Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.  20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 2011

or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File No.

Exact Name of Registrants as Specified in their Charters, Address and Telephone Number

States of Incorporation

I.R.S. Employer Identification Nos.

Former name, former address and former fiscal year, if changed since last report

1-14201

SEMPRA ENERGY

California

33-0732627

No change

101 Ash Street

San Diego, California 92101

(619)696-2000

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-40

PACIFIC ENTERPRISES

California

94-0743670

No change

101 Ash Street

San Diego, California 92101

(619)696-2020

1-1402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

555 West Fifth Street

Los Angeles, California 90013

(213)244-1200

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes

X

No

 

 

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

Sempra Energy

Yes

X

No

San Diego Gas & Electric Company

Yes

No

Pacific Enterprises

Yes

No

Southern California Gas Company

Yes

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Sempra Energy

[  X  ]

[      ]

[       ]

[      ]

San Diego Gas & Electric Company

[       ]

[      ]

[  X  ]

[      ]

Pacific Enterprises

[       ]

[      ]

[  X  ]

[      ]

Southern California Gas Company

[       ]

[      ]

[  X  ]

[      ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Sempra Energy

Yes

No

X

San Diego Gas & Electric Company

Yes

No

X

Pacific Enterprises

Yes

No

X

Southern California Gas Company

Yes

No

X

Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date.

Common stock outstanding on May 5, 2011:

Sempra Energy

239,445,387 shares

San Diego Gas & Electric Company

Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy

Pacific Enterprises

Wholly owned by Sempra Energy

Southern California Gas Company

Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy

 

 

 

 

SEMPRA ENERGY FORM 10-Q SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q PACIFIC ENTERPRISES FORM 10-Q SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q TABLE OF CONTENTS
		Page
Information Regarding Forward-Looking Statements		4
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	83
Item 4.	Controls and Procedures	84
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 6.	Exhibits	86
Signatures		89

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

You should read this report in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Part I - Item 1 sections are provided for each reporting company, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting companies are combined. All Items other than Part I – Item 1 are combined for the reporting companies.

 

 

 

 

 

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the date of this report.

 

In this report, when we use words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "contemplates," "intends," "depends," "should," "could," "would," "will," "may," "potential," "target," "goals," or similar expressions, or when we discuss our strategy, plans or intentions, we are making forward-looking statements.

 

Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include

 

§	local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments;

 

§

actions by the California Public Utilities Commission, California State Legislature, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, California Energy Commission, California Air Resources Board, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate;

 

§	capital markets conditions and inflation, interest and exchange rates;

 

§	energy markets, including the timing and extent of changes and volatility in commodity prices;

 

§	the availability of electric power, natural gas and liquefied natural gas;

 

§	weather conditions and conservation efforts;

 

§	war and terrorist attacks;

 

§	business, regulatory, environmental and legal decisions and requirements;

 

§	the status of deregulation of retail natural gas and electricity delivery;

 

§	the timing and success of business development efforts;

 

§	the resolution of litigation; and

 

§	other uncertainties, all of which are difficult to predict and many of which are beyond our control.

 

We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and in our Annual Report on Form 10-K and other reports that we file with the Securities and Exchange Commission.

 

 

