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FORM 10-K | ||||||||||||||||
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[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||||
| For the fiscal year ended | December 31, 2010 | ||||||||||||||
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||||
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Commission File No. | Exact Name of Registrants as Specified in their Charters, Address and Telephone Number | State of Incorporation | I.R.S. Employer | |||||||||||||
1-14201 | < font size=2>SEMPRA ENERGY | California | 33-0732627 | |||||||||||||
< /td> | 101 Ash Street |
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| San Diego, California 92101 |
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| (619)696-2034 |
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1-377 9 | SAN DIEGO GAS & ELECTRIC COMPANY | California | 95-1184800 | |||||||||||||
| 8326 Century Park Court |
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| San Diego, California 92123 |
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| (619)696-2000 |
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1-40 | PACIFIC ENTERPRISES | California | 94-0743670 | |||||||||||||
| 101 Ash Street |
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| San Diego, California 92101 |
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| (619)696-2020 |
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1-1402 | SOUTHERN CALIFORNIA GAS COMPANY | California | 95-1240705 | |||||||||||||
| 555 West Fifth Street |
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| Los Angeles, California 90013 |
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| (213)244-1200 |
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| Title of Each Class |
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| Sempra Energy Common Stock, without par value |
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: | None | |||||||||||||||
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Sempra Energy | Yes | X |
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San Diego Gas & Electric Company | Yes |
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Pacific Enterprises | Yes |
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Southern California Gas Company | Yes |
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Sempra Energy | Yes |
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San Diego Gas & Electric Company | Yes |
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Pacific Enterprises | Yes |
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Southern California Gas Company | Yes |
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Sempra Energy | Yes | X |
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San Diego Gas & Electric Company | Yes |
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Pacific Enterprises | Yes |
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Southern California Gas Company | Yes |
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| Large | Accelerated filer | Non-accelerated filer | Smaller reporting company | ||||||||||||
Sempra Energy | [ X ] | [ ] | [ ] | [ ] | ||||||||||||
San Diego Gas & Electric Company | [ ] | [ ] | [ X ] | [ ] | ||||||||||||
Pacific Enterprises | [ ] | [ &n bsp; ] | [ X ] | [ ] | ||||||||||||
Southern California Gas Company | [ ] | [ ] | [ X ] | [ ] | ||||||||||||
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Sempra Energy | Yes |
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San Diego Gas & Electric Company | Yes |
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Pacific Enterprises | Yes |
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Southern California Gas Company | Yes |
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Exhibit Index on page 48. Glossary on page 57. | ||||||||||||||||
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Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2010: | ||||||
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Sempra Energy | $11.5 billion (based on the price at which the common equity was last sold as of the last business day of the most recently completed second fiscal quarter) | |||||
San Diego Gas & Electric Company | $0 | |||||
Pacific Enterprises | $0 | |||||
Southern California Gas Company | $0 | |||||
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Common Stock outstanding, without par value, as of February 22, 2011: | ||||||
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Sempra Energy | 240,505,355 shares | |||||
San Diego Gas & Electric Company | Wholly owned by Enova Corporation, which is wholly owned by Se mpra Energy | |||||
Pacific Enterprises | Wholly owned by Sempra Energy | |||||
Southern California Gas Company | Wholly owned by Pacific Enterprises | |||||
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DOCUMENTS INCORPORATED BY REFERENCE: | ||||||
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Portions of the 2010 Annual Report to Shareholders of Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company are incorporated by reference into Parts I, II and IV. | ||||||
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Portions of the Sempra Energy Proxy Statement prepared for the May 2011 annual meeting of shareholders are incorporated by reference into Part III. | ||||||
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Portions of the San Diego Gas & Electric Company, Southern California Gas Company and Pacific Enterprises Information Statement prepared for their June 2011 annual meetings of shareholders are incorporated by reference into Part III. | ||||||
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SEMPRA ENERGY FORM 10-K | ||
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Information Regarding Forward-Looking Statements | 6 | |
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PART I |
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Item 1. | Business |
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| Description of Business | 7 |
| Company Websit es | 7 |
| Government Regulation | 8 |
| California Natural Gas Utility Operations | 10 |
< /td> | Electric Utility Operations | 11 |
| Rates and Regulation Sempra Utilities | 14 |
| Sempra Global | 14 |
| Environmental Matters | 16 |
| Executive Officers of the Registrants | 16 |
| Other Matters | 17 |
Item 1A. | Risk Factors | 18 |
Item 1B. | Unresolved Staff Comments | 25 |
Item 2. | Properties | 25 |
Item 3. | Legal Proceedings | 26 |
Item 4. | Reserved | 26 |
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PART II |
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Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 27 |
Item 6. | Selected Financial Data | 28 |
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 28 |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
Item 8. | Financial Statements and Supplementary Data | 28 |
Item 9. | Changes in and Disagreements with Accounta nts on Accounting and Financial Disclosure | 29 |
Item 9A. | Controls and Procedures | 29 |
Item 9B. | Other Information | 29 |
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PART III |
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Item 10. | Directors, Executive Officers and Corporate Governance | 30 |
Item 11. | Executive Compensation | 30 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 30 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 30 |
Item 14. | Principal Accountant Fees and Services | 30 |
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SEMPRA ENERGY FORM 10-K |
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PART IV |
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Item 15. p> | Exhibits, Financial Statement Schedules | 31 | |
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Sempra Energy: Consent of Independent Registered Public Accounting Firm and Report on Schedule | 32 | ||
San Diego Gas & Electric Company: Consent of Independent Registered Public Accounting Firm | 33 | ||
Southern California Gas Company: Consent of Independent Registered Public Accounting Firm | 34 | ||
Pacific Enterprises: Report of Independent Registered Public Accounting Firm | 35 | ||
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Schedule I Sempra Energy Condensed Financial Information of Parent | 36 | ||
Schedule I Pacific Enterprises Condensed Financial Information of Parent | 40 | ||
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Signatures |
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Exhibit Index | 48 | ||
Glossary | 57 | ||
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This combined Form 10-K is separately filed by Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company. Information contained herein rel ating 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 Item 6 and 8 sections are provided for each reporting company, except for the Notes to Consolidated Financial Statements in Item 8. The Notes to Consolidated Financial Statements for all of the reporting companies are combined. All Items other than 6 and 8 are combined for the reporting companies.
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, the California State Legislature, the California Department of Water Resources, the Federal Energy Regulatory Commission, the Federal Reserve Board, and other regulatory and governmental bod ies 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 other reports that we file with the Securities and Exchange Commission.
PART I
DESCRIPTION OF BUSINESS
We provide a description of Sempra Energy and its subsidiaries in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2010 Annual Report to Shareholders (Annual Report), which is attached as Exhibit 13.1 to this report and is incorporated by reference.
This report includes information for the following separate registrants:
§Sempra Energy and its consolidated entities
§San Diego Gas & Electric Company (SDG&E)
§Pacific Enterprises (PE), the holding company for Southern California Gas Company
§Southern California Gas Company (SoCalGas)
References in this report to "we," "our," "us," and "our company" are to Sempra Energy and its consolidated entities, collectively, unless otherwise indicated by the context. SDG&E and SoCalGas are collectively referred to as the Sempra Utilities.
Sempra Energy has six separately managed reportable segments consisting of SDG&E, SoCalGas, Sempra Generation, Sempra Pipelines & Storage, Sempra LNG (liquefied natural gas) and Sempra Commodities. Sempra Generation, Sempra Pipelines & Storage, Sempra LNG and Sempra Commodities are subsidiaries of Sempra Global. Sempra Global is a holding company for most of our subsidiaries that are not subject to California utility regulation.
SDG&E, PE and SoCalGas are subsidiaries of Sempra Energy. Sempra Energy directly or indirectly owns all the common stock and substantially all of the voting stock of each of the three companies.
Sempra Commodities
In April 2008, Sempra Energy formed a partnership with The Royal Bank of Scotland plc (RBS) to purchase and operate our commodities-marketing businesses, which generally comprised the Sempra Commodities segment. In November 2009, RBS announced its intention to divest its interest in this joint venture, RBS Sempra Commodities LLP (RBS Sempra Commodities), following a directive from the European Commission to dispose of certain assets. In three separate transactions in 2010 and one in early 2011, we and RBS divested substantially all of the partnerships businesses and assets.
We provide further disc ussion about RBS Sempra Commodities and the transactions in Notes 3, 4 and 5 of the Notes to Consolidated Financial Statements in the Annual Report.
COMPANY WEBSITES
Company website addresses are:
Sempra Energy http://www.sempra.com
SDG&E http://www.sdge.com
PE/SoCalGas http://www.socalgas.com
We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). The charters of the audit, compensation and co rporate governance committees of Sempra Energys board of directors (the board), the board's corporate governance guidelines, and Sempra Energy's code of business conduct and ethics for directors and officers are posted on Sempra Energy's website.
SDG&E and SoCalGas make available free of charge via a hyperlink on their websites their annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
Printed copies of all of these materials may be obtained by writing to our Corporate Secretary at Sempra Energy, 101 Ash Street, San Diego, CA 92101-3017.
The information on the websites of Sempra Energy, SDG&E and PE/SoCalGas is not part of this report or any other report tha t we file with or furnish to the SEC, and is not incorporated herein by reference.
GOVERNMENT REGULATION
The most significant government regulation affecting Sempra Energy is the regulation of the Sempra Utilities.
California Utility Regulation
The Sempra Utilities are regulated in California by the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), and the California Air Resources Board (CARB).
The California Public Utilities Commission:
§consists of five commissioners appointed by the Governor of California for staggered, six-year terms (only four positions are currently filled).
§regulates SDG&Es and SoCalGas rates and conditions of service, sales of securities, rates of return, capital structure, rates of depreciation, and long-term resource procurement, except as described below in "United States Utility Regulation."
§has jurisdiction over the proposed construction of major new electric transmission, electric distribution, and natural gas storage, transmission and distribution facilities in California.
§conducts reviews and audits of utility performance and compliance with regulatory guidelines, and conducts investigations into various matters, such as deregulation, competition and the environment, to determine its future policies.
§regulates the interactions and transactions of the Sempra Utilities with Sempra Energy and its other affiliates.
We provide further discussion in Notes 14 and 15 of the Notes to Consolidated Financial Statements in the Annual Report.
SDG&E is also subject to regulation by the CEC, which publishes electric demand forecasts for the state and for specific service territories. Based upon these forecasts, the CEC:
§determines the need for additional energy sources and conservation programs;
§sponsors alternative-energy research and development projects;
§promotes energy conservation programs;
§maintains a statewide plan of action in case of energy shortages; and
§certifies power-plant sites and related facilities within California.
The CEC conducts a 20-year forecast of available supplies and prices for every market sector that consumes natural gas in California. This forecast includes resource evaluation, pipeline capacity needs, natural gas demand and wellhead p rices, and costs of transportation and distribution. This analysis is one of many resource materials used to support the Sempra Utilities long-term investment decisions.
The State of California requires certain California electric retail sellers, including SDG&E, to deliver 20 percent of their retail demand from renewable energy sources. The rules governing this requirement, administered by both the CPUC and the CEC, are generally known as the Renewables Portfolio Standard (RPS) Program. We discuss this requirement as it applies to SDG&E in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report. Certification of a generation project by the CEC as an Eligible Renewable Energy Resource (ERR) allows the purchase of output from a generation facility to be counted towards fulfillment of the RPS Program requirements. This may affect the demand for output from renewables projects developed by Sempra Generation, particularly from Cal ifornia utilities. Final certification as an ERR for Sempra Generations El Dorado Solar generation facility was approved in June 2009. Sempra Generation has filed for ERR certification of its Copper Mountain Solar facility in Nevada.
California Assembly Bill 32, the California Global Warming Solutions Act of 2006, assigns responsibility to CARB for monitoring and establishing policies for reducing greenhouse gas (GHG) emissions. The bill requires CARB to develop and adopt a comprehensive plan for achieving real, quantifiable and cost-effective GHG emission reductions, including a statewide GHG emissions cap, mandatory reporting rules, and regulatory and market mechanisms to achieve reductions of GHG emissions. CARB is a department within the California Environmental Protection Agency, an organization which reports directly to the Governor's Office in the Executive Branch of California State Government. In September 2010, CARB adopted a requir ement known as the California Renewable Energy Standard (RES), which obligates California utilities to procure 33 percent of their annual electric energy requirements from renewable energy sources by 2020. CARB has not yet issued the final version of formal regulations articulating the requirement or detailing how the RES will be implemented.
United States Utility Regulation
The Sempra Utilities are also regulated by the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC).
In the case of SDG&E, the FERC regulates the interstate sale and transportation of natural gas, the transmission and wholesale sales of electricity in interstate commerce, transmission access, rates of return on transmission investment, the uniform systems of accounts, rates of depreciation and electric rates involving sales for resale.
In the case of SoCalGas, the FERC regulates the interstate sale and transportation of natural gas and the uniform systems of accounts.
The NRC oversees the licensing, construction and operation of nuclear facilities in the United States, including the San Onofre Nuclear Generating Station (SONGS), in which SDG&E owns a 20-percent interest. NRC regulations require extensive review of the safety, radiological and environmental aspects of these facilities. Periodically, the NRC requires that newly developed data and techniques be used to reanalyze the design of a nuclear power plant and, as a result, may require plant modifications as a condition of continued operation.
The Department of Transportation (DOT) has established regulations regarding engineering standards and operating procedures applicable for the Sempra Utilities natural gas transmission and distribution pipelines. The DOT has certified the CPUC to administer oversight and compliance with these regulations for the entities they regulate in California.
Sempra Pipelines & Storage operates Mobile Gas Service Corporation (Mobile Gas), a natural gas distribution utility serving southwest Alabama that is regulated by the Alabama Public Service Commission (APSC).
Local Regulation Within the U.S.
SoCalGas has natural gas franchises with the 12 counties and 232 cities in its service territory. These franchises allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas. Most of the franchises have indefinite lives with no expiratio n date. Some franchises have fixed expiration dates, ranging from 2011 to 2048.
SDG&E has
§electric franchises with the two counties and the 26 cities in its electric service territory, and
§natural gas franchises with the one county and the 18 cities in its natural gas service territory.
These franchises allow SDG&E to locate, operate and maintain facilities for the transmission and distribution of electricity and/or natural gas. Most of the franchises have indefinite lives with no expiration dates. Some natural gas franchises have fixed expiration dates, ranging from 2012 to 2035, and some electric franchises have fixed expiration dates that range from 2012 to 2018.
Sempra Generation, Sempra Pipelines & Storage and Sempra LNG have operations or development projects in Alabama, Arizona, California, Colorado, Hawaii, Indiana, Louisiana, Mississippi, Nevada, and Texas. These entities are subject to state and local laws, and to regulations in the states in which they operate.
Other Regulation
In the United States, the FERC, with ratemaking authority over wholesale sales of power and the transportation and storage of natural gas in interstate commerce, and siting and permitting authority for LNG terminals, regulates Sempra Generations, Sempra Pipelines & Storages and Sempra LNGs operations. Sempra Pipelines & Storage also owns an interest in the Rockies Express Pipeline, a natural gas pipeline which operates in several states in the United States and is subje ct to regulation by the FERC. Intrastate storage at Sempra Pipelines & Storages Bay Gas Storage Company (Bay Gas) is also regulated by the APSC.
The FERC may regulate rates and terms of service based on a cost-of-service approach or, in geographic and product markets determined by the FERC to be sufficiently competitive, rates may be market-based. Our LNG terminal in the United States is subject to market-based rates and terms of service. FERC regulated rates at the following businesses are
§Sempra Generation: market-based for wholesale electricity sales.
§Sempra Pipelines & Storage: cost-based and market-based for the transportation and storage of natural gas, respectively.
§Sempra LNG: Market-based for the receipt, storage and vaporization of LNG and the purchase and sale of natural gas.
Sempra Pipelines & Storage is also subject to DOT rules and regulations regarding pipeline safety.
Several of our segments operate in Mexico as follows:
§Sempra Generation owns and operates a natural gas-fired power plant in Baja California, Mexico
§Sempra Pipelines & Storages Mexican utilities build and operate natural gas distribution systems in Mexicali, Chihuahua, and the La Laguna-Durango zone in north-central Mexico< /p>
§Sempra Pipelines & Storage transports gas between the U.S. border and Baja California, Mexico and Sonora, Mexico. Sempra Pipelines & Storage also owns a 50-percent interest in a joint venture with PEMEX (the Mexican state-owned oil company) that operates two natural gas pipelines and a propane system in northern Mexico
§Sempra LNG owns and operates the Energía Costa Azul LNG receipt terminal located in Baja California, Mexico
These operations are subject to regulation by the Comisión Reguladora de Energía and by the labor and environmental agencies of city, state and federal governments in Mexico.
Sempra Pipelines & Storage also has investments in South America that are subject to laws and regulations in the localities and countries in which they operate.
Licenses and Permits
The Sempra Utilities obtain numerous permits, authorizations and licenses in connection with the transmission and distribution of natural gas and electricity and the operation and construction of related assets, some of which may require periodic renewal.
Our other subsidiaries are also required to obtain numerous permits, authorizations and licenses in the normal course of business. Some of these permits, authorizations and licenses require periodic renewal.
Sempra Generation and its subsidiaries obtain a number of permits, authorizations and licenses in connection with the construction and operation of power generation facilities, and in c onnection with the wholesale distribution of electricity.
Sempra Pipelines & Storages Mexican subsidiaries obtain numerous permits, authorizations and licenses for their natural gas distribution and transmission systems from the local governments where the service is provided. Sempra Pipelines & Storages U.S. operations obtain licenses and permits for natural gas storage facilities and pipelines.
Sempra LNG obtains licenses and permits for the operation and expansion of LNG facilities, and the import and export of LNG and natural gas.
CALIFORNIA NATURAL GAS UTILITY OPERATIONS
SoCalGas and SDG&E sell, distribute and transport natural gas. SoCalGas purchases and stores natural gas for itself and SDG&E on a combined portfolio basis and provides natural gas storage services for others. The Sempra Utilities resource planning, natural gas procurement, contractual commitments, and related regulatory matters are discussed below. We also provide further discussion in the Annual Report in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Notes 14 and 15 of the Notes to Consolidated Financial Statements.
Customers
For regulatory purposes, end-use customers are classified as either core or noncore customers. Core customers are primarily residential and small commercial and industrial customers. Noncore cus tomers at SoCalGas consist primarily of electric generation, wholesale, large commercial, industrial, and enhanced oil recovery customers. Noncore customers at SDG&E consist primarily of electric generation and large commercial and industrial customers.
Most core customers purchase natural gas directly from SoCalGas or SDG&E. While core customers are permitted to purchase directly from producers, marketers or brokers, the Sempra Utilities are obligated to provide reliable supplies of natural gas to serve the requirements of their core customers. Noncore customers are responsible for the procurement of their natural gas requirements.
In 2010, SoCalGas added 24,000 new natural gas customer meters at a growth rate of 0.4 percent; in 2009, it added 27,000 new meters at a growth rate of 0.5 percent. SDG&E added 4,300 and 4,200 new natural gas customer meters in 2010 and 2009, respectively, both at a growt h rate of 0.5 percent. Based on forecasts of new housing starts, SoCalGas and SDG&E each expects that its new meter growth rates in 2011 will be comparable to those in 2010.
Natural Gas Procurement and Transportation
SoCalGas purchases natural gas under short-term and long-term contracts for the Sempra Utilities core customers. SoCalGas purchases natural gas from Canada, the U.S. Rockies and the southwestern U.S. to meet customer requirements and maintain pipeline reliability. It also purchases some California natural gas production and additional supplies delivered directly to California for its remaining requirements. Purchases of natural gas are primarily based on published monthly bid-week indices.
To ensure the delivery of the natural gas supplies to its distribution system and to meet the seasonal and annual needs of customers, SoCalGas has entered into firm interstate pipeline capacity contracts that require the payment of fixed reservation charges to reserve firm transportation rights. Interstate pipeline companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company, and Kern River Gas Transmission Company, provide transportation services into SoCalGas' intrastate transmission system for supplies purchased by SoCalGas or its transportation customers from outside of California. The FERC regulates the rates that interstate pipeline companies may charge for natural gas and transportation services.
SoCalGas has natural gas transportation contracts with various interstate pipelines. These contracts expire on various dates between 2011 and 2025.
Natural Gas Storage
SoCalGas provides natural gas storage services for core, noncore and non-end-use customers. The Sempra Utilities core customers are allocated a portion of SoCalGas' storage capacity. SoCalGas offers the remaining storage capacity for sale to others through an open bid process. The storage service program provides opportunities for these customers to purchase and store natural gas when natural gas costs are low, usually during the summer, thereby reducing purchases when natural gas costs are expected to be higher. This program allows customers to better manage their natural gas procurement and transportation needs.
Demand for Natural Gas
Growth in the demand for natural gas largely depends on the health and expansion of the Southern California economy, prices of alternative energy products, environmental regulations, renewable energy, legislation, and the effectiveness of energy efficiency programs. External factors such as weather, the price of electricity, electric deregulation, the use of hydroelectric power, development of renewable energy resources, development of new natural gas supply sources, and general economic conditions can also result in significant shifts in demand and market price.
The Sempra Utilities face competition in the residential and commercial customer markets based on customers' preferences for natural gas compared with other energy products. In the noncore industrial market, some customers are capable of securing alternate fuel supplies from other suppliers which can affect the demand for natural gas. The Sempra Utilities ability to maintain their respective industrial market shares is largely dependent on the relative spread between delivered energy prices.
Natural gas demand for electric generation within Southern California competes with electric power generated throughout the western U.S. Natural gas trans ported for electric generating plant customers may be affected by the growth in renewable generation, the addition of more efficient gas technologies and to the extent that regulatory changes and electric transmission infrastructure investment divert electric generation from the Sempra Utilities respective service areas. The demand may also fluctuate due to volatility in the demand for electricity and the availability of competing supplies of electricity such as hydro-electric generation and other renewable energy sources. We provide additional information regarding electric industry restructuring in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.
The natural gas distribution business is seasonal, and revenues generally are greater during the winter heating months. As is prevalent in the industry, SoCalGas injects natural gas into storage during the summer months (usually April through October) for withdrawal from sto rage during the winter months (usually November through March) when customer demand is higher.
ELECTRIC UTILITY OPERATIONS
Customers
SDG&Es service area covers 4,100 square miles. At December 31, 2010, SDG&E had 1.4 million customer meters consisting of:
§1,232,000 residential
§147,000 commercial
§500 industrial
§2,100 street and highway lighting
§4,500 direct access
SDG&E added 7,000 new electric customer meters at a growth rate of 0.5 percent in both 2010 and 2009. Based on forecasts of new housing starts, SDG&E expects that its new meter growth rate in 2011 will be comparable to that in 2010.
Resource Planning and Power Procurement
SDG&E's resource planning, power procurement and related regulatory matters are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Electric Resources
The supply of electric power available to SDG&E for resale is based on CPUC-approved purchased-power contracts currently in place with its various suppliers, its Palomar and Miramar generating facilities, its 20-percent ownership interest in SONGS and purchases on a spot basis. This supply as of December 31, 2010 is as follows:
SDG&E ELECTRIC RESOURCES | |||||||
Supplier |
| Source |
| Expiration date | Megawatts (MW) | ||
PURCHASED-POWER CONTRACTS: (1) |
|
|
|
|
|
| |
Department of Water Resources (DWR)- |
|
|
|
|
|
| |
allocated contracts: |
|
|
|   ; |
|
| |
| Sunrise Power Co. LLC |
| Natural gas |
| 2012 |
| 570 |
| Other (5 contracts) |
| Natural gas/Wind |
| 2011 to 2013 |
| 259 |
| Total |
|
|
|
|
| 829 |
Other contracts with Qualifying Facilities (QFs)(2): |
|
|
|
|
|
| |
| Applied Energy Inc. |
| Cogenera tion |
| 2019 |
| 114 |
| Yuma Cogeneration |
| Cogeneration |
| 2024 |
| 53 |
| Goal Line Limited Partnership |
| Cogeneration |
| 2025 |
| 50 |
| Other (14 contracts) |
| Cogeneration |
| 2011 and thereafter |
| 42 |
| Total |
|
|
|
|
| 259 |
Other contracts with renewable sources:< /p> |
|
|
|
|
|
| |
| NaturEner |
| Wind |
| 2023 to 2024 |
| 210 |
| Oasis Power Partners |
| Wind |
| 2019 |
| 60 |
| Kumeyaay |
| Wind |
| 2025 |
| 50 |
| Iberdrola Renewables |
| Wind |
| 2018 |
| 25 |
| WTE/FPL |
| Wind |
| 2018 |
| 17 |
| Covanta Delano |
| Biomass |
| 2017 |
| 49 |
| Blue Lake Power |
| Biomass |
| 2020 |
| 11 |
| Calpine Geysers |
| Geothermal |
| 2014 |
| 25 |
| Other (9 contracts) |
| Bio-gas/Hydro |
| 2012 to 2022 |
| 33 |
| Total |
|
|
|
|
| 480 |
Other long-term and tolling contracts(3): |
|
|
|
| |
| |
| Otay Mesa Energy Center LLC |
| Natural gas |
| 2019 |
| 603 |
| Cabrillo Power I, LLC |
| Natural gas |
| 2011 |
| 964 |
| Orange Grove Energy L.P. |
| Natural gas |
| 2035 |
| 100 |
| El Cajon Energy, LLC |
| Natural gas |
| 2035 |
| 49 |
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| Natural gas |
| 2011 |
| 36 | |
| Portland General Electric (PGE) |
| Coal |
| 2013 |
| 89 |
| Enernoc |
| Demand response/ |
|
|
| &n bsp; |
|
|
| Distributed generation |
| 2016 |
| 25 |
| Total |
|
|
|
|
| 1,866 |
Total contracted |
|
|
|
|
| 3,434 | |
|
|
|
|
|
|
|
|
GENERATION: |
|
|
|
|
|
| |
| Palomar |
| Natural gas |
|
|
| |
| SONGS |
| Nuclear |
|
|
| 430 |
| Miramar |
| Natural gas |
|
|
| 96 |
Total generation |
|
|
|
|
| 1,086 | |
TOTAL CONTRACTED AND GENERATION |
|
|
|
|
| 4,520 | |
(1) | Contracts covering 2011 - 2035. | ||||||
(2) | A QF is a generating facility which meets the requirements for QF status under the Public Utility Regulatory Policies Act of 1978. It includes cogeneration facilities, which produce electricity and another form of useful thermal energy (such as heat or steam) used for industrial, commercial, residential or institutional purposes. It also includes small power production facilities, which are generating facilities whose primary energy source is renewable (hydro, wind, solar, etc.), biomass, waste, or geothermal resources. Small power production facilities are generally limited in size to 80 MW. | ||||||
(3) | Tolling contracts are purchased-power agreements under which we provide the fuel for generation to the energy supplier. |
Under the contract with PGE, SDG&E pays a capacity charge plus a charge based on the amount of energy received and/or PGE's non-fuel costs. Costs under most of the contracts with QFs are based on SDG&E's avoided cost. Charges under the remaining contracts are for firm and as-available energy, and are based on the amount of energy received or are tolls based on available capacit y. The prices under these contracts are based on the market value at the time the contracts were negotiated.
SDG&E buys natural gas under short-term contracts for its Palomar and Miramar generating facilities and for the Cabrillo Power I, LLC, Otay Mesa Energy Center LLC, Orange Grove Energy L.P., and El Cajon Energy, LLC tolling contracts. Purchases are from various southwestern U.S. suppliers and are primarily based on published monthly bid-week indices. SDG&E's natural gas is delivered from southern California border receipt points to the SoCal CityGate pool via firm access rights which expire on September 30, 2011. The natural gas is then delivered from the SoCal CityGate pool to the generating facilities through SoCalGas' pipelines in accordance with a transportation agreement that expires on May 31, 2011. SDG&E has also contracted with SoC alGas for natural gas storage from April 1, 2010 to March 31, 2011.
SDG&E also buys natural gas as the California DWR's limited agent for the DWR-allocated contracts. Most of the natural gas deliveries for the DWR-allocated contracts are transported through the Kern River Gas Transmission Pipeline under a long-term transportation agreement. The DWR is financially responsible for the costs of gas and transportation.
SONGS
SDG&E has a 20-percent ownership interest in SONGS, which is located south of San Clemente, California. SONGS consists of two operating nuclear generating units. The city of Riverside owns 1.79 percent and Southern California Edison (Edison), the operator of SONGS, owns the remaining interest.
The two units began commercial operation in August 1983 and April 1984, respectively. SDG&E's share of the capacity from the two units is 430 MW.
A third unit was removed from service in November 1992. Decommissioning of that unit is largely complete, with the remaining work to be done in the future when the remaining two units are decommissioned. Its spent nuclear fuel is being stored on site in an independent spent fuel storage installation (ISFSI) licensed by the NRC.
SDG&E has fully recovered the capital invested through December 31, 2003 in SONGS and earns a return only on subsequent capital additions, including SDG&Es share of costs associated with the steam generator replacement project, which is currently in progress.
We provide additional information concerning the SONGS units and nuclear decommissioning below in "Environmental Matters" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 6, 14 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Nuclear Fuel Supply
The nuclear fuel supply cycle includes materials and services performed by others under various contracts that extend through 2020. Fuel supply contracts are index-priced and provide nuclear fuel through 2022, the expiration of SONGS NRC license.
Spent fuel from SONGS is being stored on site in both the ISFSI and spent fuel pools. With the completion of the current phase of decommissioning, the site has adequate space to build ISFSI storage capacity through 2022. Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a contract with the U.S. Department of Energy (DOE) for spent-fuel disposal. Under the agreement, the DOE is responsible for the ultimate disposal of spent fuel f rom SONGS. SDG&E pays the DOE a disposal fee of $1.00 per megawatt-hour of net nuclear generation, or $3 million per year. It is uncertain when the DOE will begin accepting spent fuel from any nuclear generation facility.
Power Pools
SDG&E is a participant in the Western Systems Power Pool, which includes an electric-power and transmission-rate agreement with utilities and power agencies located throughout the United States and Canada. More than 300 investor-owned and municipal utilities, state and federal power agencies, energy brokers and power marketers share power and information in order to increase eff iciency and competition in the bulk power market. Participants are able to make power transactions on standardized terms, including market-based rates, preapproved by the FERC.
Transmission Arrangements
SDG&E's 500-kilovolt (kV) Southwest Powerlink transmission line, which is shared with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego, California. SDG&E's share of the line is 1,162 MW, although it can be less under certain system conditions.
Mexico's Baja California system is connected to SDG&E's system via two 230-kV interconnections with firm capability of 408 MW in the north to south direction and 800 MW in the south to north direction.
SDG&Es Sunrise Powerlink, a new 117-mile, 500-kV transmission line project that is designed to deliver up to 1,000 megawatts of energy from the Imperial Valley to the San Diego region, received approval from the CPUC in December 2008, the Bureau of Land Management in January 2009 and the U.S. Forest Service in July 2010. SDG&E commenced construction in the fall of 2010 and expects the line to be in commercial operation in the second half of 2012. We provide further discussion in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.
Transmission Access
The National Energy Policy Act governs procedures for requests for transmission service. The FERC approved the California investor-owned utilities' (IOUs) transfer of operation and control of their transmission facilities to the Independent System Operator (ISO) in 1998. We provide additional information regarding transmission issues in Note 14 of the Notes to Consolida ted Financial Statements in the Annual Report.
RATES AND REGULATION SEMPRA UTILITIES
We provide information concerning rates and regulation applicable to the Sempra Utilities in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 1, 14 and 15 of the Notes to Consolidated Financial Statements in the Annual Report.
SEMPRA GLOBAL
Sempra Global is a holding company for most of our subsidiaries that are not subject to California utility regulation. Sempra Global includes Sempra Generation, Sempra Pipelines & Storage, Sempra LNG and Sempra Commodities. We provide descriptions of these business units and information concerning their operations under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 1, 3, 4, 16, 17 and 19 of the Notes to Consolidated Financial Statements in the Annual Report.
Competition
Sempra Energys non-utility businesses are among many others in the energy industry providing similar products and services. They are engaged in highly competitive activities that require significant capital investments and highly skilled and experienced personnel. Many of their competitors may have significantly greater financial, personnel and other resources than Sempra Global.
Sempra Generation
For sales of non-contracted power, Sempra Generation is subject to competition from energy marketers, utilities, industrial companies and other independent power producers. For a number of years, natural gas has been the fuel of choice for new power generation facilities for economic, operational and environmental reasons. While natural gas-fired facilities will continue to be an important part of the nations generation portfolio, some regulated utilities are now constructing units powered by renewable resources, often with subsidies or under legislative mandate. These utilities generally have a lower cost of capital than most independent power producers and often are able to recover fixed costs through rate base mechanisms. This recovery allows them to build, buy and upgrade generation without relying exclusively on market clearing prices to recover their investments.
When Sempra Generation sells power not subject to long-term contract commitments, it is exposed to market fluctuations in prices based on a number of facto rs, including the amount of capacity available to meet demand, the price and availability of fuel, and the presence of transmission constraints. Additionally, generation from Sempra Generations renewable energy assets is exposed to fluctuations in naturally occurring conditions such as wind, weather and hours of sunlight. Some of Sempra Generations competitors, such as electric utilities and generation companies, have their own generation capacity, including natural gas, coal and nuclear generation. These companies, generally larger than Sempra Generation, may have a lower cost of capital and may have competitive advantages as a result of their scale and the location of their generation facilities.
Sempra Generations competitors include
§Calpine | §GenOn Energy |
§Dynegy | §NextEra Energy Resources |
§Edison Mission Energy | §NRG Energy |
Sempra Pipelines & Storage
Within its market area, Sempra Pipelines & Storages natural gas storage facilities and pipelines compete with other regulated and unregulated storage facilities and pipelines. It competes primarily on the basis of price (in terms of storage and transportation fees), available capacity, and connections to downstream markets.
Sempra Pipelines & Storages competitors include
§Boardwalk Pipeline Partners | §Plains All-American |
§El Paso | §Spectra Energy |
§Energy Transfer Partners | §TransCanada |
§Enterprise Product Partners | §The Williams Companies |
§Iberdrola Renewables (Enstor) | §Various independent midstream asset developers |
§Kinder Morgan |
|
Sempra LNG
New supplies to meet North Americas natural gas demand may be developed from a combination of the following sources:
§e xisting producing basins in the United States, Canada and Mexico;
§frontier basins in Alaska, Canada, and offshore North America;
§areas currently restricted from exploration and development due to public policies, such as areas in the Rocky Mountains and offshore Atlantic, Pacific and Gulf of Mexico coasts;
§previously inaccessible or uneconomic natural gas reserves through hydraulic fracturing (natural gas recovery from deep shale formations) and other new exploration, drilling and production techniques; and
§LNG imported into LNG receipt terminals in operation or under development in the United States, Canada and Mexico.
In addition, the demand for energy currently met by natural gas could be met by other energy forms such as coal, hydroelectric, oil, wind, solar, geothermal, biomass and nuclear energy. Sempra LNG will, therefore, face competition from companies who supply each of these energy sources.
Sempra LNG competes with other companies that operate LNG receiving terminals and purchase LNG. As of December 31, 2010, there were 16 existing and operating LNG receipt terminals in North America. There are two additional LNG receipt terminals currently under construction in North America. Worldwide, there are 82 existing and operating LNG receipt terminals in 21 countries. There are also other proposed LNG receipt terminals worldwide with which Sempra LNG will compete to be the most economical delivery point for LNG supply of both long-term contracted and spot volumes.
Sempra LNGs major domestic and international competitors include the following companies and their related LNG affiliates:
§BG | |
§BP | §Gas Natural Fenosa |
§Cheniere Energy | §GDF Suez |
§Cheniere Energ y Partners | §OAO Gazprom |
§Chevron | §Repsol |
§ConocoPhillips | §Royal Dutch Shell |
§Dominion Resources | §Southern Union |
§El Paso | §Statoil |
§Eni |
|
Sempra Commodities
Sempra Commodities consists of our investment in RBS Sempra Commodities, a joint venture formed in April 2008. As we discuss above under Description of Business Sempra Commodities, substantially all of the joint ventures businesses and assets were divested in 2010 and early 2011.
ENVIRONMENTAL MATTERS
We discuss environmental issues affecting us in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report. You should read the following additional information in conjunction with those discussions.
Hazardous Substances
In 1994, the CPUC approved the Hazardous Waste Collaborative mechanism, allowing California's IOUs to recover hazardous waste cleanup costs for certain sites, including those related to certain Superfund sites. This mechanism permits the Sempra Utilities to recover in rates 90 percent of hazardous waste cleanup costs and related third-party litigation costs, and 70 percent of the related insurance-litigation expenses. In addition, the Sempra Utilities have the opportunity to retain a percentage of any recoveries from insurance carriers and other third parties to offset the cleanup and associated litigation costs not recovered in rates.
At December 31, 2010, we had accrued estimated remaining investigation and remediation liabilities of $0.6 million at SDG&E and $20.2 million at SoCalGas, both related to hazardous waste sites for which the Hazardous Waste Collaborative mechanism authorizes us to recover 90 percent of the costs. The accruals include costs for numerous locations, most of which had been manufactured-gas plants. This estimated cost excludes remediation costs of $5.4 million associated with SDG&E's former fossil-fuel power plants and other locations for which the cleanup costs are not being recovered in rates. We believe that any costs not ultimately recovered through rates, insurance or other means will not have a material adverse effect on the consolidated results of operations or financial condition of Sempra Energy, SDG&E or PE/SoCalGas.
We record estimated liabilities for environmental remediation when amounts are probable and estimable. In addition, we record amounts autho rized to be recovered in rates under the Hazardous Waste Collaborative mechanism as regulatory assets.
Air and Water Quality
The electric and natural gas industries are subject to increasingly stringent air-quality and greenhouse gas standards, such as those established by the United States Environmental Protection Agency (EPA) and the CARB. We discuss these standards in "Government Regulation California Utility Regulation" above. The Sempra Utilities generally recover in rates the costs to comply with these standards.
In connection with the issuance of operating permits, SDG&E and the other owners of SONGS have an agreement with the California Coastal Commission to mitigate environmental impacts to the marine environment attributed to the cooling-water discharge from SONGS. SDG&E's share of the mitigation costs is estimated to be $53 million, of which $36 million had been incurred through December 31, 2010, and $17 million is accrued for the remaining costs through 2050. In 2008, an artificial kelp reef project was completed. The remaining costs are to complete a wetlands project and maintain both projects through 2050.
EXECUTIVE OFFICERS OF THE REGISTRANTS
Sempra Energy
Nam e | Age(1) | Position(1) |
Donald E. Felsinger | 63 | Chairman and Chief Executive Officer |
Neal E. Schmale |
| President and Chief Operating Officer |
Javade Chaudhri | 58 | Executive Vice President and General Counsel |
Debra L. Reed | 54 | Executive Vice President |
Mark A. Snell | 54 | Executive Vice President and Chief Financial Officer |
Joseph A. Householder | 55 | Senior Vice President, Controller and Chief Accounting Officer |
G. Joyce Rowland | 56 | Senior Vice President Human Resources, Diversity and Inclusion |
(1) Ages and positions are as of February 24, 2011. |
Each executive officer has been an officer of Sempra Energy or its subsidiaries for more than the last five years.
SDG&E, PE and SoCalGas
Name | Age(1) | Position(1) |
San Diego Gas & Electric Company | ||
Jessie J. Knight, Jr. | 60 | Chairman and Chief Executive Officer | Michael R. Niggli | 61 | President and Chief Operating Officer |
James P. Avery | 54 | Senior Vice President Power Supply |
J. Chris Baker | 51 | Senior Vice President Support Services and Chief Information Officer |
Lee Schavrien | 56 | Senior Vice President Finance, Regulatory and Legislative Affairs |
W. Davis Smith | 61 | Senior Vice President and General Counsel |
Robert M. Schlax | 55 | Vice President, Controller, Chief Financial Officer, Chief Accounting Officer and Treasurer |
Pacific Enterprises | ||
Michael W. Allman | 50 | Chairman, President and Chief Executive Officer |
Anne S. Smith | 57 |
Chief Operating Officer |
Robert M. Schlax | 55 | Vice President, Controller, Chief Financial Officer, Chief Accounting Of ficer and Treasurer |
Southern California Gas Company | ||
Michael W. Allman | 50 | Chairman, President and Chief Executive Officer |
Anne S. Smith | 57 | Chief Operating Officer |
J. Chris Baker | 51 | Senior Vice President Suppor t Services and Chief Information Officer |
Michael P. Gallagher | 46 | Senior Vice President Customer Service and Operations |
Erbin B. Keith | 50 | Senior Vice President External Affairs and General Counsel |
Lee Schavrien | 56 | Senior Vice President Finance, Regulatory and Legislative Affairs |
<
pre>Robert M. Schlax | 55 | Vice President, Controller, Chief Financial Officer, Chief Accounting Officer and Treasurer |
(1) Ages and positions are as of February 24, 2011. |
Each executive officer of SDG&E, PE and SoCalGas has been an officer or employee of Sempra Energy or its subsidiaries for more than the last five years, except for Messrs. Knight and Gallagher. Prior to joining Sempra Energy in 2006, Mr. Knight was the President and Chief Executive Officer of the San Diego Regional Chamber of Commerce since 1999. Prior to joining Sempra Energy in 2006, from 1999 through 2006, Mr. Gallagher was a partner and director of Sterling Energy Operations, LLC, which provides management consulting services to electric/power companies.
OTHER MATTERS
Employees of Registrants
As of December 31, each company had the following number of employees:
| December 31, | |||
| 2010 | 2009 | ||
Sempra Energy Consolidated |
| 13,504 |
| 13,839 |
SDG&E |
| 4,970 |
| 5,067 |
SoCalGas |
| 7,067 |
| 7,136 |
Labor Relations
Field, technical and most clerical employees at SoCalGas are represented by the Utility Workers Union of America or the International Chemical Workers Union Council. The collective bargaining agreement for these employees covering wages, hours, working conditions, and medical and other benefit plans expires on September 30, 2011.
Field employees and some clerical and technical employees at SDG&E are represented by the International Brotherhood of Electrical Workers. The collective bargaining agreement for these employees covering wages, hours and working conditions is in effect through August 31, 2011. For these same employees, the agreement covering pension and savings plan benefits is in effect through December 4, 2012, and the agreement covering health and welfar e benefits is in effect through December 31, 2011.
ITEM 1A. RISK FACTORS
When evaluating our company and its subsidiaries, you should consider carefully the following risk factors and all other information contained in this report. These risk factors could affect our actual results and cause such results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Other risks and uncertainties, in addition to those that are described below, may also impair our business operations. If any of the following occurs, our business, cash flows, results of operations and financial condition could be seriously harmed. In addition, the trading price of our securities could decline due to the occurrence of any of these risks. These risk factors should be read in conjunction with the other detailed information concerning our company set forth in the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.
Sempra Energy's cash flows, ability to pay dividends and ability to meet its debt obligations largely depend on the performance of its subsidiaries.
Sempra Energy's ability to pay dividends and meet its debt obligations depends on cash flows from its subsidiaries and, in the short term, its ability to raise capital from external sources. In the long term, cash flows from the subsidiaries depend on their ability to generate operating cash flows in excess of their own capital expenditures and long-term debt obligations. In addition, the subsidiaries are separate and distinct legal entities and could be precluded from making such distributions under certain circumstances, including as a result of legislation or regulation or in times of financial distress.
Our businesses may be adversely affected by conditions in the financial markets and economic conditions generally.
Our businesses are capital intensive and we rely significantly on long-term debt to fund a portion of our capital expenditures and refund outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations.
The credit markets and financial services industry have recently experienced a period of extreme world-wide turmoil characterized by the bankruptcy, failure, collapse or sale of many financial institutions and by extraordinary levels of government intervention and proposals for further intervention and additional regulation.
Limitations on the availability of credit and increases in interest rates or credit spreads may adversely affect our liquidity and results of operations. In difficult credit markets, we may find it necessary to fund our operations and capital expenditures at a higher cost or we may be unable to raise as much funding as we need to support business activities. This could cause us to reduce capital expenditures and could increase our cost of funding, both of which could reduce our short-term and long-term profitability.
The availability and cost of credit for our businesses may be greatly affected by credit ratings. If the credit ratings of SoCalGas or SDG&E were to be reduced, their businesses could be adversely affected and any reduction in Sempra Energy's ratings could adversely affect its non-utility subsidiaries.
Risks Related to All Sempra Energy Subsidiaries
Our businesses are subject to complex government regulations and may be adversely affected by changes in these regulations or in their interpretation or implementation.
In recent years, the regulatory environment that applies to the electric power and natural gas industries has undergone significant changes, on both federal and state levels. These changes have affected the nature of these industries and the manner in which their participants conduct their businesses. These changes are ongoing, and we cannot pre dict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on our businesses. Moreover, existing regulations may be revised or reinterpreted, and new laws and regulations may be adopted or become applicable to us and our facilities. Our business is subject to increasingly complex accounting and tax requirements, and the laws and regulations that affect us may change in response to economic or political conditions. Compliance with these requirements could increase our operating costs, and new tax legislation, regulations or other interpretations could materially affect our tax expense. Changes in laws and regulations may have a detrimental effect on our business, cash flows, financial condition and results of operations.
Our operations are subject to rules relating to transactions among the Sempra Utilities and other Sempra Energy operations. These rules are commonly re ferred to as the Affiliate Transaction Rules. These businesses could be adversely affected by changes in these rules or by additional CPUC or FERC rules that further restrict our ability to sell electricity or natural gas, or to trade with the Sempra Utilities and with each other. Affiliate Transaction Rules also could require us to obtain prior approval from the CPUC before entering into any such transactions with the Sempra Utilities. Any such restrictions or approval requirements could adversely affect the LNG receiving terminals, natural gas pipelines, electric generation facilities, or other operations of our subsidiaries.
Our businesses require numerous permits and other governmental approvals from various federal, state, local and foreign governmental agencies; any failure to obtain or maintain required permits or approvals could cause our sales to decline and/or our costs to increase.
All of our existing and planned development projects require multiple permits. The acquisition, ownership and operation of LNG receiving terminals, natural gas pipelines and storage facilities, and electric generation and transmission facilities require numerous permits, approvals and certificates from federal, state, local and foreign governmental agencies. Once received, approvals may be subject to litigation, and projects may be delayed or approvals reversed in litigation. If there is a delay in obtaining any required regulatory approvals or if we fail to obtain or maintain any required approvals or to comply with any applicable laws or regulations, we may not be able to construct or operate our facilities, or we may be forced to incur additional costs.
Our businesses have significant environmental compliance costs, and future environmental compliance costs could adversely affect our profitability.
We are subject to extensive federal, state, local and foreign statutes, rules and regulations relating to environmental protection, including, in particular, climate change and GHG emissions. We are required to obtain numerous governmental permits, licenses and other approvals to construct and operate our businesses. Additionally, to comply with these legal requirements, we must spend significant sums on environmental monitoring, pollution control equipment, mitigation costs and emissions fees. In addition, we are generally responsible for all on-site liabilities associated with the environmental condition of our electric generation facilities and other energy projects, regardless of when the liabilities arose and whether they are known or unknown. If we fail to comply with applicable environmental laws, we may be subject to penalties, fines and/or curtailments of our operations.
The scope and effect of new environmental laws and regulations, including their effects on our current operations and future expansions, are difficult to predict. Increasing international, national, regional and state-level concerns as well as new or proposed legislation and regulation may have substantial effects on our operations, operating costs, and the scope and economics of proposed expansion. In particular, state-level laws and regulations, as well as proposed national and international legislation and regulation relating to the control and reduction of GHG emissions (including carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride), may limit or otherwise adversely affect our operations. The implementation of recent and proposed California and federal legislation and regulation may adversely affect our unregulated businesses by imposing additional costs associated with emission limits, controls and the possible requirement of carbon taxes or the purchase of emis sions credits. Similarly, the Sempra Utilities may be affected if costs are not recoverable in rates. The effects of existing and proposed greenhouse gas emission reduction standards may cause rates to increase to levels that substantially reduce customer demand and growth. In addition, SDG&E may be subject to penalties if certain mandated renewable energy goals are not met.
In addition, existing and future laws and regulation on mercury, nitrogen and sulfur oxides, particulates, or other emissions could result in requirements for additional pollution control equipment or emission fees and taxes that could adversely affect us. Moreover, existing rules and regulations may be interpreted or revised in ways that may adversely affect us and our facilities and operations.
We provide further discussion of these matters in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements in th e Annual Report.
Natural disasters, catastrophic accidents or acts of terrorism could materially adversely affect our business, earnings and cash flows.
Like other major industrial facilities, ours may be damaged by natural disasters, catastrophic accidents, or acts of terrorism. Such facilities include
§generation plants | §chartered LNG tankers |
§electric transmission and distribution | §natural gas pipelines and storage |
§LNG receipt terminals and storage |
|
Such incidents could result in severe business disruptions, significant decreases in revenues, and/or significant additional costs to us. Any such incident could have a material adverse effect on our financial condition, earnings and cash flows.
Depending on the nature and location of the facilities affected, any such incident also could cause fires, leaks, explosions, spills or other significant damage to natural resources or property belonging to third parties, or cause personal injuries or fatalities. Any of these consequences could lead to significant claims against us. Insurance coverage may significantly increase in cost or become unavailable for certain of these risks, and any insurance proceeds we receive may be insufficient to cover our losses or liabilities, which could materially adversely affect our financial condition, earnings and cash flows.
Our future results of operations, financial condition, and cash flows may be materially adversely affected by the outcome of pending litigation against us.
Sempra Energy and its subsidiaries are defendants in numerous lawsuits. We have spent, and continue to spend, substan tial amounts defending these lawsuits, and in related investigations and regulatory proceedings. In particular, SDG&E is subject to numerous lawsuits arising out of San Diego County wildfires in 2007. We discuss this and other litigation in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report. The uncertainties inherent in legal proceedings make it difficult to estimate with any degree of certainty the costs and effects of resolving these matters. In addition, California juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in personal injury, product liability, property damage and other claims. Accordingly, actual costs incurred may differ materially from insured or reserved amounts and could materially adversely affect our business, cash flows, results of operations and financial condition.
We discuss these proceedings in Note 16 of the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.
Risks Related to the Sempra Utilities
The Sempra Utilities are subject to extensive regulation by state, federal and local legislative and regulatory authorities, which may adversely affect the operations, performance and growth of their businesses.
The CPUC regulates the Sempra Utilities' rates, except SDG&E's electric transmission rates which are regulated by the FERC. The CPUC also regulates the Sempra Utilities':
§conditions of service | §rates of depreciation |
§capital structure | §long-term resource procurement |
§rates of return | §sales of securities |
The CPUC conducts various reviews and audits of utility performance, compliance with CPUC regulations and standards, affiliate relationships and other matters. These reviews and audits may result in disallowances and penalties that could adversely affect earnings and cash flows. We discuss various CPUC proceedings relating to the Sempra Utilities' rates, costs, incentive mechanisms, and performance-based regulation in Notes 14 and 15 of the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.
The Sempra Utilities may spend funds related to a major capital project prior to receiving regulatory approval. If the project does not receive regulatory approval or if management decides not to proceed with the project, they may not be able to recover all amounts spent for that project, which could adversely affect earnings and cash flows.
The CPUC periodically approves the Sempra Utilities' rates based on authorized capital expenditures, operating costs and an authorized rate of return on investment. If actual capital expenditures and operating costs were to exceed the amount approved by the CPUC, earnings and cash flows could be adversely affected.
The CPUC applies performance-based measures and incentive mechanisms to all California utilities. Under these, earnings potential above authorized base margins is tied to achieving or exceeding specific performance and operating goals, rather than relying solely on expanding utility plant (rate base) to increase earnings. At the Semp ra Utilities, the areas that are eligible for incentives are operational activities such as employee safety, energy efficiency programs and, at SoCalGas, natural gas procurement and unbundled natural gas storage and system operator hub services. Although the Sempra Utilities have received incentive awards in the past, there can be no assurance that they will receive awards in the future, or that any future awards earned would be in amounts comparable to prior periods. Additionally, if the Sempra Utilities fail to achieve certain minimum performance levels established under such mechanisms, they may be assessed financial disallowances or penalties which could negatively affect earnings and cash flows.
The FERC regulates electric transmission rates, the transmission and wholesale sales of electricity in interstate commerce, transmission access, the rates of return on transmission investments, and other similar matters involving SDG&E. < /p>
The Sempra Utilities may be adversely affected by new regulations, decisions, orders or interpretations of the CPUC, the FERC or other regulatory bodies. New legislation, regulations, decisions, orders or interpretations could change how they operate, could affect their ability to recover various costs through rates or adjustment mechanisms, or could require them to incur additional expenses.
The construction and expansion of the Sempra Utilities' natural gas pipelines, SoCalGas' storage facilities, and SDG&E's electric transmission and distribution facilities require numerous permits and approvals from federal, state and local governmental agencies. If there are delays in obtaining required approvals, or failure to obtain or maintain required approvals, or to comply with applicable laws or regulations, the Sempra Utilities' business, cash flows, results of operations and financial condition cou ld be materially adversely affected.
Recovery of 2007 Wildfire Litigation Costs
SDG&E is subject to numerous lawsuits arising out of the San Diego County wildfires in 2007. It expects that substantially all reasonably incurred costs of resolving 2007 wildfire claims that exceed its liability insurance coverage and any amounts recovered from other potentially responsible parties will be recovered from utility customers. However, recovery from customers will require future regulatory actions, and a failure to obtain recovery, or any negative assessment of the likelihood of recovery, would likely have a material adverse effect on Sempra Energys and SDG&Es cash flows and results of operations. In addition, SDG&E's cash flows may be adversely affected due to the timing differences between resolution of claims and the recoveries from other potentially responsible parties and utility customers, which may extend over a number of years.
SDG&E may incur substantial costs and liabilities as a result of its ownership of nuclear facilities.
SDG&E has a 20-percent ownership interest in SONGS, a 2,150-MW nuclear generating facility near San Clemente, California, operated by Southern California Edison Company. The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. SDG&E's ownership interest in SONGS subjects it to the risks of nuclear generation, which include
§the potential harmful effects on the environment and human health resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;
§limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and
§uncertainties with respect to the technological and financial aspects of replacing steam generators or other equipment, and the decommissioning of nuclear plants.
Risks Related to our Generation, LNG, Pipelines & Storage and Other Businesses
Our businesses are exposed to market risk, and our financial condition, results of operations, cash flows and liquidity may be adversely affected by fluctu ations in commodity market prices that are beyond our control.
Sempra Generation generates electricity that it sells under long-term contracts and into the spot market or other competitive markets. It purchases natural gas to fuel its power plants and may also purchase electricity in the open market to satisfy its contractual obligations. As part of its risk management strategy, Sempra Generation may hedge a substantial portion of its electricity sales and natural gas purchases to manage its portfolio.
We buy energy-related commodities from time to time, for power plants or for LNG receipt terminals to satisfy contractual obligations with customers, in regional markets and other competitive markets in which we compete. Our revenues and results of operations could be adversely affected if the prevailing market prices for electricity, natural gas, LNG or other commodities that we buy change in a direction or manner not anticipated and for which we had not provided through purchase or sale commitments or other hedging transactions.
Unanticipated changes in market prices for energy-related commodities result from multiple factors, including:
§weather conditions
§seasonality
§changes in supply and demand
§transmission or transportation constraints or inefficiencies
§availability of competitively priced alternative energy sources
§commodity production levels
§actions by the Organization of the Petroleum Exporting Countries with respect to the supply of crude oil
§federal, state and foreign energy and environmental regulation and legislation
§natural disasters, wars, embargoes and other catastrophic events
§expropriation of assets by foreign countries
The FERC has jurisdiction over wholesale power and transmission rates, independent system operators, and other entities that control transmission facilities or that administer wholesale power sales in some of the markets in which we operate. The FERC may impose additional price limitations, bidding rules and other mechanisms, or terminate existing price limitations from time to time. Any such action by the FERC may result in prices for electricity changing in an unanticipated direction or manner and, as a result, may have an adverse effect on our revenues and results of operations.
When our businesses enter into fixed-price long-term contracts to provide services or commodities, we are exposed to inflation and interest rate risks.
Sempra Generation, Sempra Pipelines & Storag e and Sempra LNG generally endeavor to secure long-term contracts with customers for services and commodities to optimize the use of their facilities, reduce volatility in earnings, and support the construction of new infrastructure. However, if these contracts are at fixed prices, the profitability of the contract may be adversely affected by inflationary pressures, including rising operational costs, costs of labor, materials and equipment, and rising interest rates that affect financing costs. To the extent possible, we may mitigate these risks by using variable pricing tied to market indices, anticipating an escalation in costs when bidding on projects, or providing for cost escalation. However, these measures may not ensure that the increase in revenues they provide will fully offset increases in operating expenses and/or financing costs.
Business development activities may not be successful and projects under construction may not commence oper ation as scheduled, which could increase our costs and impair our ability to recover our investments.
The acquisition, development, construction and expansion of LNG receiving terminals, natural gas pipelines and storage facilities, electric generation facilities, and other energy infrastructure projects involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, fuel supply, resource exploration, legal, and other expenses before we can determine whether a project is feasible, economically attractive, or capable of being built.
Success in developing a particular project is contingent upon, among other things:
§negotiation of satisfactory engineering, procurement and construction agreements
§negotiation of supply and natural gas sales agreements or firm capacity service agreements
§receipt of required governmental permits
§timely implementation and satisfactory completion of construction
Successful completion of a particular project may be adversely affected by:
§unforeseen engineering problems
§construction delays and contractor performance shortfalls
§work stoppages
§equipment supply
§adverse weather conditions
§environmental and geological conditions
§other factors
If we are unable to complete the development of a facility, we typically will not be able to recover our investment in the project.
The operati on of existing and future facilities also involves many risks, including the breakdown or failure of generation or regasification and storage facilities or other equipment or processes, labor disputes, fuel interruption, and operating performance below expected levels. In addition, weather-related incidents and other natural disasters can disrupt generation, regasification, storage and transmission systems. The occurrence of any of these events could lead to operating facilities below expected capacity levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties. Such occurrences could adversely affect our business, cash flows and results of operations.
We may elect not to, or may not be able to, enter into long-term supply and sales agreements or long-term firm capacity agreements for our projects, which would subject our revenues to increased volatility and our businesses to increased competitio n.
The electric generation and wholesale power sales industries have become highly competitive. As more plants are built and competitive pressures increase, wholesale electricity prices may become more volatile. Without the benefit of long-term power sales agreements, our revenues may be subject to increased price volatility. The 10-year power sales agreement between Sempra Generation and the DWR, which comprised 8 percent of our revenues in 2010, 9 percent in 2009 and 10 percent in 2008, expires in September 2011. As a result, we may be unable to sell the power generated by Sempra Generation's facilities or operate those facilities profitably.
Sempra LNG utilizes its receipt terminals by entering into long-term capacity agreements. Under these agreements, customers pay Sempra LNG capacity reservation and usage fees to receive, store and regasify the customer's LNG. Sempra LNG also may e nter into short-term and/or long-term supply agreements to purchase LNG to be received, stored and regasified at its terminals for sale to other parties. The long-term supply agreement contracts are expected to reduce our exposure to changes in natural gas prices through corresponding natural gas sales agreements or by tying LNG supply prices to prevailing natural gas market price indices. However, if Sempra LNG is unable to obtain sufficient long-term agreements or if the counterparties, customers or suppliers to one or more of the key agreements for the LNG facilities were to fail to perform or become unable to meet their contractual obligations on a timely basis, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. In addition, reduced availability of LNG to the United States and Mexico due to inadequate supplies, increased demand and higher prices in other countries, abundant domestic supplies of natural gas and/or delays in the development o f new liquefaction capacity could affect the timing of expansion of our existing LNG facilities. These conditions also are likely to delay attainment of full-capacity utilization at our facilities. Our potential LNG suppliers also may be subject to international political and economic pressures and risks, which may also affect the supply of LNG.
Sempra Pipelines & Storage's natural gas pipeline operations are dependent on supplies of LNG and/or natural gas from their transportation customers, which may include Sempra LNG facilities.
We provide information about these matters in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Our businesses depend on counterparties, business partners, customers, and suppliers performin g in accordance with their agreements. If they fail to perform, we could incur substantial expenses and be exposed to commodity price risk and volatility, which could adversely affect our liquidity, cash flows and results of operations.
We are exposed to the risk that counterparties, business partners, customers, and suppliers that owe money or commodities as a result of market transactions or other long-term agreements will not perform their obligations under such agreements. Should they fail to perform, we may be required to acquire alternative hedging arrangements or to honor the underlying commitment at then-current market prices. In such event, we may incur additional losses to the extent of amounts already paid to such counterparties or suppliers. In addition, we often extend credit to counterparties and customers. While we perform significant credit analyses prior to extending credit, we are exposed to the risk that we may not be able to co llect amounts owed to us.
Sempra LNG's obligations and those of its suppliers for LNG supplies are contractually subject to (1) suspension or termination for "force majeure" events beyond the control of the parties; and (2) substantial limitations of remedies for other failures to perform, including limitations on damages to amounts that could be substantially less than those necessary to provide full recovery of costs for breach of the agreements.
We rely on transportation assets and services that we do not own or control to deliver electricity and natural gas.
We depend on electric transmission lines, natural gas pipelines, and other transportation facilities owned and operated by third parties to:
§de liver the electricity and natural gas we sell to wholesale markets,
§supply natural gas to our electric generation facilities, and
§provide retail energy services to customers.
Sempra Pipelines & Storage also depends on natural gas pipelines to interconnect with their ultimate source or customers of the commodities they are transporting. Sempra LNG also relies on specialized ships to transport LNG to its facilities and on natural gas pipelines to transport natural gas for customers of the facilities. If transportation is disrupted, or if capacity is inadequate, our ability to sell and deliver our products and services may be hindered. As a result, we may be responsible for damages incurred by our custom ers, such as the additional cost of acquiring alternative natural gas supplies at then-current spot market rates.
To reduce financial exposure related to commodity price fluctuations, we may enter into contracts to hedge our known or anticipated purchase and sale commitments, inventories of natural gas and LNG, electric generation capacity, and natural gas storage and pipeline capacity. As part of this strategy, we may use forward contracts, physical purchase and sales contracts, futures, financial swaps, and options. We do not hedge the entire exposure to market price volatility of our assets or our contract positions, and the coverage will vary over time. To the extent we have unhedged positions, or if our hedging strategies do not work as planned, fluctuating commodity prices could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Risk management procedures may not prevent losses.
Although we have in place risk management systems and control systems that use advanced methodologies to quantify and manage risk, these systems may not always prevent material losses. Risk management procedures may not always be followed as required by the companies or may not always work as planned. In addition, daily value-at-risk and loss limits are based on historic price movements. If prices significantly or persistently deviate from historic prices, the limits may not protect us from significant losses. As a result of these and other factors, there is no assurance that our risk management procedures will prevent losses that would ne gatively affect our business, results of operations, cash flows and financial condition.
Our international businesses are exposed to different local, regulatory and business risks and challenges, which could have a material adverse effect on our financial condition, cash flows and results of operations.
We have interests in electricity generation and transmission, natural gas distribution and transportation, and LNG terminal projects in Mexico and electricity and natural gas distribution businesses in Argentina, Chile and Peru, and we intend to significantly increase our interests in South America, as we discuss in Note 19 of the Notes to Consolidated Financial Statements in the Annual Report. Developing infrastructure projects, owning energy assets, and operating businesses in foreign jurisdictions subject us to significant political, legal and financial risks that vary by country, including:
§changes in foreign laws and regulations, including tax and environmental laws and regulations, and U.S. laws and regulations related to foreign operations
§high rates of inflation
§changes in government policies or personnel
§trade restrictions
§limitations on U.S. company ownership in foreign countries
§permitting and regulatory compliance
§changes in labor supply and labor relations
§adverse rulings by foreign courts or tribunals, challenges to permits, difficulty in enforcing contractual rights, and unsettled property rights and titles in Mexico and other foreign jurisdictions
§general political, economic and business conditions
Our international businesses also are subject to foreign currency risks. These risks arise from both volatility in foreign currency exchange and inflation rates and devaluations of foreign currencies. In such cases, an appreciation of the U.S. dollar against a local currency could reduce the amount of cash and income received from those foreign subsidiaries. Fluctuations in foreign currency exchange and inflation rates may result in increased taxes in foreign countries. While Sempra Pipelines & Storage believes that it has contracts and other measures in place to mitigate its most significant foreign currency exchange risks, some exposure is not fully mitigated.
We discuss litigation related to Sempra LNG's Energía Costa Azul LNG receipt terminal in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Other Risks
Sempra Energy has substantial inve stments and other obligations in businesses that it does not control or manage.
Sempra Energy is a partner with RBS in RBS Sempra Commodities, a commodities-marketing firm, which divested substantially all of its businesses and assets in 2010 and early 2011, as we discuss above under "Description of Business Sempra Commodities." Our remaining investment in the partnership is $787 million at December 31, 2010. The realization of this investment, which is the undistributed portion of our share of the proceeds from the divestitures and related cash distributions, depends on the collection of accounts receivable by the partnership, as well as net margin that is expected to be collected as customers are transferred to the new owner of certain businesses sold. We have guaranteed various obligations of businesses previously owned and operated by RBS Sempra Commodities, as we discuss in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report.
We also own a 25-percent interest in Rockies Express Pipeline LLC (Rockies Express), a joint venture which completed construction in 2009 of a 1,679-mile natural gas pipeline at an estimated cost of approximately $6.8 billion. Our investment in Rockies Express is $854 million at December 31, 2010. Rockies Express is controlled by Kinder Morgan Energy Partners, which holds a 50-percent interest. We also have smaller investments in other entities that we do not control or manage, or in which we share control, and we continue to make such investments.
We may not control and have limited influence over these businesses and their management. In addition to the other risks inherent in these businesses, if their management were to fail to perform adequately or the other investors in the businesses were unable or otherwise failed to perform their obligations to provide capital and credit support for these businesses, it could have a material adverse effect on our results of operations, financial position and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
ELECTRIC PROPERTIES SDG&E
At December 31, 2010, SDG&E owns and operates three natural gas-fired power plants:
1. a 560-MW electric generation facility (the Palomar generation facility) in Escondido, California
2. a 47.6-MW electric generation peaking facility (the Miramar I generation facility) in San Diego, California
3. a 48.6-MW electric generation peaking facility (the Mirama r II generation facility) in San Diego, California
SDG&E has exercised its option to purchase the 480-MW El Dorado natural gas-fired power plant located in Boulder City, Nevada from Sempra Generation in the second half of 2011.
SDG&E's interest in SONGS is described above in Item 1 under "Electric Utility Operations SONGS."
At December 31, 2010, SDG&E's electric transmission and distribution facilities included substations, and overhead and underground lines. These electric facilities are located in San Diego, Imperial and Orange counties of California, and in Arizona. The facilities consist of 1,920 miles of transmission lines and 22,360 miles of distribution lines. Periodically, various areas of the service territory require expansion to accommodate customer growth.
NATURAL GAS PROPERTIES SEMPRA UTILITIES
At December 31, 2010, SDG&E's natural gas facilities, which are located in San Diego and Riverside counties of California, consisted of the Moreno and Rainbow compressor stations, 168 miles of transmission pipelines, 8,459 miles of distribution mains and 6,367 miles of service lines.
At December 31, 2010, SoCalGas natural gas facilities included 2,959 miles of transmission and storage pipelines, 49,647 miles of distribution pipelines and 47,310 miles of service pipelines. They also included 11 transmission compressor stations and 4 underground natural gas storage reservoirs with a combined working capacity of 134.1 billion cubic feet (Bcf).
ENERGY PROPERTIES SEMPRA GLOBAL
At December 31, 2010, Sempra Generation operates or owns interests in power plants in Arizona, Nevada, Indiana, and Mexico with a total capacity of 2,513 MW. We provide additional information in "Managements Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 3 and 4 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Generation leases or owns property in Arizona, California, Nevada, Hawaii and Mexico for potential development of solar and wind electric generation facilities.
At December 31, 2010, Sempra Pipelines & Storage's operations in Mexico included 1,883 miles of distribution pipelines, 224 miles of transmission pipelines and 3 compressor stations.
In 2006, Sempra Pipelines & Storage and Proliance Transportation and Storage, LLC acquired three existing salt caverns representing 10 Bcf to 12 Bcf of potential natural gas storage capacity in Cameron Parish, Louisiana, with plans for development of a natural gas storage facility.
Sempra Pipelines & Storage operates Mobile Gas, a natural gas distribution utility located in Mobile and Baldwin counties in Alabama. Its property consists of distribution mains, service lines and regulating equipment.
In Washington County, Alabama, Sempra Pipelines & Storage operates a 15.5 Bcf natural gas storage facility under a land lease, with plans to expand total working capacity to 27 Bcf. Sempra Pipelines & Storage also owns land in Simpson County, Mississippi, on which it operates a 7.5 Bcf natural gas storage facility, with plans to develop natural gas storage with a working capacity of 30 B cf. Portions of both these properties are currently under construction.
Sempra LNG operates its Energía Costa Azul LNG receipt terminal on land it owns in Baja California, Mexico and has a land lease in Hackberry, Louisiana, where it operates its Cameron LNG receipt terminal. Sempra LNG also owns land in Port Arthur, Texas, for potential development.
OTHER PROPERTIES
Sempra Energy occupies its 19-story corporate headquarters building in San Diego, California, pursuant to an operating lease that expires in 2015. The lease has two five-year renewal options.
SoCalGas leases approximately one-fourth of a 52-story office building in downtown Los Angeles, California, pursuant to an operating lease expiring in 2026. The lease has four five-year renewal options.
SDG&E occupies a six-building office complex in San Diego pursuant to two separate operating leases, both ending in December 2017. One lease has four five-year renewal options and the other lease has three five-year renewal options.
Sempra Global leases office facilities at various locations in the U.S. and Mexico with the leases ending from 2011 to 2035.
Sempra Energy, SDG&E and SoCalGas own or lease other land, easements, rights of way, warehouses, offices, operating and maintenance centers, shops, service facilities and equipment necessary to conduct their business.
ITEM 3. LEGAL PROCEEDINGS
We are not party to, and our property is not the subject of, any material pending legal proceedings (other than ordinary routine litigation incidental to our businesses) except for the matters (1) described in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements, or (2) referred to in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.
ITEM 4. RESERVED
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The common stock, related shareholder, and dividend restriction information required by Item 5 is included in "Common Stock Data" in the Annual Report.
PERFORMANCE GRAPH COMPARATIVE TOTAL SHAREHOLDER RETURNS
The performance graph required by Item 5 is provided in "Performance Graph Comparative Total Shareholder Returns" in the Annual Report.
SEMPRA ENERGY EQUITY COMPENSATION PLANS
Sempra Energy has long term incentive plans that permit the grant of a wide variety of equity and equity-based incentive awards to directors, officers and key employees. At December 31, 2010, outstanding awards consisted of stock options, restricted stock, and restricted stock units held by 325 employees.
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2008 Long Term Incentive Plan | 5,613,322 | $ | 44.77 | 3,505,918 | (B) | |
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Other Eligible Individuals (C) | 17,150 | $ | 49.42 | 253,653 | (D) | |
Total | 5,630,472 | $ | 44.79 | 3,759,571 |
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(A) | Consists solely of options to purchase shares of our common stock, all of which were granted at an exercise price of 100% of the grant date fair market value of the shares subject to the option. | |||||
(B) | The number of shares available for future issuance is increased by the number of shares withheld to satisfy tax withholding obligations relating to stock option and other plan awards and by the number of shares subject to awards that lapse, expire or are otherwise terminated or are settled other than by the issuance of shares. | |||||
(C) | Adopted in connection with our acquisition of EnergySouth in October 2008 to utilize shares remaining available under the 2008 Incentive Plan of EnergySouth, Inc., which had been previously approved by EnergySouth shareholders. | |||||
(D) | The number of shares available for future issuance is increased by the number of shares subject to awards that terminate without the issuance of shares. |
We provide additional discussion of share-based compensation in Note 9 of the Notes to Consolidated Financial Statements in the Annual Report.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS< /strong>
On September 11, 2007, the Sempra Energy board of directors authorized the repurchase of Sempra Energy common stock provided that the amounts spent for such purpose do not exceed the greater of $2 billion or amounts spent to purchase no more than 40 million shares.
During 2008, we expended $1 billion to purchase a total of 18,416,241 shares. No shares were repurchased under this authorization during 2009.
In September 2010, we entered into a Collared Accelerated Share Acquisition Program with JPMorgan Chase Bank, National Association, under which we prepaid $500 million to repurchase shares of our common stock. We discuss this program, which is expected to be completed in the first quarter of 2011, in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.
The f ollowing table sets forth information concerning purchases made by us, from the program authorized above, of our common stock during the fourth quarter of 2010:
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October 2010 |
2,407,994 | $ |
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Total | 2,407,994 | $ |
| 2,407,994 | $500 million remaining | (2) | |
| All shares were purchased under the Collared Accelerated Share Acquisition Program entered into in September 2010. The weighted average cost to us of shares purchased under the program will not be determinable until the completion of the program, which is expected to conclude by the end of the first quarter of 2011. | ||||||
(2) | Our board of directors has authorized the repurchase of shares of our common stock provided that the amounts expended for such purposes do not exceed the greater of $2 billion or amounts expended to purchase no more than 40 million shares. We prepaid $500 million under a Collared Accelerated Share Acquisition Program with JPMorgan Chase Bank, National Association in September 2010 and expended an additional $1 billion pursuant to a share repurchase program completed in 2008. Therefore, approximately $500 million remains authorized by the board for the purchase of additional shares. We a lso may, from time to time, purchase shares of our common stock from restricted stock plan participants who elect to sell a sufficient number of vesting restricted shares to meet minimum statutory tax withholding requirements. |
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is included in "Five-Year Summaries" in the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by Item 7 is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report, on pages 2 through 59.
The information required by Item 7A is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations Market Risk" in the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is set forth on pages 74 through 205 of the Annual Report. Item 15(a)1 of Part IV of this report includes a listing of financial statements included.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The information required by Item 9A is provided in "Controls and Procedures" in the Annual Report.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
SEMPRA ENERGY
We provide the information required by Item 10 with respect to executive officers for Sempra Energy in Part I, Item 1. Business under "Executive Officers of the Registrants Sempra Energy." All other information required by Item 10 is incorporated by reference from "Corporate Governance" and "Share Ownership" in the Proxy Statement prepared for the May 2011 annual meetin g of shareholders.
SDG&E, PE AND SOCALGAS
We provide the information required by Item 10 with respect to executive officers for SDG&E, PE and SoCalGas in Part I, Item 1. Business under "Executive Officers of the Registrants SDG&E, PE and SoCalGas." All other information required by Item 10 is incorporated by reference from the Information Statement prepared for the June 2011 annual meetings of shareholders.
The information required by Item 11 is incorporated by reference from "Corporate Governance" and "Executive Compensation," including "Compensation Discussion and Analysis" and "Compensation Committee Report" in the Proxy Statement prepared for the May 2011 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2011 annual meetings of shareholders for SDG&E, PE and SoCalGas.
ITEM 12 . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Information regarding securities authorized for issuance under equity compensation plans as required by Item 12 is included in Item 5.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The security ownership information required by Item 12 is incorporated by reference from "Share Ownership" in the Proxy Statement prepared for the May 2011 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2011 ann ual meetings of shareholders for SDG&E, PE and SoCalGas.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from "Corporate Governance" in the Proxy Statement prepared for the May 2011 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2011 annual meetings of shareholders for SDG&E, PE and SoCalGas.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services, as required by Item 14, is incorporated by reference from "Proposals To Be Voted On - Proposal 2: Ratification of Independent Registered Public Accounting Firm" in the Proxy Statement prepared for the May 2011 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2011 annual meetings of shareholders for SDG&E, PE and SoCalGas.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
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Management's Report On Internal Control Over Financial Reporting | 65 | 65 | 65 | 65 < /td> |
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Reports of Independent Registered Public Accounting Firm | 66 | 68 | 7 0 | 72 |
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Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 | 74 | 81 | 87 | 92 |
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Consolidated Balance Sheets at December 31, 2010 and 2009 | 75 | 82 | 88 | 93 |
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Statements of Consolidated Cash Flows for the years ended December 31, 2010, 2009 and 2008 | 77 | 84 | 90 | 95 |
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Statements of Consolidated Comprehensive Income and Changes in Equity for the years ended December 31, 2010, 2009 and 2008 | 79 | 86 | 91 | 96 |
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Notes to Consolidated Financial Statements | 97 | 97 | 97 | 97 |
(1) Incorporated by reference from the indicated pages of the 2010 Annual Report to Shareholders, filed as Exhibit 13.1. |
2. FINANCIAL STATEMENT SCHEDULES
Sempra Energy
Schedule I--Sempra Energy Condensed Financial Information of Parent may be found on page 36.
Pacific Enterprises
Schedule I--Pacific Enterprises Condensed Financial Information of Parent may be found on page 40.
Any other schedule for which provision is made in Regulation S-X is not required under the instructions contained therein, is inapplicable or the information is included in the Consolidated Financial Statements and notes thereto in the Annual Report.
3. EXHIBITS
See Exhibit Index on page 48 of this report.
CONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULE
SEMPRA ENERGY
To the Board of Directors and Shareholders of Sempra Energy:
We consent to the incorporation by reference in Registration Statement No. 333-153425 on Form S-3 and 333-56161, 333-50806, 333-49732, 333-121073, 333-128441, 333-151184, 333-155191, 333-129774 and 333-157567 on Form S-8 of our reports dated February 24, 2011, relating to the consolidated financial statements of Sempra Energy a nd subsidiaries (the "Company"), and the effectiveness of the Companys internal control over financial reporting, incorporated by reference in this Annual Report on Form 10-K of Sempra Energy for the year ended December 31, 2010.
