increase correspondingly.
Additional information regarding SDG&E's subsidiaries is described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 in the 1995 Annual Report to Shareholders and
in Notes 1 and 3 of the "Notes to Consolidated Financial Statements" beginning
on page 35 of the 1995 Annual Report to Shareholders.
GOVERNMENT REGULATION
Local Regulation
SDG&E has separate electric and gas franchises with the two counties and the
25 cities in its service territory. These franchises allow SDG&E to locate
facilities for the transmission and distribution of electricity and gas in the
streets and other public places. The franchises do not have fixed terms,
except for the electric and gas franchises with the cities of Chula Vista
(expiring in 1997), Encinitas (2012), San Diego (2021), and Coronado (2028);
and the gas franchises with the city of Escondido (2036) and the county of San
Diego (2030).
State Regulation
The California Public Utilities Commission consists of five members appointed
by the governor and confirmed by the senate for six-year terms. The commission
regulates SDG&E's rates and conditions of service, sales of securities, rate
of return, rates of depreciation, uniform systems of accounts, examination of
records, and long-term resource procurement. The CPUC also conducts various
reviews of utility performance and conducts investigations into various
matters, such as deregulation, competition and the environment, to determine
its future policies.
The California Energy Commission has discretion over electric-demand forecasts
for the state and for specific service territories. Based upon these
forecasts, the CEC determines the need for additional energy sources and for
conservation programs. The CEC sponsors alternative-energy research and
development projects, promotes energy conservation programs, and maintains a
state-wide plan of action in case of energy shortages. In addition, the CEC
certifies power-plant sites and related facilities within California.
Federal Regulation
The Federal Energy Regulatory Commission regulates transmission access, the
uniform systems of accounts, rates of depreciation and electric rates
involving sales for resale. The FERC also regulates the interstate sale and
transportation of natural gas.
The Nuclear Regulatory Commission oversees the licensing, construction and
operation of nuclear facilities. NRC regulations require extensive review of
the safety, radiological and environmental aspects of these facilities.
Periodically, the NRC requires that newly developed data and techniques be
used to reanalyze the design of a nuclear power plant and, as a result,
requires plant modifications as a condition of continued operation in some
cases.
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Licenses and Permits
SDG&E obtains a number of permits, authorizations and licenses in connection
with the construction and operation of its generating plants. Discharge
permits, San Diego Air Pollution Control District permits and NRC licenses are
the most significant examples. The licenses and permits may be revoked or
modified by the granting agency if facts develop or events occur that differ
significantly from the facts and projections assumed in granting the approval.
Furthermore, discharge permits and other approvals are granted for a term less
than the expected life of the facility. They require periodic renewal, which
results in continuing regulation by the granting agency.
Other regulatory matters are described throughout this report.
COMPETITION
This topic is discussed in "Electric Operations" and "Rate Regulation" herein,
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 of the 1995 Annual Report to Shareholders,
and in Note 11 of the "Notes to Consolidated Financial Statements" beginning
on page 35 of the 1995 Annual Report to Shareholders.
SOURCES OF REVENUE
(In Millions of Dollars) 1995 1994 1993
- -------------------------------------------------------------------
Utility revenue by type of customer:
Electric-
Residential $ 610 $ 612 $ 615
Commercial 589 600 572
Industrial 250 231 250
Other 55 67 77
------ ------ ------
Total Electric 1,504 1,510 1,514
------ ------ ------
Gas-
Residential 189 204 195
Commercial 60 65 63
Industrial 25 31 40
Other 36 46 49
------ ------ ------
Total Gas 310 346 347
------ ------ ------
Total Utility 1,814 1,856 1,861
------ ------ ------
Diversified Operations 57 56 36
------ ------ ------
Total $1,871 $1,912 $1,897
====== ====== ======
Industry segment information is contained in "Statements of Consolidated
Financial Information by Segments of Business" on page 34 of the 1995 Annual
Report to Shareholders.
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CONSTRUCTION EXPENDITURES
Construction expenditures, excluding nuclear fuel and the allowance for equity
funds used during construction, were $221 million in 1995 and are estimated to
be about $220 million in 1996.
ELECTRIC OPERATIONS
Introduction
In December 1995 the CPUC issued its policy decision on the restructuring of
California's electric utility industry to stimulate competition and reduce
rates. These matters are discussed in "Competition-California" herein,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 of the 1995 Annual Report to Shareholders,
and in Note 11 of the "Notes to Consolidated Financial Statements" beginning
on page 35 of the 1995 Annual Report to Shareholders.
Resource Planning
SDG&E's ability to provide energy at the lowest possible cost has been based
on a combination of production from its own plants and purchases from other
producers. The purchases have been a combination of short-term and long-term
contracts and spot purchases. Most resource acquisitions are obtained through
a competitive bidding process. In December 1994 the CPUC issued a decision
ordering SDG&E, Pacific Gas & Electric and Southern California Edison to go
forward with the Biennial Resource Plan Update proceeding, allowing qualified
nonutility power producers that cogenerate or use renewable energy
technologies to bid for a portion of SDG&E's future capacity needs. As a
result of the decision, SDG&E would be required to enter into contracts
(ranging in term from 17 to 30 years) to purchase 500 mw of power, including
341 mw from cogenerators, 94 mw from geothermal sources, and the remainder
from wind and other sources. The present value of ratepayer payments beginning
in 1997 over the life of these contracts was estimated to be $2.3 billion.
Prices under these contracts could significantly exceed the future market
price. In February 1995 the FERC issued an order declaring the BRPU auction
procedures unlawful under federal law. In July 1995 the CPUC issued a ruling
encouraging SDG&E, PG&E and Edison to reach settlements with the auction
winners. SDG&E has reached settlement with two auction winners. Settlement
discussions with the others are ongoing.
In 1995 SDG&E also negotiated contracts for 760 mw of short-term purchased
power.
The CPUC has also ordered utilities in the state to implement pilot
demonstration projects to allow others to bid to supply utilities' customers
with energy-conservation services, which could reduce the need for generation
capacity.
Additional information concerning resource planning is provided in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 of the 1995 Annual Report to Shareholders and
in Notes 10 and 11 of the "Notes to Consolidated Financial Statements"
beginning on page 35 of the 1995 Annual Report to Shareholders.
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Electric Resources
Based on generating plants in service and purchased-power contracts in place
as of January 31, 1996, the net megawatts of electric power expected to be
available to SDG&E during the next summer (normally the time of highest
demand) are as follows:
Source Net Megawatts
--------------------------------------------------
Gas/oil generating plants 1,641
Combustion turbines 332
Nuclear generating plants 430
Long-term contracts with other utilities 675
Short-term contracts with other utilities 350
Contracts with others 510
-----
Total 3,938
=====
SDG&E's 1995 system peak demand of 3,260 mw occurred on August 30, when the
net system capability, including power purchases, was 3,857 mw. The all-time
record is 3,335 mw which was reached on August 17, 1992.
Gas/Oil Generating Plants: SDG&E's South Bay and Encina power plants are
equipped to burn either natural gas or fuel oil. The four South Bay units went
into operation between 1960 and 1971 and can generate 690 mw. The five Encina
units began operation between 1954 and 1978 and can generate 951 mw. SDG&E
sold and leased back Encina Unit 5 (330 mw) in 1978. The lease term is through
2004, with renewal options for up to 15 additional years.
SDG&E has 19 combustion turbines that were placed in service from 1966 to
1979. They are located at various sites and are used only in times of peak
demand.
Nuclear Generating Plants: SDG&E owns 20 percent of the three nuclear units at
San Onofre Nuclear Generating Station. The cities of Riverside and Anaheim own
a total of 5 percent of SONGS 2 and 3. Southern California Edison Company owns
the remaining interests and operates the units.
SDG&E is currently recovering its existing capital investment in SONGS 1 over
a four-year period that began in November 1992, when the CPUC issued a
decision to permanently shut down the unit. SDG&E and Edison filed a
decommissioning plan in November 1994, although final decommissioning will not
occur until SONGS 2 and 3 are also decommissioned. The unit's spent nuclear
fuel has been removed from the reactor and stored on-site. In March 1993 the
NRC issued a Possession-Only License for SONGS 1, and the unit was placed in a
long-term storage condition in May 1994.
SONGS 2 and 3 began commercial operation in August 1983 and April 1984,
respectively. SDG&E's share of the capacity is 214 mw of SONGS 2 and 216 mw of
SONGS 3.
Between 1993 and 1995, SDG&E spent $69 million on capital modifications and
additions for all three units and expects to spend $16 million in 1996 on
SONGS. SDG&E deposits funds in an external trust to provide for
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the future dismantling and decontamination of the units. The shutdown of
SONGS 1 does not affect contributions to the trust.
In 1983 the CPUC adopted performance-based incentive plans for SONGS that set
a Target Capacity Factor range of 55 percent to 80 percent for Units 2 and 3.
Energy costs or savings outside that range were shared equally by SDG&E and
its customers. Since the TCF was adopted, these units have operated above 55
percent for each of their fuel cycles and have exceeded 80 percent a total of
seven times in the fourteen completed cycles. However, there can be no
assurance that they will continue to achieve a 55 percent capacity factor.
In January 1996 the CPUC approved the accelerated recovery of the existing
capital costs of Units 2 and 3. The decision allows SDG&E to recover more than
$750 million over an eight-year period beginning in 1996, rather than over the
anticipated operational life of the units, which is expected to extend to
2013. During the eight-year period, the authorized rate of return on the
equity portion of the investment will be 90 percent of SDG&E's embedded cost
of debt and the return on the debt-financed component will be at 7.52 percent
(SDG&E's 1995 authorized cost of debt). The decision includes a performance
incentive plan that encourages continued, efficient operation of the plant
during the eight-year period. During the eight-year period, customers will pay
about four cents per kilowatt-hour. This pricing structure replaces the
traditional method of recovering the units' operating expenses and capital
improvements. This is intended to make the units more competitive with other
sources.
Additional Information: Additional information concerning SDG&E's power
plants, the SONGS units, nuclear decommissioning and the CPUC's industry
restructuring proposal is presented under "Environmental Matters," "Electric
Properties" and "Legal Proceedings" herein, in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page
18 of the 1995 Annual Report to Shareholders, and in Notes 6, 10 and 11 of the
"Notes to Consolidated Financial Statements" beginning on page 35 of the 1995
Annual Report to Shareholders.
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Purchased Power: The following table lists contracts with the various suppliers:
Megawatt
Supplier Period Commitment Source
- ------------------------------------------------------------------------------
Long-Term Contracts with Other Utilities:
Bonneville Power May Through September 1996 300 Hydro Power
Administration
Comision Federal de Through August 1996 150 Geothermal
Electricidad (Mexico)
Portland General Through December 1998 50 Hydro storage
Electric Through December 2013 75 Coal
Public Service Company Through April 2001 100 System supply
of New Mexico -----
Total summer availability (see page 7) 675
=====
Short-Term Contracts with Other Utilities:
Portland General July Through September 1996 100 System Supply
Electric October 1996 40*
Public Service Company January through May 1996 130* System Supply
of New Mexico June through September 1996 110
October through December 1996 130*
Puget Sound Power & June through September 1996 40 System Supply
Light
Salt River Project Through December 1996 100 System Supply
-----
Total summer availability (see page 7) 350
=====
Contracts with Others:
Cities of Azusa, Banning Through December 1996 40 Coal
and Colton
Electric Clearinghouse Through December 1996 50 System Supply
Enron Power Marketing Through December 1996 120 System Supply
September 1996 150*
Goal Line Limited Through December 2024 50 Cogeneration
Partnership
Illinova Power Marketing Through December 1996 70 System Supply
Sithe Energies USA Through December 2019 102 Cogeneration
Yuma Cogeneration Through June 2024 50 Cogeneration
Other Various 28 Various
-----
Total summer availability (see page 7) 510
=====
* Not included in total summer availability.
The commitments with CFE and BPA are for energy and capacity. All short-term
contracts with other utilities and the commitments with Electric Clearinghouse
and Enron are for firm energy only. All other contracts are for capacity only.
Costs under contracts with qualifying facilities (identified above as sourced
from cogeneration) represent SDG&E's avoided cost. Contracts with power
marketers are at market value at the time the contracts were negotiated.
Charges under contracts with other utilities are based on
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the selling utility's costs, including a return on and depreciation of the
utility's rate base (or lease payments in cases where the utility does not own
the property), fuel expenses, operating and maintenance expenses, transmission
expenses, administrative and general expenses, and state and local taxes.
Energy costs under the CFE contract are indexed to changes in Mayan crude oil
prices and the dollar/peso exchange rate.
The locations of the utilities which have long-term supply contracts with
SDG&E and the primary transmission lines (and their capacities) used by SDG&E
are shown on the following map of the Western United States. Where applicable,
interconnection to the primary lines is provided by contract.
[ MAP ]
Long-Term Contracts with Other Utilities
Bonneville Power Administration: In 1993 SDG&E and BPA entered into a four-
year agreement for the exchange of capacity and energy. SDG&E provides BPA
with off-peak, non-firm energy in exchange for firm summer capacity and
associated energy. In addition, SDG&E makes energy available for BPA to
purchase during the period of January through April of each year. To
facilitate the exchange, SDG&E has agreements with Southern California Edison
and the Los Angeles Department of Water and Power for 200 MW of firm
transmission service from the Nevada-Oregon border to SONGS.
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Comision Federal de Electricidad: The 10-year agreement under which SDG&E
purchases firm energy and capacity of 150 MW from CFE will terminate on
September 1, 1996.
Portland General Electric: In 1985 SDG&E and PGE entered into an agreement for
the purchase of 75 MW of capacity from PGE's Boardman Coal Plant from January
1989 through December 2013. SDG&E pays a monthly capacity charge plus a charge
based upon the amount of energy received. In addition, SDG&E has 50 MW of
available hydro storage service with PGE through December 1998. SDG&E has also
purchased 75 MW of transmission service from PGE in the northern section of
the Pacific Intertie through December 2013.
Public Service Company of New Mexico: In 1985 SDG&E and PNM entered into an
agreement for the purchase of 100 MW of capacity from PNM's system from June
1988 through April 2001. SDG&E pays a capacity charge plus a charge based on
the amount of energy received.
Short-Term Contracts with Other Utilities
Portland General Electric: In November 1995 SDG&E and PGE entered into
agreements for the purchase of up to 100 MW of firm energy from July 1996
through September 1996 and 40 MW in October 1996. The energy charge is based
on the amount of energy received.
Public Service Company of New Mexico: In November 1995 SDG&E and PNM entered
into an agreement for the purchase of up to 130 MW of firm energy through
1996, of which 110 MW will be available during the summer peak. The energy
charge is based on the amount of energy received.
Puget Sound Power & Light: In November 1995 SDG&E and PSP&L entered into an
agreement for the purchase of up to 40 MW of firm energy from June through
September 1996. The energy charge is based on the amount of energy received.
Salt River Project: In October 1995 SDG&E and SRP entered into an agreement
for the purchase of up to 100 MW of firm energy through December 1996. The
energy charge is based on the amount of energy received.
Contracts with Others
Cities of Azusa, Banning and Colton: In 1993 SDG&E and the cities entered into
an agreement for the purchase of 40 MW of capacity. The agreement was extended
through December 1996. SDG&E pays a capacity charge plus a charge based on the
amount of energy received.
Electric Clearinghouse: In October 1995 SDG&E and EC entered into an agreement
for the purchase of up to 50 MW of firm energy through December 1996. The
energy charge is based on the amount of energy received.
Enron Power Marketing: In October 1995 SDG&E and Enron entered into an
agreement for the purchase of 120 MW of firm energy through December 1996 and
an option on an additional 150 MW in September 1996. The energy charge is
based on the amount of energy received.
Goal Line Limited Partnership: In December 1990 SDG&E and Goal Line entered
into a 30-year agreement for the purchase of 50 MW of firm
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capacity, beginning in February 1995. SDG&E pays a firm capacity charge plus a
charge based on the amount of energy received.
Illinova Power Marketing: In November 1995 SDG&E and Illinova entered into an
agreement for the purchase of up to 70 MW of capacity from January 1996
through December 1996. SDG&E pays a capacity charge for the months of June
through September plus a charge based on the amount of energy received.
Sithe Energies USA: In April 1985 SDG&E entered into three 30-year agreements
for the purchase of 102 MW of firm capacity from December 1989 through
December 2019. SDG&E pays a firm capacity charge plus a charge based on the
amount of energy received.
Yuma Cogeneration: In March 1990 SDG&E and Yuma Cogeneration entered into a
30-year agreement for the purchase of 50 MW of firm capacity which began in
June 1994. SDG&E pays a firm capacity charge plus a charge based on the amount
of energy received.
Other: SDG&E currently purchases capacity and energy from 115 as-available
Qualifying Facilities. SDG&E also has two 20-year agreements with Pacific
Energy and two 22-year agreements with Landfill Generating Partners for the
purchase of 5 MW of firm capacity through the years 2007-2011. SDG&E pays a
capacity charge plus a charge based on the amount of energy received. These
account for 28 MW of capacity annually.
Additional information concerning SDG&E's purchased-power contracts is
described in "Legal Proceedings" herein, in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page
18 of the 1995 Annual Report to Shareholders, and in Notes 10 and 11 of the
"Notes to Consolidated Financial Statements" beginning on page 35 of the 1995
Annual Report to Shareholders.
Power Pools
In 1964 SDG&E, PG&E, and Edison entered into the California Power Pool
Agreement. It provides for the transfer of electrical capacity and energy by
purchase, sale or exchange during emergencies and at other mutually determined
times.
SDG&E is a participant in the Western Systems Power Pool, which includes an
electric power and transmission rate agreement with utilities and power
agencies located throughout the United States and Canada. More than 100
investor-owned and municipal utilities, state and federal power agencies,
energy brokers, and power marketers share power and information in order to
increase efficiency and competition in the bulk power market. Participants are
able to target and coordinate delivery of cost-effective sources of power from
outside their service territories through a centralized exchange of
information.
Transmission Arrangements
In addition to interconnections with other California utilities, SDG&E has
firm transmission capabilities for purchased power from the Northwest, the
Southwest and Mexico.
Pacific Intertie: The Pacific Intertie, consisting of AC and DC transmission
lines, enables SDG&E to purchase and receive surplus coal and hydroelectric
power from the Northwest. SDG&E, PG&E, Edison and others share transmission
capacity on the Pacific Intertie under an agreement that expires in July 2007.
SDG&E's share of the intertie is
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266 MW through July 2007, and SDG&E has obtained 200 MW of additional transfer
capacity through 1996. (Repairs necessitated by damages caused by the January
17, 1994 Northridge earthquake and by a major fire at the DC terminal at
Sylmar in October 1994 have been completed.)
Southwest Powerlink: SDG&E's 500-kilovolt Southwest Powerlink transmission
line, which it shares with Arizona Public Service Company and Imperial
Irrigation District, extends from Palo Verde, Arizona to San Diego and enables
SDG&E to import power from the Southwest. SDG&E's share of the line is 914 MW,
although it can be less, depending on specific system conditions.
Mexico Interconnection: Mexico's Baja California Norte system is connected to
SDG&E's system via two 230-kilovolt interconnections with firm capability of
408 MW. SDG&E uses this interconnection for transactions with CFE.
Additional Transmission Capabilities: Various studies have been undertaken or
are ongoing to determine the extent to which various path ratings may be
increased. SDG&E expects to receive an allocation of approximately 64 MW East-
of-the-Colorado-River and 94 MW West-of-the-Colorado-River as a result of
these various studies.
Transmission Access
As a result of the enactment of the National Energy Policy Act of 1992, the
FERC has established rules to implement the Act's transmission access
provisions. These rules specify FERC-required procedures for others' requests
for transmission service. Additional information regarding transmission access
is described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" beginning on page 18 of the 1995 Annual Report to
Shareholders.
Fuel and Purchased-Power Costs
The following table shows the percentage of each electric fuel source used by
SDG&E and compares the costs of the fuels with each other and with the total
cost of purchased power:
Percent of Kwhr Cents per Kwhr
- -----------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
----- ----- ----- ---- ---- ----
Natural gas 21.7% 22.4% 24.4% 2.3 3.1 3.4
Nuclear fuel 16.5 21.8 17.2 0.5 0.5 0.6
Fuel oil 0.1 1.4 3.7 2.1 2.6 2.5
----- ----- -----
Total generation 38.3 45.6 45.3
Purchased power-net 61.7 54.4 54.7 3.3 3.7 3.5
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
The cost of purchased power includes capacity costs as well as the costs of
fuel. The cost of natural gas includes transportation costs. The costs of
natural gas, nuclear fuel and fuel oil do not include SDG&E's capacity costs.
While fuel costs are significantly less for nuclear units than for other
units, capacity costs are higher.
Electric Fuel Supply
Natural Gas: Information concerning natural gas is provided in "Natural Gas
Operations" herein.
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Nuclear Fuel: The nuclear-fuel cycle includes services performed by others.
These services and the dates through which they are under contract are as
follows:
Mining and milling of uranium concentrate(1) --
Conversion of uranium concentrate to uranium hexafluoride(1) --
Enrichment of uranium hexafluoride(2) 1998
Fabrication of fuel assemblies 2000
Storage and disposal of spent fuel(3) --
(1) Competitive bids are currently being sought for a multi-year contract to
supply uranium and conversion services beginning in mid-1996.
(2) The United States Enrichment Corporation, a government-owned corporation,
is committed to offer any required enrichment services through 2014.
(3) Spent fuel is being stored at SONGS, where storage capacity will be
adequate at least through 2003. If necessary, modifications in fuel-storage
technology can be implemented to provide on-site storage capacity for
operation through 2014, the expiration date of the NRC operating license. The
DOE's plan is to provide a permanent storage site for the spent nuclear fuel
by 2010.
Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a
contract with the DOE for spent-fuel disposal. Under the agreement, the DOE is
responsible for the ultimate disposal of spent fuel. SDG&E is paying a
disposal fee of $0.91 per megawatt-hour of net nuclear generation. Disposal
fees average $2.7 million per year.
To the extent not currently provided by contract, the availability and the
cost of the various components of the nuclear-fuel cycle for SDG&E's nuclear
facilities cannot be estimated at this time.
Additional information concerning nuclear-fuel costs is discussed in Note 10
of the "Notes to Consolidated Financial Statements" beginning on page 35 of
the 1995 Annual Report to Shareholders.
Fuel Oil: SDG&E has no long-term commitments to purchase fuel oil. The use of
fuel oil is dependent upon price differences between it and natural gas.
During 1995 SDG&E burned 36,000 barrels of fuel oil.
NATURAL-GAS OPERATIONS
SDG&E purchases natural gas for resale to its customers and for fuel in its
generating plants. All natural gas is delivered to SDG&E under a
transportation and storage agreement with Southern California Gas Company
through two transmission pipelines with a combined capacity of 430 million
cubic feet per day.
During 1995 SDG&E purchased approximately 89 billion cubic feet of natural
gas. The majority of SDG&E's natural-gas requirements are met through
contracts of less than one year. SDG&E purchases natural gas primarily from
various spot-market suppliers and from suppliers under short-term contracts.
These supplies originate in New Mexico, Oklahoma and Texas, and are
transported to the SoCal Gas Company pipeline at the California border by El
Paso Natural Gas Company and by Transwestern Pipeline Company. SDG&E also
purchases natural gas under long-term
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contracts with four Canadian suppliers. These contracts have varying terms
through 2004. Two of these suppliers have suspended sales to SDG&E while
contractual disputes are in litigation. Natural gas from Canada is transported
to SDG&E's system over Alberta Natural Gas, Pacific Gas Transmission, and PG&E
pipelines. The natural gas transportation contracts have varying terms through
2023.
Additional information concerning SDG&E's gas operations is provided under
"Legal Proceedings" herein, in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 18 of the
1995 Annual Report to Shareholders, and in Note 10 of the "Notes to
Consolidated Financial Statements" beginning on page 35 of the 1995 Annual
Report to Shareholders.
RATE REGULATION
Competition-California
In December 1995 the CPUC issued its policy decision on the restructuring of
California's electric utility industry to stimulate competition and reduce
rates. The decision provides that, beginning in January 1998, customers can
buy their electricity through a power exchange that will obtain power from the
lowest-bidding suppliers. The exchange is a spot market with published
pricing. An independent system operator (ISO) will schedule power transactions
and access to the transmission system. Consumers also may to continue to
purchase from their local utility under regulated tariffs. As a third option,
a cross section of all customer groups (residential, industrial, commercial
and agricultural) will be able to go directly to any energy supplier and enter
into private contracts with generators, brokers or others (direct access). As
the direct access mechanism has many technical issues to be resolved, a five-
year phase-in is planned. All California electricity customers of investor-
owned utilities will have the option to purchase generation services directly
by 2003. The utilities will continue to provide transmission and distribution
services to customers that choose to purchase their energy from other
providers.
Utilities will, within certain limits, be allowed recovery of generation-
related regulatory assets and the excess carrying amount of existing
generation-investment costs over fair-market value over a transition period
that ends in 2005. Obligations under long-term purchased-power contracts in
excess of fair-market value will be recoverable over the duration of the
contracts. The CPUC is currently working on building a consensus on the new
market structure with the California legislature, the governor, utilities and
customers. In addition, plans to implement the exchange and the ISO must be
presented by the utilities to both the CPUC and the FERC by May 1996 for
review and approval. This decision will change significantly some of the
existing ratemaking mechanisms that are described below.
Performance-based regulation will replace cost-of-service regulation for
distribution services. SDG&E is currently participating in a performance-based
ratemaking process on an experimental basis which commenced in 1993 and is
expected to run through 1998.
These matters are discussed in "Performance-Based Ratemaking" herein,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 of the 1995 Annual Report to Shareholders,
and in Note 11 of the "Notes to Consolidated Financial
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Statements" beginning on page 35 of the 1995 Annual Report to Shareholders.
Competition-Federal
In March 1995 the FERC issued a proposed rule that, if adopted, would require
all public utilities to offer wholesale "open-access" transmission service on
a nondiscriminatory basis. In addition, public utilities would be required to
functionally price their generation and transmission services separately from
each other. The FERC also stated its belief that utilities should be allowed
to recover the costs of assets and obligations made uneconomic by the changed
regulatory environment. In October 1995 SDG&E filed for approval of its open-
access tariffs for its service territory with the FERC in conjunction with its
request for a marketing license for Enova Energy, a wholly-owned subsidiary
which desires to transact business at market-based rates in the wholesale
energy market. In December 1995 the FERC issued a draft order approving
SDG&E's open-access tariff, but rejecting Enova Energy's filing. This limits
Enova Energy to cost-based rates. All non-rate terms and conditions were
accepted subject to the outcome of the FERC's restructuring rulemaking. Final
approval of the FERC's rule and the CPUC's industry restructuring plan would
result in the creation of a bid-based wholesale electricity spot market with
open-access transmission. The FERC is expected to issue a final rule during
the first half of 1996.
Base Rates
SDG&E files annually under its base-rates performance-based ratemaking
mechanism formula to offset the effects of inflation. Base rates allow SDG&E
to recover the cost of operating and maintaining the utility system, taxes,
depreciation, and other non-fuel business costs. In addition, SDG&E files an
annual application to establish its cost of capital (see "Cost of Capital"
below), which reflects the cost of debt and equity. Additional information
concerning PBR is described under "Performance-Based Ratemaking" herein.
Cost of Capital
In November 1995 the CPUC issued its decision on the 1996 Cost of Capital
proceeding, adopting an 11.6 percent return on equity for 1996 for SDG&E,
PG&E, Edison, SoCal Gas, and Sierra Pacific Power, resulting in an overall
rate of return for SDG&E of 9.37 percent. SDG&E's 1995 authorized return on
equity and rate of return were 12.05 percent and 9.76 percent, respectively.
In October 1995 SDG&E filed a proposal with the CPUC to implement a mechanism,
in lieu of the existing, litigated proceeding, to establish its cost of
capital beginning in January 1997. Under the mechanism, each October SDG&E's
authorized rate of return would be adjusted if single-A bond rates change by
one percent or more from a previously established benchmark rate. For example,
a one-percent change in single-A bond rates would result in a one-half percent
change in SDG&E's return on equity. In addition, SDG&E's embedded costs of
debt and preferred stock would be adjusted to reflect SDG&E's outstanding
long-term debt and preferred stock at each September 30 if the return on
equity adjustment described above is triggered. The adjustments would be
effective on January 1 of the following year. The proposal suggests a three-
year trial period during which SDG&E's authorized capital structure would not
change.
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Balancing Accounts
The CPUC requires balancing accounts for fuel and purchased energy costs and
for sales volumes. The CPUC sets balancing account rates based on estimated
costs and sales volumes. Revenues are adjusted upward or downward to reflect
the differences between authorized and actual volumes and costs. These
differences are accumulated in the balancing accounts and represent amounts to
be either recovered from customers or returned to them. These balancing
accounts were overcollected by $171 million at December 31, 1995 and by $112
million at December 31, 1994. The CPUC adjusts SDG&E's rates annually to
amortize the accumulated balances. As a result, changes in SDG&E's fuel and
purchased-power costs or changes in electric and natural-gas sales volumes
normally have not affected SDG&E's net income. As described under
"Performance-Based Ratemaking," SDG&E can realize rewards or penalties
depending on the achievement of certain benchmarks for operations and
expenses.
It is uncertain whether the CPUC will continue to allow these or some other
form of balancing accounts once its electric industry restructuring decision
takes effect in 1998.
Electric Fuel Costs and Sales Volumes
Rates to recover electric-fuel and purchased-power costs are determined in the
Energy Cost Adjustment Clause proceeding. This proceeding normally takes place
annually, in two phases. In the forecast phase, prices are set based on the
estimated cost of fuel and purchased power for the following year and are
adjusted to reflect any changes from the previous period. These adjustments
are made by amortizing any accumulation in the balancing accounts described
above. In the second phase, the reasonableness review, the CPUC evaluates the
prudence of SDG&E's nuclear and natural-gas-storage operations. As described
under "Performance-Based Ratemaking," reviews of fuel and purchased-power
transactions, electric operations and natural-gas transactions now are
required only if SDG&E's fuel and energy expenses vary significantly from the
established benchmarks. The Electric Revenue Adjustment Mechanism compensates
for variations in sales volume compared to the estimates used for setting the
non-fuel component of rates. ERAM is designed to stabilize revenues, which
otherwise may vary due to changes in sales volumes resulting from weather
fluctuations and other factors. Any accumulation in the ERAM balancing account
is amortized when new rates are set in the ECAC proceeding.
Natural-Gas Costs and Sales Volumes
Rates to recover the cost of purchasing and transporting natural gas to SDG&E
are determined in the Biennial Cost Allocation Proceeding. The BCAP proceeding
normally occurs every two years and is updated in the interim year for
purposes of amortizing any accumulation in the balancing accounts. Balancing
accounts for natural-gas costs and sales volumes are similar to those for
electric fuel costs and sales volumes. The natural-gas balancing accounts
include the Purchased Gas Account for natural-gas costs and the Gas Fixed Cost
Account for sales volumes. Balancing account coverage includes both core
customers (primarily residential and commercial customers) and noncore
customers (primarily large industrial customers). However, SDG&E does not
receive balancing account coverage on 25 percent of noncore GFCA
overcollections and undercollections.