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
	Three months ended March 31,
	2011		2010
	(unaudited)
REVENUES
Sempra Utilities	$	1,881	$	1,912
Sempra Global and parent		553		622
Total revenues		2,434		2,534
EXPENSES AND OTHER INCOME
Sempra Utilities:
Cost of natural gas		(609)		(758)
Cost of electric fuel and purchased power		(171)		(148)
Sempra Global and parent:
Cost of natural gas, electric fuel and purchased power		(263)		(338)
Other cost of sales		(23)		(25)
Litigation expense		(7)		(168)
Other operation and maintenance		(632)		(576)
Depreciation and amortization		(231)		(210)
Franchise fees and other taxes		(95)		(90)
Equity earnings, before income tax		1		15
Other income, net		43		8
Interest income		3		4
Interest expense		(108)		(109)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries		342		139
Income tax expense		(109)		(58)
Equity earnings, net of income tax		31		19
Net income		264		100
(Earnings) losses attributable to noncontrolling interests		(4)		8
Preferred dividends of subsidiaries		(2)		(2)
Earnings	$	258	$	106
Basic earnings per common share	$	1.07	$	0.43
Weighted-average number of shares outstanding, basic (thousands)		240,128		246,083
Diluted earnings per common share	$	1.07	$	0.42
Weighted-average number of shares outstanding, diluted (thousands)		241,903		250,373
Dividends declared per share of common stock	$	0.48	$	0.39
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,219	$	912
Restricted cash			318		131
Trade accounts receivable			922		891
Other accounts and notes receivable			136		141
Due from unconsolidated affiliates			17		34
Income taxes receivable			261		248
Deferred income taxes			36		75
Inventories			176		258
Regulatory assets			73		90
Fixed-price contracts and other derivatives			97		81
Settlement receivable related to wildfire litigation			―		300
Other			171		192
Total current assets			3,426		3,353
Investments and other assets:
Restricted cash			―		27
Regulatory assets arising from pension and other postretirement
benefit obligations			885		869
Regulatory assets arising from wildfire litigation costs			348		364
Other regulatory assets			932		934
Nuclear decommissioning trusts			796		769
Investment in RBS Sempra Commodities LLP			779		787
Other investments			2,163		2,164
Goodwill and other intangible assets			537		540
Sundry			630		600
Total investments and other assets			7,070		7,054
Property, plant and equipment:
Property, plant and equipment			27,556		27,087
Less accumulated depreciation and amortization			(7,356)		(7,211)
Property, plant and equipment, net ($510 and $516 at March 31, 2011 and             December 31, 2010, respectively, related to VIE)			20,200		19,876
Total assets		$	30,696	$	30,283
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	566	$	158
Accounts payable - trade			607		755
Accounts payable - other			102		109
Due to unconsolidated affiliates			37		36
Dividends and interest payable			251		188
Accrued compensation and benefits			211		311
Regulatory balancing accounts, net			379		241
Current portion of long-term debt			89		349
Fixed-price contracts and other derivatives			91		106
Customer deposits			131		129
Reserve for wildfire litigation			489		639
Other			701		765
Total current liabilities			3,654		3,786
Long-term debt ($352 and $355 at March 31, 2011 and December 31, 2010, respectively,         related to VIE)			9,174		8,980
Deferred credits and other liabilities:
Customer advances for construction			132		154
Pension and other postretirement benefit obligations, net of plan assets			1,114		1,105
Deferred income taxes			1,633		1,561
Deferred investment tax credits			49		50
Regulatory liabilities arising from removal obligations			2,671		2,630
Asset retirement obligations			1,469		1,449
Other regulatory liabilities			130		138
Fixed-price contracts and other derivatives			285		290
Deferred credits and other			903		823
Total deferred credits and other liabilities			8,386		8,200
Contingently redeemable preferred stock of subsidiary			79		79
Commitments and contingencies (Note 10)
Equity:
Preferred stock (50 million shares authorized; none issued)			―		―
Common stock (750 million shares authorized; 239 million and 240 million shares
outstanding at March 31, 2011 and December 31, 2010, respectively; no par
value)			2,052		2,036
Retained earnings			7,472		7,329
Deferred compensation			(6)		(8)
Accumulated other comprehensive income (loss)			(332)		(330)
Total Sempra Energy shareholders' equity			9,186		9,027
Preferred stock of subsidiaries			100		100
Other noncontrolling interests			117		111
Total equity			9,403		9,238
Total liabilities and equity		$	30,696	$	30,283
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	264	$	100
