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
March 31, 1995
For the quarterly period ended..............................................
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 Number 1-11439
SDO PARENT CO., INC.
...........................................................................
Exact name of registrant as specified in its charter)
CALIFORNIA 33-0643023
............................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
........................................................................
(Address of principal executive offices (Zip Code)
(619) 696-2000
Registrant's telephone number, including area code......................
No Change
........................................................................
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes...X... No......
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NONE
Common Stock outstanding.....................................................
BACKGROUND
SDO Parent Co., Inc., a California corporation, was formed by San Diego Gas &
Electric Company, a California corporation, for the purpose of becoming the
parent holding company for SDG&E and for SDG&E's present direct subsidiaries.
At the annual meeting of SDG&E's shareholders on April 25, 1995, the merger
transaction to effect the holding company structure was approved. However,
completion of the merger is subject to SDG&E's receipt of certain
authorizations from the California Public Utilities Commission. An
application was filed with the CPUC on November 7, 1994.
At present, SDO Parent has no assets, no operations, and no issued and
outstanding stock. Although SDG&E will be the initial holder of SDO Parent's
securities prior to the merger, this step in the holding company formation
process is being held in abeyance pending receipt of the authorizations.
Management of SDO Parent presently anticipates that the effective date of
the merger will be on or about December 30, 1995, although there can be no
assurance (e.g., due to delays in the process with the CPUC or acceleration
of that process) that the effective date will not occur prior to or
subsequent to that date. Upon receipt of the authorizations, the merger will
be effected and then-present holders of SDG&E common stock will become
the holders of SDO Parent's common stock.
For information concerning the financial position and results of operations
of SDO Parent had the merger occurred on or prior to March 31, 1995,
the Quarterly Report on Form 10-Q of SDG&E. (File No. 1-3779) for the
quarter ended March 31, 1995 is incorporated herein by reference.
PART I. FINANCIAL INFORMATION
Items 1. and 2.
Part I of SDG&E's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995 is ncorporated herein by reference.
2
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends as required under SDG&E's August 1993 registration of
5,000,000 shares of preference Stock (Cumulative) as filed as
Exhibit 12.1 to the Quarterly Report on Form 10-Q of San Diego
Gas & Electric Company for the quarter ended March 31, 1995.
Exhibit 27- Financial Data Schedule
27.1 Financial Data Schedule as filed as Exhibit 27 with the Quarterly Report
on Form 10-Q of San Diego Gas & Electric Company for the quarter ended
March 31, 1995.
Exhibit 99 - Additional Exhibits
99.1 The Quarterly Report on Form 10-Q of San Diego Gas & Electric Company
for the quarter ended March 31, 1995.
(b) Reports on Form 8-K
Part II Item 6 (b) of SDG&E's Quarterly Report on Form 10Q for the quarter
ended March 31, 1995 is incorporated herein by reference.
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SDO PARENT CO., INC.
May 12, 1995 By /s/ F. H. Ault
------------ ----------------------------
Date F. H. Ault
Vice President and Controller
4
Exhibit 99.1
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
March 31, 1995
For the quarterly period ended.............................................
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 Number 1-3779
SAN DIEGO GAS & ELECTRIC COMPANY
............................................................................
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1184800
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
.............................................................................
(Address of principal executive offices) (Zip Code)
(619) 696-2000
Registrant's telephone number, including area code...........................
No Change
.............................................................................
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes...X... No......
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
116,534,135
Common Stock outstanding April 30, 1995 ..................................