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Performance-Based Ratemaking
SDG&E implemented performance-based ratemaking in 1993 for natural-gas
procurement and transportation, and for electric generation and purchased
energy; and in 1994 for base rates.
The CPUC has authorized the first two mechanisms to remain in effect beyond
their authorized July 31, 1995 expiration until the Division of Ratepayer
Advocates and the Commission Advisory and Compliance Division file their final
reports for the year ended July 31, 1995 (expected during the first quarter of
1996). Thereafter, SDG&E will be applying for an extension and modification in
conjunction with the restructuring of California's electric utility industry,
and the existing mechanisms are expected to remain in place until the CPUC
acts on the application. These mechanisms measure SDG&E's ability to purchase
and transport natural gas, and to generate or purchase energy at the lowest
possible cost, by comparing SDG&E's performance against various market
benchmarks. SDG&E's shareholders and customers share in any savings or excess
costs within predetermined ranges.
Natural Gas: Under the natural-gas procurement and transportation mechanism,
if SDG&E's actual commodity cost exceeds the benchmark by more than two
percent or falls below the benchmark, the excess costs or savings is shared
equally between customers and shareholders. If the delivered cost of gas
(including interstate transmission charges) falls below the index, 95 percent
of the savings goes to customers and five percent of the savings goes to
SDG&E's shareholders.
Electric Generation & Dispatch: The benchmark to measure SDG&E's electric
generation and purchased energy performance ("generation and dispatch") is
based upon the difference between SDG&E's actual and authorized electric-fuel
and short-term purchased-energy expenses. SDG&E shareholders will receive 30
percent to 50 percent of over- or under-expenditures in specified bands within
six percent of the benchmark. SDG&E is allowed to recover expenses exceeding
the six percent range, subject to a reasonableness review by the CPUC. SDG&E's
customers will receive 100 percent of the additional savings should expenses
fall below the benchmark by more than six percent.
In October 1995 SDG&E filed reports with the CPUC on the results of the
generation and dispatch and the gas procurement mechanisms for the year ended
July 31, 1995. SDG&E's fuel and purchased power expenses fell below the
benchmarks for these mechanisms by a total of $27.9 million ($2.8 million for
G&D and $25.1 million for gas). As a result, SDG&E's ECAC application (see
above) and its current Biennial Cost Allocation Proceeding application request
a total shareholder award of $3.4 million ($0.8 million for G&D and $2.6
million for gas) and that the remainder of these savings be given to customers
through lower rates.
Base Rates: The base-rate component of SDG&E's Performance-Based Ratemaking
mechanism is expected to continue through 1998, replacing the traditional
general rate case application. The base-rate mechanism has three segments. The
first is a formula similar to the traditional attrition mechanism used to
determine SDG&E's annual revenue requirement for operating, maintenance and
capital costs. SDG&E's initial revenue requirements were based on SDG&E's 1993
General Rate Case decision. The second is a set of indicators which determine
performance standards for customer rates, employee safety, electric system
reliability and
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customer satisfaction. Each indicator specifies a range of possible
shareholder benefits and risks. SDG&E can be penalized up to a total of $21
million should it fall significantly below these standards or earn up to $19
million if it exceeds all of the performance targets. The third segment sets
limits on SDG&E's rate of return. If SDG&E realizes an actual rate of return
that exceeds its authorized rate of return by one percent to one-and-one-half
percent, it is required to return 25 percent of the excess over one percent to
customers. If SDG&E's rate of return exceeds the authorized level by more than
one-and-one-half percent, SDG&E also will return 50 percent of the excess over
one-and-one-half percent to customers. SDG&E will be at risk if its rate of
return falls below the authorized level. However, if SDG&E's rate of return is
three percent or more below or above the authorized level, a rate case review
would automatically occur. SDG&E may request a rate case review if at any time
its rate of return drops one-and-one-half percent or more below the authorized
level.
SDG&E must file a report with the CPUC on the results of the 1995 PBR base-
rates mechanism by May 15, 1996. SDG&E expects to determine the final 1995 PBR
base-rate award or penalty in September 1996 when the Edison Electric
Institute publishes its final report on 1995 national electric rates.
SONGS: In 1983 the CPUC adopted performance incentive plans for SONGS that set
a Target Capacity Factor range of 55 percent to 80 percent for Units 2 and 3.
Energy costs or savings outside that range were shared equally by shareholders
and customers. In January 1996 the CPUC approved the accelerated recovery of
the units' existing capital costs. The decision includes a performance
incentive plan. Additional information concerning the SONGS units, including
its new incentive plan, is presented under "Nuclear Generating Plants" herein.
Energy Conservation Program
Over the past several years, SDG&E has promoted conservation programs to
encourage efficient use of energy. The programs are designed to conserve
energy through the use of energy-efficiency measures that will reduce
customers' energy costs and reduce the need to build additional power plants.
The costs of these programs are recovered from customers. The programs contain
an incentive mechanism that could increase or decrease SDG&E's earnings,
depending upon the performance of the programs in meeting specified efficiency
and expenditure targets. The CPUC has encouraged expansion of these programs,
authorizing annual expenditures ranging from $54 million in 1993 to $60
million in 1996. However, the CPUC has also ordered utilities to conduct a
test program to determine if unaffiliated suppliers could offer energy
conservation services at a lower cost.
Low-Emission Vehicle Programs
SDG&E has conducted a CPUC-approved natural-gas-vehicle program since 1991.
The program includes building refueling stations, demonstrating new
technology, providing incentives and converting portions of SDG&E's fleet
vehicles to natural gas. The cost of this program is being recovered in
natural-gas rates. In November 1995 the CPUC issued its decision authorizing
funding for limited electric-vehicle and natural-gas-vehicle programs through
the year 2000 to allow recovery of costs for operation and maintenance of
SDG&E's EV and NGV fleets and NGV fueling stations, and to allow recovery of
transition costs to meet
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existing commitments to customers. The decision requires the sale of SDG&E's
NGV fueling stations located on customer property within six years. The CPUC
approved a six-year program that provides a total of $5.3 million for SDG&E's
electric-vehicle program and $6.7 million for its natural-gas-vehicle program
over the six-year period.
Electric Rates
The average price per kilowatt-hour charged to electric customers was 9.8
cents in 1995 and 9.7 cents in 1994.
Natural-Gas Rates
The average price per therm of natural gas charged to customers was 55.7 cents
in 1995 and 59.9 cents in 1994.
Additional information concerning rate regulation is provided in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 18 of the 1995 Annual Report to Shareholders.
ENVIRONMENTAL MATTERS
SDG&E's operations are guided by federal, state and local environmental laws
and regulations governing air quality, water quality, hazardous substance
handling and disposal, land use, and solid waste. Compliance programs to meet
these laws and regulations increase the cost of electric and natural-gas
service by requiring changes and/or delays in the location, design,
construction and operation of new facilities. SDG&E may also incur significant
costs to operate its facilities in compliance with these laws and regulations
and to clean up the environment as a result of prior operations of SDG&E or
others. The costs of compliance with environmental laws and regulations are
normally recovered in customer rates. However, the CPUC has issued a decision
for restructuring the California electric utility industry to stimulate
competition (see "Rate Regulation" herein). This decision will change the way
utility rates are set and costs are recovered. Depending on the final outcome
of industry restructuring and the impact of competition, the costs of
compliance with environmental regulations may not be fully recoverable.
Electric and Magnetic Fields
Scientists are researching the possibility that exposure to low-frequency
magnetic fields causes adverse health effects. This research, although often
referred to as relating to electric and magnetic fields, or EMFs, focuses on
magnetic fields. To date, some laboratory studies suggest that such exposure
creates biological effects, but those effects have not been shown to be
harmful.
The studies that have most concerned the public are certain epidemiological
studies. Some of those studies reported a weak correlation between childhood
leukemia and the proximity of homes to certain power lines and equipment.
Other studies reported weak correlations between computer estimates of
historic exposure and disease. Various wire-configuration categories and
computer calculations were used as substitutes for historical exposure
measurements, which were not available. However, some of the studies also
measured actual field levels. When actual field levels were measured, no
correlation was found with disease.
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Other epidemiological studies found no correlation between estimated exposure
and any disease. No studies correlate measured fields with disease. Scientists
cannot explain why some studies using estimates of past exposure report
correlations between estimated fields and disease, while others do not.
To respond to public concern and scientific uncertainty, the CPUC created the
California Consensus Group in 1991 and assigned this group the responsibility
of reaching agreement on interim measures which could be implemented until
science provides direction. In November 1993 the CPUC adopted an interim EMF
policy, which implemented the Consensus Group's recommendations. Consistent
with the more-than-twenty major scientific reviews of available research
literature, the CPUC concluded that no health risk has been identified with
exposure to low-frequency magnetic fields. The November 1993 decision created
two utility-funded programs (a public education program and a research
program) and directed utilities to adopt a low-cost EMF-reduction policy for
new projects. This policy entails design changes to new projects to achieve a
noticeable reduction of magnetic-field levels. The CPUC indicated that
utilities should use four percent of the cost of new or upgraded facilities as
a benchmark in developing low-cost measures which produce a noticeable
reduction in field levels. In May 1994 SDG&E adopted design guidelines which
implement the low-cost measures, subject to safety, reliability, efficiency
and other operational criteria.
Litigation concerning EMFs is discussed under "Legal Proceedings" herein.
Hazardous Substances
In May 1994 the CPUC issued its decision on the Hazardous Waste Collaborative,
approving a mechanism for utilities to recover their hazardous waste costs,
including those related to Superfund sites or similar sites requiring cleanup.
Basically, the decision allows utilities to recover 90 percent of their
cleanup costs and related third-party litigation costs, and 70 percent of the
related insurance-litigation expenses.
SDG&E disposes of its hazardous wastes at facilities owned and operated by
other entities. Operations at these facilities may result in actual or
threatened risks to the environment or public health. Where the owner or
operator of such a facility fails to complete any corrective action required
by regulatory agencies to abate such risks, applicable environmental laws may
impose an obligation on SDG&E and others who disposed of hazardous wastes at
the facility to undertake corrective actions.
Rosens: The above-mentioned type of obligation has been imposed upon SDG&E
with respect to the Rosen's Electrical Equipment Supply Company located in
Pico Rivera, California. In December 1993, SDG&E and eight other entities were
named as potentially responsible parties with respect to the Rosen's site. In
December 1995 SDG&E and the other entities received an Imminent and
Substantial Endangerment Determination and Remedial Action Order from the
California Department of Toxic Substances Control requiring site assessment
and remediation. Additional information concerning this site is described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 of the 1995 Annual Report to Shareholders.
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Underground Storage: California has enacted legislation to protect ground
water from contamination by hazardous substances. Underground storage
containers require permits, inspections and periodic reports, as well as
specific requirements for new tanks, closure of old tanks and monitoring
systems for all tanks. It is expected that cleanup of sites previously
contaminated by underground tanks will occur for an unknown number of years.
SDG&E cannot predict the cost of such cleanup. Specific known underground
locations requiring assessment and/or remediation are indicated below:
In May 1987 the San Diego Regional Water Quality Control Board issued SDG&E a
cleanup and abatement order for gasoline contamination originating from an
underground storage tank located at SDG&E's Mountain Empire Operation and
Maintenance facility. SDG&E assessed the extent of the contamination and
removed all contaminated soil and completed remediation of the site. SDG&E
will continue to monitor the site to confirm its remediation. After such
confirmation, SDG&E will apply for a site-closure letter from the Regional
Board.
In January 1993 SDG&E was issued a Notice of Unauthorized Release order by the
San Diego County Division of Environmental Health Services relative to soil
contamination from used motor oil associated with an underground tank located
at SDG&E's South Bay Operation and Maintenance facility. SDG&E removed the
tank and the associated contaminated soil. No actionable levels of
contamination remain on the site. SDG&E has applied for and is awaiting the
issuance of a site-closure letter from the San Diego County Division of
Environmental Health Services.
In 1993 SDG&E discovered a shallow underground tank-like structure while
installing underground electric facilities under a public street immediately
west of a former manufactured-gas plant. The past ownership, operation and use
of the structure is unknown. Hydrocarbon contamination has been found in the
vicinity of the structure, but it has not been established whether the
structure was the source of the contamination. The San Diego County Division
of Environmental Health Services has issued a Notice of Unauthorized Release
order to SDG&E. The order requires SDG&E to conduct a site assessment to
delineate the nature and scope of the contamination. SDG&E's duty to meet
these requirements has been postponed pending the resolution of property
ownership. SDG&E is unable to determine the extent of its responsibility, if
any, or to estimate the nature and extent of the contamination or the
potential remediation costs if SDG&E is found at all responsible.
Station B: Station B is located in downtown San Diego and was operated as a
steam and generating facility between 1911 and June 1993. During 1986, three
100,000-gallon underground diesel-fuel storage tanks were removed from an
adjacent substation. Pursuant to a cleanup and abatement order, SDG&E
remediated the existing hydrocarbon contamination. In the course of the
remediation effort, detectable levels of PCBs were discovered. Further
information regarding the PCB contamination in the area was submitted by
SDG&E, evidencing that no further action is required. SDG&E has applied for
and is awaiting the issuance of a site-closure letter from the San Diego
County Division of Environmental Health Services.
Asbestos was used in the construction of the Station B power plant.
Renovation, reconditioning or demolition of the facility will require the
removal of the asbestos in a manner complying with all applicable
environmental, health and safety laws. Additionally, reuse of the
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facility may require the removal or cleanup of PCBs, paints containing heavy
metals, fuel oil or other substances. SDG&E has assessed the extent of any
possible contamination by these or other hazardous materials at the facility.
The estimated cost of this removal effort is estimated to be between $4
million and $5 million.
Encina Power Plant: During 1993 SDG&E discovered the presence of hydrocarbon
contamination in subsurface soil at its Encina power plant. This contamination
was located near the fuel-storage facilities and believed to be fuel oil
originating from a 1950s refueling spill. SDG&E believes that it has
remediated the contamination to the extent required by the San Diego County
Division of Environmental Health Services and has applied for and is awaiting
the issuance of a site-closure letter.
Manufactured-Gas Plant Sites: During the early 1900s SDG&E and its
predecessors manufactured gas from oil at its Station A facility and at small
facilities in Escondido and Oceanside.
In 1995 SDG&E commenced an environmental assessment of Station A. Some
significant amounts of residual by-products from the gas-manufacturing process
have been discovered on portions of the facility during the assessment.
However, the magnitude of such contamination has yet to be determined. The
assessment will be completed in 1996 at which time the extent of any required
remediation activities can be determined. Sufficient information is not
currently available to estimate clean-up costs. SDG&E will be able to estimate
a range of costs after completion of the site assessment.
Residual by-products from the gas-manufacturing process at the Escondido
facility were remediated at a cost of approximately $3 million during the
period of 1990 through 1993. A site-closure letter for SDG&E's Escondido's
facility was obtained from the San Diego County Department of Environmental
Health Services. However, contaminants similar to the ones found on the
Escondido site have been observed on adjacent parcels of property. SDG&E will
assess these contaminants in 1996.
SDG&E will also undertake an environmental assessment of its Oceanside
facility in 1996. Some materials similar to residual by-products from the
operation of town gas sites have been observed on an adjacent parcel of
property. SDG&E's assessment of the Oceanside facility will include an
evaluation of such materials.
Air Quality
The San Diego Air Pollution Control District (APCD) regulates air quality in
San Diego County in conformance with the California and federal Clean Air
Acts. California's standards are more restrictive than federal standards.
Although SDG&E facilities comply with very strict emission limits and
contribute only about three percent of the air emissions in San Diego County,
the APCD is required by the California Clean Air Act to further reduce
emissions from all San Diego industry. In January 1994 the APCD adopted Rule
69 to further reduce nitrogen dioxide (NOx) emissions from SDG&E's power
plants. As adopted, the rule required the retrofit of each of the nine boilers
at Encina and South Bay power plant generating units with catalytic converters
to remove approximately 87 percent of current NOx emissions. In addition, the
NOx emissions from all units were required to remain below a system-wide cap.
The estimated capital cost to comply with Rule 69 was $110 million, with
annual operating costs
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expected to increase about $6 million after all units were retrofitted. In
December 1995 the APCD adopted amendments to Rule 69 which eliminated the
requirement that each unit be retrofitted with catalytic converters, but which
retained the system-wide cap with further system-wide emission reductions to
be achieved by 2005. The rule change provides SDG&E with greater flexibility
to utilize effective and cost-efficient methods to achieve the required NOx
emission reduction milestones. The estimated capital costs for compliance with
the amended rule is approximately $60 million. The California Air Resources
Board (ARB) expressed concern that the amendments to Rule 69 did not meet the
requirements of the California Clean Air Act. However, the ARB withheld any
formal objections pending its review of SDG&E's Rule 69 compliance plan to be
submitted in 1996. The ARB may seek to overturn some or all of the Rule 69
amendments or otherwise impose more restrictive emissions limitations which
would cause SDG&E's Rule 69 compliance costs to increase.
In 1990 the South Coast Air Quality Management District passed a rule which
will require SDG&E's older natural-gas-compressor engines at its Moreno
facility to either meet new, stringent nitrogen oxide emission levels or be
converted to electric drive. In October 1993 the Air Quality District adopted
a new program called RECLAIM, which replaced existing rules and requires
SDG&E's natural-gas-compressor engines at its Moreno facility to reduce their
nitrogen oxide emission levels by about 10 percent a year through 2003. This
will be accomplished through the installation of new emission-monitoring
equipment, operational changes to take advantage of low-emitting engines, and
engine retrofits. SDG&E has concluded negotiations with the Air Quality
District, reclassifying three of these engines and thus eliminating the need
for certain expensive monitoring equipment for those engines. The cost of
complying with RECLAIM may be as much as $3 million.
Water Quality
Discharge permits are required to enable SDG&E to discharge its cooling water
and its treated in-plant waste water, and are, therefore, a prerequisite to
the continued operation of SDG&E's power plants. The promulgation or
modification of water-quality-control plans by state and federal agencies may
impose increasingly stringent cooling-water and treated-waste-water-discharge
requirements on SDG&E in the future.
SDG&E is unable to predict the terms and conditions of any renewed permits or
their effects on plant or unit availability, the cost of constructing new
cooling-water-treatment facilities, or the cost of modifying the existing
treatment facilities. However, any modifications required by such permits
could involve substantial expenditures, and certain plants or units may be
unavailable for electric generation during such modification. Additional
information concerning discharge permits for the South Bay, Encina and SONGS
plants is provided in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 18 of the 1995 Annual
Report to Shareholders.
Wood Pole Preservatives
The Pacific Justice Center (Pacific), a for-profit law firm, and the Mateel
Environmental Justice Foundation (Mateel), a nonprofit corporation, claim that
SDG&E, other utilities and other parties have violated California's Safe
Drinking Water and Toxic Enforcement Act (Proposition 65) by failing to warn
persons who may come into contact with the preservatives used in treated wood
utility poles and by allowing these preservatives to be released into sources
of drinking
24
<PAGE>
water. Some preservatives used in wood poles are included on California's list
of chemicals known to cause cancer or reproductive harm. Proposition 65
requires that prior warning be given to individuals who may be exposed to such
chemicals unless the exposure will not pose a significant risk and that these
substances not be released into sources of drinking water in significant
quantities or otherwise in violation of the law. Violations of the Proposition
65 warning requirement can result in penalties of up to $2,500 per violation.
SDG&E believes, on the basis of studies and other information, that exposure
to wood poles containing these preservatives does not give rise to a
significant risk and, therefore, no warning is required, and that significant
quantities of these preservatives are not released into any source of drinking
water. SDG&E and others have responded to the claims by denying their
validity. On June 20, 1995 Mateel, represented by Pacific, filed a complaint
in San Francisco County Superior Court against Pacific Bell, PG&E and two
wood-pole manufacturers alleging the violations noted above. Although SDG&E
was not named in this lawsuit, it is anticipated that Mateel may file a
separate lawsuit against SDG&E and other utilities on the same grounds. SDG&E
is cooperating with PG&E, Pacific Bell and others to achieve an effective and
favorable resolution of this matter.
Additional information concerning SDG&E's environmental matters is provided in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 18 of the 1995 Annual Report to Shareholders and
in Note 10 of the "Notes to Consolidated Financial Statements" beginning on
page 35 of the 1995 Annual Report to Shareholders.
OTHER
Research, Development and Demonstration
SDG&E conducts research and development in areas that provide value to SDG&E
and its customers. Annual research, development and demonstration costs
averaged $7 million over the past three years. The CPUC historically has
permitted rate recovery of research, development and demonstration
expenditures.
Wages
SDG&E and Local 465, International Brotherhood of Electrical Workers have a
labor agreement through February 29, 1996. Negotiations are ongoing.
Employees of Registrant
As of December 31, 1995 SDG&E had 3,880 employees, compared to 3,998 at
December 31, 1994. SDG&E's subsidiaries had 13 employees at December 31, 1995
compared to 550 at December 31, 1994 (of which 542 were employees of Wahlco
Environmental Systems, Inc., which was sold on June 6, 1995).
Foreign Operations
SDG&E foreign operations in 1995 included power purchases and sales with CFE
in Mexico; purchases of power and natural gas from suppliers in Canada; and
purchases of uranium from suppliers in Canada, Australia, France, Niger,
People's Republic of China and South Africa.
SDG&E's subsidiary Wahlco Environmental Systems, which it sold on June 6,
1995, operated in various foreign locations in 1995, including Great Britain,
Australia and Italy, and sold products and services to customers in additional
foreign countries.
25
<PAGE>
Additional information concerning foreign operations is provided under
"Electric Operations" and "Natural Gas Operations" herein, in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 18 of the 1995 Annual Report to Shareholders, and in Note 10
of the "Notes to Consolidated Financial Statements" beginning on page 35 of
the 1995 Annual Report to Shareholders.
ITEM 2. PROPERTIES
Substantially all utility plant is subject to the lien of the July 1, 1940
mortgage and deed of trust and its supplemental indentures between SDG&E and
the First Trust of California N.A. as trustee, securing the outstanding first-
mortgage bonds.
Information concerning SDG&E's properties is provided below. Additional
information is provided under "Electric Operations" and "Gas Operations"
herein, in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 18 of the 1995 Annual Report to
Shareholders, and in Notes 1 through 3, 6, 10 and 11 of the "Notes to
Consolidated Financial Statements" beginning on page 35 of the 1995 Annual
Report to Shareholders.
Electric Properties
As of December 31, 1995 SDG&E's installed generating capacity based on summer
ratings, was as follows:
Plant Location Net Megawatts
- -----------------------------------------------------------------
Encina Carlsbad 951
South Bay Chula Vista 690
San Onofre South of San Clemente 430*
Combustion Turbines (19) Various 332
- -----------------------------------------------------------------
*SDG&E's 20 percent share.
Except for San Onofre and some of the combustion turbines, these plants are
equipped to burn either oil or gas.
The 1995 system load factor was 58 percent and ranged from 56 percent to 64
percent for the past five years.
SDG&E's electric transmission and distribution facilities include substations,
and overhead and underground lines. Periodically various areas of the service
territory require expansion to handle customer growth.
SDG&E owns an approved nuclear power-plant site near Blythe, California.
Natural-Gas Properties
SDG&E's natural-gas facilities are located in San Diego and Riverside counties
and consist of the Moreno and Rainbow compressor stations, various high-
pressure transmission pipelines, high-pressure and low-pressure distribution
mains, and service lines. SDG&E's natural-gas system is sufficient to meet
customer demand and short-term growth. SDG&E is currently undergoing an
expansion of its high-pressure transmission lines to accommodate expected
long-term customer growth.
26
<PAGE>
General Properties
The 21-story corporate office building at 101 Ash Street, San Diego is
occupied pursuant to a capital lease through the year 2005. The lease has four
separate five-year renewal options. SDG&E also occupies an office complex at
Century Park Court in San Diego pursuant to an operating lease ending in the
year 2007. The lease can be renewed for two five-year periods.
In addition, SDG&E occupies eight operating and maintenance centers, two
business centers, six district offices, and five branch offices.
Subsidiary Properties
Phase One Development, a subsidiary of Pacific Diversified Capital, holds one
property in San Diego County for future development and sale. Other, developed
properties were sold during 1995. Wahlco Environmental Systems, sold on June
6, 1995, had manufacturing facilities in the continental United States, Puerto
Rico, Great Britain and Australia, and a sales office in Italy.
ITEM 3. LEGAL PROCEEDINGS
The McCartin proceeding, described in SDG&E's 1994 Annual Report on Form 10-K,
was concluded during the year ended December 31, 1995. Information concerning
the conclusion of this proceeding is contained in SDG&E's Quarterly Report on
Form 10-Q for the three-month period ended June 30, 1995.
Century Power
This FERC proceeding, arising from a rate dispute among Century Power
Corporation, Tucson Electric Power Company, and SDG&E, has been resolved. On
October 23, 1995 SDG&E filed with the FERC an offer of settlement which would
result in the dismissal of all claims among SDG&E, Tucson and Century with
prejudice. On January 18, 1996 FERC approved the settlement and all claims
were dismissed.
American Trails
Prior to Pacific Diversified Capital's purchase of Wahlco Environmental
Systems, a complaint was filed in 1985 in the Superior Court of San Diego
County against Wahlco and others by Michael Bessey and others who owned
American Trails, a membership campground company, for, among other things,
breach of contract, negligence and fraud. In 1993 the court found in favor of
Wahlco for all claims and causes of action by the plaintiffs against Wahlco.
Subsequently, the plaintiffs filed a notice of appeal from the court's
judgment and the appeal is pending. Wahlco intends to continue defending this
lawsuit vigorously.
Robert R. Wahler, as Trustee of the Wahler Family Trust; John H. McDonald; and
Westfore, a California limited partnership; agreed, subject to certain
exceptions, to indemnify Pacific Diversified and its subsidiaries in
connection with the American Trails litigation. Under a settlement agreement
entered into on November 26, 1995, Wahlco agreed to continue to pay all
attorneys' fees and costs incurred in the pending
27
<PAGE>
American Trails appeal on behalf of all defendants, provided that all of the
above parties are represented by the same counsel throughout. Costs at
subsequent retrial, appeal and judgment, if any, would be borne by Wahlco
subject to reimbursement by Wahler, McDonald and Westfore, under certain
circumstances.
On June 6, 1995 Pacific Diversified sold its interest in Wahlco and,
therefore, no longer retains any ownership or interest in Wahlco.
Public Service Company of New Mexico
On October 27, 1993 SDG&E filed a complaint with the FERC against Public
Service Company of New Mexico, alleging that charges under a 1985 power-
purchase agreement are unjust, unreasonable and discriminatory. SDG&E
requested that the FERC investigate the rates charged under the agreement and
establish December 26, 1993 as the effective refund date. The relief, if
granted, would reduce annual demand charges paid by SDG&E to PNM by up to $11
million per year through April 2001. If approved, the proceeds would be
refunded principally to SDG&E customers.
On December 8, 1993 PNM answered the complaint and moved that it be dismissed.
PNM denied that the rates are unjust, unreasonable or discriminatory and
asserted that SDG&E's claims were barred by certain orders issued by the FERC
in 1988.
There have been no further developments in this case. SDG&E is unable to
predict the ultimate outcome of this litigation.
Canadian Natural Gas
During early 1991 SDG&E signed four long-term natural-gas-supply contracts
with Husky Oil Ltd., Canadian Hunter Ltd. and Noranda Inc., Bow Valley Energy
Inc., and Summit Resources Ltd. Canadian-sourced natural gas began flowing to
SDG&E under these contracts in 1993. Disputes have arisen with each of these
producers with respect to events which are alleged by the producers to have
occurred and to have justified a revision to the pricing terms of each
contract, and possibly their termination. Consequently, during December 1993
SDG&E filed complaints in the United States Federal District Court, Southern
District of California, seeking a declaration of SDG&E's contract rights.
Specifically, SDG&E states that neither price revision nor contract
termination is warranted.
In 1994 SDG&E voluntarily dismissed its complaint against Bow Valley without
prejudice. In addition, the court denied the other defendants' motions to
dismiss SDG&E's complaints. These motions were based on jurisdictional
grounds. Two of the defendants, Bow Valley and Husky Oil, filed claims against
SDG&E with the Queens Bench in Alberta, Canada, seeking a declaration that
they are entitled to damages or, in the alternative, that they may terminate
their respective natural-gas shipments to SDG&E. SDG&E has answered these
claims. In March 1995 SDG&E and Husky Oil reached an agreement dismissing all
of their respective claims with prejudice.
Bow Valley and Summit Resources gave SDG&E notice that their natural-gas-
supply contracts with SDG&E were terminated pursuant to provisions in the
contract that purportedly give them the right to do so. SDG&E has responded
that the notices were inappropriate and that it will seek both contract and
tort damages.
28
<PAGE>
In July 1995 the United States Federal District Court, Southern District of
California, dismissed SDG&E's lawsuit against Summit Resources. SDG&E's
lawsuit in Federal District Court against Canadian Hunter is still proceeding.
SDG&E is unable to predict the ultimate outcome of this litigation.
Electric and Magnetic Fields
Covalt: On December 16, 1993 Martin and Joyce Covalt filed a complaint against
SDG&E in Orange County Superior Court. The Covalt lawsuit involves the same
lawyers and issues as the lawsuits brought by McCartin and Zuidema, in which
SDG&E prevailed and which were reported in previous Annual Reports on Form 10-
K. On April 13, 1994 SDG&E filed a demurrer to the Covalts' claims. On June
22, 1994 an Orange County Superior Court judge, different from the judge who
presided over the McCartin case, denied SDG&E's demurrer. On July 15, 1994
SDG&E petitioned the California Court of Appeal to review the trial judge's
decision on the grounds that the California Public Utilities Commission, not
the courts, has exclusive jurisdiction over power-line health and safety
issues. On February 28, 1995 the California Court of Appeal granted SDG&E's
petition, completely dismissing the plaintiffs' lawsuit, ruling that the CPUC
has exclusive jurisdiction over these claims. On March 30, 1995 the Court of
Appeal denied the plaintiffs' petition for rehearing. On May 11, 1995 the
California Supreme Court granted plaintiffs' request for review of the
California Court of Appeal decision to dismiss the case. A decision is not
expected before late 1996.
SDG&E is unable to predict the ultimate outcome of this litigation.
North City West: On June 14, 1993 the Peninsula at Del Mar Highlands
Homeowners Association filed a complaint with the Superior Court of San Diego
County against the City of San Diego and SDG&E to prevent SDG&E from
constructing and operating an electric substation in an area which is known as
North City West. In the complaint, plaintiffs sought to have the city either
revoke previously issued permits or reopen the hearing process to address
alleged EMF concerns. In 1993 the court denied the plaintiffs' motion for a
temporary restraining order and motion for a preliminary injunction.
Subsequently, the plaintiffs withdrew their complaint and the court dismissed
it without prejudice.
On August 18, 1993 the plaintiffs filed a complaint with the CPUC, requesting
that the CPUC conduct an environmental assessment. This complaint is still
pending.
SDG&E is unable to predict the ultimate outcome of this litigation.