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		231		210
Deferred income taxes and investment tax credits		88		61
Equity earnings		(32)		(34)
Fixed-price contracts and other derivatives		(9)		―
Other		(13)		7
Net change in other working capital components		286		534
Changes in other assets		(5)		18
Changes in other liabilities		(5)		(8)
Net cash provided by operating activities		805		888
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(607)		(446)
Expenditures for investments		(4)		(74)
Distributions from investments		21		24
Purchases of nuclear decommissioning and other trust assets		(45)		(44)
Proceeds from sales by nuclear decommissioning and other trusts		46		46
Decrease in restricted cash		160		14
Increase in restricted cash		(320)		(23)
Other		(7)		7
Net cash used in investing activities		(756)		(496)
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(94)		(86)
Preferred dividends paid by subsidiaries		(2)		(2)
Issuances of common stock		15		14
Repurchases of common stock		(18)		(2)
Issuances of debt (maturities greater than 90 days)		803		12
Payments on debt (maturities greater than 90 days)		(260)		(507)
(Decrease) increase in short-term debt, net		(192)		294
Other		6		(3)
Net cash provided by (used in)  financing activities		258		(280)
Increase in cash and cash equivalents		307		112
Cash and cash equivalents, January 1		912		110
Cash and cash equivalents, March 31	$	1,219	$	222
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	63	$	71
Income tax payments (refunds), net		37		(73)
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	233	$	191
Dividends declared but not paid		118		99
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
Operating revenues
Electric	$	665	$	563
Natural gas		175		179
Total operating revenues		840		742
Operating expenses
Cost of electric fuel and purchased power		171		148
Cost of natural gas		83		89
Operation and maintenance		273		232
Depreciation and amortization		103		92
Franchise fees and other taxes		47		43
Total operating expenses		677		604
Operating income		163		138
Other income, net		16		―
Interest expense		(36)		(31)
Income before income taxes		143		107
Income tax expense		(49)		(31)
Net income		94		76
(Earnings) losses attributable to noncontrolling interests		(4)		8
Earnings		90		84
Preferred dividend requirements		(1)		(1)
Earnings attributable to common shares	$	89	$	83
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	272	$	127
Restricted cash			318		116
Accounts receivable - trade			266		248
Accounts receivable - other			34		59
Due from unconsolidated affiliates			1		12
Income taxes receivable			59		37
Deferred income taxes			113		129
Inventories			67		71
Regulatory assets arising from fixed-price contracts and other derivatives			54		66
Other regulatory assets			6		5
Fixed-price contracts and other derivatives			35		28
Settlement receivable related to wildfire litigation			―		300
Other			38		50
Total current assets			1,263		1,248
Other assets:
Deferred taxes recoverable in rates			514		502
Regulatory assets arising from fixed-price contracts and other derivatives			220		233
Regulatory assets arising from pension and other postretirement
benefit obligations			285		279
Regulatory assets arising from wildfire litigation costs			348		364
Other regulatory assets			72		73
Nuclear decommissioning trusts			796		769
Sundry			85		56
Total other assets			2,320		2,276
Property, plant and equipment:
Property, plant and equipment			11,551		11,247
Less accumulated depreciation and amortization			(2,744)		(2,694)
Property, plant and equipment, net ($510 and $516 at March 31, 2011 and             December 31, 2010, respectively, related to VIE)			8,807		8,553
Total assets		$	12,390	$	12,077
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	269	$	292
Due to unconsolidated affiliates			44		16
Accrued compensation and benefits			59		115
Regulatory balancing accounts, net			72		61
Current portion of long-term debt			19		19
Fixed-price contracts and other derivatives			50		51
Customer deposits			55		54
Reserve for wildfire litigation			489		639
Other			168		136
Total current liabilities			1,225		1,383
Long-term debt ($352 and $355 at March 31, 2011 and December 31, 2010,     respectively, related to VIE)			3,474		3,479
Deferred credits and other liabilities:
Customer advances for construction			21		21
Pension and other postretirement benefit obligations, net of plan assets			315		309
Deferred income taxes			1,073		1,001
Deferred investment tax credits			24		25
Regulatory liabilities arising from removal obligations			1,443		1,409
Asset retirement obligations			628		619
Fixed-price contracts and other derivatives			236		248
Deferred credits and other			356		283