PART I - FINANCIAL INFORMATION
SAN DIEGO GAS & ELECTRIC COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(In thousands except per share amounts)
Three Months Ended
March 31,
1995 1994
----------- -----------
(Unaudited)
Operating Revenues
Electric . . . . . . . . . . . . . . $ 379,288 $ 375,904
Gas . . . . . . . . . . . . . . . . . 84,578 98,850
Diversified operations . . . . . . . 27,803 29,664
----------- -----------
Total operating revenues . . . . . 491,669 504,418
----------- -----------
Operating Expenses
Electric fuel . . . . . . . . . . . . 23,848 34,876
Purchased power . . . . . . . . . . . 86,264 81,525
Gas purchased for resale . . . . . . 34,665 49,674
Maintenance . . . . . . . . . . . . . 19,283 16,361
Depreciation and decommissioning . . 68,250 65,197
Property and other taxes . . . . . . 11,488 11,377
General and administrative . . . . . 43,918 50,708
Other . . . . . . . . . . . . . . . . 62,215 67,429
Income taxes . . . . . . . . . . . . 47,926 47,139
----------- -----------
Total operating expenses . . . . . 397,857 424,286
----------- -----------
Operating Income . . . . . . . . . . . 93,812 80,132
----------- -----------
Other Income and (Deductions)
Writedown of other assets . . . . . . (9,000) --
Allowance for equity funds used
during construction . . . . . . . . 1,560 2,685
Taxes on nonoperating income . . . . 2,779 (536)
Other - net . . . . . . . . . . . . . 1,320 1,966
----------- -----------
Total other income and (deductions) (3,341) 4,115
----------- -----------
Income Before Interest Charges . . . . 90,471 84,247
----------- -----------
Interest Charges
Long-term debt . . . . . . . . . . . 24,853 22,644
Short-term debt and other . . . . . . 4,480 2,981
Allowance for borrowed funds used
during construction . . . . . . . . (712) (1,174)
----------- -----------
Net interest charges . . . . . . . 28,621 24,451
----------- -----------
Net Income (before preferred dividend
requirements) . . . . . . . . . . . . 61,850 59,796
Preferred Dividend Requirements . . . . 1,916 1,916
----------- -----------
Earnings Applicable to Common Shares . $ 59,934 $ 57,880
----------- -----------
Average Common Shares Outstanding . . . 116,533 116,492
----------- -----------
Earnings Per Common Share . . . . . . . $ 0.51 $ 0.50
=========== ===========
Dividends Declared Per Common Share . . $ 0.39 $ 0.38
=========== ===========
See notes to consolidated financial statements.
2
SAN DIEGO GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
ASSETS
Utility plant - at original cost . . . . . . . . $5,376,312 $5,329,179
Accumulated depreciation and decommissioning . . (2,248,496) (2,180,087)
------------ ------------
Utility plant-net . . . . . . . . . . . . . . 3,127,816 3,149,092
------------ ------------
Investments and other property . . . . . . . . . 490,585 466,864
------------ ------------
Current assets
Cash and temporary investments . . . . . . . . 66,686 32,526
Accounts receivable . . . . . . . . . . . . . 195,009 213,358
Notes receivable . . . . . . . . . . . . . . . 31,806 31,806
Inventories . . . . . . . . . . . . . . . . . 79,328 80,794
Other . . . . . . . . . . . . . . . . . . . . 34,371 36,010
------------ ------------
Total current assets . . . . . . . . . . . 407,200 394,494
------------ ------------
Deferred taxes recoverable in rates . . . . . . 296,757 305,717
------------ ------------
Deferred charges and other assets . . . . . . . 364,787 326,284
------------ ------------
Total . . . . . . . . . . . . . . . . . . $4,687,145 $4,642,451
============ ============
CAPITALIZATION AND LIABILITIES
Capitalization
Common equity . . . . . . . . . . . . . . . $1,488,816 $1,474,430
Preferred stock:
Not subject to mandatory redemption . . . 93,493 93,493
Subject to mandatory redemption . . . . . 25,000 25,000
Long-term debt . . . . . . . . . . . . . . . 1,389,785 1,340,237
------------ ------------
Total capitalization . . . . . . . . . . . 2,997,094 2,933,160
------------ ------------
Current liabilities
Short-term borrowings . . . . . . . . . . . . 37,176 89,325
Long-term debt redeemable within one year . . 115,000 115,000
Current portion of long-term debt . . . . . . 36,621 35,465
Accounts payable . . . . . . . . . . . . . . . 89,766 138,764
Dividends payable . . . . . . . . . . . . . . 47,363 46,200
Taxes accrued . . . . . . . . . . . . . . . . 56,936 5,641
Interest accrued . . . . . . . . . . . . . . . 25,133 23,627
Regulatory balancing accounts
overcollected-net. . . . . . . . . . . . . . 108,614 111,731
Other . . . . . . . . . . . . . . . . . . . . 127,541 121,456
------------ ------------
Total current liabilities . . . . . . . . 644,150 687,209
------------ ------------
Customer advances for construction . . . . . . . 34,623 36,250
------------ ------------
Accumulated deferred income taxes-net . . . . . 510,652 523,680
------------ ------------
Accumulated deferred investment tax credits . . 107,623 109,161
------------ ------------
Deferred credits and other liabilities . . . . . 393,003 352,991
------------ ------------
Total . . . . . . . . . . . . . . . . . . $4,687,145 $4,642,451
============ ============
See notes to consolidated financial statements.