SONGS Personal Injury Litigation
James v. Southern California Edison Company, San Diego Gas & Electric Company
and Combustion Engineering was tried and successfully defended in Federal
District Court, Southern District of California. Mr. James, an employee of a
SONGS contractor, was diagnosed with chronic myelogenous leukemia. He alleged
his leukemia was caused by radiation exposure and from "fuel fleas"
(radioactive fuel particles) from failed fuel rods. Plaintiffs sought $25
million in compensatory damages and $100 million in punitive damages. On
October 12, 1995 the jury
29
<PAGE>
determined there was no scientific link between the plaintiff's illness and
the amount of radiation he was exposed to while at SONGS. The case is
currently on appeal to the Ninth Circuit Court of Appeal.
Three wrongful death lawsuits have been filed against Southern California
Edison, San Diego Gas & Electric Company, Combustion Engineering, and the
Institute of Nuclear Power Operations in Federal District Court, Southern
District of California, by the heirs of former SONGS employees: McLandrich
filed February 6, 1995, Mettler filed July 5, 1995, and Knapp filed August 31,
1995. In McLandrich, the former employee allegedly developed leimyosarcoma, a
rare form of cancer. In Mettler and Knapp, the former employees allegedly
developed acute myelogenous leukemia. All plaintiffs attribute the illnesses
to radiation exposure and "fuel fleas". Southern California Edison, co-owner
and operator of SONGS, was dismissed from McLandrich based on the workers'
compensation exclusive-remedy rule. SDG&E's motion on the same theory was
denied. SDG&E has been granted permission to file a motion for summary
judgment. The heirs of the plaintiffs in each case seek unspecified amounts in
compensatory and punitive damages. SDG&E is defending the lawsuits on the
basis that the workers' compensation exclusive-remedy rule should apply for
SDG&E as co-owner of the plant and that there is no scientific link between
the illnesses and the alleged radiation exposure. All the SONGS personal
injury lawsuits, including the two listed below, have involved the same
lawyers for the plaintiffs.
Two additional lawsuits have been filed wherein SDG&E was not named as a
defendant. Kennedy v. Southern California Edison and Combustion Engineering,
Inc., was filed in Federal District Court, Southern District of California on
November 17, 1995. In this case, the wife of a current SONGS worker was
diagnosed with chronic myelogenous leukemia (CML). She and her husband allege
the CML was caused by exposure to radioactive particles that were transported
home on the employee's clothing. In Rock v. Southern California Edison and
Combustion Engineering, Inc. (filed November 28, 1995 in Federal District
Court, Southern District of California), plaintiffs allege that the 18-year-
old son of a former temporary SONGS employee developed acute myelogenous
leukemia from exposure to radioactive material that was transported home on
the worker's clothing. Plaintiffs seek unspecified amounts in compensatory and
punitive damages in both cases.
SDG&E is unable to predict the ultimate outcome of this litigation.
Environmental and Regulatory Issues
Other legal matters related to environmental and regulatory issues are
described under "Environmental Matters" and "Regulatory Matters" herein.
30
<PAGE>
Item 4. Submission of Matter to a Vote of Security Holders
NONE.
Item 4. Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Positions* (1991 - Current)
- ----------------- --- ------------------------------------------------------
<S> <C> <C>
Thomas A. Page 62 Chairman (Enova) since December 1994. Chairman since January 1983.
President and Chief Executive Officer (Enova) from December 1994
through December 1995.
Chief Executive Officer from January 1983 through December 1995.
President from 1983 through 1991 and from January 1994
through December 1995.
Stephen L. Baum 55 President and Chief Executive Officer (Enova) since January 1996.
Executive Vice President (Enova) from December 1994 through
December 1995.
Executive Vice President from January 1993 through December 1995.
Senior Vice President - Law and Corporate Affairs and General
Counsel from January 1992 through December 1992.
Senior Vice President and General Counsel from 1987 through 1991.
Donald E. Felsinger 48 President and Chief Executive Officer since January 1996.
Executive Vice President (Enova) from December 1994 through
December 1995.
Executive Vice President from January 1993 through December 1995.
Senior Vice President - Marketing and Resource Development
from January 1992 through December 1992.
Vice President - Marketing and Resource Development from
February 1989 through December 1991.
Gary D. Cotton 55 Senior Vice President - Customer Operations since January 1993.
Senior Vice President - Customer Services from January 1992
through December 1992.
Senior Vice President - Engineering and Operations from 1986
through 1991.
Edwin A. Guiles 46 Senior Vice President - Energy Supply since January 1993.
Vice President - Engineering and Operations from January 1992
through December 1992.
Vice President - Corporate Planning from 1990 through 1991.
David R. Kuzma 50 Senior Vice President, Chief Financial Officer and Treasurer
(Enova) since November 1995.
Senior Vice President, Chief Financial Officer and Treasurer
since June 1995.
Chief Financial Officer, Senior Vice President and Treasurer of
Florida Progress Corporation from 1991 to 1995.
Frank H. Ault 51 Vice President and Controller (Enova) since December 1994.
Vice President and Controller since January 1993.
Controller from May 1986 through December 1992.
Kathleen A. Flanagan 45 Vice President - Corporate Communications since July 1994.
Manager - Corporate Communications at Southern California Edison
from 1991 to 1994.
Director - Government Relations and Public Affairs at Luz
International from 1989 to 1991.
Ronald K. Fuller 58 Vice President - Governmental and Regulatory Services from April
1984 until his retirement in December 1995.
Margot A. Kyd 42 Vice President - Human Resources (Enova) since January 1996.
Vice President - Human Resources since January 1993.
Vice President - Administrative Services from 1988 through 1992.
John L. Laun, III 48 Vice President - Customer and Marketing Services since July 1994.
Division Manager - Corporate Communications from June 1993 to July
1994.
Manager - Special Projects from January 1992 to June 1993.
Director - Utility Consulting at Xenergy Inc. from 1991 through
1992.
Senior Vice President - Utility Consulting at Palmer Bellevue
Corporation from 1989 through 1991.
William L. Reed 44 Vice President - Regulatory Affairs since January 1996.
Vice President - Strategic Planning from August 1995 through
December 1995.
Division Manager - Strategic Plans & Projects from August 1994
through July 1995.
Director - Energy Management from April 1993 through July 1994.
Director - Regulatory Affairs from 1990 through March 1993.
</TABLE>
*All positions are at SDG&E unless otherwise noted.
31
<PAGE>
PART II - Enova Corporation:
Part II - San Diego Gas & Electric Company beginning on page 32 of this Annual
Report on Form 10-K is incorporated herein by reference.
PART II - San Diego Gas & Electric Company:
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Common stock is traded on the New York and Pacific stock exchanges. At
December 31, 1995 there were 84,158 holders of common stock. The quarterly
common stock information required by Item 5 is incorporated by reference from
page 43 of the 1995 Annual Report to Shareholders.
Item 6. Selected Financial Data
<TABLE>
In millions of dollars except per share amounts
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
For the years ended December 31
Operating revenues $1,870.7 $1,912.2 $1,897.5 $1,789.0 $1,700.2
Operating income $345.7 $332.2 $303.9 $308.9 $304.9
Income from continuing operations $233.3 $206.9 $227.5 $221.1 $198.7
Net income (before preferred
dividend requirements) $233.5 $143.5 $218.7 $210.7 $208.1
Earnings per common share from
continuing operations $1.94 $1.71 $1.89 $1.86 $1.68
Earnings per common share $1.94 $1.17 $1.81 $1.77 $1.76
Dividends declared per common share $1.56 $1.52 $1.48 $1.44 $1.3875
At December 31
Total assets $4,670.4 $4,598.4 $4,642.9 $4,429.3 $3,978.4
Long-term debt and preferred stock
subject to mandatory redemption
(excludes current portion)* $1,490.1 $1,479.2 $1,523.6 $1,647.3 $1,323.2
</TABLE>
*Includes long-term debt redeemable within one year.
This summary should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements contained in the
1995 Annual Report to Shareholders. Prior periods have been restated to
reflect discontinued operations, as described in note 3
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by Item 7 is incorporated by reference from pages 18
through 26 of the 1995 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is incorporated by reference from pages 28
through 43 of the 1995 Annual Report to Shareholders. See Item 14 herein for a
listing of financial statements included in the 1995 Annual Report to
Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
32
<PAGE>
PART III - Enova Corporation:
Part III - San Diego Gas & Electric Company beginning on page 33 of this
Annual Report on Form 10-K is incorporated herein by reference.
PART III - San Diego Gas & Electric Company:
Item 10. Directors and Executive Officers of the Registrant
The information required on Identification of Directors is incorporated by
reference from "Election of Directors" in the March 1996 Proxy Statement. The
information required on executive officers is incorporated by reference from
Item 4 herein.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from
"Executive Compensation and Transactions with Management and Others" in the
March 1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from
"Security Ownership of Management and Certain Beneficial Holders" in the
March 1996 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
None.
33
<PAGE>
PART IV - Enova Corporation:
Part IV - San Diego Gas & Electric Company beginning on page 34 of this Annual
Report on Form 10-K is incorporated herein by reference.
PART IV - San Diego Gas & Electric Company:
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements
Page in
Annual Report*
Responsibility Report for the Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Independent Auditors' Report . . . . . . . . . . . . . . . . . 27
Statements of Consolidated Income for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . 28
Consolidated Balance Sheets at December 31, 1995 and 1994 . . 29
Statements of Consolidated Cash Flows for the years
ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 30
Statements of Consolidated Changes in Capital Stock and
Retained Earnings for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 31
Statements of Consolidated Capital Stock at
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 32
Statements of Consolidated Long-Term Debt at
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 33
Statements of Consolidated Financial Information by
Segments of Business for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 34
Notes to Consolidated Financial Statements . . . . . . . . . . 35
Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . 43
*Incorporated by reference from the indicated pages of the 1995
Annual Report to Shareholders.
2. Financial statement schedules
None
34
<PAGE>
3. Exhibits
The Forms 8, 8-B/A, 8-K, S-4, 10-K and 10-Q referred to herein were
filed under Commission File Number 1-3779 (SDG&E) or Commission File
Number 1-11439 (Enova Corporation).
Exhibit 3 -- Bylaws and Articles of Incorporation
Bylaws
3.1 Restated Bylaws (Incorporated by reference from the Registration
Statement on Form 8-B/A of Enova Corporation (Exhibit 3.2)).
Articles of Incorporation
3.2 Restated Articles of Incorporation of Enova Corporation
(Incorporated by reference from the Registration
Statement on Form 8-B/A of Enova Corporation (Exhibit 3.1)).
Exhibit 4 -- Instruments Defining the Rights of Security Holders,
Including Indentures
4.1 Mortgage and Deed of Trust dated July 1, 1940. (Incorporated
by reference from SDG&E Registration No. 2-49810, Exhibit 2A.)
4.2 Second Supplemental Indenture dated as of March 1, 1948.
(Incorporated by reference from SDG&E Registration No. 2-49810,
Exhibit 2C.)
4.3 Ninth Supplemental Indenture dated as of August 1, 1968.
(Incorporated by reference from SDG&E Registration No. 2-68420,
Exhibit 2D.)
4.4 Tenth Supplemental Indenture dated as of December 1, 1968.
(Incorporated by reference from SDG&E Registration No. 2-36042,
Exhibit 2K.)
4.5 Sixteenth Supplemental Indenture dated August 28, 1975.
(Incorporated by reference from SDG&E Registration No. 2-68420,
Exhibit 2E.)
4.6 Thirtieth Supplemental Indenture dated September 28, 1983.
(Incorporated by reference from SDG&E Registration No. 33-34017,
Exhibit 4.3.)
Exhibit 10 -- Material Contracts (Previously filed exhibits are
incorporated by reference from Forms S-4, 10-K or
10-Q as referenced below).
Compensation
10.1 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #1 (1996 compensation,
1997 bonus).
10.2 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #1 (1995 compensation,
1996 bonus)(1994 SDG&E Form 10-K Exhibit 10.2).
10.3 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #3 (1996 compensation,
1997 bonus).
10.4 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #3 (1995 compensation,
1996 bonus)(1994 SDG&E Form 10-K Exhibit 10.1).
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<PAGE>
10.5 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Nonemployee Directors (1996
compensation).
10.6 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Nonemployee Directors (1995
compensation)(1994 SDG&E Form 10-K Exhibit 10.3).
10.7 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1995 restricted stock award agreement.
10.8 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan Special 1995 restricted stock award
agreement.
10.9 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1994 restricted stock award agreement two-
year vesting.
10.10 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1994 restricted stock award agreement
(1994 SDG&E Form 10-K Exhibit 10.4).
10.11 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1993 restricted stock award agreement
(1993 SDG&E Form 10-K Exhibit 10.4).
10.12 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1992 restricted stock award agreement
(1992 SDG&E Form 10-K Exhibit 10.4).
10.13 Amended 1986 Long-Term Incentive Plan, amended and restated
effective April 25, 1995 (SDG&E's Amendment No. 2 to
Form S-4 filed February 28, 1995).
10.14 Amended 1986 Long-Term Incentive Plan, Restatement as of
October 25, 1993 (1993 SDG&E Form 10-K Exhibit 10.6).
10.15 San Diego Gas & Electric Company Retirement Plan for
Directors, restated as of October 24, 1994 (1994 SDG&E
Form 10-K Exhibit 10.5).
10.16 Executive Incentive Plan dated April 23, 1985 (1991 SDG&E
Form 10-K Exhibit 10.39).
10.17 Employment agreement between San Diego Gas & Electric
Company and Thomas A. Page, dated June 15, 1988 (1988 SDG&E
Form 10-K Exhibit 10E).
10.18 Supplemental Pension Agreement with Thomas A. Page, dated as
of April 3, 1978 (1988 SDG&E Form 10-K Exhibit 10V).
10.19 Supplemental Executive Retirement Plan restated as of
July 1, 1994 (1994 SDG&E Form 10-K Exhibit 10.14).
Financing
10.20 Loan agreement with the City of San Diego in connection with
the issuance of $16.7 million of Industrial Development
Bonds, dated as of June 1, 1995 (June 30, 1995 SDG&E
Form 10-Q Exhibit 10.2).
10.21 Loan agreement with the City of San Diego in connection with
the issuance of $57.7 million of Industrial Development
Bonds, dated as of June 1, 1995 (June 30, 1995 SDG&E
Form 10-Q Exhibit 10.3).
36
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10.22 Loan agreement with the City of San Diego in connection with
the issuance of $92.9 million of Industrial Development
Bonds 1993 Series C dated as of July 1, 1993 (June 30, 1993
SDG&E Form 10-Q Exhibit 10.2).
10.23 Loan agreement with the City of San Diego in connection with
the issuance of $70.8 million of Industrial Development Bonds
1993 Series A dated as of April 1, 1993 (March 31, 1993 SDG&E
Form 10-Q Exhibit 10.3).
10.24 Loan agreement with the City of San Diego in connection with
the issuance of $14.9 million of Industrial Development Bonds
1993 Series B dated as of April 1, 1993 (March 31, 1993 SDG&E
Form 10-Q Exhibit 10.4).
10.25 Loan agreement with the City of San Diego in connection with
the issuance of $118.6 million of Industrial Development
Bonds dated as of September 1, 1992 (Sept. 30, 1992 SDG&E
Form 10-Q Exhibit 10.1).
10.26 Loan agreement with the City of Chula Vista in connection
with the issuance of $250 million of Industrial Development
Bonds, dated as of December 1, 1992 (1992 SDG&E Form 10-K
Exhibit 10.5).
10.27 Loan agreement with the City of San Diego in connection with
the issuance of $25 million of Industrial Development
Bonds, dated as of September 1, 1987 (1992 SDG&E Form 10-K
Exhibit 10.6).
10.28 Loan agreement with the City of San Diego in connection with
the issuance of $44.25 million of Industrial Development
Bonds, dated as of July 1, 1986 (1991 SDG&E Form 10-K
Exhibit 10.36).
10.29 Loan agreement with the City of San Diego in connection with
the issuance of $81.35 million of Industrial Development
Bonds, dated as of December 1, 1986 (1991 SDG&E Form 10-K
Exhibit 10.37).
10.30 Loan agreement with the California Pollution Control
Financing Authority in connection with the issuance of $60
million of Pollution Control Bonds dated as of June 1, 1993
(June 30, 1993 SDG&E Form 10-Q Exhibit 10.1).
10.31 Loan agreement with the California Pollution Control Financing
Authority, dated as of December 1, 1991, in connection with
the issuance of $14.4 million of Pollution Control Bonds
(1991 SDG&E Form 10-K Exhibit 10.11).
10.32 Loan agreement with the California Pollution Control Financing
Authority, dated as of December 1, 1985, in connection with
the issuance of $35 million of Pollution Control Bonds (1991
SDG&E Form 10-K Exhibit 10.10).
10.33 Loan agreement with the California Pollution Control Financing
Authority dated as of December 1, 1984, in connection with
the issuance of $27 million of Pollution Control Bonds (1991
SDG&E Form 10-K Exhibit 10.40).
10.34 Loan agreement with the California Pollution Control Financing
Authority dated as of May 1, 1984, in connection with the
issuance of $53 million of Pollution Control Bonds (1991
SDG&E Form 10-K Exhibit 10.41).
37
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Natural Gas Commodity, Transportation and Storage
10.35 Long-Term Natural Gas Storage Service Agreement dated
January 12, 1994 between Southern California Gas Company and
SDG&E (1994 SDG&E Form 10-K Exhibit 10.42).
10.36 Amendment to San Diego Gas & Electric Company and Southern
California Gas Company Restated Long-Term Wholesale Natural
Gas Service Contract dated March 26, 1993 (1993 SDG&E
Form 10-K Exhibit 10.53).
10.37 San Diego Gas & Electric Company and Southern California Gas
Company Restated Long-Term Wholesale Natural Gas Service
Contract, dated September 1, 1990 (1990 SDG&E Form 10-K
Exhibit 10.9).
10.38 Gas Purchase Agreement, dated March 12, 1991 between Husky
Oil Operations Limited and San Diego Gas & Electric Company
(1991 SDG&E Form 10-K Exhibit 10.1).
10.39 Gas Purchase Agreement, dated March 12, 1991 between
Canadian Hunter Marketing Limited and San Diego Gas &
Electric Company (1991 SDG&E Form 10-K Exhibit 10.2).
10.40 Gas Purchase Agreement, dated March 12, 1991 between Bow
Valley Industries Limited and San Diego Gas & Electric
Company (1991 SDG&E Form 10-K Exhibit 10.3).
10.41 Gas Purchase Agreement, dated March 12, 1991 between Summit
Resources Limited and San Diego Gas & Electric Company (1991
SDG&E Form 10-K Exhibit 10.4).
10.42 Service Agreement Applicable to Firm Transportation Service
under Rate Schedule FS-1, dated May 31, 1991 between Alberta
Natural Gas Company Ltd. and San Diego Gas & Electric
Company (1991 SDG&E Form 10-K Exhibit 10.5).
10.43 Firm Transportation Service Agreement, dated December 31,
1991 between Pacific Gas and Electric Company and San Diego
Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.7).
10.44 Firm Transportation Service Agreement, dated April 25, 1991
between Pacific Gas Transmission Company and San Diego Gas
& Electric Company (March 31, 1991 SDG&E Form 10-Q
Exhibit 28.2).
Nuclear
10.45 Uranium enrichment services contract between the U.S.
Department of Energy (DOE assigned its rights to the U.S.
Enrichment Corporation, a U.S. government-owned corporation,
on July 1, 1993) and Southern California Edison Company, as
agent for SDG&E and others; Contract DE-SC05-84UEO7541,
dated November 5, 1984, effective June 1, 1984, as amended
(1991 SDG&E Form 10-K Exhibit 10.9).
10.46 Fuel Lease dated as of September 8, 1983 between SONGS Fuel
Company, as Lessor and San Diego Gas & Electric Company, as
Lessee, and Amendment No. 1 to Fuel Lease, dated September
14, 1984 and Amendment No. 2 to Fuel Lease, dated March 2,
1987 (1992 SDG&E Form 10-K Exhibit 10.11).
10.47 Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station,
approved November 25, 1987 (1992 SDG&E Form 10-K Exhibit 10.7).
10.48 Amendment No. 1 to the Qualified CPUC Decommissioning Master
38
<PAGE>
Trust Agreement dated September 22, 1994 (see Exhibit 10.47
herein).
10.49 Second Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station
(see Exhibit 10.47 herein).
10.50 Nuclear Facilities Non-Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station,
approved November 25, 1987 (1992 SDG&E Form 10-K Exhibit 10.8).
10.51 Second Amended San Onofre Agreement among Southern
California Edison Company, SDG&E, the City of Anaheim and
the City of Riverside, dated February 26, 1987 (1990 SDG&E
Form 10-K Exhibit 10.6).
10.52 U. S. Department of Energy contract for disposal of spent
nuclear fuel and/or high-level radioactive waste, entered
into between the DOE and Southern California Edison Company,
as agent for SDG&E and others; Contract DE-CR01-83NE44418,
dated June 10, 1983 (1988 SDG&E Form 10-K Exhibit 10N).
Purchased Power
10.53 Public Service Company of New Mexico and San Diego Gas &
Electric Company 1988-2001 100 mw System Power Agreement
dated November 4, 1985 and Letter of Agreement dated April
28, 1986, June 4, 1986 and June 18, 1986 (1988 SDG&E
Form 10-K Exhibit 10H).
10.54 San Diego Gas & Electric Company and Portland General
Electric Company Long-Term Power Sale and Transmission
Service agreements dated November 5, 1985 (1988 SDG&E Form
10-K Exhibit 10I).
10.55 Comision Federal de Electricidad and San Diego Gas &
Electric Company Contract for the Purchase and Sale of
Electric Capacity and Energy dated November 20, 1980 and
additional Agreement to the contract dated March 22, 1985
(1988 SDG&E Form 10-K Exhibit 10J).
10.56 Agreement with Arizona Public Service Company for Arizona
transmission system participation agreement - contract
790116 (1988 SDG&E Form 10-K Exhibit 10P).
Other
10.57 U. S. Navy contract for electric service, Contract
N62474-70-C-1200-P00414, dated September 29, 1988 (1988 SDG&E
Form 10-K Exhibit 10C).
10.58 City of San Diego Electric Franchise (Ordinance No. 10466)
(1988 SDG&E Form 10-K Exhibit 10Q).
10.59 City of San Diego Gas Franchise (Ordinance No. 10465) (1988
SDG&E Form 10-K Exhibit 10R).
10.60 County of San Diego Electric Franchise (Ordinance No. 3207)
(1988 SDG&E Form 10-K Exhibit 10S).
10.61 County of San Diego Gas Franchise (Ordinance No. 5669) (1988
SDG&E Form 10-K Exhibit 10T).
10.62 Lease agreement dated as of March 25, 1992 with American
National Insurance Company as lessor of an office complex at
Century Park (1994 SDG&E Form 10-K Exhibit 10.70).
39
<PAGE>
10.63 Lease agreement dated as of June 15, 1978 with Lloyds Bank
California, as owner-trustee and lessor - Exhibit B to
financing agreement of SDG&E's Encina Unit 5 equipment trust
(1988 SDG&E Form 10-K Exhibit 10W).
10.64 Amendment to Lease agreement dated as of July 1, 1993 with
Sanwa Bank California, as owner-trustee and lessor - Exhibit
B to secured loan agreement of SDG&E's Encina Unit 5
equipment trust (See Exhibit 10.63 herein).
10.65 Lease agreement dated as of July 14, 1975 with New England
Mutual Life Insurance Company, as lessor (1991 SDG&E Form 10-K
Exhibit 10.42).
10.66 Assignment of Lease agreement dated as of November 19, 1993
to Shapery Developers as lessor by New England Mutual
Life Insurance Company (See Exhibit 10.65 herein).
Exhibit 12 -- Statement re: computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the years ended December
31, 1995, 1994, 1993, 1992 and 1991.
Exhibit 13 -- The financial statements and other documents listed
under Part IV Item 14(a)1. and Management's Discussion and Analysis
of Financial Condition and Results of Operations listed under Part
II Item 7 of this Form 10-K are incorporated by reference from the
1995 Annual Report to Shareholders.
Exhibit 22 - Subsidiaries - See "Part I, Item 1. Description of
Business."
Exhibit 24 - Independent Auditors' Consent, page 41.
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedule for the year ended December 31,
1995.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on December 7, 1995
announcing the CPUC's approval of SDG&E's application to form a
holding company, the January 1, 1996 effective date of the
new parent company, and associated changes in officers'
responsibilities.
A Current Report on Form 8-K was filed on February 2, 1996 to
report that on January 31, 1996 SDG&E's ownership interests
in its subsidiaries were transferred to Enova Corporation at
book value, completing the organizational restructuring into
the new parent company framework.
40
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 16,
1996 on San Diego Gas & Electric Company, appearing on page 27 of the 1995
Annual Report to Shareholders of Enova Corporation and San Diego Gas &
Electric Company incorporated by reference in this Annual Report on Form 10-K
for the year ended December 31, 1995.
We also consent to the incorporation by reference of the above-mentioned
report in the Enova Corporation Post-Effective Amendment No. 1 to Registration
Statement No. 33-59681 on Form S-3, Post-Effective Amendment No. 1 to
Registration Statement No. 33-59683 on Form S-8 and Post-Effective Amendment
No. 1 to Registration Statement No. 33-7108 on Form 8; and in the San Diego
Gas & Electric Company Registration Statement No. 33-45599 on Form S-3,
Registration Statement No. 33-52834 on Form S-3 and Registration Statement No.
33-49837 on Form S-3.
DELOITTE & TOUCHE LLP
San Diego, California
February 28, 1996
41
<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, hereunto duly authorized. The signatures of the
undersigned companies relate only to matters having reference to such
companies and their respective subsidiaries.
ENOVA CORPORATION. SAN DIEGO GAS & ELECTRIC COMPANY
By: /s/ Stephen L. Baum By: /s/ Donald E. Felsinger
_____________________ ________________________
Stephen L. Baum Donald E. Felsinger
President and Chief President and Chief
Executive Officer Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated. The signatures of the undersigned
companies relate only to matters having reference to such companies and their
respective subsidiaries.
Signature Title Date
Principal Executive Officers:
/s/ Stephen L. Baum
_________________________________________________________________________
Stephen L. Baum President and Chief Executive February 26, 1996
Officer (Enova) and a Director
(Enova and SDG&E)
/s/ Donald E. Felsinger
__________________________________________________________________________
Donald E. Felsinger President and Chief Executive February 26, 1996
Officer and a Director (SDG&E)
Principal Financial Officer:
/s/ David R. Kuzma
__________________________________________________________________________
David R. Kuzma Senior Vice President Chief Financial February 26, 1996
Officer and Treasurer (Enova and SDG&E)
Principal Accounting Officer:
/s/ Frank H. Ault
__________________________________________________________________________
Frank H. Ault Vice President and Controller (Enova and SDG&E)February 26, 1996
Directors (Enova and SDG&E):
/s/ Thomas A. Page
__________________________________________________________________________
Thomas A. Page Chairman February 26, 1996
/s/ Ann L. Burr
___________________________________________________________________________
Ann L. Burr Director February 26, 1996
/s/ Richard A. Collato
___________________________________________________________________________
Richard A. Collato Director February 26, 1996
/s/ Daniel W. Derbes
____________________________________________________________________________
Daniel W. Derbes Director February 26, 1996
/s/ Catherine T. Fitzgerald
____________________________________________________________________________
Catherine T. Fitzgerald Director February 26, 1996
/s/ Robert H. Goldsmith
____________________________________________________________________________
Robert H. Goldsmith Director February 26, 1996
/s/ William D. Jones
____________________________________________________________________________
William D. Jones Director February 26, 1996
/s/ Ralph R. Ocampo
____________________________________________________________________________
Ralph R. Ocampo Director February 26, 1996
/s/ Thomas C. Stickel
_____________________________________________________________________________
Thomas C. Stickel Director February 26, 1996
42
<PAGE>
GLOSSARY
APCD Air Pollution Control District
BCAP Biennial Cost Allocation Proceeding
BPA Bonneville Power Administration
BRPU Biennial Resource Plan Update
CEC California Energy Commission
CFE Comision Federal de Electricidad
CPUC California Public Utilities Commission
DOE Department of Energy
EC Electric Clearinghouse
ECAC Energy Cost Adjustment Clause
Edison Southern California Edison Company and/or its parent,
SCEcorp
EMF Electric and magnetic fields
Enron Enron Power Marketing
ERAM Electric Revenue Adjustment Mechanism
EV Electric vehicle
FERC Federal Energy Regulatory Commission
G&D Electric Generation and Dispatch Mechanism
GFCA Gas Fixed Cost Account
Goal Line Goal Line Limited Partnership
IID Imperial Irrigation District
Illinova Illinova Power Marketing
ISO Independent System Operator
kv Kilovolt
kwhr Kilowatt hour
mw Megawatt
NGV Natural-Gas Vehicle
NOx Nitrogen Dioxide
NRC Nuclear Regulatory Commission
Pacific Intertie A transmission line connecting San Diego to the Pacific
Northwest
PBR Performance-Based Ratemaking
PCB Polychlorinated Biphenyl
PG&E Pacific Gas and Electric Company
43
<PAGE>
PGE Portland General Electric Company
PNM Public Service Company of New Mexico
PSP&L Puget Sound Power & Light
RECLAIM Regional Clean Air Incentive Market
SDG&E San Diego Gas & Electric Company
SoCal Gas Southern California Gas Company
SONGS/San Onofre San Onofre Nuclear Generating Station
SRP Salt River Project
Southwest Powerlink A transmission line connecting San Diego to Phoenix and
intermediate points
TCF Target Capacity Factor
44
SAN DIEGO GAS & ELECTRIC COMPANY
1996 DEFERRED COMPENSATION AGREEMENT
FOR OFFICERS #1
(1996 BASE COMPENSATION)
(1997 BONUS)
THIS AGREEMENT, made and entered into this _____ day of
December, 1995, by and between San Diego Gas & Electric
Company, (hereinafter "Company") and
_____________________________________ (hereinafter
"Officer"), an elected Officer of Company.
WITNESSETH:
WHEREAS, in addition to 1996 base compensation,
incentive compensation payable in the form of a single sum
cash bonus may be paid to Officer in 1997 for outstanding
performance in 1996 ("1997 Bonus"); and
WHEREAS, Officer and Company desire that the payment of
said 1996 base compensation and/or 1997 bonus to Officer be
deferred, pursuant to the terms and provisions of this
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as
follows:
1. This Agreement shall be effective on the first date
after its execution upon which Officer's bonus would
otherwise be payable to Officer for outstanding performance
and shall continue in effect until this Agreement is
terminated as provided herein.
2. Company shall credit to an account on Company's
books, in Officer's name, that portion of such Officer's
bonus otherwise payable to Officer as may be specified by
Officer on an Election Form submitted to Company
simultaneously with the execution of this Agreement. If an
Officer has elected to defer 100% of such Officer's bonus
(pursuant to Deferred Compensation Agreements for Officers
#1 and #3) and the Officer is also participating in the
Savings Plan of San Diego Gas & Electric to the maximum
extent permissible, such Officer may also elect to defer,
and Company shall credit to the Officer's account, a portion
of such Officer's base compensation (in equal monthly
installments of whole dollar amounts).