Our audits of the financial statements referred to in our aforementioned report relating to the consolidated financial statements also included the financial statement schedule of the Company, listed in Item 15. This financial statement schedule is the responsibility of the Companys management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
SAN DIEGO GAS & ELECTRIC COMPANY
To the Board of Directors and Shareholders of San Diego Gas & Electric Company:
We consent to the incorporation by reference in Registration Statement No. 333-133541 and 333-159046 on Form S-3 of our reports dated February 24, 2011, relating to the consolidated financial statements of San Diego Gas & Electric Company (the "Company"), and the effectiveness of the Company's inte rnal control over financial reporting, incorporated by reference in this Annual Report on Form 10-K of San Diego Gas & Electric Company for the year ended December 31, 2010.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
SOUTHERN CALIFORNIA GAS COMPANY
To the Board of Directors and Shareholders of Southern California Gas Company:
W e consent to the incorporation by reference in Registration Statement No. 333-134289 and 333-159041 on Form S-3 of our reports dated February 24, 2011, relating to the consolidated financial statements of Southern California Gas Company and subsidiaries (the "Company"), and the effectiveness of the Company's internal control over financial reporting, incorporated by reference in this Annual Report on Form 10-K of Southern California Gas Company for the year ended December 31, 2010.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PACIFIC ENTERPRISES
To the Board of Directors and Shareholders of Pacific Enterprises:
We have audited the consolidated financial statements of Pacific Enterprises and subsidiaries (the "Company") as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, and the Companys internal control over financial reporting as of December 31, 2010, and have issued our reports thereon dated February 24, 2011; such consolidated financial statements and reports are included in your 2010 Annual Report to Shareholders and are incorporated by reference herein. Our audits also included the financial statement schedule o f the Company listed in Item 15. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
SCHEDULE I ; SEMPRA ENERGY CONDENSED FINANCIAL INFORMATION OF PARENT
SEMPRA ENERGY | ||||||
CONDENSED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions, except per share amounts) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
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|
|
Interest income | $ | 146 | $ | 140 td> | $ | 104 |
Interest expense |
| (265) |
| (244) |
| (130) |
Operation and maintenance |
| (59) |
| (81) |
| (64) |
Other income (expense), net |
| 65 |
| 50 |
| (63) |
Income tax benefits |
| 79 |
| 89 |
| 93 |
Loss before equity in earnings of subsidiaries |
| (34) |
| (46) |
| (60) |
Equity in earnings of subsidiaries, net of income taxes |
| 773 |
| 1,165 |
| 1,173 |
Net income/earnings | $ | 739 | $ | 1,119 | $ | 1,113 |
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|
|
Basic earnings per common share | $ | 3.02 | $ | &nbs p;4.60 | $ | 4.50 |
Weighted-average number of shares outstanding (thousands) |
| 244,736 |
| 243,339 |
| 247,387 |
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|
Diluted earnings per common share | $ | 2.98 td> | $ | 4.52 | $ | 4.43 |
Weighted-average number of shares outstanding (thousands) |
| 247,942 |
| 247,384 |
| 251,159 |
See Notes to Condensed Financial Information of Parent (Sempra Energy). |
SEMPRA ENERGY | ||||
CONDENSED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 < /font> | 2009 | ||
Assets: |
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|
|
Cash and cash equivalents | $ | 157 | $ | 7 |
Due from affiliates |
| 27 |
| 133 |
Income taxes receivable |
| 190 |
| 242 |
Other current assets |
| 11 |
| 18 |
Total current assets |
| 385 |
| 400 |
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|
|
Investments in subsidiaries |
| 11,484 |
| 10,790 |
Due from affiliates |
| 1,683 |
| 2,972 |
Other assets |
| 793 |
| 820 |
Total assets | $ | 14,345 | $ | 14,982 |
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Liabilities and shareholders' equity: |
|
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| < p style="MARGIN:0in 0in 0pt"> |
Current portion of long-term debt | $ | 32 | $ | 507 |
Due to affiliates |
| 1,331 |
| 1,350 |
Other current liabilities |
| 374 |
| 379 |
Total current liabilities |
| 1,737 |
| 2,236 |
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|
Long-term debt |
| 3,140 |
| 3,196 |
Other long-term liabilitie s |
| 441 |
| 543 |
Shareholders' equity |
| 9,027 |
| 9,007 |
Total liabilities and shareholders' equity | $ | 14,345 | $ | 14,982 |
See Notes to Condensed Financial Information of Parent (Sempra Energy). |
SEMPRA ENERGY | ||||||
CONDENSED STATEMENTS OF CASH FLOWS | ||||||
(Dollars in millions) i> | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
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Net cash provided by operating activities | $ | 218 | $ | 97 | $ | 173 |
|
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| |
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Dividends received from subsidiaries |
| 100 |
| 150 |
| 350 |
Expenditures for property, plant and equipment |
| (1) |
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> (1) |
| (4) |
Expenditures for short-term investments |
| - |
| - |
| (640) |
Proceeds from sale of short-term investments |
| - |
| 152 |
| 488 |
Purchase of trust assets |
| - |
| (30) |
| (17) |
Proceeds from sales by trust |
| 11 |
| - |
| 2 |
Decrease (increase) in loans to affiliates, net |
| 1,204 |
| (1,285) |
| (149) |
Cash provided by (used in) investing activities |
| 1,314 |
| (1,014) |
| 30 |
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Common stock dividends paid |
| (364) |
| (341) |
| (339) |
Issuances of common stock | &nb sp; | 40 |
| 73 |
| 18 |
Repurchases of common stock |
| (502) |
| (22) |
| (1,018) |
Issuances of long-term debt |
| 40 |
| 1,492 |
| 1,247 |
Payments on long-term debt |
| (565) |
| (314) |
| (11) |
(Decrease) increase in loans from affiliates, net |
| (40) |
| 4 |
| (102) |
Other |
| 9 |
| 20 |
| 8 |
Cash (used in) provided by financing activities |
| (1,382) |
| 912 |
| (197) |
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Increase (dec rease) in cash and cash equivalents |
| 150 |
| (5) |
| 6 |
Cash and cash equivalents, January 1 |
| 7 |
| 12 |
| 6 |
Cash and cash equivalents, December 31 | $ | 157 | $ | 7 | $ | 12 |
See Notes to Condensed Financial Information of Parent (Sempra Energy). |
SEMPRA ENERGY
NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT
Note 1. Basis of Presentation
Sempra Energy accounts for the earnings of its subsidiaries under the equity method in this unconsolidated financial information.
Other Income (Expense), Net, on the Condensed Statements of Operations includes $35 million of gains in 2010, $55 million of gains in 2009, and $53 million of losses in 2008 assoc iated with investment earnings or losses on dedicated assets in support of our executive retirement and deferred compensation plans. It also includes $57 million from Mexican peso exchange losses in 2008.
Note 2. Long-Term Debt
& nbsp; | December 31, | December 31, | ||
(Dollars in millions) | 2010 | 2009 | ||
|
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|
6.5% Notes June 1, 2016 | $ | 750 | $ | 750 |
6% Notes October 15, 2039 |
| 750 |
| < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> 750 |
9.8% Notes February 15, 2019 |
| 500 |
| 500 |
6.15% Notes June 15, 2018 |
| 500 |
| 500 |
6% Notes February 1, 2013 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom> 400 | &nb sp; | 400 | |
Notes at variable rates after fixed-to-floating swap March 1, 2010 |
| - |
| 300 |
8.9% Notes November 15, 2013 |
| 250 |
| 250 |
7.95% Notes March 1, 2010 |
| - |
| 200 |
Employee Stock Ownership Plan |
|
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Bonds at 5.781% (fixed rate to July 1, 2010) November 1, 2014 |
| - |
| 50 |
Bonds at variable rates payable on demand (0.63% at December 31, 2010) |
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November 1, 2014 |
| 32 |
| 7 |
|
| - |
| 7 |
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| 3,182 |
| 3,714 |
Current portion of long-term debt |
| (32) |
| (507) |
Unamortized discount on long-term debt |
| (10) |
| (11) |
Total long-term debt | $ | 3,140 | $ | 3,196 |
Maturities of long-term debt are $32 million in 2011, $650 million in 2013, and $2.5 billion thereafter.
Addit ional information on Sempra Energy's long-term debt is provided in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report.
Note 3. Commitments and Contingencies
For contingencies and guarantees related to Sempra Energy, refer to Notes 5 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.
SCHEDULE I PACIFIC ENTERPRISES CONDENSED FINANCIAL INFORMATION OF PARENT
< font style="FONT-SIZE:10pt; FONT-FAMILY:'Courier New'">
PACIFIC ENTERPRISES | ||||||
CONDENSED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
|
|
|
|
|
|
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Interest and other income | $ | 1 | $ | 1 | $ | 11 |
Expenses, interest and income taxes |
| (2) |
| (9) |
| (7) |
Income (loss) before equity in earnings of subsidiaries |
| (1) |
| (8) |
| 4 |
Equity in earnings of subsidiaries |
| 286 |
| 273 |
| 244 |
Net income/earnings attributable to common shares | $ | 285 | $ | 265 | $ | 248 |
See Notes to Condensed Financial Information of Parent (Pacific Enterprises). |
PACIFIC ENTERPRISES | ||||
CONDENSED BALANCE SHEETS | ||||
(Dollars in millions)< /font> | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
Assets: |
|
|
|
|
Current assets | $ | 15 | $ | 7 |
|
| 1,934 |
| 1,745 |
Due from affiliates, long-term |
| 502 |
| 513 |
Deferred charges and other assets |
| 31 |
| 35 |
Total assets | $ | 2,482 | $ | 2,300 |
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
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Due to affiliates | $ | 85 | $ | 84 |
Other current liabilities |
| 1 |
| 4 |
Total current liabilities |
| 86 |
| 88 |
Long-term liabilities |
| - |
| 4 |
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
Preferred stock |
| 80 |
| 80 |
Common equity |
| 2,316 |
| 2,128 |
Total shareholders' equity |
| 2,396 |
| 2,208 |
Total liabilities and shareholders' equity | $ | 2,482 | $ | 2,300 |
See Notes to Condensed Financial Information of Parent (Pacific Enterprises). |
PACIFIC ENTERPRISES | ||||||
CONDENSED STATEMENTS OF CASH FLOWS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
|
|
|
|
|
|
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Net cash (used in) provided by operating activities | $ | (9) | $ | (7) | $ | 5 |
|
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|
|
|
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Dividends received from subsidiaries |
| 100 |
| - |
| 350 |
Decrease (increase) in loans to affiliates, net |
| 14 |
| 12 |
| (1) |
Other |
| (1) |
| (1) |
| - |
Cash provided by investing activities |
| 113 |
| 11 |
| 349 p> |
|
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|
|
|
Common stock dividends paid |
| (100) |
| - |
| (350) |
Preferred dividends paid |
| (4) |
| (4) |
| (4) |
Cash used in financing activities |
| (104) |
| (4) |
| (354) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
| - |
| - |
| - |
Cash and cash equivalents, January 1 |
| - |
| - |
| - |
Cash and cash equivalents, December 31 | $ | - | $ | - | $ | - |
See Notes to Condensed Financial Information of Parent (Pacific Enterprises). |
PACIFIC ENTERPRISES
NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT
Note 1. Basis of Presentation
Pacific Enterprises accounts for the earnings of its subsidiaries under the equity method in this unconsolidated financial information.
Because of its nature as a holding company, Pacific Enterprises classifies dividends received from subsidiaries as an investing cash flow.
Note 2. Commitments and Conting encies
For commitments and contingencies related to Pacific Enterprises, refer to Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Energy: | |||
SIGNATURES | |||
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |||
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| SEMPRA ENERGY, | ||
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| By: /s/ Donald E. Felsinger | ||
| Donald E. Felsinger | ||
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| Date: February 24, 2011 | ||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. | |||
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Name/Title | Signature | Date | |
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Principal Financial Officer: |
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Principal Accounting Officer: |
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Directors: |
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Donald E. Felsinger, Chairman | /s/ Donald E. Felsinger | February 24, 2011 | |
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Alan L. Boeckmann, Director | /s/ Alan L. Boeckmann | February 24, 2011 | |
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James G. Brocksmith, Jr., Director | /s/ James G. Brocksmith, Jr. | <
td width=168 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:0in; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:1.75in; PADDING-TOP:0in; BORDER-BOTTOM:0px" valign=bottom> ||
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Wilford D. Godbold, Jr., Director | /s/ Wilford D. Godbold, Jr. | February 24, 2011 | |
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William D. Jones, Director | /s/ William D. Jones | February 24, 2011 | |
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William G. Ouchi, Ph.D., Director | /s/ William G. Ouchi | February 24, 2011 | |
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Carlos Ruiz, Director | /s/ Carlos Ruiz | February 24, 2011 | |
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William C. Rusnack, Director | /s/ William C. Rusnack | February 24, 2011 | |
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William P. Rutledge, Director | /s/ William P. Rutledge | February 24, 2011 | |
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Lynn Schenk, Director | /s/ Lynn Schenk | February 24, 2011 | |
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Neal E. Schmale, Director | | February 24, 2011 | |
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Luis M. Téllez, Ph.D., Director | /s/ Luis M. Téllez | February 24, 2011 | |
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San Diego Gas & Electric Company: | |
SIGNATURES | |
| |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |
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| SAN DIEGO GAS & ELECTRIC COMPANY, |
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| By: /s/ Jessie J. Knight, Jr. |
| Jessie J. Knight, Jr. |
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| Date: February 24, 2011 |
td> | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. | ||
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Name/Title | Signature | Date |
Principal Executive Officer: |
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Principal Financial and Accounting Officer: |
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Directors: |
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Jessie J. Knight, Jr., Chairman | /s/ Jessie J. Knight, Jr. | February 24, 2011 |
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Javade Chaudhri, Director | /s/ Javade Chaudhri | February 24, 2011 |
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Joseph A. Householder, Director | /s/ Joseph A. Householder | February 24, 2011 |
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Mark A. Snell, Director | /s/ Mark A. Snell | February 24, 2011 |
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Pacific Enterprises: | |
SIGNATURES | |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, t he registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |
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| PACIFIC ENTERPRISES, |
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| By: /s/ Michael W. Allman |
| Michael W. Allman |
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| Date: February 24, 2011 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. | ||
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Name/Title | Signature | Date |
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Principal Financial and Accounting Officer: |
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Directors: |
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Michael W. Allman, Chairman | /s/ Michael W. Allman | February 24, 2011 |
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Javade Chaudhri, Director | /s/ Javade Chaudhri | February 24, 2011 |
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Joseph A. Householder, Director | /s/ Joseph A. Householder | February 24, 2011 |
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Mark A. Snell, Director | /s/ Mark A. Snell | February 24, 2011 |
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Southern California Gas Company: | |
SIGNATURES | |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |
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| SOUTHERN CALIFORNIA GAS COMPANY, |
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| By: /s/ Michael W. Allman |
| Michael W. Allman |
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| Date: February 24, 2011 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. | ||
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Name/Title | Signature | Date |
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Principal Financial and Accounting Officer: |
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Directors: |
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Michael W. Allman, Chairman | /s/ Michael W. Allman | February 24, 2011 |
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Javade Chaudhri, Director | /s/ Javade Chaudhri | February 24, 2011 |
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Joseph A. Householder, Director | /s/ Joseph A. Householder | February 24, 2011 |
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Mark A. Snell, Director | /s/ Mark A. Snell | February 24, 2011 |
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EXHIBIT INDEX | |
| |
The exhibits filed under the Registration Statements, Proxy Statements and Forms 8-K, 10-K and 10-Q that are incorporated herein by reference were filed under Commission File Number 1-14201 (Sempra Energy), Commission File Number 1-40 (Pacific Enterprises/Pacific Lighting Corporation), Commission File Number 1-3779 (San Diego Gas & Electric Company) and/or Commission File Number 1-1402 (Southern California Gas Company). | |
| |
The following exhibits relate to each registrant as indicated. | |
EXHIBIT 3 BYLAWS AND ARTICLES OF INCORPORATION | |
Sempra Energy | |
3.1 | Amended and Restated Articles of Incorporation of Sempra Energy effective May 23, 2008 (Appendix B to the 2008 Sempra Energy Definitive Proxy Statement, filed on April 15, 2008). |
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3.2 | Amended Bylaws of Sempra Energy effective December 4, 2 007 (Sempra Energy Form 8-K filed on December 5, 2007, Exhibit 3(ii)). |
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3.3 | Amended and Restated Bylaws of Sempra Energy effective May 26, 1998 (Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998, Exhibit 3.2). |
San Diego Gas & Electric Company | |
3.4 | Amended and Restated Bylaws of San Diego Gas & Electric effective June 15, 2010 (Form 8-K filed on June 17, 2010, Exhibit 3). |
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3.5 | Amended and Restated Articles of Incorporation of San Diego Gas & Electric Company effective November 10, 2006 (2006 SDG&E Form 10-K, Exhibit 3.02). |
Pacific Enterprises / Southern California Gas Company | |
3.6 | Amended and Restated Bylaws of Pacific Enterprises effective June 14, 2010 (Form 8-K filed on June 17, 2010, Exhibit 3.2). |
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3.7 | Amended and Restated Bylaws of Southern California Gas Company effective June 14, 2010 (Form 8-K filed on June 17, 2010, Exhibit 3.1). |
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3.8 | Restated Articles of Incorporation of Pacific Enterprises (1996 PE Form 10-K, Exhibit 3.01). |
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3.9 | Restated Articles of Inc orporation of Southern California Gas Company (1996 SoCalGas Form 10-K, Exhibit 3.01). |
EXHIBIT 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES | |
The companies agree to furnish a copy of each such instrument to the Commission upon request. | |
Sempra Energy | |
4.1 | Description of rights of Sempra Energy Common Stock (Amended and Restated Articles of Incorporation of Sempra Energy effective May 23, 2008, Exhibit 3.1 above). |
San Diego Gas & Electric Company | |
4.2 | Description of preferences of Cumulative Preferred Stock, Preference Stock (Cumulative) and Series Preference Stock (SDG&E Amended and Restated Articles of Incorporation as of November 10, 2006, Exhibit 3.5 above). |
Pacific Enterprises / Southern California Gas Company | |
4.3 | Description of preferences of Preferred Stock, Preference Stock and Series Preferred Stock (Southern California Gas Co mpany Restated Articles of Incorporation, Exhibit 3.9 above). |
Sempra Energy / San Diego Gas & Electric Company | |
4.4 | Mortgage and Deed of Trust dated July 1, 1940 (SDG& E Registration Statement No. 2-49810, Exhibit 2A). |
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4.5 | Ninth Supplemental Indenture dated as of August 1, 1968 (SDG&E Registration Statement No. 2-68420, Exhibit 2D). |
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4.6 | Sixteenth Supplemental Indenture dated August 28, 1975 (SDG&E Registration Statement No. 2-68420, Exhibit 2E). |
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4.7 | Thirtieth Supplemental Indenture dated September 28, 1983 (SDG&E Registration Statement No. 33-34017, Exhibit 4.3). |
Sempra Energy / Pacific Enterprises / Southern California Gas Company | |
4.8 | First Mortgage Indenture of Southern California Gas Company to American Trust Company dated October 1, 1940 (Registration Statement No. 2-4504 filed by Southern California Gas Company on September 16, 1940, Exhibit B-4). |
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4.9 | Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of August 1, 1955 (Registration Statement No. 2-11997 filed by Pacific Lighting Corporation on October 26, 1955, Exhibit 4.07). |
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4.10 | Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of June 1, 1956 (Registration Statement No. 2-12456 filed by Southern California Gas Company on April 23, 1956, Exhibit 2.08). |
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4.11 | Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of December 1, 1956 (2006 Sempra Energy Form 10-K, Exhibit 4.09). |
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4.12 | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank dated as of June 1, 1965 (2006 Sempra Energy Form 10-K, Exhibit 4.10). |
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4.13 | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of August 1, 1972 (Registration Statement No. 2-59832 filed by Southern California Gas Company on September 6, 1977, Exhibit 2.19). |
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4.14 | Supplemental Indent ure of Southern California Gas Company to Wells Fargo Bank, National Association dated as of May 1, 1976 (Registration Statement No. 2-56034 filed by Southern California Gas Company on April 14, 1976, Exhibit 2.20). |
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4.15 &nb sp; | Supplemental Indenture of Southern California Gas Company to Manufacturers Hanover Trust Company of California, successor to Wells Fargo Bank, National Association, and Crocker National Bank as Successor Trustee dated as of May 18, 1984 (Southern California Gas Company 1984 Form 10-K, Exhibit 4.29). |
EXHIBIT 10 MATERIAL CONTRACTS | |
Sempra Energy / San Diego Gas & Electric Company / Pacific Enterprises / Southern California Gas Company | |
10.1 | Form of Continental Forge and California Class Action Price Reporting Settlement Agreement d ated as of January 4, 2006 (Form 8-K filed on January 5, 2006, Exhibit 99.1). |
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10.2 | Form of Nevada Antitrust Settlement Agreement dated as of January 4, 2006 (Form 8-K filed on January 5, 2006, Exhibit 99.2). |
Sempra Energy / Pacific Enterprises | |
10.3 | Indemnity Agreement, dated as of April 1, 2008, between Sempra Energy, Pacific Enterprises, Enova Corporation and The Royal Bank of Scotland plc (Sempra Energy March 31, 2008 Form 10-Q, Exhibit 10.2). |
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10.4 | First Amendment to Indemnity Agreement, dated as of March 30, 2009, by and among Sempra Energy, Pacific Enterprises, Enova Corporation and The Royal Bank of Scotland plc. (Sempra Energy March 31, 2009 Form 10-Q, Exhibit 10.3). |
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10.5 | Second Amendment to Indemnity Agreement, dated as of June 30, 2009, by and among Sempra Energy, Pacific Enterprises, Enova Corporation and The Royal Bank of Scotland plc. (Sempra Energy June 30, 2009 Form 10-Q, Exhibit 10.1). |
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10.6 | Third Amendment to Indemnity Agreement, dated as of December 3, 2009, by and among Sempra Energy, Pacific Enterprises, Enova Corporation and The Royal Bank of Scotland plc (2009 Sempra Energy Form 10-K, Exhibit 10.06). |
Sempra Energy | |
10.7 | Master Confirmation for Share Purchase Agreement, dated as of September 21, 2010, between Sempra Energy and JPMorgan Chase Bank, National Association. (Sempra Energy September 30, 2010 Form 10-Q, Exhibit 10.1). |
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10.8 | First Amendment to Purchase and Sale Agreement, dated as of June 30, 2010, entered into by and among J.P. Morgan Ventures Energy Corporation, Sempra Energy Trading LLC, RBS Sempra Commodities LLP, Sempra Energy and The Royal Bank of Scotland plc. (Sempra Energy June 30, 2010 Form 10-Q, Exhibit 10.1). |
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10.9 | Purchase and Sale Agreement, dated as of February 16, 2010, entered into by and among J.P. Morgan Ventures Energy Corporation, Sempra Energy Trading LLC, RBS Sempra Commodities LLP, Sempra Energy and The Royal Bank of Scotland plc. (Sempra Energy Form 8-K filed on February 19, 2010, Exhibit 10.1) |
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10.10 | Letter Agreement, dated as of February 16, 2010, entered into by and between Sempra Energy and The Royal Bank of Scotland plc. (Sempra Energy Form 8-K filed on February 19, 2010, Exhibit 10.2) |
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10.11 | Limited Liability Partnership Agreement, dated as of April 1, 2008, between Sempra Energy, Sempra Commodities, Inc., Sempra Energy Holdings, VII B.V., RBS Sempra Commodities LLP and The Royal Bank of Scotland plc (Sempra Energy March 31, 2008 Form 10-Q, Exhibit 10.1). |
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td width=509 style="BORDER-RIGHT:0px; PADDING-RIGHT:1.45pt; BORDER-TOP:0px; PADDING-LEFT:0.7pt; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:381.55pt; PADDING-TOP:0in; BORDER-BOTTOM:0px" valign=bottom> |
10.12 | First Amendment to Limited Liability Partnership Agreement, dated as of April 6, 2009 and effective as of November 14, 2008, by and among The Royal Bank of Scotland plc, Sempra Energy, Sempra Commodities, Inc., Sempra En ergy Holdings VII B.V. and RBS Sempra Commodities LLP. (Sempra Energy March 31, 2009 Form 10-Q, Exhibit 10.4). |
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10.13 | Second Amendment to Limited Liability Partnership Agreement, dated as of April 6, 2009 and effective as of December 23, 2009, by and among The Royal Bank of Scotland plc, Sempra Energy, Sempra Commodities, Inc., Sempra Energy Holdings VII B.V. and RBS Sempra Commodities LLP (2009 Sempra Energy Form 10-K, Exhibit 10.11). |
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10.14 | Master Confirmation for Share Purchase Agreement, dated as of April 1, 2008, between Sempra Energy and Merrill Lynch International (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.4). |
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10.15 | First amendment to the Master Formation and Equity Interest Purchase Agreement, dated as of April 1, 2008, by and among Sempra Energy, Sempra Global, Sempra Energy Tr ading International, B.V. and The Royal Bank of Scotland plc (Sempra Energy March 31, 2008 Form 10-Q, Exhibit 10.3). |
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10.16 | Master Formation and Equity Interest Purchase Agreement, dated as of July 9, 2007, by and among Sempra Energy, Sempra Global, Sempra Energy Trading International, B.V. and The Royal Bank of Scotland plc (Sempra Energy Form 8-K filed on July 9, 2007, Exhibit 10.2). |
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10.17 | Energy Purchase Agreement between Sempra Energy Resources and the California Department of Water Resources, executed May 4, 2001 (2001 Sempra Energy Form 10-K, Exhibit 10.01). |
Sempra Energy / San Diego Gas & Electric Company | |
10.18 | Amended and Restated Operating Agreement between San Diego Gas & Electric and the California Department of Water Resources dated November 12, 2004 (2009 Sempra Energy Form 10-K, Exhibit 10.16). |
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10.19 | Amended and Restated Servicing Agreement between San Diego Gas & Electric and the California Department of Water Resources effective March 15, 2007 (2009 Sempra Energy Form 10-K, Exhibit 10.17). |
Compensation | |
Sempra Energy / San Diego Gas & Electric Company / Pacific Enterprises / Southern California Gas Company | |
10.20 | Amendment to the Amendment and Restatement of the Sempra Energy 2005 Deferred Compensation Plan. |
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10.21 | Amendment to the Amended and Restated Sempra Energy Severance Pay Agreement between Sempra Energy and Donald E. Felsinger (see Exhibit 10.32 below). |
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10.22 | Form of Sempra Energy 2008 Long Term Incentive Plan, 2010 Performance-Based Restricted Stock Unit Award (Sempra Energy March 31, 2010 Form 10-Q, Exhibit 10.1). |
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10.23 | Form of 2009 Sempra E nergy Severance Pay Agreement (2009 Sempra Energy Form 10-K, Exhibit 10.18). |
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10.24 | Form of Sempra Energy 2008 Long Term Incentive Plan, 2009 Performance-Based Restricted Stock Unit Award (March 31, 2009 Sempra Energy Form 10-Q, Exhibit 10.1). |
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10.25 | Form of Sempra Energy 2008 Long Term Incentive Plan, 2009 Nonqualified Stock Option Agreement (March 31, 2009 Sempra Energy Form 10-Q, Exhibit 10.2). |
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10.26 | Sempra Energy 2008 Long Term Incentive Plan (Appendix A to the 2008 Sempra Energy Definitive Proxy Statement, filed on April 15, 2008). |
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10.27 | Form of Indemnification Agreement with Directors and Executive Officers (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.2). |
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10.28 | Form of Sempra Energy 2008 Long Term Incentive Plan, 2008 Performance-Based Restricted Stock Unit Award (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.3). |
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10.29 | Form of Sempra Energy 2008 Long Term Incentive Plan, 2008 Nonqualified Stock Option Agreement (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.4). |
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10.30 | Sempra Energy Amended and Restated Executive Life Insurance Plan (2008 Sempra Energy Form 10-K, Exhibit 10.15). |
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10.31 | Amendment and Restatement of the Sempra Energy Cash Balance Restoration Plan (2008 Sempra Energy Form 10-K, Exhibit 10.16). |
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10.32 | Form of Amended and Restated Sempra Energy Severance Pay Agreement (2008 Sempra Energy Form 10-K, Exhibit 10.17). |
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10.33 | Amendment and Restatement of the Sempra Energy 2005 Deferred Compen sation Plan (2008 Sempra Energy Form 10-K, Exhibit 10.18). |
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10.34 | Amendment and Restatement of the Sempra Energy Supplemental Executive Retirement Plan (2008 Sempra Energy Form 10-K, Exhibit 10.19). |
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< p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right>10.35 | Sempra Energy Executive Personal Financial Planning Program Policy Document (September 30, 2004 Sempra Energy Form 10-Q, Exhibit 10.11). |
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10.36 | 2003 Sempra Energy Executive Incentive Plan B (2003 Sempra Energy Form 10-K, Exhibit 10.10). |
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10.37 | Sempra Energy Executive Incentive Plan effective January 1, 2003 (2002 Sempra Energy Form 10-K, Exhibit 10.09). |
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10.38 | Amended and Restated Sempra Energy Deferred Compensation and Excess Savings Plan (September 30 , 2002 Sempra Energy Form 10-Q, Exhibit 10.3). |
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10.39 | Sempra Energy Employee Stock Ownership Plan and Trust Agreement effective January 1, 2001 (September 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.1). |
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10.40 | Amendment to the Amended and Restated Sempra Energy Deferred Compensation and Excess Savings Plan (2008 Sempra Energy Form 10-K, Exhibit 10.25). |
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10.41 | Sempra Energy Amended and Restated Executive Medical Plan. (2008 Sempra Energy Form 10-K, Exhibit 10.26). |
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10.42
| Form of Sempra Energy 1998 Long Term Incentive Plan, 2008 Performance-Based Restricted Stock Unit Award (2007 Sempra Energy Form 10-K, Exhibit 10.09). |
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10.43 | Form of Sempra Energy 1998 Long Term Incentive Plan, 2008 Non-Qualified Stock Option Agreement (2007 Se mpra Energy Form 10-K, Exhibit 10.10). |
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10.44 | Amended and Restated Sempra Energy 1998 Long-Term Incentive Plan (June 30, 2003 Sempra Energy Form 10-Q, Exhibit 10.2). |
Sempra Energy | |
10.45 | Form of Sempra Energy 2008 Long Term Incentive Plan, 2010 Restricted Stock Unit Award for Sempra Energys Board of Directors (Sempra Energy June 30, 2010 Form 10-Q, Exhibit 10.2). |
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10.46 | Sempra Energy 2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals (Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-155191 dated November 7, 2008, Exhibit 10.1). |
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10.47 | Form of Sempra Energy 2008 Non-Employee Directors' Stock Plan, Nonqualified Stock Option Agreement (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.5). |
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10.48 | Sempra Energy Amended and Restated Sempra Energy Retirement Plan for Directors (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.7). |
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10.49 | Form of Sempra Energy 1998 Non-Employee Directors' Stock Plan Non-Qualified Stock Option Agreement (2006 Sempra Energy Form 10-K, Exhibit 10.09). |
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10.50 | Sempra Energy 1998 Non-Employee Directors' Stock Plan (Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998, Exhibit 4.2). |
Nuclear | |
Sempra Energy / San Diego Gas & Electric Company | |
10.51 | Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating St ation, approved November 25, 1987 (1992 SDG&E Form 10-K, Exhibit 10.7). |
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10.52 | Amendment No. 1 to the Qualified CPUC Decommissioning Master Trust Agreement dated September 22, 1994 (see Exhibit 10.51 above)(1994 SDG&E Form 10-K, Exhibit 10.56). |
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10.53 | Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1994 SDG&E Form 10-K, Exhibit 10.57). |
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10.54 | Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1996 SDG&E Form 10-K, Exhibit 10.59). |
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10.55 | Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1996 SDG&E Form 10-K, Exhibit 10.60). |
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10.56 | Fifth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1999 SDG&E Form 10-K, Exhibit 10.26). |
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10.57 | Sixth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1999 SDG&E Form 10-K, Exhibit 10.27). |
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10.58 | Seventh Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Sta tion dated December 24, 2003 (see Exhibit 10.51 above)(2003 Sempra Energy Form 10-K, Exhibit 10.42). |
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10.59 | Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K, Exhibit 10.8). |
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10.60 | First Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1996 SDG&E Form 10-K, Exhibit 10.62). |
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10.61 | Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1996 SDG&E Form 10-K, Exhibit 10.63). |
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10.62 | Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1999 SDG&E Form 10-K, Exhibit 10.31). |
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10.63 | Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1999 SDG&E Form 10-K, Exhibit 10.32). |
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10.64 | Fifth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station dated December 24, 2003 (see Exhibit 10.59 above)(2003 Sempra Energy Form 10-K, Exhibit 10.48). |
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10.65 | Second Amended San Onofre Operating Ag reement among Southern California Edison Company, SDG&E, the City of Anaheim and the City of Riverside, dated February 26, 1987 (1990 SDG&E Form 10-K, Exhibit 10.6). |
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10.66 |
U. S. Department of Energy contract for disposal of spent nuclear fuel and/or high-level radioactive waste, entered into between the DOE and Southern California Edison Company, as agent for SDG&E and others; Contract DE-CR01-83NE44418, dated June 10, 1983 (1988 SDG&E Form 10-K, Exhibit 10N). |
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10.67 | San Onofre Unit No. 1 Decommissioning Agreement between Southern California Edison Company and San Diego Gas & Electric Company dated March 23, 2000 (2009 Sempra Energy Form 10-K, Exhibit 10.62). |
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10.68 | First Amendment to the San Onofre Unit No. 1 Decommissioning Agreement between Southern California Edison Company and San Diego Gas & Electric Company dated January 22, 2010 (2009 Sempra Energy Form 10-K, Exhibit 10.63). |
EXHIBIT 12 STATEMENTS RE: COMPUTATION OF RATIOS | |
Sempra Energy | |
12.1 | Sempra Energy Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. |
San Diego Gas & Electric Company | |
12.2 | San Diego Gas & Electric Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. |
Pacific Enterprises | |
12.3 | Pacific Enterprises Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. |
Southern California Gas Company | |
12.4 | Southern California Gas Company Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. |
EXHIBI T 13 ANNUAL REPORT TO SECURITY HOLDERS | |
Sempra Energy / San Diego Gas & Electric Company / Pacific Enterprises / Southern California Gas Company | |
13.1 | Sempra Energy 2010 Annual Report to Shareholders. (Such report, except for the portions thereof which are expressly incorporated by reference in this Annual Report, is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of this Annual Report). |
EXHIBIT 14 CODE OF ETHICS | |
San Diego Gas & Electric C ompany / Southern California Gas Company | |
14.1 | Sempra Energy Code of Business Conduct and Ethics for Board of Directors and Senior Officers (also applies to directors and officers of San Diego Gas & Electric Company and Southern California Gas Company) (2006 SDG&E and SoCalGas Forms 10-K, Exhibit 14.01). |
EXHIBIT 21 -- SUBSIDIARIES | |
Sempra Energy | |
21.1 | Sempra Energy Schedule of Significant Subsidiaries at December 31, 2010. |
Pacific Enterprises | |
21.2 | Pacific Enterprises Schedule of Significant Subsidiaries at December 31, 2010. |
EXHIBIT 23 CONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULE, PAGES 32 TO 35. | |
EXHIBIT 31 SECTION 302 CERTIFICATIONS | |
Sempra Energy | |
31.1 | Statement of Sempra Energy's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
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31.2 | < p style="MARGIN:0in 0in 0pt">Statement of Sempra Energy's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
San Diego Gas & Electric Company | |
31.3 |
Statement of San Diego Gas & Electric Companys Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
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31. 4 | Statement of San Diego Gas & Electric Companys Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
Pacific Enterprises | |
| Statement of Pacific Enterprise's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
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31.6 | Statement of Pacific Enterprise's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
Southern California Gas Company | |
31.7 | Statement of Southern California Gas Company's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
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31.8 | Statement of Southern California Gas Company's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
EXHIBIT 32 SECTION 906 CERTIFICATIONS | |
Sempra Energy | |
32.1 | Statement of Sempra Energy's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350. |
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32.2 | Statement of Sempra Energy's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350. |
San Diego Gas & Electric Company | |
32.3 | Statement of San Diego Gas & Electric Companys Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350. |
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32.4 | Statement of San Diego Gas & Electric Companys Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350. |
Pacific Enterprises | |
32.5 | Statement of Pacific Enterprise's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350. |
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32.6 | Statement of Pacific Enterprise's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350. |
Southern California Gas Company | |
32.7 | Statement of Southern California Gas Company's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350. |
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32.8 | Statement of Southern California Gas Company's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350. |
EXHIBIT 101 -- INTERACTIVE DATA FILE | |
101.INS | XBRL Instance Document |
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101.SCH | XBRL Taxonomy Extension Schema Document |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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GLOSSARY | ||||
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Annual Report | 2010 Annual Report to Shareholders |
| LNG | Liquefied natural gas |
APSC | Alabama Public Service Commission |
| Mobile Gas | Mobile Gas Service Corporation |
Bay Gas | Bay Gas Storage Company |
| MW | Megawatt |
Bcf | Billion cubic feet (of natural gas) |
| Noble Group | Noble Group Ltd |
CARB | California Air Resources Board |
| NRC | Nuclear Regulatory Commission |
CEC | California Energy Commission |
| PE | Pacific Enterprises |
CPUC | California Public Utilities Commission |
| PEMEX | Petroleos Mexicanos (the Mexican state-owned oil company) |
DOE | Department of Energy |
| PGE | Portland General Electric Company |
DOT | Department of Transportation |
| QFs | Qualifying Facilities |
DWR | Department of Water Resources |
| RBS | The Royal Bank of Scotland plc |
Edison | Southern California Edison Company |
| RBS Sempra Commodities | RBS Sempra Commodities LLP |
EPA | Environmental Protection Agency |
| Rockies Express | Rockies Express Pipeline LLC |
ERR | Eligible Renewable Energy Resource |
| RES | Renewable Energy Standard |
FERC | Federal Energy Regulatory Commission |
| RPS | Renewables Portfolio Standard |
GHG | Greenhouse Gas |
| SDG&E | San Diego Gas & Electric Company |
IOUs | Investor-Owned Utilities |
| SEC | Secur ities and Exchange Commission |
ISFSI | Independent Spent Fuel Storage Installation |
| Sempra Utilities | San Diego Gas & Electric Company and Southern California Gas Company |
ISO | Independent System Operator |
| SoCalGas | Southern California Gas Company |
J.P. Morgan Ventures | J.P. Morgan Ventures Energy Corporation |
| SONGS | San Onofre Nuclear Generating Station |
kV | Kilovolt |
| The Board | Sempra Energy's board of directors |
Amendment to the
Amendment and Restatement
of the Sempra Energy
2005 Deferred Compensation Plan
Sempra Energy, a California corporation (the Company), and its direct and indirect subsidiaries maintains the Sempra Energy 2005 Deferred Compensation Plan (the Plan) which is designed to provide supplemental retirement income benefits for certain directors and for a select group of management and highly compensated employees through deferrals of salary and incentive compensation and Company matching contributions.
The Plan is intended to comply with the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations and other guidance issued by the Secretary of the Treasury thereunder. To the extent permitted by such Treasury Regulations or other guidance, the Plan may be amended to conform to the requirements of Section 409A of the Code.
The Plan is hereby amended, effective as of January 1, 2011, as follows:
1.
The name of the Plan is hereby changed to: the Sempra Energy Employee and Director Retirement Savings Plan.
2.
Section 1.2(ii) of the Plan is hereby amended to read in its entirety as follows:
(ii)
Plan shall mean the Sempra Energy Employee and Director Retirement Savings Plan as set forth herein as amended from time to time.
3.
The fourth sentence of subsection 3.2(a) of the Plan is hereby amended to read in its entirety as follows:
A Participant may elect any Payment Date described in Section 1.2(gg), and may elect distribution in the normal form, as described in paragraph 7.1(a)(1), or an optional form described in paragraph 7.1(a)(2).
4.
Subsection 3.2(b) of the Plan is hereby amended to read in its entirety as follows:
(b)
Changes to Distribution Form Election. Subject to subsection (e), a Participant may change his distribution form election for his Distributable Amount with respect to a Plan Year in accordance with this subsection (b) as follows:
(1)
Change from Lump Sum. If such Participant elected to receive the distribution of his Distributable Amount with respect to a Plan Year in the event of his Separation from Service or Disability in a lump sum, such Participant may change such distribution form election by making a new distribution form election for his Distributable Amount with respect to such Plan Year providing for distribution in one of the following forms, with such distribution made or commencing on the fifth anniversary of his Payment Date:
(A)
a lump sum,
(B)
annual installments (calculated as set forth at Section 7.1(a)(6)) over five years,
(C)
annual installments (calculated as set forth at Section 7.1(a)(6) over ten (10) years, or
(D)
annual installments (calculated as set forth at Section 7.1(a)(6)) over fifteen (15) years.
(2)
Change from Installments. If such Participant elected to receive the distribution of his Distributable Amount with respect to a Plan Year in the event of his Separation from Service or Disability in annual installments over five, ten or fifteen years, such Participant may change such distribution form election by making a new distribution form election for his Distributable Amount with respect to such Plan Year providing for distribution in one of the following forms, with such distribution commencing on the fifth anniversary of his Payment Date:
(i)
annual installments (calculated as set forth at Section 7.1(a)(6)) over the period of years specified in such Participants initial distribution form election, or
(ii)
annual installments (calculated as set forth at Section 7.1(a)(6)) over a period of either ten (10) years or fifteen (15) years, provided that such period exceeds the period of years specified in such Participants initial distribution form election.
(3)
A Participant may make only one change to his distribution form election with respect to a Plan Year under this subsection (b).
5.
Paragraphs 7.1(a)(1) and (2) of the Plan are hereby amended to read in their entirety as follows:
(1)
Normal Form.
(A)
Except as provided in subparagraph (B), paragraph (2), paragraph (3) or Section 7.3, upon the Separation from Service or Disability of a Participant, a Participants Distributable Amount with respect to each Plan Year shall be paid to the Participant in a lump sum in cash on the Participants Payment Date.
(B)
Upon the Separation from Service of a Participant who is a Specified Employee (determined as of the date of Separation from Service), the distribution of the Participants Distributable Amount with respect each Plan Year shall not be made before the date which is six months after the date of such Participants Separation from Service (or, if earlier, the date of such Participants death) in accordance with Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.
(2)
Optional Forms. Instead of receiving his Distributable Amount with respect to each Plan Year as described at Section 7.1(a)(1)(A), the Participant may elect in accordance with Section 3.2 one of the following optional forms of payment (on the form provided by Company) at the time of his deferral election for such Plan Year:
(i)
equal annual installments in cash (calculated as set forth in paragraph 7.1(a)(6)) over five years beginning on the Participants Payment Date,
(ii)
equal annual installments in cash (calculated as set forth in paragraph 7.1a(a)(6)) over ten (10) years beginning on the Participants Payment Date, or
(iii)
equal annual installments in cash (calculated as set forth in paragraph 7.1(a)(6)) over fifteen (15) years beginning on the Participants Payment Date.
The payment of such Participants Distributable Amount with respect each Plan Year shall be made or commence on such Participants Payment Date (or, if applicable, the date determined under subparagraph (a)(1)(B)).
6.
The amendments set forth in paragraphs 3, 4 and 5 above shall apply to the Distributable Amounts with respect to Plan Years beginning on or after January 1, 2011. Nothing in this Amendment shall modify or amend the time or form of payment of any Participants Distributable Amount with respect to any Plan Year beginning before January 1, 2011, as such time and form of payment are in effect immediately prior to January 1, 2011. Any change in the time or form of payment of any Participants Distributable Amount with respect to any Plan Year beginning before January 1, 2011 shall be made in accordance with Section 3.2(b) and the requirements of Section 409A of the Code and the Treasury Regulations thereunder.
7.
The Plan, as amended herein, shall remain in full force and effect in accordance with the terms and conditions thereof.
Executed at San Diego, California, this 1st day of November, 2010.
SEMPRA ENERGY
By: _______________________
Title:______________________
Date: _____________________
AMENDMENT TO SEVERANCE PAY AGREEMENT
This Amendment (the Amendment) to the Amended and Restated Severance Pay Agreement by and between Sempra Energy, a California corporation (Sempra Energy), and DONALD E. FELSINGER (the Executive), dated as of November 4, 2008 (the Restated Agreement), is hereby made and entered into effective as of December 6, 2010, by and between Sempra Energy and the Executive. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Restated Agreement.
WHEREAS, Sempra Energy and the Executive entered into the Restated Agreement;
WHEREAS, Sempra Energy and the Executive desire to amend the Restated Agreement to provide for the following: (1) Sempra Energys waiver of its right to provide notice of non-extension of the Restated Agreement during the ninety (90) day period commencing on or next following the date hereof; (2) the replacement of the parachute payment excise tax gross-up provision with a parachute payment best pay limitation provision; and (3) the elimination of certain references to tax gross-up payment provisions.
WHEREAS, Sempra Energy and the Executive desire to continue the Executives employment with Sempra Energy in accordance with the terms and conditions of the Restated Agreement, as amended by this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties set forth in this Amendment, and other good and valuable consideration, the parties hereto, intending to be legally bound, agree as follows:
1.
Waiver of Notice not to Extend Restated Agreement. Sempra Energy hereby waives its right pursuant to Section 19(j) of the Restated Agreement to provide written notice to the Executive, during the ninety (90) day period commencing on or next following the date hereof, that Sempra Energy does not wish to extend the Restated Agreement. Nothing herein shall affect the rights of Sempra Energy pursuant to Section 19(j) to provide written notice of non-extension during any subsequent ninety (90) day period.
2.
Parachute Payment Best Pay Limitation Provision. Section 9 of the Restated Agreement is hereby amended in its entirety to read as follows:
Section 9.
Limitations on Payments by the Company.
(a)
Anything in this Agreement to the contrary notwithstanding and except as set forth in this Section 9 below, in the event it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise (the Payment) would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then, subject to subsection (b), the Pre-Change in Control Severance Payment or the Post-Change in Control Severance Payment, whichever is applicable (the Severance Payment), payable under this Agreement shall be reduced under this subsection (a) to the amount equal to the Reduced Payment. For the Severance Payment payable under this Agreement, the Reduced Payment shall be the amount equal to the greatest portion of the Severance Payment (which may be zero) that, if paid, would result in no portion of any Payment being subject to the Excise Tax.
(b)
The Severance Benefit payable under this Agreement shall not be reduced under subsection (a) if:
(i)
such reduction in such Severance Payment is not sufficient to cause no portion of any Payment to be subject to the Excise Tax, or
(ii)
the Net After-Tax Unreduced Payments (as defined below) would equal or exceed one hundred and five percent (105%) of the Net After-Tax Reduced Payments (as defined below).
For purposes of determining the amount of any Reduced Payment under subsection (a), and the Net-After Tax Reduced Payments and the Net After-Tax Unreduced Payments, the Executive shall be considered to pay federal, state and local income and employment taxes at the Executives applicable marginal rates taking into consideration any reduction in federal income taxes which could be obtained from the deduction of state and local income taxes, and any reduction or disallowance of itemized deductions and personal exemptions under applicable tax law). The applicable federal, state and local income and employment taxes and the Excise Tax (to the extent applicable) are collectively referred to as the Taxes.
(c)
The following definitions shall apply for purposes of this Section 9:
(i)
Net After-Tax Reduced Payments shall mean the total amount of all Payments that the Executive would retain, on a Net After-Tax Basis, in the event that the Severance Payment payable under this Agreement is reduced pursuant to subsection (a).
(ii)
Net After-Tax Unreduced Payments shall mean the total amount of all Payments that the Executive would retain, on a Net After-Tax Basis, in the event that the Severance Payment payable under this Agreement is not reduced pursuant to subsection (a).
(iii)
Net After-Tax Basis shall mean, with respect to the Payments, either with or without reduction under subsection (a) (as applicable), the amount that would be retained by the Executive from such Payments after the payment of all Taxes. In the case of a Payment subject to Treasury Regulation Section 1.280G-1 A-24(b) or (c), the Net After-Tax Basis of such Payment shall be determined based on the amount that would be retained by the Executive from the full amount of such Payment after the payment of all Taxes.
(d)
All determinations required to be made under this Section 9 and the assumptions to be utilized in arriving at such determinations, shall be made by a nationally recognized accounting firm as may be agreed by the Company and the Executive (the Accounting Firm); provided, that the Accounting Firms determination shall be made based upon substantial authority within the meaning of Section 6662 of the Code. The Accounting Firm shall provide detailed supporting calculations to both the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Execut ive. For purposes of determining whether and the extent to which the Payments will be subject to the Excise Tax, (i) no portion of the Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a payment within the meaning of Section 280G(b) of the Code shall be taken into account, (ii) no portion of the Payments shall be taken into account which, in the written opinion of the Accounting Firm, does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Payments shall be taken into account which, in the opinion of the Accounting Firm, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compens ation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Payments shall be determined by the Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
3.
Elimination of Tax Gross-Up Payments. The Restated Agreement is hereby amended to delete all references to tax gross-up payments and Gross-Up Payments, including, without limitation, the occurrences of such terms or related references in the following provisions:
a.
In Section 1 of the Restated Agreement, the definition Gross-Up Payment is hereby deleted in its entirety.
b.
In Section 1 of the Restated Agreement, in the definition of Section 409A Payments, subsection (g) is amended to read in its entirety as follows: (g) the financial planning services under Sections 5(e) and 6(f), subsection (h) is deleted, and subsection (i) is redesignated as subsection (h).
c.
In the first paragraphs of Sections 5 and 6, the phrase and the related tax gross up payments is deleted, and the phrase Tax Gross Up is deleted from the headings of Sections 5(e) and 6(f).
d.
In Section 10 of the Restated Agreement, in the first sentence thereof, the phrase and to the extent required by Section 409A of the Code and Treasury Regulations thereunder, any Gross-Up Payments made with respect to such Section 409A Payments, is hereby deleted.
The Restated Agreement, as amended by this Amendment, shall remain in full force and effect in accordance with the terms and conditions thereof. This Amendment may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Executive, and, pursuant to due authorization from its Board of Directors, Sempra Energy have caused this Amendment to be executed as of the day and year first written above.
SEMPRA ENERGY
____________________________________
G. Joyce Rowland
Senior Vice President, Human Resources
_____________________________________
DATE
EXECUTIVE:
_____________________________________
DONALD E. FELSINGER
_____________________________________
DATE
EXHIBIT 12.1 | |||||||||||
SEMPRA ENERGY | |||||||||||
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES | |||||||||||
AND PREFERRED STOCK DIVIDENDS | |||||||||||
(Dollars in millions) | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 | |
Fixed charges and preferred stock dividends: |
|
|
|
|
|
|
|
|
|
| |
Interest |
| $ 413 |
| $ 379 |
| $ 353 |
| $ 455 |
| $ 492 | |
Interest portion of annual rentals |
| 6 |
| 6 |
| 3 |
| 2 |
| 3 | |
Preferred dividends of subsidiaries (1) |
| 15 |
| 14 |
| 13 |
| 13 |
| 11 | |
Total fixed charges |
| 434 |
| 399 |
| 369 |
| 470 |
| 506 | |
Preferred dividends for purpose of ratio |
| - |
| - |
| - |
| - |
| - | |
Total fixed charges and preferred dividends for purpose of ratio |
| $ 434 |
| $ 399 |
| $ 369 |
| $ 470 |
| $ 506 | |
Earnings: |
|
|
|
|
|
|
|
|
|
| |
Pretax income from continuing operations before |
|
|
|
|
|
|
|
|
|
| |
adjustment for income or loss from equity investees |
| $ 1,579 |
| $ 1,538 |
| $ 1,009 |
| $ 977 |
| $ 1,078 | |
Add: |
|
|
|
|
|
|
|
|
|
| |
Total fixed charges (from above) |
| 434 |
| 399 |
| 369 |
| 470 |
| 506 | |
Distributed income of equity investees |
| 431 |
| 19 |
| 133 |
| 493 |
| 260 | |
Less: |
|
|
|
|
|
|
|
|
|
| |
Interest capitalized |
| 58 |
| 100 |
| 100 |
| 73 |
| 74 | |
Preferred dividends of subsidiaries (1) |
| 10 |
| 10 |
| 10 |
| 13 |
| 11 | |
Total earnings for purpose of ratio |
| $ 2,376 |
| $ 1,846 |
| $ 1,401 |
| $ 1,854 |
| $ 1,759 | |
Ratio of earnings to combined fixed charges and preferred stock dividends |
| 5.47 |
| 4.63 |
| 3.80 |
| 3.94 |
| 3.48 | |
|
|
|
|
|
|
|
|
|
|
| |
Ratio of earnings to fixed charges |
| 5.47 |
| 4.63 |
| 3.80 |
| 3.94 |
| 3.48 | |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | In computing this ratio, Preferred dividends of subsidiaries represents the before-tax earnings necessary to pay such dividends, computed at the effective tax rates for the applicable periods. |
EXHIBIT 12.2 | |||||||||||
SAN DIEGO GAS & ELECTRIC COMPANY | |||||||||||
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES | |||||||||||
AND PREFERRED STOCK DIVIDENDS | |||||||||||
(Dollars in millions) | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 | |
Fixed Charges and Preferred |
|
|
|
|
|
|
|
|
|
| |
Stock Dividends: |
|
|
|
|
|
|
|
|
|
| |
Interest |
| $ 102 |
| $ 105 |
| $ 107 |
| $ 118 |
| $ 153 | |
Interest portion of annual rentals |
| 3 |
| 3 |
| 1 |
| 1 |
| 1 | |
Total fixed charges |
| 105 |
| 108 |
| 108 |
| 119 |
| 154 | |
Preferred stock dividends (1) |
| 8 |
| 7 |
| 7 |
| 7 |
| 7 | |
Combined fixed charges and preferred stock dividends for purpose of ratio |
| $ 113 |
| $ 115 |
| $ 115 |
| $ 126 |
| $ 161 | |
Earnings: |
|
|
|
|
|
|
|
|
|
| |
Pretax income from continuing operations |
| $ 394 |
| $ 406 |
| $ 451 |
| $ 550 |
| $ 531 | |
Total fixed charges (from above) |
| 105 |
| 108 |
| 108 |
| 119 |
| 154 | |
Less: Interest capitalized |
| 1 |
| 3 |
| 13 |
| 4 |
| 1 | |
Total earnings for purpose of ratio |
| $ 498 |
| $ 511 |
| $ 546 |
| $ 665 |
| $ 684 | |
Ratio of earnings to combined fixed charges and preferred stock dividends |
| 4.41 |
| 4.44 |
| 4.75 |
| 5.28 |
| 4.25 | |
|
|
|
|
|
|
|
|
|
|
| |
Ratio of earnings to fixed charges |
| 4.74 |
| 4.73 |
| 5.06 |
| 5.59 |
| 4.44 | |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | In computing this ratio, Preferred stock dividends represents the before-tax earnings necessary to pay such dividends, computed at the effective tax rates for the applicable periods. |
EXHIBIT 12.3 | |||||||||||
PACIFIC ENTERPRISES | |||||||||||
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES | |||||||||||
AND PREFERRED STOCK DIVIDENDS | |||||||||||
(Dollars in millions) | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 | |
Fixed Charges: |
|
|
|
|
|
|
|
|
|
| |
Interest |
| $ 78 |
| $ 78 |
| $ 68 |
| $ 75 |
| $ 72 | |
Interest portion of annual rentals |
| 4 |
| 3 |
| 2 |
| 1 |
| 2 | |
Preferred dividends of subsidiary (1) |
| 2 |
| 2 |
| 2 |
| 2 |
| 2 | |
Total fixed charges |
| 84 |
| 83 |
| 72 |
| 78 |
| 76 | |
Preferred stock dividends (1) |
| 6 |
| 6 |
| 6 |
| 6 |
| 6 | |
Combined fixed charges and preferred stock dividends for purpose of ratio |
| $ 90 |
| $ 89 |
| $ 78 |
| $ 84 |
| $ 82 | |
Earnings: |
|
|
|
|
|
|
|
|
|
| |
Pretax income from continuing operations |
| $ 426 |
| $ 408 |
| $ 394 |
| $ 415 |
| $ 465 | |
Total fixed charges (from above) |
| 84 |
| 83 |
| 72 |
| 78 |
| 76 | |
Less: Interest capitalized |
| 1 |
| 1 |
| - |
| 1 |
| 1 | |
Less: Preferred dividends of subsidiary (1) |
| 1 |
| 1 |
| 1 |
| 2 |
| 1 | |
Total earnings for purpose of ratio |
| $ 508 |
| $ 489 |
| $ 465 |
| $ 490 |
| $ 539 | |
Ratio of earnings to combined fixed charges and preferred stock dividends |
| 5.64 |
| 5.49 |
| 5.96 |
| 5.83 |
| 6.57 | |
|
|
|
|
|
|
|
|
|
|
| |
Ratio of earnings to fixed charges |
| 6.05 |
| 5.89 |
| 6.46 |
| 6.28 |
| 7.09 | |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | In computing this ratio, Preferred dividends of subsidiary and "Preferred stock dividends" represent the before-tax earnings necessary to pay such dividends, computed at the effective tax rates for the applicable periods. |
EXHIBIT 12.4 | |||||||||||
SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES | |||||||||||
AND PREFERRED STOCK DIVIDENDS | |||||||||||
(Dollars in millions) | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 | |
Fixed Charges: |
|
|
|
|
|
|
|
|
|
| |
Interest |
| $ 72 |
| $ 72 |
| $ 65 |
| $ 74 |
| $ 72 | |
Interest portion of annual rentals |
| 4 |
| 3 |
| 2 |
| 1 |
| 2 | |
Total fixed charges |
| 76 |
| 75 |
| 67 |
| 75 |
| 74 | |
Preferred stock dividends (1) |
| 2 |
| 2 |
| 2 |
| 2 |
| 2 | |
Combined fixed charges and preferred stock dividends for purpose of ratio |
| $ 78 |
| $ 77 |
| $ 69 |
| $ 77 |
| $ 76 | |
Earnings: |
|
|
|
|
|
|
|
|
|
| |
Pretax income from continuing operations |
| $ 397 |
| $ 391 |
| $ 385 |
| $ 418 |
| $ 463 | |
Add: Total fixed charges (from above) |
| 76 |
| 75 |
| 67 |
| 75 |
| 74 | |
Less: Interest capitalized |
| 1 |
| 1 |
| - |
| 1 |
| 1 | |
Total earnings for purpose of ratio |
| $ 472 |
| $ 465 |
| $ 452 |
| $ 492 |
| $ 536 | |
Ratio of earnings to combined fixed charges and preferred stock dividends |
| 6.05 |
| 6.04 |
| 6.55 |
| 6.39 |
| 7.05 | |
|
|
|
|
|
|
|
|
|
|
| |
Ratio of earnings to fixed charges |
| 6.21 |
| 6.20 |
| 6.75 |
| 6.56 |
| 7.24 | |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | In computing this ratio, Preferred stock dividends represents the before-tax earnings necessary to pay such dividends, computed at the effective tax rates for the applicable periods. |
Ex. 13.1 |
| |
| Page | |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
| |
Ou r Business | 2 | |
Executive Summary | 7 | |
Business Strategy | 7 | |
Key Issues in 2010 | 8 | |
Results of Operations | 9 | |
Overall Results of Operations of Sempra Energy and Factors Affecting the Results | 9 | |
Business Unit Results | 11 | |
Changes in Revenues, Costs and Earnings | 15 | |
Transactions with Affiliates | 30 | |
Book Value Per Share | 30 | |
Capital Resources and Liquidity | 30 | |
Overview | 30 | |
Cash Flows from Operating Activities | 33 | |
Cash Flows from Investing Activities | 35 | |
Cash Flows from Financing Activities | 40 | |
Factors Influencing Future Performance | 46 | |
Sempra Energy Overview | 46 | |
Financial Derivatives Reforms | 48 | |
Litigation | 48 | |
Sempra Utilities Industry Developments and Capital Projects | 48 | |
Sempra Global Investments | 48< /p> | |
Market Risk | 50 | |
Critical Accounting Policies and Estimates, and Key Noncash Performance Indicators | 53 | |
New Accounting Standards | 58 | |
Information Regarding Forward-Looking Statements | 59 < /td> | |
Common Stock Data | 60 | |
Performance Graph Comparative Total Shareholder Returns | 61 | |
Five-Year Summaries | 62 | |
Controls and Procedures |
| |
Evaluation of Disclosure Controls and Procedures | 65 | |
Management's Report on Internal Control over Financial Reporting | 65 | |
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | 65 | |
Reports of Independent Registered Public Accounting Firm | 66 | |
Consolidated Financial Statements |
| |
Sempra Energy | 74 | |
San Diego Gas & Electric Company | 81 | |
Pacific Enterprises | 87 | |
Southern California Gas Company | 92 | |
Notes to Consolidated Financial Statements | 97 | |
Glossary | 205 | |
| ||
This Financial Report is a combined report for the following separate companies (each a separate Securities and Exchange Commission registrant): | ||
|
| |
Sempra Energy | Pacific Enterprises | |
San Diego Gas & Electric Company | Southern California Gas Company | |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of the 2010 Annual Report includes
§A description of our business
§An executive summary
§A discussion and analysis of our operating results for 2008 through 2010
§Information about our capital resources and liquidity
§Major factors expected to influence our future operating results
§A discussion of market risk affecting our businesses
§A table of accounting policies that we consider critical to our financial condition and results of operations
You should read Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the Consolidated Financial Statements included in this Annual Report.
OUR BUSINESS
Sempra Energy is a Fortune 500 energy services holding company whose business units develop energy infrastructure, operate utilities and provide related products and services to their customers. Our operations are divided principally between the Sempra Utilities and Sempra Global. The Sempra Utilities consist of two California regulated public utility companies, (1) San Diego Gas & Electric Company (SDG&E) and (2) Southern California Gas Company (SoCalGas). Sempra Global consists of other businesses engaged in providing energy products and services. (See Figure 1.)
Figure 1: Sempra Energy's Business Units
This report includes information for the following separate registrants:
§Sempra Energy and its consolidated entities
§SDG&E
§Pacific Enterprises (PE), the holding company for SoCalGas
§SoCalGas
References in this report to "we," "our" and "Sempra Energy Consolidated" are to Sempra Energy and its consolidated entities, collectively, unless otherwise indicated by its context.
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.
Below are summary descriptions of our operating business units, which are also our reportable segments.
SEMPRA ENERGY BUSINESS UNITS
SEMPRA UTILITIES |
|
|
| MARKET | SERVICE TERRITORY |
SAN DIEGO GAS & ELECTRIC COMPANY (SDG&E) A regulated public utility; infrastructure supports electric generation, transmission and distribution, and natural gas distribution | §Provides electricity to 3.5 million consumers (1.4 million meters) §Provides natural gas to 3.2 million consumers (850,000 meters) | Serves the county of San Diego, California and an adjacent portion of southern Orange County covering 4,100 square miles |
SOUTHERN CALIFORNIA GAS COMPANY (SOCALGAS) A regulated public utility; infrastructure supports natural gas distribution, transmission and storage | §Residential, commercial, industrial, utility electric generation and wholesale customers §Covers a population of 20.9 million (5.8 million meters) | Southern California and portions of central California (excluding San Diego County, the city of Long Beach and the desert area of San Bernardino County) covering 20,000 square miles |
The Sempra Utilities consist of SDG&E and SoCalGas.
SDG&E
SDG&E provides electricity to 3.5 million consumers and natural gas to 3.2 million consumers. It delivers the electricity through 1.4 million meters in San Diego County and an adjacent portion of southern Orange County, California. SDG&E's electric energy is purchased from others or generated from its Palomar and Miramar I and II electric generation facilities and its 20-percent ownership interest in the San Onofre Nuclear Generating Station (SONGS). SDG&E also delivers natural gas through 850,000 meters in San Diego County and transports electricity and natural gas for others. SDG&E's service territory encompasses 4,100 square miles.
Sempra Energy indirectly owns all of the common stock of SDG&E. SDG&E also has issued publicly held preferred stock. The preferred stock has liquidation preferences totaling $79 million and represents less than 3% of the ordinary voting power of SDG&E shares.
SDG&E's financial statements include a variable interest entity (VIE), Otay Mesa Energy Center LLC (Otay Mesa VIE), of which SDG&E is the primary beneficiary. In 2009, SDG&Es financial statements also included Orange Grove Energy L.P. (Orange Grove VIE), as we discuss in Note 1 of the Notes to Consolidated Financial Statements under "Variable Interest Entities." SDG&E has long-term power purchase agreements with both entities.
SoCalGas is the nation's largest natural gas distribution utility. It owns and operates a natural gas distribution, transmission and storage system that supplies natural gas throughout its approximately 20,000 square miles of service territory. Its service territory extends from San Luis Obispo, California in the north to the Mexican border in the south, excluding San Diego County, the city of Long Beach and the desert area of San Bernardino County. SoCalGas provides natural gas service to residential, commercial, industrial, utility electric generation and wholesale customers through 5.8 million meters, covering a population of 20.9 million.
Sempra Energy owns all of the common stock of PE and PE owns all of the common stock of SoCalGas. PE and SoCalGas also have publicly held preferred stock, which represents less than 1% of the ordinary voting power of their shares. The PE and SoCalGas preferred stock have liquidation preferences totaling $80 million and $22 million, respectively.
SEMPRA GLOBAL |
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| MARKET | GEOGRAPHIC REGION |
SEMPRA GENERATION Develops, owns and operates, or holds interests in, electric power plants and energy projects | §Wholesale electricity | §U.S.A. §Mexico |
SEMPRA PIPELINES & STORAGE Devel ops, owns and operates, or holds interests in, natural gas and propane pipelines, natural gas storage facilities, and natural gas and electric service providers | §Natural gas §Electricity | §U.S.A. §Mexico §Argentina §Chile § Peru |
SEMPRA LNG Develops, owns and operates receipt terminals for importation of liquefied natural gas (LNG) and sale of natural gas | §Liquefied natural gas §Natural gas | §U.S.A. §Mexico §Global |
SEMPRA COMMODITIES Holds an interest in RBS Sempra Commodities LLP, a commodities-marketing business joint venture with The Royal Bank of Scotland (RBS). In 2010 and early 2011, RBS and Sempra Energy sold substantially all of the businesses and assets of the joint venture. | Prior to December 1, 2010: §Natural gas; natural gas liquids §Power Prior to July 1, 2010, also included: § Petroleum and petroleum products §Coal §Emissions §Ethanol §Base metals | Prior to December 1, 2010: §North America
Prior to July 1, 2010: §Global
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Sempra Global is a holding company for most of our subsidiaries that are not subject to California utility regulation. Sempra Global's principal business units, which provide energy-related products and services, are
§Sempra Generation
§Sempra Pipelines & Storage
§Sempra LNG
§Sempra Commodities
A description of each business unit follows.
Sempra Generation develops, owns and operates, or holds interests in, electric power plants serving wholesale electricity markets in North America. It sells electricity under long-term contracts and into the spot market and other competitive markets. Sempra Generation purchases natural gas to fuel its natural gas-fired power plants and may also purchase electricity in the open market to satisfy its contractual obligations. Sempra Generation also develops, owns and invests in renewable energy generation projects.
Sempra Generation also includes the operating results of Sempra Rockies Marketing, which holds firm service capacity on the Rockies Express Pipeline. Sempra Commodities previously reported the results of Sempra Rockies Marketing, whose operations were moved due to the divestiture of substantially all of Sempra Commodities businesses and assets in 2010, which we discuss below. Segment information for prior periods has been restated to reflect the move.
The following table provides information about each of Sempra Generation's power plants. Approximately 80% of this generating capacity is under long-term contracts with the California Department of Water Resources (DWR) and other parties through late 2011.
SEMPRA GENERATION POWER PLANTS | ||||||
Capacity in Megawatts (MW) | ||||||
Power Plant | Maximum Generating Capacity |
| First In Service |
| Location | |
Mesquite Power | 1,250 |
| 2003 |
| Arlington, AZ | |
Termoeléctrica de Mexicali < /td> | 625 |
| 2003 |
| Mexicali, Baja California, Mexico | |
El Dorado | 480 |
| 2000 |
| Boulder City, NV | |
Fowler Ridge II Wind Farm (50% owned) | 100 | (1) | 2009 |
| Benton County, IN | |
Copper Mountain Solar | 48 |
| 2010 |
| Boulder City, NV | |
El Dorado Solar | 10 |
| 2008 |
| Boulder City, NV | |
| Total MW in operation | 2,513 |
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(1) | Sempra Generation's share | |||||
Sempra Generations thre e 100%-owned natural gas-fueled facilities, Mesquite Power, Termoeléctrica de Mexicali and El Dorado, currently sell the majority of their output under long-term purchased-power contracts. The largest contract is with the DWR and provides for 1,200 megawatts (MW) to be supplied during all hours and an additional 400 MW during on-peak hours. This contract ends September 30, 2011. Sempra Generation also has other purchased-power transactions, primarily with RBS Sempra Commodities LLP (RBS Sempra Commodities), to sell varying amounts of power through 2012. In connection with the 2010 sale of businesses within RBS Sempra Commodities, as we discuss in Note 4 of the Notes to Consolidated Financial Statements, we expect these transactions with RBS Sempra Commodities to be assigned to J.P. Morgan Chase & Co. (JP Morgan) by the end of the first quarter of 2011. The remaining output of our 100-percent owned facilities (excluding the El Dorado Solar and Copper Mountain Solar facilities) is available to be sold int o energy markets on a day-to-day basis.
The El Dorado facility (excluding the solar facility) will be sold at book value to SDG&E on October 1, 2011, which coincides with the end of the DWR contract.
In 2009, Sempra Generation invested $235 million and became an equal partner with BP Wind Energy, a wholly owned subsidiary of BP p.l.c., in the development of the 200-MW Fowler Ridge II Wind Farm (Fowler Ridge II) northwest of Indianapolis, Indiana. The project uses 133 General Electric wind turbines, each with the ability to generate 1.5 MW. Fowler Ridge II went into full commercial operation in December 2009. The project's entire power output has been sold under four long-term contracts, each for 50 MW and 20-year terms. Our investment in Fowler Ridge II is accounted for as an equity method investment.
In December 2010, Sempra Generation complet ed the construction of Copper Mountain Solar, a solar generation facility located in Boulder City, Nevada on land adjacent to the El Dorado Solar plant. Pacific Gas & Electric has contracted for all of the power from these facilities under separate 20-year contracts.
In October 2010, Sempra Generation invested $209 million for a 50-percent ownership interest in Cedar Creek II Wind Farm LLC (Cedar Creek II), a joint venture with BP Wind Energy for the development of a 250-MW wind farm in northern Colorado expected to be operational in mid-2011. Public Service Company of Colorado, an Xcel Energy subsidiary, has contracted for all of the power from the facility for 25 years.
From 2003 through 2010, Sempra Generation had a 50-percent equity interest in Elk Hills Power (Elk Hills), a 550-MW merchant plant located in Bakersfield, California. Elk Hills offered its output into the California market on a daily basis. Sempra Generation sold its interest in Elk Hills on December 31, 2010, as we discuss in Note 4 of the Notes to Consolidated Financial Statements.
Sempra Pipelines & Storage
Sempra Pipelines & Storage develops, owns and operates, or holds interests in, natural gas and propane pipelines and natural gas storage facilities in the United States and Mexico, and in companies that provide natural gas or electric services in Mexico, Argentina, Chile and Peru. In January 2011, Sempra Pipelines & Storage entered into an agreement to increase its investments in Chile and Peru, as we discuss in Note 19 of the Notes to Consolidated Financial Statements. Sempra Pipelines & Storage also is currently pursuing the sale of its interests in the Argentine utilities, which we discuss further in Note 4 of the Notes to Consolidated Financial Statements.
Sempra Pipelines & Storage's natural gas distribution utility that operates in three separate areas in Mexico had a customer count of 88,700 and sales volume of 56 million cubic feet per day in 2010. Sempra Pipelines & Storage's natural gas pipeline systems in Mexico had a contracted capacity for up to 4,550 million cubic feet per day in 2010, including recently acquired pipelines from El Paso Corporation.
Sempra Pipelines & Storage, Kinder Morgan Energy Partners, L.P. (KMP) and ConocoPhillips jointly own, through Rockies Express Pipeline LLC (Rockies Express), the Rockies Express Pipeline (REX) that links producing areas in the Rocky Mountain region to the upper Midwest and the eastern United States. The 1,679-mile natural gas pipeline became fully operational in 2009. Our participation in the pipeline is 25 percent. Sempra Rockies Marketing, part of our Sempra Generation segment, has an agreement with Rockies Express for 200 million cubic feet per day of capacity on the REX, which has a total capacity of 1.8 billion cubic feet (Bcf) per day. Sempra Rockies Marketing has released a portion of its capacity to RBS Sempra Commodities, which capacit y was assigned to JP Morgan effective January 1, 2011 in connection with the sale of businesses within RBS Sempra Commodities.
Sempra LNG
Sempra LNG develops, owns and operates receipt terminals for importing LNG, and has supply and marketing agreements to purchase and sell LNG and natural gas. Sempra LNG utilizes its LNG receipt terminals by entering into long-term firm capacity service agreements when able to do so. Under these agreements, customers pay Sempra LNG capacity reservation and usage fees to use its facilities to receive, store and regasify the customer's LNG. Sempra LNG also may enter into short-term and/or long-term supply agreements to purchase LNG to be received, stored and regasified at its terminals for sale to other parties.
Sempra LNGs Energía Costa Azul LNG receipt te rminal in Baja California, Mexico began commercial operations in May 2008 and is capable of processing 1 Bcf of natural gas per day. The Energía Costa Azul facility currently generates revenue under a capacity services agreement with Shell México Gas Natural (Shell), expiring in 2028, that permits Shell to use one-half of the terminal's capacity. In April 2009, Shell assigned a portion of its terminal capacity at Energía Costa Azul to Gazprom Marketing & Trading Mexico, transferring all further rights and obligations with respect to the assigned capacity.
A nitrogen-injection facility at Energía Costa Azul placed in service by Sempra LNG in December 2009 allows the terminal to process LNG cargoes from a wider variety of sources and provides additional revenue from payments for capacity reservation and usage fees for nitrogen injection services.
Sempra LNG has an LNG purchase agreement with Tangguh PSC Contractors (Tangguh PSC) for the supply of the equivalent of 500 million cubic feet of natural gas per day from Tangguh PSC's Indonesian liquefaction facility to the Energía Costa Azul receipt terminal at a price based on the Southern California border index for natural gas. Sempra LNG has a contract through 2022 to sell an average of approximately 150 million cubic feet per day of natural gas to Mexicos national electric company, Comisión Federal de Electricidad (CFE) at prices that are based on the Southern California border index. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to CFE, Sempra LNG may purchase natural gas from RBS Sempra Commodities or other suppliers. Sempra LNG also has an agreement to sell to RBS Sempra Commodities any volumes purchased from Tangguh PSC that are not sold to the CFE. In connection with the 2010 sale of businesses within RBS Sempra Commodities, we expect contracts with RBS Sempra Comm odities to be assigned to JP Morgan as promptly as practicable in 2011, as we discuss in Note 4 of the Notes to Consolidated Financial Statements.
Sempra LNGs Cameron LNG receipt terminal in Hackberry, Louisiana, began commercial operations in July 2009 and is capable of processing a nominal 1.5 Bcf of natural gas per day. Cameron LNG generates revenue under a capacity services agreement for approximately 600 million cubic feet of natural gas per day through 2029.
In April 2010, Sempra LNG entered into an LNG supply option agreement with Gazprom Global LNG Limited (GGLNG), a subsidiary of OAO Gazprom. The multi-year agreement, which commenced in June 2010, allows GGLNG to deliver and sell up to two LNG cargoes per month to Sempra LNG at its Cameron receipt terminal. GGLNG pays Sempra LNG a fee for the right to deliver and sell the LNG cargoes using a predetermined pricing formula based on a market index.
Sempra LNG also owns property in Port Arthur, Texas, that it is evaluating for potential development.
Sempra Commodities holds our investment in RBS Sempra Commodities, a joint venture with RBS. The partnership was formed on April 1, 2008 from our commodities-marketing businesses previously reported in this business unit. The partnership's commodities-trading businesses served customers in the global markets for natural gas, natural gas liquids, power, petroleum and petroleum products, coal, emissions, ethanol and base metals. We and RBS sold substantially all of the partnerships businesses and assets in four separate transactions completed in July, November and December of 2010 and February of 2011. We dis cuss these transactions and other matters concerning the partnership in Note 4 of the Notes to Consolidated Financial Statements.
REGULATION OF SEMPRA UTILITIES AND OTHER BUSINESS UNITS
The Sempra Utilities are regulated by federal, state and local governmental agencies. The primary regulatory agency is the California Public Utilities Commission (CPUC). The CPUC regulates the Sempra Utilities' rates and operations in California, except for SDG&E's electric transmission operations. The Federal Energy Regulatory Commission (FERC) regulates SDG&E's electric transmission operations. The FERC also regulates interstate transportation of natural gas and various related matters.
The Nuclear Regulatory Commission regulates SONGS, in which SDG&E owns a 20-percent interes t. Municipalities and other local authorities regulate the location of utility assets, including natural gas pipelines and electric lines. Sempra Energy's other business units are also regulated by the FERC, various state commissions, local governmental entities, and other similar authorities in countries other than the United States.
EXECUTIVE SUMMARY
BUSINESS STRATEGY
Our ongoing focus is to enhance shareholder value and meet customer needs by developing and operating a stable portfolio of energy businesses with long-term, predictable cash flows.
The key components of our strategy include:
§investment in our utilities; and
§development of natural gas and renewable-energy infrastructure.
We have based our strategy on a market view that recognizes emerging state and federal policies that point toward the following business priorities:
1. cleaner fuels
§natural gas< /p>
§renewables
2. enabling infrastructure
§natural gas pipelines, storage and LNG receipt terminals
§electric transmission and advanced meters
Below are several key issues that affected our business in 2010; some of these issues may continue to affect our future results. Each issue includes the page number you may reference for additional details.
§We and RBS divested substantially all of the businesses and assets of our joint-venture partnership, RBS Sempra Commodities. In connection with the divestitures, we recorded a $139 million after-tax write-down of our investment in the joint venture (122).
§In September 2010, we began a $500 million repurchase of our common stock under a Collared Accelerated Share Acquisition Program (180).
§ font>We settled long outstanding energy crisis litigation with the State of California resulting in after-tax litigation expense of $93 million (190).
§SDG&E received the requisite approvals from the Bureau of Land Management and United States Forest Service allowing it to begin construction of the Sunrise Powerlink electric transmission line in the fall of 2010 (181).
§SDG&E installed approximately 2.0 million advanced meters through January 31, 2011 and is on schedule to substantially complete the installation of approximately 1.4 million electric and 850,000 natural gas advanced meters by the end of 2011 (186).
§In December 2010, SDG&E and Cox Communications (Cox) reached an agreement settling SDG&Es claims against Cox and Coxs insurers in the 2007 California wildfire litigation; however, a substantial number of unresolved claims against SDG&E remain (188).
§In April 2010, SoCalGas received CPUC approval to upgrade, beginning in 2012, approximately six million natural gas meters with an advanced metering infrastructure (AMI) at a cost of approximately $1.05 billion, including approximately $900 million in capital investment (186).
§In October 2010, Sempra Generation invested $209 million for a 50 percent-ownership interest in Cedar Creek II Wind Farm LLC, a joint venture with BP Wind Energy for the development of a 250-MW wind farm in northern Colorado ( 120).
§In December 2010, Sempra Generation completed construction of Copper Mountain Solar, a 48-MW solar generation facility in Boulder City, Nevada (49).
§In December 2010, Sempra Generation sold its 50-percent interest in Elk Hills, a 550-MW natural gas-fueled power plant near Bakersfield, California (120).