3
SAN DIEGO GAS & ELECTRIC COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands of dollars)
Three Months Ended
March 31,
1995 1994
--------- --------
(Unaudited)
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 61,850 $ 59,796
Adjustments to reconcile net income to net cash
provided by operating activities
Writedown of other assets . . . . . . . . . . . . . . 9,000 --
Depreciation and decommissioning . . . . . . . . . . 68,250 65,197
Amortization of deferred charges and other assets . . 3,221 3,260
Amortization of deferred credits
and other liabilities . . . . . . .. . . . . . . . (8,074) (7,436)
Allowance for equity funds used during construction . (1,560) (2,685)
Deferred income taxes and investment tax credits . . (8,144) (4,970)
Other-net . . . . . . . . . . . . . . . . . . . . . . (8,381) (309)
Changes in working capital components
Accounts and notes receivable . . . . . . . . . . . . 18,349 15,829
Regulatory balancing accounts . . . . . . . . . . . . (3,117) (920)
Inventories . . . . . . . . . . . . . . . . . . . . . 1,466 7,336
Other current assets . . . . . . . . . . . . . . . . 1,639 4,777
Accrued interest and taxes . . . . . . . . . . . . . 52,145 61,649
Accounts payable and other current liabilities . . . (42,913) (20,808)
--------- ---------
Net cash provided by operating activities . . . . . 143,731 180,716
--------- --------
Cash Flows from Financing Activities
Dividends paid . . . . . . . . . . . . . . . . . . . (46,200) (44,962)
Short-term borrowings-net . . . . . . . . . . . . . . (52,149) (85,422)
Issuance of long-term debt . . . . . . . . . . . . . 50,907 --
Repayment of long-term debt . . . . . . . . . . . . . (11,082) (8,606)
Redemption of common stock . . . . . . . . . . . . . (101) (920)
--------- ---------
Net cash used by financing activities . . . . . . (58,625)(139,910)
--------- ---------
Cash Flows from Investing Activities
Utility construction expenditures . . . . . . . . . . (41,827) (68,084)
Withdrawals from construction trust funds . . . . . . -- 36,763
Contributions to decommissioning funds . . . . . . . (5,505) (5,505)
Other-net . . . . . . . . . . . . . . . . . . . . . . (3,614) (506)
-------- ---------
Net cash used by investing activities . . . . . . . (50,946) (37,332)
-------- ---------
Net increase . . . . . . . . . . . . . . . . . . . . . . . 34,160 3,474
Cash and temporary investments, beginning of period . . . 32,526 17,450
-------- ---------
Cash and temporary investments, end of period . . . . . . $ 66,686 $ 20,924
======== =========
Supplemental Disclosure of Cash Flow Information
Income tax payments . . . . . . . . . . . . . . . . $ 9,201 $ --
======== ========
Interest payments, net of amounts capitalized . . . $ 27,115 $ 21,618
======== ========
Supplemental Schedule of Noncash Investing
and Financing Activities
Real estate investments . . . . . . . . . . . . . . . $ 5,000 $ --
Cash paid . . . . . . . . . . . . . . . . . . . . . . (250) --
--------- -------
Liabilities assumed . . . . . . . . . . . . . . . . $ 4,750 $ --
========= ========
See notes to consolidated financial statements.
4
SAN DIEGO GAS & ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
SDG&E believes all adjustments necessary to present a fair
statement of the consolidated financial position and results of
operations for the periods covered by this report, consisting of
recurring accruals, have been made. Certain prior year amounts
have been reclassified for comparability.
SDG&E's significant accounting policies are described in the notes
to consolidated financial statements in its 1994 Annual Report to
Shareholders. SDG&E follows the same accounting policies for
interim reporting purposes.
This quarterly report should be read in conjunction with SDG&E's
1994 Annual Report on Form 10-K. The consolidated financial
statements and Management's Discussion & Analysis of Financial
Condition and Results of Operations included in SDG&E's 1994
Annual Report to Shareholders were incorporated by reference into
SDG&E's 1994 Annual Report on Form 10-K and filed as an exhibit
thereto.
