SOUTHERN CALIFORNIA GAS CO - Quarter Report: 2012 June (Form 10-Q)

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

June 30, 2012

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

1-03779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-01402

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 registrant was required to submit and post such files).

Sempra Energy

Yes

X

No

San Diego Gas & Electric Company

Yes

X

No

Southern California Gas Company

Yes

X

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  ]

[      ]

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

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 July 30, 2012:

Sempra Energy

241,699,518 shares

San Diego Gas & Electric Company

Wholly owned by Enova Corporation, which is 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 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	71
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	108
Item 4.	Controls and Procedures	109
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	110
Item 1A.	Risk Factors	110
Item 6.	Exhibits	111
Signatures		113

 

 

 

§	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, U.S. Department of Energy, 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, including the availability of credit and the liquidity of our investments;

 

§	inflation, interest and exchange rates;

 

§	the impact of benchmark interest rates, generally U.S. Treasury bond and Moody’s A-rated utility bond yields, on our California Utilities’ cost of capital;

 

§	the timing and success of business development efforts and construction, maintenance and capital projects, including risks inherent in the ability to obtain, and the timing of granting of, permits, licenses, certificates and other authorizations;

 

§	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, including disruptions caused by failures in the North American transmission grid, pipeline explosions and equipment failures;

 

§	weather conditions, natural disasters, catastrophic accidents, and conservation efforts;

 

§	risks inherent in nuclear power generation and radioactive materials storage, including the catastrophic release of such materials, the disallowance of the recovery of the investment in or operating costs of the generation facility due to an extended outage, and increased regulatory oversight;

 

§	risks posed by decisions and actions of third parties who control the operations of investments in which we do not have a controlling interest;

 

§	wars, terrorist attacks and cybersecurity threats;

 

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

 

§	expropriation of assets by foreign governments and title and other property disputes;

 

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

 

§	the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements;

 

§	the resolution of litigation; and

 

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

 

 

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
		Three months ended June 30,				Six months ended June 30,
		2012		2011(1)		2012		2011(1)
		(unaudited)
REVENUES
Utilities		$	1,838	$	1,922	$	3,929	$	3,868
Energy-related businesses			251		500		543		988
Total revenues			2,089		2,422		4,472		4,856
EXPENSES AND OTHER INCOME
Utilities:
Cost of natural gas			(221)		(403)		(652)		(1,045)
Cost of electric fuel and purchased power			(349)		(397)		(737)		(568)
Energy-related businesses:
Cost of natural gas, electric fuel and purchased power			(81)		(212)		(210)		(442)
Other cost of sales			(41)		(32)		(74)		(55)
Operation and maintenance			(720)		(673)		(1,391)		(1,312)
Depreciation and amortization			(266)		(248)		(523)		(478)
Franchise fees and other taxes			(79)		(80)		(175)		(175)
Equity (losses) earnings, before income tax:
Rockies Express Pipeline LLC			(290)		10		(279)		19
Other			(3)		(3)		(2)		(11)
Remeasurement of equity method investments			―		277		―		277
Other income, net			18		31		93		74
Interest income			4		12		9		15
Interest expense			(113)		(118)		(226)		(226)
(Losses) income before income taxes and equity earnings
of certain unconsolidated subsidiaries			(52)		586		305		929
Income tax benefit (expense)			118		(100)		1		(214)
Equity earnings, net of income tax			8		8		19		39
Net income			74		494		325		754
(Earnings) losses attributable to noncontrolling interests			(11)		12		(24)		8
Preferred dividends of subsidiaries			(1)		(3)		(3)		(5)
Earnings		$	62	$	503	$	298	$	757
Basic earnings per common share		$	0.26	$	2.10	$	1.24	$	3.16
Weighted-average number of shares outstanding, basic (thousands)			241,141		239,415		240,853		239,769
Diluted earnings per common share		$	0.25	$	2.09	$	1.21	$	3.14
Weighted-average number of shares outstanding, diluted (thousands)			246,260		240,761		245,766		241,154
Dividends declared per share of common stock		$	0.60	$	0.48	$	1.20	$	0.96
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
See Notes to Condensed Consolidated Financial Statements.