3. There shall be credited to Officer's account an
additional amount equal to seven and four-tenths percent
(7.4%) per annum computed on the balance in Officer's
account as of the end of each month; provided, however, that
Company reserves the right to increase or decrease from time
to time such amounts to be credited to the account after the
date of such increase or decrease, provided that upon a
"change-in-control" (as defined in the SDG&E Amended 1986
Long-Term Incentive Plan) the percentage used shall not
decrease to less than the last published
<PAGE>
percentage shown in Moody's Average of Yields on Public
Utility Bonds for a utility having a rating equivalent to
SDG&E.
4. All amounts credited to Officer's account pursuant
to paragraphs 2 and 3 hereof shall be paid to Officer on the
date(s) specified by Officer on this Agreement's Election
Form. In the event of Officer's death after installment
payments to Officer have commenced hereunder, installment
payments shall continue to be paid to the person(s)
specified by Officer on the Election Form for the remainder
of the period selected by Officer on this Agreement's
Election Form. In the event of Officer's death before any
payment has been made under this Agreement, Officer's
account shall be distributed or commence to be distributed,
as soon as administratively practicable after Officer's
death, to the person(s) specified by Officer on this
Agreement's Election Form in the form and over the period
selected on such Election Form. The Company's Executive
Compensation Committee may, in its sole discretion, provide
instead for payment of the amount in Officer's account to
Officer's beneficiary in a form and over a period determined
by the Committee except that the Committee's authority and
discretion to change the form or period of distribution
shall terminate upon such a "change-in-control." If
Officer's spouse is the beneficiary, the annual amount of
any installment payments under this paragraph 4 shall at
least equal the entire annual income earned by the account
and if the spouse dies prior to distribution of all amounts
in Officer's account, all undistributed income on such
account shall be distributed to the spouse's estate. Upon
the death of Officer's beneficiary, the balance in Officer's
account (after the application of the previous sentence, if
the spouse is the beneficiary) shall be distributed to the
person(s) designated by the beneficiary on a form provided
by Company or, if no designation is made, to the
beneficiary's estate.
5. No amounts credited to Officer's account may be
assigned, transferred, encumbered, or made subject to any
legal process for the payment of any claim against Officer,
Officer's spouse or beneficiary. In no event shall Officer,
Officer's spouse or beneficiary have the right to recover
any amounts credited to Officer's account other than in
accordance with this Agreement.
6. Nothing contained in this Agreement and no action
taken pursuant to the provisions of this Agreement shall
create or be construed to create a trust of any kind, or a
fiduciary relationship between Company and the Officer or
any other person. To the extent that any person acquires a
right to receive payments from Company under this Agreement,
such right shall be no greater than the right of any
unsecured general creditor of Company. Title to and
beneficial ownership of any assets, whether cash or
investments which Company may earmark to pay the deferred
compensation hereunder, shall at all times remain assets of
Company and neither the Officer nor any other person shall,
under this Agreement, have any property interest whatsoever
in any specific assets of Company.
7. The existence of this Agreement shall not confer
upon any Officer any right to continue to serve as an
Officer for any period of time.
8. This Agreement may be terminated by Company upon
30 days written notice to the Officer. Such termination
shall be applicable only with respect to bonuses and/or base
2
<PAGE>
compensation payable to Officer on and after the first day
of the calendar year following the date of termination.
Funds previously deferred and credited (and income earned on
such funds) will continue to be governed by the applicable
year's Officer's Deferred Compensation Agreement Election
Form and Section 3 of this Agreement.
9. Officer acknowledges that Officer has been advised
that Officer may confer with and seek advice from a tax or
financial advisor of Officer's choice concerning this
deferral. Officer further acknowledges that Officer has not
received tax advice from SDG&E nor has Officer relied upon
information provided by SDG&E in electing to make this
deferral.
IN WITNESS WHEREOF, this Agreement has been executed on
the day and year written above.
OFFICER SAN DIEGO GAS & ELECTRIC COMPANY
________________________ By______________________________
Signature of Officer
3
SAN DIEGO GAS & ELECTRIC COMPANY
1996 DEFERRED COMPENSATION AGREEMENT
FOR OFFICERS #3
THIS AGREEMENT is made and entered into this _____ day
of December, 1995, by and between San Diego Gas & Electric
Company (hereinafter "SDG&E") and
_____________________________________ (hereinafter
"Officer"), an elected officer of SDG&E.
WITNESSETH:
WHEREAS, SDG&E desires to provide Officer with the
opportunity to defer base compensation and bonus that is
payable for services to be rendered after the date of this
Agreement and which, as a result of amendments to the
Internal Revenue Code ("Code") made by the Tax Reform Act of
1986 ("1986 Tax Act"), cannot be contributed on Officer's
behalf as Pretax Contributions to the SDG&E Savings Plan
("Savings Plan"); and
WHEREAS, SDG&E desires to match, as an additional SDG&E
contribution, a percentage of the Officer's base
compensation and bonus deferred pursuant to this Agreement;
and
WHEREAS, Officer and SDG&E desire that the payment of a
portion of Officer's base compensation and bonus and the
additional matching contribution be deferred pursuant to the
terms and provisions of this Agreement.
NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS
FOLLOWS:
1. This Agreement shall be effective upon its
execution by SDG&E and Officer with respect to base
compensation and bonus which would otherwise be payable to
Officer for services rendered after such execution and shall
continue in effect until this Agreement is terminated as
provided herein. Officer shall be eligible to enter into
this Agreement only if Officer has elected the maximum Basic
Contribution under the Savings Plan for which Officer is
eligible.
2. SDG&E shall credit to an account on SDG&E's books,
in Officer's name, that percentage of Officer's 1996 base
compensation (in equal biweekly installments of whole dollar
amounts) and 1997 bonus otherwise payable to Officer as may
be specified by Officer in this Agreement's Election Form.
The amount credited under this paragraph 2 may not exceed
the percentage of Officer's 1996 base compensation and 1997
bonus that may be contributed as Pretax Contributions or
After-tax Contributions under the terms of the Savings Plan
(determined prior to any reduction of such percentage
required under applicable law), reduced by any amount
contributed by Officer as After-tax Contributions or on
Officer's behalf as Pretax Contributions to the Savings
Plan. Further, the amount credited under this paragraph 2
shall be limited to an amount which, when added to SDG&E's
matching contribution under paragraph 3 of this Agreement
and all allocations to his or her accounts under the Savings
Plan, does not exceed the
<PAGE>
maximum amount that could have been allocated to Officer's
Savings Plan accounts pursuant to Section 415 of the Code,
as in effect prior to the enactment of the 1986 Tax Act.
For purposes of this paragraph 2, "base compensation and
bonus" shall include Officer's Pretax Contributions to the
Savings Plan. SDG&E shall have the sole and complete
authority to determine the maximum amount that may be
credited under this paragraph 2.
3. In addition, as amounts are credited to Officer's
account under paragraph 2, SDG&E shall also credit to
Officer's account, as a matching contribution, an amount
equal to the SDG&E Matching Contributions that would have
been contributed on Officer's behalf to the Savings Plan
(reduced by Matching Contributions actually made to the
Savings Plan for Officer) under the provisions of the Code
prior to enactment of the 1986 Tax Act, if the amount
deferred under paragraph 2 had been contributed to the
Savings Plan as Pretax Contributions or After-tax
Contributions.
4. There shall be credited to Officer's account an
additional amount equal to seven and four-tenths percent
(7.4%) per annum computed on the balance in Officer's
account as of the end of each month. SDG&E reserves the
right to increase or decrease from time to time such
percentage credited with respect to amounts to be credited
under paragraphs 2 and 3 to the account after the date of
such increase or decrease, provided that upon a "change-in-
control" (as defined in the SDG&E Amended 1986 Long-Term
Incentive Plan) no decrease will result in a percentage
credited under the previous sentence of less than the last
published interest rate shown in Moody's Average of Yields
on Public Utility Bonds for a utility having a rating
equivalent to SDG&E.
5. All amounts credited to Officer's account pursuant
to paragraphs 2, 3, and 4 hereof shall be paid to Officer
upon his or her termination of services as an Officer in the
form and over the period specified by Officer on this
Agreement's Election Form; provided, however, the SDG&E
Compensation Committee ("Committee") may, in its sole
discretion, provide instead for payment of the amount in
Officer's account in a form and over a period determined by
such Committee except that the Committee's authority and
discretion to change the form or period of distribution
shall terminate upon such a "change-in-control."
6. In the event of Officer's death after installment
payments to Officer have commenced hereunder, installment
payments shall continue to be paid to the person(s)
specified by Officer on the Election Form for the remainder
of the period selected by Officer on the Election Form. In
the event of Officer's death before any payment has been
made under this Agreement, Officer's account shall be
distributed or commence to be distributed, as soon as
administratively practicable after Officer's death, to the
person(s) specified by Officer on this Agreement's Election
Form in the form and over the period selected on such
Election Form. The Committee may, in its sole discretion,
provide instead for payment of the amount in Officer's
account to Officer's beneficiary in a form and over a period
determined by the Committee except that the Committee's
authority and discretion to change the form or period of
distribution shall terminate upon such a "change-in-
control."
2
<PAGE>
If Officer's spouse is the beneficiary, the annual
amount of any installment payments under this paragraph 6
shall at least equal the entire annual income earned by the
account and if the spouse dies prior to distribution of all
amounts in Officer's account, all undistributed income on
such account shall be distributed to the spouse's estate.
Upon the death of Officer's beneficiary, the balance in
Officer's account (after the application of the previous
sentence, if the spouse is the beneficiary) shall be
distributed to the person(s) designated by the beneficiary
on a form provided by SDG&E or, if no designation is made,
to the beneficiary's estate.
7. No amounts credited to Officer's account may be
assigned, transferred, encumbered, or made subject to any
legal process for the payment of any claim against Officer,
Officer's spouse or other beneficiary. In no event shall
Officer, Officer's spouse, or other beneficiary have the
right to recover any amount credited to Officer's account
other than in accordance with this Agreement.
8. Nothing contained in this Agreement and no action
taken pursuant to the provisions of this Agreement shall
create or be construed to create a trust of any kind, or a
fiduciary relationship between SDG&E and Officer or any
other person. To the extent that any person acquires a
right to receive payments from SDG&E under this Agreement,
such right shall be no greater than the right of any
unsecured general creditor of SDG&E. Title to and
beneficial ownership of any assets, whether cash or
investments, which SDG&E may earmark to pay the deferred
compensation hereunder, shall at all times remain assets of
SDG&E and neither Officer nor any other person shall, under
this Agreement, have any property interest whatsoever in any
specific assets of SDG&E.
9. The existence of this Agreement shall not confer
upon Officer the right to continue to serve as an Officer
for any period of time.
10. This Agreement shall be deemed to modify any
provisions in an employment agreement between Officer and
SDG&E pertaining to the timing of payment of base
compensation and bonus and, in the event of any conflict
between this Agreement and such provisions of the employment
agreement, this Agreement shall control.
11. This Agreement may be terminated by SDG&E upon
thirty days' written notice to Officer. This Agreement will
also terminate upon Officer's filing of an election of a
Basic Contribution percentage which is less than the maximum
for which he or she is eligible under the Savings Plan.
Termination of the Agreement shall be applicable only with
respect to base compensation and bonus payable to Officer on
and after the first day of the calendar year following the
date of termination. Funds previously deferred and credited
(and income earned on such funds) will continue to be
governed by the applicable year's Officer's Deferred
Compensation Agreement Election Form and Section 4 of this
Agreement.
12. Officer acknowledges that Officer has been advised
that Officer may confer with and seek advice from a tax or
financial advisor of Officer's choice concerning this
deferral. Officer further acknowledges that Officer has not
received tax advice from SDG&E nor has Officer relied upon
information provided by SDG&E in electing to make this
deferral.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed
on the day and year written above.
OFFICER SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By: __________________________
Signature of Officer
4
SAN DIEGO GAS & ELECTRIC COMPANY
1996 DEFERRED COMPENSATION AGREEMENT
FOR NONEMPLOYEE DIRECTORS
THIS AGREEMENT, made and entered into this _____ day of
December, 1995, by and between San Diego Gas & Electric
Company, (hereinafter "SDG&E") and
______________________________________ (hereinafter
"Director"), a member of the Board of Directors of SDG&E
(hereinafter the "Board"),
WITNESSETH:
WHEREAS, fees are paid to Directors as a retainer; and
WHEREAS, Director and SDG&E desire that the payment of
said fees to Director be deferred, pursuant to the terms and
provisions of this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as
follows:
1. This Agreement shall be effective on the first date
subsequent to its execution upon which Director's fees would
otherwise be payable to Director for service as a member of
the Board and shall continue in effect until this Agreement
is terminated as provided herein.
2. SDG&E shall credit to an account on SDG&E's books,
in Director's name, that portion of such Director's fees
otherwise payable to Director as may be specified by
Director on an election form submitted to SDG&E
simultaneously with the execution of this Agreement.
3. There shall be credited to Director's account an
additional amount equal to seven and four-tenths percent
(7.4%) per annum computed on the balance in Director's
account as of the end of each month; provided, however, that
SDG&E reserves the right to increase or decrease from time
to time such amount with respect to amounts to be credited
to the account subsequent to the date of such increase or
decrease, provided that upon a "change-in-control" (as
defined in the SDG&E Amended 1986 Long-Term Incentive Plan)
the percentage used shall not decrease to less than the last
published rate shown in Moody's Average of Yields on Public
Utility Bonds for a utility having a rating equivalent to
SDG&E.
4. All amounts credited to Director's account pursuant
to paragraphs 2 and 3 hereof shall be paid to Director in a
lump sum on the date specified by Director on the Director's
election form. In the event of Director's death before any
payment due under this paragraph 4 has been paid, such
payment due shall be paid in a lump sum to the person
specified by the Director on the election form as soon as
administratively practicable.
5. No amounts credited to Director's account may be
assigned, transferred, encumbered, or made subject to any
legal process for the payment of any claim against Director,
Director's spouse or beneficiary. In no event shall
Director, Director's spouse or beneficiary have the right to
recover any fees credited to Director's account other than
in accordance with this Agreement.
<PAGE>
6. Nothing contained in this Agreement and no action
taken pursuant to the provisions of this Agreement shall
create or be construed to create a trust of any kind, or a
fiduciary relationship between SDG&E and the Director or any
other person. To the extent that any person acquires a
right to receive payments from SDG&E under this Agreement,
such right shall be no greater than the right of any
unsecured general creditor of SDG&E. Title to and
beneficial ownership of any assets, whether cash or
investments which SDG&E may earmark to pay the deferred
compensation hereunder, shall at all times remain assets of
SDG&E and neither the Director nor any other person shall,
under this Agreement, have any property interest whatsoever
in any specific assets of SDG&E.
7. The existence of this Agreement shall not confer
upon any Director any right to continue to serve as a
Director for any period of time.
8. This Agreement may be terminated by SDG&E upon 30
days written notice to the Director. Such termination shall
be applicable only with respect to fees payable to Director
on and after the first day of the calendar year following
the date of termination. Funds previously deferred and
credited (and income earned on such funds) will continue to
be governed by the applicable year's director election form
and Section 3 of this Agreement.
9. Director acknowledges that Director has been
advised that Director may confer with and seek advice from a
tax or financial advisor of Director's choice concerning
this deferral. Director further acknowledges that Director
has not received tax advice from SDG&E nor has Director
relied upon information provided by SDG&E in electing to
make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on
the day and year written above.
DIRECTOR SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By: ___________________________
2
SAN DIEGO GAS & ELECTRIC COMPANY
1986 LONG-TERM INCENTIVE PLAN
1995 RESTRICTED STOCK AWARD AGREEMENT
_______________________________________________
THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement")
is entered into this _____ day of _________________, 1995,
by and between SAN DIEGO GAS & ELECTRIC COMPANY, a
California corporation ("SDG&E") and _______________________
("Participant").
WHEREAS, the Board of Directors of SDG&E ("the Board")
has adopted the 1986 Long-Term Incentive Plan (the "Plan"),
which provides for the granting to selected employees of
SDG&E and its subsidiaries of awards of Common Stock of
SDG&E ("Restricted Stock Awards");
WHEREAS, the grant of Restricted Stock Awards is
intended as an incentive which will attract and retain
highly competent persons as officers and key employees of
SDG&E and its subsidiaries;
WHEREAS, Participant is a selected employee of SDG&E;
and
WHEREAS, the Executive Compensation Committee of the
Board (the "Committee") has authorized, and the Board has
approved, the grant of a Restricted Stock Award to
Participant pursuant to the terms of the Plan.
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants hereinafter set forth and other good
and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Grant of Restricted Stock Award
SDG&E hereby grants to Participant, on the terms,
conditions and restrictions hereinafter set forth, and in
accordance with the Plan which is incorporated herein, as a
matter of separate inducement to achieve a certain goal set
by the Board and not in lieu of any salary or other
compensation for Participant's services, a Restricted Stock
Award consisting of_____________________________
_____________________________________________
(_____________) shares of the authorized but unissued shares
of SDG&E Common Stock, (the "Shares").
2. Purchase and Sale of Shares
Participant hereby purchases and acquires the Shares,
and SDG&E hereby sells and transfers the Shares to
Participant. Concurrently with the execution hereof, SDG&E
has delivered to Participant, and Participant acknowledges
receipt into escrow of, a certificate or certificates
evidencing the Shares, duly issued to Participant by SDG&E.
Concurrently with the execution hereof, Participant
acknowledges that the Secretary or Assistant Secretary of
SDG&E, holds on behalf of Participant all
1
<PAGE>
certificates evidencing the Shares. Participant also
acknowledges prior receipt of a prospectus for the Plan, a
copy of the Plan, and the most recent Annual Report of
SDG&E. Participant shall execute all such stock powers and
other instruments of transfer in favor of SDG&E as are
necessary at any time in the future to perform this
contract.
3. Purchase Price; Payment
The purchase price for the Shares shall be Two Dollars
and Fifty Cents ($2.50) per share. In payment thereof,
Participant has delivered to SDG&E, on the date first
written above, and SDG&E acknowledges receipt of, a check
payable to SDG&E in the amount of _________________________
_______________________Dollars ($_____________). SDG&E
agrees that Participant shall be deemed a shareholder of
record with respect to the Shares on the date first written
above.
4. Restricted Term
The Restricted Term with respect to the Shares shall
commence on the date first above written. The restrictions
will be removed from and the restricted term will expire on
one quarter of the restricted shares after the end of each
of the years 1996, 1997, 1998 and 1999:
(1) If, at the end of each of such year the
Corporation's earnings per share meet or exceed the target
earnings per share as set by the Executive Compensation
Committee.
(2) If, beginning in 1997, at the end of any quarter,
the published quarterly earnings meet or exceed the previous
year's target earnings plus 25% of the annual target
increase per quarter.
(3) At the end of 1999, the remaining restricted
shares not released previously may be released in the
discretion of the Board dependent upon the impact on 1996
through 1999 earnings of industry and corporate
restructuring during such period.
(4) The Board, in response to industry or corporate
restructuring, may elect to change the Plan design and
performance goals to align the Plan with a new long term
direction.
5. Voting and Other Rights
During the Restricted Term, Participant shall, except
as otherwise provided herein, have all of the rights of a
stockholder with respect to all of the Shares subject to the
Restricted Term, including without limitation the right to
vote such Shares and the right to receive all dividends or
other distributions with respect to such Shares. In
connection with the payment of such dividends or other
distributions, there shall be deducted any taxes or other
amounts required by any governmental authority to be
withheld and paid over to such authority for the account of
Participant.
2
<PAGE>
6. Restrictions On Inter Vivos Transfer
During the Restricted Term, the Shares subject to the
Restricted Term shall not be sold, assigned, transferred,
hypothecated or otherwise alienated, disposed of or
encumbered except as provided in the Plan. The certificate
for such Shares shall bear the following legend, or any
other similar legend as may be required by SDG&E:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF EXCEPT
AS PERMITTED BY SAN DIEGO GAS & ELECTRIC COMPANY'S 1986
LONG-TERM INCENTIVE PLAN OR THE COMMITTEE WHICH ADMINISTERS
THAT PLAN."
7. Termination of Participant's Employment
In the event Participant ceases to be employed by SDG&E
at any time before the end of the Restricted Term for any
reason, Participant shall sell, and SDG&E shall purchase all
Shares subject to the Restricted Term for a price of Two
Dollars and Fifty Cents ($2.50) per share. Upon the
delivery by SDG&E to its Secretary or Assistant Secretary of
(i) notice that Participant has ceased to be so employed,
and (ii) its check, payable to the order of Participant, in
the amount of such purchase price, said Secretary or
Assistant Secretary shall deliver to SDG&E all certificates
evidencing the Shares subject to the Restricted Term,
accompanied by stock powers and other instruments of
transfer duly executed by Participant, and shall deliver to
Participant the check in the amount of the purchase price
for such Shares.
8. Election to Recognize Income
Check one:
a. ___ Participant elects, pursuant to the Internal
Revenue Code as amended, and the comparable provisions of
state tax law, to include in gross income in connection with
the grant of this Restricted Stock Award, all amounts now
recognizable.
b. ___ Participant shall not elect, pursuant to the
Internal Revenue Code as amended, or comparable provisions
of any state tax law, to include any amount in gross income
in connection with the grant of this Restricted Stock Award.
9. Withholding and Registration
a. Upon recognition of income as elected in paragraph
8 above, Participant shall, with respect to such Shares,
make payment, in the form of cash or a cashier's check or in
the manner stated in paragraph 9(b) below, to SDG&E in an
amount sufficient to satisfy any taxes or other amounts
SDG&E determines is required by any governmental authority
to be withheld and paid over by SDG&E or any of its
subsidiaries to such authority for the account of
Participant (collectively, "Withholding Taxes"), or shall
otherwise make arrangements satisfactory to SDG&E for the
payment
3
<PAGE>
of such amounts through withholding or otherwise. For
purposes of paragraph 8(a), such payment or arrangements
shall be made by December 8, 1995. For purposes of
paragraph 8(b), the date shall be 30 days after the
restrictions are removed. Participant shall, if requested
by SDG&E, make appropriate representations in a form
satisfactory to SDG&E that such Shares will not be sold
other than pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or an
applicable exemption from the registration requirements of
such Act.
b. Subject to the restrictions set forth in paragraph
9(c) and such rules as the Committee may from time to time
adopt and upon approval by the Committee in its sole
discretion, Participant may elect to satisfy all or any
portion of such Participant's tax withholding obligations
set forth in paragraph 9(a) by electing (i) to have SDG&E
withhold from delivery of any Shares otherwise deliverable
to Participant in the manner set forth in paragraph 10
hereof, a portion of such Shares to satisfy Withholding
Taxes or (ii) to deliver to SDG&E shares of Common Stock, no
par value, of SDG&E, other than those delivered to
Participant in the manner set forth in paragraph 10 hereof,
to satisfy all or any portion of such Participant's
Withholding Taxes. The number of Shares withheld from
delivery or such other shares delivered shall equal the
number of shares the Committee, in its sole discretion,
determines to have a fair market value equal to the amount
of such Participant's Withholding Taxes required to be
withheld or paid over by SDG&E or any of its subsidiaries
and which Participant elected to be satisfied by withholding
or delivery of shares.
c. Participant's election to satisfy all or any
portion of Participants Withholding Taxes under paragraph
9(b) is subject to the following restrictions:
(i) such election must be made in writing on or
before the date when the amount of Withholding Taxes is
required to be determined (the "Tax Date");
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the
approval or disapproval of the Committee, in its sole
discretion;
(iv) the fair market value of the Shares to be
withheld or other shares of Common Stock to be delivered to
SDG&E for the purposes of satisfying all or any portion of
such Participant's Withholding Taxes shall be deemed to be
the average of the highest and lowest selling prices of such
stock as reported on the New York Stock Exchange Composite
Transactions Tape on the Tax Date, or if such stock is not
traded that day, then on the next preceding day on which
such stock was traded; and
(v) if Participant is or becomes subject to
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), such election must be made either
six months or more prior to the Tax Date or within a ten-day
period beginning on the third and ending on the twelfth
business day following release for publication of SDG&E's
quarterly or annual summary statement of earnings in
accordance with Rule 16b-3(e)(3)(iii) under the 1934 Act;
provided that no such
4
<PAGE>
election may be made within six months of the grant of such
Restricted Stock award, except in the case of death or
disability of Participant."
10. Delivery of Shares
Upon expiration of the Restricted Term applicable to
any shares as provided in the manner stated in paragraph 4
above and payment by the Participant as required in
paragraph 9 above, the Secretary or Assistant Secretary of
SDG&E shall deliver to Participant all certificates
evidencing the Shares free of legend and no longer subject
to the Restricted Term and all restrictions set forth herein
with respect to such Shares shall terminate.
If at the end of 1999 the restrictions have not been
removed from and the Restricted Term has not expired on any
of the shares purchased by Participant under this Agreement,
Participant shall sell and SDG&E shall purchase all such
shares for a price of Two Dollars and Fifty Cents ($2.50)
per share no later than February 1, 2000. The Secretary or
Assistant Secretary shall deliver to SDG&E all certificates
evidencing such shares accompanied by stock powers and other
instruments of transfer duly executed by Participant and
shall deliver to Participant a check in the amount of the
purchase price for such shares.
11. Effects On Participant's Continued Employment
Participant's right, if any, to continue to serve SDG&E
and its subsidiaries as an officer or employee shall not be
enlarged or otherwise affected by the grant to him or her of
this Restricted Stock Award, nor shall such grant in any way
restrict the right of SDG&E or any of its subsidiaries to
terminate Participant's employment at any time.
12. Further Action
Each party hereto agrees to perform any further acts
and to execute and deliver any documents which may be
reasonably necessary to carry out the provisions hereof.
13. Parties in Interest and Governing Law
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective assigns
and successors-in-interest, and shall be governed by and
interpreted in accordance with the laws of the State of
California.
14. Entire Agreement
This Agreement contains the entire agreement and
understanding between the parties as to the subject matter
hereof.
5
<PAGE>
15. Invalid Provisions
The invalidity or unenforceability of any particular
provision hereto shall not affect the other provisions
hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were
omitted.
16. Amendment
No amendment or modification hereof shall be valid
unless it shall be in writing and signed by both parties
hereto.
17. Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and taken together
shall constitute one and the same document.
18. Notices
All notices or other communications required or
permitted hereunder shall be in writing, and shall be
sufficient in all respects only if delivered in person or
sent via certified mail, postage prepaid, addressed as
follows:
If to SDG&E: San Diego Gas & Electric Company
P.O. Box 1831
San Diego, CA 92112
Attention: Corporate Secretary
If to Participant:_____________________________________
_____________________________________
_____________________________________
or such other address as shall be furnished in writing by
any such party. Any such notice or communication shall be
deemed to have been delivered when delivered in person or 48
hours after the date it has been mailed in the manner
described above.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Restricted Stock Award Agreement on the day and year
first above written.
PARTICIPANT
__________________________________
Signature of Participant
SAN DIEGO GAS & ELECTRIC COMPANY
By:________________________________
Title:_____________________________
7
SAN DIEGO GAS & ELECTRIC COMPANY
1986 LONG-TERM INCENTIVE PLAN
SPECIAL 1995 RESTRICTED STOCK AWARD AGREEMENT
_______________________________________________
THIS SPECIAL RESTRICTED STOCK AWARD AGREEMENT (the
"Agreement") is entered into this _____ day of
_________________, 1995, by and between SAN DIEGO GAS &
ELECTRIC COMPANY, a California corporation ("SDG&E") and
________________________ ("Participant").
WHEREAS, the Board of Directors of SDG&E ("the Board")
has adopted the 1986 Long-Term Incentive Plan (the "Plan"),
which provides for the granting to selected employees of
SDG&E and its subsidiaries of awards of Common Stock of
SDG&E ("Restricted Stock Awards");
WHEREAS, the grant of Restricted Stock Awards is
intended as an incentive which will attract and retain
highly competent persons as officers and key employees of
SDG&E and its subsidiaries;
WHEREAS, Participant is a selected employee of SDG&E;
and
WHEREAS, the Executive Compensation Committee of the
Board (the "Committee") has authorized, and the Board has
approved, the grant of a Restricted Stock Award to
Participant pursuant to the terms of the Plan.
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants hereinafter set forth and other good
and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Grant of Restricted Stock Award
SDG&E hereby grants to Participant, on the terms,
conditions and restrictions hereinafter set forth, and in
accordance with the Plan which is incorporated herein, as a
matter of separate inducement to achieve a certain goal set
by the Board and not in lieu of any salary or other
compensation for Participant's services, a Restricted Stock
Award consisting
of__________________________________________________________
___________________________________________ (_____________)
shares of the authorized but unissued shares of SDG&E Common
Stock, (the "Shares").
2. Purchase and Sale of Shares
Participant hereby purchases and acquires the Shares,
and SDG&E hereby sells and transfers the Shares to
Participant. Concurrently with the execution hereof, SDG&E
has delivered to Participant, and Participant acknowledges
receipt into escrow of, a certificate or certificates
evidencing
1
<PAGE>
the Shares, duly issued to Participant by SDG&E.
Concurrently with the execution hereof, Participant
acknowledges that the Secretary or Assistant Secretary of
SDG&E, holds on behalf of Participant all certificates
evidencing the Shares. Participant also acknowledges prior
receipt of a prospectus for the Plan, a copy of the Plan,
and the most recent Annual Report of SDG&E. Participant
shall execute all such stock powers and other instruments of
transfer in favor of SDG&E as are necessary at any time in
the future to perform this contract.
3. Purchase Price; Payment
The purchase price for the Shares shall be Two Dollars
and Fifty Cents ($2.50) per share. In payment thereof,
Participant has delivered to SDG&E, on the date first
written above, and SDG&E acknowledges receipt of, a check
payable to SDG&E in the amount of _________________________
_________________________Dollars ($_______________). SDG&E
agrees that Participant shall be deemed a shareholder of
record with respect to the Shares on the date first written
above.
4. Restricted Term
The Restricted Term with respect to the Shares shall
commence on the date first above written. The restrictions
will be removed from and the restricted term will expire on
all of such restricted shares after the end of the year
1997;
(1) If, at the end of the year 1997, the Corporation's
earnings per share meet or exceed the target earnings per
share for the year 1997 as set by the Executive Compensation
Committee.
(2) After the end of 1997, any remaining restricted
shares may be released in the discretion of the Board
dependent upon the impact on 1997 earnings of industry and
corporate restructuring.
(3) The Board, in response to industry or corporate
restructuring, may elect to change the Plan design and
performance goals to align the Plan with a new long term
direction.
5. Voting and Other Rights
During the Restricted Term, Participant shall, except
as otherwise provided herein, have all of the rights of a
stockholder with respect to all of the Shares subject to the
Restricted Term, including without limitation the right to
vote such Shares and the right to receive all dividends or
other distributions with respect to such Shares. In
connection with the payment of such dividends or other
distributions, there shall be deducted any taxes or other
amounts required by any governmental authority to be
withheld and paid over to such authority for the account of
Participant.
6. Restrictions On Inter Vivos Transfer
2
<PAGE>
During the Restricted Term, the Shares subject to the
Restricted Term shall not be sold, assigned, transferred,
hypothecated or otherwise alienated, disposed of or
encumbered except as provided in the Plan. The certificate
for such Shares shall bear the following legend, or any
other similar legend as may be required by SDG&E:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF EXCEPT
AS PERMITTED BY SAN DIEGO GAS & ELECTRIC COMPANY'S 1986
LONG-TERM INCENTIVE PLAN OR THE COMMITTEE WHICH ADMINISTERS
THAT PLAN."