2. MATERIAL CONTINGENCIES
INVESTMENT IN WAHLCO ENVIRONMENTAL SYSTEMS, INC.
SDG&E's investment in and advances to Wahlco aggregate $14 million
at March 31, 1995 after the writedown described in Note 3. At
March 31, 1995 Wahlco had consolidated net assets of $6 million.
For the three months ended March 31, 1995 Wahlco's net loss was $1
million. During the years ended December 31, 1992, 1993 and 1994,
Wahlco's net loss was $13 million, $11 million and $66 million.
During those years Wahlco's cash flow provided by (used in)
operations was ($7 million), ($5 million) and $2 million. On May
8, 1995 Wahlco announced the signing of a letter of intent with an
unrelated party whereby SDG&E's investment in and advances to
Wahlco would be sold to that party for an amount that would result
in no adverse impact on SDG&E's financial position or results of
operations if the transaction is consummated. If the transaction
is not consummated, continued operating losses or the
implementation of other strategies could lead to further
writedowns of SDG&E's remaining investment in Wahlco. See
discussion of writedowns in Note 3.
INDUSTRY RESTRUCTURING
In April 1994 the CPUC announced its proposal to restructure
California's regulated electric utility industry to stimulate
competition and to lower rates. The proposed regulatory framework
would be phased in by 2002, allowing utility customers to purchase
their energy from either utility or nonutility suppliers. The
utilities would continue to provide transmission and distribution
services to customers that choose to purchase their energy from
other providers. The CPUC also proposed that the cost of providing
these services and the cost of serving remaining utility customers
would be recovered through a performance-based ratemaking process.
The CPUC is holding several hearings to consider whether its
proposal or some other form of a competitive market should be
developed and how the cost of the transition to competition should
be shared among utility shareholders and customers.
In addition to $297 million of deferred taxes recoverable in
rates, regulatory assets of $232 million are included in "Deferred
Charges and Other Assets" on the Consolidated Balance Sheets. They
include pension and other employee benefit regulatory assets,
unamortized loss on reacquired debt, unrecovered plant and
regulatory study costs, unamortized debt expense and various other
regulatory assets. Recovery periods range from one to 30 years. It
is estimated that at March 31, 1995 SDG&E had approximately $970
million of net utility plant (including approximately $750 million
of nuclear facilities) and $70 million of deferred taxes and
regulatory assets relating to generating facilities currently
being recovered in rates over various periods of time. SDG&E has
also entered into long-term purchased-power commitments
totaling $4.1 billion with various utilities and other providers.
In addition, the CPUC's recent Biennial Resource Plan Update
decision requires SDG&E to contract for an additional 500
megawatts of power
5
over 17 to 30-year terms at an estimated cost
of $4.8 billion beginning in 1997. Prices under these contracts
are estimated to exceed future market prices by $511 million.
SDG&E challenged the decision and petitioned the Federal Energy
Regulatory Commission to overrule it. In February 1995 the FERC
ruled favorably on SDG&E's petition. However, the CPUC and others
are challenging the FERC's ruling. See additional discussion of
the BRPU proceeding in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
If the CPUC proceeds with the move to a competitive environment,
if the prices of competing suppliers are as anticipated, and if
the regulatory process does not provide for complete recovery of
those costs that are in excess of what will otherwise be
recoverable via market-based pricing structures, SDG&E would incur
a charge against earnings for a significant portion of its
generating facilities, the related regulatory assets and the long-
term commitments. However, the CPUC has indicated that any
unrecovered amounts remaining will be provided for in the new
environment. The CPUC previously stated its intention to issue a
final decision during May 1995 and to require implementation by
September 1995. However, this is expected to be delayed as the
widespread ramifications of the CPUC's actions in the area of
electric utility deregulation require additional time for
analysis. SDG&E cannot predict the impact of the CPUC's final
decision and the transition to a more competitive environment on
SDG&E's financial condition and results of operations.