Total deferred credits and other liabilities			4,096		3,915
Contingently redeemable preferred stock			79		79
Commitments and contingencies (Note 10)
Equity:
Common stock (255 million shares authorized; 117 million shares outstanding;
no par value)			1,338		1,138
Retained earnings			2,069		1,980
Accumulated other comprehensive income (loss)			(10)		(10)
Total SDG&E shareholder's equity			3,397		3,108
Noncontrolling interest			119		113
Total equity			3,516		3,221
Total liabilities and equity		$	12,390	$	12,077
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended
	March 31,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	94	$	76
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		103		92
Deferred income taxes and investment tax credits		75		9
Fixed price contracts and other derivatives		(4)		―
Other		(12)		―
Net change in other working capital components		241		101
Changes in other assets		7		5
Changes in other liabilities		(3)		(8)
Net cash provided by operating activities		501		275
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(348)		(290)
Purchases of nuclear decommissioning trust assets		(44)		(43)
Proceeds from sales by nuclear decommissioning trusts		42		40
Decrease in loans to affiliates, net		―		2
Decrease in restricted cash		109		14
Increase in restricted cash		(311)		(23)
Net cash used in investing activities		(552)		(300)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution		200		―
Preferred dividends paid		(1)		(1)
Issuances of long-term debt		―		3
Payments on long-term debt		(3)		(3)
Increase in short-term debt, net		―		27
Net cash provided by financing activities		196		26
Increase in cash and cash equivalents		145		1
Cash and cash equivalents, January 1		127		13
Cash and cash equivalents, March 31	$	272	$	14
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	17	$	10
Income tax payments (refunds), net		24		(26)
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	145	$	80
Dividends declared but not paid		1		1
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
Operating revenues	$	1,056	$	1,182
Operating expenses
Cost of natural gas		531		674
Operation and maintenance		288		261
Depreciation		81		75
Franchise fees and other taxes		37		37
Total operating expenses		937		1,047
Operating income		119		135
Other income, net		3		4
Interest expense		(17)		(17)
Income before income taxes		105		122
Income tax expense		(37)		(57)
Net income/Earnings		68		65
Preferred dividend requirements		(1)		(1)
Earnings attributable to common shares	$	67	$	64
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	33	$	417
Accounts receivable - trade			521		534
Accounts receivable - other			63		49
Due from unconsolidated affiliates			383		68
Income taxes receivable			13		36
Inventories			28		105
Regulatory assets			10		12
Other			37		39
Total current assets			1,088		1,260
Other assets:
Due from unconsolidated affiliate			505		502
Regulatory assets arising from pension and other postretirement
benefit obligations			596		586
Other regulatory assets			124		123
Sundry			49		36
Total other assets			1,274		1,247
Property, plant and equipment:
Property, plant and equipment			9,944		9,826
Less accumulated depreciation and amortization			(3,854)		(3,802)
Property, plant and equipment, net			6,090		6,024
Total assets		$	8,452	$	8,531
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable - trade		$	234	$	327
Accounts payable - other			71		79
Due to unconsolidated affiliates			85		96
Deferred income taxes			27		16
Accrued compensation and benefits			76		98
Regulatory balancing accounts, net			307		180
Current portion of long-term debt			9		262
Customer deposits			73		73
Temporary LIFO liquidation			66		―
Other			187		163
Total current liabilities			1,135		1,294
Long-term debt			1,318		1,320
Deferred credits and other liabilities:
Customer advances for construction			111		133
Pension and other postretirement benefit obligations, net of plan assets			625		613
Deferred income taxes			462		416
Deferred investment tax credits			25		25
Regulatory liabilities arising from removal obligations			1,216		1,208
Asset retirement obligations			798		788
Deferred taxes refundable in rates			130		138
Deferred credits and other			199		180
Total deferred credits and other liabilities			3,566		3,501
Commitments and contingencies (Note 10)
Equity:
Preferred stock			80		80
Common stock (600 million shares authorized; 84 million shares outstanding;
no par value)			1,462		1,462
Retained earnings			893		876
Accumulated other comprehensive income (loss)			(22)		(22)
Total Pacific Enterprises shareholders' equity			2,413		2,396
Preferred stock of subsidiary			20		20
Total equity			2,433		2,416
Total liabilities and equity		$	8,452	$	8,531