7. Termination of Participant's Employment
In the event Participant ceases to be employed by SDG&E
at any time before the end of the Restricted Term for any
reason, Participant shall sell, and SDG&E shall purchase all
Shares subject to the Restricted Term for a price of Two
Dollars and Fifty Cents ($2.50) per share. Upon the
delivery by SDG&E to its Secretary or Assistant Secretary of
(i) notice that Participant has ceased to be so employed,
and (ii) its check, payable to the order of Participant, in
the amount of such purchase price, said Secretary or
Assistant Secretary shall deliver to SDG&E all certificates
evidencing the Shares subject to the Restricted Term,
accompanied by stock powers and other instruments of
transfer duly executed by Participant, and shall deliver to
Participant the check in the amount of the purchase price
for such Shares.
8. Election to Recognize Income
Check one:
a. ___ Participant elects, pursuant to the Internal
Revenue Code as amended, and the comparable provisions of
state tax law, to include in gross income in connection with
the grant of this Restricted Stock Award, all amounts now
recognizable.
b. ___ Participant shall not elect, pursuant to the
Internal Revenue Code as amended, or comparable provisions
of any state tax law, to include any amount in gross income
in connection with the grant of this Restricted Stock Award.
9. Withholding and Registration
a. Upon recognition of income as elected in paragraph
8 above, Participant shall, with respect to such Shares,
make payment, in the form of cash or a cashier's check or in
the manner stated in paragraph 9(b) below, to SDG&E in an
amount sufficient to satisfy any taxes or other amounts
SDG&E determines is required by any governmental authority
to be withheld and paid over by SDG&E or any of its
subsidiaries to such authority for the account of
Participant (collectively, "Withholding Taxes"), or shall
otherwise make arrangements satisfactory to SDG&E for the
payment of such amounts through withholding or otherwise.
For purposes of paragraph 8(a), such payment or arrangements
shall be made by December 8, 1995. For purposes of
paragraph 8(b), the date shall be
3
<PAGE>
30 days after the restrictions are removed. Participant
shall, if requested by SDG&E, make appropriate
representations in a form satisfactory to SDG&E that such
Shares will not be sold other than pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, or an applicable exemption from the registration
requirements of such Act.
b. Subject to the restrictions set forth in paragraph
9(c) and such rules as the Committee may from time to time
adopt and upon approval by the Committee in its sole
discretion, Participant may elect to satisfy all or any
portion of such Participant's tax withholding obligations
set forth in paragraph 9(a) by electing (i) to have SDG&E
withhold from delivery of any Shares otherwise deliverable
to Participant in the manner set forth in paragraph 10
hereof, a portion of such Shares to satisfy Withholding
Taxes or (ii) to deliver to SDG&E shares of Common Stock, no
par value, of SDG&E, other than those delivered to
Participant in the manner set forth in paragraph 10 hereof,
to satisfy all or any portion of such Participant's
Withholding Taxes. The number of Shares withheld from
delivery or such other shares delivered shall equal the
number of shares the Committee, in its sole discretion,
determines to have a fair market value equal to the amount
of such Participant's Withholding Taxes required to be
withheld or paid over by SDG&E or any of its subsidiaries
and which Participant elected to be satisfied by withholding
or delivery of shares.
c. Participant's election to satisfy all or any
portion of Participants Withholding Taxes under paragraph
9(b) is subject to the following restrictions:
(i) such election must be made in writing on or
before the date when the amount of Withholding Taxes is
required to be determined (the "Tax Date");
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the
approval or disapproval of the Committee, in its sole
discretion;
(iv) the fair market value of the Shares to be
withheld or other shares of Common Stock to be delivered to
SDG&E for the purposes of satisfying all or any portion of
such Participant's Withholding Taxes shall be deemed to be
the average of the highest and lowest selling prices of such
stock as reported on the New York Stock Exchange Composite
Transactions Tape on the Tax Date, or if such stock is not
traded that day, then on the next preceding day on which
such stock was traded; and
(v) if Participant is or becomes subject to
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), such election must be made either
six months or more prior to the Tax Date or within a ten-day
period beginning on the third and ending on the twelfth
business day following release for publication of SDG&E's
quarterly or annual summary statement of earnings in
accordance with Rule 16b-3(e)(3)(iii) under the 1934 Act;
provided that no such election may be made within six months
of the grant of such Restricted Stock award, except in the
case of death or disability of Participant."
4
<PAGE>
10. Delivery of Shares
Upon expiration of the Restricted Term applicable to
any shares as provided in the manner stated in paragraph 4
above and payment by the Participant as required in
paragraph 9 above, the Secretary or Assistant Secretary of
SDG&E shall deliver to Participant all certificates
evidencing the Shares free of legend and no longer subject
to the Restricted Term and all restrictions set forth herein
with respect to such Shares shall terminate.
If at the end of 1999 the restrictions have not been
removed from and the Restricted Term has not expired on any
of the shares purchased by Participant under this Agreement,
Participant shall sell and SDG&E shall purchase all such
shares for a price of Two Dollars and Fifty Cents ($2.50)
per share no later than February 1, 2000. The Secretary or
Assistant Secretary shall deliver to SDG&E all certificates
evidencing such shares accompanied by stock powers and other
instruments of transfer duly executed by Participant and
shall deliver to Participant a check in the amount of the
purchase price for such shares.
11. Effects On Participant's Continued Employment
Participant's right, if any, to continue to serve SDG&E
and its subsidiaries as an officer or employee shall not be
enlarged or otherwise affected by the grant to him or her of
this Restricted Stock Award, nor shall such grant in any way
restrict the right of SDG&E or any of its subsidiaries to
terminate Participant's employment at any time.
12. Further Action
Each party hereto agrees to perform any further acts
and to execute and deliver any documents which may be
reasonably necessary to carry out the provisions hereof.
13. Parties in Interest and Governing Law
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective assigns
and successors-in-interest, and shall be governed by and
interpreted in accordance with the laws of the State of
California.
14. Entire Agreement
This Agreement contains the entire agreement and
understanding between the parties as to the subject matter
hereof.
15. Invalid Provisions
The invalidity or unenforceability of any particular
provision hereto shall not affect the other provisions
hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were
omitted.
5
<PAGE>
16. Amendment
No amendment or modification hereof shall be valid
unless it shall be in writing and signed by both parties
hereto.
17. Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and taken together
shall constitute one and the same document.
18. Notices
All notices or other communications required or
permitted hereunder shall be in writing, and shall be
sufficient in all respects only if delivered in person or
sent via certified mail, postage prepaid, addressed as
follows:
If to SDG&E: San Diego Gas & Electric Company
P.O. Box 1831
San Diego, CA 92112
Attention: Corporate Secretary
If to Participant:_____________________________________
_____________________________________
_____________________________________
or such other address as shall be furnished in writing by
any such party. Any such notice or communication shall be
deemed to have been delivered when delivered in person or 48
hours after the date it has been mailed in the manner
described above.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Restricted Stock Award Agreement on the day and year
first above written.
PARTICIPANT
_______________________________
Signature of Participant
SAN DIEGO GAS & ELECTRIC COMPANY
By:_____________________________
Title:__________________________
7
SAN DIEGO GAS & ELECTRIC COMPANY
1986 LONG-TERM INCENTIVE PLAN
1994 RESTRICTED STOCK AWARD AGREEMENT
TWO-YEAR VESTING
_______________________________________________
THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement")
is entered into this ______ day of ______________, 1994, by
and between SAN DIEGO GAS & ELECTRIC COMPANY, a California
corporation ("SDG&E") and ________________________
("Participant").
WHEREAS, the Board of Directors of SDG&E ("the Board")
has adopted the 1986 Long-Term Incentive Plan (the "Plan"),
which provides for the granting to selected employees of
SDG&E and its subsidiaries of awards of Common Stock of
SDG&E ("Restricted Stock Awards");
WHEREAS, the grant of Restricted Stock Awards is
intended as an incentive which will attract and retain
highly competent persons as officers and key employees of
SDG&E and its subsidiaries;
WHEREAS, Participant is a selected employee of SDG&E;
and
WHEREAS, the Executive Compensation Committee of the
Board (the "Committee") has authorized, and the Board has
approved, the grant of a Restricted Stock Award to
Participant pursuant to the terms of the Plan.
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants hereinafter set forth and other good
and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Grant of Restricted Stock Award
SDG&E hereby grants to Participant, on the terms,
conditions and restrictions hereinafter set forth, and in
accordance with the Plan which is incorporated herein, as a
matter of separate inducement to achieve a certain goal set
by the Board and not in lieu of any salary or other
compensation for Participant's services, a Restricted Stock
Award consisting of Two Thousand Five Hundred (2,500) shares
of the authorized but unissued shares of SDG&E Common Stock,
(the "Shares").
2. Purchase and Sale of Shares
Participant hereby purchases and acquires the Shares,
and SDG&E hereby sells and transfers the Shares to
Participant. Concurrently with the execution hereof, SDG&E
has delivered to
1
<PAGE>
Participant, and Participant acknowledges receipt into
escrow of, a certificate or certificates evidencing the
Shares, duly issued to Participant by SDG&E. Concurrently
with the execution hereof, Participant acknowledges that the
Secretary or Assistant Secretary of SDG&E, holds on behalf
of Participant all certificates evidencing the Shares.
Participant also acknowledges prior receipt of a prospectus
for the Plan, a copy of the Plan, and an Annual Report of
SDG&E for the year 1993. Participant shall execute all such
stock powers and other instruments of transfer in favor of
SDG&E as are necessary at any time in the future to perform
this contract.
3. Purchase Price; Payment
The purchase price for the Shares shall be Two Dollars
and Fifty Cents ($2.50) per share. In payment thereof,
Participant has delivered to SDG&E, on the date first
written above, and SDG&E acknowledges receipt of, a check
payable to SDG&E in the amount of Six Thousand Two Hundred
and Fifty Dollars ($6,250.00). SDG&E agrees that
Participant shall be deemed a shareholder of record with
respect to the Shares on the date first written above.
4. Restricted Term
(a) The Restricted Term with respect to the Shares
shall commence on the date first above written. The
restrictions will be removed from and the restricted term
will expire on the Shares if:
(1) After the end of the year 1996 if at the end
of the year 1996 the Corporation's earnings per share meets
or exceeds the target earnings per share for the year 1996
as set by the Committee.
(2) After the end of 1996, any remaining
restricted shares may be released in the discretion of the
Board dependent upon the impact on 1996 earnings of industry
and corporate restructuring.
5. Voting and Other Rights
During the Restricted Term, Participant shall, except
as otherwise provided herein, have all of the rights of a
stockholder with respect to all of the Shares subject to the
Restricted Term, including without limitation the right to
vote such Shares and the right to receive all dividends or
other distributions with respect to such Shares. In
connection with the payment of such dividends or other
distributions, there shall be deducted any taxes or other
amounts required by any governmental authority to be
withheld and paid over to such authority for the account of
Participant.
2
<PAGE>
6. Restrictions On Inter Vivos Transfer
During the Restricted Term, the Shares subject to the
Restricted Term shall not be sold, assigned, transferred,
hypothecated or otherwise alienated, disposed of or
encumbered except as provided in the Plan. The certificate
for such Shares shall bear the following legend, or any
other similar legend as may be required by SDG&E:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF EXCEPT
AS PERMITTED BY SAN DIEGO GAS & ELECTRIC COMPANY'S 1986
LONG-TERM INCENTIVE PLAN OR THE COMMITTEE WHICH ADMINISTERS
THAT PLAN."
7. Termination of Participant's
Employment
In the event Participant ceases to be employed by SDG&E
at any time before the end of the Restricted Term for any
reason, Participant shall sell, and SDG&E shall purchase all
Shares subject to the Restricted Term for a price of Two
Dollars and Fifty Cents ($2.50) per share. Upon the
delivery by SDG&E to its Secretary or Assistant Secretary of
(i) notice that Participant has ceased to be so employed,
and (ii) its check, payable to the order of Participant, in
the amount of such purchase price, said Secretary or
Assistant Secretary shall deliver to SDG&E all certificates
evidencing the Shares subject to the Restricted Term,
accompanied by stock powers and other instruments of
transfer duly executed by Participant, and shall deliver to
Participant the check in the amount of the purchase price
for such Shares.
8. Election to Recognize Income
Check one:
a. ___ Participant elects, pursuant to the Internal
Revenue Code as amended, and the comparable provisions of
state tax law, to include in gross income in connection with
the grant of this Restricted Stock Award, all amounts now
recognizable.
b. ___ Participant shall not elect, pursuant to the
Internal Revenue Code as amended, or comparable provisions
of any state tax law, to include any amount in gross income
in connection with the grant of this Restricted Stock Award.
9. Withholding and Registration
(a) Upon recognition of income as elected in paragraph
8 above, Participant shall, with respect to such Shares,
make payment, in the form of cash or a cashier's check or in
the manner stated
3
<PAGE>
in paragraph 9(b) below, to SDG&E in an amount sufficient
to satisfy any taxes or other amounts SDG&E determines is
required by any governmental authority to be withheld and
paid over by SDG&E or any of its subsidiaries to such
authority for the account of Participant (collectively,
"Withholding Taxes"), or shall otherwise make arrangements
satisfactory to SDG&E for the payment of such amounts
through withholding or otherwise. For purposes of paragraph
8(a), such payment or arrangements shall be made by December
9, 1994. For purposes of paragraph 8(b), the date shall be
30 days after the restrictions are removed. Participant
shall, if requested by SDG&E, make appropriate
representations in a form satisfactory to SDG&E that such
Shares will not be sold other than pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, or an applicable exemption from the registration
requirements of such Act.
(b) Subject to the restrictions set forth in paragraph
9(c) and such rules as the Committee may from time to time
adopt and upon approval by the Committee in its sole
discretion, Participant may elect to satisfy all or any
portion of such Participant's tax withholding obligations
set forth in paragraph 9(a) by electing (i) to have SDG&E
withhold from delivery of any Shares otherwise deliverable
to Participant in the manner set forth in paragraph 10
hereof, a portion of such Shares to satisfy Withholding
Taxes or (ii) to deliver to SDG&E shares of Common Stock, no
par value, of SDG&E, other than those delivered to
Participant in the manner set forth in paragraph 10 hereof,
to satisfy all or any portion of such Participant's
Withholding Taxes. The number of Shares withheld from
delivery or such other shares delivered shall equal the
number of shares the Committee, in its sole discretion,
determines to have a fair market value equal to the amount
of such Participant's Withholding Taxes required to be
withheld or paid over by SDG&E or any of its subsidiaries
and which Participant elected to be satisfied by withholding
or delivery of shares.
(c) Participant's election to satisfy all or any
portion of Participants Withholding Taxes under paragraph
9(b) is subject to the following restrictions:
(i) such election must be made in writing on or
before the date when the amount of Withholding Taxes is
required to be determined (the "Tax Date");
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the
approval or disapproval of the Committee, in its sole
discretion;
(iv) the fair market value of the Shares to be
withheld or other shares of Common Stock to be delivered to
SDG&E for the purposes of satisfying all or any portion of
such Participant's Withholding Taxes shall be deemed to be
the average of the highest and lowest selling prices of such
stock as reported on the New York Stock Exchange Composite
Transactions Tape on the Tax Date, or if such stock is not
traded that day, then on the next preceding day on which
such stock was traded; and
4
<PAGE>
(v) if Participant is or becomes subject to
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), such election must be made either
six months or more prior to the Tax Date or within a ten-day
period beginning on the third and ending on the twelfth
business day following release for publication of SDG&E's
quarterly or annual summary statement of earnings in
accordance with Rule 16b-3(e)(3)(iii) under the 1934 Act;
provided that no such election may be made within six months
of the grant of such Restricted Stock award, except in the
case of death or disability of Participant."
10. Delivery of Shares
Upon expiration of the Restricted Term applicable to
any shares as provided in the manner stated in paragraph 4
above and payment by the Participant as required in
paragraph 9 above, the Secretary or Assistant Secretary of
SDG&E shall deliver to Participant all certificates
evidencing the Shares free of legend and no longer subject
to the Restricted Term and all restrictions set forth herein
with respect to such Shares shall terminate.
If at the end of 1997 the restrictions have not been
removed from and the Restricted Term has not expired on any
of the shares purchased by Participant under this Agreement,
Participant shall sell and SDG&E shall purchase all such
shares for a price of Two Dollars and Fifty Cents ($2.50)
per share no later than February 1, 1998. The Secretary or
Assistant Secretary shall deliver to SDG&E all certificates
evidencing such shares accompanied by stock powers and other
instruments of transfer duly executed by Participant and
shall deliver to Participant a check in the amount of the
purchase price for such shares.
11. Effects On Participant's Continued Employment
Participant's right, if any, to continue to serve SDG&E
and its subsidiaries as an officer or employee shall not be
enlarged or otherwise affected by the grant to him or her of
this Restricted Stock Award, nor shall such grant in any way
restrict the right of SDG&E or any of its subsidiaries to
terminate Participant's employment at any time.
12. Further Action
Each party hereto agrees to perform any further acts
and to execute and deliver any documents which may be
reasonably necessary to carry out the provisions hereof.
5
<PAGE>
13. Parties in Interest and Governing Law
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective assigns
and successors-in-interest, and shall be governed by and
interpreted in accordance with the laws of the State of
California.
14. Entire Agreement
This Agreement contains the entire agreement and
understanding between the parties as to the subject matter
hereof.
15. Invalid Provisions
The invalidity or unenforceability of any particular
provision hereto shall not affect the other provisions
hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were
omitted.
16. Amendment
No amendment or modification hereof shall be valid
unless it shall be in writing and signed by both parties
hereto.
17. Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and taken together
shall constitute one and the same document.
18. Notices
All notices or other communications required or
permitted hereunder shall be in writing, and shall be
sufficient in all respects only if delivered in person or
sent via certified mail, postage prepaid, addressed as
follows:
If to SDG&E: San Diego Gas & Electric Company
P.O. Box 1831
San Diego, CA 92112
Attention: Corporate Secretary
6
<PAGE>
If to Participant:_____________________________________
_____________________________________
_____________________________________
or such other address as shall be furnished in writing by
any such party. Any such notice or communication shall be
deemed to have been delivered when delivered in person or 48
hours after the date it has been mailed in the manner
described above.
IN WITNESS WHEREOF, the parties hereto have executed
this Restricted Stock Award Agreement on the day and year
first above written.
PARTICIPANT
__________________________________
Signature of Participant
SAN DIEGO GAS & ELECTRIC COMPANY
By:_______________________________
Title:____________________________
7
<PAGE>
EXHIBIT 12.1
SAN DIEGO GAS & ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest:
Long-Term Debt $ 98,000 $99,900 $ 92,596 $ 92,770 $ 95,523
Short-Term Debt 7,429 5,319 7,173 10,015 15,345
Amortization of Debt
Discount and Expense,
Less Premium 2,471 2,881 4,162 4,604 4,870
Interest Portion of
Annual Rentals 18,067 14,563 19,081 21,838 19,371
---------- ----------- --------- ----------- ----------
Total Fixed
Charges 125,967 122,663 123,012 129,227 135,109
---------- ----------- --------- ----------- ----------
Preferred Dividends
Requirements 10,535 9,600 8,565 7,663 7,663
Ratio of Income Before
Tax to Net Income 1.61473 1.74291 1.70580 1.94788 1.57657
----------- ----------- ---------- ---------- ----------
Preferred Dividends
for Purpose of Ratio 17,011 16,732 14,610 14,927 12,081
----------- ----------- ---------- ---------- ----------
Total Fixed Charges
and Preferred
Dividends for
Purpose of Ratio $142,978 $139,395 $137,622 $144,154 $147,190
=========== ========== ========== ========== ==========
Earnings:
Net Income (before
preferred dividend
requirements) $208,060 $210,657 $218,715 $143,477 $233,457
Add:
Fixed Charges
(from above) 125,967 122,663 123,012 129,227 135,109
Less: Fixed Charges
Capitalized 2,907 2,407 2,596 2,472 2,785
Taxes on Income 127,900 156,500 154,369 135,999 134,605
---------- ---------- ---------- ----------- ---------
Total Earnings for
Purpose of Ratio $459,020 $487,413 $493,500 $406,231 $500,386
========== ========== ========== =========== ==========
Ratio of Earnings
to Combined Fixed
Charges and Preferred
Dividends 3.21 3.50 3.59 2.82 3.40
========== ========== ========== =========== =========
</TABLE>
<PAGE>
ENOVA CORPORATION PARENT COMPANY OF SDG&E
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On December 6, 1995, San Diego Gas & Electric Company announced the
formation of Enova Corporation as the parent company for SDG&E, an
operating public utility, and unregulated subsidiaries. On January 1,
1996, Enova Corporation became the parent of SDG&E. SDG&E's
outstanding common stock was converted on a share-for-share basis
into Enova Corporation common stock. SDG&E's debt securities,
preferred stock and preference stock were unaffected and remain with
SDG&E. On January 31, 1996, SDG&E's ownership interests in its
subsidiaries were transferred to Enova Corporation at book value,
completing the parent company structure. The consolidated financial
statements include SDG&E and its subsidiaries and, therefore, also
reflect what is now Enova and its subsidiaries. Beginning on January 1,
1996, SDG&E's financial statements for periods prior to 1996 will be
restated to reflect the net results of non-utility subsidiaries as
discontinued operations in accordance with Accounting Principles Board
Opinion No. 30 "Reporting the Effects of a Disposal of a Segment of
Business."
SDG&E is engaged in electric and gas businesses. It generates and
purchases electric energy and distributes it to 1.2 million customers
in San Diego County and an adjacent portion of Orange County,
California. It also purchases and distributes natural gas to 700,000
customers in San Diego County and transports gas for others. SDG&E has
diversified into other businesses. Enova Financial, Inc., invests in
limited partnerships representing approximately 800 affordable-housing
projects located throughout the United States. Califia Company leases
computer equipment. The investments in Enova Financial and Califia are
expected to provide income tax benefits over the next several years.
Enova Energy, Inc., is an energy management consulting firm offering
services to utilities and large consumers. Pacific Diversified Capital
Company is the parent company for non-utility subsidiaries, Phase One
Development, Inc., which is engaged in real estate development, and
Enova Technologies, Inc. Enova Technologies, whose ownership was
transferred directly to Enova Corporation after December 31, 1995, is
in the business of developing new technologies generally related to
utilities and energy, including certain research transferred from the
utility. Enova International was formed after December 31, 1995, to
develop and operate natural gas and power projects outside the United
States. Additional information regarding SDG&E's subsidiaries is
described in Notes 1 and 3 of the notes to consolidated financial
statements.
OPERATING REVENUES Electric revenues did not change significantly in
1995 or in 1994, decreasing less than one percent each year. Gas
revenues decreased 10 percent in 1995, reflecting lower purchased-gas
prices and lower sales volume due to warmer weather and an increase in
customers' purchases of gas directly from other suppliers (for whom
SDG&E provides transportation).
Revenues from diversified operations increased in 1994, primarily
due to Califia's leasing activities.
OPERATING EXPENSES Electric fuel expense decreased 30 percent in 1995
and 18 percent in 1994. The decrease in 1995 was primarily due to
lower prices for natural gas and the shifting of energy supply sources
from generation to purchased power as a result of nuclear refuelings
during the year. The decrease in 1994 was due to lower prices for
natural gas and the replacement of fossil fuel generation with lower-
cost nuclear generation.
Purchased-power expenses decreased in 1995, reflecting a decrease
in purchased-power prices, offset by higher volumes. The 5 percent
increase in 1994 was primarily due to increased purchases from higher-
cost, independent power producers.
Gas purchased for resale decreased 23 percent in 1995 and 12
percent in 1994. The decrease in 1995 was primarily due to lower
prices for natural gas and lower sales volumes due to warmer weather
and an increase in customers' purchases of gas directly from other
suppliers (for whom SDG&E provides transportation). The decrease in
1994 was due to lower natural gas prices and lower sales volumes due
to customers' purchases of gas directly from others.
The changes in maintenance expenses reflect unusually low charges
in 1994, a year which included no nuclear plant refuelings.
OTHER INCOME AND DEDUCTIONS Other income and deductions increased in
1995 and decreased in 1994. These changes, including the change in
"Other-net," were primarily due to the 1994 writedowns described in
Note 2 of the notes to consolidated financial statements.
EARNINGS 1995 earnings per common share were $1.94, compared to $1.17
in 1994 and $1.81 in 1993. Earnings per common share from continuing
operations were $1.94 in 1995, compared with $1.71 in 1994 and $1.89
in 1993. Excluding the impact of writedowns of utility and non-utility
real property and other assets ($0.20 per share), 1994 earnings per
share from continuing operations were $1.91. The increase in earnings
in 1995 is due to numerous offsetting factors, including the increased
utility authorized rate of return and changes in incentive awards for
performance-based ratemaking and demand-side management programs. The
increase in earnings in 1994 was the result of several offsetting
factors, including lower operating and maintenance expense,
performance-based ratemaking awards and lower utility authorized
return.
18
<PAGE>
Earnings per share for the quarter ended December 31, 1995, were
$0.50 compared to $0.47 for the same period in 1994. Earnings per
share from continuing operations for the quarter were $0.45 in 1995
and $0.49 in 1994. The latter decrease is due to numerous offsetting
factors, including changes in incentive awards for performance-based
ratemaking and demand-side management programs, and the increased
authorized rate of return.
Califia and Enova Financial's contributions to earnings for the
year were $0.17 in 1995, $0.15 in 1994 and $0.09 in 1993. The impact
of the remaining subsidiaries on earnings from continuing operations
was not material.
LIQUIDITY AND CAPITAL RESOURCES
Utility operations continue to be a major source of liquidity. In
addition, financing needs are met primarily through issuances of short-
term and long-term debt, and of common and preferred stock. These
capital resources are expected to remain available. Cash requirements
include plant construction and other capital expenditures;
subsidiaries' affordable-housing, leasing and other investments; and
repayments and retirements of long-term debt. In addition to changes
described elsewhere, major changes in cash flows are described below.
CASH FLOWS FROM OPERATING ACTIVITIES The major changes in cash flows
from operations among the three years result from changes in
regulatory balancing accounts, income taxes, and accounts payable and
other current liabilities. The changes related to regulatory balancing
accounts were due primarily to changes in prices for natural gas. The
changes related to income taxes (and other current assets) were due
primarily to the differences in timing of income tax payments related
to regulatory balancing account activity in 1994. The changes related
to accounts payable and other current liabilities were due primarily
to greater demand-side management activity in December 1995, lower
employee incentive compensation and lower construction activity in
December 1994.
Quarterly cash dividends of $0.39 per share have been declared
for each quarter during the year ended December 31, 1995. The dividend
payout ratio for the years ended December 31, 1995, 1994, 1993, 1992
and 1991 were 80 percent, 130 percent, 82 percent, 81 percent and 79
percent, respectively. The increase in the payout ratio for the year
ended December 31, 1994, was due to the writedowns recorded during
1994. Additional information regarding the writedowns is provided in
Notes 2 and 3 of the notes to consolidated financial statements. The
payment of future dividends is within the discretion of the directors
and is dependent upon future business conditions, earnings and other
factors. Net cash flows provided by operating activities currently are
sufficient to maintain the payment of dividends at the present level.
CASH FLOWS FROM FINANCING ACTIVITIES SDG&E had only short- and
intermediate-term financing needs during 1995 and does not expect to
issue any intermediate-term debt in 1996. The utility did not issue
stock or long-term debt in 1995, except for refinancings, and does not
plan any issuances in 1996, other than refinancings. Subsidiaries
Enova Financial, Califia, Pacific Diversified Capital and Phase One
Development repaid $40 million in long-term debt in 1995 during the
ordinary course of business. To date, it has not been determined
whether the nonutility subsidiaries will issue debt in 1996.
SDG&E's utility capital structure is one factor that has enabled
it to obtain long-term financing at attractive rates. The following
table shows the percentages of capital represented by the various
components. The capital structures are net of the construction funds
held by a trustee in 1992 and 1993.
1991 1992 1993 1994 1995 Goal
- -----------------------------------------------------------
Common equity 47% 47% 47% 48% 49% 45-48%
Preferred stock 5 5 4 4 4 5-7
Debt and leases 48 48 49 48 47 46-49
- -----------------------------------------------------------
Total 100% 100% 100% 100% 100% 100%
___________________________________________________________
In December 1995, Standard & Poor's and Moody's Investors Service
affirmed the ratings of SDG&E following the CPUC's decision on
restructuring California's electric utility industry. Moody's affirmed
its long-term bond rating of A1 and stable outlook. Standard & Poor's
affirmed its long-term bond rating of A+ and negative outlook.
Standard & Poor's said the outlook would remain negative pending
further study of the financial implications of the restructuring
decision, as well as the potential for modification or approval by the
governor and the California Legislature.
On December 19, 1995, the Securities and Exchange Commission
approved SDG&E's application to delist its preferred and preference
stock from the Pacific Stock Exchange. All SDG&E preferred and
preference stock is now listed on the American Exchange only.
On January 15, 1996, SDG&E redeemed its $7.20 series preference
stock. The entire $15 million issue was called for mandatory
redemption at $101 per share.
DERIVATIVES SDG&E's policy is to use derivative financial instruments
to reduce its exposure to fluctuations in interest rates and foreign
currency exchange rates. These financial instruments are with major
investment firms and, along with cash and cash equivalents and
accounts receivable, expose SDG&E to market and credit risks. These
risks may at times be concentrated with certain counterparties. SDG&E
presently contemplates use of similar instruments to reduce its
exposure to fluctuations in natural gas prices. SDG&E does not use
derivatives for trading or speculative purposes.
19
<PAGE>
SDG&E periodically enters into interest rate swap and cap
agreements to moderate its exposure to interest rate changes and to
lower its overall cost of borrowing. These swap and cap agreements
generally remain off the balance sheet as they involve the exchange of
fixed- and variable-rate interest payments without the exchange of the
underlying principal amounts. The related gains or losses are
reflected in the income statement as part of interest expense. SDG&E
would be exposed to interest-rate fluctuations on the underlying debt
should other parties to the agreement not perform. Such non-
performance is not anticipated. At December 31, 1995, SDG&E had two
such agreements, including an index cap agreement on $75 million of
bonds maturing in 1996, and a floating-to-fixed-rate swap associated
with $45 million of variable-rate bonds maturing in 2002.
SDG&E's pension fund periodically uses foreign currency forward
contracts to reduce its exposure from exchange-rate fluctuations
associated with certain investments in foreign equity securities.
These contracts generally have maturities ranging from three to six
months. At December 31, 1995, the pension fund held forward Yen-U.S.
Dollar contracts totaling $20 million. SDG&E's pension fund is exposed
to credit loss if the counterparties fail to perform. Such non-
performance is not anticipated.
Additional information on derivative financial instruments is
provided in Note 9 of the notes to consolidated financial statements.
CASH FLOWS FROM INVESTING ACTIVITIES Cash used in investing activities
in 1995 included utility construction expenditures and payments to its
nuclear decommissioning trust. Construction expenditures, excluding
nuclear fuel and the allowance for equity funds used during
construction, were $221 million in 1995 and are estimated to be $220
million in 1996. The company continuously reviews its construction,
investment and financing programs and revises them in response to
changes in competition, customer growth, inflation, customer rates,
the cost of capital, and environmental and regulatory requirements.