SDG&E believes that changes in the California utility industry and
the movement toward a more competitive marketplace will require
SDG&E to change its corporate structure. In connection with the
proposed industry restructuring, SDG&E has applied to the CPUC for
permission to form a holding company. Hearings are scheduled to
commence in June 1995 and a decision is expected during the fourth
quarter of 1995. SDG&E has applied to other regulatory bodies and
to shareholders for approval of the proposal. In February 1995 the
FERC granted approval and in April 1995 the Nuclear Regulatory
Commission and SDG&E shareholders approved the plan. See
additional discussion concerning the holding company application
in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
SAN ONOFRE NUCLEAR GENERATING STATION UNITS 2 & 3
In November 1994 SDG&E, Edison and the CPUC's Division of
Ratepayer Advocates signed a settlement agreement on the
accelerated recovery of SONGS Units 2 and 3 capital costs. The
agreement would allow SDG&E to recover approximately $750 million
over an eight-year period beginning in February 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 would be reduced from 9.76 percent to
7.52 percent (SDG&E's 1995 authorized cost of debt). The agreement
also includes a performance incentive plan that would encourage
continued, efficient operation of the plant. However, continued
operation of SONGS beyond the eight-year period would be at the
owners' discretion. Under the plan, customers would pay about four
cents per kilowatt-hour during the eight-year period. This pricing
plan would replace the traditional method of recovering the units'
operating expenses and capital improvements. This is intended to
make the plants more competitive with other sources. SDG&E is
unable to predict the impact of this proposal, if approved, on the
results of its operations. However, it is expected to be
considered in conjunction with the CPUC's industry restructuring
proposal. Hearings are in progress and are expected to conclude by
the end of May 1995. A CPUC decision is expected in the fourth
quarter of 1995.
NUCLEAR INSURANCE
Public liability claims that could arise from a nuclear incident
are imited by law to $9 billion for each licensed nuclear
facility. For this exposure, SDG&E and the co-owners of the San
Onofre units have purchased primary insurance of $200 million, the
maximum amount available. The remaining 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
6
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.
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 two 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 for these insurance
programs, SDG&E could be assessed retrospective premium
adjustments of up to $9 million.
3. WRITEDOWNS
SDG&E has recorded writedowns related to the utility and its
subsidiaries. In March 1995 SDG&E recorded a $9 million writedown
before income taxes to reflect Wahlco's estimated realizable value
under a tentative agreement with an independent third party to
provide financing for Wahlco with an option to purchase SDG&E's
interest in Wahlco. On April 28, 1995 Wahlco announced the
termination of these negotiations. On May 8, 1995 Wahlco announced
the signing of a letter of intent with an unrelated party whereby
SDG&E's investment in and advances to Wahlco would be sold to that
party for an amount that would result in no adverse impact on
SDG&E's financial position or results of operations if the
transaction is consummated.
In June 1994 SDG&E recorded writedowns of $96 million before
income taxes. $59 million represents the writedown of goodwill and
other intangible assets at Wahlco Environmental Systems as a
result of the depressed air pollution-control market and
increasing competition. SDG&E also 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. As a
result of the California Public Utilities Commission's proposal to
restructure the electric utility industry and the uncertainty
concerning the impact of competition, SDG&E also recorded a $12
million writedown of various non-earning utility assets, including
the South Bay Repower project. Additional information on the
CPUC's proposed industry restructuring and its potential impacts
on SDG&E is provided in Note 2.
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
EARNINGS
Earnings per share for the three months ended March 31, 1995 were
up $0.01 from the same period in 1994. The increase in earnings
was due to various factors, including lower operating and
maintenance expenses and higher authorized utility return
partially offset by a writedown of SDG&E's investment in Wahlco
Environmental Systems, Inc. Additional information concerning
Wahlco is provided in Notes 2 and 3 of the notes to consolidated
financial statements.
OPERATING REVENUES AND EXPENSES
Gas revenues, gas purchased for resale and electric fuel expense
decreased for the three months ended March 31, 1995 from the
corresponding 1994 period primarily due to lower natural gas
prices. The increase in purchased power expense reflects increased
purchases of short-term energy to replace lower-cost nuclear
generation as a result of the San Onofre Nuclear Generating
Station Unit 2 refueling.
REGULATORY MATTERS:
CALIFORNIA PUBLIC UTILITIES COMMISSION'S PROPOSED INDUSTRY
RESTRUCTURING
The CPUC has postponed the issuance of its policy statement on
electric utility deregulation previously scheduled for March 1995,
noting that the widespread ramifications of its actions in this
area required additional time for analysis. The CPUC had
originally stated its intention to issue a final decision in May
1995 and to require implementation by September 1995. However,
with the postponement of the CPUC's policy decision, these dates
are subject to revision.