§In April 2010, Sempra Pipelines & Storage completed an acquisition resulting in the purchase of the Mexican pipeline and natural gas infrastructure assets of El Paso Corporation (117).
§In the second ha lf of 2010, Sempra Pipelines & Storage placed approximately 12 Bcf of natural gas storage capacity in service at its Mississippi Hub, LLC (Mississippi Hub) and Bay Gas Storage Company (Bay Gas) natural gas storage facilities (49).
We discuss the following in Results of Operations:
§Overall results of our operations and factors affecting those results
§Our business unit results
§Significant changes in revenues, costs and earnings between periods
OVERALL RESULTS OF OPERATIONS OF SEMPRA ENERGY AND FACTORS AFFECTING THE RESULTS
The graphs below show our overall operations from 2006 to 2010.
OVERALL OPERATIONS OF SEMPRA ENERGY FROM 2006 TO 2010 |
(Dollars and shares in millions, except per share amounts) |
(1) Earnings for 2006 included $315 million in after-tax income from discontinued operations, primarily due to asset sales.
Our 2010 income from continuing operations attributable to common shares decreased from 2009 due to:
§lower joint-venture earnings at Sempra Commodities, excluding the litigation expense noted below;
§a $139 mi llion after-tax write-down of our investment in RBS Sempra Commodities; and
§after-tax litigation expense of $87 million and $6 million recorded in 2010 by Sempra Generation and Sempra Commodities, respectively, related to the agreement to settle certain energy crisis litigation, as we discuss in Note 16 of the Notes to Consolidated Financial Statements; offset by
§improved results at Sempra Pipelines & Storage, Sempra LNG, the Sempra Utilities and Parent and Other.
Diluted earnings per share in 2010 decreased by $1.54 per share due to decreased earnings. The impact from reduced shares outstanding due to our 2010 share repurchase program was negligible.
Our 2009 income from continuing operations attributable to common shares increased from 2008 due to:
§improved results at Sempra LNG; and
§higher earnings at the Sempra Utilities; offset by
§lower earnings at Sempra Generation; and
§higher losses at Parent and Other.
Improved operating results at Sempra Pipelines & Storage were negatively impacted by an after-tax write-off of $64 million in 2009 related to certain assets at one of its Liber ty Gas Storage natural gas storage projects (Liberty). Sempra Pipelines & Storage owns 75 percent of the partnership that is developing the project.
Diluted earnings per share in 2009 increased by $0.09 per share from 2008, primarily from the reduction in shares outstanding from our $1 billion share repurchase in 2008 ($0.07 per share) and as a result of our increased earnings ($0.02 per share).
SEMPRA ENERGY EARNINGS (LOSSES) BY BUSINESS UNIT 2008-2010 | |||||||||||||
(Dollars in millions) | |||||||||||||
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| Years ended December 31, | |||||||||||
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| 2010 | 2009 | 2008 | |||||||||
Sempra Utilities: |
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& nbsp; SDG&E(1) | $ | 369 | 50 | % | $ | 344 | 31 | % | $ | 339 | 31 | % | |
SoCalGas(1) |
| 286 | 39 |
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| 273 | 25 |
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| 244 | 22 |
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Sempra Global: |
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Sempra Generation |
| 103 | 14 |
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| 169 | 15 |
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| 220 | 20 |
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Sempra Pipelines & Storage |
| 159 | 21 |
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| 101 | 9 |
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| 106 | 9 |
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Sempra LNG |
| 68 | 9 |
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| 16 | 1 |
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| (46) | (4) |
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Sempra Commodities(2) |
| (155) | (21) |
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| 338 | 30 |
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| 347 | 31 |
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Parent and other(3) |
| (91) | (12) |
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| (122) | (11) |
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| (97) | (9) td> |
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Earnings | $ | 739 | 100 | % | $ | 1,119 | 100 | % | $ | 1,113 | 100 | % | |
(1) | After preferred dividends. | ||||||||||||
(2) | Includes our portion of RBS Sempra Commodities' joint venture earnings since the formation of the joint venture on April 1, 2008, and 100% of the commodities-marketing businesses prior to April 1, 2008. Also includes interest, income taxes, cost allocations and other items associated with the joint venture. | ||||||||||||
(3) | Includes after-tax interest expense ($148 million in 2010, $141 million in 2009 and $85 million in 2008), intercompany eliminations recorded in consolidation and certain corporate costs incurred at Sempra Global. |
BUSINESS UNIT RESULTS
The following section is a discussion of earnings (losses) by Sempra Energy business unit, as presented in the table above. Variance amounts are the after-tax earnings impact, unless otherwise noted.
EARNINGS BY BUSINESS UNIT SEMPRA UTILITIES |
(Dollars in millions) |
Our SDG&E business unit recorded earnings of:
§$369 million in 2010 ($374 million before preferred dividends)
§$344 million in 2009 ($349 million before preferred dividends)
§$339 million in 2008 ($344 million before preferred dividends)
The increase of $25 million (7%) in 2010 was primarily due to:
§$28 million higher authorized margin for CPUC-regulated operations and lower operation and maintenance expenses (excluding insurance premiums for wildfire coverage and litigation related expenses);
& #167;$16 million from the CPUC decision in 2010 authorizing recovery of a portion of the incremental wildfire insurance premiums for the policy year July 2009 through June 2010; and
§$8 million higher electric transmission margin; offset by
§$20 million higher liability insurance premiums for wildfire coverage; and
§$13 million net unfavorable impact from an increase in litigation reserves in 2010 compared to the favorable resolution of litigation in 2009.
In 2009, the increase of $5 million (1%) was due to:
§$26 million net favorable impact from the resolution of litigation in 2009 compared to an increase in litigation reserves in 2008;
§$21 million higher CPUC authorized margin in excess of higher operation and maintenance expenses; and
§$8 million higher electric transmission margin; offset by
§$21 million due to regulatory awards in 2008;
§$9 million higher liability insurance premiums for wildfire coverage;
§$7 million from the resolution of regulatory matters in 2008 that favorably impacted earnings;
§$6 million lower favorable impact from the resolution of prior years' income tax issues; and
§$6 million higher net interest expense.
SoCalGas
Our SoCalGas business unit recorded earnings of:
§$286 million in 2010 ($287 million before preferred dividends)
§$273 million in 2009 ($274 million before preferred dividends)
§$244 million in 2008 ($245 million before preferred dividends)
The increase of $13 million (5%) in 2010 was due to:
§$11 million higher authorized margin for CPUC-regulated operations in excess of higher operation and maintenance expenses;
§$8 million higher regulatory awards; and p>
§$8 million net favorable impact from a favorable resolution of litigation matters in 2010 compared to litigation expense in 2009; offset by
§$13 million due to the write-off of deferred tax assets as a result of the change in U.S. tax law regarding the Medicare Part D subsidy.
In 2009, the increase of $29 million (12%) was due to:
§$25 million higher CPUC authorized margin in excess of higher operation and maintenance expenses;
§$12 million from a lower eff ective tax rate (excluding the impact of the resolution of prior years' income tax issues);
§$7 million primarily due to litigation reserves recorded in 2008; and
§$3 million higher noncore natural gas storage earnings; offset by
§$7 million from the resolution of a regulatory matter in 2008 that favorably impacted earnings;
§$7 million higher net interest expense; and
§$4 milli on lower favorable impact from the resolution of prior years' income tax issues ($1 million unfavorable in 2009 compared to $3 million favorable in 2008).
EARNINGS (LOSSES) BY BUSINESS UNIT SEMPRA GLOBAL |
(Dollars in millions) |
Sempra Generation
Sempra Generation recorded earnings of:
§$103 mil lion in 2010
§$169 million in 2009
§$220 million in 2008
The decrease in 2010 of $66 million (39%) was due to:
§$87 million in litigation expense related to an agreement to settle energy crisis litigation associated with the DWR contract, as we discuss in Note 16 of the Notes to Consolidated Financial Statements; and
§$31 million lower earnings from operations, primarily from increased scheduled plant maintenance and associated down time in 2010, and expens es and associated down time from earthquake damage to our Mexicali power plant in the second quarter of 2010; offset by
§$48 million increased tax incentives from renewable energy investments in 2010.
The decrease in 2009 of $51 million (23%) was due to:
§a $31 million reduction in earnings from the effects of lower gas prices in 2009;
§$4 million income tax expense in 2009 related to Mexican currency translation and inflation adjustments compared to a $14 million income tax benefit in 2008; and
§$9 million solar investment tax credits in 2008.
Sempra Pipelines & Storage
Our Sempra Pipelines & Storage business unit recorded earnings of:
§$159 million in 2010
§$101 million in 2009
§$106 million in 2008
The increase in 2010 of $58 million (57%) was due to:
§$64 million lower earning s in 2009 from a write-off of assets at Liberty;
§$48 million (pretax) in proceeds received from a legal settlement in 2010, less a related income tax effect of $17 million;
§$20 million higher earnings related to a Mexican pipeline acquisition in April 2010; and
§$7 million higher operating results from its investments in Chile and Peru; offset by
§a $44 million (pretax) write-down of our investment in Argentina, less a related income tax benefit of $15 million;
§$13 million from the resolution of prior years income tax issues which favorably impacted 2009 earnings;
§$10 million lower earnings attributable to natural gas optimization activities at Midstream Services; and
§$7 million lower earnings in Mexico primarily due to the favorable impact of the adoption of regulatory accounting in 2009 and the expiration of a transportation service contract at the end of 2009.
The decrease in 2009 of $5 million (5%) was due to:
§$64 million lower earnings from a write-off of assets at Liberty; offset by
§$22 million lower taxes, primarily due to a favorable impact from the resolution of prior years' income tax issues ($13 million favorable in 2009 compared to $9 million unfavorable in 2008);
§$17 million higher earnings from a full year of LNG-related pipeline operations in Mexico, which commenced in the second quarter of 2008;
§$12 million higher earnings from its domestic natural gas distribution, pipeline and storage assets; and
§$8 million higher e arnings from its investments in South America, primarily due to improved operating results.
Sempra LNG
Sempra LNG recorded earnings (losses) of:
§$68 million in 2010
§$16 million in 2009
§$(46) million in 2008
The increase in 2010 earnings of $52 million was due to higher earnings from operations, primarily due to a full year of operations of the Cameron LNG receipt terminal and the nitrogen-injection facility at the Energía Costa Azul receipt terminal and a full year of performance under the Tangguh LNG purchase agreement, compared to partial-year periods for such operations and agreement in 2009.
The improvement in 2009 earnings of $62 million (135%) compared to 2008 was due to:
§$72 million higher earnings from the start-up of marketing and terminal operations, of which $37 million relates to revenues related to contractual customer obligations for non-delivery of cargoes and tax benefits from the reallocation of certain intercompany expenses; offset by
§a $10 million after-tax cash payment received in 2008 for the early termination of a capacity agreement for the Cameron receipt terminal.
Our Sempra Commodities business unit recorded earnings (losses) of:
§$(155) million in 2010
§$338 million in 2009
§$347 million in 2008
The change in 2010 earnings was due to:
§a $139 milli on write-down of our investment in the RBS Sempra Commodities joint venture;
§$327 million lower equity earnings from RBS Sempra Commodities; and
§other expenses in 2010, including transaction costs related to the sales within RBS Sempra Commodities and litigation expense.
The equity earnings from the joint venture were adversely impacted by the sale on July 1, 2010 of the global metals and oil businesses and the European natural gas and power business; lower volatility in the U.S. natural gas and power business; and the disruptions caused by the process to sell the partnerships businesses.
Results for 2009 and the second through the fourth quart ers of 2008 primarily represent our equity earnings from RBS Sempra Commodities, the joint venture formed on April 1, 2008, as well as other items discussed below. Results for the first quarter of 2008 represent 100% of the commodities-marketing businesses' earnings until the formation of the joint venture.
The results in 2009 reflect our reduced ownership interest in the commodities-marketing businesses starting in April 2008. Results in 2008 included
§a $67 million gain on the transaction to form the joint venture with RBS; offset by
§$34 million of expenses, primarily charges for litigation and an unfavorable impact of prior years' income tax issues; and
§a $17 million write-down related to a counterparty credit issue.
Parent and Other
Losses for Parent and Other were
§$91 million in 2010
§$122 million in 2009
§$97 million in 2008
The decrease in losses in 2010 of $31 million (25%) was due to lo wer general and administrative expenses and higher income tax benefits, partially offset by higher net interest expense.
The increase in losses in 2009 of $25 million (26%) was primarily due to:
§$64 million higher interest expense primarily from long-term debt issued in 2008 and 2009, partially offset by $18 million reduced interest expense on commercial paper borrowings due to lower interest rates;
§$25 million in lower benefits from the resolution of prior years' income tax issues, primarily due to $19 million of benefits in 2008 compared to a $6 million expense in 2009;
§$7 million in lower consolidated and parent tax benefits compared with 2008; and
§$10 million favorable impact of an interest adjustment in 2008 related to litigation reserves; offset by
§$18 million investment gains in 2009 on dedicated assets in support of our executive retirement and deferred compensation plans due to improved market conditions, compared to investment losses of $23 million in 2008. These amounts are net of the increase in deferred compensation liability associated with the investments; and
§$19 million lower general and administrative expenses.
CHANGES IN REVENUES, COSTS AND EARNINGS
This section contains a discussion of the differences between periods in the specific line items of the Consolidated Statements of Operations for Sempra Energy, SDG&E, PE and SoCalGas.
Sempra Utilities Revenues
Sempra Utilities revenues are comprised of natural gas revenues at SDG&E and SoCalGas, and electric revenues at SDG&E. Intercompany revenues included in the separate revenues of each utility are eliminated in the Sempra Energy Consolidated Statements of Operations.
The current regulatory framework permits the cost of natural gas purchased for core customers (primarily residential and small commercial and industrial customers) to be passed on to customers substant ially as incurred. However, SoCalGas' Gas Cost Incentive Mechanism (GCIM) provides SoCalGas the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between the core customers and SoCalGas. Through March 31, 2008, when SoCalGas assumed the purchasing for SDG&E's core customer natural gas requirements on a combined portfolio basis, SDG&E had a similar incentive mechanism that allowed cost sharing. We provide further discussion in Notes 1 and 15 of the Notes to Consolidated Financial Statements.
The regulatory framework also permits SDG&E to recover the actual cost incurred to generate or procure electricity base d on annual estimates of the cost of electricity supplied to customers. The differences in cost between estimates and actual are recovered in the next year through rates.
Sempra Utilities: Natural Gas Revenues and Cost of Natural Gas
The tables below show natural gas revenues for Sempra Energy, SDG&E and SoCalGas. The Sempra Energy Consolidated amounts reflect SDG&E and SoCalGas revenues, net of intercompany transactions. Because the cost of natural gas is recovered in rates, changes in the cost are reflected in the changes in revenues. In addition to the change in market prices, natural gas revenues recorded during a period are impacted by the difference between customer billings and recorded or CPUC-authorized costs. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts.
SEMPRA ENERGY CONSOLIDATED SEMPRA UTILITIES: | |||||||||
NATURAL GAS SALES AND TRANSPORTATION 2008-2010 | |||||||||
(Volumes in billion cubic feet, dollars in millions) | |||||||||
|
|
|
|
|
|
|
| ||
| Natural Gas Sales | Transportation | Total | ||||||
Customer class | Volumes | Revenue | Volumes | Revenue | Volumes | Revenue | |||
2010: |
|
|
|
|
|
|
|
|
|
Residential | 276 | $ | 2,642 | 1 | $ | 4 | 277 | $ | 2,646 |
Commercial and industrial | 116 |
| 869 | 276 |
| 239 | 392 |
| 1,108 |
Electric generation plants | - |
| - | 215 |
| 51 | 215 |
| 51 |
Wholesale | - |
| - | 25 |
| 4 | 25 |
| 4 |
| 392 | $ | 3,511 | 517 | $ | 298 | 909 |
| 3,809 |
Other revenues |
|
|
|
|
|
|
|
| 95 |
Balancing accounts(1) |
|
|
|
|
|
|
|
| 387 |
Total |
|
| td> |
|
|
|
| $ | 4,291 |
2009: |
|
|
|
|
|
|
|
|
|
Residential | 264 | $ | 2,336 | 1 | $ | 3 | 265 | $ | 2,339 |
Commercial and industrial | 116 |
| 774 | 271 |
| 227 | 387 |
| 1,001 |
Electric generation plants | - |
| - | 265 |
| 67 | 265 |
| 67 |
Wholesale |
- |
| - | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:black 1pt solid; HEIGHT:12pt" valign=bottom>
| 4 | 17 |
| 4&n bsp; | |
| 380 | $ | 3,110 | 554 | $ | 301 | 934 |
| 3,411 |
Other revenues | &n bsp; |
|
|
|
|
|
|
| 105 |
Balancing accounts(1) |
|
|
|
|
|
|
|
| 285 |
Total |
|
|
|
|
|
|
| $ | 3,801 |
2008: |
|
|
|
|
|
|
|
|
|
Residential | 271 | $ | 3,385 | 1 | $ | 4 | 272 | $ | 3,389 |
Commercial and industrial | 120 |
| 1,318 | 282 |
| 198 | 402 |
| 1,516 |
Electric generation plants | - |
| - | 300 |
| 106 | 300 |
| 106 |
Wholesale | - |
| - | 18 |
| 6 | 18 |
| 6 |
| 391 | $ | 4,703 | 601 | $ | 314 | 992 |
| 5,017 |
Other revenues |
|
|
|
|
|
|
|
| 146 |
Balancing accounts(1) |
|
|
|
|
|
|
|
| 256 |
Total |
|
|
|
|
|
|
| $ | 5,419 |
(1) We discuss balancing accounts and their effects in Note 1 of the Notes to Consolidated Financial Statements. |
In 2010, our natural gas revenues increased by $490 million (13%) to $4.3 billion, and the cost of natural gas increased by $370 million (24%) to $1.9 billion. The increase in revenues was primarily due to:
§the increase in cost of natural gas, which was caused primarily by higher natural gas prices;
§
§$47 million higher recovery of CPUC-authorized costs, which revenues are fully offset in operation and maintenance expenses; and
§$13 million higher regulatory awards in 2010 at SoCalGas.
In 2009, our natural gas revenues decreased by $1.6 billion (30%) to $3.8 billion, and the cost of natural gas decreased by $1.7 billion (53%) to $1.5 billion. The decrease in revenues was primarily due to:
§the decrease in cost of natural gas, which was caused primarily by lowe r natural gas prices; and
§$24 million lower franchise fees at SoCalGas; offset by
§$80 million higher recovery of CPUC-authorized costs, which revenues are fully offset in operation and maintenance expenses; and
§$53 million higher authorized base margin at SoCalGas.
We discuss the changes in the cost of natural gas individually for SDG&E and SoCalGas below.
SDG&E: NATURAL GAS SALES AND TRANSPORTATION 2008-2010 | |||||||||
(Volumes in billion cubic feet, dollars in millions) | |||||||||
|
|
|
|
|
|
|
| ||
| Natural Gas Sales | Transportation | Total | ||||||
Customer class | Volumes | Revenue | Volumes | Revenue | Volumes | Revenu e | |||
2010: |
|
|
|
|
|
|
|
|
|
Residential | 31 | $ | 340 | - | $ | - | 31 | $ | 340 |
Commercial and industrial | 14 |
| 106 | 8 |
| 12 | 22 |
| 118 |
Electric generation plants | - |
| - | 28 |
| 7 | 28 |
| 7 |
| 45 | $ | 446 | 36 | $ | 19 | 81 |
| 465 |
Other revenues |
|
|
|
|
|
|
|
| & nbsp;36 |
Balancing accounts |
|
|
|
|
|
|
|
| 13 |
Total(1) |
|
|
|
|
|
|
| $ | 514 |
2009: |
|
|
|
|
|
|
|
|
|
Residential |
30 | $ | 304 | - | $ | - | 30 | $ | 304 |
Commercial and industrial | 15 |
| 100 | 7 |
| 10 | 22 |
| 110 |
Electric generation plants | - |
| - | 65 |
| 19 | 65 |
| 19 |
| 45 | $ | 404 | 72 | $ | 29 | 117 |
| 433 |
Other revenues |
|
|
|
|
|
|
|
| 33 |
Balancing accounts |
|
|
|
|
|
|
|
| 24 |
Total(1) |
|
|
|
|
|
|
| $ | 490 |
2008: |
|
|
|
|
|
|
|
|
|
Residential | 31 | $ | 428 | - | $ | - | 31 | $ | 428 |
Commercial and industrial | 16 |
| 174 | 7 |
| 9 | 23 |
| 183 | Electric generation plants | - |
| - | 68 |
| 26 | 68 |
| 26 |
| 47 | $ | 602 | | $ | 35 | 122 |
| 637 |
Other revenues |
|
|
|
|
|
|
|
| 26 |
Balancing accounts |
|
|
|
|
|
|
|
| 26 |
Total(1) |
|
|
|
|
|
|
| $ | 689 |
(1) Includes sales to affiliates of $1 million in both 2010 and 2009, and $2 million in 2008. |
In 2010, SDG&Es natural gas revenues increased by $24 million (5%) to $514 million, and the cost of natural gas increased by $11 million (5%) to $217 million. The increase in revenues was prim arily due to:
§$15 million higher recovery of CPUC-authorized costs, which revenues are fully offset in operation and maintenance expenses;
§the increase in cost of natural gas, which was caused primarily by higher natural gas prices, as we discuss below; and
§$6 million higher authorized base margin.
In 2009, SDG&E's natural gas revenues decreased by $199 million (29%) to $490 million, and the cost of natural gas decreased by $209 million (50%) to $206 million. The decrease in natural gas revenues was primarily due to the decrease in cost of natural gas caused by lower natural ga s prices, as we discuss below.
The average cost of natural gas was $4.79 per thousand cubic feet (Mcf) for 2010, $4.61 per Mcf for 2009 and $8.88 per Mcf for 2008. In 2010, the 4-percent increase of $0.18 per Mcf resulted in higher revenues and cost of $8 million compared to 2009. In 2009, the 48-percent decrease of $4.27 per Mcf resulted in lower revenues and cost of $190 million compared to 2008.
SOCALGAS: NATURAL GAS SALES AND TRANSPORTATION 2008-2010 | |||||||||
(Volumes in billion cubic feet, dollars in millions) | |||||||||
|
|
|
|
|
|
|
| ||
| Natural Gas Sales | Transportation | Total | ||||||
Customer class | Volumes | Revenue | Volumes | Revenue | Volumes | Revenue | |||
2010: |
|
|
|
|
|
|
|
|
|
Residential | 245 | $ | 2,302 | 1 | $ | 4 | 246 | $ | 2,306 |
Commercial and industrial | 102 |
| 763 | 268 |
| 228 | 370 |
| 991 |
Electric generation plants | - |
| - | 187 |
| 44 | 187 |
| 44 |
Wholesale |
| - | 149 |
| 15 < /p> | 149 |
| 15& nbsp; | |
| 347 | $ | 3,065 | 605 | $ | 291 | 952 |
| 3,356 |
Other revenues | & nbsp; |
|
|
| td> |
|
|
| 92 |
Balancing accounts |
|
|
|
|
|
|
|
| 374 |
Total(1) |
|
|
|
|
|
|
| $ | 3,822 |
2009: |
|
|
|
|
|
|
|
|
|
Residential | 234 | $ | 2,032 | 1 | $ | 3 | 235 | $ | 2,035 |
Commercial and industrial | 101 |
| 674 | 264 |
| 219 | 365 | < /td> | 893 |
Electric generation plants | - |
| - | 200 |
| 48 | 200 |
| 48 |
Wholesale | - |
| - | 141 |
| 13 | 141 |
| 13 |
| 335 | $ | 2,706 | 606 | $ | 283 | 941 |
| 2,989 |
Other revenues |
|
|
|
|
|
|
|
| 105 |
Balancing accounts |
|
|
|
|
|
|
|
| 261 |
Total(1) |
|
|
|
|
|
|
| $ | 3,355 |
2008: |
|
|
|
|
|
|
|
|
|
Residential | 240 | $ | 2,957 | $ | 4 | 241 | $ | | |
Commercial and industrial | 104 |
| 1,144 | 275 |
| 189 | 379 |
| 1,333 |
Electric generation plants | - |
| - | 232 |
| 80 | 232 |
| 80 |
Wholesale | - |
| - | 146 |
| 22 | 146 |
| 22 |
| 344 | $ | 4,101 | 654 | $ | 295 | 998 |
| 4,396 |
Other revenues |
|
|
|
|
|
|
|
| 142 |
Balancing accounts |
|
|
|
|
|
|
|
| 230 |
Total(1) |
|
|
|
|
|
|
| $ | 4,768 |
(1) Includes sales to affiliates of $44 million in 2010, $43 million in 2009 and $36 million in 2008. |
In 2010, SoCalGas' natural gas revenues increased by $467 million (14%) to $3.8 billion, and the cost of natural gas increased by $356 million (27%) to $1.7 billion. The increase in revenues in 2010 was primarily due to:
§the increase in cost of natural gas, which was caused primarily by higher natural gas prices, as we discuss below, and higher volumes due to colde r weather in late 2010;
§$52 million higher authorized base margin;
§$32 million higher recovery of CPUC-authorized costs, which revenues are fully offset in operation and maintenance expenses; and
§$13 million higher regulatory awards in 2010.
In 2009, SoCalGas' natural gas revenues decreased by $1.4 billion (30%) to $3.4 billion, and the cost of natural gas decreased by $1.5 billion (53%) to $1.3 billion. The decrease in revenues was primarily due to:
§t he decrease in cost of natural gas, which was caused primarily by lower natural gas prices, as we discuss below; and
§$24 million lower franchise fees; offset by
§$74 million higher recovery of CPUC-authorized costs, which revenues are fully offset in operation and maintenance expenses; and
§$53 million higher authorized base margin.
Sempra Utilities: Electric Revenues and Cost of Electric Fuel and Purchased Power
The table below shows electric revenues for Sempra Energy and SDG&E. Sempra Energy Consolidated amounts are net of intercompany transactions. Because the cost of electricity is substantially recovered in rates, changes in the cost are reflected in the changes in revenues.
ELECTRIC DISTRIBUTION AND TRANSMISSION 2008-2010 | |||||||||
(Volumes in millions of kilowatt-hours, dollars in millions) | |||||||||
| 2010 | 2009 | 2008 | ||||||
Customer class | Volumes | Revenue | Volumes | Revenue | Volumes | Revenue | |||
Sempra Energy Consolidated: |
|
|
|
|
|
|
|
|
|
Residential | 7,304 | $ | 1,039 | 7,536 | $ | 1,041 | 7,698 | $ | 976 |
Commercial | 6,738 |
| 884 | 7,061 |
| 890 | 7,254 |
| 843 |
Industrial | 2,115 |
| 227 | 2,275 |
| 236 | 2,340 |
| 214 |
Direct access | 3,202 |
| 124 | 3,119 |
| 106 | 3,235 |
| 101 |
Street and highway lighting | 108 |
| 13 | 110 |
| 12 | 106 |
| 12 |
| 19,467 |
| 2,287 | 20,101 |
| 2,285 | 20,633 |
| 2,146 |
Other revenues |
|
| 103 |
|
| 132 |
|
| 145 |
Balancing accounts |
|
| 138 |
|
| 2 |
|
| 262 |
Total |
| $ | 2,528 |
| $ | 2,419 |
| $ | 2,553 |
SDG&E: |
|
|
|
|
|
|
|
|
|
Residential | 7,304 | $ | 1,039 | 7,536 | $ | 1,041 | 7,698 | $ | 976 |
Commercial | 6,738 |
| 884 | 7,061 |
| 7,254 |
| 843 | |
Industrial | 2,131 |
| 229 | 2,285 |
| 238 | &n bsp;2,351 |
| 215 |
Direct access | 3,202 |
| 124 | 3,119 |
| 106 | 3,235 |
| 101 |
Street and highway lighting | 108 |
| 13 | 110 |
| 12 | 106 |
| 12 |
| 19,483 td> |
| 2,289 | 20,111 |
| 2,287 | 20,644 |
| 2,147 |
Other revenues |
|
| 108 |
|
| 137 |
|
| 153 |
Balancing accounts |
|
| 138 |
|
| 2 |
|
| 262 |
Total(1) |
| $ | 2,535 |
| $ | 2,426 |
| $ | 2,562 |
(1) Includes sales to affiliates of $7 million in both 2010 and 2009, and $9 million in 2008. |
In 2010, electric revenues increased by $109 million (5%) at Sempra Energy Consolidated and $109 million (4%) at SDG&E to $2.5 billion primarily due to:
§$57 million higher authorized base margin on electric generation and distribution;
§$28 m illion increase due to tolling payments and natural gas supply costs in 2010 associated with the power generated by Otay Mesa VIE in excess of purchased power costs in 2009 for the equivalent amount of power;
§$28 million from the recovery of a portion of the incremental wildfire insurance premiums for the policy year July 2009 through June 2010; and
§$18 million higher authorized transmission margin; offset by
§$31 million lower recoverable expenses that are fully offset in operation and maintenance expenses; and
§$3 million decrease in the cost of electric fuel and purchased power excluding Otay Mesa VIE.
At both Sempra Energy and SDG&E, the cost of electric fuel and purchased power decreased by $35 million (5%) to $637 million for 2010 primarily due to a $32 million decrease in the cost of power purchased from third-party generators as a result of the start up of new power generation at Otay Mesa VIE, which commenced commercial operations in the fourth quarter of 2009, along with a $3 million decrease in other fuel and purchased power costs. Associated with this decrease, SDG&Es operating costs increased by $32 million from Otay Mesa VIEs operations.
In 2009, electric revenues decreased by $134 million (5%) at Sempra Energy Consolidated and $136 million (5%) at SDG&E to $2.4 billion, and the cost of electric fuel and purchased power decreased by $228 million (25%) to $672 million. The decreased revenues in 2009 were primarily due to:
§the decrease in cost of electric fuel and purchased power resulting from a net decrease in power procurement costs, primarily from lower prices and volumes; and
§$36 million lower regulatory awards; offset by
§$54 million higher authorized base margin on electric generation and distribution;
§$35 million higher recoverable expenses that are fully offset in operation and maintenance expenses; and
§$32 million higher authorized transmission margin.
We do not include in the Consolidated Statements of Operations the commodity costs (and the revenues to recover those costs) associated with long-term contracts that are allocated to SDG&E by the California DWR. However, we do include the associated volumes and distribution revenues in the table above. We provide further discussion of these contracts in Note 1 of the Notes to Consolidated Financial Statements.
Sempra Global and Parent: Revenues and Cost of Sales
The table below shows Sempra Global and Parent's Revenues and Cost of Sales.
SEMPRA GLOBAL AND PARENT: REVENUES AND COST OF SALES 2008-2010 | |||||||||||||
(Dollars in millions) | |||||||||||||
|
| Years ended December 31, | |||||||||||
|
| 2010 | 2009 | 2008 | |||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
| |
Sempra Generation | $ | 1,172 | 54 | % | $ | 1,179 | 62 | % | $ | 1,827 | 66 | % | |
Sempra Pipelines & Storage |
| 350 | 16 |
|
| 465 | 25 |
|
| 457 | 16 |
| |
Sempra LNG |
| 711 | 32 |
|
| 278 | 15 |
|
| 74 | 3 |
| |
Sempra Commodities |
| - | - |
|
| - | - |
|
| 457 | 16 |
| |
Parent and other(1) |
| (49) | (2) |
|
| &nb sp;(36) | (2) |
|
| (29) | (1) |
| |
Total revenues | $ | 2,184 | 100 | % | $ | 1,886 | 100 | % | $ | 2,786 | 100 | % | |
COST OF SALES(2) |
|
|
|
|
|
|
|
|
|
|
|
| |
Sempra Generation | $ | 656 | 57 | % | $ | 668 | 68 | % | $ | 1,304 | 78 | % | |
Sempra Pipelines & Storage |
| 123 | 10 |
|
| 243 | 25 |
|
|
348 | 21 |
| |
Sempra LNG |
| 426 | 37 |
|
| 108 | 11 |
|
| 47 | 3 |
| |
Parent and other(1) |
| (50) | (4) |
|
| (43) | (4) |
|
| (28) | (2) |
| |
Total cost of natural gas, electric fuel |
|
|
|
|
|
|
|
|
|
|
|
| |
and purchased po wer | $ | 1,155 | 100 | % | $ | 976 | 100 | % | $ | 1,671 | 100 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sempra Generation | $ | 78 | 86 | % | $< /p> | 62 | 77 | % | $ | 46 | 25 | % | |
Sempra Pipelines & Storage |
| 2 | 2 |
|
| 2 | 3 |
|
| - | - |
| |
Sempra LNG |
| 11 | 12 |
|
| 16 | 20 |
|
| 5 | 3 |
| |
Sempra Commodities |
| - | - |
|
| - | - |
|
| 133 | 73 |
| |
Parent and other(1) |
| - | - |
|
| - | - |
|
| (2) | (1) |
| |
Total other cost of sales | $ | 91& nbsp; | 100 | % | | 80 | 100 | % | $ | 182 | 100 | % | |
(1) | Includes eliminations of intercompany activity. | ||||||||||||
(2) | Excludes depreciation and amortization, which are shown separately on the Consolidated Statements of Operations. |
In 2010, our Sempra Global and Parent revenues increased by $298 million (16%) to $2.2 billion. The increase included
§$433 million higher revenues at Sempra LNG, primarily due to increased marketing operations and the start up of operations at its Cameron LNG receipt terminal and the nitrogen-injection facility at the Energía Costa Azul receipt terminal; offset by
§$123 million lower revenues at Sempra Pipelines & Storage due to the expiration of the Comisión Federal de Electricidad (CFE) natural gas supply contract in 2009. At the expiration of the contract, Sempra LNG began supplying the CFE under a separate contract ending December 2022.
In 2009, our Sempra Global and Parent revenues decreased by $900 million (32%) to $1.9 billion. The decrease included
§$648 million lower revenues at Sempra Generation, primarily due to decreased power sales and unfavorable market pricing; and
§$457 million lower revenues from Sempra Commodities. The 2008 revenues were primarily for periods prior to the formation of RBS Sempra Commodities; offset by
§$204 million higher revenues at Sempra LNG, primarily due to a full year of operations at its Energía Costa Azul receipt terminal and the start up of operations at its Cameron receipt terminal.
In 2009, our cost of natural gas, electric fuel and purchased power decreased by $695 million (42%) to $976 million. The decrease in 2009 from 2008 was associated with lower revenues at Sempra Generation and Sempra Pipelines & Storage, offset by increased costs associated with the higher revenues at Sempra LNG.
Compared to 2009, our other cost of sales increased by $11 million (14%) to $91 million in 2010. In 2009, our other cost of sales decreased by $102 million (56%) to $80 million. The decrease in 2009 was primarily due to our reduced interest in our commodities-marketing businesses. Other cost of sales included $133 million in 2008 for Sempra Commodities, primarily for periods prior to the formation of RBS Sempra Commodities.
Operation and Maintenance (including Litigation Expense)
In the table below, we provide a breakdown of our business units' operation and maintenance expenses.
OPERATION AND MAINTENANCE(1) 2008-2010 | |||||||||||||
(Dollars in millions) | |||||||||||||
& nbsp; |
| Years ended December 31, | |||||||||||
|
| 2010 | 200 9 | 2008 | |||||||||
Sempra Utilities: | < p style="MARGIN:0in 0in 0pt"> |
|
|
|
|
|
|
|
|
|
|
| |
SDG&E | $ | 987 | 37 | % | $ | 961 | 39 | % | $ | 913 | 36 | % | |
SoCalGas |
| 1,174 | 44 |
|
| 1,138 | 46 |
|
| 1,078 | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 43 |
| |
Sempra Global: |
|
|
|
|
|
|
|
|
|
|
|
| |
Sempra Generation |
| 268 | 10 |
|
| < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> 108 | 4 |
|
| 97 | 4 |
| |
Sempra Pipelines & Storage |
| 105 | 4 |
|
| 83 | 3 |
|
| 62 | 2 |
| |
Sempra LNG |
| 83 | 3 |
|
| 94 | 4 |
|
| 77 | 3 |
| |
Sempra Commodities |
| 32 | 1 |
|
|
13 | 1 |
|
| 248 | 10 |
| |
Parent and other(2) |
| 19 | 1 |
|
| 77 | 3 |
|
| 61 | 2 |
| |
Total other operation and maintenance | $ | 2,668 | 100 | % | $ | 2,474 |
100 | % | $ | 2,536 | 100 | % | |
(1) | Includes Litigation Expense and Other Operation and Maintenance for Sempra Energy Consolidated. | ||||||||||||
(2) | Includes intercompany eliminations recorded in consolidation. |
Sempra Energy Consolidated
The $194 million (8%) increase in our operation and maintenance expenses in 2 010 included
§$160 million from Sempra Generation, primarily due to $145 million of litigation expense related to an agreement to settle certain energy crisis litigation; and
§higher operation and maintenance expenses at the Sempra Utilities, as we discuss below.
The decrease in our operation and maintenance expenses in 2009 included
§$235 million from our reduced interest in our commodities-marketing businesses; and
§$58 million lower litigation expense a t the Sempra Utilities; offset by
§$166 million higher recoverable expenses (offset in revenues as incurred) and other operational costs at the Sempra Utilities; and
§higher operation and maintenance costs at other Sempra Global business units, including $21 million at Sempra Pipelines & Storage primarily from the consolidation of Mobile Gas, which we acquired in October 2008, and $17 million at Sempra LNG primarily due to a full year of operations at the Energía Costa Azul receipt terminal, which commenced operations in May 2008, and the commencement of operations at the Cameron receipt terminal in July 2009.
SDG&E
In 2010, SDG&E's operation and mai ntenance expenses increased by $26 million (3%) due to:
§$19 million higher other operational and maintenance costs, including:
· $29 million higher liability insurance premiums for wildfire coverage and
· $13 million at Otay Mesa VIE, offset by
· $15 million from the unfavorable resolution of a regulatory matter in 2009; and
§$23 million net unfavorable impact from an increase in litigation reserves in 2010 compared to the favorable resolution of litigation in 2009; offset by
§$16 million lower recoverable expenses.
In 2009, SDG&E's operation and maintenance expenses increased by $48 million (5%) due to:
§$54 million higher other operational and maintenance costs, including:
· $15 million higher liability insurance premiums for wil dfire coverage and
· $7 million at Otay Mesa VIE, which began commercial operations in October 2009; and
§$41 million higher recoverable expenses, including $23 million at SONGS and $13 million for the California Solar Initiative program; offset by
§$47 million lower litigation expense.
SoCalGas
In 2010, SoCalGas' operation and maintenance expenses increased by $36 million (3%) due to:
§$32 million higher recoverable expenses, primarily from expenses associated with energy efficiency programs; and
§$17 million higher other operational and maintenance costs; offset by
§$13 million net favorable impact from a favorable resolution of litigation reserves in 2010 compared to litigation expense in 2009.
In 2009, SoCalGas' operation and maintenance expenses increased by $60 million (6%) due to:
§$74 million higher recoverable expenses, primarily from contributions to employee benefit plans; offset by
§$11 million lower litigation expense; and
§$3 million lower other operational and maintenance costs.
In 2010, Parent and Others operation and maintenance expenses decreased $58 million (75%), primarily due to a reorganization in early 2010 that eliminated some central functions and moved other functions to the business units. This resulted in a reduction in general and administrative costs and also moved costs previously incurred by Parent and Other to the business units.
Depreciation and Amortization
Sempra Energy Consolidated
Our depreciation and amortization expense were
§$867 million in 2010
§$775 million in 2009
§$687 million in 2008
The increase in 2010 included
§$52 million at SDG&E, primarily from higher electric plant depreciation, including a full year of operations at Otay Mesa VIE;
§$16 million at SoCalGas from an increase in net utility plant base; and
§$16 million at Sempra LNG due to the start up of the Cameron LNG receipt terminal and Energía Costa Azul LNG nitrogen injection facility in the second half of 2009.
The increase in 2009 compared to 2008 included
§$31 million at SDG&E, primarily from higher electric plant depreciation and from Otay Mesa VIE;
§$25 million at Sempra Pipelines & Storage primarily due to the acquisition of EnergySouth in 2008;
§$20 million at Sempra LNG due to the start up of the Energía Costa Azul receipt terminal in May 2008 and the Cameron terminal in July 2009; and
§$13 million at SoCalGas from an increase in net utility plant base.
Gains on Sale of Assets
Sempra Energy Consolidated
Our net pretax gains on the sale of assets were
§none in 2010
§$3 millio n in 2009
§$114 million in 2008
The gains in 2008 included $109 million related to the sale of the commodities-marketing businesses into RBS Sempra Commodities, which we discuss in Note 3 of the Notes to Consolidated Financial Statements.
Write-off of Long-lived Assets
In 2009, we recorded a $132 million write-off related to certain assets at one of Sempra Pipelines & Storages Liberty Gas Storage natural gas storage projects. Sempra Energy's after-tax share of this write-off was $64 million. We discuss the write-off of the assets in Note 1 of the Notes to Consolidated Financial Statements.
Equity Earnings (Losses) Before Income Taxes
Sempra Energy Consolidated
The earnings (losses) from our investment in RBS Sempra Commodities, which was formed in April 2008, were
§$(314) million in 2010
§$463 million in 2009
§$383 million in 2008
Equity earnings from our investment in RBS Sempra Commodities were adversely impacted by several factors in 2010, as we discuss in Business Unit ResultsSempra Commodities. Results for 2010 include a $305 million pretax write-down of our investment in RBS Sempra Commodities. This amount includes a $480 million loss related to the U.S. portion of our investment, partially offset by a $175 million gain on the non-U.S. portion. We discuss the write-down and additional information about the determination and allocation of this investments earnings in Note 4 of the Notes to Consolidated Financial Statements.
Amounts in 2009 and 2008 are our share of the earnings from the operations of RBS Sempra Commodities during those years.
Equity earnings before income taxes from our other equity method investments were
§$22 million in 2010
§$36 million in 2009
§$37 million in 2008
In 2010, the decrease in our equity earnings before income taxes from other equity method investments was primarily due to a $10 million loss on the sale of Sempra Generations investment in Elk Hills in December 2010. We provide further details about our investment in RBS Sempra Commodities and other equity method investments in Note 4 of the Notes to Consolidated Financial Statements.
Other Income (Expense), Net
Sempra Energy Consolidated
Other income (expense), net, was
§$140 million in 2010
167;$149 million in 2009
§$(109) million in 2008
We include here the allowance for equity funds used during construction (AFUDC) at the Sempra Utilities, regulatory interest, gains and losses from our investments and interest rate swaps, and other sundry amounts.
The decrease in other income, net, in 2010 was primarily due to:
§$34 million in losses on interest rate instruments in 2010 at Otay Mesa VIE compared to $27 million in gains in 2009; and
§a $20 million decrease in gains from investment activ ity related to our executive retirement and deferred compensation plans in 2010; offset by
§proceeds of $48 million from a legal settlement at Sempra Pipelines & Storage;
§$18 million increase in allowance for equity funds used during construction, including $14 million at SDG&E primarily due to construction on the Sunrise Powerlink project; and
§a $10 million gain recognized on an interest rate instrument at Parent and Other.
The increase in other income, net, in 2009 was primarily due to:
§a $27 million gain from interest rate instruments at Otay Mesa VIE in 2009 compared to a $54 million loss in 2008; and
§$57 million in Mexican peso exchange losses in 2008 (largely offset by foreign tax benefits arising from fluctuations in the U.S. dollar/Mexican peso exchange rate and inflation); offset by
§$16 million cash payment received for the early termination of a capacity a greement for the Cameron LNG receipt terminal in 2008.
SDG&E
Other income (expense), net, was
§$10 million in 2010
§$64 million in 2009
§$(29) million in 2008
The decrease in other income, net, in 2010 was primarily due to:
§$34 million in losses on interest rate instruments in 2010 at Otay Mesa VIE compared to $27 million in gains in 2009; < b>offset by
§$14 million increase in allowance for equity funds used during construction primarily due to construction on the Sunrise Powerlink project.
The change in 2009 was primarily due to a $27 million gain from interest rate instruments at Otay Mesa VIE in 2009 compared to a $54 million loss in 2008.
We provide further details of the components of other income (expense), net, in Note 1 of the Notes to Consolidated Financial Statements.
Interest Income
The table below shows the interest income for Sempra Energy Consol idated, SDG&E, PE and SoCalGas.
INTEREST INCOME 2008-2010 | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated | $ | 16 | $ | 21 | $ | 45 |
SDG&E |
| - |
| 1 |
| 6 |
PE |
| 2 |
| 4 |
| 22 |
SoCalGas |
| 1 |
| 3 |
| 11 |
In 2010, the decrease in Sempra Energy Consolidated's interest income was primarily attributable to:
§$4 million net lower interest income at Sempra Pipelines & Storage due to the repayment of a $100 million loan in late 2009 by Chilquinta Energía S.A., an unconsolidated affiliate, offset partially by interest income from bonds purchased from Chilquinta Energía S.A. in late 2009, as discussed in Note 4 of the Notes to Consolidated Financial Statements; and
§$2 million lower interest income resulting from lower average short-term investment balances in 2010 at SoCalGas.
In 2009, Sempra Energy Consolidated's interest income decreased due to:
§$5 million lower interest income from our reduced ownership interest in the commodities-marketing businesses;
§$4 million associated with the remarketing of industrial development bonds in 2009 at Parent and Other;
§$4 million from a decrease in a note receivable due from an un consolidated subsidiary of Sempra Generation as a result of converting the note to equity; and
§lower interest rates, offset by higher average short-term investment balances.
The decrease in SDG&E's interest income in 2009 was primarily due to lower interest rates, offset by higher average short-term investment balances.
The decrease in PE's interest income in 2009 was primarily due to:
§lower interest income at SoCalGas, which we discuss below; and
§lower interest rates on notes receivable d ue from Sempra Energy to PE, partially offset by higher average balances on those notes.
The decrease in SoCalGas' interest income in 2009 was primarily due to:
§decreased interest income from lower interest rates, partially offset by higher average short-term investment balances in 2009 compared to 2008; and
§lower interest rates and lower average balances on notes receivable from Sempra Energy.
Interest Expense
The table below shows the interest expense for Sempra Energy Consolidated, SDG&E, PE and SoCalGas.
INTEREST EXPENSE 2008-2010 | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated | $ | 436 | $ | 367 | $ | 253 |
SDG&E |
| 136 |
| 104 |
| 96 |
PE |
| 66 |
| 69 |
| 65 |
SoCalGas |
| 66 |
| 68 |
| 62 |
Sempra Energy Consolidated
Our interest expense increased by $69 million (19%) in 2010 compared to 2009 due to:
§$80 million higher interest expense, primarily from long-term debt issued in 2009 and 2010 at Parent and Other and SDG&E;
§$27 million lower capitalized interest, primarily at Sempra LNG due to completion of construction projects; and
< font style=FONT-FAMILY:Wingdings>§$14 million in interest expense at Otay Mesa VIE in 2010; offset by
§$30 million lower interest expense from maturities of debt at Parent and Other; and
§$16 million lower short-term debt interest expense, primarily from lower average commercial paper borrowings and interest rates, and reduced interest expense related to energy crisis litigation reserves at Parent and Other.
Our interest expense increased by $114 million (45%) in 2009 compared to 2008 due to:
§$73 million hi gher net interest expense at Parent and Other primarily from long-term debt issued in 2008 and 2009 and higher average commercial paper borrowings in 2009, partially offset by lower interest rates on the commercial paper;
§long-term debt issued in 2009 at SDG&E and in 2008 at SoCalGas, partially offset by lower interest rates;
§$18 million reduced interest expense related to litigation reserves in 2008; and
§$17 million net lower capitalized interest, including $26 million lower capitalized interest at Sempra LNG due to completion of construction projects, offset by $7 million higher capitalized interest at Sempra Pipelines & Storag e.
SDG&Es interest expense increased by $32 million (31%) in 2010 compared to 2009 primarily from long-term debt issued in 2009 and 2010, and from interest expense at Otay Mesa VIE in 2010.
In 2009, SDG&E's interest expense increased by $8 million compared to 2008 primarily due to long-term debt issued in 2009, partially offset by lower interest rates.
PE and SoCalGas
Interest expense for 2010 at PE and SoCalGas decreased by $3 million and $2 million, respectively.
In 2009, PE's and SoCalGas' interest expense increased $4 million and $6 million, respectively, primarily due to long-term debt issued by SoCalGas in the fourth quarter of 2008, partially offset by lower interest rates.< /font>
Income Taxes
The table below shows the income tax expense and effective income tax rates for Sempra Energy, SDG&E, PE and SoCalGas.
INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES 2008-2010 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
| Years ended December 31, | |||||||||||||||
|
|
| 2010 |
| 2009 |
| 2008 | |||||||||
|
|
| Income Tax |
| Effective Income |
|
| Income Tax |
| Effective Income |
|
| Income Tax |
| Effective Income |
|
|
|
| Expense |
| Tax Rate |
|
| Expense |
| Tax Rate |
|
| Expense |
| Tax Rate |
|
Sempra Energy Consolidated | $ | 102 |
| 13 | % | $ | 422 |
| 29 | % | $ | 438 |
| 30 | % | |
SDG&E |
| 173 |
| 33 |
|
| 177 | & nbsp; | 32 |
|
| 161 |
| 36 |
| |
PE |
| 175 |
| 38 |
|
| 145 |
| 35 |
|
| 141 |
| 36 |
| |
SoCalGas |
| 176 |
| 38 |
|
| 144 |
| 34 |
|
| |
| 36 | &nb sp; | |
|
|
Sempra Energy Consolidated
Sempra Energy's income tax expense decreased in 2010 due to both lower pretax income and a lower effective income tax rate. The lower rate was primarily due to:
§higher pretax income in countries with lower statutory rates, including a large non-taxable gain related to our share of the RBS Sempra Commodities sale to J.P. Morgan Ventures Energy Corporation on July 1, 2010, discussed below;
§higher investment tax credits;
§higher exclusions from taxable income of the equity portion of AFUDC; and
§lower tax expense in 2010 due to Mexican currency translation and inflation adjustments; offset by
§a $16 million write-down of the deferred tax assets related to other postretirement benefits, as a result of a change in U.S. tax law that eliminates a future deduction, starting in 2013, for retiree healthcare funded by the Medicare Part D subsidy;
§the impact of Otay Mesa VIE, as we discuss below;
§$11 million state income tax expense related to our exit from the RBS Sempra Commodities business;
§lower favorable adjustments related to prior years' income tax issues; and
§an increase in the amount by which book depreciation exceeds normalized tax depreciation, which is not treated as a deferred tax asset for ratemaking purposes.
In 2009, Sempra Energy's income tax expense decreased by $16 million (4%) due to a lower effective income tax rate, offset partially by higher pretax income. The lower rate resulted from:
§higher pretax income in countries with lower statutory rates;
§the impact of Otay Mesa VIE, as we discuss below; and
§higher deductions for self-dev eloped software costs; offset by
§higher income tax expense related to Mexican currency translation and inflation adjustments; and
§the impact of noncontrolling interests, as we discuss below.
The results for Sempra Energy Consolidated and SDG&E include Otay Mesa VIE, which is consolidated, and therefore, Sempra Energy Consolidateds and SDG&E's effective income tax rates are impacted by the VIEs stand-alone effective income tax rate. This impact caused Sempra Energy Consolidateds rate to increase (decrease) 1% in 2010, (1)% in 2009 and 1% in 2008 and SDG&E's rate to increase (decrease) 1% in 2010, (2)% in 2009 and 4% in 2008.
I n 2009, Sempra Energy recorded an income tax benefit of $35 million from the write-off of assets at Liberty, which we discuss in Note 1 of the Notes to Consolidated Financial Statements. This tax benefit was due to a non-recurring event in 2009.
We report as part of our pretax results the income or loss attributable to noncontrolling interests. However, we do not record income taxes for this income or loss, as our entities with noncontrolling interests are currently treated as partnerships for income tax purposes and thus we are only liable for income taxes on the portion of the earnings that are allocated to us.
As our entities with noncontrolling interests grow, and as we may continue to invest in such entities, the impact on our effective income tax rate may become more significant.
In 2010, the effective income tax rate was low primarily due to the following related to RBS Sempra Commodities:
§approximately $150 million of a total $175 million non-U.S. gain on sale of the businesses and assets within the joint venture is a non-taxable, one-time event; and
§approximately $40 million non-U.S. earnings from the operations of the joint venture and approximately $25 million of the non-U.S. gain on sale of the businesses and assets within the joint venture, as discussed above, are net of income tax paid by the partnership.
The net-of-tax equity earnings from RBS Sempra Commodities in Sempra Energys pretax income were approximately $25 million in 2008 and approximately $68 million in 2009. In future years, due to the sale of substantially all of the businesses and assets of the joint venture in 2010, we do not expect to have equity earnings net of income tax reflected in our pretax income. The two items above, along with lower pretax income from the $480 million impairment of the U.S. portion of our investment in the joint venture, resulted in the lower overall effective tax rate.
In 2011, we anticipate that our effective tax rate will increase approximately 15% because of projected higher pretax income and because we are not currently anticipating any similar one-time events. In the years 2012 through 2014, we are currently projecting that our effective income tax rate will be between 2% higher and 6% lower than the anticipated 2011 effective income tax rate. This fluctuation in effective income tax rates is due to: projected increasing pretax income; a decrease in favorable tax deductions for self-developed software costs; an increase in the amount by which book depreciation exceeds normalized tax depreciation; and lower exclusions from income for the equity portion of AFUDC; offset by tax incentives from renewable energy projects.
SDG&E
SDG&E's income tax expense decreased in 2010 primarily from lower pretax income, partially offset by a higher effective income tax rate resulting primarily from:
§the impact of Otay Mesa VIE, as we discuss above;
§a $3 million write-down of the deferred tax assets related to other postretirement benefits as a result of a change in U.S. tax law, as we discuss above;
§an increase in the a mount by which book depreciation exceeds normalized tax depreciation, which is not treated as a deferred tax asset for ratemaking purposes; and
§lower deductions for self-developed software costs; offset by
§higher exclusions from taxable income of the equity portion of AFUDC; and
§higher favorable adjustments related to prior years income tax issues.
In 2009, SDG&E's income tax expense increased by $16 million (10%) due to higher pretax income, offset partially by a lower effective income tax rate. The lower effective tax rate was primarily due to:
§the impact of Otay Mesa VIE, as we discuss above; offset by
§lower favorable impact from the resolution of prior years' income tax issues.
We are currently projecting that SDG&Es effective income tax rate will increase between 2% and 7% over the next five years. A projected rise in pretax income, combined with a decrease in favorable income tax deductions for self-developed software costs, an increase in the amount by which book depreciation exceeds normalized tax depreciation, and lower exclusions from income for the equity portion of AFUDC, will likely cause SDG&Es effective tax rate to increase. The decreases in deductions for self-developed software costs and income exclusions for AFUDC are expected to result from the projected completion of the Sunrise Powerlink transmission line and the completion of SDG&Es advanced meters project.
PE and SoCalGas
Income tax expense increased in 2010 at PE and SoCalGas primarily due to higher pretax income, as well as higher effective income tax rates primarily due to a $13 million write-down of the deferred tax assets related to other postretirement benefits as a result of a change in U.S. tax law, as we discuss above.
In 2009, PE's and SoCalGas' income tax expense increases were due to higher pretax income, offset primarily by larger deductions for self-developed software costs.
In 2010, the effective income tax rate of SoCalGas was higher due to a one-time event, which was the $13 million write-down of the deferred tax assets related to other postretiremen t benefits as a result of a change in U.S. tax law. In 2011, we are not currently anticipating any similar one-time events, and thus, we currently project that our effective income tax rate will decline by approximately 2%. From 2012 through 2015, we are currently projecting that SoCalGas effective income tax rate will increase between 3% and 7% compared to the anticipated lower 2011 effective income tax rate. SoCalGas expects that a rise in pretax income, combined with a decrease in favorable income tax deductions for self-developed software costs and an increase in the amount by which book depreciation exceeds normalized tax depreciation, will cause the effective income tax rate to increase.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) was sig ned into law. The 2010 Tax Act included the extension of bonus depreciation for U.S. federal income tax purposes for years 2010 through 2012 and an increase in the rate of bonus depreciation from 50 percent to 100 percent. This increased rate only applies to certain investments made after September 8, 2010 through December 31, 2011. Due to the extension of bonus depreciation, we are currently projecting that Sempra Energy will generate large U.S. federal income net operating losses (NOLs) in 2011 and 2012, which we currently project will not be fully utilized until 2014. Because of these projected NOLs, Sempra Energy expects no U.S. federal income tax payments in years 2011 through 2013. However, because bonus depreciation only creates a temporary difference, versus a permanent difference, between Sempra Energys U.S. federal income tax return and its U.S. GAAP (accounting principles generally accepted in the United States of America) financial statements, it does not impact Semp ra Energys effective income tax rate. We expect larger U.S. federal income tax payments in the future as these temporary differences reverse.
Bonus depreciation, in addition to impacting Sempra Energys U.S. federal income tax payments in 2011 through 2013, will also have a temporary impact on Sempra Energys ability to utilize its U.S. federal income tax credits, which primarily are investment tax credits and production tax credits generated by Sempra Energys current and future renewable energy investments. However, based on current projections, Sempra Energy does not expect, based on a more-likely-than-not criteria required under U.S. GAAP, any of these income tax credits to expire prior to the end of their 20-year carryforward period, as allowed under current U.S. federal income tax law.
We also expect the bonus depreciation to reduce SDG&Es and SoCalGas 6; rate base, which will impact their 2012 GRC requests for authorized revenue requirement for the 2013 to 2015 period, as we discuss in Note 15 of the Notes to Consolidated Financial Statements.
Additionally, the 2010 Tax Act extended for years 2010 and 2011 the U.S. federal income tax law known as the look-through rule. This rule allows, under certain situations, for certain non-operating activity (e.g., dividend income, royalty income, interest income, rental income, etc.), of a greater than 50-percent owned non-U.S. subsidiary, to not be taxed under U.S. federal income tax law. If this rule is not extended beyond 2011, Sempra Energys effective income tax rate could potentially increase in subsequent years.
Equity Earnings, Net of Income Tax
Sempra Energy Consolidated
Equity ea rnings of unconsolidated subsidiaries, net of income tax, were
§$49 million in 2010
§$68 million in 2009
§$63 million in 2008
Equity earnings, net of income tax, which are primarily earnings from Sempra Pipelines & Storages equity method investments, decreased in 2010 primarily due to:
§a $44 million pretax write-down of its investment in Argentina; offset by
§$13 million higher earnings from investments in Chile and Peru.
(Earnings) Losses Attributable to Noncontrolling Interests
Sempra Energy Consolidated
Losses attributable to noncontrolling interests increased by $9 million in 2010 primarily due to:
§losses attributable to Otay Mesa VIE of $16 million in 2010 compared to earnings of $24 million in 2009, which we discuss below; offset by
§$33 million associated with the write-off of assets at Liberty in 2009.
Losses attributable to noncontrolling interests decreased $48 million in 2009 due to:
§$27 million in gains on interest rate instruments in 2009 at Otay Mesa VIE compared to losses of $54 million in 2008; offset by
§$33 million associated with the write-off of assets at Liberty in 2009.
SDG&E
Losses attributable to noncontrolling interests, all related to Otay Mesa VIE, were $16 million in 2010 compared to earnings of $24 million in 2009. Th e change was primarily due to:
§$34 million in losses on interest rate instruments in 2010 compared to $27 million in gains in 2009; and
§$14 million in interest expense in 2010; offset by
§a $34 million increase in operating income.
Earnings attributable to noncontrolling interests were $24 million in 2009 compared to losses of $54 million in 2008, due primarily to $27 million in gains on interest rate instruments in 2009 at Otay Mesa VIE compared to losses of $54 million in 2008.
Earnings
We summarize variations in overall earnings in "Overall Results of Operations of Sempra Energy and Factors Affecting the Results" above. We discuss variations in earnings by business unit above in "Business Unit Results."
TRANSACTIONS WITH AFFILIATES
We provide information about our related party transactions in Note 1 of the Notes to Consolidated Financial Statements.
BOOK VALUE PER SHARE
Sempra Energy's book value per share on the last day of each year was
§ $37.54 in 2010
§$36.54 in 2009
§$32.75 in 2008
The increases in 2010 and 2009 were primarily the result of comprehensive income exceeding dividends. The increase in 2010 was offset to a large extent by the reduction in common stock shares from a 2010 share repurchase program at an amount per share greater than book value. We discuss the share repurchase program in Note 13 of the Notes to Consolidated Financial Statements.
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
We expect our cash flows from operations to fund a substantial portion of our capital expenditures and dividends. In addition, we may meet our cash requirements through the issuance of short-term and long-term debt and the expected distributions from RBS Sempra Commodities related to proceeds from the transactions to sell certain businesses within the joint venture, as we discuss below.
Significant events in 2010 affecting capital resources, liquidity and cash flows were
§$849 million in distributions received from RBS Sempra Commodities related to the sale of joint venture businesses and assets
§$500 million Sempra Energy common stock repurchase program
§long-term debt issuances at SDG&E ($750 million) and SoCalGas ($300 million)
§Sempra Pipelines & Storages purchase of Mexican pipeline and natural gas infrastructure assets for approximately $300 million
§Sempra Generations $209 million initial investment in Cedar Creek II
167;$905 million Sempra Energy debt retirements
§settlement to resolve energy crisis litigation in 2010, which resulted in a cash payment of $130 million in January 2011
§new four-year, revolving credit facilities at Sempra Energy, Sempra Global and the Sempra Utilities
We discuss these events in more detail later in this section.
Our committed lines of credit provide liquidity and support commercial paper. As we discuss in Note 5 of the Notes to Consolidated Financial Statements, in October 2010, Sempra Energy, Sempra Global and the Sempra Utilities entered into agreements for new credit facilities to replace the previo us three-year revolving credit agreements that were scheduled to expire in 2011. The new agreements have a longer term (four years) and, in light of our exit from the commodities joint venture, a lower total credit commitment by $500 million at Sempra Global. At Sempra Energy and Sempra Global, the new agreements are syndicated broadly among 23 different lenders and at the Sempra Utilities, among 22 different lenders. No single lender has greater than a 7-percent share in any agreement.
The table below shows the amount of available funds at year-end 2010:
AVAILABLE FUNDS AT DECEMBER 31, 2010 | |||||||
(Dollars in millions) | |||||||
|
| Sempra Energy |
|
| |||
|
| Consolidated | SDG&E | PE/SoCalGas | |||
Unrestricted cash and cash equivalents | $ | 912 | $ | 127 | $ | 417 | |
Available unused credit(1) |
| 2,573 |
| 363 |
| 563 | |
(1) | Borrowings on the shared line of credit at SDG&E and SoCalGas, discussed in Note 5, are limited to $600 million for each utility and $800 million in total. SDG&E's available funds reflect variable-rate demand notes of $237 million supported by the line. SoCalGas' availability reflects the impact of SDG&E's use of the combined credit available on the line. |
Sempra Energy Consolidated
We believe that these available funds and cash flows from operations, distributions from equity method investments and security issuances, combined with current cash balances, will be adequate to:
§finance capital expenditures
§meet liquidity requirements
§fund shareholder dividends
§fund new business acquisitions or start-ups
In 2010, we and RBS completed three transactions that substantially completed the divestiture of the principal businesses and assets of RBS Sempra Commodities. In July 2010, RBS Sempra Commodities sold its global metals and oil businesses, as well as the European natural gas and power business. Our share of the proceeds from this transaction approximated $1 billion, including a $134 million distribution of 2009 partnership earnings related to the businesses sold. In November 2010, RBS Sempra Commodities sold its U.S. retail commodity marketing business for $318 million in cash, plus assumption of all debt, to Noble Group Ltd. In December 2010, the join t venture sold most of its remaining assets to J.P. Morgan Ventures Energy Corporation (J.P. Morgan Ventures), a unit of JP Morgan. In February 2011, the partnerships remaining trading systems and certain residual assets were sold to Société Générale.
We expect our share of the proceeds from the sales of all of the partnerships businesses and related cash distributions to total $1.8 billion to $1.9 billion. This includes approximately $1.3 billion from the completed transactions, plus $500 million to $600 million consisting primarily of cash and accounts receivable, as well as net margin that is expected to be collected as customers are transferred to JP Morgan. The transfer of all accounts to JP Morgan will be done as promptly as practicable in 2011. We used $500 million of the proceeds in 2010 to repurchase shares of Sempra Energy common stock under a Collared Accelerated Share Acquisition Program, which beg an in September 2010. We discuss the share repurchase program in Note 13 of the Notes to Consolidated Financial Statements.
Both SDG&E and SoCalGas issued long-term debt in 2010 and both Sempra Energy and SDG&E issued long-term debt in 2009. Changing economic conditions could affect the availability and cost of both short-term and long-term financing. If cash flows from operations were to be significantly reduced or we were to be unable to borrow under acceptable terms, we would reduce or postpone discretionary capital expenditures and investments in new businesses. If these measures were necessary, they would primarily impact our Sempra Global businesses, as credit availability for the Sempra Utilities has not been significantly impacted by the credit crisis. Discretionary expenditures at Sempra Global include projects that we have not yet made firm commitments to build, primarily renewable generation facilities. We continuously monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our intention to maintain strong, investment-grade credit ratings and capital structure.
In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law. We discuss the potential and expected impacts of the law on our cash flows in Results of OperationsChanges in Revenues, Costs and EarningsIncome Taxes above.
We have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits, and nuclear decommissioning. The value of the trust funds investments declined in 2008 and the first quarter of 2009 due to a decrease in the equity market and volatility in the fixed income market. Values increased from favorable market activity later in 2009 and in 2010. However, these markets continue to be volatile. The changes in asset values have not affected the funds abilities to make required payments, but may impact funding requirements for pension and other postretirement benefit plans. At the Sempra Utilities, funding requirements are generally recoverable in rates.
On February 18, 2011, our board of directors approved an increase to our quarterly common stock dividend to $0.48 per share ($1.92 annually), an increase of $0.09 per share ($0.36 annually) from $0.39 per share ($1.56 annually) authorized in February 2009. Our target annual dividend payment ratio is 45 percent to 50 percent of earnings.
We discuss our principal credit agreements further in Note 5 of the Notes to Consolidated Financial Statements.
Short-Term Borrowings
The following table shows selected statistics for our commercial paper borrowings for 2010:
COMMERCIAL PAPER STATISTICS |
|
| |
(Dollars in millions) |
|
| |
| Commercial Paper | ||
Sempra Energy Consolidated |
|
| |
| Amount outstanding at December 31, 2010(1) | $ | 958 |
| Weighted average interest rate at Decem ber 31, 2010 |
| 0.46% |
|
|
|
|
| Maximum month-end amount during 2010(2) | $ | &n bsp;1,227 |
|
|
|
|
| Monthly weighted average amount outstanding during 2010 | $ | 730 |
| Month ly weighted average interest rate during 2010 |
| 0.46% |
|
|
|
|
SDG&E |
|
| |
| Amount outstanding at December 31, 2010 | $ | - |
| Weighted average interest rate at December 31, 2010 |
| - |
|
|
|
|
| Maximum month-end amount during 2010(2) | $ | 182 |
|
|
|
|
| Monthly weighted average amount outstanding during 2010 | $ | 33 |
| Monthly weighted average interest rate during 2010 |
| 0.26% |
(1) | Includes $800 million classified as long-term, as we discuss in Note 5 of the Notes to Consolidated Financial Statements. | ||
(2) | The largest amount outstanding a t the end of the last day of any month during 2010. |
Significant cash flows impacting short-term debt levels at Sempra Energy Consolidated during 2010 were a paydown of maturing long-term debt at Parent and Other in March ($500 million), investments by Sempra Pipelines & Storage in April ($300 million), a distribution from RBS Sempra Commodities in July ($690 million), prepayment of $500 million to repurchase shares of Sempra Energy common stock in September, and in the fourth quarter, forecasted cash needs for capital investments and an energy crisis litigation settlement.
Sempra Utilities
SoCalGas expects that cash flows from operations and debt issuances will continue to be adequate to meet utility capital expenditure requirements. Due to the l arge capital investment plan for SDG&E, including the purchase of the El Dorado electric generation facility from Sempra Generation, SDG&E expects that in addition to its cash flows from operations and debt issuances, Sempra Energy will contribute additional capital in 2011 to maintain SDG&Es authorized capital structure. After an extended review period associated with the Sunrise Powerlink project and the resultant delay in initiating construction activities, SDG&E declared and paid a $150 million common dividend to Sempra Energy in the first quarter of 2009. SoCalGas declared and paid a $100 million common dividend to PE and PE paid a corresponding dividend to Sempra Energy in 2010. However, the level of future common dividends from SDG&E and SoCalGas may be reduced or eliminated during periods of increased capital expenditures. The level of future common dividends from PE is dependent upon common dividends paid by SoCalGas. Sempra Energy may from time to time make additional equity contributio ns to SDG&E and SoCalGas to support the Sempra Utilities capital expenditure programs.
Sempra Generation
We expect Sempra Generation to require funds for the development of electric generation facilities, primarily renewable energy projects. Projects at Sempra Generation may be financed through a combination of operating cash flow, project financing, funds from the parent, external borrowings, and partnering in joint ventures. Cash flows from operations at Sempra Generation are expected to decrease upon the expiration of its contract with the DWR in September 2011 due to less favorable pricing on replacement contracts. Also, Sempra Generation may not be able to replace all of the lost revenue.
Some of Sempra Generation's long-term power sale contracts contain collateral requirements, although the DWR contracts do not conta in such requirements. The collateral arrangements require Sempra Generation and/or the counterparty to post cash, guarantees or letters of credit to the other party for exposure in excess of established thresholds. Sempra Generation may be required to provide collateral when market price movements adversely affect the counterparty's cost of replacement energy supplies if Sempra Generation fails to deliver the contracted amounts. Sempra Generation had no outstanding collateral requirements under such contracts at December 31, 2010 or 2009.
Sempra Pipelines & Storage
Sempra Pipelines & Storage is expected to require funding from the parent or from external sources to fund projects and investments, including development and expansion of its natural gas storage projects.
In January 2011, Sempra Pipelines & Storage announced that it will acquire AEIs interests in Chilquinta Energía S.A. (Chilquinta Energía) and Luz del Sur S.A. (Luz del Sur) for approximately $875 million in 2011.Among other closing conditions, the transaction is subject to obtaining required regulatory approvals and resolution of certain tax matters. We expect to fund this transaction with excess funds from foreign operations, proceeds from divestures, and short-term debt.
We provide additional information about Sempra Pipelines & Storages investments in Chilquinta Energía and Luz del Sur in Notes 4 and 19 of the Notes to Consolidated Financial Statements.
Sempra LNG
Sempra LNG required funding from 2007 through 2009 for its development and construction of the Energía Costa Azul and Cameron LNG receipt terminals. As both of these facilitie s are now in service, Sempra LNG is expected to provide operating cash flow for further development within Sempra Global.
Sempra Commodities
In three separate transactions during 2010 and one in early 2011, we and RBS sold substantially all of the businesses and assets of our joint-venture partnership that comprises the Sempra Commodities business unit. As we conclude the transactions to divest the businesses, we expect to recover our remaining $787 million investment in the partnership on a quarterly basis throughout 2011. We are providing transitional back-up guarantees, some of which may continue for a prolonged period of time. RBS or JP Morgan, one of the buyers in the sale transactions, have fully indemnified us for any claims or losses in connection with the related transactions.
We accoun t for our investment in the partnership under the equity method. In 2010, we received cash distributions from the partnership of approximately $1 billion, which includes our share of proceeds from one of the sale transactions, as well as distributions from 2009 partnership operations. In 2009 and 2008, we received cash distributions from partnership operations of $407 million and $85 million, respectively.
We provide additional information about RBS Sempra Commodities and the sales transactions in Notes 3, 4, 5 and 16 of the Notes to Consolidated Financial Statements.
CASH FLOWS FROM OPERATING ACTIVITIES
CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||||||||
(Dollars in millions) | ||||||||||||||
| 2010 | 2010 Change | 2009 | 2009 Change | 2008 | |||||||||
Sempra Energy Consolidated | $ | 2,154 | $ | 279 | 15 | % | $ | 1,875 | $ | 684 | 57 | % | $ | 1,191 |
SDG&E |
| 729 |
| 88 | 14 |
|
| 641 |
| 22 | 4 |
|
| 619 |
PE |
| 727 |
| 294 | 68 |
|
| 433 |
| (140) | (24) |
|
| 573 |
SoCalGas td> |
| 736 |
| 296 | 67 |
|
| 440 |
| (128) | (23) |
|
| 568 |
Sempra Energy Consolidated
Cash provided by operating activities at Sempra Energy increased in 2010 due to:
§$170 million higher net income, adjusted for noncash item s, in 2010 compared to 2009;
§an increase in accounts payable in 2010 compared to a decrease in 2009 due to higher natural gas prices in 2010;
§an accounts receivable decrease in 2010 compared to an increase in 2009; and
§$144 million of restricted funds received from Cox Communications from a wildfire litigation settlement that we describe in Note 16 of the Notes to Consolidated Financial Statements, which is offset by an increase in restricted cash in cash flows from investing activities; offset by
§a decrease in overcollected regulatory balancing accounts in 2010 compared to an increase in 2009, which we discuss for SDG&E and SoCalGas below;
§an increase in inventory in 2010 compared to a decrease in 2009, primarily at Sempra Pipelines & Storage as a result of natural gas optimization activities; and
§$209 million lower distributions of joint venture earnings received from RBS Sempra Commodities in 2010.
Changes in Other Current Assets and Other Current Liabilities in 2010 at both Sempra Energy and SDG&E include $273 million in payments received from our liability insurance and $316 million of settlements paid, related to the SDG&E 2007 wildfire litigation, respectively. We used $34 million of the res tricted cash from the litigation settlement for such payments. We discuss this litigation in Note 16 of the Notes to Consolidated Financial Statements.
Cash provided by operating activities at Sempra Energy increased in 2009 due to:
§a lower decrease in accounts payable ($332 million of the decrease in 2008 relates to Sempra Commodities prior to the formation of the joint venture RBS Sempra Commodities);
§$322 million higher distributions received from RBS Sempra Commodities;
§a decrease in inventory in 2009 compared to an increase in 2008, primarily at SoCalGas; and
§an increase in overcollected regulatory balancing accounts in 2009 compared to a decrease in 2008; offset by
§an accounts receivable increase in 2009 compared to a decrease in 2008, including $132 million at SoCalGas and smaller increases at each of our other businesses; and
§$119 million prepayment of the six remaining installments due under the Continental Forge litigation.
The changes in Other Current Assets and Other Current Liabilities in 2009 at both Sempra Energy and SDG&E include $662 million in payments received from our liability insurance and $652 million of settlements paid related to the SDG&E 2007 wildfire litigation, respectively.
SDG&E
Cash provided by operating activities at SDG&E increased in 2010 due to:
§$68 million higher net income, adjusted for noncash items, in 2010;
§lower income tax payments in 2010; and
§$144 million of restricted funds received from a wildfire litigation settlement, which is offset by an increase in restricted cash in cash flows from investing activities; offset by
§$43 million net settlement payments in 2010 (including $34 million of restricted cash) compared to $10 million net receipts from our liability insurance carriers in 2009 related to the 2007 wildfire litigation (as we discuss above under Sempra Energy Consolidated); and
§a decrease in overcollected regulatory balancing accounts in 2010 compared to an increase in 2009. Over- and undercollected regulatory balancing accounts reflect the difference between customer billings and recorded or CPUC-authorized costs. These differences are required to be balanced over time.
Cash provided by operating activities at SDG&E increased in 2009 primarily due to an increase in overcollected regulatory balancing accounts compared to a decrease in 2008 and $10 million in cash received from l iability insurance, net of settlement payments, related to the 2007 wildfire litigation.
These inflows were offset by higher net income tax payments in 2009 and a lower decrease in inventory. The lower decrease in inventory resulted from SoCalGas assuming procurement responsibility for SDG&Es core natural gas customers effective April 2008. As a result, SDG&E depleted its natural gas inventory at the end of the first quarter 2008. Remaining inventory, comprised primarily of materials and supplies, stayed relatively unchanged in 2009.
PE and SoCalGas
Cash provided by operating activities at PE and SoCalGas increased in 2010 primarily due to changes at SoCalGas, as follows:
§$58 mi llion higher net income, adjusted for noncash items, in 2010 compared to 2009;
§an increase in accounts payable in 2010 compared to a decrease in 2009 primarily due to higher natural gas prices in 2010;
§a decrease in accounts receivable in 2010 compared to an increase in 2009 due to lower other accounts receivable in 2010 related to natural gas storage transactions; and
§decreases in other liabilities of $137 million in 2009, including a $55 million prepayment of remaining installments due under a litigation settlement in 2009; offset by
§a decrease in inventory of $74 million in 2009 due to higher withdrawals from inventory in the fourth quarter of 2009 to supply core customers; and
§a decrease in overcollected regulatory balancing accounts in 2010 compared to an increase in 2009.
Cash provided by operating activities at PE and SoCalGas decreased in 2009 due to changes at SoCalGas, primarily due to the effect on working capital balances of:
§an increase in accounts receivable in 2009 compared to a decrease in 2008. Customer receivables in 2009 were relatively unchanged from 2008, however, other accounts receivable increased in 2009 primarily due to natural gas storage transactions;
§a decrease in accounts payable in 2009 compared to an increase in 2008 due to lower natural gas prices in 2009; and
§a $55 million prepayment of remaining installments due under a litigation settlement; offset by
§a decrease in inventory in 2009 compared to an increase in 2008 due to higher withdrawals from inventory in the fourth quarter of 2009 to supply core customers and unseasonably warm weather in the fourth quarter of 2008 resulting in lower than normal demand for natural gas by core customers.
The table below shows the contributions to pension and other postretirement benefit plans fo r each of the past three years.