Among other things, the level of expenditures in the next few years
will depend heavily on the impact of the CPUC's industry restructuring
decision, on the timing of expenditures to comply with air emission
reduction and other environmental requirements, on the company's plan
to transport natural gas to Mexico and, on the scope of Enova
Technologies' investment in new technologies. These matters are
discussed below.
Payments to the nuclear decommissioning trust are expected to
continue until SONGS is decommissioned, which is not expected to occur
before 2013. Although Unit 1 was permanently shut down in 1992, it is
expected to be decommissioned concurrently with Units 2 and 3.
REGULATORY MATTERS
ELECTRIC RATES In April 1995, the CPUC issued its decision on SDG&E's
May 1995 Energy Cost Adjustment Clause Application, approving an $81
million decrease in electric rates effective May 1, 1995. The decrease
reflects, among other things, lower fuel and purchased-power costs and
the return of previous overcollections from customers. The $81 million
ECAC decrease was combined with previously approved increases for cost
of capital ($31 million) and base rates ($41 million), resulting in an
authorized system average electric rate of $0.0987.
In October 1995, SDG&E filed its 1996 ECAC rate request with the
CPUC for an $18 million decrease in electric rates which, if approved,
would result in an authorized system average electric rate of $0.0967
on June 1, 1996. The request reflects lower forecasted prices for fuel
and purchased power, lower cost of capital, balancing account activity,
and inflation and customer growth based on SDG&E's performance-based
ratemaking Base Rates Mechanism formula. Settlement discussions are
currently ongoing among SDG&E, the CPUC's Division of Ratepayer
Advocates and other parties.
In December 1995, the CPUC found SDG&E operations to be
reasonable for the record period August 1, 1992, through July 31,
1993, except for $1.8 million associated with a wholesale transaction.
This is the last comprehensive reasonableness review, since
performance-based ratemaking (see below) limits such reviews to those
issues causing expenses to fall outside certain parameters.
GAS RATES In July 1995, the CPUC issued its decision on SDG&E's June
1995 application to lower core gas rates by $16 million, effective
August 1, 1995. The decrease was based on the decline in gas prices to
levels below the Biennial Cost Allocation Proceeding's price forecast
that became effective January 1, 1995, and lowered the gas portion of
a typical residential SDG&E natural gas bill by $1.60 per month or 6.5
percent.
In December 1995, the CPUC authorized SDG&E to implement a $21
million natural gas refund as a result of balancing account
overcollections from lower-than-expected natural gas commodity costs.
The typical customer's refund, distributed in February 1996, averaged
$22. In December 1995, the CPUC also authorized a $25 million natural
gas rate increase for residential and small-business customers. In
January 1996, the typical customer's gas bill increased approximately
$1.78 per month, primarily due to an increase in natural gas
transportation prices from Southern California Gas and an update of
balancing account activity.
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PERFORMANCE-BASED RATEMAKING In December 1995, the CPUC issued its
decision, authorizing rewards of $3.7 million for electric generation
and dispatch (G&D) and $3.8 million for gas procurement based on first-
year (August 1993 through July 1994) results of performance-based
ratemaking (PBR). The CPUC also found SDG&E's nuclear and gas-storage
operations reasonable for the same period.
In October 1995, SDG&E filed reports with the CPUC on the results
of its electric generation and dispatch and gas procurement mechanisms
for the year ended July 31, 1995. SDG&E's fuel and purchased-power
expenses fell below the benchmarks for these mechanisms by a total of
$27.9 million ($2.8 million for G&D and $25.1 million for gas). In its
filing for a rate adjustment effective June 1, 1996, SDG&E requested a
total shareholder reward of $3.4 million ($0.8 million for G&D and
$2.6 million for gas) and that the remainder of these savings be given
to customers through lower rates.
In July 1995, the CPUC authorized $7 million in rewards to
shareholders as a result of SDG&E's exceeding CPUC-approved 1994
benchmarks under the base-rates PBR mechanism. Performance measures in
the base-rates mechanism measures include customer satisfaction,
national rates comparison, system reliability and employee safety.
These PBR rewards are recorded in advance of receipt only when
the entire reward will be collected in rates within 24 months of the
CPUC's approval.
The gas procurement and G&D mechanisms are effective under a
previously authorized two-year experiment that began in August 1993.
Both have been extended until the Division of Ratepayer Advocates and
the Commission Advisory and Compliance Division file their final
reports for the year ended July 31, 1995 (expected during the first
quarter of 1996). Thereafter, SDG&E will be applying for an extension
and modification in conjunction with the restructuring of California's
electric utility industry (see "Competition" below), and the existing
mechanisms are expected to remain in place until the CPUC acts on the
application. The base-rates mechanism was established as a 5-year
experimental mechanism that is intended to run from January 1994
through December 1998.
COST OF CAPITAL In November 1995, the CPUC issued its decision
authorizing SDG&E, Pacific Gas and Electric, Southern California
Edison, Southern California Gas and Sierra Pacific Power 11.60 percent
returns on common equity for 1996. (SDG&E's was 12.05 percent in
1995.) SDG&E's resulting rate of return on ratebase is 9.37 percent,
compared to 9.76 percent in 1995.
In October 1995, SDG&E filed a proposal with the CPUC to
implement a mechanism to establish its cost of capital beginning in
January 1997. Each October, SDG&E's authorized rate of return would be
adjusted if single A bond rates change by 1 percent or more from the
prior year's benchmark. A 100-basis-point change in single A bond
rates would result in a one-half percent change in SDG&E's return-on-
equity. In addition, SDG&E's embedded costs of debt and preferred
stock would be adjusted to reflect SDG&E's outstanding long-term debt
and preferred stock at each September 30 if the return-on-equity
adjustment described above is triggered. The adjustments would be
effective on January 1 of the following year. The proposal suggests a
3-year trial period during which SDG&E's authorized capital structure
would not change.
SAN ONOFRE NUCLEAR GENERATING STATION SDG&E is currently recovering its
existing capital investment in San Onofre Nuclear Generating Station
Unit 1 over a 4-year period that began in November 1992, when the CPUC
issued a decision to permanently shut down the unit. The decision
authorized Southern California Edison (majority owner and operator of
SONGS) and SDG&E to recover their investments in Unit 1, of which
SDG&E's share was $111 million. SDG&E is recovering its investment,
earning a return of 9.1 percent. At December 31, 1995, $18 million
remained to be recovered.
In January 1996, the CPUC approved the accelerated recovery of
SONGS Units 2 and 3 existing capital costs. The decision allows SDG&E
to recover its investment of approximately $750 million over an 8-year
period beginning in 1996, rather than over the anticipated operational
life of the units, which is expected to extend to 2013. During the 8-
year period, the authorized rate of return on the equity portion of
the investment will be 90 percent of SDG&E's embedded cost of debt and
the return on the debt-financed component will be at 7.52 percent
(SDG&E's 1995 authorized cost of debt). The decision includes a
performance incentive plan that encourages continued, efficient
operation of the plant during the 8-year period. During this period,
customers will pay about $0.04 per kilowatt-hour. This pricing
structure replaces the traditional method of recovering the units'
operating expenses and capital improvements. This is intended to make
the units more competitive with other sources.
COMPETITION
ELECTRIC - CALIFORNIA In December 1995, the CPUC issued its policy
decision on the restructuring of California's electric utility
industry to stimulate competition and reduce rates. Beginning in
January 1998, customers can buy their electricity through a power
exchange that will obtain power from the lowest-bidding suppliers.
The exchange is a spot market with visible pricing. Consumers also
may choose to continue
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to purchase from their local utility under
regulated tariffs. As a third option, a cross section of all customer
groups (residential, industrial, commercial and agricultural) will be
able to go directly to any energy supplier and enter into private
contracts with generators, brokers or others (direct access).
As the direct access mechanism has many technical issues to be
resolved, a five-year phase-in is planned. All California electricity
customers of investor-owned utilities will have the option to purchase
generation services directly by 2003. Key points of the CPUC decision
as it relates to SDG&E include:
- An independent system operator (ISO) will schedule power
transactions and access to the state transmission system, enabling
competing power producers to have equal opportunity to deliver their
supplies. Participation in the power exchange or "pool-based"
wholesale electricity market will be voluntary for buyers and sellers,
except for the investor-owned utilities. The ISO and the power
exchange will be separate, independent entities under Federal Energy
Regulatory Commission jurisdiction.
- Utilities will be allowed to fully recover their "stranded"
costs incurred for facilities approved by the CPUC, purchased-power
and other contracts, and regulatory assets through the establishment
of a non-bypassable competition transition charge (CTC) which all
customers will be assessed.
- Utilities will continue to have the obligation to provide
distribution service to all customers and provide least-cost
generation service to those customers who do not choose the direct-
access option. Performance-based regulation rather than cost-of-
service regulation will be used to encourage efficient utility
operation.
- Utilities will continue to have direct control and operation of
the distribution business and procurement of generation services for
customers who continue to purchase from the utility, which will
continue to be regulated by the CPUC. Transmission facilities will be
owned by the utilities and operated by the ISO.
- For purposes of transition cost recovery, rates for customers
taking bundled utility service (energy, transmission and distribution
included into one rate) will be capped at levels consistent with
January 1, 1996, revenue requirements. Including the CTC, rates cannot
exceed the cap and, therefore, recovery of the CTC is limited by the
cap. If rates not including the CTC meet or exceed the cap for a
particular period, no CTC can be recouped, but rather will be
accumulated in a balancing account for future recovery (see below).
- The CPUC supports a non-bypassable surcharge to fund public
policy programs.
The decision identifies three primary sources of transition
costs: uneconomic utility-owned generating assets (that portion of
fossil units not recoverable in the energy price), existing purchased-
power obligations (including qualifying facilities), and regulatory
assets and obligations (including deferred operating costs and
deferred taxes). By September 1996, the utilities must identify and
value investments for inclusion in a transitional balancing account,
subject to CPUC review and approval. The transition-balancing account
can be adjusted through 2003 for errors or omissions. Collection of
any investment-related transition costs must be completed by 2005.
Thereafter, participation in the power exchange by investor-owned
utilities will be voluntary.
The decision allows for recovery of all remaining generation
investment costs, with a reduced rate of return on any investment-
related transition costs. The rate of return for the debt component
would be equal to the utility's embedded cost of debt and the rate of
return on the equity component would be equal to 90 percent of the
embedded cost of debt. SDG&E's authorized cost of debt is 7.52 percent
for 1995. The CPUC reduced the rate of return to reflect the
perception of lower risk, due to the non-bypassable CTC on
distribution customers, and the reduced risk that the plants will be
found no longer used and useful and removed from rate base.
The CPUC's concerns over market-power problems may require
investor-owned utilities to divest themselves of a substantial portion
of their generating assets. PG&E and Edison are required to file plans
to voluntarily divest themselves of at least 50 percent of their
fossil-fueled generating assets through a spin-off or sale to a non-
affiliated entity. SDG&E is not included in this requirement, as the
CPUC does not perceive these market-power problems in San Diego. In
order to encourage the voluntary divestiture or spin-off of a
utility's fossil generation, the decision provides for a 0.1 percent
increase in equity return for each 10 percent of fossil plants
disposed of in excess of the mandatory percentage.
In addition, the utilities are required to file plans with the
CPUC to implement direct access and new or revised PBR proposals.
Plans to establish the power exchange and ISO are also required to be
filed by the utilities with both the CPUC and the FERC, as the FERC
has jurisdiction over the exchange, the ISO and interstate
transmission.
The California Legislature has passed a resolution forming an
oversight committee to ensure the legislature's involvement in the
policies presented by the CPUC, and that the policies comply with
federal and state laws, and achieve the objectives both of competition
and the various social programs that are currently funded through
utility rates.
The CPUC is currently working on building a consensus on the new
market structure with the California Legislature, the governor,
utilities and customers.
ELECTRIC-FEDERAL In March 1995, the FERC issued a proposed rule that,
if adopted, would require all public utilities to offer wholesale
"open-access" transmission service on a nondiscriminatory basis. In
addition, public utilities would be
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required to functionally price
their generation and transmission services separately. The FERC also
stated its belief that utilities should be allowed to recover the
costs of assets and obligations made uneconomic by the changed
regulatory environment. Although SDG&E's cost-recovery mechanisms are
not currently under the jurisdiction of the FERC, the recognition by
the FERC of the propriety of such cost recovery supports the CPUC's
similar position.
In October 1995, SDG&E filed for approval of its open-access
tariffs for its service territory with the FERC in conjunction with
its request for a marketing license for Enova Energy. In December
1995, the FERC issued a draft order approving SDG&E's open-access
tariff, but rejecting Enova Energy's filing. This limits Enova Energy
to cost-based rates. All non-rate terms and conditions were accepted
subject to the outcome of the FERC's restructuring rulemaking.
Final approval of the FERC's rule and the CPUC's industry-
restructuring plan would result in the creation of a bid-based
wholesale electricity spot market with open-access transmission. The
FERC is expected to issue a final rule during the first half of 1996.
GAS The ongoing restructuring of the gas utility industry has allowed
customers to bypass utilities as suppliers and, to a lesser extent, as
transporters of natural gas. Currently, non-utility electricity
producers and other large customers may use a utility's facilities to
transport gas purchased from non-utility suppliers. Also, smaller
customers may form groups to buy gas from another supplier. SDG&E
would face significant competition if a major pipeline were to operate
in or near SDG&E's service territory.
In September 1995, SDG&E signed an agreement with Pacific
Enterprises International, an affiliate of Southern California Gas,
and Proxima, a Mexican company, to develop and operate natural gas
distribution networks in Baja California, Mexico. Representing SDG&E
will be an Enova Corporation subsidiary, Enova International.
In November 1995, Mexico issued new regulations allowing
privately owned companies, including companies with foreign ownership,
to participate in infrastructure projects involving natural gas
transportation, storage and distribution. Previously, these activities
were conducted by the government-owned oil company, Pemex.
In November 1995, the three-company consortium submitted a
Statement of Interest to the Mexican government requesting a permit to
distribute natural gas in the city of Mexicali and surrounding areas.
Other companies have also expressed an interest in the project. Under
the new regulations, the government will conduct a bidding process
before a permit is issued. If the consortium is awarded the permit, it
will have an exclusive right to distribute natural gas in that region
for 12 years.
The proposed project would deliver gas to Mexicali through the
pipeline network of Southern California Gas in the Imperial Valley. The
initial capital will be $10 million to $15 million, and the initial
load will be about 10 million cubic feet per day, serving mostly
industrial customers. The proposed pipeline network would be
continuously expanded to serve residential and commercial customers.
EFFECTS OF REGULATION SDG&E currently accounts for the economic effects
of regulation in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," under which a regulated utility may record a regulatory
asset if it is probable that, through the rate-making process, the
utility will recover that asset from its customers. In the event that
recovery of specific costs through rates becomes unlikely or
uncertain, whether resulting from the effects of competition or
regulatory actions, it could result in the writeoff of portions of
these regulatory assets. In addition, once the restructuring
transition is final, SDG&E may not continue to meet the criteria for
applying SFAS 71 to all of its operations in the new regulatory
framework.
As the restructuring of the industry evolves, SDG&E will become
more vulnerable to competition. However, based on recent CPUC
decisions, recovery of stranded costs is provided for, including
recovery of investment in SONGS Units 2 and 3, and SDG&E does not
anticipate incurring a material charge against earnings for its
generating facilities, the related regulatory assets and other long-
term commitments. In addition, although California utilities' rates
are significantly higher than the national average, SDG&E has a lower
concentration of industrial customers and for 7 years has been the
lowest-cost provider among the investor-owned utilities in California,
which make its customers a less likely target for outside competitors.
RESOURCE PLANNING
BIENNIAL RESOURCE PLAN UPDATE PROCEEDING In December 1994, the CPUC
issued a decision ordering SDG&E, Pacific Gas and Electric and
Southern California Edison to proceed with the BRPU auction. SDG&E was
ordered to begin negotiating contracts (ranging from 17 to 30 years)
to purchase 500 mw of power from qualifying facilities at an estimated
cost of $4.8 billion beginning in 1997. In February 1995, the FERC
issued an order declaring the BRPU auction procedures unlawful under
federal law. In July 1995, the CPUC issued a ruling encouraging SDG&E,
PG&E and Edison to reach settlements with the auction winners.
Settlement discussions are ongoing. Additional information on
potential stranded costs and SDG&E's purchased-power commitments is
described in Notes 10 and 11 of the notes to consolidated financial
statements.
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SOURCES OF FUEL AND ENERGY SDG&E's primary sources of fuel and
purchased power include natural gas from Canada and the Southwest,
surplus power from other utilities in the Southwest and the Northwest,
and uranium from Canada. SDG&E expects its fuel and purchased-power
costs to remain relatively low in the next few years due to the
continued availability of surplus power in the Southwest and the
continued availability of natural gas. Although short-term natural-gas
supplies are volatile due to weather and other conditions, these
sources should provide SDG&E with an adequate supply of low-cost
natural gas. SDG&E is currently involved in litigation concerning its
long-term contracts for natural gas with certain Canadian suppliers.
SDG&E has settled with one supplier. SDG&E cannot predict the outcome
of the litigation with the other suppliers, but does not expect that
an unfavorable outcome would have a material effect on its financial
condition or results of operations.
ENVIRONMENTAL MATTERS
SDG&E's operations are conducted in accordance with federal, state and
local environmental laws and regulations governing hazardous wastes,
air and water quality, land use and solid-waste disposal. SDG&E incurs
significant costs to operate its facilities in compliance with these
laws and regulations, and to clean up the environment as a result of
prior operations of SDG&E or of others. The costs of compliance with
environmental laws and regulations are normally recovered in customer
rates. However, the CPUC's decision for restructuring the California
electric utility industry (see above) will change the way utility
rates are set and costs are recovered. Depending on the final outcome
of industry restructuring and the impact of competition, the costs of
compliance with future environmental regulations may not be fully
recoverable.
Capital expenditures to comply with environmental laws and
regulations were $4 million in 1995, $5 million in 1994 and $8 million
in 1993, and are expected to aggregate $38 million over the next 5
years. These expenditures primarily include the estimated cost of
retrofitting SDG&E's power plants to reduce air emissions. They do not
include potential expenditures to comply with water-discharge
requirements for the Encina, South Bay and SONGS power plants, which
are discussed below.
HAZARDOUS WASTES In May 1994, the CPUC approved a mechanism for
utilities to recover their costs to clean up hazardous waste
contamination at sites at which the utility may have responsibility or
liability under the law to conduct or participate in any required
cleanup. Basically, the mechanism allows utilities to recover 90
percent of their cleanup costs and any related costs of litigation
with responsible parties, and 70 percent of their costs related to
obtaining recovery of such cleanup costs from insurance carriers
providing coverage for such costs.
SDG&E disposes of its hazardous wastes at facilities owned and
operated by other entities. Operations at these facilities may result
in actual or threatened risks to the environment or public health.
Where the owner or operator of such a facility fails to complete any
corrective action required by regulatory agencies to abate such risks,
applicable environmental laws may impose an obligation on SDG&E and
others who disposed of hazardous wastes at the facility to undertake
corrective actions.
This type of obligation has been imposed upon SDG&E with respect
to the Rosen's Electrical Equipment Supply Company site located in
Pico Rivera, California. In December 1993, SDG&E received notification
that the California Department of Toxic Substances Control (DTSC)
considered SDG&E and eight other entities to be potentially
responsible parties (PRPs) liable for any required corrective action
regarding polychlorinated biphenyls contamination at the Rosen's site.
The site was operated between approximately 1948 and 1984. As a part
of its operations, Rosen's acquired and scrapped used electrical
transformers. SDG&E sold some of its used electrical transformers to
Rosen's. The DTSC considers SDG&E to be responsible for about 7
percent of the transformer-related contamination at the site. SDG&E is
continuing to investigate this matter. In December 1995, the DTSC
issued an Imminent and Substantial Endangerment Determination and
Remedial Action Order to SDG&E and 10 other PRPs requiring them to
assess and remove the risks of contamination from the site. However,
SDG&E and the other PRPs have been negotiating with Rosen's and the
DTSC to effect, before April 20, 1996, an alternative consent order
which would separate the development of the cleanup plan from the
actual cleanup. This would provide the PRPs with greater flexibility
to manage and implement the required actions. Based on available
information, SDG&E is unable to estimate the range of liability, if
any, it may have for the necessary corrective action at this site.
During the early 1900s SDG&E and its predecessors manufactured
gas from oil at its Station A facility and at two other small
facilities in Escondido and Oceanside. In 1995, SDG&E commenced an
environmental assessment of Station A. Some significant amounts of
residual by-products from the gas-manufacturing process have been
discovered on portions of the facility during the assessment. However,
the magnitude of such contamination has yet to be determined. The
assessment will be completed in 1996, at which time the extent of any
required remediation activities and a range of costs will be
determined. Sufficient information is not currently available to
estimate cleanup costs. The Escondido facility has been remediated at
a cost of approximately $3 million during the period of 1990 through
1993. A site closure letter for this
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facility has been obtained from
the San Diego County Department of Environmental Health Services.
However, contaminants similar to the ones found on the Escondido site
have been observed on adjacent parcels of property. SDG&E will assess
these contaminants in 1996.
SDG&E has identified various other sites for which it may bear
some responsibility or liability for any corrective action that may be
required under federal, state or local environmental laws. SDG&E may
be held partially or indirectly responsible for remediation of some of
these sites. However, SDG&E is unable to estimate the extent of its
responsibility, if any, for remediation. Furthermore, the timing for
assessing the costs of remediation at these sites and the number and
identities of other parties that may also be responsible (and their
respective responsibilities and abilities to share in the cost of the
remediation) are also unknown.
ELECTRIC AND MAGNETIC FIELDS (EMF) SDG&E and other utilities are
involved in litigation concerning electric and magnetic fields. An
unfavorable outcome of this litigation could have a significant impact
on the future operations of the electric utility industry, especially
if relocation of existing power lines is ultimately required. To date,
science has demonstrated no cause-and-effect relationship between
cancer and exposure to the type of EMFs emitted by utilities'
transmission lines and generating facilities. To respond to public
concerns, the CPUC has directed the California utilities to adopt a
low-cost EMF-reduction policy that requires reasonable design changes
to achieve noticeable reduction of EMF levels that are anticipated
from new projects. However, consistent with the major scientific
reviews of available research literature, the CPUC has indicated that
no health risk has been identified with exposure to EMFs.
AIR QUALITY In 1996, SDG&E must begin to comply with nitrogen dioxide
emission limits that the San Diego Air Pollution Control District
imposed on electric generating boilers through its Rule 69. Under the
initial rule, SDG&E would have been required to retrofit each of its
nine boilers with expensive pollution-control equipment to reduce
nitrogen dioxide emissions and to maintain the total nitrogen oxide
emissions from the entire system below a prescribed emissions cap
(having graduated emission reductions to be achieved through 2001).
The capital costs of compliance with the initial rule were expected to
be approximately $110 million. However, in December 1995, the district
amended the rule to remove the individual boiler retrofit
requirements, but retained the system-wide emissions cap with further
system-wide emission reductions to be achieved by 2005. The estimated
capital costs for compliance with the amended rule are approximately
$60 million. The California Air Resources Board (ARB) expressed
concern that the amendments to Rule 69 did not meet the requirements
of the California Clean Air Act. However, the ARB withheld any formal
objections pending its review of SDG&E's Rule 69 compliance plan to be
submitted in 1996. The ARB may seek to overturn some or all of the
Rule 69 amendments or to otherwise impose more restrictive emissions
limitations, which would cause SDG&E's Rule 69 compliance costs to
increase.
In 1990 the South Coast Air Quality Management District (AQMD)
passed a rule which will require SDG&E's older natural gas compressor
engines at its Moreno facility to either meet new stringent nitrogen
oxide emission levels or be converted to electric drive. In October
1993, the AQMD adopted a new program called RECLAIM, which replaced
existing rules and requires SDG&E's natural-gas compressor engines at
its Moreno facility to reduce their nitrogen oxide emission levels by
about 10 percent a year through 2003. This will be accomplished
through the installation of new emission-monitoring equipment,
operational changes to take advantage of low-emission engines and
engine retrofits. SDG&E has concluded negotiations with the AQMD that
resulted in the reclassification of three of these engines and
eliminated the need for certain expensive monitoring equipment for
those engines. The cost of complying with RECLAIM may be as much as $3
million.
WATER QUALITY In 1989, SDG&E submitted applications to the San Diego
Regional Water Quality Control Board to renew the discharge permits
for its South Bay and Encina power plants. Supplemental applications
were submitted in 1993. These discharge permits are required to enable
SDG&E to discharge its cooling water and certain other treated and
nontreated nonhazardous wastewaters into the Pacific Ocean and into
San Diego Bay. The permits are, therefore, prerequisites to the
continued operation of its power plants as they are now configured.
Increasingly stringent cooling-water and wastewater discharge
limitations may be imposed in the future, and SDG&E may be required to
build additional facilities to comply with these requirements. Such
facilities could include wastewater treatment facilities, cooling
towers or offshore- discharge pipelines.
SDG&E anticipates that the regional board will issue a new permit
for SDG&E's South Bay power plant in 1996. Pending the regional
board's action, the previous permit remains effective.
The regional board issued SDG&E a new discharge permit for its
Encina power plant in November 1994. However, SDG&E's application for
an exception to certain thermal-discharge requirements is still
pending until the completion of thermal studies to be conducted in
1996. If SDG&E's exception application is denied, SDG&E could be
required to construct offshore-discharge facilities at a cost of up to
$75 million.
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The California Coastal Commission required a study of the
offshore impact on the marine environment from the cooling-water
discharge by SONGS Units 2 and 3. The study concluded that some
environmental damage is caused by the discharge. To mitigate the
environmental damage, the California Coastal Commission ordered Edison
and SDG&E to improve the plant's fish-protection system, build a 300-
acre artificial reef to help restore kelp beds and restore 150 acres
of coastal wetlands. SDG&E may be required to incur capital costs of
up to $30 million to comply with this order. The new pricing structure
contained in the CPUC's decision regarding accelerated recovery of
SONGS Units 2 and 3 (see "San Onofre Nuclear Generating Station"
above) accommodates these added mitigation costs. In addition, SDG&E
and Edison have asked the California Coastal Commission to reconsider
and modify this mitigation plan to reduce the size of the artificial
reef and shorten the monitoring period. Negotiations are ongoing.
WOOD-POLE PRESERVATIVES The Pacific Justice Center (Pacific), a for-
profit law firm, and the Mateel Environmental Justice Foundation
(Mateel), a nonprofit corporation, claim that SDG&E and other
utilities and parties have violated California's Safe Drinking Water
and Toxic Enforcement Act (Proposition 65) by failing to warn persons
who may come into contact with the preservatives used in treated wood
utility poles and by allowing such preservatives to be released into
sources of drinking water. Some preservatives used in woodpoles are
included on California's list of chemicals known to cause cancer or
reproductive harm. Proposition 65 requires that prior warning be given
to individuals who may be exposed to such chemicals unless the
exposure will not pose a significant risk and that these substances
not be released into sources of drinking water in significant
quantities or otherwise in violation of the law. Violations of the
Proposition 65 warning requirement can result in penalties of up to
$2,500 per violation. SDG&E believes, on the basis of studies and
other information, that exposure to wood poles containing these
preservatives does not give rise to a significant risk and, therefore,
no warning is required and that significant quantities of these
preservatives are not released to any source of drinking water. SDG&E
and the other utilities and parties have responded to the claims by
denying their validity. In June 1995, Mateel, represented by
Pacific, filed a complaint in San Francisco Superior Court against
Pacific Bell, PG&E and two wood-pole manufacturers alleging the
violations noted above. Although SDG&E was not named in this lawsuit,
it is anticipated that Mateel may file a separate lawsuit against
SDG&E and other utilities on the same grounds. SDG&E is cooperating
with PG&E, Pacific Bell and others to achieve an effective and
favorable resolution of this matter.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." This statement, which is effective for 1996 financial
statements, requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review of recoverability, the entity
should estimate the future cash flows expected to result from the use
of the asset and its eventual disposition. As discussed above and in
Note 11 of the notes to consolidated financial statements, the CPUC
has issued a decision for restructuring the California electric
utility industry to stimulate competition and has indicated that the
California utilities will, within certain limits, be allowed recovery
of regulatory assets, the excess carrying amount of existing utility
plant and obligations under long-term purchased-power contracts over
fair-market value over a transition period that ends in 2005. As a
result of this and preliminary indications from the FERC on recovery
of transition costs arising from industry restructuring, SFAS 121 is
not currently expected to have an adverse impact on SDG&E's financial
condition or results of operations. However, this may change in the
future as restructuring, deregulation and competitive factors take
effect in the electric utility industry.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." SFAS 123 is effective for 1996 financial
statements and establishes a fair-value-based method of accounting for
stock-based compensation plans. SFAS 123 provides a voluntary
alternative to the provisions of Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees." However, it requires
pro forma disclosure of the stock-based compensation arrangement's
impact on net income and earnings per share as though SFAS 123's fair-
value provisions had been adopted. SDG&E currently issues restricted-
stock awards under its Long-Term Incentive Plan and expects to adopt
the disclosure-only requirement of SFAS 123. Additional information on
SDG&E's stock-based compensation plans is provided in Note 7 of the
notes to consolidated financial statements.
26
<PAGE>
Responsibility Report for the Consolidated Financial Statements
SDG&E and Enova (collectively referred to as "SDG&E") are responsible
for the consolidated financial statements and other data in this
annual report. To meet its responsibility for the reliability of the
consolidated financial statements, SDG&E has developed a system of
internal accounting controls and engages a firm of independent
auditors. The board of directors of SDG&E carries out its
responsibility for the consolidated financial statements through its
audit committee, composed of directors who are not officers or
employees of SDG&E.
Management maintains the system of internal accounting controls,
which it believes is adequate to provide reasonable, but not absolute,
assurance that its assets are safeguarded, that transactions are
executed in accordance with its objectives, and that the financial
records and reports are reliable for preparing the consolidated
financial statements in accordance with generally accepted accounting
principles.
The concept of reasonable assurance recognizes that the cost of a
system of internal accounting controls should not exceed the benefits
derived and that management makes estimates and judgments of these
cost/benefit factors. The system of internal accounting controls is
supported by an extensive program of internal audits, selection and
training of qualified personnel, and written policies and procedures.
SDG&E's independent auditors, Deloitte & Touche LLP, are engaged
to audit SDG&E's consolidated financial statements in accordance with
generally accepted auditing standards for the purpose of expressing
their opinion as to whether SDG&E's consolidated financial statements
are presented fairly, in all material respects, in accordance with
generally accepted accounting principles.
The audit committee discusses with SDG&E's internal auditors and
the independent auditors the overall scope and specific plans for
their respective audits. The committee also discusses SDG&E's
consolidated financial statements and the adequacy of SDG&E's internal
controls. The committee met twice during the fiscal year with the
internal auditors, the independent auditors and management to discuss
the results of their examinations, their evaluations of SDG&E's
internal controls, and the overall quality of SDG&E's financial
reporting. The internal auditors and the independent auditors have
full and free access to the committee throughout the year.