SDG&E cannot predict the impact of the CPUC's final decision and
the transition to a more competitive environment on SDG&E's
financial condition and results of operations. See additional
discussion of industry restructuring in Note 2 of the notes to
consolidated financial statements.
HOLDING COMPANY
In November 1994 SDG&E filed an application with the CPUC to form
a holding company. Under the proposed structure, SDG&E would
become a subsidiary of the parent company, as would SDG&E's
existing subsidiaries. A decision is expected in the fourth
quarter of 1995.
Shareholders approved the proposal at the annual shareholder
meeting on April 25, 1995. In February 1995 the Federal Energy
Regulatory Commission granted SDG&E approval and in April 1995 the
Nuclear Regulatory Commission approved the plan. See additional
discussion of industry restructuring and the proposed holding
company plan in Note 2 of the notes to consolidated financial
statements.
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 qualified facilities at an estimated cost of
$4.8 billion beginning in 1997. Final contracts were ordered filed
with the CPUC for all firm bids by May 28, 1995. SDG&E expects
that prices for BRPU energy will be significantly higher than
market prices. However, the CPUC refused to let the utilities
include contract provisions that would allow for
8
adjustments to reflect changes in market prices or other economic effects of
industry restructuring, contending that utilities already have
such rights. The CPUC did not guarantee full recovery of BRPU
costs and indicated that the recovery of potential stranded costs
would be addressed in the electric industry restructuring
proceedings.
On March 16, 1995 the CPUC delayed the BRPU in order to assess the
FERC's recent decision that the BRPU is in violation of PURPA. The
CPUC considers the FERC decision advisory only, and it and other
interested parties have requested the FERC for a rehearing. On
March 27, 1995 SDG&E filed with the FERC, stating support for the
FERC's decision and requesting clarification that states are not
authorized to order utilities to purchase power from specific
resources. The request also seeks clarification that under federal
law the FERC (not the states) retains the authority to approve all
non-PURPA wholesale transactions. A decision from the FERC is
expected in the late second quarter or third quarter of 1995.
ELECTRIC RATES
On April 26, 1995 the CPUC issued its decision on SDG&E's May 1995
ECAC 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 amortization
of previous overcollections from customers. The $81 million ECAC
decrease is partially offset by increases for cost of capital ($31
million) and base rates ($41 million).
LIQUIDITY AND CAPITAL RESOURCES:
Sources of cash for 1995 through 1999 are expected to consist of
income from operations and issuances of stock and debt. Cash
requirements for 1995 through 1999 include the construction
program and retirements of long-term debt. SDG&E conducts a
continuing review of its construction, investment and financing
programs. They are revised in response to changes in competition,
customer growth, inflation, customer rates, the cost of capital,
and environmental and regulatory requirements.
SDG&E anticipates that it will continue to have short-term and
intermediate-term borrowings in 1995. SDG&E does not expect any
issuances of long-term debt or preferred stock in 1995.
SDG&E's employee savings and common stock investment plans permit
SDG&E to issue common stock or to purchase it on the open market.
Currently, SDG&E is purchasing the stock on the open market.
SDG&E maintains its utility capital structure to obtain long-term
financing at the lowest possible rates. The following table lists
key financial ratios for SDG&E's utility operations.
March 31, December 31,
1995 1994
or the twelve or the year
months then ended then ended
Pretax interest coverage 4.6 X 4.7 X
Internal cash generation 96 % 85 %
Construction expenditures as
a percent of capitalization 8.2 % 9.1 %
Capital structure:
Common equity 48 % 48 %
Preferred stock 4 % 4 %
Debt and leases 48 % 48 %
9
Besides the effects of items discussed in the preceding pages, the
only significant change in cash flows for the three months ended
March 31, 1995 compared to the corresponding 1994 period was
related to the change in accounts payable and other current
liabilities due to lower natural gas prices at March 31, 1995.
Construction expenditures were $264 million in 1994 and are
expected to be approximately $240 million in 1995. The level of
expenditures in the next few years will depend heavily on the
CPUC's proposed industry restructuring (as described in
"Regulatory Matters" above), the timing of expenditures to comply
with air emission reduction and other environmental requirements,
and SDG&E's proposal to transport natural gas to Mexico.
(Additional information concerning SDG&E's proposal to transport
gas to Mexico is provided in SDG&E's 1994 Annual Report.)