CONTRIBUTIONS TO PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS 2008-2010 | |||||||||||||
(Dollars in millions) | |||||||||||||
| Pension Benefits |
| Other Postretirement Benefits | ||||||||||
| 2010 | 2009 | 2008 |
| 2010 | 2009 | 2008 | ||||||
Sempra Energy Consolidated | $ td> | 159 | $ | 185 | $ | 66 |
| $ | 52 | $ | 45 | $ | 40 |
SDG&E |
| 61&nb sp; |
| 58 |
| 38 |
|
| < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> 15 |
| 16 |
| 16 |
PE and SoCalGas |
| 71 |
| 76 |
| 1 |
|
| 35 |
| 28 |
| 22 |
CASH FLOWS FROM INVESTING ACTIVITIES
CASH USED IN INVESTING ACTIVITIES | ||||||||||||||
(Dollars in millions) | ||||||||||||||
| 2010 | 2010 Cha nge | 2009 | 2009 Change | 2008 | |||||||||
Sempra Energy Consolidated | $ | (1,283) | $ | (1,389) | (52) | % | $ p> | (2,672) | $ | 286 | 12 | % | $ | (2,386) |
SDG&E |
| (1,314) |
| 389 | 42 |
|
| (925) |
| (15) | (2) |
|
| (940) |
PE |
| (553) |
| 68 | 14 |
|
| (485) |
| 166 | 52 |
|
| (319) |
SoCalGas |
| (566) |
| 70 | 14 |
|
| (496) |
| 178 | 56 |
|
| (318) |
Sempra Energy Conso lidated
Cash used in investing activities at Sempra Energy decreased in 2010 due to:
§$849 million of distributions received from RBS Sempra Commodities LLP in 2010 related to the sale of joint venture businesses and assets, as we discuss in Notes 3 and 4 of the Notes to Consolidated Financial Statements;
§$560 million lower contributions to Rockies Express, as the $65 million contribution in the first quarter of 2010 was the last required for the construction phase of the project;
§$235 million for Sempra Generations 2009 investment in Fowler Ridge II; and
§$175 million of proceeds received from Sempra Generations 2010 sale of its investment in Elk Hills; offset by
§$144 million increase in restricted cash from funds received from a wildfire litigation settlement; and
§Sempra Pipelines & Storages acquisition of Mexican pipeline and natural gas infrastructure assets for approximately $300 million.
Cash used in investing activities at Sempra Energy increased in 2009 due to:
§$475 million higher inves tments in Rockies Express;
§$235 million invested in Fowler Ridge II;
§$461 million net proceeds in 2008 from the transaction to form the RBS Sempra Commodities joint venture; and
§$61 million lower proceeds from the remarketing of industrial development bonds in 2009; offset by
§$495 million (net of $16 million cash acquired) for the acquisition of EnergySouth in 2008;
§$338 m illion decrease in purchases of industrial development bonds in 2009; and
§$149 million decrease in capital expenditures, primarily due to the completion of Sempra Global projects in 2009.
SDG&E
Cash used in investing activities increased at SDG&E in 2010 primarily due to:
§a $255 million net increase in capital expenditures (a $369 million increase at SDG&E, offset by a decrease of $114 million at Otay Mesa VIE);
§$144 million increase in restricted cash due to funds received from a wildfire litigation settlement; and
§net proceeds of $24 million related to industrial development bonds in 2009; offset by
§$34 million payments of claims related to wildfire litigation using restricted funds received from a wildfire litigation settlement.
Cash used in investing activities at SDG&E decreased slightly in 2009 primarily due to:
§$24 million net proceeds from the remarketing of industrial development bonds in 2009 compared to $24 million net purchases in 2008; and
§ a $20 million decrease in loans to affiliates in 2009 compared to an increase of $33 million in 2008; offset by
§a $71 million net increase in capital expenditures (a $109 million increase at SDG&E and $25 million increase at Orange Grove VIE, offset by a decrease of $63 million at Otay Mesa VIE).
PE and SoCalGas
Cash used in investing activities at PE and SoCalGas increased in 2010, primarily due to a $63 million increase in advances from SoCalGas to Sempra Energy in 2010.
Cash used in investing activities at PE and SoCalGas increased in 2009, primarily due to a $16 million increase in advances from SoCalGas to Sempra Energy compared to a $136 million decrease in 2008.
CAPITAL EXPENDITURES AND INVESTMENTS
The table below shows our expenditures for property, plant and equipment, and for investments. We provide capital expenditure information by segment in Note 17 of the Notes to Consolidated Financial Statements.
SEMPRA ENERGY CONSOLIDATED | |||||
CAPITAL EXPENDITURES AND INVESTMENTS/ACQUISITIONS | |||||
(Dollars in millions) | |||||
| Property, plant and equipment |
| Investments and acquisition of subsidiaries | ||
2010 | $ | 2,062 |
| $ | 611 |
2009 |
| 1,912 |
|
| 939 |
2008 |
| 2,061 |
|
| 2,675& nbsp; |
2007 |
| 2,011 |
|
| 121 |
2006 |
| 1,907 |
|
| 257 |
Sempra Energy Consolidated Capital E xpenditures
We discuss capital expenditures at the Sempra Utilities below.
At Sempra Global, the primary capital expenditures over the last three years were as follows:
Sempra Generation
In 2010, capital expenditures include $123 million for construction of the Copper Mountain Solar facility. Total capital expenditures in 2009 and 2008 were $38 million and $59 million, respectively.
Sempra Pipelines & Storage
In 2010, Sempra Pipelines & Storage increased its operational working natural gas storage capacity by approximately 12 Bcf at Bay Gas Storage Company and the Mississippi Hub storage facility. In 2009, Sempra Pipelines & Storage completed its Cameron Interstate Pipeline project in Louisiana connecting the Cameron LNG receipt terminal with several interstate pipelines. In 2008, Sempra Pipelines & Storage completed its expansion of existing pipelines in Baja California, Mexico and the addition of a spur line to connect Sempra LNGs Energía Costa Azul LNG receipt terminal to an existing Sempra Energy natural gas pipeline in Mexico with interconnections to the U.S. border. Related amounts included in total capital expenditures were
Pipelines: |
Natural gas storage: |
§None in 2010 | §$170 million in 2010 |
§$10 million in 2009 | §$127 million in 2009 |
§$147 million in 2008 | §$34 million in 2008 |
Sempra LNG
Sempra LNGs Energía Costa Azul and Cameron receipt terminals began commercial operations in May 2008 and July 2009, respectively. The nitrogen-injection facility at Energía Costa Azul was placed in service in December 2009. Expenditures for these projects were $17 million in 2010, $207 million in 2009 and $380 million in 2008.
Sempra Energy Consolidated Investments and Acquisitions
In 2010, investments consisted primarily of:
§acquisition of Mexican pipelines and infrastructure assets for approximately $300 million
§$209 million for the initial investment in Cedar Creek II
§$65 million invested in Rockies Express
In 2009, investments consisted primarily of:
§$625 million for Rockies Express and $235 million for Fowler Ridge II
§the purchase of $75 million in industrial development bon ds
In 2008, investments and acquisitions consisted primarily of:
§capital contribution of $1.6 billion to RBS Sempra Commodities and $150 million invested in Rockies Express
§the acquisition of EnergySouth for $495 million (net of $16 million of cash acquired)
§the purchase of $413 million in industrial development bonds
Sempra Energy Consolidated Distributions From Other Investments
Sempra Energys Distributions From Other Investments consist primarily of distributions representing return of investment from equity method and other investments at Sempra Generation and Sempra Pipelines & Storage as follows:
(Dollars in millions) | 2010 | 2009 | 2008 | ||||
Sempra Generation |
|
|
|
|
|
| |
| Fowler Ridge II | $ |
180 | $ | - | $ | - |
|
Cedar Creek II |
| 96 |
| - |
| - |
| Elk Hills |
| 9 |
| - |
| 14 |
|
|
|
|
|
|
|
|
Sempra Pipelines & Storage |
|
|
|
|
|
| |
| Rockies Express |
| 55 |
| 23 |
| 17 |
| South America |
| 31 |
| - |
| - |
|
|
|
|
|
|
|
|
Other |
| - |
| - |
| 3 | |
Total | $ | 371 | $ | 23 | $ | 34 |
The 2010 distributions from Fowler Ridge II and Cedar Creek II were made by the joint ventures upon entering into loans to finance the projects.
Purchase of Bonds Issued by Unconsolidated Affiliate
In November 2009, Sempra Pipelines & Storage purchased $50 million of 2.75-percent bonds issued by Chilquinta Energía S.A., an unconsolidated affiliate, that are adjusted for Chilean inflation. The bonds mature on October 30, 2014. We discuss these bonds in Note 4 of the Notes to Consolidated Financial Statements.
Sempra Utilities Capital Expenditures and Investments
The Sempra Utilities' capital expenditures for property, plant and equipment were
(Dollars in millions) | 2010 | 2009 | 2008 | |||
SDG&E | $ | 1,210 | $ | 955 | $ | 884 |
SoCalGas |
| 503 |
| 480 |
| 454 |
Capital expenditures at the Sempra Utilities in 2010 consis ted primarily of:
SDG&E
§$599 million of improvements to natural gas and electric distribution systems
§$159 million of improvements to electric transmission systems
§$349 million for the Sunrise Powerlink transmission line
§$99 million for electric generation plants and equipment
SoCalGas
§$503 milli on of improvements to natural gas infrastructure
SDG&E also purchased $152 million and $488 million of industrial development bonds in 2009 and 2008, respectively. We discuss these bonds in Note 5 of the Notes to Consolidated Financial Statements.
FUTURE CONSTRUCTION EXPENDITURES AND INVESTMENTS
The amounts and timing of capital expenditures are generally subject to approvals by the CPUC, the FERC and other regulatory bodies. However, in 2011, we expect to make capital expenditures and investments of approximately $3.8 billion, net of transferring Sempra Generations El Dorado facility to SDG&E. These expenditures include
§$2.6 billi on at the Sempra Utilities for capital projects and plant improvements ($1.9 billion at SDG&E and $720 million at SoCalGas)
§$1.4 billion at our other subsidiaries for the acquisition of AEIs interests in Chile and Peru, development of natural gas storage facilities and pipelines, and renewable generation projects
In 2011, the Sempra Utilities expect their capital expenditures to include
§$780 million for additions to SDG&Es natural gas and electric distribution systems, advanced metering infrastructure and electric generation plant and equipment
§
§$220 million for improvements to SDG&Es electric transmission
§$200 million for the transfer of Sempra Generations El Dorado facility to SDG&E
§$720 million at SoCalGas for improvements to distribution and transmission systems and storage facilities, and for advanced metering infrastructure
The Sempra Utilities expect to finance these expenditures and investments with cash flows from operations, cash on hand, debt issuances, and at SDG&E, capital contributed by Sempra En ergy.
Over the next five years, the Sempra Utilities expect to make capital expenditures of:
§$6.6 billion at SDG&E, at an average rate of $1.3 billion per year
§$4.1 billion at SoCalGas, at an average rate of $800 million per year
The expected capital expenditures of $1.4 billion at our other subsidiaries include
Sempra Pipelines & Storage
§approximately $875 million to acquire AEI ;s interests in Chile and Peru
§approximately $100 million to $150 million for capital projects in South America in the second half of 2011
§approximately $100 million to $150 million for development of natural gas storage projects at Bay Gas and Mississippi Hub
Sempra Generation
§approximately $100 million for investment in the first phase (150 MW) of Mesquite Solar, a solar project at our Mesquite Power plant near Arlington, Arizona
§approximately $50 million for investment in the first phase (approximately 150 MW) of Energía Sierra Juarez Wind Farm
Over the next five years, Sempra Energy expects to make aggregate capital expenditures at its other subsidiaries of approximately $5 billion, at an average rate of approximately $1 billion per year.
Capital expenditure amounts include capitalized interest. At the Sempra Utilities, the amounts also include the portion of AFUDC related to debt, but exclude the portion of AFUDC related to equity. We provide further details about AFUDC in Note 1 of the Notes to Consolidated Financial Statements.
Periodically, we review our construction, investment and financing programs and revise them in resp onse to changes in regulation, economic conditions, competition, customer growth, inflation, customer rates, the cost and availability of capital, and environmental requirements. We discuss these considerations in more detail in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements.
Our level of capital expenditures and investments in the next few years may vary substantially and will depend on the cost and availability of financing, regulatory approvals and business opportunities providing desirable rates of return. We intend to finance our capital expenditures in a manner that will maintain our strong investment-grade credit ratings and capital structure.
CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
(Dollars in millions) | ||||||||||||||
| 2010 | 2010 Change | 2009 | 2009 Change | 2008 | |||||||||
Sempra Energy Consolidated | $ | (69) | $ | (645) | (112) | % | $ | 576 | $ | (282) | (33) | % | $< /font> | 858 |
SDG&E |
| 699 |
| 421 | 151 |
|
| 278 |
| 96 | 53 |
|
| 182 |
PE |
| 194 |
| 299 | 2 85 |
|
| (105) |
| 2 | 2 |
|
| (107) |
SoCalGas |
| 198 |
| 299 | 296 |
|
| (101) |
| 2 | 2 |
|
| (103) |
Sempra Energy Consolidated
At Sempra Energy, financing activities used cash in 2010 compared to providing cash in 2009, primarily d ue to:
§$500 million common stock repurchase program in 2010;
§$1 billion lower issuances of debt; and
§$470 million higher debt payments; offset by
§$94 million for the purchase of the remaining 40-percent ownership interest in Mississippi Hub in 2009 (as we discuss in Note 3 of the Notes to Consolidated Financial Statements); and
§$568 million increase in short-term debt in 2010 compared to a $659 million decrease in 2009.
Cash from financing activities in 2009 decreased due to:
§a $659 million decrease in short-term debt in 2009 compared to a $564 million increase in 2008;
§$456 million higher debt payments; and
§$94 million purchase of the remaining 40-percent interest in Mississippi Hub; offset by
§$996 million lower common stock repurchases in 2009;
§a $445 million increase in issuances of debt (including $145 million short-term debt with maturities greater than 90 days); and
§a $55 million increase in common stock issuances.
SDG&E
Cash provided by financing activities in 2010 increased primarily due to:
§$305 million higher issuances of long-term debt; and
§$150 million common dividends paid to Sempra Energy in 2009.
Cash provided by financing activities in 2009 increased due to:
§a $246 million net increase in issuances of long-term debt in 2009 (increases of $299 million at SDG&E and $20 million at Orange Grove VIE, offset by a decrease of $73 million at Otay Mesa VIE); offset by
§$150 million in common dividends paid in 2009.
PE and SoCalGas
Cash provided by financing activities at PE and SoCalGas in 2010 increased primarily due to:
§$300 million issuance of long-term debt at SoCalGas in 2010; and
§$100 million long-term debt payment at SoCalGas in 2009; offset by
§$100 million in common dividends paid in 2010.
Cash used in financing activities at PE and SoCalGas in 2009 stayed relatively constant. Net activity included
§$350 million in common dividends paid in 2008; offset by
§$250 million issuance of long-term debt at SoCalGas in 2008; and
§$100 mil lion long-term debt payment at SoCalGas in 2009.
LONG-TERM DEBT
Long-term balances (including the current portion of long-term debt) at December 31 were
(Dollars in millions) | 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated | $ | 9,329 | $ | 8,033 | $ | 6,954 |
SDG&E |
| 3,498 |
| 2,668 |
| 2,144 |
PE/SoCalGas |
| 1,582 |
| 1,294 |
| 1,370 |
At December 31, 2010, the following information applies to long-term debt, excluding commercial paper classified as long-term:
| Sempra Energy |
|
|
|
| |
(Dollars in millions) | Consolidated | SDG&E | SoCalGas | |||
Weighted average life to maturity, in years< /font> | 14.5 |
| 19.4 |
| 11.8 |
|
Weighted average interest rate | 5.72 | % | 5.07 | % | 4.77 | % |
Issuances of Long-Term Debt
Issuances of long-term debt over the last three years included the following:
(Dollars in millions) |
| Amount |
| Rate |
| Maturing | |
|
|
|
|
| &nbs p; |
|
|
Sempra Energy |
|
|
|
|
|
| |
| Notes, October 2009 | $ | 750 |
| 6.00 | % | 2039 |
| Notes, May 2009 |
| 750 |
| 6.50 |
| 2016 |
| Notes, November 2008 |
| 250 |
| 8.90 |
| 2013 |
| Notes, November 2008 |
| 500 |
| 9.80 |
| 2019 |
| Notes, June 2008 |
| 500 |
| 6.15 |
| 2018 |
|
|
|
|
|
|
|
|
SDG&E(1) |
|
|
|
|
|
| |
| First mortgage bonds, August 2010 |
| 500 |
| 4.50 |
| 2040 |
| First mortgage bonds, May 2010 |
| 250 |
| 5.35 |
| 2040 |
| First mortgage bonds, May 2009 |
| 300 |
| 6.00 |
| 2039 |
|
|
|
|
|
|
|
|
SoCalGas |
|
|
|
|
|
| |
| First mortgage bonds, November 2010 |
| 300 |
| 5.125 |
| 2040 |
| First mortgage bonds, November 2008 |
| 250 |
| 5.50 |
| 2014 |
(1) | In 2009, SDG&E's variable interest entities, Otay Mesa VIE and Orange Grove VIE (from the date of consolidation), had construction loan borrowings of $121 million and $20 million, respectively. Otay Mesa VIE had $193 million of construction loan borrowings in 2008. |
Sempra Energy used the proceeds from its issuances of long-term debt primarily for general corporate purposes, including the repayment of commercial paper and to repay maturing long-term notes.
The Sempra Utilities used the proceeds from their issuances of long-term debt for:
§general working capital purposes;
§to support their electric (at SDG&E) and natural gas (SDG&E and SoCalGas) capital expenditure programs;
§to replenish amounts expended and fund future expenditures for the expansion and improvement of their utility plants; and
§to repay commercial paper at SDG&E.
Payments on Long-Term Debt
Payments on long-term debt in 2010 included
§$500 million of Sempra Energy notes payable at maturity in March 2010
§retirement of $128 million of industrial development bonds related to Sempra Pipelines & Storages Liberty project
Payments on long-term debt in 2009 includ ed
§$300 million of Sempra Energy 4.75-percent notes payable at maturity in May 2009
§$100 million of SoCalGas variable rate first mortgage bonds at maturity in December 2009
In Note 5 of the Notes to Consolidated Financial Statements, we provide information about our lines of credit and additional information about debt activity.
Payments on Notes Payable to Unconsolidated Affiliate
Sempra Pipelines & Storage prepaid $100 million of notes payable due to Chilquinta Energía Finance Co. LLC in November 2009 and paid $60 million of notes payable at maturity in April 2008.
< p style="MARGIN:21pt 35.3pt 6pt 0in">CAPITAL STOCK TRANSACTIONSSempra Energy
Cash provided by employee stock option exercises and newly issued shares for our dividend reinvestment and 401(k) saving plans was
§$40 million in 2010
§$73 million in 2009
§$18 million in 2008
In 2010, we entered into a Collared Accelerated Share Acquisition Program under which we prepaid $50 0 million to repurchase shares of our common stock in a share forward transaction. We received 8.1 million shares under the program during 2010. The remaining shares, up to a maximum of 2.2 million, will be received when the program is completed, which we expect to be in the first quarter of 2011.
In 2008, we repurchased 18.4 million shares of our common stock for $1 billion in share repurchase programs authorized in 2007. We discuss the repurchase programs in Note 13 of the Notes to Consolidated Financial Statements.
DIVIDENDS
Sempra Energy
Sempra Energy paid cash dividends on common stock of:
§$364 million in 2010
§$341 million in 2009
§$339 million in 2008
The increase in 2010 is due to suspension of dividend reinvestment programs in July 2010. The increases in 2009 and 2008 were due to increases in the per-share quarterly dividend from $0.35 in 2008 to $0.39 in 2009. The increase in 2009 was offset by $32 million due to our dividend reinvestment programs related to share-based compensation and retirement programs and $11 million due to the reduction in shares from the share repurchase program in 2008.
On December 7, 2010, Sempra Energy declared a quarterly dividend of $0.39 per share of common stock that was paid on January 15, 2011.
SDG&E paid a $150 million common dividend to Sempra Energy in the first quarter of 2009 after an extended review period associated with the Sunrise Powerlink project delayed the planned construction start. SDG&E did not pay any common dividends to Sempra Energy in 2010 and 2008 to preserve cash to fund its capital expenditures program.
SoCalGas paid dividends to PE and PE paid corresponding dividends to Sempra Energy of:
§$100 million in 2010
§$350 million in 2008
Dividends paid by SoCalGas to PE are eliminated in Sempra Energy's and PEs consolidated financial statements. Dividends paid by PE to Sempra Energy are eliminated in Sempra Energys consolidated financial statements.
The board of directors for each of Sempra Energy, SDG&E, PE and SoCalGas has the discretion to determine the payment and amount of future dividends by each such entity. The CPUC's regulation of SDG&E's and SoCalGas' capital structures limits the amounts that are available for loans and dividends to Sempra Energy. At December 31, 2010, Sempra Energy could have received combined loans and dividends of approximately $28 million from SoCalGas and none from SDG&E.
CAPITALIZATION
TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS | |||||||||||||
(Dollars in millions) | |||||||||||||
|
| As of December 31, 2010 | |||||||||||
|
| Sempra Energy | < /td> |
|
|
|
|
|
|
|
|
| |
|
| Consolidated (1) |
| SDG&E (1) |
| PE |
| SoCalGas |
| ||||
Total capitalization | $ | 18,328 |
| $ | 6,320 |
| $ | 3,998 |
| $ | 3,537 |
| |
Debt-to-capitalization ratio |
| 50 | % |
| 50 | % |
| 40 | % |
| 45 | % | |
(1) | Excludes noncontrolling interests and debt of Otay Mesa Energy Center LLC for Sempra Energy and SDG&E. i> |
Significant changes during 2010 that affected capitalization include the following:
§Sempra Energy Consolidated: comprehensive income exceeding dividends and net increases in long-term debt (including commercial paper classified as long-term)
§SDG&E: comprehensive income and a net increase in long-term debt, partially offset by a net decrease in short-term debt
§PE and SoCalGas: comprehensive income exceeding dividends and a net increase in long-term debt
We provide additional information about the significant changes in Notes 1, 5 and 13 of the Notes to Consolidated Financial Statements.
COMMITMENTS
The following tables summarize principal contractual commitments, primarily long-term, at December 31, 2010 for Sempra Energy, SDG&E and PE/SoCalGas, respectively. We provide additional information about commitments above and in Notes 5, 8 and 16 of the Notes to Consolidated Financial Statements.
PRINCIPAL CONTRACTUAL COMMITMENTS OF SEMPRA ENERGY CONSOLIDATED | |||||||||||
(Dollars in millions) | |||||||||||
|
| 2011 | 2012 and 2013 | 2014 and 2015 | Thereafter | Total | |||||
Long-term debt(1) | $ | 328 | $ | 956 | $ | 678 | $ | 6,365 | $ | 8,327 | |
Interest on long-term debt(2) |
| 470 |
| 907 |
| 796 |
| 4,715 |
| 6,888 | |
Operating leases | p> | 73 |
| 132 |
| 127 |
| 623 |
| 955 | |
Capital leases |
| 17 |
| 24 |
| 10 |
| 170 |
| 221 | |
Purchased-power contracts |
| 312 |
| 504 |
| 398 |
| 1,137 |
| 2,351 | |
Natural gas contracts |
| 705 |
| 479 |
| 270 |
| 271 |
| 1,725 | |
LNG contracts(3) |
| 1,001 |
| 2,111 |
| 1,691 |
| 13,432 |
| 18,235 | |
Construction commitments |
| 445 |
| 105 |
| 24 |
| 106 |
| 680 | |
SONGS decommissioning |
| - |
| - |
| - |
| 492 |
| 492 | |
Other asset retirement obligations |
| 19 |
| |
| 34 |
| 889 |
| 976 | |
Pension and other postretirement benefit |
|
|
|
|
|
|
|
|
|
| |
obligations(4) |
| 341 |
| 585 |
| 494 |
| 790 |
| 2,210 | |
Environmental commitments |
| 17 |
| 12 |
| 3 |
| 12 |
| 44 | |
Other |
| 17 |
| 24 |
| 17 |
| 8 |
| 66 | |
Totals | $ | 3,745 | $ | 5,873 | $ | 4,542 | $ | 29,010 | $ | 43,170 | |
(1) | Excludes $800 million commercial paper classified as long-term, as we discuss in Note 5 of the Notes to Consolidated Financial Statements. | ||||||||||
(2) | We calculate expected interest payments using the stated interest rate for fixed-rate obligations, including floating-to-fixed interest rate swaps. We calculate expected interest payments for variable-r ate obligations, including fixed-to-floating interest rate swaps, based on forward rates in effect at December 31, 2010. | ||||||||||
(3) | Sempra LNG has various LNG purchase agreements with major international companies for the supply of LNG to Sempra LNG's Energía Costa Azul and Cameron receipt terminals. The agreements range from short-term to multi-year periods and are priced using a predetermined formula based on US market indices. The expected payments under the contracts are based on forward prices of the market indices plus an estimated one percent escalation per year. We provide more information about these contracts in Note 16 of the Notes to Consolidated Financial Statements. | ||||||||||
(4) | Amounts are after reduction for the Medicare Part D subsidy and only include expected payments to the plans for the next 10 years. |
PRINCIPAL CONTRACTUAL COMMITMENTS OF SDG&E | |||||||||||
(Dollars in millions) | |||||||||||
|
| 2011 | 2012 and 2013 | 2014 and 2015< /font> | Thereafter | Total | |||||
Long-term debt | $ | 10 | $ | 20 | $ | 414 | $ | 2,861 | $ | 3,305 | |
Interest on long-term debt(1) |
| 167 |
| 341 |
| 330 |
| 2,504 |
| 3,342 | |
Operating leases |
| 18 |
| 34 |
| 32 |
| 55 |
| 139 | |
Capital leases |
| 9 |
| 15 |
| 8 |
| 170 |
| 202 | |
Purchased-power contracts |
| 312 |
| 504 |
| 398 |
| 1,137 |
|
2,351 | |
Construction commitments |
|
| 80 |
| 24 |
| 106 |
| 594 | ||
SONGS decommissioning |
| - |
| - |
| - p> |
| 492 |
| 492 | |
Other asset retirement obligations |
| 4 |
| 8 |
| 7 |
| 112 |
| 131 | |
Pension and other postretirement benefit |
|
|
|
|
|
|
|
|
|
| |
obligations(2) |
| 99 |
| 193 |
| 179 |
| 193 |
| 664 | |
Environmental commitments |
| &n bsp;7 |
| 3 |
| 2 |
| 11 |
| 23 | |
Totals | $ | 1,010 | $ | 1,198 | $ | | $ | 7,641 | $ | 11,243 | |
(1) | SDG&E calculates expected interest payments using the stated interest rate for fixed-rate obligations, including floating-to-fixed interest rate swaps. SDG&E calculates expected interest payments for variable-rate obligations based on forward rates in effect at December 31, 2010. | ||||||||||
(2) | Amounts are after reduction for the Medicare Part D subsidy and only include expected payments to the plans for the next 10 years. |
PRINCIPAL CONTRACTUAL COMMITMENTS OF SOCALGAS | |||||||||||
(Dollars in millions) | |||||||||||
|
| 2011 | 2012 and 2013 | 2014 and 2015 | Thereafter | To tal | |||||
Long-term debt | $ | 250 | $ | 250 | $ | 250 | $ | 813 | $ | 1,563 | |
Interest on long-term debt(1) |
| 70 |
| 124 |
| 91 |
| 703 |
| 988 | |
Natural gas contracts |
| 556 |
| 179 |
| 94 |
| 145 |
| 974 | |
|
| 32 |
| 46 |
| 47 |
| 253 |
|
378 | |
Capital leases |
| 8 |
| 9 | < /td> | 2 |
| - |
| 19 | |
Construction commitments |
| 41 |
| 8 |
| - |
| - |
| 49 | |
Environmental commitments |
| 10 p> |
| 8 |
| 1 |
| 1 |
| 20 | |
Pension and other postretirement benefit |
|
|
|
|
|
|
|
|
|
| |
obligations(2) |
| 171 |
| 319 |
| 262 |
| 494 |
| 1,246 | |
Asset retirement obligations |
| 15 |
| 26 |
| 27 |
| 735 |
| 803 | |
Totals | $ | 1,153 | $ | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 969 | $ | 774 | $ | 3,144 | $ | 6,040 | |
(1) | SoCalGas calculates interest payments using the stated interest rate for fixed-rate obligations. SoCalGas calculates expected interest payments for variable-rate obligations, including fixed-to-floating interest rate swaps, based on forward rates in effect at December 31, 2010. | ||||||||||
(2) | Amounts are after reduction for the Medicare Part D subsidy and only include expected payments to the plans for the next 10 years. |
The tables exclude
§contracts between consolidated affiliates
§intercompany debt
§individual contracts that have annual cash requirements less than $1 million
§employment contracts
The tables also exclude income tax liabilities of
§$60 million for Sempra Energy
§$5 million for SDG&E
§$8 million for SoCalGas
These liabilities relate to uncertain tax positions and were excluded from the tables because we are unable to reasonably estimate the timing of future payments due to uncertainties in the timing of the effective settlement of tax positions.
We provide additional information about unrecognized tax benefits in Note 7 of the Notes to Consolidated Financial S tatements.
OFF BALANCE-SHEET ARRANGEMENTS
Sempra Energy has provided maximum guarantees aggregating $570 million at December 31, 2010 to related parties, including continuing transitional guarantees related to RBS Sempra Commodities. We discuss these guarantees in Notes 5 and 16 of the Notes to Consolidated Financial Statements.
CREDIT RATINGS
The cre dit ratings of Sempra Energy and its principal subsidiaries remained at investment grade levels in 2010. In 2009, Moody's upgraded SDG&E's and SoCalGas' secured debt rating from A1 to Aa3. In January 2010, Fitch downgraded the rating on SDG&E's and SoCalGas' preferred stock from A+ to A and the rating on Pacific Enterprises preferred stock from A to BBB+. In February 2010, Fitch placed Sempra Energy and its rated subsidiaries on rating watch negative; it stated that the rating "is driven by uncertainty regarding the operation and ownership of Sempra Energy's commodity trading and marketing joint venture with The Royal Bank of Scotland." Also in February 2010, Moody's and Standard & Poor's affirmed their ratings and stable outlooks for the companies. In November 2010, Fitch resolved its ratings-watch negative status for the Sempra Energy companies by downgrading the ratings of unsecured debt of Sempra Energy and all its rated subsidiaries by one level to A- for Sempra Energy, A+ for SDG&E and A+ for SoCalGas. Also at that time, Fitch placed the Sempra Energy companies on negative outlook.
Sempra Energy, SDG&E and SoCalGas have committed lines of credit to provide liquidity and to support commercial paper and variable-rate demand notes. Borrowings under these facilities bear interest at benchmark rates plus a margin that varies with market index rates and each borrowers credit rating. Each facility also requires a commitment fee on available unused credit.
If Sempra Energy were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 to 50 basis points, depending on the severity of the downgrade. The commitment fee on available unused credit would also increase 15 to 25 basis points, depending on the severity of the downgrade.
If SDG&E or SoCalGas were to experience a ratings downgrad e from its current level, the rate at which borrowings bear interest would increase by 25 to 75 basis points, depending on the severity of the downgrade. The commitment fee on available unused credit would also increase 2.5 to 22.5 basis points, depending on the severity of the downgrade.
FACTORS INFLUENCING FUTURE PERFORMANCE
SEMPRA ENERGY OVERVIEW
The Sempra Utilities' operations generally provide relatively stable earnings and liquidity. However, for the next few years, SDG&E and SoCalGas intend to limit their common stock dividends to rein vest their earnings in significant capital projects.
Long-term contracts at Sempra Global's businesses generally provide relatively stable earnings and liquidity, but are subject to variability due to fluctuations in commodity prices. Also, Sempra Generation's contract with the DWR, which provides a significant portion of Sempra Generation's revenues, ends in September 2011. Based on current market prices for electricity, contracts it enters into to replace the DWR contract, if obtained, or merchant (daily) sales will provide substantially lower earnings. Sempra Generation is also undertaking and investing in several projects for the construction of renewable generation facilities, with planned in-service dates ranging from late 2010 to 2013.
Sempra Pipelines & Storage is also expected to provide earnings from construction projects when completed and other investments, but will require substantial fu nding for these investments. At Sempra LNG, until there are firm LNG supply or capacity services contracts from third parties that would subscribe to 100 percent of the capacity of Sempra LNG's Cameron receipt terminal, Sempra LNG will seek to purchase short-term LNG supplies and sell short-term capacity, which may result in greater variability in revenues and earnings.
The Sempra Utilities' performance will depend primarily on the ratemaking and regulatory process, environmental regulations, economic conditions, actions by the California legislature to address the state budget crisis and the changing energy marketplace. Their performance will also depend on the successful completion of capital projects that we discuss in various sections of this report. As the 2008 General Rate Case provides for fixed annual increases through 2011 rather than adjustments based on inflation indices as in the past, performance will depend on the Sempra Utilities' ability to manage costs, including bad debts. In the third quarter of 2009, SDG&E's liability insurance premiums increased significantly, by approximately $40 million (pretax) annually, due to the increased costs of wildfire liability coverage as compared to the previous policy year. In the third quarter of 2010, SDG&E secured additional insurance coverage of approximately $560 million, providing SDG&E with maximum loss recovery due to a wildfire incident from insurance carriers of approximately $960 million, with the remainder of Sempra Energy's business units' maximum coverage for a wildfire incident remaining at $400 million, the same as in the previous policy year. As a result of the increase in SDG&E's wildfire liability insurance coverage in the third quarter of 2010, SDG&E's insurance premiums increased by approximately $30 million (pretax) annually for the increased coverage.
In regard to the 2007 wildfire litigation, SDG&E's settlement of claims and the estimate of outstanding claims and legal fees is approximately $1.9 billion, which is in excess of the $1.1 billion of liability insurance coverage and the $444 million of proceeds received, or to be received, as a result of the settlement with Cox Communications. However, SDG&E has concluded that it is probable that it will be permitted to recover from its utility customers substantially all reasonably incurred costs of resolving wildfire claims in excess of its liability insurance coverage and amounts recovered from other potentially responsible parties. Consequently, Sempra Energy and SDG&E expect no significant earnings impact from the resolution of the remaining wildfire claims. However, SDG&Es cash flow may be adversely affected by timing differences between the resolution of claims and recoveries from other potentially responsible parties and utility customers, which may extend over a number of years. In addition, recovery from customers will require future regulatory actions, and a failure to o btain recovery, or any negative assessment of the likelihood of recovery, would likely have a material adverse effect on Sempra Energy's and SDG&E's cash flows and results of operations.
SDG&E will continue to gather information to evaluate and assess the remaining wildfire claims and the likelihood, amount and timing of related recoveries from other potentially responsible parties and utility customers and will make appropriate adjustments to wildfire reserves and the related regulatory asset as additional information becomes available. We provide additional information concerning these matters in Notes 15 and 16 of the Notes to Consolidated Financial Statements.
SDG&E has a 20-percent ownership interest in San Onofre Nuclear Generating Station (SONGS), a 2,150-MW nuclear generating facility near San Clemente, California. SONGS is operated by Southern California Edison (SCE) and is subject to the jur isdiction of the Nuclear Regulatory Commission (NRC). SCE is currently addressing a number of regulatory and performance issues at SONGS, and the NRC has required SCE to take actions to provide greater assurance of compliance by SONGS personnel. SCE continues to implement plans and address the identified issues, however a number of these issues remain outstanding. To the extent that these issues persist, the likelihood of further required action by SCE persists, which may result in increased SONGS operating costs and/or adversely impacted operations. Currently, SDG&E is allowed to fully offset its share of SONGS operating costs in revenue. If further action is required, it may result in an increase in SDG&Es Operation and Maintenance Expense, with any increase being fully offset in Operating Revenues Electric or, if electric generation is adversely impacted, require SDG&E to procure additional electricity supply from other sources. We provide more information about SONGS in Notes 6, 14 and 16 of the Notes to Consolidated Financial Statements.
Both SDG&E and SoCalGas have filed their 2012 GRC applications with the CPUC to establish their authorized revenue requirements for the 2012 Test Year and the ratemaking mechanisms to update the authorized revenue on an annual basis over the subsequent three-year (2013-2015) period. Since these applications were filed, Congress passed the 2010 Tax Act which, among other things, included provisions for companies to elect bonus depreciation on certain investments made after September 8, 2010 through December 31, 2012 for federal income tax purposes. The use of bonus depreciation, while reducing cash tax obligations in the near term, results in incremental deferred tax liabilities which reduce both SDG&E's and SoCalGas' rate base upon which authorized revenue requirements are determined. Once the detailed tax provisions are finalized, SDG&E and SoCalGas will determine the amount of incremental deferred tax lia bilities that will be generated. After applying the incremental deferred tax liabilities to each companies rate bases, assuming all other factors in the 2012 GRC application remain the same, it will result in revenue requirements that are less than what the companies have requested in their 2012 GRC applications.
We expect a final CPUC decision in late 2011, with changes in rates to become effective on January 1, 2012. If the CPUC's final decision grants a significantly lower authorized revenue requirement, it could result in an adverse effect to the Sempra Utilities' cash flows and results of operations starting in 2012. We provide more information about the GRC in Note 15 of the Notes to Consolidated Financial Statements.
SDG&E's next CPUC cost of capital proceeding is scheduled to be filed in April 2012 for a 2013 test year. SoCalGas has also requested to file its next CPUC cost of capital pr oceeding on the same schedule as SDG&E. A cost of capital proceeding determines the authorized capital structure, authorized rate of return and authorized rate for recovery of debt service costs on SDG&E's electric distribution and generation assets and on both companies' natural gas transmission and distribution assets. SDG&E's and SoCalGas' current CPUC authorized return on equity (ROE) is 11.10 percent and 10.82 percent, respectively, with an authorized common equity capital structure of 49.00 percent and 48.00 percent, respectively. If the proceedings result in either a reduction in the authorized ROE or in the authorized common equity capital structure, it would have an adverse effect on the respective company's cash flows and results of operations starting in 2013. Also, to the extent that either company's authorized rate for recovery of debt service costs is higher than their actual rate of debt service costs at the time of the cost of capital proceeding, the authorized rate for recovery of debt servi ce costs will be reduced to the actual rate of debt service costs, which would adversely affect the respective company's cash flows and results of operations starting in 2013. We provide more information about the cost of capital proceedings in Note 15 of the Notes to Consolidated Financial Statements.
SDG&E's current FERC formulaic rate methodology will be up for review in 2013, with the new rates effective in September 2013. This proceeding will assess the rate-making methodology and be employed for SDG&E's FERC operations, including a determination of SDG&E's FERC-authorized ROE and recovery of operations and maintenance expenses. If this proceeding results in a reduction from SDG&E's current authorized ROE of 11.35 percent or in an adverse determination for the recovery of operations and maintenance expenses, it would adversely affect SDG&E's cash flows and results of operations.
We discuss additio nal potential and expected impacts of the 2010 Tax Act on our income tax expense, earnings and cash flows in "Results of Operations Changes in Revenues, Costs and Earnings Income Taxes" above.
In 2008, we completed the formation of a partnership, RBS Sempra Commodities, to own and operate our commodities-marketing businesses, which comprised our Sempra Commodities segment. In November 2009, RBS announced its intention to divest its interest in the joint venture following a directive from the European Commission to dispose of certain assets. In three separate transactions in 2010 and one in early 2011, we and RBS sold substantially all of the businesses and assets of the partnership.
We expect our share of the proceeds from the sales of all of the joint venture's businesses and related cash distributions to total $1.8 billion to $1.9 billion, including $1 billion already receiv ed. These distributions are net of expected transition costs and are not expected to fully recover the goodwill included in the carrying value of our investment in the joint venture. Accordingly, in 2010 we recorded an after-tax charge of $139 million to reduce our investment in RBS Sempra Commodities. We provide additional information in Notes 3, 4 and 5 of the Notes to Consolidated Financial Statements.
We may be further impacted by depressed and rapidly changing economic conditions. Moreover, the dollar has fluctuated significantly compared to some foreign currencies, especially in Mexico and South America where we have significant operations. North American natural gas prices, which affect profitability at Sempra Generation and Sempra LNG, are currently significantly below Asian and European prices. These factors could, if they remain unchanged, adversely affect profitability.
We discuss additiona l matters that could affect our future performance in Notes 14 through 16 of the Notes to Consolidated Financial Statements.
FINANCIAL DERIVATIVES REFORMS
In July 2010, federal legislation to reform financial markets was enacted that significantly alters how over-the-counter (OTC) derivatives are regulated, which may impact all of our businesses. The law increased regulatory oversight of OTC energy derivatives, including (1) requiring standardized OTC derivatives to be traded on registered exchanges regulated by the U.S. Commodity Futures Trading Commission (CFTC), (2) imposing new and potentially higher capital and margin requirements and (3) authorizing the establishment of overall volume and position limits. The law gives the CFTC authority to exempt end users of energy commodities which could reduce, but not el iminate, the applicability of these measures to us and other end users. These requirements could cause our OTC transactions to be more costly and have an adverse effect on our liquidity due to additional capital requirements. In addition, as these reforms aim to standardize OTC products, they could limit the effectiveness of our hedging programs, because we would have less ability to tailor OTC derivatives to match the precise risk we are seeking to protect.
LITIGATION
We describe legal proceedings which could adversely affect our future performance in Note 16 of the Notes to Consolidated Financial Statements.
SEMPRA UTILITIES INDUSTRY DEVELOPMENTS AND CAPITAL PROJECTS
We describe capital projects, electric and natural gas regulation and rates, and other pending proceedings and investigations that affect our business in Notes 14 and 15 of the Notes to Consolidated Financial Statements.
SEMPRA GLOBAL INVESTMENTS
As we discuss in "Cash Flows From Investing Activities," our investments will significantly impact our future performance. In addition to the discussion below, we provide information about these investments in "Capital Resources and Liquidity."
Sempra Generation
Copper Mountai n Solar
In December 2010, Sempra Generation completed construction of Copper Mountain Solar, a 48-MW solar plant in Boulder City, Nevada, on land adjacent to the 10-MW El Dorado Energy Solar plant. Pacific Gas and Electric (PG&E) has contracted for all of the output of the plant through January 2031.
Mesquite Solar
Mesquite Solar is a photovoltaic generation facility under development by Sempra Generation in Maricopa County, Arizona. When fully developed, the project will be capable of producing approximately 400 to 700 MW of solar power. Mesquite Solar will connect to the 500-kilovolt Hassayampa switchyard via our existing Mesquite Power natural gas generation plant.
Construction of the first phase (Mesquite Solar I) of 150 MW is expected to begin in 2011 and be completed in 2013. PG&E has contracted, subject to CPUC approval, for all of the output of Mesquite Solar I for 20 years.
Cedar Creek II Wind Farm
In October 2010, Sempra Generation invested $209 million for a 50 percent-ownership interest in Cedar Creek II Wind Farm LLC, a joint venture with BP Wind Energy for the development of a 250-MW wind farm in northern Colorado expected to be operational in mid-2011. Public Service Company of Colorado, an Xcel Energy company, has contracted for all of the power from the facility for 25 years.
Sempra Pipelines & Storage
Natural Gas Storage Projects
Currently, Sempra Pipelines & Storage has 23 Bcf of operational working natural gas storage capacity, including approximately 12 Bcf which became operational in the second half of 2010 at its Mississippi Hub and Bay Gas natural gas storage facilities. We plan to develop as much as 75 Bcf of total storage capacity by 2015.
Sempra Pipelines & Storages natural gas storage facilities and projects include
§Bay Gas Storage Company, a facility located 40 miles north of Mobile, Alabama, that provides underground storage and delivery of natural gas. Sempra Pipelines & Storage owns 91 percent of the project. It is the easternmost salt dome storage facility on the gulf coast, with direct service to the Florida market and markets across the Southeast, Mid-Atlantic and Northeast regions.
§Mississippi Hub storage facility, located 45 miles southeast of Jackson, Mississippi, an underground salt do me natural gas storage project with access to shale basins of East Texas and Louisiana, traditional gulf supplies and LNG, with multiple interconnections to serve the Southeast and Northeast regions.
§Liberty Gas Storage Expansion, a salt cavern project in Cameron Parish, Louisiana. Sempra Pipelines & Storage owns 75 percent of the project and ProLiance Transportation LLC owns the remaining 25 percent. The projects location provides access to several LNG facilities in the area.
Acquisition of Mexican Pipeline and Natural Gas Infrastructure Assets
On April 30, 2010, Sempra Pipelines & Storage completed the acquisition resulting in a purchase of the Mexican pipeline and natural gas infrastructure assets of El Paso Corporation for approximately $300 million. The acqu isition consists of El Paso Corporations wholly owned natural gas pipeline and compression assets in the Mexican border state of Sonora and its 50-percent interest in Gasoductos de Chihuahua, a joint venture with PEMEX, the Mexican state-owned oil company. The joint venture operates two natural gas pipelines and a propane system in northern Mexico.
We discuss the acquisition more fully in Note 3 of the Notes to Consolidated Financial Statements.
Acquisition of AEIs Interests in South America
In January 2011, Sempra Pipelines & Storage announced that it will acquire AEIs interests in Chilquinta Energía and Luz del Sur for approximately $875 million in 2011. Currently, Sempra Pipelines & Storage and AEI each own 50 percent of Chilquinta Energía S.A. in Chile and approximately 38 percent of Luz del Sur in Peru. Upo n completion of this transaction, Sempra Pipelines & Storage will own 100 percent of Chilquinta Energía and approximately 76 percent of Luz del Sur, with the remaining shares of Luz del Sur held by institutional investors and the general public. As part of our acquisition of AEIs interest in Luz del Sur, we are required to launch a tender offer to the minority shareholders of Luz del Sur to purchase their shares at a price as determined by an independent appraiser. As part of the transaction, Sempra Pipelines & Storage also has agreed to acquire AEIs interests in two energy-services companies, Tecnored and Tecsur. Among other closing conditions, the transaction is subject to obtaining regulatory approvals and resolution of certain tax matters.
We provide additional information about Sempra Pipelines & Storages investments in Chilquinta Energía and Luz del Sur in Notes 4 and 19 of the Notes to Consolidated Financial Statements.
MARKET RISK
Market risk is the risk of erosion of our cash flows, earnings, asset values and equity due to adverse changes in market prices, and interest and foreign currency rates.
Risk Policies
Sempra Energy has policies governing its market risk management and trading activities. As required by CPUC and FERC affiliate compliance rules, Sempra Energy and the Sempra Utilities maintain separate and independent risk management committees, organizations and processes for each of the Sempra Utilities and for all non-CPUC regulated affiliates to provide oversight of these activities. The committees consist of senior officers who establish policy, oversee energy risk management act ivities, and monitor the results of trading and other activities to ensure compliance with our stated energy risk management and trading policies. These activities include, but are not limited to, daily monitoring of market positions that create credit, liquidity and market risk. The respective oversight organizations and committees are independent from the energy procurement departments.
Along with other tools, we use Value at Risk (VaR) to measure our exposure to market risk. VaR is an estimate of the potential loss on a position or portfolio of positions over a specified holding period, based on normal market conditions and within a given statistical confidence interval. VaR is calculated independently by the respective risk management oversight organizations. We use historical volatilities and correlations between instruments and positions in our calculations.
The Sempra Utilities use energ y and natural gas derivatives to manage natural gas and energy price risk associated with servicing load requirements. The use of energy and natural gas derivatives is subject to certain limitations imposed by company policy and is in compliance with risk management and trading activity plans that have been filed with and approved by the CPUC. Any costs or gains/losses associated with the use of energy and natural gas derivatives are considered to be commodity costs. Commodity costs are generally passed on to customers as incurred. However, SoCalGas is subject to incentive mechanisms that reward or penalize the utility for commodity costs below or above certain benchmarks.
In 2010 and early 2011, Sempra Energy and RBS completed the divestiture of substantially all of the businesses and assets of RBS Sempra Commodities, their joint venture partnership, in four separate transactions, as we discuss in Note 4 of the Notes to Consolidated Financial Statements. In connection with each of these transactions, the buyers are, subject to certain qualifications, obligated to replace any guarantees that we have issued in connection with the applicable businesses sold with guarantees of their own. During the process of replacing the guarantees, they are obligated to indemnify us in accordance with the applicable transaction documents for any claims or losses in connection with the guarantees that we issued in connection with the businesses sold. With respect to the transaction with Noble Group Ltd. (Noble Group), for those guarantees that Noble Group is not able to replace, we have agreed to allow Noble Group to continue trading under such guarantees until June 1, 2011.
In addition, as a transitional measure, Sempra Energy continues to provide back-up guarantees and credit support for RBS Sempra Commodities, as we discuss above in "Capital Resources and Liquidity" and in Note 5 of the Notes to Consolidated Financial S tatements.
We discuss revenue recognition in Notes 1 and 10 of the Notes to Consolidated Financial Statements and the additional market-risk information regarding derivative instruments in Note 10 of the Notes to Consolidated Financial Statements.
We have exposure to changes in commodity prices, interest rates and foreign currency rates and exposure to counterparty nonperformance. The following discussion of these primary market-risk exposures as of December 31, 2010, includes a discussion of how these exposures are managed.
Commodity Price Risk
Market risk related to physical commodities is created by volatility in the prices and basis of certain commodities. Our various subsidiaries are exposed, in varying degrees, to price risk, primarily to prices in the natural gas and electr icity markets. Our policy is to manage this risk within a framework that considers the unique markets and operating and regulatory environments of each subsidiary.
Sempra Global is generally exposed to commodity price risk indirectly through its LNG, natural gas pipeline and storage, and power generating assets. Sempra Global may utilize commodity transactions in the course of optimizing these assets. These transactions are typically priced based on market indices, but may also include fixed price purchases and sales of commodities. Any residual exposure is monitored as described above.
The Sempra Utilities' market-risk exposure is limited due to CPUC-authorized rate recovery of the costs of commodity purchases, intrastate transportation, and storage activity. However, SoCalGas may, at times, be exposed to market risk as a result of incentive mechanisms that reward or pe nalize the utility for commodity costs below or above certain benchmarks for SoCalGas' Gas Cost Incentive Mechanism, which we discuss in Note 15 of the Notes to Consolidated Financial Statements. If commodity prices were to rise too rapidly, it is likely that volumes would decline. This decline would increase the per-unit fixed costs, which could lead to further volume declines. The Sempra Utilities manage their risk within the parameters of their market risk management framework. As of December 31, 2010, the total VaR of the Sempra Utilities' natural gas and electric positions was not material, and the procurement activities were in compliance with the procurement plans filed with and approved by the CPUC.
Interest Rate Risk
We are exposed to fluctuations i n interest rates primarily as a result of our having issued short- and long-term debt. Subject to regulatory constraints, we periodically enter into interest rate swap agreements to moderate our exposure to interest rate changes and to lower our overall costs of borrowing.
The table below shows the nominal amount and the one-year VaR for long-term debt, excluding commercial paper classified as long-term debt and capital lease obligations, at December 31, 2010 and 2009:
| Sempra Energy |
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| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:center" align=center> | |||||||
| Consolidated |
| SDG&E |
| PE/SoCalGas | |||||||||
| Nominal | One-Year |
| Nominal | One-Year |
| Nominal | One-Year | ||||||
(Dollars in millions) | Debt | VaR(1) |
| Debt < /td> | VaR(1) |
| Debt | VaR(1) | ||||||
At December 31, 2010 |
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Utility fixed-rate | $ | 4,117 | $ | 787 |
| $ | 2,704 | $ | 587 |
| $ | 1,413 | $ | 200 |
Utility variable-rate |
| 751 |
| 59 |
| & nbsp; | 601 |
| 5 9 |
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| 150 |
| - |
Non-utility, fixed-rate and variable-rate |
| 3,459 |
| 509 |
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| - |
| - | < p style="MARGIN:0in 0in 0pt"> |
| - |
| - |
At December 31, 2009 |
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Utility fixed-rate | $ | 3,067 | $ | 369 |
| $ | 1,954 | $ | 273 |
| $ | 1,113 | $ | 97 |
Utility variable-rate |
| 848 |
| 43 |
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| 698 |
| 43 |
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| 150 |
| - |
Non-utility, fixed-rate and variable-rate |
| 4,075 |
| 392 |
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| - |
| - |
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| - |
| - |
(1) After the effects of interest rate swaps. |
At December 31, 2010, the total notional amount of interest rate swap transactions ranged from $215 million to $355 million at Sempra Energy and $285 million to $365 million at SDG&E (ranges relate to amortizing notional amounts). At December 31, 2010, SoCalGas' total notional amount of interest rate swap transactions was $150 million. We provide further information about interest rate swap transactions in Note 10 of the Notes to Consolidated Financial Statements.
We also are subject to the effect of interest rate fluctuations o n the assets of our pension plans, other postretirement benefit plans, and SDG&E's nuclear decommissioning trusts. However, we expect the effects of these fluctuations, as they relate to the Sempra Utilities, to be passed on to customers.
Credit Risk
Credit risk is the risk of loss that would be incurred as a result of nonperformance of our counterparties' contractual obligations. We monitor credit risk through a credit-approval process and the assignment and monitoring of credit limits. We establish these credit limits based on risk and return considerations under terms customarily available in the industry.
As with market risk, we have policies that govern the management of credit risk which are administered by the respective credit departments for each of the Sempra Utilities and, on a combined basis, for all non-CPUC regulated af filiates and overseen by their separate risk management committees.
This oversight includes calculating current and potential credit risk on a daily basis and monitoring actual balances in comparison to approved limits. We avoid concentration of counterparties whenever possible, and we believe our credit policies significantly reduce overall credit risk. These policies include an evaluation of the following:
§prospective counterparties' financial condition (including credit ratings)
§collateral requirements
§the use of standardized agreements that allow for the netting of positi ve and negative exposures associated with a single counterparty
§downgrade triggers
We believe that we have provided adequate reserves for counterparty nonperformance.
As we describe in Note 16 of the Notes to Consolidated Financial Statements, Sempra Generation has a contract with the DWR to supply up to 1,900 MW of power to the state of California over 10 years, which began in 2001 and terminates in September 2011. This contract results in a significant potential nonperformance exposure with a single counterparty; however, this risk has been addressed and mitigated by the liquidated damages provision of the contract.
When they become operational, development projects at Sempra Global rely significantly on the ability of their suppliers to perform on long-term agreements and on our ability to enforce contract terms in the event of nonperformance. Also, the factors that we consider in evaluating a development project include negotiating customer and supplier agreements and, therefore, we rely on these agreements for future performance. We also may base our decision to go forward on development projects on these agreements.
As noted above under "Interest Rate Risk," we periodically enter into interest rate swap agreements to moderate exposure to interest rate changes and to lower the overall cost of borrowing. We would be exposed to interest rate fluctuations on the underlying debt should a counterparty to the swap fail to perform.
Foreign Currency Rate Risk
We have investments in entities whose functional currency is not the U.S. dollar, exposing us t o foreign exchange movements, primarily in Latin American currencies.
The Mexican subsidiaries have U.S. dollar receivables and payables that give rise to foreign exchange movements for accounting principles generally accepted in Mexico and tax purposes. In addition, monetary assets and liabilities are adjusted for inflation for Mexican tax purposes. The fluctuations in foreign currency and inflation are subject to Mexican taxes and expose us to significant fluctuations in tax expense from changes in the exchange and inflation rates in Mexico.
Our primary objective in reducing foreign currency risk is to preserve the economic value of our overseas investments and to reduce earnings volatility that would otherwise occur due to exchange rate fluctuations.
Our net investment in our Latin American operating companies and the resulting cash flows are partially protected against normal exchange rate fluctuations by rate-setting mechanisms that are intended to compensate for local inflation and currency exchange rate fluctuations. In addition, we offset material cross-currency transactions and net income exposure through various means, including financial instruments and short-term investments.
Because we do not hedge our net investment in foreign countries, we are susceptible to volatility in other comprehensive income caused by exchange rate fluctuations.
The hypothetical effects for every one percent appreciation in the U.S. dollar from year-end 2010 levels against the currencies of Latin American countries in which we have operations and investments are as follows:
(Dollars in millions) |
| Hypothet ical Effects | |
| Translation of 2010 earnings to U.S. dollars | $ | - |
| Transactiona l exposures |
| - |
| Translation of net assets of foreign subsidiaries and investments in foreign entities |
| (8) |
Although the balances of monetary assets and liabilities at our Mexican subsidiaries may fluctuate significantly throughout the year, based on long-term debt balances with non-Mexican entities of $535 million at December 31, 2010, the hypothetical effect for Sempra Energy for every one percent increase in the Mexican inflation rate is approximately $2 million of additional income tax expense at our Mexican subsidiaries.
CRIT ICAL ACCOUNTING POLICIES AND ESTIMATES, AND KEY NONCASH PERFORMANCE INDICATORS
Management views certain accounting policies as critical because their application is the most relevant, judgmental, and/or material to our financial position and results of operations, and/or because they require the use of material judgments and estimates.
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements. We discuss choices among alternative accounting policies that are material to our financial statements and information concerning significant estimates with the audit committee of the Sempra Energy board of directors.
CRITICAL ACCOUNTING POLICIES | |||
SEMPRA ENERGY, SDG&E AND SOCALGAS | |||
CONTINGENCIES | |||
Assumptions & Approach Used |
| We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:
§information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events, and §the amount of the loss can be reasonably estimated.
We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events. | |
Effect i
f Different |
| Details of our issues in this area are discussed in Note 16 of the Notes to Consolidated Financial Statements. | |
REGULATORY ACCOUNTING | |||
Assumptions & Approach Used |
| The Sempra Utilities record a regulatory asset if it is probable that, through the ratemaking process, the utility will recover that asset from customers. Similarly, regulatory liabilities are recorded for amounts recovered in rates in advance of the expenditure. The Sempra Utilities review probabilities associated with regulatory balances whenever new events occur, such as:
§changes in the regulatory environment or the utility's competitive position §issuance of a regulatory commission order §passage of new legislation
To the extent that circumstances associated with regulatory balances change, the regulatory balances are adjusted accordingly. | |
Effect if Different |
| Details of the Sempra Utilities' regulatory assets and liabilities are discussed in Note 1 of the Notes to Consolidated Financial Statements. | |
SEMPRA ENERGY, SDG&E AND SOCALGAS (CONTINUED) | ||
INCOME TAXES | ||
Assumptions & Approach Used |
| Our income tax expense and related balance sheet amounts involve significant management estimates and judgments. Amounts of deferred income tax assets and liabilities, as well as current and noncurrent accruals, involve judgments and estimates of the timing and probability of recognition of income and deductions by taxing authorities. When we evaluate the anticipated resolution of income tax issues, we consider
§past resolutions of the same or similar issue §the status of any income tax examination in progress §positions taken by taxing authorities with other taxpayers with similar issues
The likelihood of deferred tax recovery is based on analyses of the deferred tax assets and our expectation of future taxable income, based on our strategic planning. |
Effect if Different |
| Actual income taxes could vary from estimated amounts because of:
§future impacts of various items, including changes in tax laws §our financial condition in future periods §the resolution of various income tax issues between us and taxing authorities
We discuss details of our issues in this area in Note 7 of the Notes to Consolidated Financial Statements. |
Assumptions & Approach Used |
| For an uncertain position to qualify for benefit recogni tion, the position must have at least a "more likely than not" chance of being sustained (based on the positions technical merits) upon challenge by the respective authorities. The term "more likely than not" means a likelihood of more than 50 percent. If we do not have a more likely than not position with respect to a tax position, then we do not recognize any of the potential tax benefit associated with the position. A tax position that meets the "more likely than not" recognition is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon the effective resolution of the tax position. |
Effe
ct if Different |
| Unrecognized tax benefits involve managements judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.
We discuss additional information related to accounting for uncertainty in income taxes in Note 7 of the Notes to Consolidated Financial Statements. |
SEMPRA ENERGY, SDG&E AND SOCALGAS (CONTINUED) | |||
DERIVATIVES | |||
Assumptions & Approach Used |
| We value derivative instruments at fair value on the balance sheet. Depending on the purpose for the contract and the applicability of hedge accounting, the impact of instruments may be offset in earnings, on the balance sheet, or in other comprehensive income. We also use normal purchase or sale accounting for certain contracts. As discussed elsewhere in this repo rt, whenever possible, we use exchange quotations or other third-party pricing to estimate fair values; if no such data is available, we use internally developed models and other techniques. The assumed collectability of derivative assets and receivables considers
§events specific to a given counterparty §the tenor of the transaction §the credit-worthiness of the counterparty | |
Effect if Different |
| The application of hedge accounting to certain derivatives and the normal purchase or sale accounting election is made on a contract-by-contract basis. Using hedge accounting or the normal purchase or sale election in a different manner could materially impact Sempra Energys results of operations. However, such alternatives would not have a significant impact on the Sempra Utilities results of operations because of regulatory accounting principles. We provide details of our financial instruments in Note 10 of the Notes to Consolidated Financial Statements. | |
DEFINED BENEFIT PLANS | |||
Assumptions & Approach Used |
| To measure our pension and postretirement obligations, costs and liabilities, we rely on several assumptions. We consider current market conditions, including interest rates, in making these assumptions. We annually review these assumptions prior to the beginning of each year and update when appropriate.
The critical assumptions used to develop the required estimates include the following key factors:
§discount rate §expected return on plan assets §health-care cost trend rates §mortality rates §rate of compensation increases §payout elections (lump sum or annuity) | |
SEMPRA ENERGY, SDG&E AND SOCALGAS (CONTINUED) | ||
DEFINED BENEFIT PLANS (CONTINUED) | ||
Effect if Different |
| The actuarial assumptions we use may differ materially from actual results due to:
§return on plan assets §changing market and economic conditions §higher or lower withdrawal rates §longer or shorter participant life spans §more or fewer lump sum versus annuity payout elections made by plan participants §retirement rates & nbsp; These differences, other than those related to the Sempra Utilities plans, where rate recovery offsets any effects of the assumptions on earnings, may result in a significant impact to the amount of pension and postretirement benefit expense we record. For the remaining plans, the approximate annual effect on earnings of a 25 basis point increase or decrease in the assumed discount rate would be $1 million and the effect of a 25 basis point increase or decrease in the assumed rate of return on plan assets would be less than $1 million.
We provide additional information, including the impact of increases and decreases in the health-care cost trend rate, in Note 8 of the Notes to Consolidated Financial Statements. |
SEMPRA ENERGY AND SDG&E | |||
ASSET RETIREMENT OBLIGATIONS | |||
Assumptions & Approach Used |
| SDG&Es legal asset retirement obligations (AROs) related to the decommissioning of SONGS are recorded at fair value based on a site specific study performed every three years. The fair value of the obligations includes:
§estimated decommissioning costs, including labor, equipment, material and other disposal costs §inflation adjustment applied to estimated cash flows §discount rate based on a credit-adjusted risk-free rate §expected date of decommissioning | |
Effect if Different |
| Changes in these factors could materially affect the obligation recorded to reflect the ultimate cost associated with retiring the assets. For example, if the discount rate increased by 100 basis points, this would decrease the balance for the ARO by 16 percent. Conversely, a decrease in the discount rate by 100 basis points would increase the ARO by approximately 21 percent. However, due to regulatory recovery of SDG&Es nuclear decommissioning expense, rate-making accounting treatment is applied to SDG&Es nuclear decommissioning activities, so they have no impact on SDG&Es reported earnings.
We provide additional detail in Note 6 of the Notes to the Consolidated Financial Statements. | |
SEMPRA ENERGY | |||
IMPAIRMENT TESTING OF LONG-LIVED ASSETS | |||
Assumptions & Approach Used |
| Whenever events or changes in circums tances indicate that an asset's carrying amount may not be recoverable, we consider if the estimated future undiscounted cash flows are less than the carrying amount of the assets. If so, we estimate the fair value of these assets to determine the extent to which cost exceeds fair value. For these estimates, we may consider data from multiple valuation methods, including data from market participants. We exercise judgment to estimate the future cash flows and the useful lives of long-lived assets and to determine our intent to use the assets. Our intent to use or dispose of assets is subject to re-evaluation and can change over time. | |
Effect if Different |
| If an impairment test is required, the fair value of long-lived assets can vary if differing estimates and assumptions are used in the applied valuation techniques. We discuss impairment of long-lived assets in Note 1 of the Notes to Consolidated Financial Statements. | |
CARRYING VALUE OF EQUITY METHOD INVESTMENTS | |||
Assumptions & Approach Used |
| We generally account for investments under the equity method when we have an ownership interest of 20 to 50 percent. The premium, or excess cost over the underlying carrying value of net assets, is referred to as equity method goodwill, which is included in the impairment testing of the equity method investment.
We consider whether the fair value of each equity investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. To help evaluate whether a decline in fair value below cost has occurred and if the decline is other than temporary, we may develop fair value estimates for the investment. Our fair value estimates are developed from the perspective of a knowledgeable market participant. In the absence of observable transactions in the marketplace for similar investments, we consider an income-based approach such as discounted cash flow analysis or, with less weighting, the replacement cost of the underlying net assets. A discounted cash flow analysis may be based directly on anticipated future distributions from the investment, or may be performed based on free cash flows generated within the entity and adjusted for our ownership share total. When calculating estimates of fair or realizable values, we also consider whether we intend to hold or sell the investment. For certain held in vestments, critical assumptions include
§the prospects for utilities in South America §the appropriate risk-adjusted discount rate §the availability and costs of natural gas §competing fuels (primarily propane) and electricity
For investments that we hold for sale, such as our Argentine investments, or investments that are substantially sold, such as RBS Sempra Commodities, we consider comparable sales values or executed sales transactions in our estimates of fair value. | |
Effect if Different |
| The risk assumptions applied by other market participants to value the investments could vary significantly or the appropriate approaches could be weighted differently. These differences could impact whether or not the fair value of the investment is less than its cost, and if so, whether that condition is other than temporary. This could result in an impairment charge or a different amount of impair ment charge, and, in cases where an impairment charge has been recorded, additional loss or gain upon sale.
We provide additional details in Note 4 of the Notes to Consolidated Financial Statements. | |
KEY NONCASH PERFORMANCE INDICATORS
A discussion of key noncash performance indicators related to each business unit follows:
Key noncash performance indicators include number of customers, and natural gas volumes and electricity sold. Additional noncash performance indicators include goals related to safety, customer service, customer reputation, environmental considerations, on-time and on-budget completion of major projects and initiatives, and in the case of SDG&E, electric reliability. We discuss natural gas volumes and electricity sold in "Results of Operations Changes in Revenues, Costs and Earnings" above.
Sempra Generation
Key noncash performance indicators include plant availability factors at the generating plants. For competitive reasons, Sempra Generation does not disclose its plant availability factors. Additional noncash performance indicators include goals related to safety, environmental considerations, a nd compliance with reliability standards.
Sempra Pipelines & Storage
Key noncash performance indicators for Sempra Pipelines & Storage's consolidated operations include natural gas sales volume, facility availability, capacity utilization, and for some distribution operations, customer count. We discuss these above in "Our Business" and "Factors Influencing Future Performance." Additional noncash performance indicators include goals related to safety, environmental considerations, and regulatory compliance.
Sempra LNG
Key noncash performance indicators include plant availability and capacity utilization. We discuss these above in "Our Business" and "Factors Influencing Future Performance." Additional noncash performance indicators include goals related to safety, envir onmental considerations, regulatory compliance, and on-time and on-budget completion of development projects.
Sempra Commodities
Prior to the sale of our commodities-marketing businesses to RBS Sempra Commodities as discussed in Note 3, Sempra Commodities did not use noncash performance factors. Its key indicators were profit margins by product line and by geographic area.
NEW ACCOUNTING STANDARDS
We discuss the relevant pronouncements that have recently become effective and have had or may have a significant effect on our financial statements in Note 2 of the Notes to Consolidated Financial Statements.
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 Ut ilities Commission, the California State Legislature, the California Department of Water Resources, the Federal Energy Regulatory Commission, the Federal Reserve Board, and other regulatory and governmental 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.
COMMON STOCK DATA
SEMPRA ENERGY COMMON STOCK
Our common stock is traded on the New York Stock Exchange. At February 22, 2011, there were 39,600 record holders of our common stock.
The following table shows Sempra Energy quarterly common stock data:
| First | Second | Third | Fourth | ||||
| Quarter | Quarter | Quarter | Quarter | ||||
2010 |
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High | $ | 56.61 | $ | 51.43 | $ | 54.32 | $ | 54.45 |
Low | $ | 47.55 | 43.91 | $ | 46.25 | $ | 49.49 | |
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2009 |
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Market pr ice |
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High | $ | 46.96 | $ | 50.90 | $ | 53.00 | $ | 57.18 |
Low | $ | 36.43 | $ | 43.94 | $ | 46.84 | $ | 48.90 |
We declared dividends of $0.39 per share in each quarter of 2010 and 2009. |
PE, SOCALGAS AND SDG&E COMMON STOCK
Sempra Energy owns all of PE's issued and outstanding common stock. PE owns all of the common stock of SoCalGas. Enova Corporation, a wholly owned subsidiary of Sempra Energy, owns all of SDG&Es issued and outstanding common stock.
Information concerning dividend declarations for PE, SoCalGas and SDG&E is included in each of their "Statements of Consolidated Comprehensive Income and Changes in Equity" set forth in the Consolidated Financial Statements.
DIVIDEND RESTRICTIONS
The payment and the amount of future dividends for Sempra Energy, SDG&E, PE, and SoCalGas are within the discretion of their boards of directors. The CPUCs regulation of the Sempra Utilities capital stru ctures limits the amounts that the Sempra Utilities can pay us in the form of loans and dividends. We discuss these matters in Managements Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and Liquidity in the Overview Sempra Utilities and Dividends sections.
PERFORMANCE GRAPH -- COMPARATIVE TOTAL S HAREHOLDER RETURNS
The following graph (Figure 2) compares the percentage change in the cumulative total shareholder return on Sempra Energy common stock for the five-year period ending December 31, 2010, with the performance over the same period of the Standard & Poor's (S&P) 500 Index and the Standard & Poor's 500 Utilities Index.
These returns were calculated assuming an initial investment of $100 in our common stock, the S&P 500 Index and the S&P 500 Utilities Index on December 31, 2005, and the reinvestment of all dividends.
Figure 2: Comparison of Cumulative Five-Year Total Return
FIVE-YEAR SUMMARIES
The following tables present selected financial data of Sempra Energy, SDG&E, PE and SoCalGas for the five years ended December 31, 2010. The data is derived from the audited consolidated financial statements of each company. You should read this information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes contained in this Annual Report.
F IVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA FOR SEMPRA ENERGY | |||||||||||||||
(In millions, except for per share amounts) | |||||||||||||||
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At December 31 or for the years then ended | ||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||
Sempra Energy Consolidated |
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Sempra Utilities: |
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|
|
|
|
|
|
|
|
|
|
Natural gas | $ | 4,291 |
| $ | 3,801 |
| $ | 5,419 |
| $ | 4,869 |
| $ | 4,763 |
|
Electric |
| 2,528 |
|
| 2,419 |
|
| 2,553 |
|
| 2,184 |
|
| 2,136 |
|
Sempra Global and parent |
| 2,184 |
|
| 1,886 |
|
| 2,786 |
|
| 4,385 |
|
| 4,862 |
|
Total revenues | $ | 9,003 |
| $ | 8,106 |
| $ | 10,758 |
| $ | 11,438 |
| $ | 11,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 733 |
| $ | 1,122 |
| $ | 1,068 |
| $ | 1,118 |
| $ | 1,101 |
|
Losses from continuing operations attributable |
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|
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|
|
|
|
|
|
|
|
|
|
to noncontrolling interests |
| 16 |
|
| 7 |
|
| 55 |
|
| 17 |
|
| - |
|
Preferred dividends of subsidiaries |
| (10) |
|
| (10) |
|
| (10) |
|
| (10) |
|
| (10) |
|
Income from continuing operations attributable |
|
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|
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|
|
|
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|
|
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to common shares | $ | 739 |
| $ | 1,119 < /p> |
| $ | &nb sp;1,113 |
| $ | 1,125 |
| $ | 1,091 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 733 |
| $ | 1,122 |
| $ | 1,068 |
| $ | 1,092 |
| $ | 1,416 |
|
Earnings attributable to common shares | $ | 739 |
| $ | 1,119 |
| $ | 1,113 |
| $ | 1,099 |
| $ | 1,406 |
|
Attributable to common shares: |
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Income from continuing operations : |
|
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|
| &nb sp; |
|
|
|
|
Basic | $ | 3.02 |
| $ | 4.60 |
| $ | 4.50 |
| $ | 4.34 |
| $ | 4.25 |
|
Diluted | $ | 2.98 |
| $ | 4.52 |
| $ | 4.43 |
| $ | 4.26 |
| $ | 4.17 |
|
  ; Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 3.02 |
| $ | 4.60 |
| $ |
4.50 |
| $ | 4.24 |
| $ | 5.48 |
|
Diluted | $ | 2.98 |
| $ | 4.52 |
| $ | 4.43 |
| $ | 4.16 |
| $ | 5.38 |
|
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|
|
|
|
|
|
|
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|
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|
|
|
Dividends declared per common share | $ | 1.56 |
| $ | 1.56 |
| $ |   ;1.37 |
| $ | 1.24 td> |
| $ | 1.20 |
|
Return on common equity |
| 8.2 | % |
| 13.2 | % |
| 13.6 | % |
| 13.9 | % |
|
20.6 | % |
Effective income tax rate |
| 13 | % |
| 29 | % |
| 30 | % |
| 34 | % |
| 33 | % |
Price range of common shares: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
High | $ | 56.61 |
| $ | 57.18 |
| $ | 63.00 |
| $ | 66.38 |
| $ | 57.35 |
|
Low | $ | 43.91 |
| $ | 36.43 |
| $ | 34.29 |
| $ | 50.95 |
| < font style="FONT-SIZE:8pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'">$ | 42.90 |
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| & nbsp; |
Weighted average rate base: |
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SoCalGas | $ | 2,860 |
| $ | 2,758 |
| $ | 2,702 |
| $ | 2,642 |
| $ | 2,477 |
|
SDG&E | $ | 4,697 |
| $ | 4,362 |
| $ | 4,050 |
| $ | 3,846 |
| $ | 3,474 |
|
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AT DECEMBER 31 |
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|
|
|
Current assets | $ | 3,353 |
| $ | 2,295 |
| $ | 2,476 |
| $ | 9,964 |
| $ | 10,766 |
|
Total assets | $ | 30,283 |
| $ | 28,512 |
| $ | 26, 400 |
| $ | 28,717 td> |
| $ | 27,699 |
|
Current liabilities | $ | 3,786 |
| $ | 3,888 |
| $ | 3,612 |
| $ | 9,020 |
| $ | 9,099 |
|
Long-term debt (excludes current portion) | $ | 8,980 |
| $ | 7,460 |
| $ | 6,544 |
| $ | 4,553 |
| $ | 4,525 |
|
Short-term debt(1) | $ | 507 |
| $ | 1,191 |
| $ | 913 |
| $ | 1,071 |
| $ | 933 |
|
Contingently redeemable preferred stock of subsidiary | $ | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 79 |
| $ | 79 |
| $ | 79 |
| $ | 79 |
| $ | 79 |
|
Sempra Energy shareholders' equity | $ | 9,027 |
| $ | 9,007 |
| $ | 7,969 |
| $ | 8,339 |
| $ | 7,511 |
|
Common shares outstanding |
| 240.4 |
|
| 246.5 |
|
| 243.3 |
|
| 261.2 |
|
| 262.0 |
|
Book value per share | $ | 37.54 |
| $ | 36.54 |
| $ | 32.75 |
| $ | 31.93 |
| $ | 28.67 |
|
(1) Includes long-term debt due within one year. |
We discuss the impact of natural gas prices on revenues in 2010 and 2009 and the change in our effective income tax rate in 2010 in Changes in Revenues, Costs and Earnings in Managements Discussion and Analysis of Financial Condition and Results of Operations.
On April 1, 2008, we sold our commodities-marketing businesses into a joint venture, and began accounting for these businesses under the equity method. In 2010 and early 2011, we and RBS sold substantially all of the businesses and assets of the joint venture. We discuss these transactions further in Notes 3 and 4 of the Notes to Consolidated Financial Statements.
We discuss litigation and other contingencies in Note 16 of the Notes to Consolidated Financial Statements.
Net Income and Earnings Attributable to Common Shares in 2007 and 2006 include $(26) million and $315 million in after-tax (loss) income, respectively, from discontinued operations, primarily due to asset sales.
FIVE-YEAR SUMMARIES OF SELECTED FINANCIAL DATA FOR SDG&E, PE AND SOCALGAS | ||||||||||
(Dollars in millions) | ||||||||||
| At December 31 or for the years then ended | |||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | |||||
SDG&E |
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
Operating revenues | $ | 3,049 | $ | 2,916 |
$ | 3,251 | $ | 2,852 | $ | 2,785 |
Operating income |
| 657 |
| 589 |
| 570 |
| 500 |
| 477 |
Dividends on preferred stoc k |
| 5 |
| 5 |
| 5 |
| 5 |
| 5 |
Earnings attributable to common shares |
| 369 |
| 344 |
| 339 |
| 283 |
| 237 |
|
|
| p> |
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 12,077 | $ | 10,229 | $ | 9,079 | $ | 8,499 | $ | 7,794 |
Long-term debt (excludes current portion) |
| 3,479 |
| 2,623 |
| 2,142 |
| 1,958 |
| 1,638 |
Short-term debt(1) |
| 19 |
| 78 |
| 2 |
| - |
| 138 |
Preferred stock subject to mandatory redemption |
| - |
| - |
| - |
| 14 |
| 17 |
Contingently redeemable preferred stock |
| 79 |
| 79 |
| 79 |
| 79 |
| 79 |
SDG&E shareholders' equity |
| 3,108 |
| 2,739 |
| 2,542 |
| 2,200 |
| 1,915 |
PE |
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
Operating revenues | $ | 3,822 | $ | 3,355 | $ | 4,768 | $ | 4,282 | $ | 4,181 |
Operating income |
| 517 |
| 476 |
| 435 |
| 436 |
| 439 |
Dividends on preferred stock |
| 4 |
| 4 |
| 4 |
| 4 |
| 4 |
Earnings attributable to common shares |
| 285 |
| 265 |
| 248 |
| 238 |
| 235 |
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 8,531 | $ | 7,834 | $ | 7,907 | $ | 6,802 | $ | 6,841 |
Long-term debt (excludes current portion) |
| 1,320 |
| 1,283 |
| 1,270 |
| 1,113 |
| 1,107 |
Short-term debt(1) |
| 262 |
| 11 |
| 100 |
| - |
| - |
PE shareholders' equity |
| 2,396 |
| 2,208 |
| 1,940 |
| 1,916 |
| 1,930 |
SoCalGas td> |
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
Operating revenues | $ | 3,822 | $ | 3,355 | $ | 4,768 | $ | 4,282 | $ | 4,181 |
Operating income |
| 516 |
| 476 |
| 434 |
| 437 |
| 439 |
Dividends on preferred stock |
| 1 |
| 1 |
| 1 |
| 1 |
| 1 |
Earnings attributable to common shares |
| 286 |
| 273 |
| 244 |
| 230 |
| 223 |
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
| p> |
|
|
|
Total assets | $ | 7,986 | $ | 7,287 | $ | 7,351 | $ | 6,406 | $ | 6,359 |
Long-term debt (excludes current portion) |
| 1,320 |
| 1,283 |
| 1,270 |
| 1,113 |
| 1,107 |
Short-term debt(1) |
| 262 |
| 11 |
| 100 |
| - |
| - |
SoCalGas shareholders' equity |
| 1,955 |
| 1,766 |
| 1,490 |
| 1,470 |
| 1,490 |
(1) Includes long-term debt due within one year. |
We discuss the impact of natural gas prices on revenues in 2010 and 2009 in Changes in Revenues, Costs and Earnings in Managements Discussion and Analysis of Financial Condition and Results of Operations. We do not provide per-share data for SDG&E, Pacific Enterprises and SoCalGas, because the common stock of each of them is directly or indirectly wholly owned by Sempra Energy.