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	68	$	65
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		81		75
Deferred income taxes and investment tax credits		48		16
Other		(2)		(1)
Net change in other working capital components		177		339
Changes in other assets		12		1
Changes in other liabilities		(4)		(3)
Net cash provided by operating activities		380		492
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(168)		(114)
Increase in loans to affiliates, net		(295)		(146)
Net cash used in investing activities		(463)		(260)
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(50)		(100)
Preferred dividends paid		(1)		(1)
Payment of long-term debt		(250)		―
Net cash used in financing activities		(301)		(101)
(Decrease) increase in cash and cash equivalents		(384)		131
Cash and cash equivalents, January 1		417		49
Cash and cash equivalents, March 31	$	33	$	180
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	8	$	9
Income tax refunds, net		14		23
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Dividends declared but not paid	$	1	$	1
Accrued capital expenditures		76		52
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
Operating revenues	$	1,056	$	1,182
Operating expenses
Cost of natural gas		531		674
Operation and maintenance		288		262
Depreciation		81		75
Franchise fees and other taxes		37		37
Total operating expenses		937		1,048
Operating income		119		134
Other income, net		3		4
Interest expense		(17)		(17)
Income before income taxes		105		121
Income tax expense		(37)		(56)
Net income/Earnings attributable to common shares	$	68	$	65
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	33	$	417
Accounts receivable - trade			521		534
Accounts receivable - other			63		49
Due from unconsolidated affiliates			378		63
Income taxes receivable			9		28
Inventories			28		105
Regulatory assets			10		12
Other			36		39
Total current assets			1,078		1,247
Other assets:
Regulatory assets arising from pension and other postretirement
benefit obligations			596		586
Other regulatory assets			124		123
Sundry			22		8
Total other assets			742		717
Property, plant and equipment:
Property, plant and equipment			9,942		9,824
Less accumulated depreciation and amortization			(3,854)		(3,802)
Property, plant and equipment, net			6,088		6,022
Total assets		$	7,908	$	7,986
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade		$	234	$	327
Accounts payable - other			71		79
Due to unconsolidated affiliate			―		11
Deferred income taxes			28		17
Accrued compensation and benefits			76		98
Regulatory balancing accounts, net			307		180
Current portion of long-term debt			9		262
Customer deposits			73		73
Temporary LIFO liquidation			66		―
Other			186		163
Total current liabilities			1,050		1,210
Long-term debt			1,318		1,320
Deferred credits and other liabilities:
Customer advances for construction			111		133
Pension and other postretirement benefit obligations, net of plan assets			625		613
Deferred income taxes			464		418
Deferred investment tax credits			25		25
Regulatory liabilities arising from removal obligations			1,216		1,208
Asset retirement obligations			798		788
Deferred taxes refundable in rates			130		138
Deferred credits and other			198		178
Total deferred credits and other liabilities			3,567		3,501
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock			22		22
Common stock (100 million shares authorized; 91 million shares outstanding;
no par value)			866		866
Retained earnings			1,107		1,089
Accumulated other comprehensive income (loss)			(22)		(22)
Total shareholders' equity			1,973		1,955
Total liabilities and shareholders' equity		$	7,908	$	7,986
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	68	$	65
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		81		75
Deferred income taxes and investment tax credits		48		16
Other		(2)		(1)
Net change in other working capital components		168		346
Changes in other assets		12		1
Changes in other liabilities		(4)		(1)
Net cash provided by operating activities		371		501
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(168)		(114)
Increase in loans to affiliates, net		(287)		(156)
Net cash used in investing activities		(455)		(270)
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(50)		(100)
Payment of long-term debt		(250)		―
Net cash used in financing activities		(300)		(100)
(Decrease) increase in cash and cash equivalents		(384)		131
Cash and cash equivalents, January 1		417		49
Cash and cash equivalents, March 31	$	33	$	180
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	8	$	9
Income tax refunds, net		14		23
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	76	$	52
See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