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no significant subsequent developments in the
American Trails, Public Service Company of New Mexico, McCartin,
North City West and James proceedings. Background information
concerning these and the following proceedings is contained in
SDG&E's 1994 Annual Report on Form 10-K.
Century Power
On April 26, 1995 the Federal Energy Regulatory Commission denied
SDG&E's request for rehearing of FERC's December 23, 1993 order.
The order found SDG&E's claim under the Ten Year Power Sales
Agreement involving Tucson Electric Company's cost of capital had
been terminated as a result of earlier agreements between Century
and SDG&E and between Century and Tucson. In a separate order
issued at the same time, the FERC dismissed SDG&E's February 11,
1993 audit complaint against Tucson and Century, which sought to
adjust its purchase power costs under the power sales agreement.
FERC found that these proceedings must also be terminated for the
same reasons described above. SDG&E intends to appeal these
decisions. SDG&E cannot predict the ultimate outcome of these
proceedings.
Canadian Natural Gas
The tentative settlement entered into between SDG&E and Husky Oil
on February 27, 1995 became final on March 1, 1995 after both the
U.S. Department of Energy and the Canadian National Energy Board
approved the agreement. Accordingly, all claims of SDG&E and
Husky have been dismissed with prejudice. SDG&E cannot predict the
ultimate outcome of the remaining three proceedings.
Covalt
On February 28, 1995 the California Court of Appeal granted
SDG&E's petition for a writ of mandate, completely dismissing the
plaintiffs' lawsuit. The Court of Appeal ruled that the
California Public Utilities Commission has exclusive jurisdiction
over these claims. On March 30, 1995 the Court of Appeal denied
the plaintiffs' petition for a rehearing. On April 7, 1995
plaintiffs filed a petition for review at the California Supreme
Court. SDG&E cannot predict the ultimate outcome of this
proceeding.
McLandrich
On April 3, 1995 the court dismissed all of the claims brought
against the defendants with the exception of the wrongful death
claim. The court ruled that the dismissed claims should have been
brought by the trustee of the decedent's estate, not the
decedent's children. The possibility exists that the trustee will
refile the dismissed claims. Under California law, punitive
damages are not available to plaintiffs in wrongful death actions.
SDG&E cannot predict the ultimate outcome of this proceeding.
Wood Pole Preservatives
SDG&E and several other utilities and wood pole manufacturers have
received written notice from the Pacific Justice Center, alleging
that they are in violation of the California Safe Drinking Water
and Toxic Enforcement Act (Proposition 65) for failure to warn
individuals who may be exposed to wood poles treated with wood
preservatives, some of which are included on the lists 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. SDG&E believes, on the basis of studies and
other information, that exposures to wood poles containing such
preservatives do not give rise to a significant risk and that no
warning is required. Violations of Proposition 65 warning
requirements can result in penalties of up to $2,500 per
violation. SDG&E is unable to predict the ultimate outcome of this
matter.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The shareholders elected ten directors at the annual meeting on
April 25, 1995. The name of each nominee and the number of shares
voted for or withheld were as follows:
Nominees: Votes For Votes Withheld
Richard C. Atkinson 101,752,572 3,268,514
Ann Burr 101,772,636 3,248,450
Richard A. Collato 101,767,465 3,253,621
Daniel W. Derbes 101,796,848 3,224,238
Catherine T. Fitzgerald 101,799,462 3,221,624
Robert H. Goldsmith 101,778,599 3,242,487
William D. Jones 101,564,984 3,456,102
Ralph R. Ocampo 101,596,021 3,425,065
Thomas A. Page 101,749,453 3,271,633
Thomas C. Stickel 101,655,572 3,365,514
The results of the voting on the following additional items were
as follows:
(a) A proposal to approve and implement a holding company
structure for SDG&E and a related agreement of merger which
would involve (i) formation of a holding company, (ii)
holders of SDG&E common stock having their shares converted
into shares of common stock of the holding company, (iii)
SDG&E's becoming a subsidiary of the holding company, and
(iv) consummation of related activities to complete the
transition to a holding company structure.
In Favor Opposed Abstained Broker Non- Vote
Common 76,115,779 7,705,069 3,368,443 15,528,553
Preferred 2,453,851 241,852 37,457 ---
Preference 729,548 100,322 53,821 267,933
(b) A proposal to amend, restate and extend the 1986 Long-Term
Incentive Plan.