We discuss litigation and other contingencies in Note 16 of the Notes to Consolidated Fin ancial Statements.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Sempra Energy, SDG&E, PE, SoCalGas
Sempra Energy, SDG&E, PE and SoCalGas have designed and maintain disclosure controls and procedures t o ensure that information required to be disclosed in their respective reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to the management of each company, including each respective Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating these controls and procedures, the management of each company recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives; therefore, the management of each company applies judgment in evaluating the cost-benefit relationship of other possible controls and procedures.
Under the supervision and with the participation of management, including the Chief Executive Officers and Chief Financi al Officers of Sempra Energy, SDG&E, PE and SoCalGas, each company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of December 31, 2010, the end of the period covered by this report. Based on these evaluations, the Chief Executive Officers and Chief Financial Officers of Sempra Energy, SDG&E, PE and SoCalGas concluded that their respective company's disclosure controls and procedures were effective at the reasonable assurance level.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Sempra Energy, SDG&E, PE, SoCalGas
The respective management of each company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of the management of each company, including each company's principal executive officer and principal financial officer, the effectiveness of each company's internal control over financial reporting was evaluated based on the framework in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluations, each company concluded that its internal control over financial reporting was effective as of December 31, 2010. Deloitte & Touche, LLP audited the effectiveness of each company's internal control over financial reporting as of December 31, 2010, as stated in their reports, which are included in this Annual Report.
There have been no changes in the companies' internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the companies' internal control over financial reporting.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SEMPRA ENERGY
To the Board of Directors and Shareholders of Sempra Energy:
We have audited the internal control over financial reporting of Sempra Energy and subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal co ntrol based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposit ions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over fi nancial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated February 24, 2011 expressed an unqualified opinion on those financial state ments.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
To the Board of Directors and Shareholders of Sempra Energy:
We have audited the accompanying consolidated balance sheets of Sempra Energy and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive income and changes in equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sempra Energy and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
SAN DIEGO GAS & ELECTRIC COMPANY
To the Board of Directors and Shareholders of San Diego Gas & Electric Company:
We have audited the internal control over financial reporting of San Diego Gas & Electric Company (the "Company") as of December 31, 2010, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated February 24, 2011 expressed an unqualified opinion on those financial statements.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
<
/p>
To the Board of Directors and Shareholders of San Diego Gas & Electric Company:
We have audited the accompanying consolidated balance sheets of San Diego Gas & Electric Company (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive income and changes in equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financ ial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of San Diego Gas & Electric Company as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
PACIFIC ENTERPRISES
To the Board of Directors and Shareholders of Pacific Enterprises:
We have audited the internal control over financial reporting of Pacific Enterprises and subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management 146;s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted acc ounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated February 24, 2011 expressed an unqualified opinion on those financial statements.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
To the Board of Directors and Shareholders of Pacific Enterprises:
We have audited the accompanying consolidated balance sheets of Pacific Enterprises and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive income and changes in equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to expr ess an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Pacific Enterprises and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
SOUTHERN CALIFORNIA GAS COMPANY
To the Board of Directors and Shareholders of Southern California Gas Company:
We have audited the internal control over financial reporting of Southern California Gas Company and subsidiaries (the "Company") as of December 31, 2010, based o n criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit includ ed obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal co ntrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated February 24, 2011 expressed an unqualified opinion on those financial statements.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
To the Board of Directors and Shareholders of Southern California Gas Company:
We have audited the accompanying con solidated balance sheets of Southern California Gas Company and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive income and changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing t he accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Southern California Gas Company and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal ControlIntegra ted Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 24, 2011
SEMPRA ENERGY | ||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions, except per share amounts) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
|
| |||||
REVENUES |
|
|
|
|
|
|
Sempra Uti lities | $ | 6,819 | $ | 6,220 | $ | 7,972 |
Sempra Global and parent |
| 2,184 |
| 1,886 |
| 2,786 |
Total revenues |
| 9,003 |
| 8,106 |
| 10,758 |
EXPENSES AND OTHER INCOME |
|
|
|
|
|
|
Sempra Utilities: |
|
|
|
|
|
|
Cost of natural gas |
| (1,900) |
| (1,530) |
| (3,244) |
Cost of electric fuel and purchased power |
| (637) |
| (672) |
| (900) |
Sempra Global and parent: |
|
|
|
|
|
|
Cost of natural gas, electric fuel and purchased power |
| (1,155) |
| (976) |
| (1,671) |
Other cost of sales |
| (91) |
| (80) |
| (182) |
Litigation expense |
| (169) |
| (4) |
| (117) |
Other operation and maintenance |
| (2,499) |
| (2,470) |
| (2,419) |
Depreciation and amortization |
| (867) |
| (775) |
| (687) |
Franchise fees and other taxes |
| (327) td> |
| (296) |
| (312) |
Gains on sale of assets |
| - |
| 3 |
| 114 |
Write-off of long-lived assets |
| - |
| (132) |
| - |
Equity earnings (losses): |
|
|
|
|
|
|
RBS Sempra Commodities LLP |
| (314) |
| 463 |
| 383 |
Other |
| 22 |
| 36 |
| 37 |
Other income (expense), net |
| 140 |
| 149 |
| (109) |
Interest income |
| 16 |
| 21 |
| 45 |
Interest expense |
| (436) |
| (367) |
| (253) |
Income before income taxes and equity earnings |
|
|
|
|
|
|
of certain unconsolidated subsidiaries |
| 786 |
| 1,476 |
| 1,443 |
Income tax expense |
| (102) |
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| (438) |
|
Equity earnings, net of income tax |
| 49 |
| 68 |
| 63 |
Net income |
| 733 |
| & nbsp;1,122 |
| 1,068 |
Losses attributable to noncontrolling interests |
| 16 |
| 7 |
| 55 |
Preferred dividends of subsidiaries |
| (10) |
| (10) |
|
(10) |
Earnings | $ | 739 | $ | 1,119 | $ | 1,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share | $ | 3.02 | $ | 4.60 | $ | 4.50 |
Weighted-average number of shares outstanding, basic (thousands) |
| 244,736 |
| 243,339 |
| 247,387 |
|
|
|
|
|
|
|
Diluted earnings per common share | $ | 2.98 | $ | 4.52 | $ | 4.43 |
Weighted-average number of shares outstanding, diluted (thousands) |
| 247,942 |
| 247,384 |
| 251,159 |
|
|
|
| < p style="MARGIN:0in 0in 0pt"> |
|
|
Dividends declared per share of common stock | $ | 1.56 | $ | 1.56 | $ | 1.37 |
See Notes to Consolidated Financial Statements. |
SEMPRA ENERGY | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents | $ | 912 | $ | 110 |
Restricted cash |
| 131 |
| 35 |
Trade accounts receivable |
| 891 |
| 971 |
Other accounts and notes receivable |
| 141 |
| 159 |
Due from unconsolidated affiliates |
| 34 |
| 41 |
Income taxes receivable |
| 248 |
| 221 |
Deferred income taxes |
| 75 |
| 10 |
Inventories |
| 258 |
| 197 |
Regulatory assets |
| 90 |
| 54 |
& nbsp; Fixed-price contracts and other derivatives |
| 81 |
| 77 |
Insurance receivable related to wildfire litigation |
| - |
| 273 |
Settlement receivable related to wildfire litigation |
| 300 |
| - |
Other |
| 192 |
| 147 |
Total current assets |
| 3,353 |
| 2,295 |
|
|
|
|
|
Investments and other assets: |
|
|
|
|
Restricted cash |
| 27 |
| - |
Regulatory assets arising from pension and other postretirement |
|
|
|
|
benefit obligations |
| 869 |
| 959 |
Regulatory assets arising from wildfire litigation costs |
| 364 |
| - |
Other regulatory assets |
| 934 |
| 844 |
Nuclear decommissioning trusts |
| 769 |
| 678 |
Investment in RBS Sempra Commodities LLP |
| 787 |
| 2,172 |
Other investments |
| 2,164 |
| 2,151 |
Goodwill and other intangible assets |
| 540 |
| 524 |
Sundry |
| 600 |
| 608 |
Total investments and other assets p> |
| 7,054 |
| 7,936 |
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
Property, plant and equipment |
| 27,087 |
| 25,034 |
Less accumulated depreciation and amortization |
| (7,211) |
| (6,753) |
Property, plant and equipment, net ($516 and $644 at December 31, 2010 and |
|
|
|
|
2009, respectively, related to VIEs) |
| 19,876 |
| 18,281 |
Total assets | $ | 30,283 | $ | 28,512 |
See Notes to Consolidated Financial Statements. |
SEMPRA ENERGY | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
LIABILITIES AND EQUITY |
|
|
|
|
Current liabilitie s: |
|
|
| p> |
Short-term debt | $ | 158 | $ | 618 |
Accounts payable - trade |
| 755 |
| 522 |
Accounts payable - other |
| 109 |
| 171 | <
/tr>
Due to unconsolidated affiliates |
| 36 |
| 29 |
Dividends and interest paya ble |
| 188 |
| 190 |
Accrued compensation and benefits |
| 311 |
| 264 |
Regulatory balancing accounts, net |
| 241 |
| 382 |
Current portion of long-term debt |
| 349 |
| 573 |
Fixed-price contracts and other derivatives |
| 106 |
| 95 |
Customer deposits |
| 129 |
| 145 |
Reserve for wildfire litigation | &nb sp; | 639 |
| 270 |
Other |
| 765 |
| 629 |
&n bsp; Total current liabilities |
| 3,786 |
| 3,888 |
Long-term debt ($355 and $422 at December 31, 2010 and 2009, respectively, |
|
|
| |
< font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> related to VIEs) |
| 8,980 |
| 7,460 |
|
|
|
|
|
Deferred credits and other liabilities: |
|
|
|
|
Due to unconsolidated affiliate |
| - |
| 2 |
&n bsp; Customer advances for construction |
| 154 |
| 146 |
Pension and other postretirement benefit obligations, net of plan assets |
| 1,105 |
| 1,252 |
Deferred income taxes |
| 1,561 |
| 1,318 |
Deferred investment tax credits |
| 50 |
| 54 |
Regulatory liabilities arising from removal obligations |
| 2,630 |
| 2,557 |
Asset retirement obligations |
| 1,449 |
| 1,277 |
Other regulatory liabilities |
| 138 |
| 181 |
Fixed-price contracts and other derivatives |
| 290 |
| 312 |
Deferred credits and other |
| 823 | &n bsp; | 735 |
Total deferred credits and other liabilities |
| 8,200 |
| 7,834 |
Contingently redeemable preferred stock of subsidiary |
| 79 |
| 79 |
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
Eq uity: |
|
|
|   ; |
Preferred stock (50 million shares authorized; none issued) |
| - |
| - |
Com mon stock (750 million shares authorized; 240 million and 247 million |
|
|
|
|
shares outstanding at December 31, 2010 and December 31, 2009, respectively; |
|
|
|
|
no par value) |
| 2,036 |
| 2,418 |
Retained earnings |
|
7,329 |
| 6,971 |
Deferred compensation |
| (8) |
| (13) |
Accumulated other comprehensive income (loss) |
| (330) |
| (369) |
Total Sempra Energy shareholders' equity |
| < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> 9,027 |
| 9,007 |
Preferred stock of subsidiaries |
| 100 |
| 100 |
Other noncontrolling interests |
|
111 |
| 144 |
Total equity |
| 9,238 |
| 9,251 |
Total liabilities and equity | $ | 30,283 | $ | 28,512 |
See Notes to Consolidated Financial Statements. | ||||
|
|
|
|
|
SEMPRA ENERGY | ||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income | $ | 733 | $ | 1,122 | $ | 1,068 |
Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
|
by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
| 867 |
| 775 |
| 687 |
Gains on sale of assets |
| - |
| (3) |
| (114) |
Deferred income taxes and investment tax credits |
| 48 |
| 295 |
| 324 |
Equity losses (earnings) |
| 243 |
| (567) |
| (483) |
Write-off of long-lived assets |
| - |
| 132 |
| - |
Fixed-price contracts and other derivatives |
| 13 |
| (30) |
| 46 |
|
| (55) | &nb sp; | (45) |
| 150 |
Net change in other working capital components |
| 58 |
| (256) |
| (483) |
Distributions from RBS Sempra Commodities LLP |
| 198 |
| 407 |
| 85 |
Changes in other assets |
| 54 |
| 139 |
| (15) |
Changes in other liabilities |
| (5) |
| (94) |
| (74) |
Net cash provided by operating activities |
| 2,154 |
| 1,875 |
| 1,191 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Expenditures for property, plant and equipment |
| (2,062) |
| (1,912) |
| (2,061) |
Proceeds from sale of assets, net of cash sold |
| 303 |
| 179 |
| 2,295 |
Expenditures for investments and acquisition of businesses, |
|
|
|
|
|
|
net of cash acquired |
| (611) |
| (939) | (2,675) | |
Distributions from RBS Sempra Commodities LLP |
| 849 |
| - |
| - |
Distributions from other investments |
| 371 |
| 23 |
| 34 |
Purchases of nuclear decommissioning and other trust assets |
| (371) |
| (267) |
| (485) |
Proceeds from sales by nuclear decommissioning and other trusts | &nbs p; | 372 |
| 230 |
| 469 |
Decrease in restricted cash |
| 195 |
| 37 |
| 1 |
Increase in restricted cash |
| (318) |
| (45) |
| - |
Decrease in notes receivable from unconsolidated affiliate |
| - |
| 100 |
| 60 |
Purchase of bonds issued by unconsolidated affiliate |
| - |
| (50) |
| - |
Other |
| (11) |
| (28) |
| (24) |
Net cash used in investing activities |
| (1,283) |
| (2,672) |
| (2,386) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Common dividends paid |
| (364) | p> | (341) |
| (339) |
Preferred dividends paid by subsidiaries |
| (10) |
| (10) |
| (10) |
Issuances of common stock |
| 40 |
| 73 |
| 18 |
Repurchases of common stock |
| (502) |
| (22) |
| (1,018) |
&nb sp; Issuances of debt (maturities greater than 90 days) |
| 1,125 |
| 2,151 |
| 1,706 |
Payments on debt (maturities greater than 90 days) |
| (905) |
| (435) |
| (19) |
Increase (decrease) in short-term debt, net |
| 568 |
| (659) |
| 564 |
Payments on notes payable to unconsolidated affiliate |
| - |
| (100) |
| (60) |
Purchase of noncontrolling interest |
| - |
| (94) |
| - |
Other |
| (21) |
| 13 |
| 16 |
Net cash (used in) provided by financing activities |
| (69) |
| 576 |
| 858 |
Increase (decrease) in cash and cash equivalents |
| 802 |
| (221) |
| (337) |
Cash and cash equivalents, January 1 |
| 110 |
| 331 |
| 668 < /p> |
Cash and cash equivalents, December 31 | $ | 912 | $ | 110 | $ | 331 |
See Notes to Consolidated Financial Statements. | ||||||
|
SEMPRA ENERGY | ||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED) | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
CHANGES IN OTHER WORKING CAPITAL COMPONENTS |
|
|
|
|
|
|
(Excluding cash and cash equivalents, and debt due within one year) |
|
|
|
|
|
|
Accounts and notes receivable | $ | 89 | $ | (190) | $ | 110 |
Net trading assets td> |
| - |
| - |
| (4) |
Income taxes, net |
| (30) |
| (17) |
| 13 |
Inventories |
| (62) |
| 124 |
| (75) |
Regulatory balancing accounts |
| (155) |
| 42 |
| (138) |
Regulatory assets and liabilities |
| 6 |
| (1) |
| 1 |
Other current assets |
| 310 |
| 685 |
| 71 |
Accounts and notes payable |
| 79 |
|
(109) |
| (526) |
Other current liabilities |
| (179) |
| (790) |
| 65 |
Net change in other working capital components | $ | 58 | $ | (256) | $ | (483) |
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
Interest payments, net of amounts capitalized | $ | 415 | $ | 326 | $ | 233 |
Income tax payments, net of refunds |
| 68 |
| 112 |
| 114 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acquisition of business: |
|
|
|
|
|
|
Assets acquired | $ | 303 | $ | - | $ | 1,307 |
Cash paid, net of cash acquired |
| (292) |
| - |
| (495) |
Noncontrolling interests |
| - |
| - |
| (86) |
Liabilities assumed | $ | 11 | $ | - | $ | 726 |
|
|
|
|
|
|
|
Increase in capital lease obligations for investments in property, plant and |
|
|
|
|
|
|
equipment | $ | 192 | $ | 50 | $ | - |
Dividends declared but not paid |
| 96 |
| 99 |
| 88 |
See Notes to Consolidated Financial Statements. |
SEMPRA ENERGY | ||||||||||||||
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME AND CHANGES IN EQUITY | ||||||||||||||
(Dollars in millions) | ||||||||||||||
| Years ended December 31, 2010, 2009 and 2008 | |||||||||||||
|
|
|
|
| Deferred |
|
|
|
| |||||
|
|
|
|
| Compen- | Accumulated |
|
|
| |||||
|   ; |
|
|
| sation | Other | Sempra |
|
| |||||
|
|
|
|
| Relating | Compre- | Energy | Non- |
| |||||
| Common | Retained | to | hensive | Shareholders' | controlling | Total | |||||||
| Stock | Earnings | ESOP | Income (Loss) | Equity | Interests | Equity | |||||||
Balance at December 31, 2007 | $ | 3,198 | $ | 5,464 | $ | (22) | $ | (301) | $ | 8,339 | $ | 248 | $ | 8,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
| 1,123 |
|
|
|
|
| 1,123 |
| (55) |
| 1,068 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
| (140) |
| (140) |
|
|
|
(140) |
Available-for-sale securities |
|
|
|
|
|
|
| (26) |
| (26) |
|
|
| (26) |
Pension and other postretirement benefits |
|
|
|
|
|
|
| (30) |
| (30) |
|
|
| (30) |
Financial instruments |
|
|
|
|
|
|
| (16) |
| (16) |
| (14) |
| (30) |
Comprehensive income (loss) |
|
|
|
|
|
|
| (212) |
| 911 |
| (69) |
| 842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
| 49 |
|
|
|
|
|
|
| 49 |
|
|
|   ;49 |
Common stock dividends declared |
|
|
| (342) |
|
|
|
|
| (342) |
|
|
| (342) |
Preferred dividends of subsidiaries |
|
|
| (10) |
|
|
|
|
| (10) |
|
|
| (10) |
Issuance of common stock |
| 18 |
|
|
|
|
|
|
| 18 |
|
|
| 18 |
Tax benefit related to share-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation |
| 6 |
|
|
|
|
|
|
| 6 |
|
|
| 6 |
Repurchases of common stock |
| (1,018) |
|
|
|
|
|
|
| (1,018) |
|
|
| (1,018) |
Common stock released from ESOP |
| 12 |
|
|
| 4 |
|
|
| 16 |
|
|
| 16 |
Equity contributed by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| 75 |
| 75 |
EnergySouth acquisition |
|
|
|
|
|
|
|
|
|
| 86 |
| 86 | |
Balance at December 31, 2008 |
| 2,265 |
| 6,235 |
| (18) |
| (513) |
| 7,969 |
| 340 |
| 8,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
|
| 1,129 |
|
|
|
|
| 1,129 |
| (7) |
| 1,122 |
Comprehensive income adjustments: |
|
|
| & nbsp; |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
| 102 |
| 102 |
|
| 102 | |
Available-for-sale securities |
|
|
|
|
|
|
| 7 |
| 7 |
|
|
| 7 |
Pension and other postretirement benefits |
|
|
|
|
|
|
| (3) |
| (3) |
|
|
| (3) |
Financial instruments |
|
|
|
|
|
|
| 38 |
| 38 |
| (3) |
| 35 |
Comprehensive income (loss) |
|
|
|
|
|
| &n bsp; | 144 |
| 1,273 |
| (10) |
| 1,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
| 38 |
|
|
|
|
|
|
| 38 |
|
|
| 38 |
Common stock dividends declared |
|
|
| (383) |
|
|
|
|
| (383) |
|
|
| (383) |
Preferred dividends of subsidiaries |
|
|
| (10) |
|
|
|
|
| (10) |
|
|
| (10) |
Issuance of common stock |
| 114 | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> |
|
|
|
|
|
| 114 |
|
|
| 114 |
Tax benefit related to share-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation |   ; | 23 |
|
|
|
|
|
|
| 23 |
|
|
| 23 |
Repurchases of common stock |
| (22) |
|
|
|
|
|
|
| (22) |
|
|
| (22) |
Common stock released from ESOP |
| 10 |
|
|
| 5 |
|
|
| 15 |
|
|
| 15 |
Equity contributed by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| 7 |
| 7 |
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| (9) |
| (9) |
Purchase of noncontrolling interest in |
|
|
|
|
|
|
| p> |
|
|
|
|
|
|
subsidiary |
| (10) |
|
|
|
|
|
|
| (10) |
| (84) |
| (94) |
Balance at December 31, 2009 | $ | 2,418 | $ | 6,971 | $ | (13) | $ | (369) | $ | 9,007 | $ | 244 | $ | 9,251 |
See Notes to Consolidated Financial Statements. |
SEMPRA ENERGY | ||||||||||||||
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME AND CHANGES IN EQUITY (CONTINUED) | ||||||||||||||
(Dollars in millions) | ||||||||||||||
| Years ended December 31, 2010, 2009 and 2008 | |||||||||||||
|
|
|
|
| Deferred |
|
|
|
|
| ||||
|
|
|
|
| Compen- | Accumulated |
|
|
| |||||
|
|
|
|
| sation | Other | Sempra |
|
| |||||
|
|
|
|
| Relating | Compre- | Energy | Non- |
| |||||
| Common | Retained | to | hensive | Shareholders' | controlling | Total | |||||||
| Stock | Earnings | ESOP | Income (Loss) | Equity | Interests | Equity | |||||||
Balance at December 31, 2009 | $ | 2,418 | $ | 6,971 | $ | (13) | $ | (369) | $ | 9,007 | $ | 244 | $ | 9,251 |
|
|
|
|
|
|
|
|
|
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:11.25pt" valign=bottom>
|
| |
Net income (loss) |
|
|
| 749 |
|
|
|
|
| 749 |
| (16) |
| 733 |
Comprehensive income adjustments: | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
| td> |
|
|
| 47 |
| 47 |
|
|
| 47 font> |
Available-for-sale securities |
|
|
|
|
|
|
| (8) |
| (8) |
|
|
| (8) |
Pension and other postretirement benefits |
|
|
|
|
|
|
| 13 |
| 13 |
|
|
| 13 |
|
|
|
|
|
|
| (13) |
| (13) |
| 7 |
| (6) | |
Comprehensive income (loss) |
|
|
|
|
|
|
| 39 |
| 788 |
| (9) |
| 779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
| 38 |
|
|
|
|
|
|
| 38 |
|
|
| 38 |
Common stock dividends declared |
|
|
| (381) |
|
|
|
|
| (381) |
|
|
| (381) |
Preferred dividends of subsidiaries |
|
|
| (10) |
|
|
|
|
| (10) |
|
|
| (10) |
Issuance of common stock |
| 64 |
|
|
|
|
|
|
| 64 |
|
|
| 64 |
Tax benefit related to share-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation |
| 5 |
|
|   ; |
|
|
|
| 5 |
|
|
| 5 |
Repurchases of common stock p> |
| (502) |
|
|
|
|
|
|
| (502) |
|
|
| (502) |
Common stock released from ESOP |
| 13 |
|
|
| 5 |
|
|
| 18 |
|
|
| 18 |
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| (24) |
| (24) |
Balance at December 31, 2010 | $ | 2,036 | $ | 7,329 | $ | (8) | $ | (330) | $ | 9,027 | $ | 211& nbsp; | $ | 9,238 |
See Notes to Consolidated Financial Statements. |
SAN DIEGO GAS & ELECTRIC COMPANY | ||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Operating revenues |
|
|
|
|
|
|
Electric | $ | 2,535 | $ | 2,426 | $ | 2,562 |
Natural gas |
| 514 |
| 490 |
| 689 |
Total operating revenues |
| 3,049 |
| 2,916 |
| 3,251 |
Operating expenses |
|
|
|
|
|
|
Cost of electric fuel and purchased power |
| 637 |
| 672 |
| 900 |
Cost of natural gas |
| 217 |
| 206 |
| 415 |
Operation and maintenance |
| 987 |
| 961 |
| 913 |
Depreciation and amortization |
| 381 |
| 329 |
| 298 |
Franchise fees and other taxes |
| 170 |
| 160 |
| 158 |
Gains on sale of assets |
| - |
| (1) |
| (3) |
Total operating expenses |
| 2,392 |
| 2,327 |
| 2,681 |
Operating income |
| 657 |
| 589 |
| 570 |
Other income (expense), net |
| 10 |
| 64 |
| (29) |
Interest income |
| - |
| 1 |
| 6 |
Interest expense |
| (136) |
| (104) |
| (96) |
Income before income taxes |
| 531 |
| 550 |
| 451 |
Income tax expense |
| (173) |
| (177) |
| (161) |
Net income |
| 358 |
| 373 |
| 290 |
Losses (earnings) attributable to noncontrolling interests |
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 16 |
| (24) |
| 54 |
Earnings |
| 374 |
| 349 |
| 344 |
Preferred dividend requirements |
| (5) |
| (5) |
| (5) |
Earnings attributable to common shares | $ | 369 | $ | 344 | $ | 339 |
See Notes to Consolidated Financial Statements. |
SAN DIEGO GAS & ELECTRIC COMPANY | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents | $ | 127 | $ |
13 |
Restricted cash |
| 116 |
| 8 |
| 248 |
| 229 | |
Accounts receivable - other |
| 59 |
| 85 |
Due from unconsolidated affiliates |
| 12 |
| 8 |
Income taxes receivable |
| 37 |
| 59 |
Deferred income taxes |
| 129 |
| 41 |
Inventories |
| 71 |
| 61 |
& nbsp; Regulatory assets arising from fixed-price contracts and other derivatives |
| 66 |
| 30 |
Other regulatory assets |
| 5 |
| 4 |
Fixed-price contracts and other derivatives |
| 28 |
| 40 |
Insurance receivable related to wildfire litigation |
| - |
| 273 |
Settlement receivable related to wildfire litigation |
| 300 |
| - |
Other |
| 50 |
| 35 |
Total current assets |
| 1,248 |
| 886 |
|
|
|
|
|
Other assets: | < p style="MARGIN:0in 0in 0pt"> |
|
|
|
Due from unconsolidated affiliate |
| - |
| 2 |
Deferred taxes recoverable in rates |
| 502 |
| &n bsp;415 |
Regulatory assets arising from fixed-price contracts and other derivatives |
| 233 |
| 241 |
Regulatory assets arising from pension and other postretirement |
|
|
|
|
benefit obligations |
| 279 |
| 342 |
Regulatory assets arising from wildfire litigation costs |
| 364 |
| - |
Other regulatory assets |
| 73 |
| 53 |
Nuclear decommissioning trusts |
| 769 |
| 678 |
Sundry | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:black 1pt solid; HEIGHT:12pt" valign=bottom> 56 |
| 43 | |
Total other assets |
| 2,276 |
| 1,774 |
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
Property, plant and equipment |
| 11,247 |
| 10,156 |
Less accumulated depreciation and amortization |
| (2,694) |
| (2,587) |
Property, plant and equipment, net ($516 and $644 at December 31, 2010 |
|
|
|
|
and 2009, respectively related to VIE) |
| 8,553 |
| 7,569 |
Total assets | $ | 12,077 | $ | 10,229 |
See Notes to Consolidated Financial Statements. |
SAN DIEGO GAS & ELECTRIC COMPANY | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
LIABILITIES AND EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
&n bsp; Short-term debt | $ | - | $ | 33 |
Accounts payable |
| 292 |
| 249 |
Due to unconsolidated affiliate |
| 16 |
| - |
Accrued c ompensation and benefits |
| 115 |
| 104 |
Regulatory balancing accounts, net |
| 61 |
| 159 |
Current portion of long-term debt |
| 19 |
| 45 |
Fixed-price contracts and other derivatives |
| 51 |
| 51 |
Customer deposits |
| 54 |
| 56 |
Reserve for wildfire litigation |
| 639 |
| 270 |
Other | &nb sp; | 136 |
|   ;157 |
Total current liabilities |
| 1,383 |
| 1,124 |
Long-term debt ($355 and $422 at December 31, 2010 and 2009, respectively, |
|
|
|
|
related to VIE) |
| 3,479 |
| 2,623 |
|
|
|
|
|
Deferred credits and other liabilities: |
|
|
|
|
Customer advances for construction |
| 21 |
| 23 |
Pension and other postretirement benefit obligations, net of plan assets |
| 309 |
| 370 |
Deferred income taxes |
| 1,001 |
| 774 |
Deferred investment tax credits | &n bsp; | 25 |
| 26 |
Regulatory liabilities arising from removal obligations |
| 1 ,409 |
| 1,330 |
Asset re tirement obligations |
| 619 |
| 585 |
Fixed-price contracts and other derivatives |
| 248 |
| 265 |
Deferred credits and other |
| 283 |
| 145 |
Total deferred credits and other liabilities |
| 3,915 |
| 3,518 |
Contingently redeemable preferred stock |
| 79 |
| 79 |
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
Common stock (255 million shares authorized; 117 million shares outstanding; |
|
|
|
|
no par value)< /font> |
| 1,138 |
| 1,138 |
Retained earnings |
| 1,980 |
| 1,611 |
Accumulated other comprehensive income (loss) |
| (10) |
| (10) |
Total SDG&E shareholder's equity |
| 3,108 |
| 2,739 |
Noncontrolling interest |
| 113 |
| 146 |
Total equity |
| 3,221 |
| 2,885 |
Total liabilities and equity | $ | 12,077 | $ | 10,229 |
See Notes to Consolidated Financial Statements. |
SAN DIEGO GAS & ELECTRIC COMPANY | ||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009< /font> | 2008 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income | $ | 358 | $ | 373 | $ | 290 |
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
&nbs p; Depreciation and amortization |
| 381 |
| 329 |
| 298 |
Deferred income taxes and investment tax credits |
| 52 |
| 73 |
| 113 |
Fixed-price contracts and other derivatives |
| 22 |
| (41) |
| 55 |
Gains on sale of assets |
| - |
| (1) |
| (3) |
Other |
| (32) |
| (20) |
| (1) |
Changes in other assets |
| 14 |
| 23 |
| 19 |
Changes in other liabilities |
| (3) |
| (53) |
| (23) |
Changes in working capital components: |
|
|
|
|
|
|
Accounts receivable |
| - |
| (53) |
| 1 |
Interest receivable |
| - |
| - |
| 1 |
Due to/from affiliates, net |
| (2) |
| - |
| 18& nbsp; |
Inventories |
| (10) |
| 1 |
| 51 |
Other current assets |
| 343 |
| 660 |
| (49) |
Income taxes |
| 12 |
| (44) |
| 44 |
Accounts payable |
| 23 |
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| (70) | |
| (99) | 32 |
| (184) | ||
Interest payable |
| 10 |
| - |
| (1) |
Other current liabilities |
| (340) |
| (639) |
| 60 |
Net cash provided by operating activities |
| 729 |
| 641 |
| 619 |
CASH FLOWS FROM INVESTING ACTIVITIES |
| p> |
|
|
|
|
Expenditures for property, plant and equipment |
| (1, 210) |
| (955) |
| (884) |
Expenditures for short-term investments |
| - |
| (152) |
| (488) |
Proceeds from sale of short-term investments |
| - |
| 176 |
| 464 |
Purchases of nuclear decommissioning trust assets |
| (362) |
| (237) |
| (468) |
Proceeds from sales by nuclear decommissioning trusts |
| 352 |
| 230 |
| 468 |
Decrease (increase) in loans to affiliates, net |
| 14 |
| 20 |
| (33) |
Proceeds from sale of assets |
| - |
| 1 |
| 1 |
Decrease in restricted cash |
| 152 |
| 37 |
| - |
Increase in restricted cash |
| (260) |
| (45) |
| - |
Net cash used in investing activities |
| (1,314) |
| (925) |
| (940) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Common dividends paid |
| - |
| (150) |
| - |
Preferred dividends paid |
| (5) |
| (5) |
| (5) |
Redemptions of preferred stock |
| - |
| - |
| (14) |
Issuances of long-term debt |
| 744 |
| 439 |
| 193 |
Payments on long-term debt |
| (10) |
| (2) |
| - |
Increase in short-term debt, net |
| - |
| |
| - |
Capital contribution received by Otay Mesa VIE |
| - |
| 4 |
| 9 |
Capital distribution made by Otay Mesa VIE |
| (24) |
| (9) |
| - |
Other |
| (6) |
| (3) |
| (1) |
Net cash provided by financing activities |
| 699 |
| 278 |
| 182 |
Increase (decrease) in cash and cash equivalents |
| 114 |
| (6) |
| (139) |
Cash and cash equivalents, January 1 |
| 13 |
| 19 |
| 158 |
Cash and cash equivalents, December 31 | $ | 127 | $ | 13 | $ | 19 |
See Notes to Consolidated Financial Statements. |
SAN DIEGO GAS & ELECTRIC COMPANY | ||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED) | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
Interest payments, net of amounts capitalized | $ | 120 | $ | 99 | $ td> | 92 |
Income tax payments, net of refunds |
| 108 |
| 148 |
| 3 |
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES |
|
|
|
|
|
|
Increase in capital lease obligations for investments in property, plant |
|
|
|
|
|
|
and equipment | $ | 188 | $ | 21 | $ | - |
Dividends d eclared but not paid |
| 1 |
| 1 |
| 1 |
See Notes to Consolidated Financial Statements. |
SAN DIEGO GAS & ELECTRIC COMPANY | ||||||||||||
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME AND CHANGES IN EQUITY | ||||||||||||
(Dollars in millions) | ||||||||||||
| Years ended December 2010, 2009 and 2008 | |||||||||||
|
|
|
| Accumulated |
|
|
| |||||
|
|
|
| Other | SDG&E |
|
| |||||
| Common | Retained | Comprehensive | Shareholder's | Noncontrolling | Total | ||||||
| Stock | Earnings | Income (Loss) | Equity | Interests | Equity | ||||||
Balance at December 31, 2007 | $ | 1,138 | $ | 1,078 | $ | (16) | $ | 2,200 | $ | 135 | $ | 2,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
| 344 |
|
|
| 344 |
| (54) |
| 290 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefits |
|
|
|
|
| 3 |
| 3 |
|
|
| 3 |
Financial instruments |
|
|
|
|
|
|
|
|
| (14) |
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> (14) |
Comprehensive income (loss) |
|
|
|
|
| 3 |
| 347 |
| (68) |
| 279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre ferred stock dividends declared |
|
|
| (5) |
|
| p> | (5) |
|
|
| (5) |
Equity contributed by noncontrolling interests |
|
|
|
|
|
|
|
|
| 61 |
| 61 |
Balance at December 31, 2008 |
| 1,138 |
| 1,417 |
| (13) |
| 2,542 |
| 128 |
| 2,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
| 349 |
|
|
| 349 |
| 24 |
| 373 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefits |
|
|
|
|
| 2 |
| 2 |
|
|
| 2 |
Financial instruments |
|
|
|
|
| 1 |
| 1 |
| (3) |
| (2) |
Comprehensive income |
|
|
|
|
| 3 |
| 352 |
| 21 |
| 373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
| (5) |
|
|
| (5) |
|
|
| (5) |
Common stock dividends declared |
|
|
| (150) |
|
|
| (150) |
|
|
| (150) |
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
| (9) |
| (9) |
Equity contributed by noncontrolling interests |
|
|
|
|
|
|
|
|
| 6 |
| 6 |
Balance at December 31, 2009 |
| 1,138 |
| 1,611 |
| (10) |
| 2,739 |
| 146 |
| 2,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
| 374 |
|
|
| 374 |
| (16) |
| 358 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
|
|
|
|
|
|
|
| 7 |
| 7 |
Comprehensive income (loss) |
|
|
|
|
| - |
| 374 |
| (9) |
| |
|
|
|
|
|
|
|
|
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| |
Preferred stock dividends declared |
|
|
| |
|
|
| (5) |
|
|
| (5) |
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
| (24) |
| (24) |
Balance at December 31, 2010 | $ | 1,138 | $ | 1,980 | $ | (10) | $ | 3,108 | | 113 | $ | 3,221 |
See Notes to Consolidated Financial Statements. |
PACIFIC ENTERPRISES AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
|
|
|
|
|
|
|
Operating revenues | $ | 3,822 | $ | 3,355 | $ | 4,768 |
Operating expenses |
|
|
|
|
|
|
Cost of natural gas |
| 1,699 |
| 1,343 |
| 2,841 |
Operation and maintenance |
| |
| 1,138 |
| 1,077 |
Depreciation |
| 309 |
| 293 |
| 280 |
Franchise fees and other taxes |
| 124 |
| 105 |
| 135 |
Total operating expens es |
| 3,305 |
| 2,879 |
| 4,333 |
Operating income |
| 517 |
| 476 |
| 435 |
Other income, net |
| 12 |
| 4 |
| 2 |
Interest income |
| 2 |
| 4 |
| 22 |
Interest expense < /td> |
| (66) |
| (69) |
| (65) |
Income before income taxes |
| 465 |
| 415 |
| 394 |
In come tax expense |
| (175) |
| (145) |
| (141) |
Net income |
| 290 |
| 270 |
| 253 |
Preferred dividends of subsidiary |
| (1) |
| (1) |
| (1) |
Earnings |
| 289 |
| 269 |
| 252 |
Preferred dividend requirements |
| (4) |
| (4) |
| (4) |
Earnings attributable to common shares | $ | 285 | $ | 265 | $ | 248 |
See Notes to Consolidated Financial Statements. |
PACIFIC ENTERPRISES AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents | $ | 417 | $ | 49 |
Accounts receivable - trade |
| 534 |
| 567 |
Accounts receivable - other |
| 49 |
| 44 |
Due from unconsolidated affiliates |
| 68 |
| 12 |
Income taxes receivable |
| 36 |
| 36 |
Inventories |
| 105 |
| 93 |
& nbsp; Regulatory assets |
| 12 |
| 9 |
Other |
| 39 |
| 39 |
Total current assets |
| 1,260 |
| 849 |
|
|
|
|
|
Other assets: |
|
|
|
|
Due from unconsolidated affiliate |
| 502 |
| 513 |
Regulatory assets arising from pension and other postretirement |
|
| &n bsp; |
|
benefit obligations |
| 586 |
| 617 |
Other regulatory assets |
| 123 |
| 131 |
Sundry |
| 36 |
| 40 |
Total other assets |
| 1,247 |
| 1,301 |
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
Property, plant and equipment |
| 9,826 |
| 9,299 |
Less accumulated depreciation and amortization |
| (3,802) |
| (3,615) |
Property, plant and equipment, net |
| 6,024 |
| 5,684 |
Total assets | $ | 8,531 | $ | 7,834 |
See Notes to Consolidated Financial Statements. |
PACIFIC ENTERPRISES AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
LIABILITIES AND EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable - trade | $ | 327 | $ | 207 |
Accounts payable - other |
| 79 |
| 120 |
Due to unconsolidated affiliates |
| 96 |
| 87 |
Deferred income taxes |
| 16 |
| 5 |
Accrued compensation and benefits |
| 98 |
| 86 |
Regulatory balancing accounts, net |
| 180 |
| 223 |
Current portion of long-term debt |
| 262 |
| 11 |
Customer deposits |
| 73 |
| 87 |
Other |
| 163 |
| 162 |
Total current liabilities |
| 1,294 |
| 988 |
Long-term debt |
| 1,320 |
| 1,283 |
Deferred credits and other liabilities: |
|
|
|
|
Customer advances for construction |
| 133 |
|
123 |
Pension and other postretirement benefit obligations, net of plan assets |
| 613 |
| 644 |
Deferred income taxes |
| 416 |
| 273 |
Deferred investment tax credits |
| 25 |
| 28 |
Regulatory liabilities arising from removal obligations |
| 1,208 |
| 1,227 |
Asset retirement obligations |
| 788 |
| 662 |
Deferred taxes refundable in rates |
| 138 |
| 175 |
Deferred credits and other |
| 180 |
| 203 |
Total deferred credits and other liabilities |
| 3,501 |
| 3,335 |
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
Preferred stock |
| 80 |
| 80 |
Common stock (600 million shares authorized; 84 million shares outstanding; |
|
|
|
|
no par value) |
| 1,462 |
| 1,462 |
Retained earnings |
| 876 |
| 691 |
Accumulated other comprehensive income (loss) |
| (22) |
| (25) |
Total Pacific Enterprises shareholders' equity |
| 2,396 |
| 2,208 |
Preferred stock of subsidiary |
| 20 |
| 20 |
Total equity |
| 2,416 |
| 2,228 |
Total liabilities and equity | $ | 8,531 | $ |
7,834 |
See Notes to Consolidated Financial Statements. |
PACIFIC ENTERPRISES AND SUBSIDIARIES | ||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income | < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'">$ | 290 | $ | 270 | $ | 253 |
Adjustments to reconcile net income to net cash provided by |
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
|
| |
operating activities: |
|
|
|
|
|
|
&n bsp; Depreciation |
| 309 |
| 293 |
| 280 |
Deferred income taxes and investment tax credits |
| 112 |
| 72 |
| 92 |
Other |
| (8) |
| 4 |
| (2) |
Changes in other assets |
| (3) |
| 11 |
| (30) |
& nbsp; Changes in other liabilities |
| 8 |
| (76) |
| (56) |
Changes in working capital components: |
|
|
|
|
|
|
Accounts receivable |
| 18 |
| (30) |
| 102 |
Inventories |
| &nb sp;(12) |
| 74 |
| (69) |
Other current assets |
| (2) |
| 10 |
| (23) |
Accounts payable |
| 52 |
| (99) |
| 7 |
Income taxes |
| (3) |
| 65 |
| (71) |
Due to/from affiliates, net |
| 9 |
| (77) |
| (4) |
Regulatory balancing accounts |
| (56) |
| 10 |
| 46 |
Customer deposits |
| (13) |
| (28) |
| 24 |
Other current liabilities |
| 26 |
| (66) |
| 24 |
Net cash provided by operating activities |
| 727 |
| 433 |
| 573 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Expenditures for property, plant and equipment |
| (503) p> |
| (480) |
| (454) |
(Increase) decrease in loans to affiliates, net |
| (49) |
| (4) |
| 136 |
Other |
| (1) |
| (1) |
| (1) |
Net cash used in investing activities |
| (553) |
| (485) |
| (319) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Common dividends paid |
| (100) |
| - |
| (350) |
Preferred dividends paid |
| (4) |
| (4) |
| (4) |
Preferred dividends paid by subsidiary |
| (1) |
| (1) |
| (1) |
Issuance of long-term debt |
| 299 |
| - |
| 250 |
Payment of long-term debt |
| - |
| (100) |
| - |
Other |
| - |
| - |
| (2) |
Net cash provided by (used in) financing activities |
| 194 |
| (105) |
| (107) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
| 368 |
| (157) |
| 147 |
Cash and cash equivalents, January 1 |
| 49 |
| 206 |
| 59 |
Cash and cash equivalents, December 31 | $ | 417 | $ | 49 | $ | 206 |
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:6pt" valign=bottom>
|
|
| |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
Interest payments, net of amounts capitalized | $ | 55 | $ | 60 | $ | 61 |
Income tax payments, net of refunds |
| 64 |
| 76 |
| 120 |
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES |
|
|
|
|
|
|
Increase in capital lease obligations for investments in property, plant, and |
|
|
|
|
|
|
equipment | $ | 4 | $ | 29 | $ | - |
Dividends declared but not paid |
| 1 |
| 1 |
| 1 |
See Notes to Consolidated Financial Statements. |
PACIFIC ENTERP RISES AND SUBSIDIARIES | ||||||||||||||
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME AND CHANGES IN EQUITY | ||||||||||||||
(Dollars in millions) | ||||||||||||||
| Years ended December 31, 2010, 2009 and 2008 | |||||||||||||
|
|
|
|
|
| Accumulated | & nbsp; |
|
| |||||
|
|
|
|
|
| Other | PE | Non- |
| |||||
| Preferred | Common | Retained | Comprehensive | Shareholders' | Controlling | Total | |||||||
| Stock | Stock | Earnings | Income (Loss) | Equity | Interests | Equity | |||||||
Balance at December 31, 2007 | $ | 80 | $ | 1,462 | $ | 378 | $ | (4) | $ | 1,916 | $ | 20 | $ | 1,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
| 253 |
|
|
| 253 |
|
|
| 253 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
|
|
|
|
|
| (25) |
| (25) |
|
|
| (25) |
Pension and other postretirement benefits |
|
|
|
|
|
|
| 1 |
| 1 |
|
|
| 1 |
Comprehensive income (loss) |
|
|
|
|
|
|
| (24) |
| 229 |
| - |
| 229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
|
|
| (4) |
|
|
| (4) |
|
|
| (4) |
Common stock dividends declared |
|
|
|
|
| (200) |
|
|
| (200) |
|
|
| (200) |
Preferred dividends of subsidiary |
|
|
|
|
| (1) |
|
|
| (1) |
|
|
| (1) |
Balance at December 31, 2008 |
| 80 |
| 1,462 |
| 426 |
| (28) |
| 1,940 |
| 20 |
| 1,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
| 270 |
|
|
| 270 |
|
|
| 270 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
|
|
|
|
|
| 3 |
| 3 |
|
|
| 3 |
Comprehensive income |
|
|
|
|
|
|
| 3 |
| 273 |
| - |
| 273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
|
|
| (4) |
|
|
| (4) |
|
|
| (4) |
Preferred dividends of subsidiary |
|
|
|
|
| (1) |
|
|
| (1) |
|
|
| (1) |
Balance at December 31, 2009 |
| 80 | & nbsp; | 1,462 |
| 6 91 |
| (25) |
| 2,208 |
| 20 |
| 2,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
| 290 |
|
|
| 290 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
|
| 290 | |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
|
|
|
|
|
| 3 |
| 3 |
|
|
| 3 |
Comprehensive income |
|
|
|
|
|
|
| 3 |
| 293 |
| - |
| 293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
|
|
| (4) |
|
|
| (4) |
|
|
| (4) |
Common stock dividends declared |
|
|
|
|
| (100) |
|
|
| (100) |
|
|
| (100) | <
/tr>
Preferred dividends of subsidiary |
|
|
|
|
| (1) |
|
|
| (1) |
|
|
| (1) |
Balance at December 31, 2010 | $ | 80 | $ | 1,462 | $ | 876 | $ | (22) | $ | 2,396 | $ | 20 | $ | 2,416 |
See Notes to Consolidated Financial Statements. |
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
|
|
|
|
|
|
|
Operating revenues | $ | 3,822 | $ | 3,355 | $ | 4,768 |
Operating expenses |
|
| p> |
|
|
|
Cost of natural gas |
| 1,699 |
| 1,343 |
| 2,841 |
Operation and maintenance |
| 1,174 |
| 1,138 |
| 1,078 |
Depreciation |
| 309 |
| 293 |
| 280 |
Franchise fees and other taxes |
| 124 |
| 105 |
| 135 |
Total operating expenses |
| 3,306 |
| 2,879 |
| 4,334 |
Operating income |
| 516 |
| 476 |
| 434 |
Other income, net |
| 12 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12.75pt" valign=bottom> 7 |
| 2 | |
Interest income |
| 1 |
| 3 |
| 11 |
Interest expense |
| (66) |
| (68) |
| (62) |
Income before income taxes |
| 463 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12.75pt" valign=bottom> 418 |
| 385 | |
Income tax expense |
| (176) |
| (144) |
| (140) |
Net income |
| 287 |
| 274 |
| 245 |
Preferred dividend requirements |
| (1) |
| (1) |
| (1) |
Earnings attributable to common shares | $ | 286 | $ | 273 | $ |   ;244 |
See Notes to Consolidated Financial Statements. |
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents | $ | 417 | $ | 49 |
Accounts receivable - trade |
| 534 |
| 567 |
Accounts receivable - other |
| 49 |
| 44 |
Due from unconsolidated affiliates |
| 63 |
| 6 |
Income taxes receivable |
| 28 |
| & nbsp;35 |
Inventories |
| 105&n bsp; |
| 93 |
Regulatory assets |
| 12 |
| 9 |
Other |
| 39 |
| 40 |
Total current assets |
| 1,247 |
| 843 |
|
|
|
|
|
Other assets: |
|
|
|
|
Regulatory assets arising from pension and other postretirement |
|
|
|
|
benefit obligations |
| 586 |
| 617 |
Other regulatory assets |
| 123 |
| 131 |
Sundry |
| 8 |
| 14 |
Total other assets |
| 717 |
| 762 |
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
Property, plant and equipment |
| 9,824 |
| 9,297 |
Less accumulated depreciation and amortization |
| (3,802) |
| (3,615) |
Property, plant and equipment, net |
| 6,022 |
| 5,682 |
Total assets | $ | 7,986 | $ | 7,287 |
See Notes to Consolid ated Financial Statements. |
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
LIABILITIES AND SHAREHOLDERS' EQU ITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable - trade | $ | 327 | $ | 207 |
Accounts payable - other |
| 79 |
| 120 |
Due to unconsolidated affiliate |
| 11 |
| 3 |
Deferred income taxes |
| 17 |
| 6 |
Accrued compensation and benefits |
| 98 |
| 86 |
Regulatory balancing accounts, net |
| 180 |
| 223 |
Current portion of long-term debt |
| 262 |
| 11 |
Customer deposits |
| 73 |
| 87 |
Other |
| 163 |
| 158 |
Total current liabilities |
| 1,210 |
| 901 |
Long-term debt |
| 1,320 |
| 1,283 |
Deferred credits and other liabilities: |
|
|
|
|
Customer advances for construction |
| 133 |
| 123 |
Pension and other postretirement benefit obligations, net of plan assets |
| 613 |
| 644 |
Deferred income taxes |
| 418 |
| 280 |
Deferred investment tax credits |
| 25 |
| 28 |
Regulatory liabilities arising from removal obligations |
| 1,208 |
| 1,227 |
Asset retirement obligations |
| 788 |
| 662 |
Deferred taxes refundable in rates |
| 138 |
| 175 |
Deferred credits and other |
| 178 |
| 198 |
Total deferred credits and other liabilities |
| 3,501 |
| 3,337 |
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
Preferred stock |
| 22 |
| 22 |
Common stock (100 million shares authorized; 91 million shares outstanding; |
|
|
|
|
no par value) |
| 866 |
| 866 |
Retained earnings |
| 1,089 |
| 903 |
Accumulated other comprehensive income (loss) |
| (22) |
| (25) |
Total shareholders' equity |
| 1,955 |
| 1,766 |
Total liabilities and shareholders' equity | $ | 7,986 | $ | 7,287 |
See Notes to Consolidated Financial Statements. |
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES | ||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS | ||||||
(Dollars in millions) | ||||||
| Years ended D ecember 31, | |||||
| 2010 | 2009 | 2008 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income | $ | 287 | $ | 274 | $ | 245 |
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
Depreciation |
| 309 |
| 293 |
| 280 |
Deferred income taxes and investment tax credits |
| 107 |
| 70 |
| 87 |
Other |
| - |
| 8 |
| 2 |
Changes in other assets |
| (7) |
| 7 |
| (33) |
Changes in other liabilities |
| 8 |
| (68) |
| (51) |
Changes in working capital components: |
|
|
|
|
|
|
Accounts receivable |
| 18 |
| (30) |
| 102 |
Inventories |
| |
| 74 |
| (69) |
Other current assets |
| (2) |
| 10 |
| (23) |
Accounts payable |
| 52 |
| (99) |
| 7 |
Income taxes |
| 5 |
| (2) |
| ( 67) |
Due to/from affiliates, net |
| 11 |
| (10) |
| (6) |
Regulatory balancing accounts |
| (56) |
| 10 |
| 46 |
Customer deposits |
| (13) |
| (28) |
| 24 |
Other current liabilities |
| 29 |
| (69) |
| 24 |
Net cash provided by operating activities |
| 736 |
| 440 |
| 568 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Expenditures for property, plant and equipment |
| (503) |
| (480) |
| (454) |
(Increase) decrease in loans to affiliates, net |
| (63) |
| (16) |
| 136 |
&nbs p; Net cash used in investing activities |
| (566) |
| (496) |
| (318) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Common dividends paid |
| (100) |
| - |
| (350) |
Preferred dividends paid |
| (1) |
| (1) |
| (1)< /p> |
Issuance of long-term debt |
| 299 font> |
| - |
| 250 |
Payment of long-term debt |
| - |
| (100) |
| - |
Other |
| - |
| - |
| (2) |
Net cash provided by (used in) financing activities |
| 198 |
| (101) |
| (103) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
| 368 |
| (157) |
| 147 |
Cash and cash equivalents, January 1 |
| 49 |
| 206 |
| 59 |
Cash and cash equivalents, December 31 | $ | 417 | $ | 49 | $ | 206 |
|
|
|
|
|
|
|
SUPPLEMENTAL D ISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
Interest payments, net of amounts capitalized | $ | 54 | $ | 59 | $ | 58 |
Income tax payments, net of refunds |
| 64&n bsp; |
| 76 |
| 120 |
|
|
|
|
|
| &nbs p; |
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES |
|
|
|
|
|
|
Increase in capital lease obligations for investments in property, plant and |
|
|
|
|
|
|
equipment | $ | 4 | $ | 29 | $ | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:black 2.25pt solid; HEIGHT:12pt" valign=bottom> |
See Notes to Consolidated Financial Statements. |
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES | ||||||||||
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME AND CHANGES IN SHAREHOLDERS' EQUITY | ||||||||||
(Dollars in millions) | ||||||||||
| Years ended Decemb er 31, 2010, 2009 and 2008 | |||||||||
|
|
|
|
|
| Accumulated |
| |||
|
|
|
|
|
| Other | Total | |||
| Preferred | Common | Retained | Comprehensive | Shareholders' | |||||
| Stock | Stock | Earnings | Income (Loss) | Equity | |||||
Balance at December 31, 2007 | $ | 22 | $ | 866 | $ | 586 | $ | (4) | $ | 1,470 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
| 245 |
|
|
| 245 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
|
|
|
|
|
| (25) |
| (25) |
Pension and other postretirement benefits |
|
|
|
|
|
|
| 1 |
| 1 |
Comprehensive income (loss) |
|
|
|
|
|
|
| (24) |
| 221 |
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
|
|
| (1) |
|
|
| (1) |
Common stock dividends declared |
|
|
|
|
| (200) |
|
|
| (200) |
Balance at December 31, 2008 |
| 22 |
| 866 |
| 630 |
| (28) |
| 1,490 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
| 274 |
|
|
| 274 |
Comprehen sive income adjustments: |
|
|
|
|
|
|
|
|
|
|
&n bsp; Financial instruments |
|
|
|
|
|
|
| 3 |
| 3 |
Comprehensive income |
|
|
|
|
|
|
| 3 |
| 277 |
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
|
|
| (1) |
|
|
| (1) |
Balance at December 31, 2009 |
| 22 |
| 866 |
| 903 |
| (25) |
| 1,766 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
| 287 |
|
|
| 287 |
Comprehensive income adjustments: |
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
|
|
|
|
|
| 3 |
| 3 |
Comprehensive income |
|
|
|
|
|
|
| 3 |
| 290 |
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| (1) |
|
|
| (1) | |
Common stock dividends declared |
|
|
|
|
| (100) |
|
|
| (100) |
Balance at December 31, 2010 | $ | 22 | $ | 866 | $ | 1,089 | $ | (22) | $ | 1,955 |
See Notes to Consolidated Financial Statements. |
SEMPRA ENERGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA
PRINCIPLES OF CONSOLIDATION
Sempra Energy
Sempra Energy's Consolidated Financial Statements include the accounts of Sempra Ene rgy, a California-based Fortune 500 holding company, and its consolidated subsidiaries and a variable interest entity (VIE). Sempra Energys 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, Sempra LNG, and Sempra Commodities.
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 Notes 3 and 4.
SDG&E
SDG&E's Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss below under "Variable Interest Entities." SDG&Es common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.
Pacific Enterprises and SoCalGas
Pacific Enterprises Consolidated Financial Statements include the accounts of Pacific Enterprises (PE) and its subsidiary, SoCalGas. Sempra Energy owns all of PEs common stock and PE owns all of SoCalGas common stock. SoCalGas 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 Consolidated Financial Statements (except in Note 17), 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 evaluated events and transactions that occurred after December 31, 2010 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.
Use of Estimates in the Preparation of the Financial Statements
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). This requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including the disclosure of contingent assets and liabilities at the date of the financial statements. Although we believe the estimates and assumptions are reasonable, actual amounts ultimately may differ significantly from those estimates.
Orange Grove Energy L.P.
SDG&E has a 25-year tolling agreement to purchase power generated by Orange Grove Energy L.P. (Orange Grove) at its 99-megawatt (MW) generating facility located in San Diego County, California. Under a tolling agreement, SDG&E purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant. In the third quarter of 2009, Sempra Energy and SDG&E determined that Orange Grove was a VIE and that SDG&E was the primary beneficiary of the VIE based on the criteria in GAAP as written at that time and applicable through December 31, 2009. Sempra Energy and SDG&E therefore consolidated Orange Grove beginning in the third quarter of 2009 through December 31, 2009.
In the first quarter of 2010, Accounting Standards Update (ASU) 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17), which we discuss in Note 2 below, became effective. Applying the guidance in ASU 2009-17, because of SDG&Es obligation to absorb the natural gas costs for the fuel to operate the facility, along with the power to direct the dispatch, Sempra Energy and SDG&E continued to consolidate Orange Grove in the first quarter of 2010.
In the second quarter of 2010, Sempra Energy and SDG&E reevaluated the provisions of ASU 2009-17 as they apply to Orange Grove. Sempra Energy and SDG&E determined that because the Orange Grove facility is a peaker plant, it operates infrequently to meet peak power needs. We believe that the owners of Orange Grove retain the most significant economic power through their control over operations and maintenance of the plant, which impacts the capacity payments under the agreement that are expected to have the greatest effect on the overall economic performance of the entity.& nbsp; Accordingly, SDG&E does not have the right to direct activities that most significantly impact the economic performance of Orange Grove, and Sempra Energy and SDG&E should not consolidate Orange Grove, but instead should record the agreement as a capital lease. The effect of this change has no effect on Sempra Energys or SDG&Es earnings and is not material to their previously issued financial statements.
REGULATORY MATTERS
Effects of Regulation
The accounting policies of our principal regulated utility subsidiaries, SDG&E and SoCalGas, conform with GAAP for regulated enterprises and reflect the policies of the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC).
The following subsidiaries of Sempra Pipelines & Storage also apply GAAP for regulated utilities to their operations:
§Mobile Gas Service Corporation (Mobile Gas), a regulated natural gas distribution utility in southwest Alabama acquired in October 2008
§Ecogas Mexico, S de RL de CV (Ecogas), a regulated natural gas distribution utility in Northern Mexico
We provide information concerning regulatory assets and liabilities below in "Regulatory Balancing Accounts" and "Regulatory Assets and Liabilities."
Regulatory Balancing Accounts
The following table summarizes our regulatory balancing accounts at December 31. The net payables (payables net of receivables) will be returned to customers by reducing future rates.
SUMMARY OF REGULATORY BALANCING ACCOUNTS AT DECEMBER 31 | ||||||||||||
(Dollars in millions) | ||||||||||||
| Sempra Energy |
|
| |||||||||
| Consolidated | SDG&E | SoCalGas | |||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||
Overcollected | $ | 733 | $ | &nbs p;699 | $ | 443 | $ | 383 | $ | 290 | $ | 316 |
Undercollected |
| (492) |
| (317) |
| (382) |
| (224) |
| (110) |
| (93) |
Net payable | $ | 241 | $ | 382 | $ | 61 | $ < /td> | 159 | $ | | $ | 223 |
Over- and undercollecte d regulatory balancing accounts reflect the difference between customer billings and recorded or CPUC-authorized costs, primarily commodity costs. Amounts in the balancing accounts are recoverable or refundable in future rates, subject to CPUC approval. Balancing account treatment eliminates the impact on earnings from variances in the covered costs from authorized amounts. Absent balancing account treatment, variations in operating and maintenance costs from amounts approved by the CPUC would increase volatility in utility earnings.
We provide additional information about regulatory matters in Notes 14, 15 and 16.
Regulatory Assets and Liabilities
We show the details of regulatory assets and liabilities in the following table, and discuss each of them separately below.
REGULATORY ASSETS (LIABILITIES) AT DECEMBER 31 | |||||
(Dollars in millions) | |||||
|
| 2010 | 2009 | ||
SDG&E |
|
|
|
| |
Fixed-price contracts and other derivatives | $ | 299 | $ | 271 | |
Costs related to wildfire litigation |
| 364 |
| - | |
Deferred taxes recoverable in rates |
| 502 |
| 415 | |
Pension and other postretirement benefit obligations |
| 279 |
| 342 | |
Removal obligations(1) |
| (1,409) |
| (1,330) | |
Unamortized loss on reacquired debt, net |
| 23 |
| 27 | |
Environmental costs |
| 17 |
| 15 | |
Other |
| 38 |
| 15 | |
Total SDG&E |
| 113 |
| (245) | |
SoCalGas |
|
|
|
| |
Pension and other postretirement benefit obligations |
| 586 |
| 617 | |
Employee benefit costs |
| 59 |
| 52 | |
Removal obligations(1) |
| (1,208) |
| (1,227) | |
Deferre d taxes refundable in rates |
| (138) |
| (175) | |
Unamortized loss on reacquired debt, net |
| 23 |
| 26 | |
Environmental costs |
| 18 |
| 25 | |
Workers' compensation |
| 41 |
| 47 | |
Other |
| (6) |
| (11) | |
Total SoCalGas |
| (625) |
| (646) | |
Other Sempra Energy |
|
|
|
| |
Mobile Gas |
| (16) |
| (8) | |
Ecogas |
| 9 |
| 14 | |
Total Other Sempra Energy |
| (7) |
| 6 | |
Total Sempra Energy Consolidated | $ | (519) | < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'">$ | (885) | |
(1) | Related to obligations discussed below in "Asset Retirement Obligations." | ||||
|
|
NET REGULATORY ASSETS (LIABILITIES) AS PRESENTED ON THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31 | ||||||||||||||
(Dollars in millions) | ||||||||||||||
|
| 2010 |
| 2009 | ||||||||||
|
| Sempra |
|
|
| Sempra |
|
| ||||||
|
| Energy |
|
|
| Energy |
|
| ||||||
|
| Consolidated | SDG&E | SoCalGas |
| Consolidated | SDG&E | SoCalGas | ||||||
Current regulatory assets | $ | 90 | $ | 71 | $ | 12 |
| $ | 54 | $ | 34 | $ | 9 | |
Noncurrent regulatory assets |
| 2,167 |
| 1,451 |
| 709 |
|
| 1,803 |
| 1,051 |
| 748 | |
Current regulatory liabilities(1) |
| (8) |
| |
| - |
|
| (4) |
| - |
| (1) | |
Noncurrent regulatory liabilities |
| (2,768) |
| (1,409) |
| (1,346) |
|
| (2,738) |
| (1,330) |
| (1,402) | |
Total | $ | (519) | $ | 113 | $ | (625) |
| $ | (885) | $ | (245) | $ | (646) | |
(1) | Included in Other Current Liabilities. |
In the tables above:
§Regulatory assets arising from fixed-price contracts and other derivatives are offset by corresponding liabilities arising from purchased power and natural gas commodity and transportat ion contracts. The regulatory asset is increased/decreased based on changes in the fair market value of the contracts. It is also reduced as payments are made for commodities and services under these contracts.
§Deferred taxes recoverable/refundable in rates are based on current regulatory ratemaking and income tax laws. SDG&E and SoCalGas expect to recover/refund net regulatory assets/liabilities related to deferred income taxes over the lives of the assets that give rise to the accumulated deferred income tax liabilities/assets.
§Regulatory assets related to unamortized losses on reacquired debt are recovered over the remaining original amortization periods of the losses on reacquired debt. These periods range from 7 months to 17 years for SDG&E and from 2 years to 15 years for SoCalGas.
§Regulatory assets related to environmental costs represent the portion of our environmental liability recognized at the end of the period in excess of the amount that has been recovered through rates charged to customers. We expect this amount to be recovered in future rates as expenditures are made.
§Regulatory assets related to pension and other postretirement benefit obligations are offset by corresponding liabilities and are being recovered in rates as the plans are funded.
§Regulatory assets arising from costs related to wildfire litigation are costs in excess of liability insurance coverage and amounts recovered, and to be recovered, from other potentially responsible parties, as we discuss in Note 16 under SDG&E 2007 Wildfire Litigation. We expect this amount to be recovered in future rates.
For substantially all of these assets, the cash has not yet been expended and the assets are offset by liabilities that do not incur a carrying cost.
FAIR VALUE MEASUREMENTS
We apply recurring fair value measurements to certain assets and liabilities, primarily nuclear decommissioning trust assets and other miscellaneous derivatives. Prior to the formation of RBS Sempra Commodities LLP (RBS Sempra Commodities) on April 1, 2008, as we discuss in Notes 3 and 4, we also applied fair value measurements to trading derivatives and certain trading inventories.
"Fair value" is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model. Also, we consider an issuer's credit standing when measuring its liabilities at fair value.
We establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for i dentical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 financial instruments primarily consist of exchange-traded derivatives, listed equities and U.S. government treasury securities.
Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models o r other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including:
§quoted forward prices for commodities
§time value
§current market and contractual prices for the underlying instruments
§volatility factors
§other relevant economic measures
Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Our financial instruments in this category include non-exchange-traded derivatives such as over-the-counter (OTC) forwards and options.
Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value from the perspective of a market participant.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with maturities of three months or less at the date of purchase.
RESTRICTED CASH
Restricted cash at Sempra Energy was $158 million and $35 million at December 31, 2010 and 2009, respectively. At both December 31, 2010 and 2009, $27 million represents funds held in trust for construction financing of certain natural gas storage facilities of Sempra Pipelines & Storage.
At December 31, 2010, Sempra Commodities held $15 million of cash collateral received as security for guarantees issued by Sempra Energy related to businesses sold by RBS Sempra Commodities. We discuss RBS Sempra Commodities in Notes 3 and 4, and our related guarantees in Note 5.
SDG&E had restricted cash of $110 million at December 31, 2010 representing funds received from a wildfire litigation settle ment that we describe in Note 16. These funds are restricted to use for 2007 wildfire litigation expenditures. In addition, restricted cash at SDG&E of $6 million and $8 million at December 31, 2010 and 2009, respectively, are funds held by a trustee for Otay Mesa VIE (see Variable Interest EntitiesOtay Mesa VIE below) to pay certain operating costs.
COLLECTION ALLOWANCES
We record allowances for the collection of receivables and, prior to the sale of our commodities-marketing businesses, realization of trading assets. The allowances for collection of receivables include allowances for doubtful customer accounts and for other receivables. The changes in allowances for collection of receivables and realization of trading assets are shown in the table below:
COLLECTION ALLOWANCES | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated |
|
|
|
|
|
|
Allowances for collection of receivables at January 1 | $ | 27 | $ | 29 | $ | 16 |
Provisions for uncollectible accounts |
| 22 |
| 25 |
| 36 |
Write-offs of uncollectible accounts |
| (20) |
| (27) |
| (25) |
Acquisition of EnergySouth (see Note 3) |
| - |
| - |
| 2 |
Allowances for collection of receivables at December 31 p> | $ | 29 | $ | 27 | $ | 29 |
|
|
|
|
|
|
|
Allowance for realization of trading assets at January 1 | $ | - | $ | - | $ | 48 |
Provisions for uncollectible accounts |
| - |
| - |
| 42 |
Sale of commodities-marketing businesses (see Note 3) |
| - |
| - |
| (90) |
Allowance for realization of trading assets at December 31 | $ | - | $ | - | $ | - |
SDG&E |
|
|
|
|
|
|
Allowances for collection of receivables at January 1 | $ | 4 | $ | &n bsp;6 | $ | 5 |
Provisions for uncollectible accounts |
| 7 |
| 8 |
| 12 |
Write-offs of uncollectible accounts |
| (6) |
| (10) |
| (11) |
Allowances for collection of receivables at December 31 | $ | 5&nbs p; | $ | 4 | $ | 6 |
SoCalGas |
|
|
|
|
|
|
Allowances for collection of receivables at January 1 | $ | 16 | $ | 18 | $ | 9 |
Provisions for uncollectible accounts |
| 8 |
| 12 |
| 23 |
Write-offs of uncollectible accounts |
| (10) |
| (14) |
| (14) |
Allowances for collection of receivables at December 31 | $ | 14 | $ | 16 | $ | 18 |
INVENTORIES
The Sempra Utilities value 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. Materials and supplies at the Sempra Utilities are generally valued at the lower of average cost or market.
At December 31, 2010 and 2009, Sempra Pipelines & Storage had $35 million and $5 million, respectively, of natural ga s inventory recorded at lower of average cost or market, and Sempra LNG had $26 million and $19 million, respectively, of liquefied natural gas (LNG) inventory (categorized as natural gas below) valued by the first-in first-out method.
INVENTORY BALANCES AT DECEMBER 31 | |||||||||||||
(Dollars in millions) | |||||||||||||
|
| Sempra Energy |
|
| |||||||||
|
| Consolidated | SDG&E | SoCalGas | |||||||||
|
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||
Natural gas | $ | 152 | $ | 93 | $ | 5 | $ | - | $ | 86 | $ | 69 | |
Materials and supplies |
| 106 |
| 104 |
| 66 |
| 61 |
| 19 |
| 24 | |
Total | $ | 258 | $ | 197 | $ | 71 | $ | 61 | $ | 105 | $ | 93 | |
|
|
INCOME TAXES
Income tax expense includes current and deferred income taxes from operations during the year. We record deferred income taxes for temporary differences between the book and the tax bases of assets and liabilities. Investment tax credits from prior years are amortized to income by the Sempra Utilities over the estimated service lives of the properties as required by the CPUC, and represent regulatory liabilities. At Sempra Global and Parent, investment tax credits and low-income housing credits are recognized in income as earned.
The Sempra Utilities and Mobile Gas recognize
§regulatory assets to offset deferred tax liabilities if it is probable that the amounts will be recovered from customers; and
§regulatory liabilities to offset deferred tax assets if it is probable that the amounts will be returned to customers.
We currently do not record deferred income taxes for undistributed earnings of our non-U.S. subsidiaries.
When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a "more likely than not" chance of being sustained (based on the positions technical merits) upon challenge by the respective authorities. The term "more likely than not" means a likelihood of more than 50 percent. Otherwise, we may not recognize any of the potential tax benefit associated with the position. We recognize a benefit for a tax position that meets the "more likely than not" criterion at the largest amount of tax benefit that is greater than 50 percent lik ely of being realized upon its effective resolution.
Unrecognized tax benefits involve managements judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.
We provide additional information about income taxes in Note 7.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment primarily represents the buildings, equipment and other facilities used by the Sempra Utilities to provide natural gas and electric utility services, and by Sempra Generation, Sempra Pipelines & Storage and Sempra LNG. It also reflects projects included in construction wo rk in progress at these business units.
Our plant costs include
§labor
§materials and contract services
§expenditures for replacement parts incurred during a major maintenance outage of a generating plant
In addition, the cost of our utility plant includes an allowance for funds used during construction (AFUDC). We discuss AFUDC below. The cost of non-utility plant includes capitalized interest.
Maintenance costs are expensed as incurred. The cost of most retired depreciable utility plant minus salvage value is charged to accumulated depreciation.
PROPERTY, PLANT AND EQUIPMENT BY MAJOR FUNCTIONAL CATEGORY | ||||||||||||
(Dollars in millions) | ||||||||||||
|
| Property, Plant |
| Depreciation rates for | ||||||||
|
| and Equipment at |
|
years ended | ||||||||
|
| December 31, |
| December 31, | ||||||||
|
| 2010 | 2009 |
| 2010 | | 2008 | |||||
SDG&E: |
|
|
|
|
|
|
|
|
|
|
| |
Natural gas operations | $ | 1,280 | $ | 1,204 |
| 3.00 | % | 2.84 | % | 2.80 | % | |
Electric distribution |
| 4,700 |
| 4,425 |
| 4.06 |
| 3.97 |
| 3.95 |
| |
Electric transmission |
| 1,795 |
| 1,662 |
| 2.70 |
| 2.67 |
| 2.67 |
| |
Electric generation(1) |
| 1,737 |
| 1,503 |
| 4.30 |
| 3.84 |
| 3.77 |
| |
Other electric(2) |
| 666 |
| 613 |
| 8.19 |
| 8.50 |
| 8.13 |
| |
Construction work in progress |
| 1,069 |
| 749 |
| NA |
| NA |
| NA |
| |
Total SDG&E |
| 11,247 |
| 10,156 |
|
|
|
|
|
|
| |
SoCalGas: |
|
|
|
|
|
|
|
|
|
|
| |
Natural gas operations(3) |
| 9,376 |
| |
| 3.54 |
| 3.50 |
| 3.49 |
| |
Other non-utility |
| 126 |
| 114 |
| 1.74 |
| 1.41 |
| 1.55 |
| |
Construction work in progress |
| 322 |
| 272 |
| NA |
| NA |
| NA |
| |
Total SoCalGas |
| 9,824 |
| 9,297 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Sempra Global and parent(4): |
|
|
|
|
| Estimated Useful Lives | ||||||
Land and land rights |
| 194 |
| 189 |
| 25 to 50 years(5) | ||||||
Machinery and equipment: |
|
|
|
|
|
|
|
|
|
|
| |
Generating plants |
| 1,668 |
| 1,457 |
| 4 to 35 years | ||||||
LNG receipt terminals |
| 2,049 |
| 2,033 |
| 5 to 50 years | ||||||
Pipelines and storage |
| 1,375 |
| 942 |
| 10 to 50 years | ||||||
Othe r |
| 97 |
| 136 |
| 2 to 50 years | ||||||
Construction work in progress: |
|
|
|
|
|
|
|
|
|
|
| |
LNG facilities |
| 3 |
| 27 |
| NA | ||||||
Other |
| 425 |
| 534 |
| NA | ||||||
Other(6) |
| 205 |
| 263 |
| 3 to 50 years | ||||||
|
| 6,016 |
| 5,581 |
|
|
|
|
|
|
| |
Total Sempra Energy Consolidated | $ | 27,087 | $ | 25,034 |
|
|
|
|
|
|
| |
(1) | Includes capital lease assets of $182 million at December 31, 2010. | |||||||||||
(2) | Includes capital lease assets of $26 million and $21 million at December 31, 2010 and 2009, respectively. | |||||||||||
(3) | Includes capital lease assets of $33 million and $29 million at December 31, 2010 and 2009, respectively. | |||||||||||
(4) | December 31, 2010 balances include $156 million and $137 million of utility plant, primarily pipelines and other distribution assets, at Mobile Gas and Ecogas, respectively. December 31, 2009 balances include $150 million and $125 million of utility plant, primarily pipelines and other distribution assets, at Mobile Gas and Ecogas, respectively. | |||||||||||
(5) | Estimated useful lives are for land rights. | |||||||||||
(6) | Includes $2 million at both December 31, 2010 and 2009 for PE. |
Property, plant and equipment for Sempra Energy Consolidated included unpaid capital expenditures recorded in accounts payable of $341 million and $247 million at December 31, 2010 and 2009, respectively. Property, plant and equipment for SDG&E included unpaid capital expenditures recorded in accounts payable of $173 million and $157 million at December 31, 2010 and 2009, respectively. Property, plant and equipment for SoCal Gas included unpaid capital expenditures recorded in accounts payable of $103 million and $75 million at December 31, 2010 and 2009, respectively.
Depreciation expense is based on the straight-line method over the useful lives of the assets or, for the Sempra Utilities, a shorter period prescribed by the CPUC. Depreciation expense is computed using the straight-line method over the asset's estimated original composite useful life or the remaining term of the site leases, whichever is shorter.
The accumulated depreciation and decommissioning amounts on our Consolidated Balance Sheets are as follows:
ACCUMULATED DEPRECIATION AND DECOMMISSIONING AMOUNTS | |||||
(Dollars in millions) | |||||
|
| December 31, | |||
|
| 2010 | 2009 | ||
SDG&E: |
|
|
|
| |
Accumulated depreciation and decommissioning of utility plant in service: |
|
|
|
| |
Electric(1) | $ | 2,152 | $ | 2,069 | |
Natural gas |
| 542 |
| 518 | |
Total SDG&E |
| 2,694 |
| 2,587 | |
SoCalGas: |
|
|
|
| |
Accumulated depreciation of natural gas utility plant in service(2) |
| 3,702 |
| 3,529 | |
Accumulated depreciation other non-utility |
| &nbs p;100 |
| 86 | |
Total SoCalGas |
| 3,802 |
| ||
Sempra Global and parent(3): |
|
|
|
| |
< p style="MARGIN:0in 0in 0pt"> Accumulated depreciation |
| 715 |
| 551 | |
Total Sempra Energy Consolidated | $ | 7,211 | $ | 6,753 | |
(1) | Includes accumulated depreciation for assets unde r capital lease of $7 million and $1 million at December 31, 2010 and 2009, respectively. | ||||
(2) | Includes accumulated depreciation for assets under capital lease of $14 million and $2 million at December 31, 2010 and 2009, respectively. | ||||
(3) | December 31, 2010 balances include $9 million and $29 million of accumulated depreciation for utility plant, primarily pipelines and other distribution assets, at Mobile Gas and Ecogas, respectively. December 31, 2009 balances include $8 million and $24 million of accumulated depreciation for utility plant, primarily pipelines and other distribution assets, at Mobile Gas and Ecogas, respectively. i> |
The Sempra Utilities finance their construction projects with borrowed funds and equity funds. The CPUC and the FERC allow the recovery of the cost of these funds by the capitalization of AFUDC, calculated using rates authorized by the CPUC and the FERC, as a cost component of property, plant and equipment. The Sempra Utilities earn a return on the allowance after the utility property is placed in service and recover the AFUDC from their customers over the expected useful lives of the assets.
Sempra Global businesses capitalize interest costs incurred to finance capital projects. The Sempra Utilities also capitalize certain interest costs.