SEMPRA ENERGY AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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NOTE 1. GENERAL

 

 

PRINCIPLES OF CONSOLIDATION

 

 

Sempra Energy

 

Sempra Energy's Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 holding company, and its consolidated subsidiaries and a variable interest entity (VIE). Sempra Energy’s principal subsidiaries are

 

§	San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), which we collectively refer to as the Sempra Utilities; and

 

§	Sempra Global, which is the holding company for Sempra Generation, Sempra Pipelines & Storage and Sempra LNG.

 

Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated subsidiaries in Note 4 below and Note 4 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.

 

 

SDG&E

 

SDG&E's Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss in Note 5 under "Variable Interest Entities." SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.

 

 

Pacific Enterprises and SoCalGas

 

Pacific Enterprise’s Condensed Consolidated Financial Statements include the accounts of Pacific Enterprises (PE) and its subsidiary, SoCalGas.  Sempra Energy owns all of PE’s common stock and PE owns all of SoCalGas’ common stock. SoCalGas’ Condensed Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations.

 

PE's operations consist solely of those of SoCalGas and additional items (e.g., cash, intercompany accounts and equity) attributable to serving as a holding company for SoCalGas.

 

 

BASIS OF PRESENTATION

 

This is a combined report of Sempra Energy, SDG&E, PE and SoCalGas. We provide separate information for SDG&E, PE and SoCalGas as required. In the Notes to Condensed Consolidated Financial Statements (except in Note 11), when only information for SoCalGas is provided, it is the same for PE. References in this report to "we," "our" and "Sempra Energy Consolidated" are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.

 

We have prepared the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after March 31, 2011 through the date the financial statements were issued, and in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation.  These adjustments are only of a normal, recurring nature.

 

All December 31, 2010 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2010 consolidated financial statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of GAAP and the Securities and Exchange Commission.

 

You should read the information in this Quarterly Report in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 (the Annual Report), which is a combined report for Sempra Energy, SDG&E, PE and SoCalGas.

 

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes.

 

The Sempra Utilities and Sempra Pipelines & Storage's Mobile Gas Service Corporation and Ecogas Mexico, S de RL de CV prepare their financial statements in accordance with GAAP provisions governing regulated operations, as we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

 

 

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NOTE 2. NEW ACCOUNTING STANDARDS

 

There are no recent accounting pronouncements that are anticipated to have an impact on or are related to our financial condition, results of operations, or disclosures.

 

 

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NOTE 3. RECENT INVESTMENT ACTIVITY

 

 

SEMPRA PIPELINES & STORAGE

 

In the three months ended March 31, 2010, Sempra Pipelines & Storage contributed $65 million to Rockies Express, a joint venture to own and operate the Rockies Express Pipeline. The contribution was the last required for the construction phase of the project.

 

On April 30, 2010, Sempra Pipelines & Storage completed the acquisition of the Mexican pipeline and natural gas infrastructure assets of El Paso Corporation for $307 million ($292 million, net of cash acquired). Proforma impacts on revenues and earnings for Sempra Energy had the acquisition occurred on January 1, 2010 were additional revenues and earnings of $2 million and $6 million, respectively, for the three months ended March 31, 2010.

 

We provide information about Sempra Pipelines & Storage’s recent investment activity in Chile and Peru in Note 12.

 

 

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NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

 

We provide additional information concerning all of our equity method investments in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

 

 

RBS SEMPRA COMMODITIES

 

RBS Sempra Commodities LLP (RBS Sempra Commodities) is a United Kingdom limited liability partnership that owned and operated commodities-marketing businesses. We account for our investment in RBS Sempra Commodities under the equity method, and report our share of partnership earnings in Parent and Other.

 

We and our partner in the joint venture, The Royal Bank of Scotland (RBS), sold substantially all of the partnership’s businesses and assets in four separate transactions completed in July, November and December of 2010 and February of 2011. We expect our share of remaining proceeds to approximate $779 million, the amount of our investment in RBS Sempra Commodities as of March 31, 2011.

 

On April 15, 2011, we and RBS entered into a letter agreement (Letter Agreement) which amended certain provisions of the agreements that formed RBS Sempra Commodities.  The Letter Agreement addresses the wind-down of the partnership and the distribution of the partnership’s remaining assets.  In accordance with the Letter Agreement, we received a $329 million distribution on April 15, 2011.  This distribution included sales proceeds and our portion of 2010 distributable income totaling $357 million, less amounts to settle certain liabilities that we owed to RBS of $28 million.  The Letter Agreement affirms that RBS Sempra Commodities will consider additional distributions of capital after taking into account various factors including available cash, the need for prudent reserves, potential payouts to the purchasers of the partnership’s businesses, and any accrued or projected future operating losses or other wind-down expenses of the partnership.  The availability of cash is also impacted by the transfer of trading accounts to JP Morgan, one of the buyers in the sales transactions.  These transfers and the related collection of accounts receivable and net margin continue as planned, and will be done as promptly as practicable during 2011.  Future distributions will generally be made 51 percent to RBS, and 49 percent to us. The Letter Agreement also allows RBS Sempra Commodities to make capital calls to us, subject to certain limits, if necessary to support the remaining operations, for other liabilities or for other payments owed in connection with the sales transactions (subject to additional limitations). We do not anticipate any such capital calls.