SDG&E's management has prepared the consolidated financial
statements and other data in this annual report. In the opinion of
SDG&E, the consolidated financial statements, which include amounts
based on estimates and judgments of management, have been prepared in
conformity with generally accepted accounting principles.
DAVID R. KUZMA
Senior Vice President, Chief Financial Officer and Treasurer
Independent Auditors' Report
To the Shareholders and Board of Directors of Enova Corporation and
San Diego Gas & Electric Company:
We have audited the accompanying consolidated balance sheets and the
statements of consolidated capital stock and of long-term debt of San
Diego Gas & Electric Company and subsidiaries as of December 31, 1995
and 1994, and the related statements of consolidated income, changes
in capital stock and retained earnings, cash flows, and financial
information by segments of business for each of the three years in the
period ended December 31, 1995. These consolidated 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, such consolidated financial statements present
fairly, in all material respects, the financial position of San Diego
Gas & Electric Company and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Diego, California
February 16, 1996
27
<PAGE>
<TABLE>
STATEMENTS OF CONSOLIDATED INCOME
In thousands except per share amounts
<CAPTION>
For the years ended December 31 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Electric $1,503,926 $1,510,320 $1,514,608
Gas 310,142 346,183 346,658
Diversified operations 56,608 55,742 36,223
------------ ------------ ------------
Total operating revenues 1,870,676 1,912,245 1,897,489
------------ ------------ ------------
Operating Expenses
Electric fuel 100,256 143,339 174,444
Purchased power 341,727 342,612 325,966
Gas purchased for resale 113,355 146,579 165,876
Maintenance 91,740 70,776 81,788
Depreciation and decommissioning 278,239 262,238 245,144
Property and other taxes 45,566 44,746 44,902
General and administrative 210,207 207,908 204,290
Other 209,358 208,533 196,564
Income taxes 134,578 153,298 154,571
------------ ------------ ------------
Total operating expenses 1,525,026 1,580,029 1,593,545
------------ ------------ ------------
Operating Income 345,650 332,216 303,944
------------ ------------ ------------
Other Income and (Deductions)
Writedown of real estate -- (25,000) --
Allow for equity funds used
during construction 6,435 6,274 17,909
Taxes on nonoperating income (27) 17,299 202
Other - net (5,876) (19,117) 5,160
------------ ------------ ------------
Total other income and (deductions) 532 (20,544) 23,271
------------ ------------ ------------
Income Before Interest Charges 346,182 311,672 327,215
------------ ------------ ------------
Interest Charges
Long-term debt 95,523 92,770 92,596
Short-term debt and other 20,215 14,619 11,335
Allowance for borrowed funds
used during construction (2,865) (2,658) (4,245)
------------ ------------ ------------
Net interest charges 112,873 104,731 99,686
------------ ------------ ------------
Income From Continuing Operations 233,309 206,941 227,529
Discontinued Operations, Net Of Income Taxes 148 (63,464) (8,814)
------------ ------------ ------------
Net Income (before preferred
dividend requirements) 233,457 143,477 218,715
Preferred Dividend Requirements 7,663 7,663 8,565
------------ ------------ ------------
Earnings Applicable to Common Shares $ 225,794 $ 135,814 $ 210,150
============ ============ ============
Average Common Shares Outstanding 116,535 116,484 116,049
============ ============ ============
Earnings Per Common Share from
Continuing operations $ 1.94 $ 1.71 $ 1.89
============ ============ ============
Earnings Per Common Share $ 1.94 $ 1.17 $ 1.81
============ ============ ============
Dividends Declared Per Common Share $ 1.56 $ 1.52 $ 1.48
============ ============ ============
See notes to consolidated financial statements
28
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
<CAPTION>
Balance at December 31 1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Utility plant - at original cost $5,533,554 $5,329,179
Accumulated depreciation and decommissioning (2,433,397) (2,180,087)
-------------- --------------
Utility plant-net 3,100,157 3,149,092
-------------- --------------
Investments and other property 532,289 465,918
-------------- --------------
Current assets
Cash and temporary investments 96,429 25,405
Accounts receivable 178,155 187,988
Notes receivable 34,498 31,806
Inventories 67,959 75,607
Other 41,012 34,022
-------------- --------------
Total current assets 418,053 354,828
-------------- --------------
Deferred taxes recoverable in rates 298,748 305,717
-------------- --------------
Deferred charges and other assets 321,193 322,881
-------------- --------------
Total $4,670,440 $4,598,436
============== ==============
CAPITALIZATION AND LIABILITIES
Capitalization (see Statements of Consolidated
Capital Stock and of Long-Term Debt)
Common equity $1,520,070 $1,474,430
Preferred stock not subject to mandatory redemption 93,475 93,493
Preferred stock subject to mandatory redemption 25,000 25,000
Long-term debt 1,350,094 1,339,201
-------------- --------------
Total capitalization 2,988,639 2,932,124
-------------- --------------
Current liabilities
Short-term borrowings -- 89,325
Long-term debt redeemable within one year 115,000 115,000
Current portion of long-term debt 36,316 35,031
Accounts payable 145,517 130,157
Dividends payable 47,383 46,200
Taxes accrued -- 5,519
Interest accrued 22,537 23,372
Regulatory balancing accounts overcollected-net 170,761 111,731
Other 125,438 113,815
-------------- --------------
Total current liabilities 662,952 670,150
-------------- --------------
Customer advances for construction 34,698 36,250
Accumulated deferred income taxes-net 523,335 513,592
Accumulated deferred investment tax credits 104,226 109,161
Deferred credits and other liabilities 356,590 337,159
Contingencies and commitments (Notes 10 and 11) -- --
-------------- --------------
Total $4,670,440 $4,598,436
============== ==============
See notes to consolidated financial statements
29
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<CAPTION>
In thousands of dollars
For the years ended December 31 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income from continuing operations $ 233,309 $ 206,941 $ 227,529
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities
Writedown of real property and other assests -- 37,000 --
Depreciation and decommissioning 278,239 262,238 245,144
Amortization of deferred charges and other assets 12,068 12,944 12,309
Amortization of deferred credits and other
liabilities (32,975) (30,370) (18,616)
Allowance for equity funds used during construction (6,435) (6,274) (17,909)
Deferred income taxes and investment tax credits (30,748) (55,069) 49,511
Other-net 57,475 57,734 8,764
Changes in working capital components
Accounts and notes receivable 7,141 (9,110) (5,916)
Regulatory balancing accounts 59,030 78,552 (13,245)
Inventories 7,648 506 113
Other current assets (5,609) (1,518) 869
Interest and taxes accrued 11,642 18,284 (19,141)
Accounts payable and other current liabilities 26,983 (9,271) 19,999
Cash flows provided(used) by discontinued operations 6,148 3,790 (1,979)
----------- ------------- ------------
Net cash provided by operating activities 623,916 566,377 487,432
----------- ------------- ------------
Cash Flows from Financing Activities
Dividends paid (188,288) (183,492) (178,708)
Short-term borrowings-net (89,325) (27,872) 48,397
Issuance of long-term debt 124,641 -- 369,893
Repayment of long-term debt (165,871) (90,255) (522,983)
Sale (redemption) of common stock (241) (558) 38,850
Issuance of preferred stock -- -- 50,636
Redemption of preferred stock (18) -- (65,228)
------------ ------------ ------------
Net cash used by financing activities (319,102) (302,177) (259,143)
------------ ------------ ------------
Cash Flows from Investing Activities
Utility construction expenditures (220,748) (263,709) (354,391)
Withdrawals from construction trust funds - net -- 58,042 190,225
Contributions to decommissioning funds (22,038) (22,038) (22,038)
Leasing investments -- -- (19,729)
Other-net 3,874 (6,463) (9,898)
Discontinued operations 5,122 (17,338) (9,708)
------------ ------------ ------------
Net cash used by investing activities (233,790) (251,506) (225,539)
------------ ------------ ------------
Net increase 71,024 12,694 2,750
Cash and temporary investments, beginning of year 25,405 12,711 9,961
------------ ------------ ------------
Cash and temporary investments, end of year $ 96,429 $ 25,405 $ 12,711
============ ============ ============
Supplemental Schedule of Noncash Investing
and Financing Activities
Leasing investments $ -- $ -- $ 150,880
Real estate investments 50,496 28,311 84,278
------------ ------------ ------------
Total assets acquired 50,496 28,311 235,158
Cash paid (2,550) (452) (28,209)
------------ ------------ ------------
Liabilities assumed $ 47,946 $ 27,859 $ 206,949
============ ============ ============
See notes to consolidated financial statements
30
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CONSOLIDATED CHANGES IN
CAPITAL STOCK AND RETAINED EARNINGS
In thousands of dollars
For the years ended December 31, 1993, 1994, 1995
<CAPTION>
Preferred Stock
-----------------------------
Not Subject Subject to Premium on
to Mandatory Mandatory Common Capital Retained
Redemption Redemption Stock Stock Earnings
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 62,493 $ 68,200 $287,585 $529,486 $624,368
Net income 218,715
Common stock sold (1,457,756 shares) 3,644 33,612
Long-term incentive plan activity-net 59 1,535
Preferred stock sold (2,040,000 shares) 51,000 (364)
Preferred stock retired (633,700 shares) (20,000) (43,200) 850 (2,878)
Dividends declared
Preferred stock (8,526)
Common stock (171,846)
- -------------------------- --------- --------- --------- --------- ---------
Balance, December 31, 1993 93,493 25,000 291,288 565,119 659,833
Net income 143,477
Long-term incentive plan activity-net 53 (611)
Dividends declared
Preferred stock (7,663)
Common stock (177,066)
- -------------------------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 93,493 25,000 291,341 564,508 618,581
Net income 233,457
Long-term incentive plan activity-net 117 1,530
Preferred stock retired (880 shares) (18) 8
Dividends declared
Preferred stock (7,663)
Common stock (181,809)
- -------------------------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 $ 93,475 $ 25,000 $291,458 $566,046 $662,566
========================== ========= ========= ========= ========= =========
See notes to consolidated financial statements.
31
</TABLE>
<TABLE>
STATEMENTS OF CONSOLIDATED CAPITAL STOCK
In thousands of dollars except call price
Balance at December 31 1995 1994
----------- ----------
<S> <C> <C> <C> <C>
COMMON EQUITY
Common stock, without par value, authorized
255,000,000 shares, outstanding: 1995,
116,583,358 shares; 1994, 116,536,535 shares $291,458 $291,341
Premium on capital stock 566,046 564,508
Retained earnings 662,566 618,581
----------- ----------
Total common equity $1,520,070 $1,474,430
=========== ==========
PREFERRED STOCK (A) Trading Call
Not subject to mandatory redemption Symbol(B) Price
$20 par value, authorized 1,375,000 shares --------- --------
5% Series, 375,000 shares outstanding SDOPrA $24.00 $7,500 $7,500
4.50% Series, 300,000 shares outstanding SDOPrB $21.20 6,000 6,000
4.40% Series, 325,000 shares outstanding SDOPrC $21.00 6,500 6,500
4.60% Series, 1995, 373,770 shares;
1994, 374,650 shares outstanding -- $20.25 7,475 7,493
Without par value (C)
$7.20 Series, 150,000 shares outstanding (D) SDOPrG $101.00 15,000 15,000
$1.70 Series, 1,400,000 shares outstanding -- $25.85(E) 35,000 35,000
$1.82 Series, 640,000 shares outstanding SDOPrH $26.00(E) 16,000 16,000
----------- ----------
Total not subject to mandatory redemption $93,475 $93,493
=========== ==========
Subject to mandatory redemption
Without par value (C)
$1.7625 Series, 1,000,000 shares outstanding(F) -- $25.00(E) $25,000 $25,000
----------- ----------
Total subject to mandatory redemption $25,000 $25,000
=========== ===========
(A) All series of preferred stock have cumulative preferences as to dividends.
The $20 par value preferred stock has two votes per share, whereas the no
par value preferred stock is nonvoting. The $20 par value preferred stock
has a liquidation value at par. The no par value preferred stock has a
liquidation value of $25 per share, except for the $7.20 series, which had
a liquidation value of $100 per share (see Note D).
(B) All listed shares are traded on the American Stock Exchange.
(C) Authorized 10,000,000 shares total (both subject to and not subject to
mandatory redemption).
(D) The $7.20 series was fully redeemed on January 15, 1996.
(E) The $1.70 and $1.7625 series are not callable until 2003; the $1.82 series
is not callable until 1998.
(F) The $1.7625 series has a sinking fund requirement to redeem 50,000 shares
per year from 2003 to 2007. The remaining 750,000 shares must be redeemed
in 2008.
See notes to consolidated financial statements.
32
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT
In thousands of dollars
<Captions>
First Call
Balance at December 31 Date 1995 1994
----------------- ---------- ----------
<S> <C> <C> <C>
First mortgage bonds
5.5% Series I, due March 1, 1997 4/15/67 $ 25,000 $ 25,000
4.00% Series CC, due May 1, 2008(A) 9/1/96 53,000 53,000
4.00% Series DD, due December 1, 2008(A) 9/1/96 27,000 27,000
9.25% Series EE, due September 1, 2020(B) 9/1/95 -- 74,350
3.95% Series FF, due December 1, 2007(A) 8/1/96 35,000 35,000
7.625% Series GG, due July 1, 2021(B) 7/1/96 44,250 44,250
7.375% Series HH, due December 1, 2021(B) 12/1/96 81,350 81,350
8.75% Series II, due March 1, 2023(B) 9/1/97 25,000 25,000
9.625% Series JJ, due April 15, 2020 4/15/00 100,000 100,000
6.8% Series KK, due June 1, 2015(A) Non-callable 14,400 14,400
8.5% Series LL, due April 1, 2022 4/1/02 60,000 60,000
7.625% Series MM, due June 15, 2002 Non-callable 80,000 80,000
6.1% and 6.4% Series NN, due September 1, 2018
and 2019(B) 9/1/02 118,615 118,615
Various % Series OO, due December 1, 2027(C) (C) 250,000 250,000
5.9% Series PP, due June 1, 2018(B) 6/1/03 70,795 70,795
Variable % Series QQ, due June 1, 2018(B) (D) 14,915 14,915
5.85% Series RR, due June 1, 2021(A) 6/1/03 60,000 60,000
5.9% Series SS, due September 1, 2018(B) 9/1/03 92,945 92,945
Variable % Series TT, due September 1, 2020(B) (D) 57,650 --
Variable % Series UU, due September 1, 2020(B) (D) 16,700 --
-------------- ---------- ----------
Total 1,226,620 1,226,620
---------- ----------
Capitalized leases 105,365 103,575
Debt incurred to acquire limited partnerships,
various rates, payable annually through 2005 142,198 109,473
Bank loans, various rates -- 17,298
Other long-term debt 33,558 40,177
Unamortized discount on long-term debt (6,331) (7,911)
Long-term debt redeemable within one year (115,000) (115,000)
Current portion of long-term debt (36,316) (35,031)
---------- ----------
Total $1,350,094 $1,339,201
========== ==========
(A) Issued to secure the company's obligation under a series of loan agreements with the
California Pollution Control Financing Authority under which the Authority loaned
proceeds from the sale of $115 million of variable-rate/demand (series CC, DD and FF) and
$74 million in fixed-rate (series KK and RR) tax-exempt pollution control revenue bonds to the
company to finance certain qualifying facilities associated with the company's 20 percent
interest in San Onofre Units 2 and 3.
(B) Issued to secure the company's obligation under a series of loan agreements with the City
of San Diego under which the city loaned the proceeds from the sale of $522 million in
industrial development revenue bonds to the company to finance certain qualifying facilities.
All series are tax-exempt except QQ and UU.
(C) Issued to secure the company's obligation under a loan agreement with the City of Chula
Vista under which the city loaned the proceeds from the sale of $250 million in tax-exempt
industrial development revenue bonds to the company to finance certain qualified facilities.
The first call date for $75 million is December 1, 2002. The remaining $175 million of the bonds
is currently variable rate and is callable at various dates within 1 year. Of this, $45 million is
subject to a floating-to-fixed rate swap, which expires December 15, 2002 (See Note 9).
(D) Callable at various dates within 1 year.
See notes to consolidated financial statements.
33
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CONSOLIDATED FINANCIAL
INFORMATION BY SEGMENTS OF BUSINESS
In thousands of dollars
At December 31 or for the
years then ended 1995 1994 1993
- ---------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues (A), (B) $1,870,676 $1,912,245 $1,897,489
=========== =========== ===========
Operating Income
Electric operations $ 263,346 $ 255,768 $ 242,143
Gas operations 51,654 50,375 46,071
Diversified operations (B) 30,650 26,073 15,730
----------- ----------- -----------
Total $ 345,650 $ 332,216 $ 303,944
=========== =========== ===========
Depreciation and Decommissioning
Electric operations $ 227,616 $ 220,811 $ 210,890
Gas operations 33,225 31,009 28,215
Diversified operations (B) 17,398 10,418 6,039
----------- ----------- -----------
Total $ 278,239 $ 262,238 $ 245,144
=========== =========== ===========
Utility Plant Additions (C)
Electric operations $ 171,151 $ 203,887 $ 291,456
Gas operations 49,597 59,822 62,935
----------- ----------- -----------
Total $ 220,748 $ 263,709 $ 354,391
=========== =========== ===========
Identifiable Assets
Utility plant-net
Electric operations $2,659,017 $2,725,624 $2,724,139
Gas operations 441,140 423,468 393,494
----------- ----------- -----------
Total 3,100,157 3,149,092 3,117,633
----------- ----------- -----------
Inventories
Electric operations 53,828 56,209 57,410
Gas operations 14,131 19,398 18,703
----------- ----------- -----------
Total 67,959 75,607 76,113
----------- ----------- -----------
Other identifiable assets
Electric operations 802,172 732,941 744,335
Gas operations 148,714 149,199 139,631
Diversified operations (B) 434,940 373,076 467,691
----------- ----------- -----------
Total 1,385,826 1,255,216 1,351,657
----------- ----------- -----------
Other Assets 116,498 118,521 97,481
----------- ----------- -----------
Total Assets $4,670,440 $4,598,436 $4,642,884
=========== =========== ===========
(A) The detail to operating revenues is provided in the Statements of
Consolidated Income. The gas operating revenues shown therein include
$9 million in 1995, $18 million in 1994 and $16 million in 1993,
representing the gross margin on sales to the electric segment. These
margins arose from interdepartmental transfers of $85 million in 1995,
$119 million in 1994 and $141 million in 1993, based on transfer pricing
approved by the California Public Utilities Commission in tariff rates.
(B) As discussed in Note 3, during 1995 SDG&E sold its investment in Wahlco
Environmental Systems, Inc. The sale of Wahlco is being accounted for
as a disposal of a segment of business and SDG&E's prior periods' financial
statements have been restated to reflect Wahlco as a discontinued operation.
(C) Excluding allowance for equity funds used during construction.
Utility income taxes and corporate expenses are allocated between electric and gas
operations in accordance with regulatory accounting requirements.
See notes to consolidated financial statements.
34
</TABLE>
<PAGE>
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS On December 6, 1995, San Diego Gas and Electric
Company announced the formation of Enova Corporation (Enova) as the
parent company for SDG&E, an operating public utility, and its
unregulated subsidiaries. On January 1, 1996, Enova became the parent
of SDG&E. SDG&E's outstanding common stock was converted on a
share-for-share basis into Enova common stock. SDG&E's debt securities,
preferred and preference stock were unaffected and remain with SDG&E.
On January 31, 1996, SDG&E's ownership interest in its non-utility
subsidiaries was transferred to Enova at book value, completing the
parent company structure.
The consolidated financial statements include SDG&E and its
subsidiaries and, therefore, also reflect what is now Enova
and its subsidiaries. The subsidiaries include Pacific
Diversified Capital, Enova Financial, Enova Energy and Califia
Company. The principal market for SDG&E's electric and gas business is
in San Diego County and an adjacent portion of Orange County,
California. SDG&E is subject to regulation by the California Public
Utilities Commission and the Federal Energy Regulatory Commission.
Califia and Enova Financial are engaged in non-utility investment
activities throughout the United States. Enova Energy is an energy-
management consulting firm offering services to utilities and large
consumers. Pacific Diversified Capital is the parent company for non-
utility subsidiaries, Phase One Development, which is engaged in real
estate development, and Enova Technologies, which is in the business
of developing new technologies generally related to utilities and
energy. In 1995, non-utility subsidiaries, excluding Wahlco
Environmental Systems, contributed 9 percent to operating income (8
percent in 1994). In June 1995, SDG&E sold its interest in Wahlco.
Prior periods have been restated to account for the net results of
Wahlco as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30 "Reporting the Effects of a Disposal
of a Segment of Business." Additional information concerning Wahlco is
described in Note 3.
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial
statements include the accounts of San Diego Gas & Electric Company
and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
UTILITY PLANT AND DEPRECIATION Utility plant represents the buildings,
equipment and other facilities used to provide electric and gas
service. The cost of utility plant includes labor, material, contract
services and other related items, and an allowance for funds used
during construction. The cost of retired depreciable utility plant,
plus removal costs minus salvage value, is charged to accumulated
depreciation. Information regarding industry restructuring and its
effect on utility plant is included in Note 11. Utility plant in
service by major functional categories at December 31, 1995, are:
electric generation $1.8 billion ($1.7 billion at December 31, 1994),
electric distribution $2.1 billion ($2.0 billion at December 31,
1994), electric transmission $0.7 billion ($0.7 billion at December
31, 1994), other electric $0.2 billion ($0.2 billion at December 31,
1994) and gas $0.7 billion ($0.7 billion at December 31, 1994).
Accumulated depreciation and decommissioning of electric and gas
utility plant in service at December 31, 1995, are $2.1 billion and
$0.3 billion, respectively ($1.9 billion and $0.3 billion at December
31, 1994).
Depreciation expense reflects the straight-line, remaining-useful-
life method. The provisions for depreciation as a percentage of
average depreciable utility plant (by major functional categories)
are: electric generation 4.04 in 1995 (4.04 in 1994, 4.03 in 1993),
electric distribution 4.36 in 1995 (4.35 in 1994, 4.35 in 1993),
electric transmission 3.21 in 1995 (3.24 in 1994, 3.26 in 1993), other
electric 5.89 in 1995 (5.88 in 1994, 5.80 in 1993) and gas 4.06 in
1995 (4.11 in 1994, 4.16 in 1993).
INVENTORIES Included in inventories at December 31, 1995, are SDG&E's
$42 million of materials and supplies ($44 million in 1994), and $26
million of fuel oil and natural gas ($32 million in 1994). Materials
and supplies are valued at average cost; fuel oil and natural gas are
valued by the last-in, first-out (LIFO) method.
OTHER CURRENT ASSETS Included in other current assets at December 31,
1995, is SDG&E's $18 million of investment in SONGS 1, which will be
recovered in 1996. At December 31, 1994, $28 million of SDG&E's SONGS
1 investment is included in other current assets and the $17 million
noncurrent portion of the investment is included in "Deferred Charges
and Other Assets" on the Consolidated Balance Sheets.
OTHER CURRENT LIABILITIES Included in other current liabilities at
December 31, 1995, is Califia's $34 million current portion of
deferred lease revenue ($32 million in 1994). The $54 million
noncurrent portion ($88 million in 1994) is included in "Deferred
Credits and Other Charges." Deferred lease revenues are amortized over
the lease terms, which expire in 1998.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The allowance
represents the cost of funds used to finance the construction of
utility plant and is added to the cost of utility plant. AFUDC also
increases income, partly as an offset to interest charges shown in the
Statements of Consolidated Income, although it is not a current source
of cash. The average rate used to compute AFUDC was 9.74 percent in
1995, 8.80 percent in 1994 and 9.57 percent in 1993.
EFFECTS OF REGULATION SDG&E's accounting policies conform with
generally accepted accounting principles for regulated enterprises and
reflect the policies of the California Public Utilities Commission and
the Federal Energy Regulatory Commission. SDG&E prepares its financial
statements in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 "Accounting for the Effects of
35
<PAGE>
Certain Types of Regulation," under which a regulated utility may
record a regulatory asset if it is probable that, through the
rate-making process, the utility will recover that asset from
customers. Regulatory liabilities represent future reductions in
revenues for amounts due customers. Additional information
concerning SDG&E's regulatory assets and liabilities is described
below in "Revenues and Regulatory Balancing Accounts" and in Note 11.
To the extent that a portion of SDG&E's operations are no longer subject to
SFAS 71, and recovery is no longer probable as a result
of changes in regulation and/or SDG&E's competitive position, the
related regulatory assets and liabilities would be written off. In
addition, a new standard effective for 1996 financial statements,
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," affects utility plant and
regulatory assets such that a loss must be recognized whenever a
regulator excludes all or part of an asset's cost from rate base. As
discussed in Note 11, the CPUC has issued a decision for
restructuring the California electric utility industry to stimulate
competition. The CPUC has indicated that the California utilities
will be allowed recovery of their existing utility plant and
regulatory assets over a transition period that ends in 2005. SDG&E
continues to evaluate the applicability of SFAS 71 as the electric
industry restructuring progresses.
REVENUES AND REGULATORY BALANCING ACCOUNTS Revenues from utility
customers consist of deliveries to customers and the changes in
regulatory balancing accounts. Earnings fluctuations from changes in
the costs of fuel oil, purchased energy and natural gas, and
consumption levels for electricity and the majority of natural gas are
eliminated by balancing accounts authorized by the CPUC. The balances
of these accounts represent amounts that will be recovered from, or
repaid to, customers by adjustments to future prices, generally over a
one-year cycle. It is uncertain whether the CPUC will continue to
allow these or some other form of balancing accounts once its electric
industry restructuring decision takes effect in 1998.
DEFERRED CHARGES AND OTHER ASSETS Deferred charges include SDG&E's
unrecovered premium on early retirement of debt and other regulatory-
related expenditures that SDG&E expects to recover in future rates.
These items are amortized as recovered in rates. Additional
information is included in Note 11.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
STATEMENTS OF CONSOLIDATED CASH FLOWS Temporary investments are highly
liquid investments with original maturities of 3 months or less.
BASIS OF PRESENTATION Certain-prior year amounts have been reclassified
to conform to the current year's format.
NOTE 2: WRITEDOWNS
In June 1994, SDG&E recorded writedowns related to the utility and its
subsidiaries. SDG&E recorded a $25 million writedown of various
commercial properties, including $19 million of subsidiary properties
in Colorado Springs and in San Diego, to reflect continuing declines
in commercial real estate values. SDG&E also recorded a $12 million
writedown of various non-earning utility assets, including the South
Bay Repower project. Other writedowns, associated with discontinued
operations, are described in Note 3.
NOTE 3: DISCONTINUED OPERATIONS -
WAHLCO ENVIRONMENTAL SYSTEMS, INC.
On June 6, 1995, SDG&E sold its investment in Wahlco Environmental
Systems, Inc., for $5 million. The sale of Wahlco has been accounted
for as a disposal of a segment of business and SDG&E's prior periods'
financial statements have been restated to reflect Wahlco as a
discontinued operation. Discontinued operations consist of the
following:
Year Ended December 31 1995 1994 1993
- -----------------------------------------------------------
in millions of dollars
Revenues $24 $70 $82
Loss from operations before
income taxes - (70) (14)
Loss on disposal before
income taxes (12) - -
Income tax benefits 12 7 5
____________________________________________________________
The loss on disposal of Wahlco was recorded in 1995 and reflects the
sale of Wahlco and Wahlco's net operating losses after 1994. The loss
from discontinued operations for 1994 was primarily due to the $59
million writedown of Wahlco's goodwill and other intangible assets as
a result of the depressed air pollution-control market and increasing
competition. The 1995 income tax benefit includes the effects of the
1994 writedown to the extent recognizable thus far.
Wahlco's net assets (included in "Investments and Other Property"
on the Consolidated Balance Sheets) at December 31, 1994, are
summarized as follows:
Current assets $ 40.2
Non-current assets 18.9
Current liabilities (27.1)
Long-term debt and other liabilities (24.2)
- -------------------------------------------------------------
Net assets $ 7.8
_____________________________________________________________
NOTE 4: LONG-TERM DEBT
Amounts and due dates of long-term debt are shown on the Statements of
Consolidated Long-Term Debt. Excluding capital leases, which are
described in Note 10, combined aggregate maturities and sinking fund
requirements of long-term debt are $28 million for 1996, $55 million
for 1997, $31 million for 1998, $27 million for 1999 and $17 million
for 2000. SDG&E has CPUC authorization to issue an additional $138
million in long-term debt.
36
<PAGE>
FIRST MORTGAGE BONDS First mortgage bonds are secured by a lien on
substantially all of SDG&E's utility plant. Additional first mortgage
bonds may be issued upon compliance with the provisions of the bond
indenture, which provides for, among other things, the issuance of an
additional $1.2 billion of first mortgage bonds at December 31, 1995.
Certain of the first mortgage bonds may be called at SDG&E's option.
First mortgage bonds totaling $379 million have variable interest
rate provisions. On $115 million, bondholders may elect to redeem
their bonds at the annual interest-adjustment dates. For purposes of
determining the aggregate maturities listed above, it is assumed that
these issues will not be redeemed before their scheduled maturity.
During 1995, SDG&E issued $74 million of first mortgage bonds and
retired $74 million of first mortgage bonds prior to scheduled
maturity.
OTHER DEBT At December 31, 1995, SDG&E had $280 million of bank lines
providing a committed source of long-term borrowings, of which no debt
was outstanding. Bank lines, unless renewed by SDG&E, expire in 2000.
Commitment fees are paid on the unused portion of the lines and there
are no requirements for compensating balances.
Loans of $161 million and $151 million at December 31, 1995, and
1994, respectively, are secured by subsidiary equipment and real
estate.
Interest payments, including those applicable to short-term
borrowings, amounted to $114 million in 1995, $102 million in 1994 and
$104 million in 1993.
SDG&E periodically enters into interest-rate swap-and-cap
agreements to moderate its exposure to interest-rate changes and to
lower its overall cost of borrowings. At December 31, 1995, SDG&E had
such agreements, maturing in 1996 and 2002, with underlying debt
aggregating $120 million. See additional information in Note 9.
NOTE 5: SHORT-TERM BORROWINGS
At December 31, 1995, and 1994, short-term borrowings and weighted
average interest rates thereon were:
in millions of dollars 1995 1994
- ----------------------------------------------------------------------
Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------
Bank loans $-- -- $58 6.4%
Subsidiaries' bank
credit lines -- -- 31 7.1%
- ----------------------------------------------------------------------
Total $-- $89
______________________________________________________________________
In addition to the $280 million of long-term bank lines (see "Other
Debt" in Note 4), at December 31, 1995, SDG&E had $30 million of bank
lines available to support commercial paper. Commitment fees are paid
on the unused portion of the lines and there are no requirements for
compensating balances.
NOTE 6: FACILITIES UNDER JOINT OWNERSHIP
The San Onofre nuclear generating station and the Southwest Powerlink
transmission line are jointly owned with other utilities. SDG&E's
interests at December 31, 1995, were:
in millions of dollars
- ------------------------------------------------------
San Southwest
Project Onofre Powerlink
- ------------------------------------------------------
Percentage ownership 20 89
Utility plant in service $1,127 $ 216
Accumulated depreciation $ 397 $ 81
Construction work in progress $ 9 $ -
- ------------------------------------------------------
Each participant in the projects must provide its own financing. The
amounts specified above for San Onofre include nuclear production,
transmission and other facilities.