CAPITALIZED FINANCING COSTS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated: |
|
|
|
|
|
|
AFUDC related to debt | $ | 24 | $ | 15 | $ | 13 |
AFUDC related to equity |
| 57 |
| 39 |
| 35 |
Other capitalized financing costs |
| 33 |
| 73 |
| 100 |
Total Sempra Energy Consolidated | $ | 114 | $ | 127 | $ | 148 |
SDG&E: |
|
|
|
|
|
|
AFUDC related to debt | $ | 18 | $ | 10 | $ | 10 |
AFUDC related to equity |
| 43 |
| 29 |
| 27  ; |
Other capitalized financing costs |
| - |
| 4 |
| 13 |
Total SDG&E | $ | 61 | $ | 43 | $ | 50 |
SoCalGas: |
|
|
|
|
|
|
AFUDC related to debt | $ | 6 | $ | 5 | $ | 3 |
AFUDC related to equity |
| 14 |
| 10 |
| 8 |
Other capitalized financing costs |
| - |
| 1 |
| - |
Total SoCalGas | $ | 20 | $ | 16 | $ | 11 |
ASSETS HELD FOR SALE
We classify assets as held for sale when management approves and commits to a formal plan to actively market an asset for sale and we expect the sale to close within the next twelve months. Upon classifying an asset as held for sale, we record the asset at the lower of its carrying value or its estimated fair value reduced for selling costs. We cease to record depreciation expense on an asset when it is classified as held for sale.
During 2008, management approved and committed to a formal plan to d ispose of certain Sempra Generation assets, recorded at December 31, 2010 and 2009 as follows:
(Dollars in millions) |
| |
Gas turbine | $ | 34 |
Steam turbine |
| 6 |
Emission reduction credits |
| 1 |
| $ | 41 |
We classified these assets as held for sale as of December 31, 2010 and 2009. They are included in Other Current Assets on the Consolidated Balance Sheets. For the years ended December 31, 2010 and 2009, there was no impairment of the assets held for sale nor do the assets held for sale generate operating income. We continue to evaluate these assets for whether events or circumstances have occurred that may affect recoverability or estimated useful life, and continue to actively market these assets at a price that is reasonable in relation to their fair values.
Goodwill
Goodwill is the excess of the purchase price over the fair value of the net assets of acquired companies. Goodwill is not amortized but is tested annually on October 1 for impairment. Impairment of goodwill occurs when the carrying amount (book value) of goodwill exceeds its implied fair value. If the book value of goodwill is greater than the fair value on the test date, an impairment loss is recorded.
Sempra Pipelines & Storage recorded goodwill of $18 million in April 2010 and $62 million in October 2008 in connection with the acquisition of the Mexican pipeline and natural gas infrastructure assets of El Paso Corporation and the acquisition of EnergySouth, respectively, which we discuss in Note 3.
Goodwill included in Goodwill and Other Intangible Assets on the Sempra Energy Consolidated Balance Sheets is recorded as follows:
GOODWILL | ||||
(Dollars in millions) | ||||
| December 31, | December 31, | ||
| 2010 | 2009 | ||
Sempra Pipelines & Storage | $ | 81 | $ | 62 |
Parent and Other |
| 6 |
| 6 |
| $ | 87 | $ | 68 |
We provide additional information concerning goodwill related to our equity method investments and the impairment of investments in unconsolidated subsidiaries in Note 4.
Other Intangible Assets
Sempra Pipelines & Storage recorded $460 million of intangible assets in connection with the acquisition of EnergySouth. These intangible assets repr esent storage and development rights related to the Bay Gas and Mississippi Hub natural gas storage facilities and were recorded at estimated fair value as of the date of the acquisition using discounted cash flows analysis. Our important assumptions in determining fair value include estimated future cash flows, the estimated useful life of the intangible assets and our use of appropriate discount rates. We are amortizing these intangible assets over their estimated useful lives as shown in the table below.
Intangible assets included in Goodwill and Other Intangible Assets on the Sempra Energy Consolidated Balance Sheets are as follows:
OTHER INTANGIBLE ASSETS | |||||
(Dollars in millions) | |||||
| Amortization period | December 31, | December 31, | ||
| (years) | 2010 | 2009 | ||
Storage rights | 46 | $ | 138 | $ | 138 |
Development rights | 50 |
| 322 |
| 322 |
Other | 15 years to indefinite |
| 16 |
| 9 |
Total |
|
| 476 |
| 469 |
Less accumulated amortization |
|
| (23) |
| (13) |
Total |
| $ | 453 | $ | 456 |
Amortization expense related to the above intangible assets was $10 million in 2010, $10 million in 2009 and $3 million in 2008. We estimate the amortization expense for the next five years to be $10 million per year.
LONG-LIVED ASSETS
We periodically evaluate whether events or circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets, the definition of which includes intangible assets subject to amortization, but does not include unconsolidated subsidiaries. Impairment of long-lived assets occurs when the estimated future undiscounted cash flows are less than the carrying amount of the assets. If that comparison indicates that the assets' carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the fair value of the assets. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.
In the second quarter of 2009, we recorded a $132 million pretax write-off related to certain assets at one of Sempra Pipelines & Storages Liberty Gas Storage natural gas storage projects. This amount is recorded as Write-off of Long-Lived Assets on our Consolidated Statement of Operations for the year ended December 31, 2009. Sempra Pipelines & Storage owns 75 percent of Liberty Gas Storage, LLC (Liberty), the partnership that is developing the project. Our partner's 25-percent share of the pretax charge is $33 million, which is included in Losses Attributable to Noncontrolling Interests on our Consolidated Statement of Operations for the year ended December 31, 2009. The impact to our net income and to our earnings is $97 million and $64 million, respectively, for the year ended December 31, 2009. In September 2009, the members of the partnership unanimously voted to proceed with the abandonment of the assets that were written off.
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., t olling agreements). SDG&Es 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 facilitys 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 po wer 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 pred etermined 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 $113 million at December 31, 2010 and $146 million at December 31, 2009 is included on the Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.
OMEC LLC has a loan outstanding of $365 million at December 31, 2010, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders an d 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 10.
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 prim ary 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. 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 wou ld be recovered in rates.
Sempra Energys 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.
The Consolidated Financial Statements of Sempra Energy and SDG&E include the following amounts associated with VIEs, primarily Otay Mesa VIE, which are net of eliminations of transactions between SDG&E and the VIEs.
AMOUNTS ASSOCIATED WITH VARIABLE INTEREST ENTITIES | |||||||||
(Dollars in millions) | |||||||||
|
|
| December 31, | ||||||
|
|
| 2010 | 2009(1) | |||||
Cash and cash equivalents | $ | 10 | $ | 7 | |||||
Restricted cash |
|
|
|
|
| 6 |
| 8 | |
Accounts receivable - other |
|
|
|
|
| (1) |
| 1 | |
Inventories |
| 2 |
| 2 | |||||
Other |
| 1 |
| - | |||||
Total current assets |
| 18 |
| 18 | |||||
Sundry |
| 6 |
| 10 | |||||
Property, plant and equipment, net |
| 516 |
| 644 | |||||
Total assets | $ | 540 | $ | 672 | |||||
|
|
|
|
| |||||
Short-term debt |
|
|
|
| $ | - | $ | 33 | |
Current portion of long-term debt |
| 10 |
| 40 | |||||
Fixed-price contracts and other derivatives |
| 17 |
| 17 | |||||
Other |
| 1 |
| (13) | |||||
Total current liabilities |
| 28 |
| 77 | |||||
Long-term debt |
| 355 |
| 422 | |||||
Fixed-price contracts and other derivatives |
| 41 |
| 26 | |||||
Deferred credits and other |
| 3 |
| 1 | |||||
Other noncontrolling interests/noncontrolling interest |
| 113&nbs p; |
| 146 | |||||
Total liabilities and equity | $ | 540 | $ | 672 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||
|
|
| 2010&n bsp; | 2009(1) | 2008 | ||||
|
|
|
|
|
|
| |||
Operating revenues |
|
|
|
|
|
| |||
Electric |
|
| $ | (1) | $ | (1) | $ | - | |
Natural gas |
|
|
| (3) |
| - |
| - | |
Total operating revenues |
|
|
| (4) |
| (1) |
| - | |
Operating expenses |
|
|
|
|
|
| |||
Cost of electric fuel and purchased power |
| (82) |
| (13) |
| - | |||
Operation and maintenance | 20 |
| 7 |
| - | ||||
Depreciation and amortization |
|
|
| 26 |
| 7 |
| - | |
Total operating expenses |
|
|
| (36) |
| 1 |
| - | |
Operating income (loss) |
|
|
| 32 p> |
| (2) |
| - | |
Other income (expense), net |
|
|
| (34) |
| 27 |
| (54) | |
Interest expense |
|
|
| (14) |
| (1) |
| - | |
Income (loss) before income taxes/Net income (loss) |
| (16) |
| 24 |
| (54) | |||
Losses (earnings) attributable to noncontrolling interest |
| 16 |
| (24) |
| 54 | |||
Earnings | $ | - | $ | - | $ | - | |||
(1) | Includes amounts associated with Orange Grove Energy L.P. as we d iscuss above under "Basis of PresentationOrange Grove Energy L.P." |
ASSET RETIREMENT OBLIGATIONS
For tangible long-lived assets, we record asset retirement obligations for the present value of liabilities of future costs expected to be incurred when assets are retired from service, if the retirement process is legally required and if a reasonable estimate of fair value can be made. We also record a liability if a legal obligation to perform an asset retirement exists and can be reasonably estimated, but performance is conditional upon a future event. We record the estimated retirement cost over the life of the related asset by depreciating the present value of the obligation (measured at the time of the asset's acquisition) and accreting the discount until the liability is settled. Rate-regulated entities record regulatory assets or liabilities as a result of the timing difference between the recognition of costs in accordance with GAAP and costs recovered through the rate-making process. We have recorded a regulatory liability to show that the Sempra Utilities have collected funds from customers more quickly and for larger amounts than we would accrete the retirement liability and depreciate the asset in accordance with GAAP.
We have recorded asset retirement obligations related to various assets including:
SDG&E and SoCalGas
§fuel and storage tanks
§natural gas distribution syste m
§hazardous waste storage facilities
§asbestos-containing construction materials
SDG&E
§decommissioning of nuclear power facilities
§electric distribution and transmission systems
§site restoration of a former power plant
SoCalGas
§natural gas transmission pipelines
§underground natural gas storage facilities and wells
Sempra Global
§certain power generation plants (natural gas and solar)
§natural gas distribution and transportation systems
§LNG receipt terminal
The changes in asset retirement obligations are as follows:
CHANGES IN ASSET RETIREMENT OBLIGATIONS | |||||||||||||||
(Dollars in millions) | |||||||||||||||
|
| Sempra Energy |
|
|
|
|
|
| |||||||
|
| Consolidated |
| SDG&E |
| SoCalGas | |||||||||
|
| 2010 | 2009 |
| 2010 | 2009 |
| 2010 | 2009 | ||||||
Balance as of January 1(1) | $ | 1,313 | $ | 1,177 |
| $ | 590 | $ | 554 |
| $ | 676 | $ | 595 | |
Accretion expense |
| 77 |
| 75 |
|
| 37 |
| 38 |
|
| 38 |
| 35 | |
Liabilities incurred |
| 10 |
| 17 |
|
| - |
| - |
|
| - |
| - | |
Payments |
| (17) |
| (5) |
|
| - |
| (3) |
|
| (2) |
| (2) | |
Revisions to estimated cash flows(2) |
| 85 |
| 49 |
|
| (4) |
| 1 |
|
| 91 |
| 48 | |
Balance as of December 31(1) | $ | 1,468 | $ | 1,313 |
| $ | 623 | $ | 590 |
| $ | 803 | $ | 676 | |
(1) | The current portions of the obligations are included in Other Current Liabilities on the Consolidated Balance Sheets. | ||||||||||||||
(2) | The increase in obligations at SoCalGas for revisions to estimated cash flows in 2010 resulted from a decrease in the discount rate from 5.54 percent in 2009 to 5.13 percent in 2010, based on the risk-free rate plus an estimated credit spread. |
CONTINGENCIES
We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:
§information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events; and
§the amounts of th e loss can be reasonably estimated.
We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.
LEGAL FEES
Legal fees that are associated with a past event for which a liability has been recorded are accrued when it is probable that fees also will be incurred.
COMPREHENSIVE INCOME
Comprehensive income includes all changes in the equity of a business enterprise (except those resulting from investments by owners and distributions to owners), including:
§foreign-currency translation adjustments
§amortization of net actuarial gain or loss and prior service cost related to pension and other postretirement benefits plans
§unrealized gains or losses on available-for-sale securities
§certain hedging activities
The Statements of Consolidated Comprehensive Income and Changes in Equity show the changes in the components of other comprehensive income (OCI), including the amounts attributable to noncontrolling interests. The components of Accumulated Other Comprehensive Income ( Loss) (AOCI), shown net of income taxes on the Consolidated Balance Sheets, and the related income tax balance at December 31, 2010 and 2009 are as follows:
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) AND | ||||||||
< font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'">ASSOCIATED INCOME TAX EXPENSE (BENEFIT) | ||||||||
(Dollars in millions) | ||||||||
| Accumulated Other Comprehensive Income (Loss) | Income Tax Expense (Benefit) | ||||||
| 2010 | 2009 | 2010 | 2009 | ||||
Sempra Energy Consolidated |
|
|
|
|
|
|
|
|
Foreign currency translation loss | $ | (229) | $ | (276) | $ | - | $ | - |
Financial instruments |
| (15) |
| (2) |
| (12) |
| (3) |
Unrealized gains on available-for-sale securities |
| 1 |
| 9 |
| 1 |
| 3 |
Unamortized net actuarial loss |
| (88) |
| (102) |
| (60) |
| (70) |
Unamortized prior service credit |
| 1 |
| 2 |
| 1 |
| 1 |
Balance as of December 31 | $ | (330) | | (369) | $ | (70) | $ | (69) |
SDG&E |
|
|
|
|
|
|
|
|
Unamortized net actuarial loss | $ | (11) | $ | (11) | $ | (8) | $ | (7) |
Unamortized prior service credit |
| 1 |
| 1 |
| 1 |
| 1 |
Balance as of December 31 | $ | (10) | $ | (10) | $ | (7) | $ | (6) |
SoCalGas |
|
|
|
|
|
|
|
|
Unamortized net actuarial loss | $ | (5) | $ | (5) | $ | (4) | $ | (4) |
Unamortized prior service credit |
| 1 |
| 1 |
| 1 |
| 1 |
Financial instruments |
| (18) |
| (21) |
| (12) |
| (14) |
Balance as of December 31 | $ | (22) | $ | (25) | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right>$ | (15) | $ | (17) |
REVENUES
Sempra Utilities
The Sempra Utilities generate revenues primarily from deliveries to their customers of electricity by SDG&E and natural gas by both SoCalGas and SDG&E and from related services. They record these revenues following the accrual method and recognize them upon delivery and performance. They also record revenue from CPUC-approved incentive awards, some of which requ ire approval by the CPUC prior to being recognized. We provide additional discussion on utility incentive mechanisms in Note 15.
Under an operating agreement with the California Department of Water Resources (DWR), SDG&E acts as a limited agent on behalf of the DWR in the administration of energy contracts, including natural gas procurement functions under the DWR contracts allocated to SDG&E's customers. The legal and financial responsibilities associated with these activities continue to reside with the DWR. Accordingly, the commodity costs associated with long-term contracts allocated to SDG&E from the DWR (and the revenues to recover those costs) are not included in our Consolidated Statements of Operations. We provide discussion on electric industry restructuring related to the DWR in Note 14.
On a monthly basis, SoCalGas accrues natural gas storage contract revenues, which consist of storage rese rvation and variable charges based on negotiated agreements with terms of up to 15 years.
The table below shows the total revenues from the Sempra Utilities in Sempra Energy's Consolidated Statements of Operations, net of sales taxes, for each of the last three years. The revenues include amounts for services rendered but unbilled (approximately one-half month's deliveries) at the end of each year.
TOTAL SEMPRA UTILITIES REVENUES AT SEMPRA ENERGY CONSOLI DATED(1) | |||||||
(Dollars in millions) | |||||||
|
| Years ended December 31, | |||||
|
| 2010 | 2009 | 2008 | |||
Natural gas revenues | $ | 4,291 | $ | 3,801 | $ | 5,419 | |
Electric revenues |
| 2,528 |
| 2,419 |
| 2,553 | |
Total | $ | 6,819 | $ | 6,220 | $ | 7,972 | |
(1) | Excludes intercompany revenues. |
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|
|
As we discuss in Note 15, beginning April 1, 2008, the SDG&E and SoCalGas core natural gas supply portfolios were combined and are managed by SoCalGas. Effective as of that date, SoCalGas procures natural gas for SDG&Es core customers. Core customers are primarily residential and small commercial and industrial customers. This core gas procureme nt function is considered a shared service, therefore amounts related to SDG&E are not included in SoCalGas' income statement.
We provide additional information concerning utility revenue recognition in "Regulatory Matters" above.
Sempra Global
Sempra Generation
Sempra Generation generates revenues primarily from selling electricity to governmental and wholesale power marketing entities. These revenues are recognized as the electricity is delivered. In each of 2010, 2009 and 2008, Sempra Generation's electricity sales to the DWR accounted for a significant portion of its revenues. Sempra Generations revenues also include net realized gains and losses and the net change in the fair value of unrealized gains and losses on derivative contracts for power and natural gas.
Sempra Pipelines & Storage
Sempra Pipelines & Storage has consolidated foreign subsidiaries in Mexico. The pipeline operations in Mexico recognize revenues from the sale and transportation of natural gas as deliveries are made and from fixed capacity payments. The natural gas distribution utility in Mexico applies GAAP for regulated utilities, as we discuss above. Sempra Pipelines & Storage's natural gas storage and transportation operations recognize revenues when they provide services in accordance with contractual agreements for the storage and transportation services. Sempra Pipelines & Storages revenues also include net realized gains and losses and the net change in the fair value of unrealized gains and losses on derivative contracts for natural gas.
Sempra LNG
Sempra LNG recognizes revenues from (1) the sale of LNG and nat ural gas as deliveries are made to counterparties and (2) from reservation and usage fees under terminal capacity agreements, nitrogen injection service agreements and tug service agreements. Sempra LNG reports revenue net of value added taxes in Mexico. Sempra LNGs revenues also include net realized gains and losses and the net change in the fair value of unrealized gains and losses on derivative contracts for natural gas.
Sempra Commodities
As we discuss in Notes 3 and 4, on April 1, 2008, our commodities-marketing businesses, previously wholly owned subsidiaries of Sempra Energy, were sold into RBS Sempra Commodities LLP (RBS Sempra Commodities), a partnership jointly owned by Sempra Energy and The Royal Bank of Scotland. Therefore, beginning April 1, 2008, we account for our earnings in the partnership under the equity method. In 2010 and early 2011, the partnership divested its principal businesses an d assets, as we discuss in Notes 3 and 4.
RBS Sempra Commodities generated most of its revenues from trading and marketing activities in natural gas, electricity, petroleum, petroleum products, base metals and other commodities. RBS Sempra Commodities quoted bid and ask prices to end users and other market makers. It also earned trading profits as a dealer by structuring and executing transactions. Principal transaction revenues were recognized on a trade-date basis and included realized gains and losses and the net change in unrealized gains and losses.
RBS Sempra Commodities used derivative instruments (which we discuss further in Note 10) to reduce its exposure to unfavorable changes in market prices. Non-derivative contracts were accounted for on an accrual basis and the related profit or loss was recognized as the contracts were settled.
OTHER COST OF SALES
Other Cost of Sales primarily includes the transportation and storage costs incurred at Sempra Commodities prior to April 1, 2008, pipeline capacity marketing costs incurred at Sempra Generation, and pipeline transportation and natural gas marketing costs incurred at Sempra LNG.
OPERATION AND MAINTENANCE EXPENSES
Operation and Maintenance includes operating and maintenance costs, and general and administrative costs, which consist primarily of personnel costs, purchased materials and services, and rent. Operation and Maintenance also includes litigation expense, which is shown separately on Sempra Energys Consolidated Statements of Operations.
FOREIGN CURRENCY TRANSLATION
Our foreign operations generally use their local currency as their functional currency. The assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates at the end of the reporting period, and revenues and expenses are translated at average exchange rates for the year. The resulting noncash translation adjustments do not enter into the calculation of earnings or retained earnings (unless the operation is being discontinued), but are reflected in Comprehensive Income and in Accumulated Other Comprehensive Income (Loss), a component of shareholders' equity.
To reflect the fluctuations in the values of functional currencies of Sempra Pipelines & Storages South American investments accounted for under the equity meth od, the following adjustments were made to the carrying value of these investments (dollars in millions):
|
|
| Upward (downward) adjustment to investments | |||||
Investment |
| Currency | 2010 | 2009 | 2008 | |||
Chile |
| Chilean Peso | $ | 34 | $ | 85 p> | $ | (101) |
Peru |
| Peruvian Nuevo Sol |
| 5 |
| 13 |
| (7) |
Argentina |
| Argentine Peso |
| - |
| - |
| (8) |
Smaller adjustments have been made to other operations where the U.S. dollar is not the functional currency. We provide additional information concerning these investments in Note 4.
Currency transaction gains and losses in a currency other than the entity's functional currency are included in the calculation of consolidated earnings at Sempra Energy as follows:
| Years ended December 31, | |||||
(Dollars in millions) | 2010 | 2009 | 2008 | |||
Currency transaction gain (loss) | $ | 4 | $ | 3 | $ | (2) |
TRANSACTIO NS WITH AFFILIATES
Loans to Unconsolidated Affiliates
Sempra Pipelines & Storage has a U.S. dollar-denominated loan to Camuzzi Gas del Sur S.A., an affiliate of Sempra Pipelines & Storages Argentine investments which we discuss in Note 4. The loan has a $28 million balance outstanding at a variable interest rate (7.3 percent at December 31, 2010). In May 2010, the maturity date of the loan was extended from June 2010 to June 30, 2011. The loan is fully reserved at December 31, 2010.
Investments
Sempra Pipelines & Storage has an investment in bonds issued by Chilquinta Energía S.A. that we discuss in Note 4.
Other Affiliate Transactions
Sempra Energy, SDG&E and SoCalGas provide certain services to each other and are charged an allocable share of the cost of such services. Amounts due to/from affiliates are as follows:
AMOUNTS DUE TO AND FROM AFFILIATES AT SDG&E, PE AND SOCALGAS |
| |||||
(Dollars in millions) |
| |||||
|
| December 31, |
| |||
| 2010 | 2009 |
| |||
SDG&E |
|
|
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|
| |
Current: |
|
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|
|
| |
Due from Sempra Energy | $ | - | $ | 2 |
| |
Due from SoCalGas |
| 11 |
| 3 |
| |
Due from various affiliates |
| 1 |
| 3&nbs p; |
| |
| $ | 12 | $ | 8 |
| |
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| |
Due to Sempra Energy | $ | 16 | $ | - |
| |
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| |
Income taxes due from Sempra Energy(1) | $ | 25 | $ | 37 |
| |
|
| &nb sp; |
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Noncurrent: |
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| |
Promissory note due from Sempra Energy, var iable rate based on short- |
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| |
term commercial paper rates (0.13% at December 31, 2009) | $ | - | $ | 2 |
| |
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PE |
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| |
Current: |
|
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|
| |
Due from Sempra Energy | $ | 60 | $ | 7 |
| |
Due from various affiliates |
| 8 |
| 5 |
| |
|
| $ | 68 | $ | 12 |
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| |
Due to affiliate | $ | 85 | $ | 84 |
| |
Due to SDG&E |
| 11 |
| 3 |
| |
| $ | 96 | $ | 87 |
| |
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| <
td width=17 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:12.5pt; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom> ||
Income taxes due from Sempra Energy(1) | $ | 6 | $ | 2 |
| |
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Noncurrent: |
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Promissory note due from Sempra Energy, variable rate based on short- |
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term commercial paper rates (0.20% at December 31, 2010) | $ | 502 | $ | 513 | p> | |
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SoCalGas |
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Current: |
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| |
Due from Sempra Energy | $ | 60 | $ | 6 |
| |
Due from RBS Sempra Commodities |
| 3 |
| - |
| |
|
| $ | 63 | $ | 6 |
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Due to SDG&E | $ | 11 | $ | 3 |
| |
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| |
Income taxes due (to) from Sempra Energy(1) | $ | (3) | $ | 2 |
| |
(1) | SDG&E, PE and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from the companies' having always filed a separate return. |
|
Revenues from unconsolidated affiliates at the Sempra Utilities are as follows:
REVENUES FROM UNCONSOLIDATED AFFILIATES AT THE SEMPRA UTILITIES | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
SDG&E | $ | 8 | $ | 8 | $ | 11 |
SoCalGas |
| 44 |
| 43 |
| 36 |
Transactions with RBS Sempra Commodities
Several of our business units have engaged in transactions with RBS Sempra Commodities. As a result of the divestiture of RBS Sempra Commodities businesses, transactions between our business units and RBS Sempra Commodities wil l be assigned over time to the buyers of the joint venture businesses. Amounts in our Consolidated Financial Statements related to these transactions are as follows:
AMOUNTS RECORDED FOR TRANSACTIONS WITH RBS SEMPRA COMMODITIES |
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| ||||||
(Dollars in millions) |
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| ||||||
|
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| Years ended December 31, | |||||
|
|
| 2010 | 2009 |
| 2008(1) | ||
Revenues: |
|
|
|
|
|
| ||
SoCalGas | $ | 14 | $ | 13 | $ | 12 | ||
Sempra Generation |
| 19 |
| 11 |
| 31 | ||
Sempra Pipelines & Storage |
| - |
| 3 |
| - | ||
Sempra LNG |
| 247 |
| 60 |
| 33 | ||
Total revenues | $ | 280 | $ | 87 | $ | 76 | ||
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| ||
Cost of natural gas: |
|
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|
|
|
| ||
SDG&E | $ | 3 | $ | 4 | $ | - | ||
SoCalGas |
| 36 |
| 19 |
| 22 | ||
Sempra Generation |
| 87 |
| 1 |
| - | ||
  ; Sempra Pipelines & Storage |
| 28 |
| 25 |
| 34 | ||
Sempra LNG |
| 255 |
| 61 |
| - | ||
Total cost of natural gas | $ | 409 | $ | 110 | $ | 56 | ||
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| December 31, |
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| |||
|
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| 2010 | 2009 |
|
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Fixed-price contracts and other derivatives - Net Asset (Liability): |
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|
| ||
Sempra Generation | $ | 17 | $ | 7 |
|
| ||
Sempra LNG |
| (35) |
| (47) |
|
| ||
Total | $ | (18) | $ | (40) |
|
| ||
|
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|   ; | ||
Due to unconsolidated affiliates: |
|
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| ||
Sempra Generation | $ | 11 | $ | 13 |
|
| ||
Sempra Pipelines & Storage |
| - |
| 3 |
|
| ||
Sempra LNG |
| 13 |
| 13&nb sp; |
|
| ||
Sempra Commodities |
|
| 11 |
| - |
|
| |
Total | $ | 35 | $ | 29 |
|
| ||
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| ||
Due from unconsolidated affiliates: |
|
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|
| ||
SoCalGas |
| $ | 3 | $ | - |
|
| |
Sempra Generation |
| 13 |
| 22 |
|
| ||
Sempra LNG |
| 13 |
| 15 |
|
| ||
Sempra Commodities |
| - |
| 1 |
|
| ||
Parent and other |
| 5 |
| 3 |
|
| ||
Total | $ | 34 | $ | 41 |
|
| ||
(1) | Nine months beginning April 1, 2008, when the partnership was formed. |
| &nbs p; |
Revenues and Expenses with Unconsolidated Affiliates
For the quarter ended March 31, 2008, Sempra Commodities recorded $55 million of sales to unconsolidated affiliates.
DIVIDENDS AND LOANS AT THE SEMPRA UTILITIES
The CPUC's regulation of the Sempra Utilities' capital structures limits the amounts that are available for dividends and loans to Sempra Energy. At December 31, 2010, Sempra Energy could have received combined loans and dividends of approximately $28 million from SoCalGas and none from SDG&E.
OTHER INCOME (EXPENSE), NET
Ot her Income (Expense), Net on the Consolidated Statements of Operations consists of the following:
OTHER INCOME (EXPENSE), NET | |||||||
(Dollar s in millions) | |||||||
|
| Years ended December 31, | |||||
|
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated: |
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|
| |
Allowance for equity funds used during construction | $ | 57 | $ | 39 | $ | & nbsp;35 | |
Regulatory interest income (expense), net |
| 1 |
| 4 |
| (9) | |
Investment gains (losses)(1) |
| 35 |
| 55 |
| (53) | |
Gains (losses) on interest rate instruments(2) |
| (24) |
| 33 |
| (53) | |
Mexican peso exchange losses(3) |
| - |
| - |
| (57) | |
Sundry, net(4) |
| 71 |
| 18 |
| 28 | |
| Total | $ | 140 | $ | 149 | $ | (109) |
SDG&E: |
|
|
|
|
| p> | |
Allowance for equity funds used during construction | $ | 43 | $ | 29 | $ | 27 | |
Regulatory interest income (expense), net |
| - |
| 5 |
| (5) | |
Gains (losses) on interest rate instruments(2) |
| (34) |
| 27 |
| (54) | |
Sundry, net |
| 1 |
| 3 |
| 3 | |
| Total | $ | 10 | $ | 64 | $ | (29) |
SoCalGas and PE: |
|
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|
| |
Allowance for equity funds used during construction | $ | 14 | $ | 10 | $ | 8 | |
Regulatory interest income (expense), net |
| 1 |
| (1) |
| (4) | |
Sundry, net |
| (3) |
| (2) |
| (2) | |
| Total at SoCalGas |
| 12 |
| 7 |
| 2 |
Additional at PE: |
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| |
Sundry, net |
| - |
| (3) |
| - | |
| Total at PE | $ | 12 | $ | 4 | $ | 2 |
(1) | Represents investment gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans. | ||||||
(2) | Related to Otay Mesa VIE. Sempra Energy Consolidated also includes additional instruments. | ||||||
(3) | The losses for the year ended December 31, 2008 were largely offset by Mexican tax benefits arising from fluctuations in the U.S. dollar/Mexican peso exchange rate and infla tion rate. | ||||||
(4) | The year ended December 31, 2010 includes proceeds from a legal settlement of $48 million, as we discuss in Note 4. The year ended December 31, 2008 includes a $16 million cash payment received for the early termination of a capacity agreement for the Cameron LNG rece ipt terminal. |
NOTE 2. NEW ACCOUNTING STANDARDS
We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.
SEMPRA ENERGY, SDG&E, PE AND SOCALGAS
Accounting Standards Update (ASU) 2009-17, "Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities" (ASU 2009-17): ASU 2009-17 amends Financial Accounting Standards Board (FASB) Interpretation No. 46(R), Consolidation of Variable Interest Entities an interpretation of ARB No. 51 (FIN 46(R)), which provides consolidation guidance related to variable interest entities.
ASU 2009-17 amends FASB Accounting Standards Codification (ASC) Topic 810, Consolidation, and requires
§a qualitative approach for identifying the primary beneficiary of a variable interest entity based on (1) the power to direct activities that most significantly impact the economic performance of the entity, and (2) the obligation to absorb losses or right to receive benefits that could be significant to the entity;
§ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; and
§separate disclosure by the primary beneficiary on the face of the balance sheet to identify (1) assets that can only be used to settle obligations of the variable interest entity, and (2) liabilities for which creditors do not have recourse to the primary beneficiary.
We adopted ASU 2009-17 on January 1, 2010 and it did not have a material effect on earnings, nor on presentation on the Consolidated Balance Sheets f or Sempra Energy and SDG&E. We provide the required additional disclosure in Note 1. ASU 2009-17 did not impact PEs nor SoCalGas consolidated financial statements.
ASU 2010-06, "Improving Disclosures About Fair Value Measurements"(ASU 2010-06): ASU 2010-06 amends ASC Topic 820, Fair Value Measurements and Disclosures, and requires the following additional fair value measurement disclosures:
§transfers into and out of Levels 1 and 2
§segregation of classes of assets and liabilities measured at fair value
§valuation techniques and inputs used for Level 2 and Level 3 instruments
§detailed activity for Level 3 instruments, including separate presentation of purchases, sales, issuances and settlements
We adopted ASU 2010-06on January 1, 2010, and we provide the additional disclosure in Note 11.
NOTE 3. RECENT INVESTMENT ACTIVITY
< /div>SEMPRA GENERATION
We provide information about investment activity at Sempra Generation in Note 4.
SEMPRA PIPELINES & STORAGE
We discuss Sempra Pipelines & Storages investment in Rockies Express Pipeline LLC (Rockies Express) in Note 4.
Acquisition of Mexican Pipeline and Natural Gas Infrastructure
On April 30, 2010, Sempra Pipelines & Storage completed an acquisition resulting in the purchase of the Mexican pipeline and natural gas infrastructure assets of El Paso Corporation for $307 million ($292 mil lion, net of cash acquired).
The acquisition consists of El Paso Corporations wholly owned natural gas pipeline and compression assets in the Mexican border state of Sonora and its 50-percent interest in Gasoductos de Chihuahua, a joint venture with PEMEX, the Mexican state-owned oil company. The joint venture operates two natural gas pipelines and a propane system in northern Mexico. The acquisition expands our scale and geographic footprint in a strong growth region in Mexico. The pipeline assets are backed substantially by long-term contracts with a history of consistent revenue streams, allowing us to expand our natural gas infrastructure business in northern Mexico.
The following table summarizes the consideration paid in the acquisition and the recognized amounts of the assets acquired and liabilities assumed:
(Dollars in millions) | At April 30, 2010 | |||
Cash consideration (fair value of total consideration) | $ | 307 | ||
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
| ||
| Cash |
| 15 | |
| Accounts receivable |
| 4 | |
|
| 256 | ||
| Property, plant & equipment |
| <
td width=99 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:74.25pt; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom> ||
| Other liabilities |
| (11) | |
Total identifiable net assets |
| 289 | ||
Goodwill(1) | $ | 18 | ||
|
|
|
|
|
Acquisition-related costs (included in Other Operation and Maintenance expense |
|
| ||
| i n the Consolidated Statement of Operations for the year ended |
|
| |
| December 31, 2010) | $ | 1 | |
(1) | The goodwill, which represents the residual of the consideration paid over the identifiable net assets, is assigned to the Sempra Pipelines & Storage segmen t and is attributed to the strategic value of the transaction. None of the goodwill recorded is deductible in Mexico for income tax purposes. | |||
Acquisition of EnergySouth
In October 2008, Sempra Pipelines & Storage acquired EnergySouth, an energy services holding company based in Mobile, Alabama, for $495 million in cash (net of cash acquired of $16 million) and the assumption of debt. Principal holdings of EnergySouth include EnergySouth Midstream and Mobile Gas. As a natural gas distribution utility, Mobile Gas serves approximately 91,000 customers in southwest Alabama. In December 2008, EnergySouth Midstream changed its name to Sempra Midstream.
Sempra Midstream is the general partner and 91-percent owner of Bay Gas Storage Company (Bay Gas) and owned 60 percent of Mississippi Hub, LLC (Mississippi Hub) through December 31, 2008. On January 16, 2009, Sempra Midstream purchased the remaining 40-percent ownership interest of Mississippi Hub for $94 million in cash.
The results of operations and changes in cash flows for EnergySouth are included in our Consolidated Statements of Operations and Statements of Consolidated Cash Flows from October 1, 2008.
Proforma impacts on revenues and earnings for Sempra Energy had the acquisition occurred on January 1, 2008 were additional revenues of $113 million and earnings of $6 million in 2008.
We provide further information in Note 1 regarding goodwill and other intangible assets acquired.
SEMPRA COMMODITIES
On April 1, 2008, Sempra Energy and The Royal Bank of Scotland (RBS) completed the formation of RBS Sempra Commodities, a partnership to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy. Our initial equity contribution to th e partnership was $1.6 billion. RBS made an initial equity contribution of $1.665 billion and committed to provide any additional funding required for the ongoing operations of the partnerships businesses. As a result of the transaction, we received approximately $1.2 billion in cash, net of our contribution and including cash withdrawn from the businesses in anticipation of the transaction. We recorded an after-tax gain of $67 million on the transaction.
In 2010 and early 2011, Sempra Energy and RBS sold substantially all of the businesses and assets within the partnership.
We provide additional information concerning RBS Sempra Commodities and these transactions in Notes 4 and 5.
NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
We generally account for investments under the equity method when we have an ownership interest of 20 to 50 percent. In these cases, our pro rata shares of the subsidiaries net assets are included in Other Investments and in Investment in RBS Sempra Commodities LLP on the Consolidated Balance Sheets. These investments are adjusted for our share of each investees earnings or losses, dividends, and other comprehensive income or loss.
The carrying value of unconsolidated subsidiaries is evaluated for impairment under the GAAP provisions for equity method investments. We account for certain investments in housing partnerships made before May 19, 1995 under the cost method, whereby the costs were amortized over ten years based on the expected residual value.
We summarize our investment balances and earnings below:
EQUITY METHOD AND OTHER INVESTMENTS ON THE CONSOLIDATED BALANCE SHEETS | |||||
(Dollars in millions) | |||||
|
| Investment at December 31, | |||
|
| 2010 | 2009 | ||
Sempra Commodities: |
|
|
|
| |
Investment in RBS Sempra Commodities LLP | $ | 787 | $ | 2,172 | |
Other equity method investments: |
|
|
|
| |
Sempra Generation: |
|
|
|
| |
Fowler Ridge II Wind Farm | $ | 72 | $ | 236 | |
Cedar Creek II Wind Farm |
| 113 |
| - | |
Elk Hills Power |
| - |
| 198 | |
Sempra Pipelines & Storage: |
|
|
|
| |
Chilquinta Energía S.A. |
| 432 |
| 373 | |
Luz del Sur S.A. |
| 216 |
| 206 | |
Rockies Express |
| 854 |
| 850 | |
Gasoductos de Chihuahua |
| 275 |
| - | |
Hou sing partnerships |
| 16 |
| 21 | |
Total other equity method investments |
| 1,978 |
| 1,884 | |
Cost method investments - housing partnerships |
| 12 |
| 12 | |
Other(1) |
| 174 |
| 255 | |
Total | $ | 2,164 | $ | 2,151 | |
(1) | Other includes Sempra Pipelines & Storages investments in bonds, which include $57 million and $51 million in Chilquinta Energía S.A. bonds at December 31, 2010 and 2009, respectively (discussed below); $117 million and $75 million in industrial development bonds at Mississippi Hub at December 31, 2010 and 2009, respectively (discussed in Note 5); and $128 million in industrial development bonds at Liberty Gas Storage at December 31, 2009, which were redeemed in 2010. |
EQUITY METHOD INVESTMENTS ON THE CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Dollars in millions) | |||||||
|
| Years ended December 31, | |||||
|
| 2010 | 2009 | 2008 | |||
Earnings (losses) recorded before tax(1): |
|
|
|
|
|
| |
Sempra Commodities: |
|
|
|
|
|
| |
RBS Sempra Commodities LLP | $ | (314) | $ | 463 | $ | 383 | |
|
|
|
|
|
|
|
|
Sempra Generation: |
|
|
|
|
|
| |
Elk Hills Power | $ | (13) | $ | (3) | $ | 8 | |
Fowler Ridge II Wind Farm |
| 1 |
| 1 |
| - | |
Sempra Pipelines & Storage: |
|
|
|
|
|
| |
Rockies Express |
| 43 |
| 50 |
| 43 | |
All other: |
|
|
|
|
|
| |
Housing partnerships |
| (9) |
| (12) |
| (14) | |
|
| $ | 22 | $ | 36 | $ | 37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sempra Pipelines & Storage: |
|
|
|
|
|
| |
Chilquinta Energía S.A. | $ | 33 | $ | 23 | $ | 28 | |
Luz del Sur S.A. |
| 41 |
| 38 |
| 31 | |
Sodigas Pampeana and Sodigas Sur |
| (44) |
| 7 |
| 1 | |
Gasoductos de Chihuahua |
| 19 |
| - |
| - | |
Sempra Commodities |
| - |
| - |
| 3 | |
|
| $ | 49 | $ | 68 | $ | 63 |
(1) | Equity in earning s of unconsolidated subsidiaries that is recorded before income tax is reported in Equity Earnings (Losses) RBS Sempra Commodities LLP and in Equity Earnings (Losses) Other on the Consolidated Statements of Operations. Certain operations within RBS Sempra Commodities are recorded net of income taxes paid by the partnership. | ||||||
(2) | Equity in earnings of unconsolidated subsidiaries that is recorded net of income tax is reported in Equity Earnings, Net of Income Tax, on the Consolidated Statements of Operations. |
The undistributed earnings of equity method investments were $570 million and $692 million at December 31, 2010 and 2009, respectively.
Equity method goodwill related to our unconsolidated subsidiaries located in Mexico and South America is included in Other Investments on the Sempra Energy Consolidated Balance Sheets. These amounts, before foreign-currency translation adjustments, were $317 million at December 31, 2010 and $254 million at December 31, 2009. Including foreign-currency translation adjustments, these amounts were
§< /font>$333 million at December 31, 2010
§$253 million at December 31, 2009
Equity method goodwill of $252 million related to our investment in RBS Sempra Commodities is included in Investment in RBS Sempra Commodities LLP on the Sempra Energy Consolidated Balance Sheet at December 31, 2009.
Descriptive information concerning our equity method investments by segment follows.
SEMPRA GENERATION
The 550-MW Elk Hills Power (Elk Hills) plant located near Bakersfield, California began commercial operations in July 2003. On December 31, 2010, Sempra Generation sold its 50-p ercent interest to Occidental Petroleum Corporation, Inc. for a cash purchase price plus year-end cash distribution totaling $179 million. In connection with the sale, Sempra Generation recorded a $10 million pretax loss that is included in Equity Earnings (Losses) Other on the Consolidated Statement of Operations for the year ended December 31, 2010.
In November 2010, Sempra Generation invested $209 million to become an equal partner with BP Wind Energy, a wholly owned subsidiary of BP p.l.c., in the development of the 250-MW Cedar Creek II Wind Farm (Cedar Creek II) project near New Raymer, Colorado. The project's entire power output has been sold under a 25-year power-purchase agreement and we expect the project to be available for commercial operations during the second quarter of 2011. Our investment in Cedar Creek II is accounted for as an equity method investment. Upon obtaining a construction loan in December 2010, the joint venture returne d $96 million of Sempra Generations investment.
During 2009, Sempra Generation invested $235 million to become an equal partner with BP Wind Energy in the development of the 200-MW Fowler Ridge II Wind Farm (Fowler Ridge II) project near Indianapolis, Indiana. The project became operational in December 2009. The project uses 133 wind turbines, each with the ability to generate 1.5 MW. The project's entire power output has been sold under four long-term contracts, each for 50 MW and 20-year terms. Our investment in Fowler Ridge II is accounted for as an equity method investment. In August 2010, Sempra Generation received a $180 million return of capital from Fowler Ridge II. We discuss this further in Note 5.
SEMPRA PIPELINES & STORAGE
Sempra Pipelines & Sto rage owns a 25-percent interest in Rockies Express, a partnership that operates a natural gas pipeline, the Rockies Express Pipeline (REX), that links producing areas in the Rocky Mountain region to the upper Midwest and the eastern United States. Kinder Morgan Energy Partners, L.P. (KMP) and ConocoPhillips (Conoco) own the remaining interests of 50 percent and 25 percent, respectively. We made investments in Rockies Express of $65 million in 2010, $625 million in 2009, and $150 million in 2008. We provide additional information in Note 5.
Sempra Pipelines & Storage owns a 50-percent interest in Chilquinta Energía S.A., a Chilean electric utility, and a 38-percent interest in Luz del Sur S.A., a Peruvian electric utility. In January 2011, Sempra Pipelines & Storage agreed to acquire from AEI its interests in Chilquinta Energía S.A. and Luz del Sur S.A. We discuss this transaction in Note 19. In November 2009, Sempra Pipelines & Storage purchase d $50 million of 2.75-percent bonds issued by Chilquinta Energía S.A. that are adjusted for Chilean inflation. The bonds mature on October 30, 2014. The carrying value of the bonds after the effect of foreign currency translation was $57 million and $51 million at December 31, 2010 and 2009, respectively.
Sempra Pipelines & Storage owns a 50-percent interest in Gasoductos de Chihuahua, a joint venture with PEMEX, the Mexican state-owned oil company. The joint venture operates two natural gas pipelines and a propane system in northern Mexico. Sempra Pipelines & Storage acquired its investment in Gasoductos de Chihuahua as part of the purchase of Mexican pipeline and natural gas infrastructure assets that we discuss in Note 3.
Sempra Pipelines & Storage owns 43 percent of two Argentine natural gas utility holding companies, Sodigas Pampeana and Sodigas Sur. As a result of the devaluation of the Arge ntine peso at the end of 2001 and subsequent changes in the value of the peso, Sempra Pipelines & Storage has reduced the carrying value of its investment by a cumulative total of $270 million as of December 31, 2010. These noncash adjustments, based on fluctuations in the value of the Argentine peso, did not affect earnings, but were recorded in Comprehensive Income and Accumulated Other Comprehensive Income (Loss). The Argentine economic decline and government responses (including Argentinas unilateral, retroactive abrogation of utility agreements early in 2002) continue to adversely affect the operations of these Argentine utilities. In 2002, Sempra Pipelines & Storage initiated arbitration proceedings at the International Center for the Settlement of Investment Disputes (ICSID) under the 1994 Bilateral Investment Treaty between the United States and Argentina for recovery of the diminution of the value of its investments that has resulted from Argentine governmental actions. In September 2007, the tribunal awarded us compensation of $172 million, which included interest up to the award date. In January 2008, Argentina filed an action at the ICSID seeking to annul the award. In June 2010, the Annulment Committee granted Argentinas petition for annulment of the award. This action did not impact our earnings, as we did not record the original award pending assurance of collectability. On November 3, 2010, Sempra Pipelines & Storage resubmitted arbitration proceedings against Argentina before the ICSID on the same and similar grounds as the 2002 filing.
In a separate but related proceeding related to our political risk insurance policy, we negotiated a $48 million settlement that was collected in September 2010. The proceeds from the settlement are reported in Other Income (Expense), Net, on the Consolidated Statement of Operations for the year ended December 31, 2010.
In December 2006, we dec ided to sell our Argentine investments, and we continue to actively pursue their sale. We adjusted our investments to estimated fair value and recorded a noncash impairment charge to 2006 earnings of $221 million. In September 2010, we concluded that, although the ICSID claim had been annulled as discussed above, rate increases sought in Argentina would continue to be delayed. We believe this continued uncertainty has impacted the fair value of our net investment in the two Argentine companies, and recorded a noncash impairment charge of $24 million in the third quarter. The Sodigas Pampeana and Sodigas Sur fair value was significantly impacted by unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements, which we discuss in Note 11. The inputs included discount rates and estimated future cash flows. Such cash flows considered the value of those businesses with positive cash flows, the value of the non-operating assets, and the probability-weighted value of anticipated rate increases, considering both the timing and magnitude of such increases. In the fourth quarter of 2010, based on our continuing intention to sell the investments and recent comparable transactions in the Argentine energy market, we recorded an additional noncash impairment charge of $20 million. Also in the fourth quarter, we recorded an income tax benefit of $15 million related to the impairment charges. These pretax adjustments to fair value are reported in Equity Earnings (Losses), Net of Income Tax, while the related tax benefit is reported in Income Tax Expense on the Consolidated Statement of Operations for the year ended December 31, 2010.
The following table shows summarized financial information for Sodigas Pampeana and Sodigas Sur:
SODIGAS PAMPEANA AND SODIGAS SUR SUMMARIZED FINANCIAL INFORMATION | |||||||
(Dollars in millions) | |||||||
|
| Years ended December 31, | |||||
< /td> |
| 2010 | 2009 | 2008 | |||
Gross revenues | $ | 263 | $ | 241 | $ | 232 | |
Gross profit |
| 118 |
| 100 |
| 110 | |
Income from operations |
| 6 |
| 30 |
| 12 | |
Gain on sale of assets |
| 1 |
| 1 |
| 1 | |
Net income (loss) |
| (2) |
| 20 |
| 4 | |
|
|
|
|
|
|
|
|
|
|
|
| At December 31, | |||
|
|
|
| 2010 | 2009 | ||
Current asset s | $ | 71 | $ | 75 | |||
Noncurrent assets |
| 276 |
| 294 | |||
Current liabilities |
| 158 |
| 169 | |||
Noncurrent liabilities |
| 25 |
| 26 |
SEMPRA COMMODITIES
RBS Sempra Commodities is a United Kingdom limited liability partnership formed in 2008 to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy, as we discuss in Note 3. We account for our investment in RBS Sem pra Commodities under the equity method. Our share of partnership earnings is reported in the Sempra Commodities segment. Prior to September 1, 2010, subject to certain limited exceptions, partnership pretax income was allocated each year as follows:
§First, we received a preferred 15-percent return on our adjusted equity capital.
§Next, RBS received a preferred 15-percent return on any capital in excess of capital attributable to us that was required by the U.K. Financial Services Authority to be maintained by RBS in respect of the operations of the partnership.
§Next, we received 70 percent of the next $500 million in pretax i ncome; RBS received the remaining 30 percent.
§Then, we received 30 percent and RBS received 70 percent of any remaining pretax income.
§Any losses of the partnership were shared equally between us and RBS.
Subsequent to September 1, 2010, partnership pretax income or loss is allocated equally between us and RBS.
Excluding the impairment charge discussed below, for the years ended December 31, 2010, and 2009, we recorded pretax equity earnings of $15 million and $463 million, respectively, from RBS Sempra Commodities. The partnership income that is distributable to us on an annual basis is computed on the partnershi p's basis of accounting, International Financial Reporting Standards (IFRS), as adopted by the European Union. For the years ended December 31, 2010, and 2009 our share of distributable income, on an IFRS basis, was $53 million and $300 million, respectively. In the second quarter of 2010, we received the remaining distribution of 2009 partnership income of $198 million. In 2009 and 2008, we received cash distributions from the partnership of $407 million and $85 million, respectively.
In November 2009, our partner in the joint venture, RBS, announced its intention to divest its interest in RBS Sempra Commodities in connection with a directive from the European Commission to dispose of certain assets. In February 2010, Sempra Energy, RBS and the partnership entered into an agreement with J.P. Morgan Ventures Energy Corporation (J.P. Morgan Ventures), a unit of J.P. Morgan Chase & Co. (JP Morgan), for J.P. Morgan Ventures to purchase the global metals and oil businesses and the European natural gas and power business from the joint venture. This transaction was completed on July 1, 2010, and we received our share of the proceeds in the third quarter of 2010. The purchase price was $1.6 billion, and our share of the proceeds was approximately $1 billion, including distributions of 2009 partnership income attributable to the businesses sold, which were $134 million of the $198 million in distributions we received in April 2010.
This sale to J.P. Morgan Ventures did not include RBS Sempra Commodities' North American power and natural gas trading businesses and its retail energy solutions business. In September 2010, Noble Group Ltd. (Noble Group) agreed to acquire the U.S. retail commodity marketing business of the RBS Sempra Commodities joint venture for $318 million in cash, plus assumption of all debt, and the transaction closed on November 1, 2010. In October 2010, J.P. Morgan Ventures agreed to purchase most of the remaining assets of RBS Sempra Commodities. The assets sold included the joint ventures wholesale natural gas and power trading agreements, as well as over-the-counter and exchange-traded transactions, with counterparties across North America. The counterparties include natural gas producers, pipeline and storage providers, power plants, regasification facilities, utilities and municipal customers. This transaction closed on December 1, 2010 and essentially completed the divestiture of the joint ventures principal businesses and assets. In February 2011, the partnerships remaining trading systems and certain residual assets were sold to Société Générale.
We expect our share of the proceeds from the sales of all of the partnership businesses and related cash distributions to total $1.8 billion to $1.9 billion. This includes approximately $1.3 billion from the completed transactions, plus $500 million to $6 00 million consisting primarily of cash and accounts receivable, as well as net margin that is expected to be collected as customers are transferred to JP Morgan. The transfer of all accounts to JP Morgan will be done as promptly as practicable in 2011.
Projected cash distributions from RBS Sempra Commodities are net of expected transition costs and are not expected to fully recover the goodwill included in the carrying value of our investment in the partnership. Accordingly, we recorded a pretax noncash charge of $305 million ($139 million after-tax) in third quarter of 2010 to reduce our investment in RBS Sempra Commodities. This charge is included in Equity Earnings (Losses) from RBS Sempra Commodities LLP on the Consolidated Statements of Operations. The fair value of our investment in RBS Sempra Commodities was significantly impacted by unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements, whic h we discuss in Note 11. The inputs included estimated future cash distributions expected from the partnership, excluding the impact of costs anticipated for transactions that had not closed as of September 30, 2010. We recognized these costs during the fourth quarter of 2010. The investment balance of $787 million at December 31, 2010 reflects our portion of the partnerships earnings, distributions received from the partnership, and the noncash charge that we recorded in the third quarter of 2010 to bring the investment to fair value.
We provide information regarding the Sempra Commodities segment in Note 17.
The following table shows summarized financial information for RBS Sempra Commodities (on a GAAP basis):
RBS SEMPRA COMMODITIES-SUMMARIZED FINANCIAL INFORMATION |
|
| ||||
(Dollars in millions) |
|
| ||||
| Years ended December 31, | Nine months ended December 31, | ||||
|
| 2010 |
| 2009 |
| 2008 |
Gross revenues and fee income | $ | 1,028 | $ | 2,179 | $ | 2,051 |
Gross profit |
| 553 | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> | 1,461 |
| 1,370 |
Partnership net (loss) income |
| (169) |
| 639 |
| 592 |
|
|
|
|
|
|
|
| At December 31, |
|
| |||
| 2010 | 2009 |
| |||
Current assets | $ | 4,522  ; | $ | 7,272 | &n bsp; |
|
Noncurrent assets |
| 27 |
| 521 |
|
|
Current liabilities |
| 2,898 |
| 4,074 |
|
|
Members' capital |
| 1,651 |
| 3,719 |
|
|
Prior to June 2006, Sempra Financial invested as a limited partner in affordable-housing properties. Sempra Financials portfolio included 1,300 properties throughout the United States that provided income tax benefits (primarily from income tax credits). In June 2006, Sempra Financial effectively sold the majority of its interests in affordable-housing projects to an unrelated party subject to certain guarantees. Because of the guarantees, the transaction was recorded as a financing transaction rather than as a sale, and we continue to consolidate the investments in the housing partnerships. The transaction almost completely eliminated the income tax benefits from the investments.
O THER EQUITY METHOD INFORMATION
We present aggregated information below for:
§Chilquinta Energía S.A.
§Luz del Sur S.A.
§Gasoductos de Chihuahua
§Elk Hills Power
§Fowler Ridge II
§Cedar Creek II
§Rockies Express
§Sempra Commodities' investments (prior to the formation of RBS Sempra Commodities)
§Sempra Energys housing partnerships (accounted for under the equity method)
OTHER EQUITY METHOD INFORMATION | |||||||
(Dollars in millions) | |||||||
|
| Years ended December 31, | |||||
|
| 2010 | 2009 | 2008 | |||
Gross revenues | $ | 1,566 | $ | 1,192 | $ | 1,852 | |
Gross profit |
| 611 | &n bsp; | 429 |
| 487& nbsp; | |
Income from operations |
| 326 |
| 194 |
| 234 | |
Gain (loss) on sale of assets |
| 1 |
| - |
| (46) | |
Net income |
| 258 |
| 173 |
| 171 | |
|
|
|
|
|
|
|
|
|
|
|
| At December 31, | |||
|
|
|
| 2010 | 2009 | ||
Current assets | $ | 1,301 | $ | 1,056 | |||
Noncurrent assets |
| 3,987 |
| 3,395 | |||
Current liabilities |
| 346 |
| 405 | |||
Noncurrent liabilities |
| 1,433 |
| 625 |
NOTE 5. DEBT AND CREDIT FACILITIES
COMMITTED LINES OF CREDIT
At December 31, 2010, Sempra Energy Consolidated had $3.8 billion in committed lines of credit to provide liquidity and to support commercial paper and variable-rate demand notes, the major components of which we detail below. Available unused credit on these lines at December 31, 2010 was $2.6 billion. The current credit agreements, entered into in October 2010 to replace our previous principal credit agreements expiring in 2011, have a longer term and, in light of our exit from the commodities joint venture which we discuss in Note 4, a lower credit commitment by $500 million (at Sempra Global).
Sempra Energy
Sempra Energy has a $1 billion, four-year syndicated revo lving credit agreement expiring in October 2014. Citibank, N.A. serves as administrative agent for the syndicate of 23 lenders. No single lender has greater than a 7-percent share.
Borrowings bear interest at benchmark rates plus a margin that varies with market index rates and Sempra Energy's credit ratings. The facility requires Sempra Energy to maintain a ratio of total indebtedness to total capitalization (as defined in the agreement) of no more than 65 percent at the end of each quarter. The actual ratio at December 31, 2010, calculated as defined in the agreement, was 49.1 percent. The facility also provides for issuance of up to $400 million of letters of credit on behalf of Sempra Energy with the amount of borrowings otherwise available under the facility reduced by the amount of outstanding letters of credit.
At December 31, 2010, Sempra Energy had no outstanding borrowings supported by the facility.
Sempra Global
Sempra Global has a $2 billion, four-year syndicated revolving credit agreement expiring in October 2014. Citibank, N.A. serves as administrative agent for the syndicate of 23 lenders. No single lender has greater than a 7-percent share.
Sempra Energy guarantees Sempra Globals obligations under the credit facility. Borrowings bear interest at benchmark rates plus a margin that varies with market index rates and Sempra Energys credit ratings. The facility requires Sempra Energy to maintain a ratio of total indebtedness to total capitalization (as defined in the agreement) of no more than 65 percent at the end of each quarter.
At December 31, 2010, Sempra Global had $32 million of variable-rate demand notes and $958 million of commercial paper out standing supported by the facility. At December 31, 2010, $800 million of the commercial paper outstanding has been reclassified to long-term debt based on managements intent and ability to maintain this level of borrowing on a long-term basis either supported by this credit facility or by issuing long-term debt. This reclassification had no impact on cash flows.
Sempra Utilities
SDG&E and SoCalGas have a combined $800 million, four-year syndicated revolving credit agreement expiring in October 2014. JPMorgan Chase Bank serves as administrative agent for the syndicate of 22 lenders. No single lender has greater than a 7-percent share. The agreement permits each utility to individually borrow up to $600 million, subject to a combined limit of $800 million for both utilities. It also provides for the issuance of letters of credit on behalf of each utility subject to a combined letter of credit commitment of $200 million for both utilities. The amount of borrowings otherwise available under the facility is reduced by the amount of outstanding letters of credit.
Borrowings under the facility bear interest at benchmark rates plus a margin that varies with market index rates and the borrowing utility's credit ratings. The agreement requires each utility to maintain a ratio of total indebtedness to total capitalization (as defined in the agreement) of no more than 65 percent at the end of each quarter. The actual ratios for SDG&E and SoCalGas at December 31, 2010, calculated as defined in the agreement, were 48.5 percent and 44.7 percent, respectively.
Each utilitys obligations under the agreement are individual obligations, and a default by one utility would not constitute a default by the other utility or preclude borrowings by, or the issuance of letters of credit on behalf of , the other utility.
At December 31, 2010, SDG&E and SoCalGas had no outstanding borrowings and SDG&E had $237 million variable-rate demand notes outstanding supported by the facility. Available unused credit on the lines at December 31, 2010 was $363 million at SDG&E and $563 million at SoCalGas; SoCalGas' availability reflects the impact of SDG&E's use of the combined credit available on the line.
GUARANTEES
RBS Sempra Commodities
As we discuss in Note 4, in 2010 and early 2011, Sempra Energy, RBS and RBS Sempra Commodities sold substantially all of the businesses and assets within the partnership in four separate transactions. In connection with each of these transactions, the buyers are, subject to certain qualifications, obligated to replace any guarantees that we have issued in connection with the applicable businesses sold with guarantees of their own. During the process of replacing the guarantees, they are obligated to indemnify us in accordance with the applicable transaction documents for any claims or losses in connection with the guarantees that we issued in connection with the businesses sold. With respect to the transaction with Noble Group, for those guarantees that Noble Group is not able to replace, we have agreed to allow Noble Group to continue trading under such guarantees until June 1, 2011.
We have indemnified the partnership for certain litigation and tax liabilities related to the businesses purchased by the partnership. We recorded these obligations at a fair value of $5 million on April 1, 2008, the date we formed the partnership. This liability was amortized over its expected life.
RBS is obligated to provide RBS Sempra Commodities with all working-capital requirements and credit support. However, as a transitional measure, we continue to provide back-up guarantees for a portion of RBS Sempra Commodities trading obligations. Some of these back-up guarantees may continue for a prolonged period of time. RBS has fully indemnified us for any claims or losses in connection with these arrangements.
RBS Sempra Commodities net trading liabilities supported by Sempra Energys guarantees at December 31, 2010 were $462 million, consisting of guaranteed trading obligations net of collateral. The amount of guaranteed net trading liabilities varies from day to day with the value of the trading obligations and related collateral.
Other Guarantees
As discussed in Note 4, Sempra Energy, Conoco and KMP currently hold 25-percent, 25-percent and 50-percent ownership interests, respectively, in Rockies Express. Rockies Express operates a natural gas pipeline linking natural gas producing areas in the Rocky Mountain region to the upper Midwest and the eastern United States. In April 2010, Rockies Express $2 billion, five-year revolving credit facility expiring in May 2011, which was guaranteed by Sempra Energy, Conoco and KMP in proportion to their respective ownership percentages, was reduced to $200 million, and Sempra Energy, Conoco and KMP were released from their guarantor obligations. Long-term debt of $1.7 billion issued in March 2010 was used to pay down the credit facility; this new debt is not guaranteed by the partners.
Sempra Generation and BP Wind Energy currently hold 50-per cent ownership interests in Fowler Ridge II. In August 2010, Fowler Ridge II obtained a $348 million term loan expiring in August 2022. The proceeds were used to return $180 million of each owners investment in the joint venture. The loan agreement requires Sempra Generation and BP Wind Energy to return cash to the project in the event that the project does not meet certain cash flow criteria or in the event that the projects debt service and operation and maintenance reserve accounts are not maintained at specific thresholds. Sempra Generation recorded a liability of $9 million for the fair value of its obligation associated with the cash flow requirements, which constitutes a guarantee. This liability is being amortized over its expected life. The outstanding loan is not guaranteed by the partners.
WEIGHTED AVERAGE INTEREST RATES
LONG-TERM DEBT
The following tables show the detail and maturities of long-term debt outstanding:
LONG-TERM DEBT | |||||
(Dollars in millions) | |||||
|
| December 31, | |||
|
| 2010 | 2009 | ||
SDG&E |
|
|
|
| |
First mortgage bonds: |
|
|
|
| |
| 6.8% June 1, 2015 | $ | 14 | $ | 14 |
| 5.3% November 15, 2015 |
| 250 |
| 250 |
| Variable rate (0.33% at December 31, 2010) July 1, 2018(1) |
| 161 |
| 161 |
| 5.85% June 1, 2021(1) |
| 60 |
| 60 |
| 6% June 1, 2026 |
| 250 |
| 250 |
| 5% to 5.25% December 1, 2027(1) |
| 150 |
| 150 |
| 5.875% January and February 2034(1) |
| 176 |
| 176 |
| 5.35% May 15, 2035 |
| 250 |
| 250 |
| 6.125% September 15, 2037 |
| 250 |
| 250 |
| 6% June 1, 2039 |
| 300 |
| 300 |
| Variable rate (0.32% at December 31, 2010) May 1, 2039(1) |
| 75 |
| 75 |
| 5.35% May 15, 2040 |
| 250 |
| - |
| 4.5% August 15, 2040 |
| 500 |
| - |
|
|
| 2,686 |
| 1,936 |
Other long-term debt (unsecured unless otherwise noted): |
|
|
|
| |
| 5.9% June 1, 2014 |
| 130 |
| 130 |
| 5.3% July 1, 2021(1) |
| 39 |
| 39 |
| 5.5% December 1, 2021(1) |
| 60 |
| 60 |
| 4.9% March 1, 2023(1) |
| 25 |
| 25 |
| OMEC LLC loan at variable rates (5.2925% at December 31, 2010) |
|
|
|
|
| payable 2011 through April 2019 (secured by project assets) |
| 365 |
| 375 |
| Orange Grove Energy L.P. project financing |
| - |
| 87 |
Capital lease obligations: |
|
|
|
| |
| Purchased-power agreements |
| 182 |
| - |
| Other |
| 20 |
| 20 |
|
|
| 821 |
| 736 |
|
|
| 3,507 |
| 2,672 |
Current portion of long-term debt |
| (19) |
| (45) | |
Unamortized discount on long-term debt |
| (9) |
| (4) | |
Total SDG&E |
| 3,479 |
| 2,623 | |
|
|
|
|
|
|
SoCalGas |
|
|
|
| |
First mortgage bonds: |
|
|
|
| |
| 4.375% January 15, 2011 |
| 100 |
| 100 |
| Variable rates after fixed-to-floating rate swaps (0.26% at December 31, 2010) |
|
|
|
|
| January 15, 2011 | &nb sp; | 150 |
| 150 | <
/tr>
| 4.8% October 1, 2012 |
| 250 |
| 250 |
| 5.5% March 15, 2014 |
| 250 |
| 250 |
td> | 5.45% April 15, 2018 |
| 250 |
| 250 |
| 5.75% November 15, 2035 |
| 250 |
| 250 |
| 5.125% November 15, 2040 |
| 300 |
| - |
|
|
| 1,550 |
| 1,250 |
Other long-term debt (unsecured): |
|
|
|
| |
| 4.75% May 14, 2016(1) |
| 8 |
| 8 |
| 5.67% January 18, 2028 |
| 5 |
| 5 |
Capital lease obligations |
| 19 |
| 26 | |
Market value adjustments for interest rate swap, net (expires January 18, 2011) |
| 3 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:black 1pt solid; HEIGHT:11.25pt" valign=bottom> 7 | ||
|
|
| 35 |
| 46 |
|
|
| 1,585 |
| 1,296 |
Current portion of long-term debt |
| (262) |
| (11) | |
Unamortized discount on long-term debt |
| (3) |
| (2) | |
Total SoCalGas |
| 1,320 |
| 1,283 |
LONG-TERM DEBT (Continued) | |||||
(Dollars in millions) | |||||
|
| December 31, | |||
|
| 2010 | 2009 | ||
Other Sempra Energy |
|
|
|
| |
First mortgage bonds: |
|
|
|
| |
| 6.9% payable 2011 through 2017 |
| 7 |
| 8 |
| 8.75% payable 2011 through 2022 | < p style="MARGIN:0in 0in 0pt"> | 8 |
| 8&nbs p; |
| 7.48% payable 2011 through 2023 |
| 5 |
| 6 |
|
|
| 20 |
| 22 |
Other long-term debt (unsecured unless otherwise noted): |
|
|
|
| |
| Commercial paper borrowings at variable rates, classified as long-term debt |
|
|
|
|
< p style="MARGIN:0in 0in 0pt"> | (0.46% weighted average at December 31, 2010) |
| 800 |
| - |
| 6.5% Notes June 1, 2016 |
| 750 |
| 750 |
| |
| 750 |
| 750 |
| 9.8% Notes February 15, 2019 |
| 500 |
| 500 |
| 6.15% Notes June 15, 2018 |
| 500 |
| 500 |
| 6% Notes February 1, 2013 |
| 400 |
| 400 |
| Notes at variable rates after fixed-to-floating swap March 1, 2010 |
| - |
| 300 |
| 8.9% Notes November 15, 2013 |
| 250 |
| 250 |
| 7.95% Notes March 1, 2010 |
| - |
| 200 |
| 6.3% Notes December 31, 2021(1) |
| - |
| 128 |
| 4.5% Notes July 1, 2024, secured(1) |
| 117 |
| 75 |
| Employee Stock Ownership Plan |
|
|
|
|
| Bonds at 5.781% (fixed rate to July 1, 2010) November 1, 2014(1) |
| - |
| 50 |
| Bonds at variable rates payable on demand (0.63% at December 31, 2010) |
|
|
|
|
| November 1, 2014(1) |
| 32 |
| 7 |
| Notes at 2.87% to 5.05% payable 2011 through 2013(1) |
| 52 |
| 50 |
| Industrial development bonds at variable rates (4.00% at December 31, 2010) |
|
|
|
|
| August 1, 2037, secured(1) |
| 55&nbs p; |
| 55 |
| 8.45% Notes payable 2011 through 2017, secured |
| 32 |
| 36 |
| Other debt |
| 1 |
| 2 |
Market value adjustments for interest rate swap, net (expired March 1, 2010) |
| - |
| 7&nb sp; | |
|
|
| 4,239 |
| 4,060 |
|
|
| 4,259 |
| 4,082 |
Current portion of long-term debt |
| (68) |
| (517) | |
Unamortized discount on long-term debt |
| (10) |
| (11) | |
Total other Sempra Energy |
| 4,181 |
| 3,554 | |
Total Sempra Energy Consolidated | $ | 8,980 | $ | 7,460 | |
(1) | Callable long-term debt. |
MATURITIES OF LONG-TERM DEBT(1) | |||||||||
(Dollars i n millions) | |||||||||
|
|
|
|
| Total | ||||
|
|
|
| Other | Sempra | ||||
|
|
|
| Sempra | Energy | ||||
|
| SDG&E | SoCalGas | Energy | Consolidated | ||||
2011 | $ | 10 | $ | 250 | $ | 68 | $ | 328 | |
2012 |
| 10 |
| 250 |
| 13 |
| 273 | |
2013 |
| 10 |
| - |
| 673 |
| 683 | |
2014 |
| 140 |
| 250 |
| 7 |
| 397 | |
2015 |
| 274 |
| - |
| 7 |
| 281 | |
Thereafter |
| 2,861 |
| 813 |
| 3,491 |
| 7,165 | |
Total | $ | 3,305 | $ | 1,563 | $ | 4,259 | $ | 9,127 | |
(1) | Excludes cap ital lease obligations and market value adjustments for interest rate swaps. |
Various long-term obligations totaling $4.3 billion at Sempra Energy at December 31, 2010 are unsecured. This includes unsecured long-term obligations totaling $254 million at SDG&E and $13 million at SoCalGas.
CALLABLE LONG-TERM DEBT
At the option of Sempra Energy, SDG&E and SoCalGas, certain debt is callable subject to premiums at various dates:
CALLABLE LONG-TERM DEBT | ||||||||
(Dollars in millions) | ||||||||
|
|
|
| Total | ||||
|
|
| Other | Sempra | ||||
|
|
| Sempra | Energy | ||||
| SDG&E | SoCalGas | Energy | Consolidated | ||||
2011 | $ | 221 | $ | - | $ | 256 | $ | 477 |
2013 |
| 45 |
| - |
| - |
| 45 |
2014 |
| 124 |
| - |
| - |
| 124 |
2015 |
| 105 |
| - |
| - |
| 105 |
after 2015 |
| 251 |
|
8 |
| - < /td> |
| 259 |
Total | $ | 746 | $ | 8 | $ | 256 | $ | 1,010 |
Callable bonds subject to make-whole provisions | $ | 2,050 | $ | 1,550 | $ | 3,202 | $ | 6,802 |
In addition, the OMEC LLC project financing loan, discussed in Note 1, with $365 million of borrowings at December 31, 2010, may be prepaid at the borrowers' option.
FIRST MORTGAGE BONDS
The Sempra Utilities issue first mortgage bonds which are secured by a lien on utility plant. The Sempra Utilities may issue additional first mortgage bonds upon compliance with the provisions of their bond agreements (indentures). These indentures require, among other things, the satisfaction of pro forma earnings-coverage tests on first mortgage bond interest and the avai lability of sufficient mortgaged property to support the additional bonds, after giving effect to prior bond redemptions. The most restrictive of these tests (the property test) would permit the issuance, subject to CPUC authorization, of an additional $2.8 billion of first mortgage bonds at SDG&E and $390 million at SoCalGas at December 31, 2010.
In May 2010, SDG&E publicly offered and sold $250 million of 5.35-percent first mortgage bonds, maturing in 2040. In August 2010, SDG&E publicly offered and sold $500 million of 4.50-percent first mortgage bonds, maturing in 2040.
In November 2010, SoCalGas publicly offered and sold $300 million of 5.125-percent first mortgage bonds, maturing in 2040.
INDUSTRIAL DEVELOPMENT BONDS
SDG&E
During 2008, Sempra Energy purchased $413 million of industrial development bonds, net of sales and purchases with SDG&E as the cash flow needs of each entity changed. SDG&E purchased $488 million of the bonds during 2008, and sold $228 million to Sempra Energy during 2008. The bonds were initially issued as insured, auction-rate securities, the proceeds of which were loaned to SDG&E, and are repaid with payments on SDG&E first mortgage bonds that have terms corresponding to those of the industrial development bonds that they secure.
In December 2008, SDG&E remarketed $237 million of these industrial development bonds. These included $75 million remarketed at an initial daily floating rate of 0.65 percent (maturing in 2039), and $161 million initially remarketed for a three-month term at a rate of 1.00 percent (maturing in 2018). Beginning in March 2009, the int erest rate on the $161 million series is reset on a weekly basis.
In June 2009, SDG&E remarketed the remaining $176 million of these bonds at a fixed rate of 5.875 percent, maturing in 2034. Prior to SDG&E's remarketing of the remaining bonds in 2009, SDG&E purchased $152 million of the bonds from Sempra Energy.
Sempra Pipelines & Storage
To secure an approved exemption from sales and use tax, Sempra Pipelines & Storage has incurred through December 31, 2010, $117 million ($42 million and $75 million in 2010 and 2009, respectively) out of a maximum available $265 million of long-term debt related to the construction and equipping of its Mississippi Hub Gas Storage facility. The debt is payable to the Mississippi Business Finance Corporation (MBFC), and we recorded bonds receivable from the MBFC for the same amount. Both the fina ncing obligation and the bonds receivable have interest rates of 4.5 percent and are due on July 1, 2024.
In 2006, in order to reduce its property tax, Sempra Pipelines & Storage incurred $128 million of long-term debt, payable to the Calcasieu Parish Industrial Development Board, related to the development of its Liberty Gas Storage facility in Calcasieu Parish, Louisiana. Related to the debt, we recorded bonds receivable from the Industrial Development Board for the same amount. During 2010, both the financing obligation and the bonds receivable were redeemed.
DEBT OF EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) AND TRUST (TRUST)
The ESOP covers substantially all Sempra Energy employees, including those of SDG&E and SoCalGas. The Trust is used to fund part of the retirement savings plan described in Note 8. The notes of the ESOP are payable by the Trust and mature in 2014. Because the bonds outstanding at December 31, 2010 are payable on demand, we have classified them as short-term.
As of July 2010, $32 million of these notes are being repriced weekly through maturity. ESOP debt was paid down by a total of $51 million during the last three years when 983,606 shares of Sempra Energy common stock were released from the Trust in order to fund employer contributions to the Sempra Energy savings plan trust. Interest on the ESOP debt amounted to $2 million in 2010, $3 million in 2009 and $4 million in 2008. Dividends used for debt service amounted to $1 million in 2010, and $2 million in each of 2009 and 2008.
INTEREST RATE SWAPS
We discuss our fair value interest rate swaps and interest rate swaps to hedge cash flows in Note 10.
NOTE 6. FACILITIES UNDER JOINT OWNERSHIP
San Onofre Nuclear Generating Station (SONGS) and the Southwest Powerlink transmission line are owned jointly by SDG&E with other utilities. SDG&E's interests at December 31, 2010 were as follows:
|
| Southwest | ||||
(Dollars in millions) | SONGS | Powerlink | ||||
Percentage ownership |
| 20 | % |
| 91 | % |
Utility plant in service | $ | 212 |
| $ | 321 |
|
Accumulated depreciation and amortization |
| 38 |
|
| 187 |
|
Construction work in progress |
| 177 |
|
| 18 |
|
SDG&E, and each of the othe r owners, holds its undivided interest as a tenant in common in the property. Each owner is responsible for financing its share of each project and participates in decisions concerning operations and capital expenditures.
SDG&E's share of operating expenses is included in Sempra Energy's and SDG&E's Consolidated Statements of Operations.
SONGS DECOMMISSIONING
Objectives, work scope, and procedures for the dismantling and decontamination of SONGS' three units must meet the requirements of the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA), the U.S. Department of the Navy (the land owner), the CPUC and other regulatory bodies.
SDG&E's asset retirement obligation related to decomm issioning costs for the SONGS units was $492 million at December 31, 2010. That amount includes the cost to decommission Units 2 and 3, and the remaining cost to complete the decommissioning of Unit 1, which is substantially complete. Southern California Edison (Edison), the operator of SONGS, updates decommissioning cost studies every three years. Rate recovery of decommissioning costs is allowed until the time that the costs are fully recovered and is subject to adjustment every three years based on the costs allowed by regulators. Collections are authorized to continue until 2022. The most recent cost study was approved by the CPUC in July 2010. SDG&E's share of decommissioning costs under the approved study is approximately $768 million.
Unit 1 was permanently shut down in 1992, and physical decommissioning began in January 2000. Most structures, foundations and large components have been dismantled, removed and disposed of. Spent nuclear fuel has bee n removed from the Unit 1 Spent Fuel Pool and stored on-site in an independent spent fuel storage installation (ISFSI) licensed by the NRC. The decommissioning of Unit 1 remaining structures (subsurface and intake/discharge) will take place when Units 2 and 3 are decommissioned. The ISFSI will be decommissioned after a permanent storage facility becomes available and the U.S. Department of Energy (DOE) removes the spent fuel from the site. The Unit 1 reactor vessel is expected to remain on site until Units 2 and 3 are decommissioned.
The amounts collected in rates for SONGS' decommissioning are invested in externally managed trust funds. Amounts held by the trusts are invested in accordance with CPUC regulations. These trusts are shown on the Sempra Energy and SDG&E Consolidated Balance Sheets at fair value with the offsetting credits recorded in Regulatory Liabilities Arising from Removal Obligations.
The following table shows the fair values and gross unrealized gains and losses for the securities held in the trust funds.