 

In connection with the Letter Agreement described above, we also released RBS from its indemnification obligations with respect to the items for which JP Morgan has agreed to indemnify us.

 

For the three months ended March 31, 2011 and 2010, we recorded a pretax equity loss of $8 million and earnings of $7 million, respectively, from RBS Sempra Commodities.

 

We discuss the RBS Sempra Commodities sales transactions and other matters concerning the partnership in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

 

 

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NOTE 5. OTHER FINANCIAL DATA

 

 

TEMPORARY LIFO LIQUIDATION

 

SoCalGas values natural gas inventory by the last-in first-out (LIFO) method. As inventories are sold, differences between the LIFO valuation and the estimated replacement cost are reflected in customer rates. Temporary LIFO liquidation represents the difference between the carrying value of natural gas inventory withdrawn during the period for delivery to customers and the projected cost of the replacement of that inventory during summer months.

 

 

VARIABLE INTEREST ENTITIES (VIE)

 

We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess

 

§	the purpose and design of the VIE;

 

§	the nature of the VIE's risks and the risks we absorb;

 

§	the power to direct activities that most significantly impact the economic performance of the VIE; and

 

§	the obligation to absorb losses or right to receive benefits that could be significant to the VIE.

 

 

SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements).  SDG&E’s obligation to absorb natural gas costs may be a significant variable interest.  In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based upon our analysis, the ability to direct the dispatch of electricity may have the most significant impacts on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, Sempra Energy and SDG&E consolidate the entity that owns the facility as a VIE, as we discuss below.

 

Otay Mesa VIE

 

SDG&E has a 10-year agreement to purchase power generated at the Otay Mesa Energy Center (OMEC), a 605-MW generating facility that began commercial operations in October 2009. In addition to tolling, the agreement provides SDG&E with the option to purchase the power plant at the end of the contract term in 2019, or upon earlier termination of the purchased-power agreement, at a predetermined price subject to adjustments based on performance of the facility. If SDG&E does not exercise its option, under certain circumstances, it may be required to purchase the power plant at a predetermined price.

 

The facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary.  SDG&E has no OMEC LLC voting rights and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Sempra Energy and SDG&E have consolidated Otay Mesa VIE since the second quarter of 2007. Otay Mesa VIE's equity of $119 million at March 31, 2011 and $113 million at December 31, 2010 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.

 

OMEC LLC has a loan outstanding of $362 million at March 31, 2011, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is secured by OMEC's property, plant and equipment. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC. The loan fully matures in April 2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 7.

 

Other Variable Interest Entities

 

SDG&E's power procurement is subject to reliability requirements that may require SDG&E to enter into various power purchase arrangements which include variable interests. SDG&E evaluates these contracts to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary. SDG&E has determined that no contracts, other than that relating to Otay Mesa VIE mentioned above, result in SDG&E being the primary beneficiary as of March 31, 2011. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, including certain construction costs, tax credits, and other components of cash flow expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities that most significantly impact the economic performance of the other VIEs. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects are not expected to significantly affect the financial position, results of operations, or liquidity of SDG&E. SDG&E is not exposed to losses or gains as a result of these other VIEs, because all such variability would be recovered in rates.

 

Sempra Energy’s other business units also enter into arrangements which could include variable interests.  We evaluate these contracts based upon the qualitative and quantitative analyses described above.  We have determined that these contracts are not variable interests in a VIE and therefore are not subject to the requirements of GAAP concerning the consolidation of VIEs.

 

PENSION AND OTHER POSTRETIREMENT BENEFITS

 

 

Net Periodic Benefit Cost

 

The following three tables provide the components of net periodic benefit cost:

 

NET PERIODIC BENEFIT COST -- SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended March 31,				Three months ended March 31,
	2011		2010		2011		2010
Service cost	$	22	$	22	$	7	$	7
Interest cost </