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
		Three months ended June 30,
		2012							2011(1)
		(unaudited)
				Non-							Non-
		Sempra		controlling					Sempra		controlling
		Energy		Interests		Total			Energy		Interests		Total
Net income (loss)		$	63	$	11	$	74		$	506	$	(12)	$	494
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			(33)		(1)		(34)			29		6		35
Reclassification to net income of foreign currency
translation adjustments related to equity
method investments(2)			―		―		―			(54)		―		(54)
Net actuarial gain			4		―		4			5		―		5
Financial instruments			(9)		(9)		(18)			(6)		(10)		(16)
Total other comprehensive loss			(38)		(10)		(48)			(26)		(4)		(30)
Total comprehensive income (loss)			25		1		26			480		(16)		464
Preferred dividends of subsidiaries			(1)		―		(1)			(3)		―		(3)
Total comprehensive income (loss), after preferred
dividends of subsidiaries		$	24	$	1	$	25		$	477	$	(16)	$	461
		Six months ended June 30,
		2012							2011(1)
		(unaudited)
				Non-							Non-
		Sempra		controlling					Sempra		controlling
		Energy		Interests		Total			Energy		Interests		Total
Net income (loss)		$	301	$	24	$	325		$	762	$	(8)	$	754
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			34		3		37			23		6		29
Reclassification to net income of foreign currency
translation adjustments related to equity
method investments(2)			―		―		―			(54)		―		(54)
Net actuarial gain			5		―		5			7		―		7
Financial instruments			(6)		(9)		(15)			(4)		(9)		(13)
Total other comprehensive income (loss)			33		(6)		27			(28)		(3)		(31)
Total comprehensive income (loss)			334		18		352			734		(11)		723
Preferred dividends of subsidiaries			(3)		―		(3)			(5)		―		(5)
Total comprehensive income (loss), after preferred
dividends of subsidiaries		$	331	$	18	$	349		$	729	$	(11)	$	718
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
(2)	Related to the acquisition of Chilquinta Energía and Luz del Sur.
See Notes to Condensed Consolidated Financial Statements.

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2012		2011(1)(2)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	221	$	252
Restricted cash			21		24
Trade accounts receivable, net			853		1,198
Other accounts and notes receivable, net			132		147
Income taxes receivable			37		―
Inventories			249		346
Regulatory balancing accounts — undercollected			114		38
Regulatory assets			101		89
Fixed-price contracts and other derivatives			75		85
Settlement receivable related to wildfire litigation			―		10
Other			237		143
Total current assets			2,040		2,332
Investments and other assets:
Restricted cash			18		22
Regulatory assets arising from pension and other postretirement
benefit obligations			1,050		1,126
Regulatory assets arising from wildfire litigation costs			668		594
Other regulatory assets			1,123		1,060
Nuclear decommissioning trusts			847		804
Investments			1,639		1,671
Goodwill			1,067		1,036
Other intangible assets			441		448
Sundry			712		691
Total investments and other assets			7,565		7,452
Property, plant and equipment:
Property, plant and equipment			32,647		31,192
Less accumulated depreciation and amortization			(8,050)		(7,727)
Property, plant and equipment, net ($482 and $494 at June 30, 2012 and             December 31, 2011, respectively, related to VIE)			24,597		23,465
Total assets		$	34,202	$	33,249
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
(2)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2012		2011(1)(2)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	713	$	449
Accounts payable — trade			903		983
Accounts payable — other			109		124
Income taxes payable			―		5
Deferred income taxes			163		173
Dividends and interest payable			256		219
Accrued compensation and benefits			222		323
Regulatory balancing accounts — overcollected			270		105
Current portion of long-term debt			698		336
Fixed-price contracts and other derivatives			91		92
Customer deposits			145		142
Reserve for wildfire litigation			305		586
Other			559		615
Total current liabilities			4,434		4,152
Long-term debt ($340 and $345 at June 30, 2012 and December 31, 2011, respectively,         related to VIE)			10,315		10,078
Deferred credits and other liabilities:
Customer advances for construction			148		142
Pension and other postretirement benefit obligations, net of plan assets			1,345		1,423
Deferred income taxes			1,544		1,520
Deferred investment tax credits			48		49
Regulatory liabilities arising from removal obligations			2,614		2,551
Asset retirement obligations			1,947		1,905
Other regulatory liabilities			68		87
Fixed-price contracts and other derivatives			285		301
Reserve for wildfire litigation			171		10
Deferred credits and other			911		774
Total deferred credits and other liabilities			9,081		8,762
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; 242 million and 240 million shares
outstanding at June 30, 2012 and December 31, 2011, respectively; no par value)			2,164		2,104
Retained earnings			8,171		8,162
Deferred compensation			―		(2)
Accumulated other comprehensive income (loss)			(456)		(489)
Total Sempra Energy shareholders’ equity			9,879		9,775
Preferred stock of subsidiaries			20		20
Other noncontrolling interests			394		383
Total equity			10,293		10,178
Total liabilities and equity		$	34,202	$	33,249
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
(2)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
		Six months ended June 30,
		2012		2011(1)
		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	325	$	754
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization			523		478
Deferred income taxes and investment tax credits			(53)		138
Equity losses (earnings)			262		(47)
Remeasurement of equity method investments			―		(277)
Fixed-price contracts and other derivatives			1		(2)
Other			1		(23)
Net change in other working capital components			28		75
Distributions from RBS Sempra Commodities LLP			―		53
Changes in other assets			13		2
Changes in other liabilities			52		(12)
Net cash provided by operating activities			1,152		1,139
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment			(1,517)		(1,225)
Expenditures for investments and acquisition of businesses, net of cash acquired			(303)		(682)
Proceeds from sale of joint venture interest			9		―
Distributions from RBS Sempra Commodities LLP			―		276
Distributions from other investments			31		29
Purchases of nuclear decommissioning and other trust assets			(327)		(97)
Proceeds from sales by nuclear decommissioning and other trusts			329		94
Decrease in restricted cash			68		388
Increase in restricted cash			(61)		(420)
Other			(10)		(16)
Net cash used in investing activities			(1,781)		(1,653)
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid			(260)		(210)
Redemption of subsidiary preferred stock			―		(80)
Preferred dividends paid by subsidiaries			(3)		(5)
Issuances of common stock			45		20
Repurchases of common stock			(16)		(18)
Issuances of debt (maturities greater than 90 days)			1,167		870
Payments on debt (maturities greater than 90 days)			(559)		(270)
Increase (decrease) in short-term debt, net			241		(319)
Other			(21)		10
Net cash provided by (used in) financing activities			594		(2)
Effect of exchange rate changes on cash and cash equivalents			4		(4)
Decrease in cash and cash equivalents			(31)		(520)
Cash and cash equivalents, January 1			252		912
Cash and cash equivalents, June 30		$	221	$	392
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
See Notes to Condensed Consolidated Financial Statements.