NUCLEAR DECOMMISSIONING TRUSTS | |||||||||
| |||||||||
|
|
| Gross | Gross | Estimated | ||||
|
|
| Unrealized | Unrealized | Fair | ||||
|
| Cost | Gains | Losses | Value | ||||
As of December 31, 2010: |
|
|
|
|
|
|
|
| |
Debt securities: |
|
|
|
|
|
|
|
| |
Debt securities issued by the U.S. Treasury and other |
|
|
|
|
| &nbs p; |
|
| |
U.S. government corporations and agencies(1) | $ | 162 | $ | 14 | $ | (2) | $ | 174 | |
Municipal bonds(2) |
| 101 |
| 2 |
| (3) |
| 100 | |
Other securities(3) |
| 22 |
| 3 |
| - |
| 25 | |
Total debt securities |
| 285 |
| 19 |
| (5) |
| 299 | |
Equity securities |
| 219 |
| 242 |
| (1) |
| 460 | |
Cash and cash equivalents |
| 10 |
| - |
| - |
| 10 | |
T otal | $ | 514 | $ | 261 | $ | (6) | $ | 769 | |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009: |
|
|
|
|
|
|
|
| |
Debt securities: |
| td> |
|
|
|
|
|
| |
Debt securities issued by the U.S. Treasury and other |
|
|
|
|
|
|
|
| |
U.S. government corporations and agencies | $ | 141 | $ | 12 | $ | (3) | $ | 150 | |
Municipal bonds |
| 85 |
| 3 |
| (3) |
| ||
Other securities | & nbsp; | 12 |
| &nbs p;1 |
| - |
| 13 | |
Total debt securities |
| 238 |
| 16 |
| (6) |
| 248 | |
Equity securities |
| 238 |
| 188 |
| (5) |
| 421 | |
Cash and cash equivalents |
| 9 |
| - |
| - |
| 9 | |
Total | $ | 485 | $ | 204 | $ | (11) | $ | 678 | |
(1) | Maturity dates are 2011-2040. |
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=top>
|
|
|
| |
(2) | Maturity dates are 2012-2057. |
|
|
|
|
|
|
|
|
(3) | Maturity dates are 2011-2049. |
|
|
|
|
|
|
|
|
The following table shows the proceeds from sales of securities in the trusts and gross realized gains and losses on those sales.
SALES OF SECURITIES | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Proceeds from sales | $ | & nbsp;351 | $ | 224 | $ | 458 |
Gross realized gains |
| 11 |
| 6 |
| 18 |
Gross realized losses |
| (11) |
| (33) |
| (40) |
Net unrealized gains (losses) are included in Regulatory Liabilities Arising from Removal Obligations on the Consolidated Balance Sheets. We determine the cost of securities in the trusts on the basis of specific identification.
Customer contribution amounts are determined by the CPUC using estimates of after-tax investment returns, decommissioning costs, and decommissioning cost escalation rates. Changes in investment returns and decommissioning costs may result in a change in future customer contributions.
We discuss the impact of asset retirement obligations in Note 1. We provide additional information about SONGS in Notes 14 and 16.
NOTE 7. INCOME TAXES
Reconciliation of net U.S. statutory federal income tax rates to the effective income tax rates are as follows:
RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES | ||||||
| ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated |
|
|
|
|
|
|
U.S. federal statutory income tax rate | 35 | % | 35 | % | 35 | % |
Utility depreciation | 6 |
| 3 |
| 3 |
|
State income taxes, net of federal income tax benefit | - |
| 3 |
| 3 |
|
Tax credits | (7) |
| (1) |
| (1) |
|
Allowance for equity funds used during construction | (3) |
| (1) |
| (1) |
|
Non-U.S. earnings taxed at lower statutory income tax rates | (12) |
| (5) |
| (2) |
|
Adjustments to prior years' tax issues | (3) |
| (2) |
| (2) |
|
Utility repair allowance | (2) |
| (1) |
| (1) |
|
Self-developed software expenditures | (5) |
| (3) |
| (2) |
|
Mexican foreign exchange and inflation effects | 2 |
| 1 |
| (3) |
|
Variable inte rest entities | 1 |
| (1) |
| 1 |
|
Noncontrolling interests | - |
| 1 |
| - |
|
Impact of change in income tax law | 2 |
| - | - |
| |
Impact of impairment on an equity method investment | (2) |
| - |
| - |
|
Other, net | 1 |
| - |
| - |
|
Effective income tax rate | 13 | % | 29 | % | 30 | % |
SDG&E |
|
|
|
|
|
|
U.S. federal statutory income tax rate | 35 | %< /p> | 35 | % | 35 | % |
Depreciation | 5 |
| 4 |
| 4 |
|
State income taxes, net of federal income tax benefit | 4 |
| 4 |
| 5 |
|
Allowance for equity funds used during construction | (3) |
| (2) |
| (2) |
|
Adjustments to prior years' tax issues | (3) |
| (1) |
| (3) |
|
Utility repair allowance | (2) |
| (1) |
| (2) |
|
Self-developed software expenditures | (2) |
| (2) |
| (3) |
|
Variable interest entities | 1 |
| (2) |
| 4 |
|
Impact of change in income tax law | 1 |
| - |
| - |
|
Other, net | (3) |
| (3) |
| (2) |
|
Effective income tax rate | 33 | % | 32 | % | 36 | % |
PE |
|
|
|
|
|
|
U.S. federal statutory income tax rate | 35 | % | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 35 | % | 35 | % |
Depreciation | 5 |
| 6 |
| 5 |
|
State income taxes, net of federal income tax benefit | 4 |
| 4 |
| 4 |
|
Self-developed software expenditures | (6) |
| (6) |
| (3) |
|
Impact of change in income tax law | 3 |
| - |
| - |
|
Other, net | (3) |
| (4) |
| (5) |
|
  ; Effective income tax rate | 38 | % | 35 | % | 36 | % |
SoCalGas |
|
|
|
|
|
|
U.S. federal statutory income tax rate | 35 | % | 35 | % | 35 | % |
Depreciation | 5& nbsp; |
| 6 |
| 6 |
|
State income taxes, net of federal income tax benefit | 4 |
| 4 |
| 4 |
|
Self-developed software expenditures | (6) |
| (6) |
| (3) |
|
Impact of change in income tax law | 3 |
| - |
| - |
|
Other, net | (3) |
| (5) |
| (6) |
|
Effective income tax rate p> | 38 | % | 34 | % | 36 | % |
The geographic components of Income Before Income Taxes and Equity Earnings of Certain Unconsolidated Subsidiaries at Sempra Energy are as follows:
| Years ended December 31, | |||||
(Dollars in millions) | 2010 | 2009 | 2008 | |||
U.S. | $ | 447 | $ | 1,007& nbsp; | $ | 1,199 |
Non-U.S. |
| 339 |
| 469 |
| 244 |
Total | $ | 786 | $ | 1,476 | $ | 1,443 |
The components of income tax expense are as follows:
INCOME TAX EXPENSE | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
&n bsp; | 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
U.S. Federal | $ | 27 | $ | 39 | $ | (10) |
U.S. State |
| (3) |
| 40 |
| 28 |
Non-U.S. |
| 30 |
| 48 |
| 96 |
Total |
| 54 |
| 127 |
| 114 |
Deferre d: |
|
|
|
|
|
|
U.S. Federal |
| (11) |
| 216 |
| 359 |
U.S. State |
| 36 |
| 24 |
| 29 |
Non-U.S. |
| 27 |
| 58 |
| (59) |
Total |
| 52 |
| 298 |
| 329 |
Deferred investment tax credits |
| (4) |
| (3) |
| (5) |
Total income tax expense | $ | 102 | $ | 422 | $ | 438 |
SDG&E |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
U.S. Federal | $ | 69 | $ | 70 | $ < /td> | 25 |
U.S. State |
| 52 |
| 34 |
| 23 |
Total |
| 121 |
| 104 |
| 48 |
Deferred: |
|
|
|
|
|
|
U.S. Federal |
| 75 |
| 75 |
| 107 |
U.S. State |
| (21) |
| (2) |
| 8 |
Total |
| 54 |
| 73 |
| 115 |
Deferred investment tax credits |
| (2) |
| - |
| (2) |
Total income tax expense | $ | 173 | $ | 177 | $ | 161 |
PE |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
U.S. Federal | $ | | $ | 52 | $ | 28 |
U.S. State |
| 25 |
| 21 |
| 21 |
Total |
| 63 |
| 73 |
| 49 |
Deferred: |
|
|
|
|
|
|
U.S. Federal |
| 112 |
| 68 |
| 89 |
U.S. State |
| 3 |
| 7 |
| 6 |
Total |
| 115 |
| 75 |
| 95 |
Deferred investment tax credits |
| (3) |
| (3) |
| (3) |
&nb sp; Total income tax expense | $ | 175 | $ | 145 | $ | 141 |
SoCalGas |
|
|
|
| p> |
|
Current: |
|
|
|
|
|
|
U.S. Federal | $ | 43 | $ | 52 | $ | 31 |
U.S. State |
| 26 |
| 22 |
| 22 |
Total |
| 69 |
| 74 |
| 53 |
Deferred: |
|
|
|
|
|
|
U.S. Federal |
| 108 |
| 67 |
| 85 |
U.S. State |
| 2 |
| 6 |
| 5 |
Total |
| 110 |
| 73 |
| 90 |
Deferred investment tax credits |
| (3) |
| (3) |
| (3) |
Total income tax expense | $ | 176 td> | $ | 144 | $ | 140 |
We show the components of deferred income taxes at December 31 for Sempra Energy, SDG&E, PE and SoCalGas in the tables below:
DEFERRED INCOME TAXES FOR SEMPRA ENERGY CONSOLIDATED | ||||
(Dollars in millions) | ||||
| December 31, | |||
| 2010 | 2009 | ||
Deferred income tax liabilities: |
|
|
|
|
Differences in financial and tax bases of depreciable and amortizable assets | $ | 1,965 | $ | 1,528 |
Regulatory balancing accounts |
| 535 |
| 501 |
Unrealized revenue |
| 23 |
| 25 |
Loss on reacquired debt |
| 15 |
| 18 |
Property taxes |
| 38 |
| 34 |
Difference in financial and tax bases of partnership interests |
| - |
| 85 |
Other |
| 72 |
| 61 |
Total deferred income tax liabilities |
| 2,648 |
| 2,252 |
Deferred income tax assets: |
|
|
|
|
Investment tax credits |
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 34 |
| 35 |
Equity losses |
| 3 |
| 3 |
Net operating losses of separate state and foreign entities |
| 40 |
| 21 |
Compensation-related items |
| 158 |
| 177 |
Postretirement benefits |
| 467 |
| 510 |
Difference in financial and tax bases of partnership interests |
| 83 |
| - |
Other deferred assets |
| 52 |
| 41 |
State income taxes |
| 73 |
| 50 |
Bad debt allowance |
| 10 |
| 7 |
Litigation and other accruals not yet deductible |
| 304 |
| 129 |
Deferred income tax assets before valuation allowances |
| 1,224 |
| 973 |
Less: valuation allowances |
| 62 |
| 29 |
Total deferred income tax assets |
| 1,162 |
| 944 |
Net deferred income tax liability | $ | 1,486 | $ | 1,308 |
Our policy is to show deferred taxes of VIEs on a net basis, including valuation allowances. See table "Amounts Associated with Variable Interest Entities" in Note 1 for further information on VIEs. |
DEFERRED INCOME TAXES FOR SDG&E, PE AND SOCALGAS | ||||||||||||
(Dollars in millions) | ||||||||||||
| SDG&E | PE | SoCalGas | |||||||||
| December 31, | December 31, | December 31, | |||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Differences in financial and tax bases of |
|
|
|
|
|
|
|
|
|
|
|
|
utility plant and other assets | $ | | $ | 737 | $ | 482 | $ | 360 | $ | 483 | $ | 363 |
Regulatory balancing accounts |
| 230 |
| 190 |
| 316 |
| 322 |
| 316 |
| 322 |
Loss on reacquired debt |
| 7 |
| 8 |
| 10 |
| 11 |
| 10 |
| 11 |
Property taxes |
| 25 |
| 24 |
| 14 |
| 12 |
| 14 |
| 12 |
Other |
| 17 |
| 16 |
| - |
| - |
| (1) |
| - |
Total deferred income tax liabilities |
| 1,261 |
| 975 |
| 822 |
| 705 |
| 822 |
| 708 |
Deferred income tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
  ; Postretirement benefits |
| 126 |
| 152 |
| 270 |
| 283 |
| 272 |
| 28 5 |
Investment tax credits |
| 17 |
| 18 |
| 17 |
| 19 |
| 17 |
| 19 |
Compensation-related items |
| 14 |
| 17 |
| 41 |
| 50 |
| 41 |
| 51 |
State income taxes |
| 33 |
| 25 |
| 18 |
| 16 |
| 18 |
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 16 |
Litigation and other accruals not yet deductible |
| 192 |
| 25 |
| 21 |
| 33 |
| 20 |
| 32 |
Hedging transaction |
| - |
| - |
| 9 |
| 11 |
| 9 |
| 11 |
Other |
| 7 < /td> |
| 5 |
| 14 |
| 15 |
| 10 |
| 8 |
Total deferred income tax assets |
| 389 |
| 242 |
| 390 |
| 427 |
| 387 |
| 422 |
Net deferred income tax liability | $ | 872 | $ | 733 | $ | 432 | $ | 278 | $ | 435 | $ | 286 p> |
Our policy is to show deferred taxes of VIEs on a net basis, including valuation allowances. See table "Amounts Associated with Variable Interest Entities" in Note 1 for further information on VIEs. |
The net deferred income tax liabilities are recorded on the Consolidated Balance Sheets at December 31 as follows:
NET DEFERRED INCOME TAX LIABILITY | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
| Sempra Energy |
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| Consolidated | SDG&E | PE | SoCalGas | ||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | < font style="FONT-SIZE:8pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'">2010 | 2009 | ||||||||
Current (asset) liability | $ | (75) | $ | (10) | $ | (129) | $ | (41) | $ | 16 | $ | 5 | $ | 17 | $ | 6 |
Noncurrent liability |
| 1,561 |
| & nbsp;1,318 |
| 1,001 |
| 774 |
| 416 |
| 273 |
| 418 |
| 280 |
Total | $ | 1,486 | $ | 1,308 | $ | 872 | $ | 733 | $ | 432 | $ | 278 | $ | 435 | $ | 28 6 |
At December 31, 2010, Sempra Energy had established a valuation allowance against a portion of its total deferred income tax assets, as described above. A valuation allowance is recorded when, based on more-likely-than-not criteria, negative evidence outweighs positive evidence with regard to our ability to realize a deferred tax asset in the future. At both Sempra Energy and SDG&E, deferred income taxes for variable interest entities are shown on a net basis. Therefore, a valuation allowance of $111 million related to variable interest entities is not reflected in the tables above. Of Sempra Energys total valuation allowance of $62 million, $18 million is related to non-U.S. net operating losses, $7 million to other future non-U.S. deductions, $22 million to U.S. state and local net operating losses and $15 million to other future U.S. state and local deductions. The total valuation allowance, excluding the amount related to variable interest entities, increased by $33 million during 2010 when compared to 2009, primarily due to the increase in the valuation allowance established for U.S. state and local net operating losses and future U.S. state and local deductions. We believe that it is more likely than not that the remainder of the total deferred income tax asset is realizable.
At December 31, 2010, Sempra Energys non-U.S. subsidiaries had $45 million of unused net operating losses (NOLs) available to utilize in the future to reduce Sempra Energys future non-U.S. income tax expense, which is in Denmark, Mexico, the Netherlands and Spain. The carry forward periods on our non-U.S. unused NOLs are as follows: $15 million does not expire and $30 million expires between 2011 and 2025. As of December 31, 2010, the Mexican subsidiaries have NOLs of $121 million, of which $119 million have been utilized on a consolidated level. These Mexican NOLs are subject to recapture between 2013 and 2015 if the Mexican subsidiary that generated them does not have sufficient taxable income itself to realize them within 5 years. These NOLs expire between 2013 and 2020. Sempra Energys U.S. subsidiaries had $271 million of unused U.S. state and local NOLs, primarily in Alabama, District of Columbia, Indiana, Louisiana and Minnesota. These U.S. state and local NOLs expire between 2011 and 2030. We have not recorded income tax benefits on a portion of Sempras total NOLs because they were incurred in jurisdictions where we currently believe they will not be realized, as discussed above.
At December 31, 2010, Sempra Energy had not recognized a U.S. deferred income tax liability on $1.9 billion of cumulative undis tributed earnings of non-U.S. subsidiaries that we expect to reinvest indefinitely outside the U.S. These earnings have previously been reinvested or will be reinvested in active non-U.S. operations, thus we do not intend to use these earnings as a source of funding for U.S. operations. It is not practical to determine the amount of U.S. income taxes that might be payable if these earnings were eventually distributed. U.S. deferred income taxes will be recorded when it is determined that all, or a part, of these earnings are no longer intended to be reinvested indefinitely.
Following is a summary of unrecognized tax benefits at December 31:
SUMMARY OF UNRECOGNIZED TAX BENEFITS | ||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||
| <
td width=189 colspan=6 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:141.75pt; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:7.5pt" valign=bottom>
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| Consolidated | SDG&E | PE/SoCalGas | |||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||
Total | $ | 97 | $ | 94 | $ | 104 | $ | 5 | $ | 14 | $ | 18 | $ | 8 | $ | 11 | $ | 19 |
Of the total, amounts related to tax |
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positions that, if recognized, in |
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future years, would: |
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decrease the effective tax rate | $ | (76) | $ | (76) | $ | (64) | $ | (5) | $ | (13) | $ | (17) | $ | (1) | $ | (1) | $ | - |
increase the effective tax rate |
| 5 |
| 13 |
| 17 |
| 5 |
| 13 |
| 17 |
| - |
| - |
| - |
Following is a reconciliation of the changes in unrecognized tax benefits for the years ended December 31:
RECONCILIATION OF UNRECOGNIZED TAX BENEFITS | ||||||
(Dollars in millions) | ||||||
| 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated: |
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|
|
Balance as of January 1 | $ | 94 | $ | 104 | $ | 131 |
Increase in prior period tax positions |
| 29 |
| 44 |
| 23 |
Decrease in prior period tax positions |
| (4) |
| (3) |
| (4) |
Increase in current period tax positions |
| 5 |
| 15 |
| 4 |
Decrease in current period tax positions |
| - |
| - |
| (5) |
Settlements with taxing authorities |
| (9) |
| (54) |
| (38) |
Expirations of statutes of limitations |
| (18) |
| (12) |
| (7) |
Balance as of December 31 | $ | 97 | $ | 94 | $ | 104 |
SDG&E: |
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|
|
Balance as of January 1 | $ | 14 | $ | 18 | $ | 26 |
Increase in prior period tax positions |
| - |
| 1 |
| 2 |
Decrease in prior period tax positions |
| (3) |
| - |
| - |
Increase in current period tax positions |
| 3 |
| 3 |
| 3 |
Decrease in current period tax positions |
| - |
| - |
| (1) |
Settlements with taxing authorities |
| (9) |
| (8) |
| (12) |
Balance as of December 31 | $ | 5 | $ | 14 | $ | 18 |
PE/SoCalGas: |
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|
|
Balance as of January 1 | $ | 11 | $ | 19 | $ | 40 |
Increase in prior period tax positions |
| 5 |
| 1 |
| - |
Settlements with taxing authorities |
| - |
| (1) |
| (21) |
Expirations of statutes of limitations |
| (8) |
| (8) |
| - |
Balance as of December 31 | $ | 8 | $ | 11 | $ | 19 |
It is reasonably possible that within the next 12 months unrecognized tax benefits could decrease due to the following:
POSSIBLE DECREASES IN UNRECOGNIZED TAX BENEFITS WITHIN 12 MONTHS | ||||||
(Dollars in millions) | ||||||
| At December 31, | |||||
| 2010 | 2009 | 2008 | |||
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Expiration of statutes of limitations on tax assessments | $ | (6) | $ | (7) | $ | (6) |
Potential resolution of audit issues with various |
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U.S. federal, state and local and non-U.S. taxing authorities |
| (35) |
| (24) |
| (17) |
Impact of federal and state timing items affecting taxable income |
| - |
| - |
| (3) |
| $ | (41) | $ | (31) | $ | (26) |
SDG&E: | $ | - | $ | - | $ | - |
PE/SoCalGas: |
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Expiration of statutes of limitations on tax assessments | $ | (5) | $ | ( 6) | $ | (3) |
Potential resolution of audit issues with various |
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U.S. federal, state and local taxing authorities |
| - |
| (1) |
| - |
Impact of federal and state timing items affecting taxable income |
| - |
| - |
| (3) |
|
$ | (5) | $ | (7) | $ | (6) |
Amounts accrued for interest expense and penalties associated with income taxes are included in income tax expense on the Consolidated Statements of Operations and in various income tax balances on the Consolidated Balance Sheets. As of December 31, the following amounts were accrued:
INTEREST EXPENSE AND PENALTIES ASSOCIATED W ITH INCOME TAXES | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
| Sempra Energy |
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| Consolidated |
| SDG&E |
| PE/SoCalGas | |||||||||||||||
| 2010 | 2009 | 2008 |
| 2010 | 2009 | 2008 |
| 2010 | 2009 | 2008 | |||||||||
Interest expense (benefit)< /font> | $ | (1) | $ | 2 | $ | 18 |
| $ | (3) | $ | (2) | $ | 2 |
| $ | - | $ | 1 | $ | 4 |
Penalties |
| 4 |
| 4 p> |
| 1 |
|
| - |
| - |
| - |
|
| -&nb sp; |
| 1 |
| <
td width=39 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:29.25pt; PADDING-TOP:0in; BORDER-BOTTOM:silver 2.25pt solid; HEIGHT:13.5pt" valign=bottom>
INCOME TAX AUDITS
Sempra Energy is subject to U.S. federal income tax as well as to income tax of multiple state and non-U.S. jurisdictions. We remain subject to examination for U.S. federal tax years after 2006. We are subject to examination by major state tax jurisdictions for tax years after 2005. Certa in major non-U.S. income tax returns from 2002 through the present are open to examination.
In addition, we have filed state refund claims for tax years back to 1998. The pre-2006 tax years are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these years.
SDG&E, PE and SoCalGas are subject to U.S. federal income tax as well as income tax of state jurisdictions. They remain subject to examination for U.S. federal years after 2006 and by major state tax jurisdictions for years after 2005.
In addition, PE has state refund claims for tax years back to 1993. The pre-2006 tax years are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these years.
NOTE 8. EMPLOYEE BENEFIT PLANS
We are required by applicable GAAP to:
§recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status in the statement of financial position;
§measure a plan's assets and its obligations that determine its funded status as of the end of the fiscal year (with limited exceptions); and
§recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Generally, those changes are reported in other comprehensive income and as a separate component of shareholders' equity.
The information presented below covers the employee benefit plans of Sempra Energy and its principal subsidiaries.
Sempra Energy has funded and unfunded noncontributory defined benefit plans, including separate plans for SDG&E and SoCalGas, which togethe r cover substantially all employees and Sempra Energy's board of directors. The plans generally provide defined benefits based on years of service and either final average or career salary.
Sempra Energy also has other postretirement benefit plans (PBOP), including separate plans for SDG&E and SoCalGas, which together cover substantially all employees and Sempra Energy's board of directors. The life insurance plans are both contributory and noncontributory, and the health-care plans are contributory. Participants' contributions are adjusted annually. Other postretirement benefits include medical benefits for retirees' spouses.
Pension and other postretirement benefits costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include
§discount rates
§expected return on plan assets
§health-care cost trend rates
§mortality rates
§compensation increase rates
§payout elections (lump sum or annuity)
We review these assumptions on an annual basis prior to the beginning of each year and update them as appropriate. We consider current market conditions, including interest rates, in making these assumptions. We use a December 31 measurement date for all of our plans.
In support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including investments in life insurance contracts, which totaled $442 million and $453 million at December 31, 2010 and 2009, respectively.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Benefit Plan Amendments Affecting 2009
Effective October 1, 2009, the SDG&E pension plan was amended to set the automatic cost of living adjustment for retirees with grandfathered benefits at 0 percent for the period beginning October 1, 2009 and ending September 30, 2010. Without this amendment, the automatic cost of living adjustment for 2009 would have been negative, resulting in a reduction in benefits. This amendment resulted in an increase of $3 million in the benefit obligation and net periodic benefit costs as of December 31, 2009 for Sempra Energy and SDG&E.
During 2009, the SoCalGas pension plan was amended to provide a minimum benefit for participants that transfer from a position covered by the represented employees' pension plan to a management position covered by the cash balance plan after June 29, 2005. This amendment resulted in an increase of $1 million in the benefit obligation and unrecog nized prior service costs as of December 31, 2009 for Sempra Energy and SoCalGas.
Effective December 1, 2009, the Sempra Utilities' other postretirement benefit plans were amended to establish a health reimbursement account benefit for represented retirees. This amendment resulted in an increase of $2 million, $4 million and $6 million in the benefit obligation and unrecognized prior service costs as of December 31, 2009 for SDG&E, SoCalGas and Sempra Energy, respectively.
Benefit Obligations and Assets
The following three tables provide a reconciliation of the changes in the plans' projected benefit obligations and the fair value of assets during 2010 and 2009, and a statement of the funded status at December 31, 2010 and 2009:
PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS | ||||||||||
(Dollars in millions) | ||||||||||
|
| Pension Benefits |
| Other Postretirement Benefits | ||||||
Sempra Energy Consolidated | 2010 | 2009 |
| 2010 | 2009&nb sp; | |||||
CHANGE IN PROJECTED BENEFIT OBLIGATION: |
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| |
Net obligation at January 1 | $ | 3,083&n bsp; | $ | 2,865 |
| $ | 985 | $ | 934 | |
Service cost |
| 83 |
| 74 |
|
| 26 |
| 26 | |
Interest cost |
| 167 |
| 170 |
|
| 57 |
| 56 | |
Plan amendments |
| 1 |
| 4 |
|
| - |
| 6 | |
Impact of PPACA(1) excise tax |
| - |
| - |
|
| 31 |
| - | |
Actuarial loss |
| - |
| 169 |
|
| 81 |
| 5 | |
Settlements |
| - |
| (34) |
|
| - |
| - | |
Benefit payments |
| (210) |
| (165) |
|
| (43) |
| (44) | |
Fede ral subsidy (Medicare Part D) |
| - |
| - |
|
| 2 |
| 2 | |
Net obligation at December 31 |
| 3,124 |
| 3,083 |
|
| 1,139 |
| 985 | |
|
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| |
CHANGE IN PLAN ASSETS: |
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Fair value of plan assets at January 1< /p> |
| 2,130 |
| 1,742 |
|
| 658 |
| 545 | |
Actual return on plan assets |
| 275 |
| 402 |
|
| 79 |
| & nbsp;112 | |
Employer contributions |
| 159 |
| 185 |
|
| 52 |
| 45 | |
Settlements |
| - |
| (34) |
|
| - |
| - | |
Benefit payments |
| (210) |
| (165) |
|
| (43) |
| (44) | |
Fair value of plan assets at December 31 |
| 2,354 |
| 2,130 |
|
| 746 |
| 658 | |
Funded status at December 31 | $ | (770) | $ | (953) |
| $ | (393) | $ | (327) | |
Net recorded liability at December 31 | $ | (770) | $ | (953) |
| $ | (393) | $ | (327) | |
(1) | See "Patient Protection and Affordable Care Act" discussed below. i> |
The actuarial loss for other postretirement plans in 2010 increased primarily due to higher medical premiums and higher health care trend rates for the SoCalGas other postretirement benefit plans.
The large actuarial loss in 2009 related to pension benefits for Sempra Energy, as well as for SDG&E and SoCalGas below, resulted primarily from a decrease in discount rates from 6.00 percent in 2008 to 5.60 percent, 5.40 percent and 5.75 percent in 2009 for Sempra Energy, SDG&E and SoCalGas, respectively. The actuarial loss for other postretirement plans was similarly affected by a decrease in discount rates, from 6.10 percent in 2008 to 5.55 percent, 5.75 percent and 5.90 percent in 2009 at Sempra Energy, SDG&E and SoCalGas, respectively. However, this
loss was substantially offset by favorable claims experience and projections, primarily due to the decrease in the average cost for pre-age 65 retirees relative to the average cost of the total population for certain medical plans for SDG&E and SoCalGas.
PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS |
|||||||||
(Dollars in millions) | |||||||||
| Pension Benefits |
| Other Postretirement Benefits | ||||||
SDG&E | 2010 | 2009 |
| 2010 | 2009 | ||||
CHANGE IN PROJECTED BENEFIT OBLIGATION: |
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|
|
Net obligation at January 1 | $ | 908 | $ | 814 |
| $ | 160 | $ | 148 |
Service cost |
| 27 |
| 23 |
|
| 6 |
| 5 |
Interest cost |
| 47 |
| 48 |
|
| 9 |
| 9 |
Plan amendments |
| - |
| 3 |
|
| - |
| &nb sp;2 |
Actuarial loss |
| 1 |
| 58 |
|
| 3 |
| 2 |
Transfer of liability from (to) other plans |
| 17 |
| (1) |
|
| 2 |
| - |
Benefit payments |
| (51) |
| (37) |
|
| (5) |
| (6) |
Net obligation at December 31 |
| 949 |
| 908 |
|
| 175 |
| 160 |
|
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CHANGE IN PLAN ASSETS: |
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|
|
Fair value of plan assets at January 1 |
| 615 |
| 480 |
|
| 81 |
| 61 |
Actual return on plan assets |
| 79 |
| 115 |
|
| 7 |
| 10 |
Employer contributions |
| 61 |
| 58 |
|
| 15 |
| 16 |
Transfer of assets from (to) other plans |
| 9 |
| (1) |
|
| 1 |
| - |
Benefit payments |
| (51) |
| (37) |
|
| (5) |
| (6) |
Fair value of plan assets at December 31 |
| 713 |
| &nbs p;615 |
|
| 99 |
| 81 |
Funded status at December 31 | $ | (236) | $ | (293) |
| $ | (76) | $ | (79) |
Net recorded liability at December 31 | $ | (236) | $ | (293) |
| $ | (76) | $ | (79) |
PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS | ||||||||||
(Dollars in millions) | ||||||||||
|
| Pension Benefits |
| Other Postretirement Benefits | ||||||
SoCalGas | 2010 | 2009 |
| 2010 | 2009 | |||||
CHANGE IN PROJECTED BENEFIT OBLIGATION: |
|
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|
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| |
Net obligation at January 1 | $ | 1,764 | $ | 1,653 |
| $ | 780 | $ | 748 | |
Service cost |
| 46 |
| 42 < /font> |
|
| 18 |
| 18 | |
Interest cost |
| 98 |
| 98 |
|
| 46 |
| 45 | |
|
| - | &n bsp; | 1 |
|
| - |
| 4 | |
Impact of PPACA(1) excise tax |
| - |
| - |
|
| 31 |
| - | |
Actuarial (gain) loss |
| (3) |
| 74 |
|
| 77 |
| (1) | |
Benefit payments |
| (126) |
| (105) |
|
| (35) |
| (36) | |
Transfer of liability from other plans |
| 7 |
| 1 |
|
| 1 |
| - | |
Federal subsidy (Medicare P art D) |
| - |
| - |
|
| 2 |
| 2 | |
Net obligation at December 31 |
| 1,786 |
| 1,764 |
|
| 920 |
| 780 | |
|
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| |
CHANGE IN PLAN ASSETS: |
|
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| |
Fair value of plan assets at January 1 |
| 1,332 |
| 1,105 |
|
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 562 |
| 471 | |
Actual return on plan assets |
| 171 |
| 255 |
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| 99 < /td> | ||
Employer contributions |
| &nbs p;71 |
| 76 |
|
| 35 |
| 28 | |
Transfer of assets from other plans |
| 7 |
| 1 |
|
| - |
| - | |
Benefit payments |
| (125) |
| (105) |
|
| (35) < /td> |
| (36) | |
Fair value of plan assets at December 31 |
| 1,456 |
| 1,332 |
|
| 632 |
| 562 | |
Funded status at December 31 | $ | (330) | $ | (432) |
| $ | (288) | $ | (218) | |
Net recorded liability at December 31 | $ | (330) | $ | (432) |
| $ | (288) | $ | (218) | |
(1) | See "Patient Protection and Affordable Care Act" discussed below.< /font> |
Net Assets and Liabilities
The assets and liabilities of the pension and other postretirement benefit plans are affected by changing market conditions as well as when actual plan experience is different than assumed. Such events result in investment gains and losses, which we defer and recognize in pension and postretirement benefit costs over a period of years. Sempra Energy uses the asset smoothing method for its pension and other postretirement plans, except for the SDG&E plans. This method develops an asset value that recognizes realized and unrealized investment gains and losse s over a three-year period. This adjusted asset value, known as the market-related value of assets, is used in conjunction with an expected long-term rate of return to determine the expected return-on-assets component of net periodic cost. SoCalGas also uses the asset smoothing method.
The 10-percent corridor accounting method is used at Sempra Energy, SDG&E and SoCalGas. Under the corridor accounting method, if as of the beginning of a year, unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets, the excess is amortized over the average remaining service period of active participants. The asset smoothing and 10-percent corridor accounting methods help mitigate volatility of net periodic costs from year to year.
We recognize the overfunded or underfunded status of defin ed benefit pension and other postretirement plans as assets or liabilities, respectively; unrecognized changes or credits in these assets and/or liabilities are normally recorded to other comprehensive income (loss) on the balance sheet. The Sempra Utilities and Mobile Gas record regulatory assets and liabilities that offset the funded pension and other postretirement plans' assets or liabilities, as these costs are expected to be recovered in future utility rates based on agreements with regulatory agencies.
The Sempra Utilities record annual pension and other postretirement net periodic benefit costs equal to the contributions to their plans as authorized by the CPUC. The annual contributions to the pension plans are limited to a minimum required funding amount as determined by the Internal Revenue Service. The annual contributions to the other postretirement plans are equal to the lesser of the maximum tax deductible amount or the net periodic cost calculated in accordance with GAAP for pension and other postretirement benefit plans. Mobile Gas records annual pension and other postretirement net periodic benefit costs based on an estimate of the net periodic cost at the beginning of the year calculated in accordance with GAAP for pension and other postretirement benefit plans, as authorized by the Alabama Public Service Commission. Any differences between booked net periodic benefit cost and amounts contributed to the pension and other postretirement plans are disclosed as regulatory adjustments in accordance with GAAP for regulated entities.
The net liability is included in the following captions on the Consolidated Balance Sheets at December 31:
| Pension Benefits |
| Other Postretirement Benefits | ||||||
(Dollars in millions) | 2010 | 2009 |
| 2010 | 2009 | ||||
Sempra Energy Consolidated |
|
|
|
|
|
|
|
|
|
Curren t liabilities | $ | (57) | $ | (27) |
| $ | (1) | $ | (1) |
Noncurrent liabilities |
| (713) |
| (926) |
|
| (392) |
| (326) |
Net recorded liability | $ | (770) | $ | (953) |
| $ | (393) | $ | ( 327) |
SDG&E |
|
|
|
|
|
|
|
|
|
Current liabilities | $ | (3) | $ | (2) |
| $ | - | $ | - |
Noncurrent liabilities |
| (233) |
| (291) |
|
| (76) |
| (79) |
Net recorded liability | $ | (236) | $ | (293) |
| $ | (76) | $ | (79) |
SoCalGas |
|
|
|
|
|
|
|
|
|
Current liabilities | $ | (5) | $ | (6)< /p> |
| $ | - | $ | - |
Noncurrent liabilities |
| (325) |
| (426) |
|
| (288) |
| (218) |
tr>
Net recorded liability | $ | (330) | $ | (432) |
| $ | (288) | $ | (218) |
Amounts recorded in Accumulated Other Comprehe nsive Income (Loss) as of December 31, 2010 and 2009, net of tax effects and amounts recorded as regulatory assets, are as follows:
AMOUNTS IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||
(Dollars in millions) | |||||||||
| Pension Benefits |
| Other Postretirement Benefits | ||||||
| 2010 | 2009 | < /td> | 2010 | 2009 | ||||
Sempra Energy Consolidated |
|
|
|
|
|
|
|
|
|
Net actuarial loss | $ | (85) | $ | (98) |
| $ | (3) | $ | (4) |
Prior service credit |
| 1 |
| 2 |
|
| - |
| - |
Total | $ | (84) | $ | (96) |
| $ | (3) | $ | (4) |
SDG&E |
|
|
|
|
|
|
|
|
|
Net actuarial loss | $ | (11) | $ | (11) |
|
|
|
|
|
Prior service credit |
| 1 |
| 1 |
|
|
|
|
|
Total | $ | (10) | $ | (10) |
|
|
|
|
|
SoCalGas |
|
|
|
|
|
|
|
|
|
Net actuarial loss | $ | (5) | $ | (5) |
|
|
|
|
|
Prior service credit |
| 1 |
| 1 |
|
|
|
| < p style="MARGIN:0in 0in 0pt"> |
Total | $ | (4) | $ | (4) |
|
|
|
|
|
The accumulated benefit obligations for defined benefit pension plans at December 31, 2010 and 2009 were as follows:
| Sempra Energy Consolidated |
| SDG&E |
| SoCalGas | |||||||||
(Dollars in millions) | 2010 | 2009 |
| 2010 | 2009 |
| 2010 | 2009 | ||||||
Accumulated benefit obligation | $ | 2,933 | $ | 2,886 |
| $ | 935 | $ | 895 |
| $ | 1,623 | $ | 1,601 |
Sempra Energy has unfunded and funded pension plans. SDG&E and SoCalGas each have an unfunded and a funded pension plan. The following table shows the obligations of funded pension plans with benefit obligations in excess of plan assets as of December 31:
(Dollars in millions) | 2010 | 2009 | ||
Sempra Energy Consolidated |
|
|
|
|
Projected benefit obligation | $ | | $ | 2,835 |
Accumulated benefit obligation |
| 2,702 |
| 2,660 |
Fair value of plan assets |
| 2,354 |
| 2,130 |
SDG&E |
|
|
|
|
Projected benefit obligation | $ | 917 | $ | 878 |
Accumulated benefit obligation |
| 906 |
| 870 |
Fair value of plan assets |
| 713 |
| 615 |
SoCalGas |
|
|
|
|
Projected benefit obligation | $ | 1,755 | $ | 1,730 |
Accumulated benefit obligation |
| 1,594 |
| 1,571 |
Fair value of plan assets |
| 1,456 |
| 1,332 |
N et Periodic Benefit Cost, 2008-2010
The following three tables provide the components of net periodic benefit cost and amounts recognized in other comprehensive income for the years ended December 31:
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OTHER COMPREHENSIVE INCOME | |||||||||||||
(Dollars in millions) | |||||||||||||
| Pension Benefits < /td> |
| Other Postretirement Benefits | ||||||||||
Sempra Energy Consolidated | 2010 | 2009 | 2008 |
| 2010 | 2009 | 2008 | ||||||
Net Periodic Benefit Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 83 | $ | 74 | $ | 71 |
| $ | 26 | $ | 26 | $ | 24 |
Interest cost |
| 167 |
| 170 |
| 166 |
|
| 57 |
| 56 |
| 53 |
Expected return on assets |
| (143) |
| (139) |
| (161) |
|
| (46) |
| (45) |
| (48) |
Amortization of: |
|
|
|
|
|
|
| &nb sp; |
|
|
|
|
|
Prior service cost (credit) |
| 4 |
| 7 |
| 4 |
|
| (1) |
| (1) |
| (1) |
Actuarial loss |
| 30 |
| 23 |
| 8 |
|
| 8 |
| 3 |
| - |
Regulatory adjustment |
| 19 |
| 28 |
| (22) |
|
| 7 |
| 7 |
| 7 |
Curtailment credit |
| - |
| - |
| - |
|
| - |
| - |
| (3) |
Settlement charge |
| - |
| 14 |
| 8 |
|
| - |
| - |
| - |
Total net periodic benefit cost |
| 160 |
| 177 |
| 74 |
|
| 51 < /p> |
| 46 |
| 32 |
|
|
|
|
|
|
|
|
|
|
|
|
| td> |
Other Changes in Plan Assets and Benefit Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in Other Comprehensive Income |
|
| &n bsp; |
|
|
|
|
|
|
|
|
|
|
Net (gain) loss |
| (12) |
| 9 |
| 54 |
|
| (1) |
| 3 |
| 1 |
Prior service cost |
| - |
| - |
| 3 |
|
| - |
| - |
| - |
Amortization of prior service credit |
| - |
| - |
| - | &nbs p; |
| 1 |
| 1 |
| 1 |
Amortization of actuarial loss |
| (10) |
| (8) |
| (8) |
|
| - |
| - |
| - |
Total recognized in other comprehensive income |
| (22) |
| 1 |
| 49 |
|
| - |
| 4 |
| 2 |
Total recognized in net periodic benefit cost and other comprehensive income | $ | 138 | $ | 178 | $ | 123 |
| $ | 51 | $ | 50 | $ | 34 |
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OTHER COMPREHENSIVE INCOME | |||||||||||||
(Dollars in millions) | |||||||||||||
| Pension Benefits |
| Other Postretirement Benefits | ||||||||||
SDG&E | 2010 | 2009 | 2008 |
| 2010 | 2009 | 2008 | Net Periodic Benefit Cost |
|
|
|
|
|
|
|
|
| p> |
|
|
|
Service cost | $ | 27 | $ | 23 | $ | 22 |
| $ | 6 | $ | 5 | $ | 5 |
Interest cost |
| 47 |
| 48 |
| 47 |
|
| 9 |
| 9 |
| 9 |
Expected return on assets |
| (40) |
| (32) |
| (46)< /font> |
|
| (5) |
| (3) |
| (4) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
&nbs p; Prior service cost |
| 1 |
| 4 |
| 1 |
|
| 4 |
| 4 |
| 3 |
Actuarial loss |
| 12 |
| 16 |
| 2 |
|
| - |
| - |
| - |
Regulatory adjustment |
| 13 |
| 2 |
| 14 |
|
| 2 |
| 2 |
| 2 |
Settlement charge |
| - |
| 2 |
| 2 |
|
| - |
| - |
| - |
Total net periodic benefit cost |
| 60 |
| 63 |
| 42 |
|
| 16 |
| 17 |
| 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and Benefit Obligations |
|
| & nbsp; |
|
|
| td> |
|
|
|
|
|
|
Recognized in Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain) |
| 2 |
| (1) |
| (4) |
|
| - |
| - | & nbsp; | - |
Amortization of actuarial loss |
| (1) |
| (2) |
| (2) |
|
| - |
| - |
| - |
Total recognized in other comprehensive income |
| 1 |
| (3) |
| |
|
| - |
| - |
| - |
Total recognized in net periodic benefit cost and other comprehensive income | $ | 61 | $ | 60 | $ |   ;36 |
| $ | 16 | $ | 17 | $ | 15 |
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OTHER COMPREHENSIVE INCOME | |||||||||||||
(Dollars in millions) | |||||||||||||
|
Pension Benefits |
| Other Postretirement Benefits | ||||||||||
SoCalGas | 2010 | 2009 font> | 2008 |
| 2010 | 2009 | 2008 | ||||||
Net Periodic Benefit Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost | $ | 46 | $ | 42 | $ | 40 |
| $ | 18 | $ | 18 | $ | 17 |
Interest cost |
| 98 |
| 98 |
| 97 |
|
| 46 |
| 45 |
| 42 |
Expected return on assets |
| (90) |
| (94) |
| (103) |
|
| (40) |
| (41) |
| (43) |
Amortization of: |
|
|
|
|
|
|
|
|
| &nb sp; |
|
|
|
Prior service cost (credit) |
| 2 |
| 2 |
| 2 |
|
| (4) |
| (4) |
| (4) |
Actuarial loss |
| 10 |
| 1 |
| 1 |
|
| 7 |
| 3 |
| - |
Settlement charge |
| - |
| 1 |
| - |
|
| - |
| - |
| - |
Regulatory adjustment |
| 6 |
| 28 |
| (36) |
|
| 5 | &nbs p; | 6 |
| 5& nbsp; |
Total net periodic benefit cost |
| 72 |
| 78 |
| 1 |
|
| 32 |
| 27 |
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and Benefit Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain) |
| - |
| 1 |
| (1) |
|
| - |
| - |
| - |
Amortization of actuarial loss |
| (1) |
| < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> (1) |
| (1) |
|
| - |
| - |
| - |
Total recognized in other comprehensive income |
| (1) |
| - |
| (2) |
|
| - |
| - |
| - |
Total recognized in net periodic benefit cost and other comprehensive income | $ | 71 | $ |
78 | $ | (1) |
| $ | 32 | $ | 27 | $ | 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss for the pension plans that will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit cost in 2011 is $11 million for Sempra Energy Consolidated and $1 million at both SDG&E and SoCalGas. Negligible amounts of prior service credit for the pension plans will be similarly amortized in 2011.
Negligible amounts of estimated prior service credit for the other postretirement benefit plans will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit cost in 2011 at Sempra Energy.
Patient Protection and Affordable Care Act (PPACA) of 2010
In March 2010, the Patient Protection and Affordable Care Act (PPACA) was enacted. The key aspects of this legislation affecting Sempra Energy's cost of providing retiree medical benefits are
§Availability of subsidies from the Early Retiree Reinsurance Program (ERRP)
§Mandatory coverage for adult children until age 26 beginning in 2011
§Changes to the Prescription Drug Plan and Medicare Advantage programs beginning in 2011 and extending through 2020
§Loss of the tax free status of the Retiree Drug Subsidy (RDS) beginning in 2013
§Availability of coverage through health care exchanges beginning in 2014
§Excise tax on high-cost plans, as defined in the legislation, beginning in 2018
In determining the projected benefit obligation for the postretirement benefit plans, we took mandatory coverage for adult children, changes to the Prescription Drug Plan and Medicare Advantage programs, and availability of health care exchanges into consideration in the development of future claims c osts and healthcare trend rates as of December 31, 2010. Subsidies received through the ERRP will be reflected when received. We measured loss of the tax free status of RDS separately as described in the following section. We determined the impact of the excise tax provision separately for each of Sempra Energys plans, as explained below.
With the exception of SoCalGas represented employees and EnergySouth, we provide most of our employer subsidy in the form of a defined dollar benefit. Once the premium exceeds our stated benefit level, the retirees pay the difference between the premium amount and the subsidy. Under this arrangement, our obligation doesn't change with the excise tax, since by 2018 the premium both before and after inclusion of the excise tax will exceed our defined dollar benefit.
SoCalGas union retirees are provided a subsidy as a p ercentage of premium. For those retirees, we estimated an increase in SoCalGas and Sempra Energys obligations as of December 31, 2010 for the excise tax. However, it is likely that some retirees will move to less expensive plans as a result of the excise tax and lower Sempra Energys composite plan cost. The net effect of the increase in obligation from the excise tax, partially offset by the lower composite plan cost, is estimated to be $31 million.
EnergySouth offers only a pre-age 65 plan. As such, future retirees will only have a limited period where the excise tax may apply. All current retirees will no longer be eligible for benefits once the excise tax is effective in 2018.
Medicare Prescription Drug, Improvement and Modernization Act of 2003
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 establishes a prescription drug benefit under Medicare (Medicare Part D) and a tax-exempt federal subsidy to sponsors of retiree health-care benefit plans that provide a benefit that actuarially is at least equivalent to Medicare Part D. We have determined that benefits provided to certain participants actuarially will be at least equivalent to Medicare Part D. Thus, we are entitled to a tax-exempt subsidy that reduced our accumulated postretirement benefit obligation under our plans at January 1, 2010 and reduced the net periodic cost for 2010 by the following amounts:
| Sempra Energy |
|
| |||
(Dollars in millions) | Consolidated | SDG&E | SoCalGas | |||
Accumulated postret irement benefit |
|
|
|
|
|
|
obligation reduction | $ | 5 | $ | 1 | $ | 4 |
Net periodic benefit cost reduction |
| 11 |
| 2 |
| 8 |
Assumptions for Pension and Other Postretirement Benefit Plans
Benefit Obligation and Net Periodic Benefit Cost
We develop the discount rate assumption s based on the results of a third party modeling tool. In 2009 and 2008, we used a modeling tool that matched each plan's expected benefit payments to a bond yield curve to determine their present value. We then calculated a single equivalent discount rate that produced the same present value. The modeling tool used an actual portfolio of 500 to 600 bonds with an outstanding issue of at least $50 million to develop the bond yield curve. The selected bonds were non-callable (or callable with make whole provisions), had a minimum AA rating and excluded the top and bottom 10 percent of yields to avoid relying on bonds which might be mispriced or misgraded. This selection methodology also mitigates the impact of market volatility on the portfolio by excluding bonds with the following characteristics:
§The issuer is on review for downgrade by a major rating ag ency if the downgrade would eliminate the issuer from the portfolio.
§Recent events have caused significant price volatility to which rating agencies have not reacted.
§Lack of liquidity is causing price quotes to vary significantly from broker to broker.
In 2010, we used a modeling tool that develops the discount rate by matching expected cash flows for each plan to interest rates and expected maturity values of individually selected bonds in a hypothetical portfolio. We selected the individual bonds from a universe of Bloomberg Aa-rated bonds determined using the same criteria to select the portfolio as in prior years, but excluding collateralized bonds. The model controls the level of accumulated surplus that may result from the selection of bonds based solely on their premium yields by limiting the number of years to look back for selection to 3 years for pre-30-year and 6 years for post-30-year benefit payments. Additionally, the model ensures that an adequate number of bonds are selected in the portfolio by limiting the amount of the plans benefit payments that can be met by a single bond to 7.5 percent.
We believe that this bond selection approach provides the best estimate of discount rates to estimate settlement values for our plans benefit obligations as required by the applicable GAAP.
The discount rates at December 31, 2010 calculated using the current and prior methods are as follows:
DISCOUNT RATE ASSUMPTION COMPARISON AT DECEMBER 31, 2010 | ||||||
|
|
|
|
|
|
|
|
| Pension Benefits |
| Other Postretirement Benefits | ||
|
| Using Current Method | Using Prior Method |
| Using Current Method | Using Prior Method |
Sempra Energy | (1) | (1) |
| 5.77% | 5.31% | |
EnergySouth | 5.80% | 5.40% |
| 5.70% | 5.20% | |
SDG&E | 5.40% | 4.85% |
| 5.70% | 5.20% | |
SoCalGas | 5.75% | 5.30% |
| 5.80% | 5.35% | |
(1) | Sempra Energy rates for funded plans are 5.63% and 5.14% using current and prior methods, respectively, and rates for unfunded plans are 5.43% and 4.88% using current and prior methods, respectively. |
The decrease in benefit obligations as of December 31, 2010 and the increase (decrease) in the sum of estimated service cost and interest cost for the year ended December 31, 2011 due to the change in discount rate methodology for our pension and postretirement benefit plans are as follows:
|
|
| Pension Benefits |
| Other Postretirement Benefits | ||||
|
|
| Benefit Obligations |
| Service and Interest Costs |
| Benefit Obligations |
| Service and Interest Costs |
& nbsp; |
|
| as of |
| for year ended |
| as of |
| for year ended |
|
|
| December 31, 2010 |
| December 31, 2011 |
| December 31, 2010 |
| December 31, 2011 |
Sempra Energy | $ | (152) | $ | $ | (69) | $ | (2) | ||
SDG&E |
| (54) |
| 1 |
| (11) |
| - font> | |
SoCalGas |
| (84) |
| (2) |
| (56) |
| (2) |
Long-term return on assets is based on the weighted-average of the plans investment allocation as of the measurement date and the expected returns for those asset types.
The significant assumptions affecting benefit obligation and net periodic benefit cost are as follows:
WEIGHTED-AVERAGE ASSUMPTIONS | ||||||||||
| ||||||||||
|
| Pension Benefits |
| Other Postretirement Benefits | ||||||
| &nbs p; | 2010 | 2009 |
| 2010 | 2009 | ||||
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE |
|
|
|
|
|
|
|
|
| |
BENEFIT OBLIGATION AS OF DECEMBER 31: |
|
|
|
|
|
|
|
|
| |
Discount rate | 5.61 | % | 5.63 | % |
| 5.77 | % | 5.86 | % | |
Rate of compensation increase | 4.50 | % | 4.50 | % |
| (1) |
| (1) |
| |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET |
|
|
|
|
|
|
|
|
| |
PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31: |
|
|
|
|
|
|
|
|
| |
Sempra Energy Consolidated |
|
|
|
|
|
|
|
|
| |
Discount rate | (2) |
| (3) |
|
| (4) |
| (5) |
| |
Expected return on plan assets | 7.00 | % | 7.00 | % |
| 6.22 | % | 6.19 | % | |
Rate of compensation increase | (6) |
| (7) |
|
| (1) |
| (1) |
| |
SDG&E |
|
|
|
|
|
|
|
|
| |
Discount rate | 5.40 | % | 6.00 | % |
| 5.75 | % | 6.10 | % | |
Expected return on plan assets | | % | 7.00 | % |
| 6.49 | % | 6.25 | % | |
Rate of compensation increase | (8) |
| |
|
| N/A |
| N/A |
| |
SoCalGas |
|
|
|
|
|
|
|
|
| |
Discount rate | 5.75 | % | 6.00 | % |
| 5.90 | % | 6.10 | % | |
Expected return on plan assets | 7.00 | % | 7.00 | % |
| 7.00 | % | 7.00 | % | |
Rate of compensation increase | (6) |
| (7) |
|
| (1) |
| (1) |
| |
(1) | 4.00% for the life insurance and Health Reimbursement Arrangement (HRA) benefits for SoCalGas represented employees. There are no compensation-based benefits for any other PBOP. | |||||||||
(2) | 5.95% for EnergySouth pension plans, 5.60% for Sempra Energy. | |||||||||
(3) | 6.10% for EnergySouth pension plans, 6.00% for all others. p> | |||||||||
(4) | 4.60% for the Executive Life Plan, 5.70% for EnergySouth, and 5.40% for Sempra Energy. | |||||||||
(5) | 5.85% for the Executive Life Plan, 6.10% for all others. | |||||||||
(6) | 4.50% for the unfunded pension plans. 3.50% to 5.00% for the funded pension plan for SoCalGas represented participants and 3.50% to 8.50% for all the other funded pension plans' participants using an age-based formula. | |||||||||
(7) | 4.50% for the unfunded pension plans. 4.00% to 5.00% for the funded pension plan for SoCalGas represented participants and 3.50% to 8.50% for all the other funded pension plans' participants using an age-based formula. | |||||||||
(8) | 4.50% for the unfunded pension plan. 3.50% to 8.50% for the funded pension plan using an age-based formula. |
Health-Care Cost Trend Rates
Assumed health-care cost trend rates have a significant effect on the amounts that we report for the health-care plan costs. Following are the health-care cost trend rates applicable to our postretirement benefit plans:
|
| 2010 | 2009 | ||
ASSUMED HEALTH-CARE COST TREND RATES AT DECEMBER 31: |
|
|
|
| |
Health-care cost trend rate | 8.50 | % | 9.00 | % | |
Rate to which the cost trend rate is assumed to decline (the ultimate trend) | 5.50 | % | 5.50 | % | |
Year that the rate reaches the ultimate trend | 2016 |
| 2016 |
| |
|
|
A one-percent change in assumed health-care cost trend rates would have the following effects:
| Sempra Energy |
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| |||||||||
| Consolidated |
| SDG&E |
| SoCalGas | |||||||||
| 1% | 1% |
| 1% | 1% | <
td width=17 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:12.5pt; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:10.5pt" valign=bottom> 1% | 1% | |||||||
(Dollars in millions) | Increase | Decrease |
| Increase | Decrease |
| Increase | Decrease | ||||||
Effect on total of service and interest |
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cost components of net periodic |
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| & nbsp; |
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postretirement health-care benefit cost | $ | 11 | $ | (9) |
| $ | 1 | $ | (1) |
| $ | 10 | $ | (8) |
Effect on the health-care component of the |
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accumulated other postretirement |
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| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> |
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benefit obligations | $ | 120 | $ | (98) |
| $ | 7 | $ | (6) |
| $ | 111 | $ | (90) |
Plan Assets
Investment Allocation Strategy for Sempra Energy's Pension Master Trust
Sempra Energy's pension master trust holds the investments for the pension and other postretirement benefit plans. We maintain additional trusts as we discuss below for certain of the Sempra Utilities' other postretirement plans. Other than index weight, the trusts do not invest in securities of Sempra Energy.
The current asset all ocation objective for the pension master trust is to protect the funded status of the plans while generating sufficient returns to cover future benefit payments and accruals. We assess the portfolio performance by comparing actual returns with relevant benchmarks, such as the Morgan Stanley Capital International (MSCI) US Investable Index, the MSCI Pacific Rim and Europe Indices, the MSCI Emerging Markets Index, and the Barclays Aggregate and Long Government Credit Indices.
Both the equity and fixed income portions of the asset allocation use primarily passive investment strategies to achieve risk and return exposures consistent with these indices. The fixed income asset allocation consists of some longer-duration fixed income securities in order to reduce plan exposure to interest rate variation. The foreign equity components provide a growth element, diversification and exposure to different currencies and economies.
The asset allocation of the plans is reviewed by our Pension and Benefits Investment Committee (the Committee) on a regular basis. When evaluating its strategic asset allocation, the Committee considers many variables, including:
§long-term cost
§variability and level of contributions
§funded status
§a range of expected outcomes over varying c onfidence levels
We maintain allocations at strategic levels with reasonable bands of variance. When asset class exposure reaches a minimum or maximum level, we generally rebalance the portfolio back to target allocations, unless the Committee determines otherwise.
Rate of Return Assumption
For all plans except the SDG&E postretirement medical plans, we base the long-term rate of return assumption on the asset-weighted-average of the expected return for each asset class. We develop the expected returns from examining periods of historical returns and expectations for future returns from several investment and actuarial consultants. Specifically, we reached a 7.0 percent return expectation by assuming a 4.5 percent yield/ return on a risk-free bond portfolio (treasury securities), adding a 50 basis point risk premium for our investment grade bond portfolio and another 300 basis point risk premium for equity securities. A 65 percent equity/35 percent bond portfolio mix results in a total portfolio return expectation of approximately 7.0 percent.
The expected rate of return for the SDG&E postretirement medical plan assets is based on the weighted average after-tax expected return of the portfolio's target asset allocation of 30 percent equity/70 percent fixed income. The fixed-income portfolio is invested in tax-exempt municipal bond securities, while the equity portfolio is invested 25 percent Standard & Poor's (S&P) 500 index/5 percent MSCI Index for equity market performance in Europe, Australasia and Far East (MSCI EAFE index).
Concentra tion of Risk
Plan assets are fully diversified across global equity and bond markets, and other than what is indicated by the target asset allocations, contain no concentration of risk in any one economic, industry, maturity, or geographic sector.
Investment Strategy for SoCalGas' Other Postretirement Benefit Plans
SoCalGas' other postretirement benefit plans are funded by cash contributions from SoCalGas and current retirees. The assets of these plans are placed in the pension master trust and other Voluntary Employee Beneficiary Association (VEBA) trusts, as we detail below. The assets in the VEBA trusts are invested at identical allocations to the pension master trust, 65 percent equities/35 percent bonds, using primar ily index funds. This allocation has been formulated to best suit the long-term nature of the obligations.
Investment Strategy for SDG&E's Postretirement Health Plans
SDG&Es postretirement health plans are funded by cash contributions from SDG&E and current retirees. The assets are placed in the pension master trust and a VEBA trust, as we detail below. Assets in the pension master trust are invested at the 70 percent equity/30 percent bond asset mix using index funds. Assets in the VEBA trust are taxable and therefore have a different asset allocation strategy. These assets are invested with a target asset allocation of 30 percent equity/70 percent bonds, with a large portion of the bond portfolio placed in actively managed tax-exempt municipal bonds. The equity portfolio is indexed.
Fair Value of Pension and Other Postretirement Benefit Plan Assets
§Level 1, for securities valued using quoted prices from active markets for identical assets;
§Level 2, for securities not traded on an active market but for which observable market inputs are readily available; and
§Level 3, for securities and investments valued based on significant inputs that are generally less observable from objective sources.
We provide more discussion of fair value measurements in Notes 1, 2 and 11. The following tables set forth by level within the fair value hierarchy a summary of the investments in our pension and other postretirement benefit plan trusts measured at fair value on a recurring basis.
The fair values of our pension plan assets by asset category are as follows:
FAIR VALUE MEASUREMENTS SEMPRA ENERGY CONSOLIDATED | |||||||||
(Dollars in millions) | |||||||||
|
| At fair value as of December 31, 2010 | |||||||
PENSION PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
SDG&E (see table below) | $ | 450 | $ | 245 | $ | 8 | $ | 703 | |
SoCalGas (see table below) |
| 924 |
| 501 |
| 17 |
| 1,442 | |
Other Sempra Energy |
|
|
|
|
|
|
|
| |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) |
| 54 |
| - |
| - |
| 54 | |
Domestic mid-cap(1) |
| 11 |
| - |
| - |
| 11 | |
Domestic small-cap(1) |
| 12 |
| - |
| - |
| 12 | |
Foreign emerging market funds |
| - |
| 13 |
| - |
| 13 | |
Foreign large-cap |
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:10.5pt" valign=bottom>
| - td> |
| - |
| 31 | ||
Foreign mid-cap |
| 8 |
| - |
| - |
| 8 | |
Foreign small-cap |
| 5 |
| - |
| - |
| 5 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 5 |
| - |
| -&nbs p; |
| 5 | |
Other U.S. government securities |
| - |
| 9 |
| - |
| 9 | |
Domesti c municipal bonds |
| - |
| 2 |
| - |
| 2 | |
Foreign government bonds |
| - |
| 2 |
| - |
| 2 | |
Domestic corporate bonds(2) |
| - |
| 31 |
| - |
| 31 | |
Foreign corporate bonds |
| - |
| 9 |
| - |
| 9 | |
Common/collective trusts(3) |
| - |
| 3 |
| - |
| 3 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
|
2 |
| 2 | |
Total other Sempra Energy(5) |
| 126 |
| 69 |
| 2 |
| 197 | |
Total Sempra Energy Consolidated(6) | $ | 1,500 | $ | 815& nbsp; | $ | 27 | $ | 2,342 | |
|
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| At fair value as of December 31, 2009 | |||||||
PENSION PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
SDG&E (see table below) | $ | 459 | $ | 141 | $ | 9 | $ | 609 | |
SoCalGas (see table below) |
| 996 |
| 304 |
| 19 |
| 1,319 | |
Other Sempra Energy |
|
|
|
|
|
|
|
| |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) |
| 60 |
| - |
| - |
| 60 | |
Dome stic mid-cap(1) |
| 12 |
| - |
| - |
| 12 | |
Domestic small-cap(1) |
| 8 |
| - |
| - |
| 8 | |
Foreign emerging market funds |
| - |
| 12 |
| - |
| 12 | |
Foreign large-cap |
| 30 |
| - |
| - |
| 30 | |
Foreign mid-cap |
| 6 |
| - |
| - |
| 6 | |
Foreign small-cap |
| 4 |
| - |
| - |
| 4 | |
Registered investment company |
| 2 |
| - |
| - |
| 2 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 15 |
| - |
| - |
| 15 | |
Other U.S. government securities |
| - |
| 13 |
| - |
| 13 | |
Foreign government bonds |
| - |
| 1 |
| - |
| 1 | |
Domestic corporate bonds(2) |
| - |
| 14 |
| - |
| 14 | |
Foreign corporate bonds |
| - |
| 3 |
| - |
| 3 | |
Other types of investments: |
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|
|
|
|
| |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 2 |
| 2 | |
Total other Sempra Energy(7) |
| 137 |
| 43  ; |
| 2 |
| 182 | |
Total Sempra Energy Consolidated(6) | $ | 1,592 | $ | 488 | $ | 30 | $ | 2,110 | |
(1) | Investments in common stock of domestic corporations stratified according to the MSCI 2500 index. | ||||||||
(2) | Investment-grade bonds of U.S. issuers from diverse industries. | ||||||||
(3) | Investments in common/collective trusts held in a pension plan trust. | ||||||||
(4) | Investments in venture capital and real estate funds. | ||||||||
(5) | Excludes transfers payable to other plans of $12 million. | ||||||||
(6) | Excludes cash and cash equivalents of $12 million and $20 million at December 31, 2010 and 2009, respectively. | ||||||||
(7) | Excludes cash and cash equivalents of $1 million. |
FAIR VALUE MEASUREMENTS SDG&E | |||||||||
(Dollars in millions) | |||||||||
|
| At fair value as of December 31, 2010 | |||||||
PENSION PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) | $ | 198 | $ | - | $ | - | $ | 198 | |
| 39 < /p> |
| - |
| - |
| 39 | ||
Domestic small-cap(1) |
| 42 |
| - |
| - |
| 42 | |
Foreign emerging market funds |
| - |
| 46 |
| - |
| 46 | |
Foreign large-cap |
| 108 |
| - |
| - |
| 108 | |
Foreign mid-cap |
| 25 |
| - |
| - |
| 25 | |
Foreign small-cap |
| 19 |
| - |
| - |
| 19 | |
Foreign preferred |
| 1 |
| - |
| - |
| 1 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 18 |
| - |
| - |
| 18 | |
Other U.S. government securities |
| - |
| 32 |
| - |
| 32 | |
Domestic municipal bonds |
| - |
| 8 |
| - |
| < font style="FONT-SIZE:8pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> 8 | |
Foreign government bonds |
| - |
| 9 |
| - |
| 9 | |
Domestic corporate bonds(2) |
| - |
| 111 |
| - |
| 111 | |
Foreign corporate bonds |
| - |
| 33 |
| - |
| 33 |
|
Common/collective trusts(3) |
| - |
| 6 |
| - |
| 6 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 8 |
| 8 | |
Total investment assets(5) | $ | 450 | $ | 245 | $ | 8 | $ | 703 | |
|
| ||||||||
|
| At fair value as of December 31, 2009 | |||||||
PENSION PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
Equity securities: |
|
|
|
|
|
|
| &nb sp; | |
Domestic large-cap(1) | $ | 198 | $ | - | $ | - | $ | 198 | |
Domestic mid-cap(1) |
| 41 |
| - |
| - |
| 41 | |
Domestic small-cap(1) |
| 27 |
| - |
| - |
| 27 | |
Foreign emerging market funds |
| - |
| 37 |
| - |
| 37 | |
Foreign large-cap |
| 101 |
| - |
| - |
| 101 | |
Foreign mid-cap |
| 21 |
| - |
| - |
| 21 | |
Foreign small-cap |
| 15 |
| - |
| - |
| 15 | |
Registered investment company |
| |
| - |
| - |
| 5& nbsp; | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 51 |
| - |
| - |
| 51 | |
Other U.S. government securities |
| - |
| 42 |
| - |
| 42 | |
Domestic municipal bonds |
| - |
| 3 |
| - |
| 3 | |
Foreign government bonds |
| - |
| 5 |
| - |
| 5 | |
Domestic corporate bonds(2) |
| - |
| 48 |
| - |
| 48 | |
Foreign corporate bonds |
| - |
| 11 |
| - |
| 11 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Securities lending program(6) |
| - |
| (5) |
| - |
| (5) | |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 9 |
| 9 | |
Total investment assets(7) | $ | 459&nbs p; | $ | 141 | $ | 9 | $ | 609 | |
(1) | Investments in common stock of domestic corporations stratified accord ing to the MSCI 2500 index. | ||||||||
(2) | Investment-grade bonds of U.S. issuers from diverse industries. | ||||||||
(3) | Investments in common/collective trusts held in a pension plan trust. | ||||||||
(4) | Investments in venture capital and real estate funds. | ||||||||
(5) | Excludes cash and cash equivalents of $ 4 million and transfers receivable from other plans of $6 million at December 31, 2010. | ||||||||
(6) | An obligation to return collateral in excess of assets held under a securities lending agreement, allocated to each of the plans that hold assets in the pension master trust. Some of the collateral held in asset-backed securit ies was impaired. | ||||||||
(7) | Excludes cash and cash equivalents of $6 million at December 31, 2009. |
FAIR VALUE MEASUREMENTS SOCALGAS | |||||||||
(Dollars in millions) | |||||||||
|
| At fair value as of December 31, 2010 | |||||||
PENSION PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Tot al | |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) | $ | 409 | $ | - | $ | - | $ | 409 | |
Domestic mid-cap(1) |
| 80 |
| - |
| - |
| 80 | |
  ; Domestic small-cap(1) |
| 86 |
| - |
| - |
| 86 | |
Foreign emerging market funds |
| - |
| 95 |
| - |
| 95 | |
Foreign large-cap |
| 221 |
| - |
| - |
| 221 | |
Foreign mid-cap |
| 52 |
| - |
| - |
| 52 | |
Foreign small-cap |
| 39 |
| - |
| - |
| 39 | |
Foreign preferred |
| 1 |
| - |
| - |
| 1 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 36 |
| - |
| - < /p> |
| 36 | |
Other U.S. government securities |
| - |
| 65 |
| - |
| 65 | |
Domestic municipal bonds |
| - |
| 16 |
| - |
| 16 | |
Foreign government bonds |
| - |
| 18 |
| - |
| 18 | |
Domestic corporate bonds(2) |
| - |
| 227 |
| - |
| 227 | |
Foreign corporate bonds |
| - |
| 67 |
| - |
| 67 | |
Common/collective trusts(3) | &n bsp; | - |
| 13 |
| - |
| 13 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 17 |
| 17 | |
Total investment assets(5) | $ | 924 | $ | 501 | $ | 17 | $ | 1,442 | |
|
| ||||||||
|
| At fair value as of December 31, 2009 | |||||||
PENSION PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3< /font> |
| Total | |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) | $ | 428 | $ | - | $ | - | $ | 428 | |
Domestic mid-cap(1) |
| 88 |
| - |
| - |
| 88 | |
Domestic small-cap(1) |
| 60 |
| - |
| - |
| 60 | |
Foreign emerging market funds |
| - |
| 81 |
| - |
| 81 | |
Foreign large-cap |
| 220 |
| - |
| - |
| 220 | |
Foreign mid-cap |
| 46 |
| - |
| - |
| 46 | |
Foreign small-cap |
| 33 |
| - |
| - |
| 33 | |
Registered investment company |
| & nbsp;11 |
| - |
| - |
| 11 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 110 |
| - |
| - |
| 110 | |
Other U.S. government securities |
| - |
| 90 |
| - |
| 90 | |
Domestic municipal bonds |
| - |
| 6 |
| - |
| 6 | |
Foreign government bonds |
| - |
| 11 |
| - |
| 11 | |
Domestic corporate bonds(2) |
| - |
| 104 |
| - |
| 104 | |
Foreign corporate bonds |
| - |
| 23 |
| - |
| 23 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Securities lending program(6) |
| - |
| (11) |
| - |
| (11) | |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 19 |
| 19 | |
Total investment assets(7) | $ | 996 | $ |
304 | $ | 19 | $ | 1,319 | |
(1) | Investments in common stock of domestic corporations stratified according to the MSCI 2500 index. | ||||||||
(2) | Investment-grade bonds of U.S. issuers from diverse industries. | ||||||||
(3) | Investments in common/collective trusts held in a pension plan trust. | ||||||||
(4) | Investments in venture capital and real estate funds. | ||||||||
(5) | Excludes cash and cash equivalents of $8 million and transfers receivable from other plans of $6 million at December 31, 2010. | ||||||||
(6) | An obligation to return collateral in excess of assets held under a securities lending agreement, allocated to each | ||||||||
| of the plans that hold assets in the pension master trust. Some of the collateral held in asset-backed securities was | ||||||||
| impaired. | ||||||||
(7) | Excludes cash and cash equivalents of $13 million at December 31, 2009. |
The investments of the pension master trust allocated to the pension plans classified as Level 3 are private equity funds and represent a percentage of each plan' s total allocated assets as follows at December 31:
| Private Equity Funds | ||||||||
| 2010 |
| 2009 | ||||||
(Dollars in millions) | SDG&E | SoCalGas | All Other | Sempra Energy Consolidated |
| SDG&E | SoCalGas | All Other | Sempra Energy C onsolidated |
Total Level 3 investment assets | $8 | $17 | $2 | $27 |
| $9 | $19 | $2 | $30 |
Percentage of total investment assets | 1% | 1% | -% | 1% |
| 1% | 1% | -% | 1% |
The following table provides a reconciliation of changes in the fair value of investments classified as Level 3:
LEVEL 3 RECONCILIATIONS | ||||||||
(Dollars in millions) | ||||||||
| Private Equity Funds | |||||||
|
| SDG&E |
| SoCalGas |
| All Other |
| Sempra Energy Consolidated |
Balance as of January 1, 2009 | $ | 9 | $ | 21 | $ | 2 | $ | 32 |
Realized gains |
| - |
| 1 |
| - |
| 1 |
Unrealized losses relating to instruments |
|
|
|
|
|
|
|
|
still held at the reporting date |
| - |
| (2) |
| - |
| &nbs p;(2) |
Purchases |
| - < /p> |
| 2 |
| - |
| 2 |
Sales |
| - |
| (3) |
| - |
| (3) |
Balance as of December 31, 2009 |
| 9 |
| 19 |
| 2 |
| 30 |
Realized gains |
| - |
| 1 |
| - |
| 1 |
Purchases |
| - |
| 1 |
| - |
| 1 |
Sales |
| (1) |
| (4) |
| - |
| (5) |
Balance as of December 31, 2010 | $ | 8 | $ | 17 | $ | 2 | $ | 27 |
The fair values of the postretirement benefit plan assets held in the pension master trust and in the additional trusts for SoCalGas' postretirement benefit plans and SDG&E'S postretirement benefit plans (PBOP plan trusts), by asset category are as follows:
FAIR VALUE MEASUREMENTS SEMPRA ENERGY CONSOLIDATED | |||||||||
(Dollars in millions) | |||||||||
|
| At fair value as of December 31, 2010 | |||||||
OTHER POSTRETIREMENT BENEFIT PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
SDG&E (see table below) | $ | 45 | $ | 24 | $ | 1 | $ | 70 | |
SoCalGas (see table below) |
| 184 |
| 395 |
| 3 |
| 582 | |
Other Sempra Energy |
|
|
|
|
|
|
|
| |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) |
| 3 |
| - |
| - |
| 3 | |
Domestic mid-cap(1) |
| 1&nbs p; |
| - |
| - |
| 1 | |
Domestic small-cap(1) |
| 1 |
| - |
| - |
| 1 | |
Foreign large-cap |
| 2 |
| - |
| - |
| 2 | |
Foreign mid-cap |
| 1 |
| - |
| - |
| 1 | |
Foreign small-cap |
| 1 |
| - |
| - |
| 1 | |
Fixed income securities: |
|
| & nbsp; |
|
|
|
|
| |
U.S. Treasury securities | < /td> | 1 |
| - |
| - |
| 1 | |
Domestic corporate bonds(2) |
| - |
| 3 |
| - |
| 3 | |
Total other Sempra Energy (3) |
| 10 |
| 3 |
| - |
| 13 | |
Total Sempra Energy Consolidated(4) | $ | 239 | $ | 422 | $ | 4 | $ | 665 | |
|
|
|
|
|
|
|
|
|
|
|
| At fair value as of December 31, 2009 | |||||||
OTHER POSTRETIREMENT BENEFIT PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
SDG&E (see table below) | $ | 40 | $ | 40 | $ | 1 | $ | 81 | |
SoCalGas (see table below) |
| 201 |
| 323 |
| 4 |
| 528 | |
Other Sempra Energy |
|
|
|
|
|
|
|
| |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) |
| 4 |
| - | < /p> | - |
| 4 < /font> | |
Domestic mid-cap(1) |
| 1 |
| - |
| - |
| 1 | |
Foreign emerging market funds |
| - |
| 2 |
| - |
| 2 | |
Foreign large-cap |
| 1 td> |
| - |
| - |
| 1 | |
Registered investment company |
| 1 |
| - |
| - |
| 1 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 2 |
| - |
| - |
| 2 | |
Other U.S. government securities |
| - |
| 1 |
| - | < /td> | 1 | |
Foreign government bonds |
| - |
| 1 |
| - |
| 1 | |
Domestic corporate bonds(2) |
| - |
| 2 |
| - |
| 2 | |
Common/collective trusts(5) |
| - |
| 1 |
| - |
| 1 | |
Other types of investment: |
|
|
|
|
|
|
|
| |
Securities lending program(6) |
| - |
| (1) |
| - |
| (1) | |
Total other Sempra Energy |
| 9 |
| 6 |
| - |
| 15 | |
Total Sempra Energy Consolidated(7) | $ | | $ | 369 | $ | 5 | $ | 624 | |
(1) | Investments in common stock of domestic corporations stratified according to the MSCI 2500 index. | ||||||||
(2) | Investment-grade bonds of U.S. issuers from diverse industries. | ||||||||
(3) | Excludes cash and cash equivalents of $2 million. | ||||||||
(4) | Excludes cash and cash equivalents of $81 million, $50 million and $29 million of which is held in SoCalGas and SDG&E | ||||||||
| PBOP plan trusts, respectively. | ||||||||
(5) | Investments in common/collective trusts held in PBOP plan trusts. | ||||||||
(6) | An obligation to return collateral in excess of assets held under a securities lending agreement, allocated to each of | ||||||||
| the plans that hold assets in the pension master trust. Some of the collateral held in asset-backed securities was impaired. | ||||||||
(7) | Excludes cash and cash equivalents of $34 million, $30 million of which is held in SoCalGas PBOP plan trusts. |
FAIR VALUE MEASUREMENTS SDG&E | |||||||||
(Dollars in millions) | |||||||||
|
| At fair value as of December 31, 2010 | |||||||
OTHER POSTRETIREMENT BENEFIT PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) | $ | 16 | $ | - | $ | - | $ | 16 | |
Domestic mid-cap(1) |
| 3 |
| - |
| - |
| 3 | |
Domestic small-cap(1) |
| 3 |
| - |
| - |
| 3 | |
Foreign emerging market funds |
| - |
| 4 |
| - |
| 4 | |
Foreign large-cap |
| 8 |
| - |
| - |
| 8 | |
Foreign mid-cap |
| 2 |
| - |
| - |
| 2 | |
Foreign small-cap |
| 1 |
| - |
| - |
| 1& nbsp; | |
Registered investment company |
| 11 |
| - |
| - |
| 11 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| & nbsp;1 |
| - |
| - |
| 1 | |
Other U.S. government securities |
| - |
| 2 |
| - |
| 2 | |
Foreign government bonds |
| <
td width=54 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; WIDTH:40.5pt; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:11.25pt" valign=bottom>
| 1 |
| - |
| 1 | ||
Domestic municipal bonds(2) |
| - |
| 6 |
| - |
| 6 | |
& nbsp; Domestic corporate bonds(3) |
| - |
| 9 |
| - |
| 9 | |
Foreign corporate bonds |
| - |
| 2 |
| - |
| 2 | |
Other types of investment: |
|
|
|
|
|
|
|
| |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 1 |
| 1 | |
Total investment assets(5) | $ | 45 | $ | 24 | $ | 1 | $ | 70 | |
|
|
|
|
|
|
|
|
|
|
|
| At fair value as of December 31, 2009 | |||||||
OTHER POSTRETIREMENT BENEFIT PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
  ; |
|
|
|
|
|
|
|
| |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) | $ | 19 | $ | - | $ | - | $ | 19 | |
Do mestic mid-cap(1) |
| 4 |
| - |
| < font style="FONT-SIZE:8pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'">- |
| 4 | |
Domestic small-cap(1) |
| 2 |
| - |
| - |
| 2 | |
Foreign emerging market funds |
| - |
| 2 |
| - |
| 2 | |
Foreign large-cap |
| 9 |
| - |
| - |
| 9 | |
Foreign mid-cap |
| 2 |
| - |
| - |
| 2 | |
Foreign small-cap |
| 1 |
| - |
| - |
| 1 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 3 |
| - |
| - |
| 3 | |
Other U.S. government securities |
| - |
| 3 |
| - |
| 3 | |
Domestic municipal bonds(2) |
| - |
| 10 |
| - |
| 10 | |
Domestic corporate bonds(3) |
| - |
| 3 | < /td> | - |
| 3 | |
Foreign corporate bonds |
| - |
| 1 |
| - |
| 1 | |
Common/collective trusts(6) |
| - |
| 21 |
| - |
| 21 | |
Other types of investment: |
|
|
|
|
|
|
|
| |
Private equity funds(4) (stated at net asset value) |
| - |
| - |
| 1 |
| 1 | |
Total investment assets | $ | 40 | $ | 40 | $ | 1 | $ | 8 1 | |
(1) | Investments in common stock of domestic corporations stratified according to the MSCI 2500 index. | ||||||||
(2) | Bonds of California municipalities held in the SDG&E PBOP plan trusts. | ||||||||
(3) | Investment-grade bonds of U.S. issuers from diverse industries. | ||||||||
(4) | Investments in venture capital and real estate funds. | ||||||||
(5) | Excludes cash and cash equivalents of $29 million, all of which is held in SDG&E PBOP plan trusts. | ||||||||
(6) | Investments in common/collective trusts held in PBOP plan trusts. |
FAIR VALUE MEASUREMENTS SOCALGAS | |||||||||
(Dollars in millions) | |||||||||
|
|
At fair value as of December 31, 2010 | |||||||
OTHER POSTRETIREMENT BENEFIT PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
Equity securities: |
|
|
|
|
|
|
|
| |
Domestic large-cap(1) | $ | 82 | $ | - | $ | - | $ | 82 | |
Domestic mid-cap(1) |
| 16 |
| - |
| - |
| 16 | |
Domestic small-cap(1) |
| 17 |
| - |
| - |
| 17 | |
Foreign emerging market funds |
| - |
| 19 |
| - |
| 19 | |
Broad market fund(2) |
| - |
| 220 p> |
| - |
| 220 | |
Foreign large-cap |
| 44 |
| - |
| - |
| 44 | |
Foreign mid-cap |
| 10 |
| - |
| - font> |
| 10 | |
Foreign small-cap |
| 8 |
| - |
| - |
| 8 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 7 |
| - |
| - |
| 7 | |
Other U.S. government securities |
| - |
| 14 |
| - |
| 14 | |
Domestic municipal bonds |
| - |
| 3 |
| - |
| 3 | |
Foreign government bonds |
| - |
| 3 |
| - |
| 3 | |
Domestic corporate bonds(3) |
| - |
| 45 |
| - |
| 45 | |
Foreign corporate bonds |
| - |
| 14 |
| - |
| 14 | |
Common/collective trusts(4) |
| - |
| 77 |
| - |
| 77 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Private equity funds(5) (stated at net asset value) |
| - |
| - |
| &nb sp;3 |
| 3 | |
Total investment assets(6) | $ | 184 | $ | 395 | $ | 3 | $ | 582 | |
|
|
|
|
| < /p> |
|
|
|
|
|
| At fair value as of December 31, 2009 | |||||||
OTHER POSTRETIREMENT BENEFIT PLANS - INVESTMENT ASSETS |
| Level 1 |
| Level 2 | Level 3 |
| Total | ||
Equity securities: |
|
|
| < /p> |
|
|
|
| |
Domestic large-cap(1) | $ | 86 | $ | - | $ | - | $ | 86 | |
  ; Domestic mid-cap(1) |
| 18 |
| - |
| |
| 18 | |
Domestic small-cap(1) |
| 12 |
| - |
| - |
| 12 | |
Foreign emerging market funds |
| - |
| 16 |
| - |
| 16 | |
Broad market fund(2) |
| - |
| 189 |
| - |
| 189 | |
Foreign large-cap |
| 45 |
| - |
| - |
| 45 | |
Foreign mid-cap |
| 9 |
| - |
| - |
| 9 | |
Foreign small-cap |
| 7 |
| - |
| - |
| 7 | |
Registered investment company |
| 2 |
| - |
| - |
| 2 | |
Fixed income securities: |
|
|
|
|
|
|
|
| |
U.S. Treasury securities |
| 22 |
| - |
| - |
| 22 | |
Other U.S. government securities |
| - |
| 18 |
| - |
| 18 | |
Domestic municipal bonds |
| - |
| 1 |
| - |
| 1 | |
Foreign government bonds |
| - |
| 2 |
| - |
| 2 | |
Domestic corporate bonds(3) |
| - |
| 21 |
| - |
| 21 | |
Foreign corporate bonds |
| - |
| 5 |
| - |
| 5 | |
Common/collective trusts(4) |
| - |
| 73 |
| - |
| 73 | |
Other types of investments: |
|
|
|
|
|
|
|
| |
Securities lending program(7) |
| - |
| (2) |
| - < /p> |
| (2) | |
Private equity funds(5) (stated at net asset value) |
| - |
| - |
| 4 |
| 4 | |
Total investment assets(8) | $ | 201 | $ | 323 | $ | 4 | $ | 528 | |
(1) | Investments in common stock of domestic corporations stratified according to the MSCI 2500 index. | ||||||||
(2) | A passively managed broad market fund held in SoCalGas PBOP plan trusts. | ||||||||
(3) | Investment-grade bonds of U .S. issuers from diverse industries. | ||||||||
(4) | Investments in common/collective trusts held in PBOP plan trusts. | ||||||||
(5) | Investments in venture capital and real estate funds. | ||||||||
(6) | Excludes cash and cash equivalents of $50 million, all of which is held in SoCalGas PBOP plan trusts. | ||||||||
(7) | An obligation to return collateral in excess of assets held under a securities lending agreement, allocated to each of the plans that hold assets in the pension master trust. Some of the collateral held in asset-backed securities was impaired. | ||||||||
(8) | Excludes cash and cash equivalents of $34 million, $30 million of which is held in SoCalGas PBOP plan trusts. |
The investments of the pension master trust allocated to the postretirement benefit plans classified as Level 3 are private equity funds and represent a percentage of each plan's total allocated assets as follows at December 31:
| Private Equity Funds | ||||||||||
| 2010 |
| 2009 | ||||||||
(Dollars in millions) | SDG&E |
| SoCalGas |
| Sempra Energy Consolidated |
| SDG&E |
| SoCalGas |
| Sempra Energy Consolidated |
Total Level 3 investment assets | $1 |
| $3 |
| $4 |
| $1 |
| $4 |
| $5 |
Percentage of total investment assets | 1% |
| -% |
| 1% |
| 1% |
| 1% |
| 1% |
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 RECONCILIATIONS | ||||||
(Dollars in millions) | ||||||
| Private Equity Funds | |||||
|
| SDG&E |
| SoCalGas |
| Sempra Energy Consolidated |
Balance as of January 1, 2010 | $ | 1 | $ | 4 | $ | 5 |
Sales |
| - |
| (1) |
| (1) |
Balance as of December 31, 2010 | $ | 1 | $ | 3 | $ | 4 |
There were no changes in the fair value of these investments in 2009.