In Favor Opposed Abstained Broker Non-
Vote
Common 85,166,165 13,975,355 3,576,304 ---
Preferred 1,978,428 222,978 99,442 ---
(c) A shareholder's proposal regarding criteria for incentive
compensation.
In Favor Opposed Abstained Broker Non-
Vote
Common 17,828,041 63,161,143 5,850,420 15,878,220
Preferred 346,836 1,266,848 151,314 538,250
Additional information concerning the election of the board of
directors and the other proposals is contained in SDG&E's March
1995 Proxy Statement/Prospectus and Notice of Annual Meeting.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends as required
under SDG&E's August 1993 registration of 5,000,000
shares of Preference Stock (Cumulative).
Exhibit 27 - Financial Data Schedule
27.1 Financial Data Schedule for the 3 months ended March 31, 1995
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on April 3, 1995
announcing negotiations of an agreement, the terms of which
would include, among other things, an option for an
unrelated third party to acquire from Pacific Diversified
Capital Company (a subsidiary of SDG&E and an 81 percent
owner of Wahlco) its investment in and receivables from
Wahlco. Additional information on Wahlco is provided in
Note 2.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this quarterly report to be
signed on its behalf by the undersigned thereunto duly authorized.
SAN DIEGO GAS & ELECTRIC COMPANY
(Registrant)
Date May 8, 1995 By /s/ Frank H. Ault
----------- ----------------------------
(Signature)
F.H. Ault
Vice President and Controller
14
EXHIBIT 12.1
SAN DIEGO GAS & ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
3 Months
Ended
1990 1991 1992 1993 1994 3/31/95
---------- ---------- ---------- ---------- ---------- ----------
Fixed Charges:
Interest:
Long-Term Debt $ 97,894 $ 98,802 $100,776 $ 93,402 $ 93,076 $ 24,853
Short-Term Debt 12,301 8,234 6,242 7,980 10,322 3,187
Amortization of Debt
Discount and Expense,
Less Premium 2,465 2,471 2,881 4,162 4,604 1,293
Interest Portion of
Annual Rentals 20,898 18,067 14,677 19,206 21,998 7,039
---------- ---------- ----------- ---------- ---------- ----------
Total Fixed
Charges 133,558 127,574 124,576 124,750 130,000 36,372
---------- ---------- ----------- ---------- ---------- ----------
Preferred Dividends
Requirements 10,863 10,535 9,600 8,565 7,663 1,916
Ratio of Income Before
Tax to Net Income 1.75499 1.63017 1.72369 1.67794 1.90447 1.72994
---------- ---------- ----------- ---------- ---------- ----------
Preferred Dividends
for Purpose of Ratio 19,064 17,174 16,547 14,372 14,594 3,315
---------- ---------- ---------- ---------- ---------- ----------
Total Fixed Charges
and Preferred
Dividends for
Purpose of Ratio $152,622 $144,748 $141,123 $139,122 $144,594 $ 39,687
========== ========== ========== ========== ========== ==========
Earnings:
Net Income (before
preferred dividend
requirements) $207,841 $208,060 $210,657 $218,715 $143,477 $ 61,850
Add:
Fixed Charges
(from above) 133,558 127,574 124,576 124,750 130,000 36,372
Less: Fixed Charges
Capitalized 3,306 2,907 2,242 5,789 6,792 2,200
Taxes on Income 156,917 131,114 152,451 148,275 129,771 45,147
---------- ---------- ---------- ---------- ----------- ---------
Total Earnings for
Purpose of Ratio $495,010 $463,841 $485,442 $485,951 $396,456 $141,169
========== ========== ========== ========== ===========
==========
Ratio of Earnings
to Combined Fixed
Charges and Preferred
Dividends 3.24 3.20 3.44 3.49 2.74 3.56
========== ========== ========== ========== ========== ==========
UT
1000
3-MOS
DEC-31-1995
MAR-31-1995
PER-BOOK
3,127,816
490,585
407,200
269,801
391,743
4,687,145
291,329
564,420
633,067
1,488,816
25,000
93,493
1,169,020
37,176
119,597
0
143,188
0
101,168
8,433
1,501,254
4,687,145
491,669
47,926
349,931
397,857
93,812
(3,341)
90,471
28,621
61,850
1,916
59,934
45,447
21,584
143,731
0.51
0.51