SDG&E's share of operating expenses is included in its Statements
of Consolidated Income.
SDG&E's share of future dismantling and decontamination costs for
the San Onofre units is estimated to be $343 million in current
dollars and is based on studies performed by outside consultants,
updated triennially. The most recent study was performed in 1993.
These costs are included in setting rates and are expected to be fully
recovered by 2013, the estimated last year of service.
The amount accrued each year is based on the amount allowed by
regulators and is currently being collected in rates. This amount and
the expected earnings of the trust fund are considered sufficient to
cover SDG&E's share of future decommissioning costs. The depreciation
and decommissioning expense reflected on the Statements of
Consolidated Income includes $22 million of decommissioning expense
for each of the years 1995, 1994 and 1993.
Decontamination objectives, work scope and procedures must meet
the requirements of the Nuclear Regulatory Commission, the
Environmental Protection Agency, the California Public Utilities Code
and the requirements of other regulatory bodies.
The amounts collected in rates are invested in externally managed
trust funds. In accordance with SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, the securities held by the
trust are considered held for sale and are adjusted to market value
($270 million at December 31, 1995, which is included in "Investments
and Other Property" on the Consolidated Balance Sheets and which
includes a $25 million unrealized gain). The corresponding accumulated
accrual is included in accumulated depreciation and decommissioning on
the Consolidated Balance Sheets.
The Financial Accounting Standards Board is currently reviewing
accounting for liabilities related to closure and removal of long-
lived assets, such as nuclear power plants, including the recognition,
measurement and classification of such costs. The Board could require,
among other things, that SDG&E's future balance sheets include a
liability for the estimated decommissioning costs, and a related
regulatory asset reflecting anticipated rate recovery of this
liability to the extent not already collected from customers. This is
not expected to have an adverse effect on results of operations.
37
<PAGE>
Additional information regarding San Onofre is included in Notes
10 and 11.
NOTE 7: EMPLOYEE BENEFIT PLANS
SDG&E has a defined-benefit pension plan, which covers substantially
all utility employees. Benefits are related to the employees'
compensation. Plan assets consist primarily of common stocks and
bonds. SDG&E funds the plan based on the projected unit credit
actuarial cost method. Net pension cost consisted of the following for
the year ended December 31:
in thousands of dollars 1995 1994 1993
- -----------------------------------------------------------------
Cost related to current service $ 14,598 $ 18,733 $ 18,233
Interest on projected
benefit obligation 30,760 33,254 29,745
Return on plan assets (132,674) (1,319) (39,351)
Net amortization and deferral 93,708 (34,253) 5,342
- -----------------------------------------------------------------
Cost pursuant to accounting
standards 6,392 16,415 13,969
Regulatory adjustment 608 (16,415) (13,969)
- -----------------------------------------------------------------
Net cost $7,000 $ - $ -
_________________________________________________________________
The plan's status was as follows at December 31:
in thousands of dollars 1995 1994
- -------------------------------------------------------------
Accumulated benefit obligation
Vested $357,089 $308,672
Nonvested 8,880 10,480
- -------------------------------------------------------------
Total $365,969 $319,152
- -------------------------------------------------------------
Plan assets at fair value $542,336 $424,455
Projected benefit obligation 481,450 417,625
- -------------------------------------------------------------
Plan assets less projected benefit
obligation 60,886 6,830
Unrecognized effect of accounting
change (1,139) (1,328)
Unrecognized prior service cost 11,869 12,956
Unrecognized actuarial gains (130,828) (71,278)
- --------------------------------------------------------------
Net liability $(59,212) $(52,820)
______________________________________________________________
The projected benefit obligation assumes a 7.25 percent actuarial
discount rate in 1995 (8.25 percent in 1994) and a 5.0 percent average
annual compensation increase. The expected long-term rate of return on
plan assets is 8.5 percent. The increase in the total accumulated
benefit obligation and projected benefit obligation is due primarily
to the decrease in the actuarial discount rate.
Eligible employees may make a contribution of 1 percent to 15
percent of their compensation to SDG&E's savings plan for investment
in mutual funds or in SDG&E common stock. SDG&E contributes amounts
equal to up to 3 percent of participants' compensation for investment
in SDG&E common stock. SDG&E's expense for the pension and the savings
plans and a supplemental retirement plan for a limited number of key
employees was approximately $13 million in 1995, $6 million in 1994
and $6 million in 1993.
SDG&E has a long-term incentive stock compensation plan that
provides for aggregate awards of up to 2,700,000 shares of common
stock. The plan terminates in April 2005. In each of the last 10
years, SDG&E issued approximately 45,000 shares to 65,000 shares of
stock to officers and key employees for $2.50 per share, subject to
buy back over 4 years if certain corporate goals are not met.
SDG&E provides certain health and life insurance benefits to
retired utility employees. Prior to 1993, SDG&E expensed these
benefits when paid and such amounts were normally recovered in rates.
Effective January 1, 1993, SDG&E adopted SFAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, which
requires that these benefits be accrued during the employee's years of
service, up to the year of benefit eligibility. The unamortized
transition obligation of approximately $35 million is being amortized
through 2012. SDG&E is recovering the cost of these benefits based
upon actuarial calculations and funding limitations. The amounts
expensed for these benefits were $5 million in 1995, in 1994 and in
1993.
NOTE 8: INCOME TAXES
SFAS 109, Accounting for Income Taxes, requires the use of the balance
sheet method of accounting for income taxes. Under this method, a
deferred tax asset or liability represents the tax effect of temporary
differences between the financial statement and tax bases of assets
and liabilities and is measured using the latest enacted tax rates.
As a result of adopting SFAS 109, SDG&E recorded additional
deferred income taxes related to the allowance for funds used during
construction and other temporary differences for which deferred income
taxes had not been provided. Existing deferred income taxes were
reduced due to intervening income tax rate reductions, and a deferred
income tax asset related to unamortized investment tax credits was
recorded.
The net effect of these changes is almost entirely offset by a
regulatory asset of $299 million at December 31, 1995 ($306 million at
December 31, 1994). This regulatory asset is expected to be recovered
in future rates and will be adjusted as it is recovered through the
ratemaking process and as tax rates and laws change. See additional
discussion regarding regulatory assets in Note 11.
Income tax payments totaled $148 million in 1995, $167 million in
1994 and $116 million in 1993.
Components of Accumulated Deferred Income Taxes
in thousands of dollars 1995 1994
- ------------------------------------------------------------------
Deferred tax liabilities
Differences in financial and
tax bases of utility plant $619,062 $626,957
Loss on reacquired debt 26,829 27,576
Other 66,411 60,056
- ------------------------------------------------------------------
Total deferred tax liabilities 712,302 714,589
- ------------------------------------------------------------------
Deferred tax assets
Unamortized investment tax credits 71,451 74,563
Equipment leasing activities 36,493 49,547
Regulatory balancing accounts 34,061 10,596
Other 143,892 133,748
- ------------------------------------------------------------------
Total deferred tax assets 285,897 268,454
- ------------------------------------------------------------------
Net deferred income tax liability 426,405 446,135
Current portion (net asset) 96,930 67,457
- ------------------------------------------------------------------
Non-current portion (net liability) $523,335 $513,592
__________________________________________________________________
38
<PAGE>
Components of Income Tax Expense
in thousands of dollars 1995 1994 1993
- ---------------------------------------------------------------
Current
Federal $134,212 $149,361 $ 84,555
State 42,630 41,288 24,208
- --------------------------------------------------------------
Total current taxes 176,842 190,649 108,763
- --------------------------------------------------------------
Deferred
Federal (23,914) (37,605) 43,365
State (13,464) (12,897) 7,001
- --------------------------------------------------------------
Total deferred taxes (37,378) (50,502) 50,366
- --------------------------------------------------------------
Deferred investment
tax credits - net (4,859) (4,148) (4,760)
- --------------------------------------------------------------
Total income tax
expense $134,605 $135,999 $154,369
______________________________________________________________
Federal and state income taxes are allocated between operating income
and other income.
RECONCILIATION OF STATUTORY FEDERAL INCOME TAX RATE TO EFFECTIVE
INCOME TAX RATE
1995 1994 1993
- -------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Depreciation 5.4 6.6 4.8
State income taxes - net of
federal income tax benefit 5.5 5.5 5.3
Tax credits (7.4) (5.4) (3.7)
Equipment leasing activities (3.3) (3.2) (1.7)
Repair allowance (3.0) (2.8) (2.0)
Allowance for funds used
during construction (0.7) (0.7) (1.9)
Other - net 5.1 4.7 4.6
- -------------------------------------------------------------
Effective income tax rate 36.6% 39.7% 40.4%
_____________________________________________________________
NOTE 9: FINANCIAL INSTRUMENTS
The carrying amounts and related estimated fair values of SDG&E's
financial instruments are as follows:
in millions of dollars 1995 1994
- -----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------
Assets
Cash and temporary
investments $ 96.4 $ 96.4 $ 25.4 $ 25.4
Funds held in trust 270.2 270.2 201.9 201.9
Notes receivable 103.7 107.3 121.5 121.1
Investments in limited
partnerships and
other assets 206.0 220.7 170.2 182.5
- -----------------------------------------------------------------
Liabilities
Dividends payable 47.4 47.4 46.2 46.2
Short-term debt and
current portion
of long-term debt 142.8 142.8 231.0 230.1
Deposits from customers 55.8 51.5 56.2 50.2
Long-term debt 1,253.2 1,307.9 1,244.0 1,210.1
Preferred stock subject to
mandatory redemption 25.0 26.7 25.0 23.8
__________________________________________________________________
The estimated fair values may not be representative of actual amounts
that could have been realized as of year end or that will be realized
in the future.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments.
CASH AND TEMPORARY INVESTMENTS AND DIVIDENDS PAYABLE The carrying
amount approximates fair value due to the short maturity of these
items.
NOTES RECEIVABLE The fair values of noncurrent notes receivable
(included in "Deferred Charges and Other Assets" on the Consolidated
Balance Sheets) are based on the present value of the estimated future
cash flows discounted at current rates available for similar notes.
The carrying amount of short-term notes receivable approximates fair
value due to the short maturities.
FUNDS HELD IN TRUST Funds held in trust consist of the SONGS
decommissioning trust (included in "Investments and Other Property" on
the Consolidated Balance Sheets). The fair values of the funds' assets
are based on quoted market values.
INVESTMENTS IN LIMITED PARTNERSHIPS AND OTHER ASSETS The fair values of
Enova Financial's investments in limited partnerships for affordable
housing projects, Califia's leasing investments and other assets
(included in "Investments and Other Property" on the Consolidated
Balance Sheets) acquired after 1993 are estimated to approximate
carrying value due to the relatively short periods of time between the
purchase dates and the valuation date, and the relative market
stability during those periods. Fair values of investments acquired
prior to 1993 are estimated based on the present value of the
estimated future cash flows, discounted at yields currently available
for similar investments.
DEPOSITS FROM CUSTOMERS Deposits from customers include deposits from
residential and commercial customers (included in "Other Current
Liabilities" on the Consolidated Balance Sheets) and customer advances
for construction. The carrying amounts of deposits from residential
and commercial customers approximate fair value due to the short
maturity periods. The fair values of customer advances for
construction are based on the present values of the estimated future
cash flows discounted at current rates of return.
DEBT AND PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION The fair
values of SDG&E's first mortgage bonds and preferred stock issues are
estimated based on quoted market prices for them or for similar
issues, or on the current rates offered to SDG&E for debt and stock of
the same maturities. The fair values of long-term notes payable are
based on the present values of the future cash flows, discounted at
current rates available for similar notes with comparable maturities.
The carrying amounts of short-term loans and notes payable approximate
fair value due to the short maturities.
39
<PAGE>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS SDG&E's policy is to use
derivative financial instruments to reduce its exposure to interest-
rate and foreign-currency fluctuations. SDG&E does not use derivatives
for trading or speculative purposes. These financial instruments are
with major investment firms and, along with cash and cash equivalents
and accounts receivable, expose SDG&E to market and credit risks and
may at times be concentrated with certain counterparties. SDG&E
presently contemplates use of similar instruments to reduce its
exposure to fluctuations in natural gas prices.
INTEREST RATE SWAP AND CAP AGREEMENTS SDG&E periodically enters into
interest rate swap and cap agreements to moderate its exposure to
interest rate changes and to lower its overall cost of borrowing.
These swap and cap agreements generally remain off the balance sheet
as they involve the exchange of fixed- and variable-rate interest
payments without the exchange of the underlying principal amounts.
The related gains or losses are reflected in the income statement as
part of the expense item applicable to what is being hedged (e.g.,
interest expense). At December 31, 1995, SDG&E had two such
agreements, including an index cap agreement on $75 million of bonds
maturing in 1996, and a floating-to-fixed-rate swap associated with
another $45 million of variable-rate bonds maturing in 2002. SDG&E
expects to hold these derivative financial instruments to their
maturity. These cap and swap agreements have effectively fixed
interest rates on the underlying variable-rate debt at 6.1 percent and
5.4 percent, respectively. SDG&E would be exposed to interest-rate
fluctuations on the underlying debt should counterparties to the
agreement not perform. Such nonperformance is not anticipated. The
fair value of these derivative financial instruments is the estimated
amount that would be realized or paid upon termination of the
agreements based on quotes from dealers. These agreements, if
terminated, would result in an obligation of $3 million at December
31, 1995, compared to net proceeds to SDG&E of $2 million at December
31, 1994.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS SDG&E's pension fund
periodically uses foreign currency forward contracts to reduce its
exposure to exchange-rate fluctuations associated with certain
investments in foreign equity securities. These contracts generally
have maturities ranging from three to six months. At December 31,
1995, the pension fund held forward Yen - U.S. Dollar contracts
totaling $20 million ($27million in 1994). SDG&E's pension fund is
exposed to credit loss if the counterparties fail to perform. Such
nonperformance is not anticipated. The fair value of these derivative
financial instruments is the estimated amount that would be realized
or paid upon termination of the agreements based on quotes from
dealers. These agreements, if terminated, would result in net proceeds
to the pension fund of $2.7 million at December 31, 1995, compared to
a net obligation of $0.2 million at December 31, 1994.
NOTE 10: CONTINGENCIES AND COMMITMENTS
PURCHASED POWER CONTRACTS SDG&E buys electric power under several
short-term and long-term contracts. Purchases are for 2 percent to 10
percent of plant output under contracts with other utilities, and up
to 100 percent of plant output under contracts with independent power
producers and other non-utility suppliers. No one supplier provides
more than 4 percent of SDG&E's total system requirements. The
contracts expire on various dates between 1996 and 2024.
At December 31, 1995, the estimated future minimum payments under
the contracts were:
in millions of dollars
- -------------------------------------------
1996 $ 265
1997 172
1998 176
1999 175
2000 156
Thereafter 2,502
- -------------------------------------------
Total minimum payments $3,446
___________________________________________
These payments represent capacity charges and minimum energy
purchases. SDG&E is required to pay additional amounts for actual
purchases of energy under the contracts. Total payments, including
energy payments, under the contracts were $329 million in 1995, $325
million in 1994 and $305 million in 1993. See discussion of the CPUC's
decision on the Biennial Resource Plan Update proceeding in Note 11.
NATURAL GAS CONTRACTS SDG&E has a contract with Southern California
Gas Company that provides SDG&E with intrastate transportation capacity
on SoCal's gas pipelines through August 1997. If a new agreement is not
reached by then, SoCal has a continuing obligation to deliver gas to
SDG&E under a CPUC-approved tariff. SDG&E's long-term contracts with
interstate pipelines for transportation capacity expire on various
dates between 2007 and 2023. SDG&E's contract with SoCal for 8 billion
cubic feet of natural gas storage capacity expires in 1998. SDG&E also
has four long-term gas supply contracts that expire between 2001 and
2004.
At December 31, 1995, the future minimum payments under natural
gas contracts were:
in millions of dollars
___________________________________________________
Transportation Natural
and Storage Gas
- ---------------------------------------------------
1996 $ 80 $ 20
1997 58 21
1998 18 21
1999 17 26
2000 17 27
Thereafter 289 82
- ---------------------------------------------------
Total minimum payments $479 $197
___________________________________________________
Total payments under the contracts were $95 million in 1995, $125
million in 1994 and $86 million in 1993.
40
<PAGE>
LEASES Nuclear fuel, office buildings, a generating facility and other
properties are financed by long-term capital leases. Utility plant
included $189 million at December 31, 1995, and $173 million at
December 31, 1994, related to these leases. The associated accumulated
amortization was $86 million and $73 million, respectively. SDG&E also
leases office facilities, computer equipment and vehicles under
operating leases. Certain leases on office facilities contain
escalation clauses requiring annual increases in rent ranging from 2
percent to 7 percent.
The minimum rental commitments payable in future years under all
noncancellable leases were:
in millions of dollars
- ---------------------------------------------------------
Operating Capitalized
Leases Leases
- ---------------------------------------------------------
1996 $ 55 $ 26
1997 49 27
1998 33 12
1999 9 12
2000 7 12
Thereafter 44 45
- ---------------------------------------------------------
Total future rental commitments $197 134
- ---------------------------------------------------------
Imputed interest (6% to 9%) (29)
- ---------------------------------------------------------
Net commitment $105
_________________________________________________________
Rental payments totaled $85 million in 1995, $91 million in 1994 and
$89 million in 1993.
ENVIRONMENTAL ISSUES SDG&E's operations are conducted in accordance
with federal, state and local environmental laws and regulations
governing hazardous wastes, air and water quality, land use and solid
waste disposal. SDG&E incurs significant costs to operate its
facilities in compliance with these laws and regulations. The costs of
compliance with environmental laws and regulations are normally
recovered in customer rates. Capital expenditures to comply with
environmental laws and regulations were $4 million in 1995 and $5
million in 1994, and are expected to be $38 million over the next 5
years. These expenditures primarily include the estimated cost of
retrofitting SDG&E's power plants to reduce air emissions.
SDG&E has identified, or has been associated with, various sites
which may require remediation under federal, state or local
environmental laws. SDG&E may be partially or indirectly responsible
for cleaning up these sites. SDG&E is unable to determine the extent
of its and/or others' responsibility for remediation of these sites
until assessments are completed. Environmental liabilities that may
arise from these assessments are recorded when environmental
assessments and/or remedial efforts are probable, and when the minimum
costs can be estimated. In 1994, the CPUC approved a mechanism
allowing utilities to recover their hazardous waste costs, including
those related to Superfund sites or similar sites requiring cleanup.
The decision allows recovery of 90 percent of cleanup costs and
related third-party litigation costs and 70 percent of the related
insurance litigation expenses. As discussed in Note 11, the California
Public Utilities Commission has issued a policy decision for
restructuring the California electric utility industry to stimulate
competition. The CPUC has indicated that the California utilities will
be allowed recovery of existing utility plant and regulatory assets
over a transition period that ends in 2005. Depending on the final
outcome of industry restructuring and the impact of competition, SDG&E
is uncertain whether the costs of compliance with environmental
regulations will continue to be recoverable in rates.
NUCLEAR INSURANCE SDG&E and the co-owners of the San Onofre units have
purchased primary insurance of $200 million, the maximum amount
available, for public liability claims. An additional $8.7 billion of
coverage is provided by secondary financial protection required by the
Nuclear Regulatory Commission and provides for loss sharing among
utilities owning nuclear reactors if a costly accident occurs. SDG&E
could be assessed retrospective premium adjustments of up to $32
million in the event of a nuclear incident involving any of the
licensed, commercial reactors in the United States, if the amount of
the loss exceeds $200 million. In the event the public liability limit
stated above is insufficient, the Price-Anderson Act provides for
Congress to enact further revenue-raising measures to pay claims,
which could include an additional assessment on all licensed reactor
operators.
Insurance coverage is provided for up to $2.8 billion of property
damage and decontamination liability. Coverage is also provided for
the cost of replacement power, which includes indemnity payments for
up to 2 years, after a waiting period of 21 weeks. Coverage is
provided primarily through mutual insurance companies owned by
utilities with nuclear facilities. If losses at any of the nuclear
facilities covered by the risk-sharing arrangements were to exceed the
accumulated funds available from these insurance programs, SDG&E could
be assessed retrospective premium adjustments of up to $9 million.
DEPARTMENT OF ENERGY DECOMMISSIONING The Energy Policy Act of 1992
established a fund for the decontamination and decommissioning of the
Department of Energy nuclear fuel enrichment facilities. Utilities
using the DOE services are contributing a total of $2.3 billion,
subject to adjustment for inflation, over a 15-year period ending in
2006. Each utility's share is based on its share of enrichment
services purchased from the DOE. SDG&E's share of the contribution is
$1 million per year.
LITIGATION SDG&E is involved in various legal matters arising out of
the ordinary course of business. Management believes that these
matters will not have a material adverse effect on SDG&E's results of
operations, financial condition or liquidity.
DISTRIBUTION SYSTEM CONVERSION Under a CPUC-mandated program and
through franchise agreements with various cities, SDG&E is committed,
in varying amounts, to convert overhead distribution facilities to
underground. As of December 31, 1995, the aggregate unexpended amount
of this commitment was approximately $85 million. Capital expenditures
for underground conversions were $12 million in 1995, $11 million in
1994 and $22 million in 1993.
41
<PAGE>
CONCENTRATION OF CREDIT RISK SDG&E grants credit to its utility
customers, substantially all of whom are located in its service
territory, which covers all of San Diego County and the southern
portion of Orange County.
NOTE 11: INDUSTRY RESTRUCTURING
In December 1995, the CPUC issued its policy decision on the
restructuring of California's electric utility industry to stimulate
competition and reduce rates. The decision provides that beginning in
January 1998, customers will be able to buy their electricity through
a power exchange that will obtain power from the lowest-bidding
suppliers. The exchange is a spot market with published pricing. An
independent system operator (ISO) will schedule power transactions and
access to the transmission system. Consumers also may choose to
continue to purchase their local utility under regulated tariffs. As a
third option, a cross section of all customer groups (residential,
industrial, commercial and agricultural) will be able to go directly
to any energy supplier and enter into private contracts with
generators, brokers or others (direct access).As the direct-access
mechanism has many technical issues to be resolved, a 5-year
phase-in is planned. All California electricity consumers will have
the option to purchase generation services directly by 2003. The
utilities will continue to provide transmission and distribution
services to customers who choose to purchase their energy from other
providers.
Utilities will be allowed to recover their "stranded" investment
costs incurred for CPUC-approved facilities through the establishment
of a non-bypassable competition transition charge (CTC). In addition
to $299 million of deferred taxes recoverable in rates, SDG&E has
approximately $215 million of other regulatory assets at December 31,
1995 (included in "Deferred Charges and Other Assets" on the
Consolidated Balance Sheets). Included in these amounts are
approximately $112 million related to generation operations, of which
$52 million is related to nuclear operations. Recovery periods
currently range from one to 30 years. It is estimated that at December
31, 1995, SDG&E had approximately $950 million of net generating plant
(including approximately $750 million of nuclear facilities) currently
being recovered in rates over various periods of time. Under the
CPUC's industry restructuring decision, to the extent these
investments exceed their market values, they must be recouped by 2005
via the CTC mechanism.
In addition, as described in Note 10, SDG&E has entered into
significant long-term purchased-power commitments with various
utilities and other providers totaling $3.4 billion. Also, under the
CPUC's Biennial Resource Plan Update decision, SDG&E may be required
to contract for an additional 500 megawatts of power over 17-year
terms at an estimated cost of $4.8 billion beginning in 1997. Prices
under these contracts could significantly exceed the future market
price. SDG&E is challenging the decision and the FERC has declared the
BRPU auction procedures unlawful under federal law. The CPUC has
issued a ruling encouraging SDG&E and other utilities to reach
settlements with the auction winners. Settlement discussions are
ongoing. However, under the CPUC's industry restructuring decision,
existing purchased-power obligations (including qualifying facilities)
would be recovered via the CTC mechanism. For purposes of CTC, rates
for customers choosing traditional utility service (instead of power
exchange or direct access) will be capped at January 1, 1996, levels.
Including the CTC, rates cannot exceed the cap and, therefore,
recovery of the CTC is limited by the cap.
Performance-based regulation will replace cost-of-service
regulation. SDG&E is currently participating in a performance-based
ratemaking process on an experimental basis which commenced in 1993
and runs through 1998.
The utilities are required to file plans with the CPUC to
implement direct access and new or revised PBR proposals. Plans to
establish the power exchange and ISO are also required to be filed by
the utilities with both the CPUC and the FERC, as the FERC has
jurisdiction over the exchange, the ISO and interstate transmission.
The CPUC is currently working on building a consensus on the new
market structure with the California Legislature, the governor,
utilities and customers. The California Legislature has passed a
resolution forming an oversight committee to ensure the legislature's
involvement in the policies presented by the CPUC, and that the
policies comply with federal and state laws and achieve the objectives
both of competition and of the various social programs that are
currently funded through utility rates.
As the restructuring of the industry evolves, SDG&E will become
more vulnerable to competition. However, based on recent CPUC
decisions, recovery of stranded costs is provided for, including
recovery of investment in SONGS Units 2 and 3. Due to the recent
decisions, SDG&E does not anticipate incurring a material charge
against earnings for its generating facilities, the related regulatory
assets and other long-term commitments. In addition, although
California utilities' rates are significantly higher than the national
average, SDG&E has a lower concentration of industrial customers and
for 7 years has been the lowest-cost provider among the investor-owned
utilities in California, which make its customers a less-likely target
for outside competitors.
As described in Note 1, SDG&E currently accounts for the economic
effects of regulation in accordance with Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation." Once the restructuring transition is final,
SDG&E may not continue to meet the criteria for applying SFAS 71 to
all of its operations in the new regulatory framework. In a non-SFAS
71 environment, additions to plant, among other things, would need to
be recovered through market prices.
42
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands except per share amounts
- ---------------------------------------------------- --------- --------- ------------ -----------
Quarter ended March 31 June 30 September 30 December 31
- ---------------------------------------------------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Operating revenues $477,955 $445,239 $478,689 $468,793
Operating expenses 384,300 365,751 388,387 386,588
- ---------------------------------------------------- --------- --------- ------------ -----------
Operating income 93,655 79,488 90,302 82,205
Other income and (deductions) 1,744 (499) (1,102) 389
Net interest charges 28,059 29,095 27,380 28,339
- ---------------------------------------------------- --------- --------- ------------ -----------
Income from continuing operations 67,340 49,894 61,820 54,255
Discontinued operations, net of income taxes (5,490) (678) -- 6,316
- ---------------------------------------------------- --------- --------- ------------ -----------
Net income (before preferred dividend requirements) 61,850 49,216 61,820 60,571
Preferred dividend requirements 1,916 1,915 1,916 1,916
- ---------------------------------------------------- --------- --------- ------------ -----------
Earnings applicable to common shares $ 59,934 $ 47,301 $ 59,904 $ 58,655
- ---------------------------------------------------- --------- --------- ------------ -----------
Average common shares outstanding 116,533 116,534 116,538 116,545
- ---------------------------------------------------- --------- --------- ------------ -----------
Earnings per common share from continuing operations $ 0.56 $ 0.41 $ 0.51 $ 0.45
- ---------------------------------------------------- --------- --------- ------------ ------------
Earnings per common share $ 0.51 $ 0.41 $ 0.51 $ 0.50
____________________________________________________ _________ _________ ____________ ____________
1994
Operating revenues $487,979 $444,050 $476,675 $503,541
Operating expenses 403,897 380,241 392,361 403,530
- ---------------------------------------------------- --------- --------- ------------ ------------
Operating income 84,082 63,809 84,314 100,011
Other income and (deductions) 2,880 (13,879) 2,935 (12,480)
Net interest charges 24,180 25,124 27,075 28,352
- ---------------------------------------------------- --------- --------- ------------ ------------
Income from continuing operations 62,782 24,806 60,174 59,179
Discontinued operations, net of income taxes (2,986) (58,025) (385) (2,068)
- ---------------------------------------------------- -------- -------- ------------ -------------
Net income (loss) (before preferred dividend requirements) 59,796 (33,219) 59,789 57,111
Preferred dividend requirements 1,916 1,915 1,916 1,916
- ---------------------------------------------------- --------- -------- ------------ -------------
Earnings (loss) applicable to common shares $ 57,880 $(35,134) $ 57,873 $ 55,195
- ---------------------------------------------------- --------- -------- ------------ -------------
Average common shares outstanding 116,492 116,473 116,475 116,496
- ---------------------------------------------------- --------- -------- ------------ -------------
Earnings per common share from continuing operations $ 0.52 $ 0.20 $ 0.50 $ 0.49
- ---------------------------------------------------- --------- -------- ------------ -------------
Earnings (loss) per common share $ 0.50 $ (0.30) $ 0.50 $ 0.47
____________________________________________________ _________ ________ ____________ _____________
These amounts are unaudited, but in the opinion of SDG&E reflect all adjustments necessary for a fair
presentation. Previously reported amounts have been restated to reflect discontinued operations.
</TABLE>
Information for Item 5.
<TABLE>
Quarterly Common Stock Data (Unaudited)
<CAPTION>
1995 1994
------- ------- ------- ------- ------- ------- ------- -------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price
High 21 5/8 22 7/8 23 1/4 23 7/8 25 23 1/4 20 7/8 20 1/8
Low 19 1/8 20 1/8 20 3/4 21 7/8 21 1/2 17 1/2 18 18 5/8
Dividends
declared $0.39 $0.39 $0.39 $0.39 $0.38 $0.38 $0.38 $0.38
</TABLE>
43
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,100,157
<OTHER-PROPERTY-AND-INVEST> 532,289
<TOTAL-CURRENT-ASSETS> 418,053
<TOTAL-DEFERRED-CHARGES> 251,456
<OTHER-ASSETS> 368,485
<TOTAL-ASSETS> 4,670,440
<COMMON> 291,458
<CAPITAL-SURPLUS-PAID-IN> 566,046
<RETAINED-EARNINGS> 662,566
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,520,070
25,000
93,475
<LONG-TERM-DEBT-NET> 1,120,159
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 133,068
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 142,818
0
<CAPITAL-LEASE-OBLIGATIONS> 96,867
<LEASES-CURRENT> 8,498
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,530,485
<TOT-CAPITALIZATION-AND-LIAB> 4,670,440
<GROSS-OPERATING-REVENUE> 1,870,676
<INCOME-TAX-EXPENSE> 134,578
<OTHER-OPERATING-EXPENSES> 1,390,448
<TOTAL-OPERATING-EXPENSES> 1,525,026
<OPERATING-INCOME-LOSS> 345,650
<OTHER-INCOME-NET> 532
<INCOME-BEFORE-INTEREST-EXPEN> 346,182
<TOTAL-INTEREST-EXPENSE> 112,873
<NET-INCOME> 233,457
7,663
<EARNINGS-AVAILABLE-FOR-COMM> 225,794
<COMMON-STOCK-DIVIDENDS> 181,809
<TOTAL-INTEREST-ON-BONDS> 84,414
<CASH-FLOW-OPERATIONS> 623,916
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.94
</TABLE>