 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2012		2011
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	209	$	211
Income tax payments, net of refunds		93		75
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Acquisition of businesses:
Assets acquired	$	29	$	2,815
Cash paid, net of cash acquired		(19)		(611)
Fair value of equity method investments immediately prior to the acquisition		―		(882)
Fair value of noncontrolling interests		―		(279)
Additional consideration accrued		―		(32)
Liabilities assumed	$	10	$	1,011
Accrued capital expenditures	$	354	$	273
Dividends declared but not paid		149		119
See Notes to Condensed Consolidated Financial Statements.

 

 

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
	(unaudited)
Operating revenues
Electric	$	680	$	583	$	1,351	$	1,248
Natural gas		100		114		263		289
Total operating revenues		780		697		1,614		1,537
Operating expenses
Cost of electric fuel and purchased power		140		156		303		327
Cost of natural gas		34		52		101		135
Operation and maintenance		275		228		543		501
Depreciation and amortization		119		105		231		208
Franchise fees and other taxes		43		43		89		90
Total operating expenses		611		584		1,267		1,261
Operating income		169		113		347		276
Other income, net		24		13		54		29
Interest expense		(39)		(31)		(75)		(67)
Income before income taxes		154		95		326		238
Income tax expense		(53)		(42)		(113)		(91)
Net income		101		53		213		147
(Earnings) losses attributable to noncontrolling interest		(5)		19		(11)		15
Earnings		96		72		202		162
Preferred dividend requirements		(1)		(1)		(2)		(2)
Earnings attributable to common shares	$	95	$	71	$	200	$	160
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended June 30,
	2012							2011
	(unaudited)
			Non-							Non-
			controlling							controlling
	SDG&E		Interest		Total			SDG&E		Interest		Total
Net income (loss)	$	96	$	5	$	101		$	72	$	(19)	$	53
Other comprehensive loss, net of tax:
Financial instruments		―		(9)		(9)			―		(10)		(10)
Total other comprehensive loss		―		(9)		(9)			―		(10)		(10)
Total comprehensive income (loss)	$	96	$	(4)	$	92		$	72	$	(29)	$	43
	Six months ended June 30,
	2012							2011
	(unaudited)
			Non-							Non-
			controlling							controlling
	SDG&E		Interest		Total			SDG&E		Interest		Total
Net income (loss)	$	202	$	11	$	213		$	162	$	(15)	$	147
Other comprehensive loss, net of tax:
Financial instruments		―		(9)		(9)			―		(9)		(9)
Total other comprehensive loss		―		(9)		(9)			―		(9)		(9)
Total comprehensive income (loss)	$	202	$	2	$	204		$	162	$	(24)	$	138
See Notes to Condensed Consolidated Financial Statements.

 

 

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2012		2011(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	29	$	29
Restricted cash			12		21
Accounts receivable – trade, net			229		267
Accounts receivable – other, net			26		23
Due from unconsolidated affiliates			1		67
Income taxes receivable			233		102
Inventories			79		82
Regulatory balancing accounts, net			114		38
Regulatory assets arising from fixed-price contracts and other derivatives			77		67
Other regulatory assets			11		11
Fixed-price contracts and other derivatives			24		27
Settlement receivable related to wildfire litigation			―		10
Other			33		51
Total current assets			868		795
Other assets:
Restricted cash			18		22
Deferred taxes recoverable in rates			606		570
Regulatory assets arising from fixed-price contracts and other derivatives			167		191
Regulatory assets arising from pension and other postretirement
benefit obligations			299		309
Regulatory assets arising from wildfire litigation costs			668		594
Other regulatory assets			212		160
Nuclear decommissioning trusts			847		804
Sundry			73		70
Total other assets			2,890		2,720
Property, plant and equipment:
Property, plant and equipment			13,648		13,003
Less accumulated depreciation and amortization			(3,110)		(2,963)
Property, plant and equipment, net ($482 and $494 at June 30, 2012 and             December 31, 2011, respectively, related to VIE)			10,538		10,040
Total assets		$	14,296	$	13,555
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.