Securities Lending
In 2009, the pension master trust partic ipated, through agents, in securities lending programs that were managed by external investment advisors. The pension master trust ended its participation in these programs in 2010, and none of the trusts securities were managed through these programs as of December 31, 2010. The collateral received on the Sempra Energy pension trust's securities loaned in the separately managed account that was reinvested, the fair values of such investments and the resulting unrealized losses as of December 31, 2009 are as follows:
SECURITIES LENDING | |||||||||||||
(Dollars in millions) | |||||||||||||
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:center" align=center>Pension Benefits |
| Other Postretirement Benefits | ||||||||||
| Collateral | Fair Value of | Unrealized |
| Collateral | Fair Value of | Unrealized | ||||||
| Received | Invested Collateral | Loss |
| Received | Invested Collateral | Loss | ||||||
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
SDG&E | $ | 88 | $ | 83 | $ | (5) |
| $ | 6 | $ | 6 | $ | - |
SoCalGas |
| 191 |
| 180 |
| (11) |
|
| 38 |
| 36 |
| (2) |
Other Sempra Energy |
| 25 |
| 25 |
| - |
|
| 2 |
| 1 |
| (1) |
Sempra Energy Consolidated | $ | 304 | $ | 288 | $ | (16) |
| $ | 46 | $ | 43 | $ | (3) |
Collateral received was reinvested in a portfolio of investments, through an agent, mostly consisting of AAA‑rated asset backed floating rate notes, and floating rate notes rated at the time of purchase A2 or better by Moodys Investor Service or A by S&P.
Derivative Financial Instruments
In accordance with the Sempra Energy pension investment guidelines, derivative financial instruments are used by the pension master trusts equity and fixed income portfolio investment managers. Futures and foreign currency exchange contracts are used primarily to rebalance the fixed income/equity allocation of the pension master trusts portfolio and to hedge all or a portion of the currency risk component of the foreign equity investments. Currency hedge positions are not permitted to exceed the level of underlying foreign security exposure in the pension master trusts related assets. Some of the fixed income investment managers are permitted to use certain specified types of derivative instruments as part of their respective strategies. These strategies include the use of futures and options as substitutes for certain types of fixed income securities. During 2010 and 2009, the pension master trust owned shares in funds that held futures contracts and foreign currency forward contracts. In 2010 and 2009, such funds in which the pension master trust owned shares were the S&P 1500 Index and the Foreign Equity Index managed by Barclays Global Investors. As these futures contracts are not held directly by the pension master trust, they are not included in the following discussion.
At December 31, 2010 and 2009, the pension master trust did not directly hold any futures or currency forward contracts. As we discuss above, interest rate swaps are used directly, in conjunction with the securities lending program and indirectly, through an index fund in the pension master trust.
Future Payments
< font size=2>We expect to contribute the following amounts to our pension and other postretirement benefit plans in 2011:
| Sempra Energy |
|
| |||
(Dollars in millions) | Consolidated | SDG&E | SoCalGas | |||
Pension plans | $ | 267 | $ | 83 | $ | 118 |
Other postretirement benefit plans |
| 74 |
| 16 |
| 53 |
| Sempra Energy Consolidated |
| SDG&E |
| SoCalGas | |||||||||
|
| Other |
|
| Other |
|
| Other | ||||||
| Pension | Postretirement |
| Pension | Postretirement |
| Pension | Postretirement | ||||||
(Dollars in millions) | Benefits | Benefits |
| Benefits | Benefits |
| Benefits | Benefits | ||||||
2011 | $ | 330 | $ | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12.75pt" valign=bottom>
| $ | 91 | $ | 8 |
| $ | 169 | $ | 39 | |
2012 td> |
| 302 |
| 55 |
|
| 86 |
| 9 |
|
| 168 |
| 42 |
2013 |
| 293 |
| 59 |
|
| 85 |
| 10 |
|
| 178 |
| 46 |
2014 |
| 299 |
| 64 |
|
| 87 |
| 11 |
|
| 179 |
| 49 |
2015 |
| 294 |
| 68 |
|
| 86 |
| 12 |
|
| 174 |
| 52 |
2016-2020 |
| 1,340 |
| 402 |
|
| 387 |
| 73 |
|
| 819 |
| 308 |
The expected future Medicare Part D subsidy payments are as follows:
| Sempra |
|
| |||
| Energy |
|
| |||
(Dollars in millions) | Consolidated | SDG&E |
SoCalGas | |||
2011 | $ | 3 | $ | - | $ | 2 |
2012 |
| 3 |
| - |
| 3 |
2013 |
| 3 |
| - |
| 3 |
2014 |
| 4 |
| - |
| 3 |
2015 |
| 4 |
| 1 |
| 3 |
2016-2020 |
| 25 |
| 4 |
| 19 |
SAVINGS PLANS
Sempra Energy offers trusteed savings plans to all employees. Participation in the plans is immediate for salary deferrals for all employees except for the represented employees at SoCalGas, who are eligible upon completion of one year of service. Subject to plan provisions, employees may contribute from one percent to 25 percent of their regular earnings when they begin employment. After one year of the employee's completed service, Sempra Energy makes matching contributions. Employer contribution amounts and methodology vary by plan, but generally the contributions are equal to 50 percent of the first 6 percent of eligible base salary contributed by employees and, if certain company goals are met, an additional amount related to incentive compensation payments.
Employer contributions are initially invested in Sempra Energy common stock, but the employee may tr ansfer the contribution to other investments. Employee contributions are invested in Sempra Energy stock, mutual funds or institutional trusts (the same investments to which employees may direct the employer contributions), which the employee selects. In Sempra Energy plans, employee contributions may also be invested in guaranteed investment contracts. Employer contributions for the Sempra Energy and SoCalGas plans are partially funded by the ESOP referred to below.
Contributions to the savings plans were as follows:
(Dollars in millions) | 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated | $ | 31 | $ | 31 | $ | 32 |
SDG&E |
| 14 |
| 13 |
| 13 |
PE/SoCalGas |
| 13 |
|
13 |
| 12 |
The market value of Sempra Energy common stock held by the savings plans was $847 million and $919 million at December 31, 2010 and 2009, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
All contributions to the ESOP Trust (described in Note 5) are made by Sempra Energy; there are no contributions made by the participants. As Sempra Energy makes contributions, the ESOP debt service is paid and shares are released in proportion to the total expected debt service. We charge compensation expense and credit equity for the market value of the released shares. Dividends on unallocated shares are used to pay debt service and are applied against the liability. The shares held by the Trust are unallocated and consist of 0.5 million shares of Sempra Energy common stock with a fai r value of $27 million at December 31, 2010, and 0.9 million shares of Sempra Energy common stock with a fair value of $49 million at December 31, 2009.
NOTE 9. SHARE-BASED COMPENSATION
SEMPRA ENERGY EQUITY COMPENSATION PLANS
Sempra Energy has share-based compensation plans intended to align employee and shareholder objectives related to the long-term growth of Sempra Energy. The plans permit a wide variety of share-based awards, including:
§incentive stock options
§restricted stock
§restricted stock units
§stock appreciation rights
§performance awards
§stock payments
§dividend equivalents
Eligible Sempra Utilities employees participate in Sempra Energy's share-based compensation plans as a component of their compensation package.
At December 31, 2010, Sempra Energy had the following types of equity awards outstanding:
§Non-Qualified Stock Options: Options have an exercise price equal to the market price of the common stock at the date of grant, are service-based, become exercisable over a four-year period, and expire 10 years from the date of grant. Vesting and/or the ability to exercise may be accelerated upon a change in control, in accordance with severance pay agreements or upon eligibility for retirement. Options are subject to forfeiture or earlier expiration when an employee terminates employment.
§Restricted Stock: Substantially all restricted stock awards vest at the end of four-year performance periods based on Sempra Energys total return to shareholders relative to that of market indices. Vesting is subject to earlier forfeiture upon termination of employment and accelerated vesting upon a change in control, in accordance with severance pay agreements or upon el igibility for retirement. Holders of restricted stock have full voting rights. They also have full dividend rights; however, dividends paid on restricted stock held by officers are reinvested to purchase additional shares that become subject to the same vesting conditions as the restricted stock to which the dividends relate.
§Restricted Stock Units: Restricted stock unit awards vest at the end of four-year performance periods based on Sempra Energys total return to shareholders relative to that of market indices. If Sempra Energys total return to shareholders exceeds the target levels established under the 2008 Long Term Incentive Plan for awards granted beginning in 2008, up to an additional 50 percent of the number of granted restricted stock units may be issued. If Sempra Energy's total return to shareholders is below the ta rget levels, shares are subject to partial vesting on a pro rata basis. Vesting is subject to earlier forfeiture upon termination of employment and accelerated vesting upon a change in control, in accordance with severance pay agreements or upon eligibility for retirement. Dividend equivalents on shares subject to restricted stock units are reinvested to purchase additional shares that become subject to the same vesting conditions as the restricted stock units to which the dividends relate.
The Sempra Energy 2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals (the Plan) authorizes the issuance of up to 302,478 shares of Sempra Energy common stock. In connection with the acquisition of EnergySouth in October 2008, we adopted the Plan to utilize the shares remaining available for future awards under the 2008 Incentive Plan of EnergySouth, Inc. (the Prior Plan). All awards outstand ing under the Prior Plan at the time of the acquisition were canceled, and the holders were paid the merger consideration in accordance with the terms of the merger agreement. The Plan provides for the grant of substantially the same types of share-based awards (other than incentive stock options) that are available under the Sempra Energy 2008 Long Term Incentive Plan.
SHARE-BASED AWARDS AND COMPENSATION EXPENSE
We measure and recognize compensation expense for all share-based payment awards made to our employees and directors based on estimated fair values on the date of grant. We recognize compensation costs net of an estimated forfeiture rate (based on historical experience) and recognize the compensation costs for non-qualified stock options and restricted stock and stock units on a strai ght-line basis over the requisite service period of the award, which is generally four years. However, in the year that an employee becomes eligible for retirement, the remaining expense related to the employee's awards is recognized immediately. Substantially all awards outstanding are classified as equity instruments, therefore we recognize additional paid in capital as we recognize the compensation expense associated with the awards.
As of December 31, 2010, 3,759,571shares were authorized and available for future grants of share-based awards. Company practice is to satisfy share-based awards by issuing new shares rather than by open-market purchases.
Total share-based compensation expense for all of Sempra Energys share-based awards was comprised as follows:
SHARE-BASED COMPENSATION EXPENSE SEMPRA ENERGY CONSOLIDATED | ||||||
(Dollars in millions, except per share amounts) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Share-based compensation expense, before income taxes | $ | 34 | $ | 34 | $ | 44 |
Income tax benefit |
| (13) |
| (13) |
| (17) |
Share-based compensation expense, net of income taxes | $ | 21 | $ | 21 | $ | 27 |
|
|
|
|
|
|
|
Net share-based compensation expense, per common share |
|
|
|
|
|
|
Basic | $ | 0.09 | $ | 0.09 | $ | 0.11 |
Diluted | $ | 0.08 | $ | 0.08 | $ | 0.11 |
Semp ra Energys capitalized compensation cost was $3 million in 2010, $5 million in 2009 and $5 million in 2008.
We classify the tax benefits resulting from tax deductions in excess of the tax benefit related to compensation cost recognized for stock option exercises as financing cash flows.
Sempra Energy subsidiaries record an expense for the plans to the extent that subsidiary employees participate in the plans and/or the subsidiaries are allocated a portion of the Sempra Energy plans corporate staff costs. Expenses and capitalized compensation cost recorded by SDG&E and SoCalGas were as follows:
SHARE-BASED COMPENSATION EXPENSE SDG&E AND SOCALGAS | ||||||
(Dollars in millions) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
SDG&E: |
|
|
|
|
|
|
Compensation expense | $ | 9 | $ | 6 | $ | 8 |
& nbsp; Capitalized compensation cost |
| 2 |
| 3 |
| 3 |
SoCalGas: |
|
|
|
|
|
|
Compensation expense | $ | 8 | $ | 7 | $ | 9 |
Capitalized compensation cost |
| 1 |
| 2 |
| 2 |
SEMPRA ENERGY N ON-QUALIFIED STOCK OPTIONS
We use a Black-Scholes option-pricing model (Black-Scholes model) to estimate the fair value of each non-qualified stock option grant. The use of a valuation model requires us to make certain assumptions about selected model inputs. Expected volatility is calculated based on the historical volatility of Sempra Energys stock price. We base the average expected life for options on the contractual term of the option and expected employee exercise and post-termination behavior.
The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant. The weighted-average per-share fair values for options granted were $7.92 in 2010, $5.29 in 2009 and $12.53 in 2008. To calcula te these fair values, we used the Black-Scholes model with the following weighted-average assumptions:
| 2010 | 2009 | 2008 | |||
Stock price volatility | 19% |
| 18% |
| 19% |
|
Risk-free rate of return | 2.6%< /font> |
| 1.9% |
| 3.6% |
|
Annual dividend yield | 2.8% |
| 3.2% |
| 2.0% |
|
Expected life | 5.5 years |
| 5.6 years |
| 6.4 years |
|
The following table shows a summary of the non-qualified stock options as of December 31, 2010 and activity for the year then ended:
NON-QUALIFIED STOCK OPTIONS | ||||||||
| ||||||||
  ; |
|
| Weighted- |
| ||||
|
| Weighted- | Average |
| ||||
| Shares | Average | Remaining | Aggregate | ||||
| Under | Exercise | Contr actual Term | Intrinsic Value | ||||
| Option | Price | (in years) | (in millions) | ||||
Outstanding at December 31, 2009 |
| 5,917,347 | $ | 40.93 |
|
|
|
|
Granted |
| 687,600 | $ | 55.80 |
|
|
|
|
Exercised |
| (912,725) | $ | 27.53 |
|
|
|
|
Forfeited/canceled |
| (61,750) | $ | 53.47 |
|
|
|
|
Outstanding at December 31, 2010 |
| 5,630,472 | $ | 44.79 |
| 5.2 | $ | 56 |
|
|
|
|
|
|
|
|
|
Vested or expected to vest, at December 31, 2010 |
| 5,576,231 | $ | 44.70 |
| 5.2 | $ | 55 |
Exercisable at December 31, 2010 |
| 3,815,922 | $ | 40.98 |
| 4.0 | $ | 50 |
The aggregate intrinsic value at December 31, 2010 is the total of the difference between Sempra Energys closing stock price and the exercise price for all in-the-money options. The aggregated intrinsic value for non-qualified stock options exercised in the last three years was
§$22 million in 2010
§$45 million in 2009
§$21 million in 2008
The to tal fair value of shares vested in the last three years was
§$8 million in 2010
§$9 million in 2009
§$8 million in 2008
The $4 million of total compensation cost related to nonvested stock options not yet recognized as of December 31, 2010 is expected to be recognized over a weighted-average period of 2.3 years.
We received cash from option exercises during 2010 totaling $25 million. The rea lized tax benefits for the share-based payment award deductions were $8 million in 2010, in addition to the $13 million benefit shown above.
SEMPRA ENERGY RESTRICTED STOCK AWARDS AND UNITS
We use a Monte-Carlo simulation model to estimate the fair value of the restricted stock awards and units. Our determination of fair value is affected by the volatility of the stock price and the dividend yields for Sempra Energy and its peer group companies. The valuation also is affected by the risk-free rates of return, and a number of other variables. Below are key assumptions for Sempra Energy:
| 2010 | 2009 | 2008 | |||
Risk-free rate of return | 2.1% |
| 1.4% |
| 3.1% |
|
Annual dividend yield | 2.8% |
| 3.2% |
| 2.3% |
|
Stock price volatility | 26% |
| 25% |
| 18% |
|
Restr icted Stock Awards
We provide a summary of Sempra Energys restricted stock awards as of December 31, 2010 and the activity during the year below.
RESTRICTED STOCK AWARDS | ||||
| ||||
|
| Weighted- | ||
|
| Average | ||
|
| Grant-Date | ||
| Shares | Fair Value | ||
Nonvested at December 31, 2009 |
| 858,407&n bsp; | $ | 38.36 |
Vested |
| (63,734) | $ | 58.29 |
Forfeited |
| (6,700) | $ | 37.91 |
Nonvested at December 31, 2010 |
| 787,973 | $ | 36.73 |
Vested or expected to vest, at December 31, 2010 |
| 787,973 | $ | 36.73 |
The $1 million of total compensation co st related to nonvested restricted stock awards not yet recognized as of December 31, 2010 is expected to be recognized over a weighted-average period of 1.2 years. The weighted-average per-share fair values for restricted stock awards granted were $40.34 in 2009 and $43.17 in 2008.
The total fair value of shares vested in the last three years was
§$4 million in 2010
§$27 million in 2009
§$39 million in 2008
Restricted Stock Units
We provide a summary of Sempra Energys restricted stock units as of December 31, 2010 and the activity during the year below.
RESTRICTED STOCK UNITS | |||||
| |||||
|
|
| Weighted- | ||
|
|
| Average | ||
|
|
| Grant-Date | ||
|
| Units | Fair Value | ||
Nonvested at December 31, 2009 |
| 1,522,650 | $ | 43.03 | |
Granted |
| 776,975 | $ | 44.44 | |
Forfeited |
| (68,300) | $ | 42.64 | |
Nonvested at December 31, 2010(1) |
| 2,231,325 | $ | 43.46 | |
Vested or expected to vest, at December 31, 2010 |
| 2,162,712 | $ | 43.47 | |
(1) | Each unit represents the right to receive one share of our common stock if applicable performance conditions are satisfied. Up to an additional 50% of the shares represented by the units may be issued if Sempra Energy exceeds target performance conditions. |
The $23 mi llion of total compensation cost related to nonvested restricted stock units not yet recognized as of December 31, 2010 is expected to be recognized over a weighted-average period of 2.4 years. The weighted-average per-share fair values for restricted stock units granted were $35.96 in 2009 and $52.80 in 2008.
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative instruments primarily to manage exposures arising in the normal course of business. These exposures are commodity market risk and benchmark interest rat e risk. We may also manage foreign exchange rate exposures using derivatives. Our use of derivatives for these risks is integrated into the economic management of our anticipated revenues, anticipated expenses, assets and liabilities. Derivatives may be effective in mitigating these risks that could lead to declines in anticipated revenues or increases in anticipated expenses, or that our asset values may fall or our liabilities increase. Accordingly, our derivative activity summarized below generally represents an impact that is intended to offset associated revenues, expenses, assets or liabilities that are not presented below.
We record all derivatives at fair value on the Consolidated Balance Sheets. We designate each derivative as (1) a cash flow hedge, (2) a fair value hedge, or (3) undesignated. Depending on the applicability of hedge accounting and, for the Sempra Utilities and other operations subject to regulat ory accounting, the requirement to pass impacts through to customers, the impact of derivative instruments may be offset in other comprehensive income (cash flow hedge), on the balance sheet (fair value hedges and regulatory offsets), or recognized in earnings. We classify cash flows from the settlements of derivative instruments as operating activities on the Statements of Consolidated Cash Flows.
In certain cases, we apply the normal purchase or sale exception to derivative accounting and have other commodity contracts that are not derivatives. These contracts are not recorded at fair value and are therefore excluded from the disclosures below.
HEDGE ACCOUNTING
We may designate a derivati ve as a cash flow hedging instrument if it effectively converts anticipated revenues or expenses to a fixed dollar amount. We may utilize cash flow hedge accounting for derivative commodity instruments and interest rate instruments. Designating cash flow hedges is dependent on the business context in which the instrument is being used, the effectiveness of the instrument in offsetting the risk that a given future revenue or expense item may vary, and other criteria.
We may designate an interest rate derivative as a fair value hedging instrument if it effectively converts our own debt from a fixed interest rate to a variable rate. The combination of the derivative and debt instruments results in fixing that portion of the fair value of the debt that is related to benchmark interest rates. Designating fair value hedges is dependent on the instrument being used, the effectiveness of the instrument in offsetting changes in the fair valu e of our debt instruments, and other criteria.
ENERGY DERIVATIVES
Our market risk is primarily related to natural gas and electricity price volatility and the specific physical locations where we transact. We use energy derivatives to manage these risks. The use of energy derivatives in our various businesses depends on the particular energy market, and the operating and regulatory environments applicable to the business.
§The Sempra Utilities use natural gas energy derivatives, on their customers' behalf, with the objective of managing price risk and basis risks, and lowering natural gas costs. These derivatives include fixed price natural gas positions, options, and basis risk instruments, which are either exchange-traded or over-the-counter financial instruments. This activity is governed by risk management and transacting activity plans that have been filed with and approved by the CPUC. Natural gas derivative activities are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Consolidated Statements of Operations are reflected in Cost of Electric Fuel and Purchased Power or in Cost of Natural Gas.
§SDG&E is allocated and may purchase congestion revenue rights (CRRs), which serve to reduce the regional electricity price volatility risk which may result from local transmission capacity constraints. Unrealized gains and losses do not impact ear nings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs are recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations.
§Sempra Generation uses natural gas and electricity instruments to market energy products and optimize the earnings of its power generation fleet. Gains and losses associated with these derivatives are recognized in Sempra Global and Parent Revenues or in Cost of Natural Gas, Electric Fuel and Purchased Power on the Consolidated Statements of Operations.
§Sempra LNG and Sempra Pipelines & Storage use natural gas derivatives to market energy products and optimize the earnings of liquefied natural gas b usiness and Sempra Pipelines & Storage's natural gas storage and transportation assets. Sempra Pipelines & Storage also uses natural gas energy derivatives with the objective of managing price risk and lowering natural gas prices at its Mexican distribution operations. Sempra Pipelines & Storages derivatives are either undesignated or are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. The impacts on earnings are recognized in Sempra Global and Parent Revenues or in Cost of Natural Gas, Electric Fuel and Purchased Power on the Consolidated Statements of Operations. Sempra LNGs derivatives are undesignated, and their impact on earnings is recorded in Sempra Global and Parent Revenues on the Consolidated Statements of Operations.
§From time to time, our various businesses, incl uding the Sempra Utilities, may use other energy derivatives to hedge exposures such as the price of vehicle fuel.
We summarize net energy derivative volumes as of December 31, 2010 and 2009 as follows:
|
|
|
| ||
|
|
| December 31, | ||
Business Unit and Commodity | 2010 | 2009 | |||
Sempra Utilities: |
|
|
| ||
SDG&E: |
|
|
| ||
| Natural gas | 51 million MMBtu | 44 million MMBtu | (1) | |
| Congestion revenue rights | 21 million MWh | 18 million MWh | (2) | |
SoCalGas - natural gas | - | 1 million MMBtu |
| ||
< /p> |
|
|
|
|
|
Sempra Global: |
|
|
| ||
Sempra Generation - electric power | 1 million MWh | 1 million MWh |
| ||
Sempra Pipelines & Storage - natural gas | 8 million MMBtu | - |
| ||
Sempra LNG - natural gas | 7 million MMBtu | 8 million MMBtu |
| ||
(1) | Million British thermal units (of natural gas) |
| |||
(2) | Megawatt hours |
|
In addition to the amounts noted above, we frequently use commodity derivatives to manage risks associated with the physical locations of our customers, assets and other contractual obligations, such as natural gas purchases and sales.
INTEREST RATE DERIVATIVES
We are exposed to interest rates primarily as a result of our current and expected use o f financing. We periodically enter into interest rate derivative agreements intended to moderate our exposure to interest rates and to lower our overall costs of borrowing. We utilize interest rate swaps typically designated as fair value hedges, as a means to achieve our targeted level of variable rate debt as a percent of total debt. In addition, we may utilize interest rate swaps, which are typically designated as cash flow hedges, to lock in interest rates in anticipation of future financings.
Interest rate derivatives are utilized by the Sempra Utilities as well as by other Sempra Energy subsidiaries. Although the Sempra Utilities generally recover borrowing costs in rates over time, the use of interest rate derivatives is subject to certain regulatory constraints, and the impact of interest rate derivatives may not be recovered from customers as timely as described above with regard to natural gas derivatives. Ac cordingly, interest rate derivatives are generally accounted for as hedges at the Sempra Utilities, as at the rest of Sempra Energy's subsidiaries. Separately, Otay Mesa VIE has entered into interest rate swap agreements to moderate their exposure to interest rate changes.
The net notional amounts of our interest rate derivatives as of December 31, 2010 and 2009 were:
|
| December 31, 2010 | December 31, 2009 | ||||||||||
(Dollars in millions) | Notional Debt | Maturities | Notional Debt | Maturities | |||||||||
Sempra Energy Consolidated(1) | $ | 215-355 | 2011-2019 | $ | 75-355 | 2010-2019 | |||||||
SDG&E(1) |
| 285-365 | 2019 |
| 285-375 | 2019 | |||||||
SoCalGas |
| 150 | 2011 |
| 150 | 2011 | |||||||
(1) | Includes Otay Mesa VIE. All of SDG&E's interest rate derivatives relate to Otay Mesa VIE. |
DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS | |||||||||
(Dollars in millions) | |||||||||
|
| December 31, 2010 | |||||||
|
|
|
|
|
|
|
|
| Deferred |
|
|
|
|
|
|
|
|
| credits |
|
|
| Current |
|
|
| Current |
| and other |
|
|
| assets: |
|
|
| liabilities: |
| liabilities: |
|
| < /td> | Fixed-price |
| Investments font> |
| Fixed-price |
| Fixed-price |
|
|
| contracts |
| and other |
| contracts |
| contracts |
|
|
| and other |
| assets: |
| and other |
| and other |
Derivatives designated as hedging instruments |
| derivatives(1) |
| Sundry |
| derivatives(2) |
| derivatives | |
Sempra Energy Consolidated: |
|
|
|
|
|
|
|
| |
| Interest rate instruments | $ | 3 | $ | - | $ | - | $ | - |
SoCalGas: |
|
| & nbsp; |
|
|
|
|
| |
| Interest rate instruments | $ | 3 | $ | - | $ | - | $ | - |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as h edging instruments |
|
|
|
|
|
|
|
| |
Sempra Energy Consolidated: |
|
|
|
|
|
|
|
| |
| Interest rate instruments(3) | $ | 9 | $ | 22 | $ | (25) | $ | (57) |
| Commodity contracts not subject to rate recovery |
| 59 |
|
20 |
| (44) |
| (34) |
| Associated offsetting commodity contracts |
| (2) |
| (8) |
| 2 |
| 8 |
| Commodity contracts subject to rate recovery |
| 5 |
| - |
| (43) |
| (27) |
| Associated offsetting commodity contracts |
| (37) |
| (26) |
| 37 |
| 26 |
| Total | $ | 34 | $ | 8 | $ | (73) | $ | (84) |
SDG&E: |
|
|
|
|
|
|
|
| |
| Interest rate instruments(3) | $ | - | $ | - | $ | (17) | $ | (41) | <
/tr>
| Commodity contracts not subject to rate recovery |
| 1 |
| - |
| - |
| - |
| Commodity contracts subject to rate recovery |
| 2 |
| - |
| (35) | & nbsp; | (27) |
| Associated offsetting commo dity contracts |
| (34) |
| (26) |
| 34 |
| 26 |
| Total | $ | (31) | $ | (26) | $ | (18) | $ | (42) |
SoCalGas: |
|
|
|
|
|
|
|
| |
| Commodity contracts not subject to rate recovery | $ | 1 | $ | - | $ | - | $ | - |
| Commodity contracts subject to rate recovery |
| 3 |
| - |
| (3) |
| - |
| Associated offsetting commodity contracts |
| (3) |
| - |
| 3 |
| - |
| Total | $ | 1 | $ | - | $ | - | $ | - |
DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS (Continued) | |||||||||
(Dollars in millions) | |||||||||
|
| December 31, 2009 | |||||||
|
|
|
|
|
|
|
|
| Deferred |
|
|
|
|
|
|
|
|
| credits |
|
|
| Current |
|
|
| Current | < /td> | and other |
|
|
| assets: |
|
|
| liabilities: |
| liabilities: |
|
|
| Fixed-price |
| Investments |
| Fixed-price |
| Fixed-price |
|
|
| contracts |
| and other |
| contracts |
| contracts |
|
|
| and other |
| assets: |
| and other |
| and other |
Derivatives designated as hedging instruments |
| derivatives(1) |
| Sundry |
| derivatives(2) |
| derivatives | |
Sempra Energy Consolidated: |
|
|
|
|
|
|
|
| |
| Interest rate instruments | $ | 12 | $ | 2 | $ | - | $ | - |
| Commodity contracts not subject to rate recovery |
| 1 |
| - |
| - |
| - |
| Total | $ | 13 | $ | 2 | $ | - | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:black 2.25pt solid; HEIGHT:12pt" valign=bottom> - | |
SoCalGas: |
|
|
|
|
|
|
|
| |
| Interest rate instruments | $ | 6 | | 2 | $ | - | $ | - |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
| |
Sempra Energy Consolidated: |
|
|
|
|
|
|
|
| |
| Interest rate instruments(3) | $ | 9 | $ | 15 | $ | (25) | $ | (33) |
| Commodity contracts not subject to rate recovery< /font> |
| 74 |
| 30 |
| (64) |
| (42) |
| Associated offsetting commodity contracts |
| (34) |
| (6) |
| 34 |
| 6 |
| Commodity contracts subject to rate recovery |
| 20 |
| 7 |
| (20) |
| (13) |
| Associated offsetting commodity contracts |
| (14) |
| (9) |
| 14 |
| 9 |
| Total | $ | 55 | $ | 37 | $ | (61) | $ | (73) |
SDG&E: |
|
|
|
|
|
|
|
| |
| Interest rate instruments(3) | $ | - | $ | - | $ | (17) | $ | (26) |
| Commodity contracts subject to rate recovery |
| 18 |
| 7 |
| (13) |
| (9) |
| Associated offsetting commodity contracts |
| (13) |
| (9) |
| 13 |
| 9 |
| Total | $ | 5 | $ | (2) | $ | (17) | $ | (26) |
SoCalGas: |
|
|
|
|
|
|
|
| |
| Commodity contracts subject to rate recovery | $ | 2 | $ | - | $ | (1) | $ | - |
| Associated offsetting commodity contracts |
| (1) |
| - |
| 1 |
| - |
| Total | $ | 1 |
$ | - | $ | - | $ | - | <
/tr>
(1) | Included in Current assets: Other for SoCalGas. | ||||||||
(2) | Included in Current liabilities: Other for SoCalGas. | ||||||||
(3) | Includes Otay Mesa VIE. All of SDG&E's amounts relate to Otay Mesa VIE. |
The effects of derivative instruments designated as hedges on the Consolidated Statements of Operations for the years ended December 31, 2010 and 2009 were:
FAIR VALUE HEDGE IMPACT ON THE CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions) | ||||||
|
|
| Gain (loss) on derivatives recognized in earnings | |||
|
|
| Years ended December 31, | |||
| Location | 2010 | 2009 | |||
Sempra Energy Consolidated: |
|
|
|
|
| |
| Interest rate instruments | Interest Expense | $ | 10 | $ | 19 |
| Interest rate instruments | Other Income (Expense), Net |
| (11) |
| (11) |
| Total(1) |
| $ | (1) | $ | 8 |
SoCalGas: |
|
|
|
|
| |
| Interest rate instrument | Interest Expense | $ | 6 | $ | 6 |
| Interest rate instrument | Other Income, Net |
| (4) |
| (2) |
| Total(1) |
| $ | 2 | $ | 4 |
(1) | There has been no hedge ineffectiveness on these swaps. Changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the u nderlying long-term debt. |
CASH FLOW HEDGE IMPACT ON THE CONSOLIDATED STATEMENTS OF OPERATIONS |
|
| |||||||||
(Dollars in millions) |
|
| |||||||||
|
| Pretax gain (loss) reco gnized in OCI |
|
| Gain (loss) reclassified from AOCI into earnings | ||||||
|
| (effective portion) |
|
| (effective portion) | ||||||
|
| Years ended December 31, |
|
| Years ended December 31, | <
/tr> ||||||
|
| 2010 |
| 2009 |
| Location |
| 2010 |
| 2009 | |
Sempra Energy Consolidated: |
|
|
|
|
|
| < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> |
|
|
| |
| Interest rate instruments(1) | $ | - | $ | - |
| Interest Expense | $ | (12) | $ | (2) |
| Interest rate instruments |
| - |
| 13 |
| Other Income (Expense), Net(2) |
| 10 |
| 3 |
| Interest rate instruments |
| 2 |
| - |
| Equity Earnings, Net of Income Tax |
| (1) |
| - |
| Commodity contracts not subject |
|
|
|
|
| Revenues: Sempra Global |
|
|
|
|
| to rate recovery |
| - |
| 17 |
| and Parent |
| - |
| 22 |
| Commodity contracts not subject |
|
|
|
|
| Cost of Natural Gas, Electric |
|
|
|
|
| to rate recovery |
| - |
| - |
| Fuel and Purchased Power |
| - |
| (16) |
| Commodity contracts not subject |
|
|
|
|
|
|
|
|
|
|
| to rate recovery |
| - |
| 1 |
| Other Operation and Maintenance |
| - |
| 2 |
| Commodity contracts not subject |
|
|
|
|
| Equity Earnings (Losses): RBS |
|
|
|
|
| to rate recovery |
| 1 |
| 37 |
| &nbs p; Sempra Commodities LLP |
| 21 |
| 7 |
| Total | $ | 3 | $ | 68 |
|
| $ | 18 | $ | 16 |
SDG&E: |
|
|
|
|
|
|
|
|
|
| |
| Interest rate instruments(1) | $ | - | $ | - |
| Interest Expense | $ | (7) | $ | 3 |
| Commodity contracts not subject |
|
|
|
|
|
|
|
|
|
|
| to rate recovery |
| - |
| - | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom> Operation and Maintenance |
| - |
| 1 | |
| Total | $ | - | $ | - |
|
| $ | (7) | $ | 4 |
SoCalGas: |
|
|
|
|
|
|
|
|
|
| |
| Interest rate instrument | $ | - | $ | - |
| Interest Expense | $ | (5) | $ | (4) |
| Commodity contracts not subject |
|
|
|
|
|
|
|
|
|
|
| to rate recovery |
| - |
| 1 |
| Operation and Maintenance |
| - |
| 1 |
| Total | $ | - | $ | 1 |
|
| $ | (5) | $ | (3) |
(1) | Amounts include Otay Mesa VIE. All of SDG&E's 2010 interest rate derivative activity relates to Otay Mesa VIE. |
|
| ||||||||
(2) | Gains reclassified into earnings in 2009 due to changes in cash requirements and associated impacts on forecasted interest payments, primarily related to distributions received from RBS Sempra Commodities. See Note 4. |
|
|
Sempra Energy expects that losses of $10 million, which are net of income tax benefit, that are currently recorded in Accumulated Other Comprehensive Income (Loss) related to cash flow hedges will be reclassified into earnings during the next twelve months as the hedged items affect earnings. Actual amounts ultimately reclassified to earnings depend on the commodity prices and interest rates in effect when derivative contracts that are currently outstanding mature.
SDG&E and SoCalGas expect that losses of $4 million and $2 million, respectively, which are net of income tax benefit, t hat are currently recorded in Accumulated Other Comprehensive Income (Loss) related to these cash flow hedges will be reclassified into earnings during the next twelve months as the hedged items affect earnings.
HEDGE INEFFECTIVENESS
We recorded negligible hedge ineffectiveness in 2010 and 2009. Following is a summary of the hedge ineffectiveness losses in 2008 for Sempra Energy. Information related to the Sempra Utilities is noted separately within the table:
|
|
|
|
(Dollars in millions) | Year ended December 31, 2008 | ||
Commodity hedges(1): |
|
| |
Cash flow hedges | $ | (3) | |
Fai r value hedges |
| (9) | |
Total unrealized losses |
| (12) | |
Interest rate hedges(2): |
|
| |
Cash flow hedges held by SDG&E(3) |
| (1) | |
Total unrealized losses< /p> |
| (1) | |
&nbs p; Total ineffectiveness losses | $ | (13) | |
(1) | For commodity derivative instruments, we record ineffectiveness losses in Revenues from Sempra Global and Parent on the Consolidated Statements of Operations. | ||
(2) | For interest rate swap instruments, all companies record ineffectiveness losses in Other Income (Expense), Net on the Consolidated Statements of Operations. | ||
(3) | These losses are associated with Otay Mesa VIE. |
For commodity derivative instruments designated as fair value hedges,
§the ineffectiveness losses relate to hedges of commodity inventory.
For commodity derivative instruments designated as cash flow hedges,
§the ineffectiveness amounts relate to hedges of na tural gas purchases and sales related to transportation and storage capacity arrangements.
These commodity derivative instruments were held by our commodities-marketing businesses.
The effects of derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations for the years ended December 31, 2010 and 2009 were:
UNDESIGNATED DERIVATIVE IMPACT ON THE CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Dollars in millions) |
|
| ||||
|
|
| Gain (loss) on derivatives recognized in earnings | |||
|
|
| Years ended December 31, | |||
|
| Location | 2010 | 2009 | ||
Sempra Energy Consolidated: |
|
|
|
|
| |
| Interest rate instruments(1) | Other Income (Expense), Net | $ |
(34) | $ | 30 |
| Commodity contracts not subject |
|
|
|
|
|
| to rate recovery | Revenues: Sempra Global and Parent |
| 47 |
| 47 |
| Commodity contracts not subject | Cost of Natural Gas, Electric |
|
|
|
|
| to rate recovery | Fuel and Purchased Power |
| (29) |
| (39) |
| Commodity contracts not subject |
|
|
|
|
|
| to rate recovery | Other Operation and Maintenance |
| 2 |
| - |
| Commodity contracts subject | Cost of Electric Fuel |
|
|
|
|
| to rate recovery | and Purchased Power |
| (102) |
| (54) |
| Commodity contracts subject |
|
|
|
|
|
| to rate recovery | Cost of Natural Gas |
|
(5) |
| (5) |
| Commodity contracts subject | Cost of Natural Gas, Electric |
|
|
|
|
| to rate recovery | Fuel and Purchased Power |
| (4) |
| (5) |
| Total |
| $ | (125) | $ | (26) |
SDG&E: |
|
|
|
|
| |
| Interest rate instruments(1) | Other Income (Expense), Net | $ | (34) | $ | 27 |
| Commodity contracts not subject |
|
|
|
|
|
| to rate recovery | Operation and Maintenance |
| 1 |
| - |
| Commodity contracts subject | Cost of Electric Fuel |
|
|
|
|
| to rate recovery | and Purchased Power |
| (102) |
| (54) |
tr>
| Total |
| $ | (135) | $ | (27) |
SoCalGas: |
|
|
|
|
| |
| Commodity contracts not subject |
|
|
|
|
|
| to rate recovery | Operation and Maintenance | $ | 1 | $ | - |
| Commodity contracts subject |
|
|
|
|
|
| to rate recovery | Cost of Natural Gas |
| (5) |
| (5) |
| Total |
| $ | (4) | $ | (5) |
(1) | Related to Otay Mesa VIE. Sempra Energy Consolidated also includes additional instruments. |
|
|
CONTINGENT FEATURES
For Sempra Energy, the total fair value of this group of derivative instruments in a net liability position at December 31, 2010 is $5 million. As of December 31, 2010, if the credit ratings of Sempra Energy were reduced below investment grade, $5 million of additional assets could be re quired to be posted as collateral for these derivative contracts.
For SDG&E, the total fair value of this group of derivative instruments in a net liability position at December 31, 2010 is $2 million. As of December 31, 2010, if the credit ratings of SDG&E were reduced below investment grade, $2 million of additional assets could be required to be posted as collateral for these derivative contracts.
For Sempra Energy, SDG&E, PE and SoCalGas, some of our derivative contracts contain a provision that would permit the counterparty, in certain circumstances, to request adequate assurance of our performance under the contracts. Such additional assurance, if needed, is not material and is not included in the amounts above.
NOTE 11. FAIR VALUE MEASUREMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of certain of our financial instruments (cash, temporary investments, accounts and notes receivable, dividends and accounts payable, short-term debt and customer deposits) approximate their carrying amounts. The following table provides the carrying amounts and fair values of the remaining financial instruments at December 31:
FAIR VALUE OF FINANCIAL INSTRUMENTS | |||||||||
(Dollars in millions) | |||||||||
|
| December 31, 2010 | December 31, 2009 | ||||||
|
| Carrying | Fair | Carrying | Fair | ||||
|
| Amount | Value | Amount | Value | ||||
Sempra Energy Consolidated: |
|
|
|
|
|
|
|
| |
Investments in affordable housing partnerships(1) | $ | 28 | $ | 58 | $ | 34 | $ | 59 | |
Total long-term debt(2) |
| 8,330& nbsp; |
| 8,883 |
| 8,004 |
| 8,572 | |
Due to unconsolidated affiliate(3) |
| 2 |
| 2 |
| 2 |
| 2 | |
Preferred stock of subsidiaries |
| 179 |
| 166 |
| 179 |
| 156 | |
SDG&E: |
|
|
|
|
|
|
|
| |
Total long-term debt(4) | $ | 3,305 | $ | 3,300 | $ | 2,652 td> | $ | 2,808 | |
Contingently redeemable preferred stock |
| 79 |
| 78 |
| 79 |
| 76 | |
PE and SoCalGas: |
|
|
| <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
|
|
|
| ||
Total long-term debt(5) | $ | 1,566 | $ | 1,638 | $ | 1,270 | $ | 1,356 | |
|
|
|
|
|
|
|
|
| |
PE: |
|
|
|
|
|
|
|
| |
Preferred stock | $ | 80 | $ | 68 | $ | 80 | $ | 61 | |
Preferred stock of subsidiary |
| 20 |
| 20 |
| 20 |
| 19 | |
|
|
|
|
|
|
|
|
| |
SoCalGas: |
| < /p> |
|
|
|
|
|
| |
Preferred stock | $ | 22 | $ | 21 | $ | 22 | $ | 20 | |
(1) | We discuss our investments in affordable housing partnerships in Note 4. | ||||||||
(2) | Before reductions for unamortized discount of $22 million at December 31, 2010 and $17 million at December 31, 2009, and excluding capital leases of $221 million at December 31, 2010 and $46 million at December 31, 2009, and commercial paper classified as long-term debt of $800 million at December 31, 2010. We discuss our long-term debt in Note 5. | ||||||||
(3) | Note payable to Chilquinta Energía due April 1, 2011 is included in Due to Unconsolidated Affiliates, Current at December 31, 2010. | ||||||||
(4) | Before reductions for unamortized discount of $9 million at December 31, 2010 and $4 million at December 31, 2009, and excluding capital leases of $202 million at December 31, 2010 and $20 million at December 31, 2009. | ||||||||
(5) | Before reductions for unamortized discount of $3 million at December 31, 2010 and $2 million at December 31, 2009, and excluding capital leases of $19 million at December 31, 2010 and $26 million at December 31, 2009. |
Sempra Energy based the fair values of investments in affordable housing partnerships on the present value of estimated future cash flows, discounted at rates available for similar investments. All entities based the fair values of long-term debt and preferred stock on their quoted market prices or quoted market prices for similar securities.
Derivative Positions Net of Cash Collateral
Each Consolidated Balance Sheet reflects the offsetting of net derivative positions with fair value amounts for cash collateral with the same counterparty when management believes a legal right of offset exists.
| December 31, | |||
(Dollars in millions) | 2010 | 2009 | ||
Sempra Energy Consolidated | $ | 32 | $ | 36 |
SDG&E |
| 25 |
| 30 |
SoCalGas |
| 3 |
| 5 |
Fair Value Hierarchy
We discuss the valuation techniques we use to measure fair value and the definition of the three levels of the fair value hierarchy in Note 1 under "Fair Value Measurements."
The three tables below, by level within the fair value hierarchy, set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010 and 2009. We also discuss our financial assets and liabilities recorded at fair value on a non-recurring basis. W e classify financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities, and their placement within the fair value hierarchy levels.
The fair value of commodity derivative assets and liabilities is determined in accordance with our netting policy, as discussed above under "Derivative Positions Net of Cash Collateral."
The determination of fair values, shown in the tables below, incorporates various factors, including but not limited to, the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests).
Our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010 and 2009 in the tables below include the following:
§Nuclear decommissioning trusts reflect the assets of SDG&E's nuclear decommissioning trusts, excluding cash balances, as we discuss in Note 6. The trust assets are valued by a third party trustee. The trustee obtains prices from pricing services that are derived from observable data. We monitor the prices supplied by pricing services by validating pricing with other sources of data.
§Investments include marketable securities and are primarily priced based on observable interes t rates for similar instruments actively trading in the marketplace.
§Commodity and other derivative positions, which include other interest rate management instruments, are entered into primarily as a means to manage price exposures. We use market participant assumptions to price these derivatives. Market participant assumptions include those about risk, and the risk inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable.
RECURRING FAIR VALUE MEASURES SEMPRA ENERGY CONSOLIDATED | |||||||||||
(Dollars in millions) | |||||||||||
|
| At fair value as of December 31, 2010 | |||||||||
|
|
|
|
|
|
|
|
| Collateral |
|
|
|
|
| Level 1 |
| Level 2 |
| Level 3 |
| Netted |
| Total |
Assets: |
|
|
|
|
|
|
|
|
|
| |
Nuclear decommissioning trusts |
|
|
|
|
|
|
|
|
|
| |
Equity securities | $ | 460 | $ | - | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right>$ | - | $ | - | $ | 460 | |
Debt securities: |
|
|
|
|
|
|
|
|
|
| |
Debt securities issued by the U.S. Treasury and other |
|
|
|
|
|
|
|
|
|
| |
U.S. government corporations and agencies |
| 144 |
| 30 |
| - |
| -  ; |
| 174 | |
|
| - |
| 100 |
| - |
| - |
| 100 | |
& nbsp; Other securities |
| - |
| 25 |
| - |
| - |
| 25 | |
&nb sp; Total debt securities |
| 144 |
| 155 |
| - |
| - |
| 299 | |
Total nuclear decommission ing trusts(1) |
| 604 |
| 155 |
| - |
| - |
| 759 | |
Interest rate instruments |
| - |
| 34 |
| - p> |
| - |
| 34 | |
Commodity contracts subject to rate recovery |
| 25 |
| 1 |
| 2 |
| - |
| 28 | |
Commodity contracts not subject to rate recovery |
| 9 |
| 66 |
| - |
| (22) |
| 53 | |
Investments |
| 1 |
| - |
| - |
| - |
| 1 | |
Total | $ | 639 | $ | 256 font> | $ | 2 | $ | (22) | $ | 875 | |
Liabilities: |
|
|
|
|
|
|
|
|
|
| |
& nbsp; Interest rate instruments | $ | - | $ | 82 | $ | - | $ | - | $ | 82 | |
Commodity contracts subject to rate recovery |
| 60 |
| 8 | td> | - |
| (60) |
| 8 | |
Commodity contracts not subject to rate recovery |
| - |
| 67 |
| - |
| - |
| 67 | |
Total | $ | 60 | $ | 157 | $ | - | $ | (60) | $ | 157 | |
|
|
|
|
|
|
|
|
|
|
|
|
| At fair value as of December 31, 2009 | ||||||||||
|
|
|
|
|
|
|
| Collateral |
|
| |
|
| Level 1 |
| Level 2 |
| Level 3 |
| netted |
| Total | |
Assets: |
|
|   ; |
|
|
|
|
|
|
| |
Nuclear decommissioning trusts |
|
|
|
|
|
|
|
|
|
| |
Equity securities | $ | 421 | $ | - | $ | - | $ | - | $ | 421 | |
&n bsp; Debt securities: |
|
|
|
|
|
|
|
|
|
| |
Debt securities issued by the U.S. Treasury and other |
|
|
|
|
|
|
| td> |
| ||
U.S. government corporations and agencies |
| 111 |
| 39 |
| - |
| - |
| 150 | |
Municipal bonds |
| - |
| 85 |
| - |
| - |
| 85 | |
Other securities |
| - |
| 13 |
| - | p> | - |
| 13 | |
Total debt securities |
| 111 |
| 137 |
| - |
|
- |
| 248 | |
Total nuclear decommissioning trusts(1) |
| 532 |
| 137 |
| - |
| - |
| 669 | |
Interest rate instruments |
| - |
| 38 |
| - |
| - |
| 38 | |
Commodity contracts subject to rate recovery |
| 32 |
| 3 |
| 10 |
| - |
| 45 | |
Commodity contracts not subject to rate recovery |
| 7 |
| 62 |
| - |
| (40) |
| 29 | |
Investments |
| 1 |
| - |
| - |
| - |
| 1 | |
Total | $ | 572 | $ | 240 | $ | 10 | $ | (40) | $ | 782 | |
Liabilities: |
|
|
|
|
|
|
|
|
|
| |
Interest rate instruments | $ | - | $ | 59 | $ | - | $ | - | $ | 59 | |
Commodity contracts subject to rate recovery |
| 9 |
| 9 |
| - |
| (9) |
| 9 | |
Commodity contracts not subject to rate recovery |
| - |
| 65 |
| - |
| - |
| 65 | |
Total | $ | 9 | $ | 133 | $ | - | $ | (9) | $ | 133 | |
(1) | Excludes cash balances and cash equivalents. |
|
|
|
|
|
|
|
|
|
|
RECURRING FAIR VALUE MEASURES SDG&E | |||||||||||
(Dollars in millions) | |||||||||||
| At fair value as of December 31, 2010 | ||||||||||
|
|
|
|
|
|
|
| Collate ral |
|
| |
|
| Level 1 |
| Level 2 |
| Level 3 |
| netted |
| Total | |
Assets: |
|
|
|
|
|
|
|
|
|
| |
Nuclear decommissioning trusts |
|
|
|
|
|
|
|
|
|
| |
Equity securities | $ | 460 | $ | - | $ | - | $ | - | $ | 460 | |
Debt securities: |
|
|
|
|
|
|
|
|
|
| |
Debt securities issued by the U.S. Treasury and other |
|
|
|
|
|
|
|
|
|
| |
U.S. government corporations and agencies |
| 144 |
| 30 |
| - |
| - |
| 174 | |
Municipal bonds |
| - |
| 100 |
| - |
| - |
| 100 | |
Other securities |
| - |
| 25 |
| - |
| - |
| 25 | |
Total debt securities |
| 144 |
| 155 |
| - |
| - |
| 299 | |
Total nuclear decommissioning trusts(1) |
| 604 |
| 155 |
| - |
| - |
| 759 | |
Commodity contracts subject to rate recovery |
| 24 |
| - |
| 2 |
| - |
| 26 | |
Commodity contracts not subject to rate recovery |
| 2 |
| - |
| - |
| - |
| 2 | |
Total | $ | 630 | $ | | $ | 2 | $ | - | $ | 787 | |
|
|
|
|
|
|
|
|
|
|
| |
Liabilities: |
|
|
|
|
|
|
|
|
|
| |
Interest rate instruments | $ | - | $ | 58 | $ | - | $ | - | $ | 58 | |
Commodity contracts subject to rate recovery |
| 60 |
| 2 |
| - |
| (60) |
| 2 | |
Total | $ | 60 | $ | 60 | $ | - | $ | (60) | $ | 60 | |
|
|
|
|
|
|
|
|
|
|
| |
| At fair value as of December 31, 2009 | ||||||||||
|
|
|
|
|
|
|
| Collateral |
|
| |
|
| Level 1 |
| Level 2 |
| Level 3 |
| netted |
| Total | |
Assets: |
|
|
|
|
|
|
|
|
|
| |
Nuclear decommissioning trusts |
|
|
|
|
|
|
|
|
|
| |
&n bsp; Equity securities | $ | 421 | $ | - | $ | - | $ | - | $ | 421 | |
Debt securities: |
|
|
|
|
|
|
|
|
|
| |
Debt securities issued by the U.S. Treasury and other |
|
|
|
|
|
|
|
|
| td> | |
U.S. government corporations and agencies |
|
111 |
| 39 |
| - |
| - |
| 150 | |
Municipal bonds |
| - |
| 85 |
| - |
| - |
| 85 | |
Other securities |
| - |
| 13 |
| - |
| - |
| 13 | |
Total debt securities |
| 111 |
| 137 |
| - |
| - |
| 248 | |
Total nuclear decommissioning trusts(1) |
| 532 |
| 137 |
| - |
| - |
| 669 | |
Commodity contracts subject to rate recovery |
| 29 |
| 2 |
| 10 |
| - |
| 41 | |
Commodity contracts not subject to rate recovery |
| 1 |
| - |
| - |
| - |
|
1 | |
Total | $ | 562 | $ | & nbsp;139 | $ | 10 | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right>$ | - | $ | 711 | |
|
|
|
|
|
|
|
|
|
|
| |
Liabilities: |
|
|
|
|
|
|
|
|
|
| |
Interest rate instruments | $ | - | $ | 43 | $ | - | $ | - | $ | 43 | |
Commodity contracts subject to rate recovery |
| 9 |
| - |
| - |
| (9) |
| - | |
Total | $ | 9 | $ | 43 | $ | - | $ | (9) | $ | 43 | |
(1) | Excludes cash balances and cash equivalents. |
|
|
|
|
|
|
|
|
|
|
RECURRING FAIR VALUE MEASURES SOCALGAS | ||||||||||
(Dollars in millions) | ||||||||||
| At fair value as of December 31, 2010 | |||||||||
|
|
|
|
|
|
|
| Collateral |
|
|
p> |
| Level 1 |
| Level 2 |
| Level 3 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:black 1pt solid; HEIGHT:10.5pt" valign=bottom> netted |
| Total | |
Assets: |
|
|
|
|
|
|
|
|
|
|
Interest rate instruments | $ | - | $ | 3 | $ | - | $ | - | $ | 3 |
Commodity contracts subject to rate recovery |
| 1 |
| |
| - |
| - |
| 2 p> |
Commodity contracts not subject to rate recovery |
| 3 |
| - |
| - |
| - |
| 3 |
Total | $ | 4 | $ | 4 | $ | - | $ | - | $ | 8 |
|
|
|
|
|
|
|
|
|
|
|
| At fair value as of December 31, 2009 | |||||||||
|
|
|
|
|
|
|
| Collateral |
|
|
|
| Level 1 |
| Level 2 |
| Level 3 |
| netted |
| Total |
Assets: |
|
|
|
|
|
|
|
|
|
|
Interest rate instruments | $ | - | $ | 8 | <
td style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom> - | $ | - | $ | 8 | |
Commodity contracts subject to rate recovery |
| 3 |
| 1 |
| - |
| |
| 4 |
Commodity contracts not subject to rate recovery |
| 3 |
| - |
| - |
| - |
| 3 |
Total | $ | 6 | $ | 9 | $ | - | $ | - | $ | 15 |
There were no transfers into or out of Level 1 or Level 2 for Sempra Energy Consolidated, SDG&E or SoCalGas during the periods presented.
Level 3 Information
The following table sets forth reconciliations of changes in the fair value of net trading and other derivatives classified as Level 3 in the fair value hierarchy:
LEVEL 3 RECONCILIATIONS | |||||||||||||
(Dollars in millions) | |||||||||||||
| Sempra Energy Consolidated |
| SDG&E | ||||||||||
| Years ended December 31, |
| Years ended December 31, | ||||||||||
| 2010 | 2009 < /p> | 2008 |
| 2010 | 2009 | 2008 | ||||||
Balance as of January 1 | $ | 10 | $ | 27 | $ | 401 |
| $ | 10 | $ | 27 | $ | 7 |
Realized and unrealized gains (losses) |
| (16) |
| (31) |
| (79) |
|
| (16) |
| (31) |
| 3 |
Allocated transmission instruments |
| 8 |
| 15 |
| 17 |
|
| 8 |
| 15 |
| 17 |
&n bsp; Purchases and issuances |
| - |
| - |
| 24 |
|
| - |
| - |
| - |
Settlements |
| - |
| (1) |
| - |
|
| - |
| (1) |
| - |
Sale of the commodities-marketing businesses |
| - |
| - |
| (336) |
|
| - |
| - |
| - |
Balance as of December 31 | $ | 2 | $ | 10 | $ | 27 |
| $ | 2 | $ | 10 | $ | 27 |
Change in unrealized gains or losses relating to |
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments still held at December 31 | $ | (9) | $ | (16) | $ | 27 |
| $ | (9) | $ | (16) | $ | 27 |
There were no transfers in or out of Level 3 during the periods presented.
Gains and losses (realized and unrealized) for Level 3 recurring items at Sempra Energy Consolidated in 2008 were primarily related to the commodities-marketing businesses and were included in Revenues from Sempra Global and Parent on the Consolidated Statements of Operations for the three months ended March 31, 2008. With the sale of these businesses on April 1, 2008, Level 3 recurring activity was substantially reduced.
SDG&E's Level 3 recurring items are related to CRRs. These instruments are recorded at fair value based on the most current annual auction price s published by the California Independent System Operator (ISO). The earnings impact of CRRs are deferred and recorded in regulatory accounts to the extent they are recoverable or refundable through rates. Upon settlement, CRRs are included in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations for each of the three years in the period ended December 31, 2010.
Non-Recurring Fair Value Measures Sempra Energy Consolidated
We discuss non-recurring fair value measures and the associated accounting impact on our investments in RBS Sempra Commodities and Argentina in Note 4.
NOTE 12. PREFERRED STOCK
The table below shows the details of preferred stock for SDG&E, PE and SoCalGas.
PREFERRED STOCK | |||||||
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| Call/ |
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| Redemption | December 31, | |||
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| Price | 2010 | 2009 | ||
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| (in millions) | |||
Contingently redeemable: |
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| |
| SDG&E: |
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| $20 par value, authorized 1,375,000 shares: |
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| 5% Series, 375,000 shares ou tstanding | $ | 24.00 | $ | 8 | $ | 8 |
| 4.5% Series, 300,000 shares outstanding | | 21.20 |
| 6 |
| 6 |
| 4.4% Series, 325,000 shares outstanding | $ | 21.00 |
| 7 |
| 7 |
| 4.6% Series, 373,770 shares outstanding | $ | 20.25 |
| 7 |
| 7 |
| Without par value: |
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| $1.70 Series, 1,400,000 shares outstanding | $ | 25.255 |
| 35 |
| 35 |
| $1.82 Series, 640,000 shares outstanding | $ | 26.00 |
| 16 |
| 16 |
| SDG&E - Total contingently redeemable preferred stock |
|
|
| 79 |
| 79 |
| Sempra Energy - total preferred stock of subsidiary, |
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| contingently redeemable |
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| $ | 79 | $ p> | 79 |
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PE: |
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| p> | |
Without par value, authorized 15,000,000 shares: |
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| |
$4.75 Dividend, 200,000 shares outstanding | $ | &nbs p;100.00 | $ | 20 | $ | 20 | |
$4.50 Dividend, 300,000 shares outstanding | $ | 100.00 |
| 30 |
| 30 | |
$4.40 Dividend, 100,000 shares outstanding | $ | 101.50 |
| 10 |
| 10 | |
$4.36 Dividend, 200,000 shares outstanding | $ | 101.00 |
| 20 |
| 20 | |
$4.75 Dividend, 253 shares outstanding | $ | 101.00 |
| - |
| - | |
Total preferred stock of PE |
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| 80 |
| 80 | |
SoCalGas: |
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| |
$25 par value, authorized 1,000,000 shares: |
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6% Series, 79,011 shares outstanding |
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| 3 |
| 3 | |
6% Series A, 783,032 shares outstanding |
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| 19 |
| 19 | |
Total preferred stock of SoCalGas |
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| 22 |
| 22 | |
Less: 50,970 shares of the 6% Series outstanding owned by PE |
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| (2) |
| (2) | |
PE - total preferred stock of subsidiary |
|
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| 20 |
| 20 | |
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| Sempra Energy - total preferred stock of subsidiaries |
|
| $ | 100 | $ | 100 |
Following are the attributes of each companys preferred stock. No amounts currently outstanding are subject to mandatory redemption.
SDG&E
§All outstanding series are callable.
§The $20 par value preferred stock has two votes per share on matters being voted upon by shareholders of SDG&E and a liquidation preference at par plus any unpaid dividends.
§All outstanding series of SDG&E's preferred stock have cumulative preferences as to dividends.
§The no-par-value preferred stock is nonvoting and has a liquidation preference of $25 per share plus any unpaid dividends.
§SDG&E is authorized to issue 10 million shares of no-par-value preferred stock (both subject to and not subject to mandatory redemption).
SDG&E is currently authorized to issue up to 25 million shares of an additional class of preference shares designated as "Series Preference Stock." The Series Preference Stock is in addition to the Cumulative Preferred Stock, Preference Stock (Cumulative) and Common Stock that SDG&E was otherwise authorized to issue, and when issued would rank junior to the Cumulative Preferred Stock and Preference Stock (Cumulative). The stocks rights, preferences and privileges would be established by the board of directors at the time of issuance.
SDG&E's outstanding preferred s ecurities are classified as contingently redeemable because they contain a contingent redemption feature that allows the holder to elect a majority of SDG&E's board of directors if dividends are not paid for eight consecutive quarters, and such a redemption triggering event is not solely within the control of SDG&E. They are therefore presented separate from and outside of equity in a manner consistent with temporary equity.
PACIFIC ENTERPRISES
§Outstanding PE preferred stock is subject to redemption at PE's option at any time with at least 30 days' notice at the applicable redemption price for each series plus any unpaid dividends.
§All outstanding series have one vote per share, cumulative preferences as to dividends, and liquidation preferences of $100 per share plus any unpaid dividends.
PE currently is authorized to issue 10 million shares of series preferred stock, less currently outstanding shares, and 5 million shares of Class A series preferred stock, both without par value and with cumulative preferences as to dividends and liquidation value. Class A series preferred stock, when issued, would rank junior to other series of preferred stock. Other rights and privileges of the stock would be established by the board of directors at the time of issuance.
SOCALGAS
§None of SoCalGas' outstanding preferred stock is callable.
§All outstanding series have one vote per share, cumulative preferences as to dividends and liquidation preferences of $25 per share plus any unpaid dividends.
SoCalGas currently is authorized to issue 5 million shares of series preferred stock and 5 million shares of preference stock, both without par value and with cumulative preferences as to dividends and liquidation value. The preference stock would rank junior to all series of preferred stock. Other rights and privileges of the stock would be established by the board of directors at the time of issuance.
NOTE 13. SEMPRA ENERGY - SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The following table provides the per share computations for our earnings for the years ended December 31. Basic earnings per common share (EPS) is calculated by dividing earnings applicable to common stock by the weighted-average number of common shares outstanding for the year. Diluted EPS includes the potential dilution of common stock equivalent shares that coul d occur if securities or other contracts to issue common stock were exercised or converted into common stock.
EARNINGS PER SHARE COMPUTATIONS | ||||||
(Dollars in millions, except per share amounts; shares in thousands) | ||||||
| Years ended December 31, | |||||
| 2010 | 2009 | 2008 | |||
Numerator: |
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|
Earnings/Income attributable to common shareholders | $ | 739 | $ | 1,119 p> | $ | 1,113 |
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Denominator: |
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Weighted-average common shares outstanding for basic EPS |
| 244,736 |
| 243,339 |
| 247,387 |
Dilutive effect of stock options, restricted stock awards and |
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|
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restricted stock units |
| 3,206 |
| 4,045 |
| 3,772 |
Weighted-average common shares outstanding for diluted EPS |
| 247,942 |
| 247,384 |
| 251,159 |
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Earnings per share: |
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Basic | $ | 3.02 | $ | 4.60 | $ | 4.50 |
Diluted | $ | 2.98 | $ | 4.52 | $ | 4.43 |
The dilution from common stock options is based on the treasury stock method. Under this method, proceeds based on the exercise price plus unearned compensation and windfall tax benefits and minus tax shortfalls are assumed to be used to repurchase shares on the open market at the average market price for t he year. The windfall tax benefits are tax deductions we would receive upon the assumed exercise of stock options in excess of the deferred income taxes we recorded related to the compensation expense on the stock options. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. The calculation excludes options for which the exercise price on common stock was greater than the average market price during the year. We had 2,138,800, 1,504,250 and 1,496,500 of such excluded stock options outstanding during 2010, 2009 and 2008, respectively.
During 2010, we had 9,900 stock options outstanding that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method. There were no such antidilutive stock options outstanding during 2009 or 2008.
The dilution from unvested restricted stock awards and units is also based on the treasury stock method. Assumed proceeds equal to the unearned compensation and windfall tax benefits and minus tax shortfalls related to the awards are assumed to be used to repurchase shares on the open market at the average market price for the year. The windfall tax benefits or tax shortfalls are the difference between tax deductions we would receive upon the assumed vesting of restricted stock awards and units and the deferred income taxes we recorded related to the compensation expense on the restricted stock awards and units. We had 1,009 restricted stock awards and units outstanding that were antidilutive during 2008. There were no such anti-dilutive restricted stock awards or units in 2010 or 2009.
We are authorized to issue 750,000,000 shares of no-par-value common stock. In addition, we are authorized to issue 50,000,000 shares of preferred stock having rights, preferences and privileges that would be established by the Sempra Energy board of directors at the time of issuance.
Shares of common stock held by the ESOP were 504,440; 868,173 and 1,177,196 at December 31, 2010, 2009 and 2008, respectively. These shares are unallocated and therefore excluded from the computation of EPS.
Excluding shares held by the ESOP, common stock activity consisted of the following:
COMMON STOCK ACTIVITY | |||||||
| |||||||
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|
| 2010 |
| 2009 |
| 2008 |
Common shares outstanding, January 1 |
| 246,507,865 |
| 243,324,281 |
| 261,214,009 | |
Savings plan issuance |
| 560,600 |
| 1,021,023 |
| - | |
Shares released from ESOP |
| 363,733 |
| 309,023 |
| 310,850 | |
Stock options exercised |
| 912,725 |
| 1,835,184 |
| 683,858 | |
Restricted stock issuances |
| - |
| 37,233 |
| 4,002 | |
Common stock investment plan(1) |
| 217,772 |
| 381,167 |
| 1,508 | |
Shares repurchased |
| (8,108,579) |
| (396,046) |
| (18,841,287) | |
Shares forfeited and other |
| (6,700) |
| (4,000) |
| (48,659) | |
Common shares outstanding, December 31 |
| 240,447,416 |
| 246,507,865 |
| 243,324,281 | |
(1)< /p> | Participants in the Direct Stock Purchase Plan may reinvest dividends to purchase newly issued shares. |
Our board of directors has the discretion to determine the payment and amount of future dividends.
COMMON STOCK REPURCHASE PROGRAMS
On September 11, 2007, our bo ard of directors authorized the repurchase of additional shares of our common stock provided that the amounts expended for such purposes did not exceed the greater of $2 billion or amounts expended to purchase no more than 40 million shares. Purchases may include open-market and negotiated transactions, structured purchase arrangements, and tender offers.
In April 2008, we entered into a Collared Accelerated Share Acquisition Program under which we prepaid $1 billion to repurchase shares of our common stock to be delivered later in 2008 in a share forward transaction. Our outstanding shares used to calculate earnings per share were reduced by the number of shares repurchased when they were delivered to us, and the $1 billion purchase price was recorded as a reduction in shareholders equity upon its prepayment. We received 18,416,241 shares under the program during 2008 based on a fin al weighted average price of $54.30 per share.
In September 2010, we entered into a Collared Accelerated Share Acquisition Program under which we prepaid $500 million to repurchase shares of our common stock in a share forward transaction. The total number of shares purchased (subject to a minimum of 8,078,000 shares and maximum of 10,321,889 shares) will be determined by dividing the $500 million purchase price by the volume-weighted average trading prices of shares of our common stock during a valuation period, minus a fixed discount and subject to a minimum and maximum price set during a hedging period. We expect the program to be completed in the first quarter of 2011.
Our outstanding shares used to calculate earnings per share are reduced by the number of shares repurchased when they are delivered to us, and the $500 million purchase pric e was recorded as a reduction in shareholders equity upon its prepayment. We received 5,670,006 shares in September 2010, and 2,407,994 shares in October 2010. We will receive any additional repurchased shares above the minimum at the end of the valuation period, which will continue until the program is completed.
These share repurchase programs are unrelated to share-based compensation as described in Note 9.
NOTE 14. ELECTRIC INDUSTRY REGULATION
BACKGROUND
California's legislative response to the 2000 - 2001 energy crisis resulted in the DWR purchasing a substantial portion of power for California's electricity users. In 2001, the DWR entered into long-term contracts with suppliers, including Sempra Generation, to provide power for the utility procurement customers of each of the California investor-owned utilities (IOUs), including SDG&E. The CPUC allocates the power and its administrative responsibility, including collection of power contract costs from utility customers, among the IOUs. Effective in 2003, the IOUs resumed responsibility for electric commodity procurement above their allocated share of the DWR's long-term contracts.
POWER PROCUREMENT AND RESOURCE P LANNING
Effective in 2003, the CPUC:
§directed the IOUs, including SDG&E, to resume electric commodity procurement to cover their net short energy requirements, which are the total customer energy requirements minus supply from resources owned, operated or contracted;
§implemented legislation regarding procurement and renewable energy portfolio standards; and
§established a process for review and approval of the utilities' long-term resource and procurement plans. font>
This process is intended to identify anticipated needs for generation and transmission resources in order to support transmission grid reliability and to better serve customers.
Sunrise Powerlink Electric Transmission Line
SDG&E commenced construction on the Sunrise Powerlink in the fall of 2010. The Sunrise Powerlink is a new 117-mile, 500-kilovolt (kV) electric transmission line that is being built between the Imperial Valley and the San Diego region, along a route that generally runs south of the Anza-Borrego Desert State Park. This project is designed to provide 1,000 MW of increased import capability into the San Diego area, and the CPUC has established a cost cap of $1.9 billion for the project, including approximately $190 million for environmental mitigation costs. The current project plan provides for the transmission line to be completed and in-service in the second half of 2012.
The Sunrise Powerlink project was originally approved by the CPUC in December 2008, including approval of the environmental impact review conducted jointly with the Bureau of Land Management (BLM). The BLM issued its decision approving the project, route and environmental review in January 2009. The original CPUC decision requires SDG&E to adhere to the following commitments:
§not to contract, for any length of term, with conventional coal generators to deliver power via the Sunrise Powerlink;
§if any c urrently approved renewable energy contract that is deliverable via the Sunrise Powerlink fails, to replace it with a viable contract with a renewable generator located in the Imperial Valley region; and
§to voluntarily raise SDG&E's Renewables Portfolio Standard Program goal (discussed below under "Renewable Energy") to 33 percent by 2020.
In February 2011, the California Supreme Court denied a petition filed jointly by the Utility Consumers' Action Network (UCAN) and the Center for Biological Diversity/Sierra Club (CBD). The petition, filed after an August 2009 CPUC decision denying their applications for rehearing, challenged the CPUC's decision with regard to implementation of the California Environmental Quality Act (CEQA). In addition, in August 2010 the California Court of Appeal denied a petition previously filed by UCAN with the Court of Appeal challenging the CPUC decision on other legal grounds.
In 2009 and 2010, the Interior Board of Land Appeals (IBLA) denied two appeals challenging the BLMs decision that had been filed in March 2009 by individuals and a community organization.
In October 2010, the Federal District Court in San Diego, California granted SDG&Es motion to dismiss in its entirety for lack of standing a lawsuit seeking declaratory and injunctive relief regarding Sunrise Powerlink, filed in February 2010 by the opponents who filed the BLM appeals. The complaint alleged that the BLM failed to properly assess the environmental impacts of the approved Sunrise Powerlink route and the related potential development of renewable resources in east San Diego County and Imperial County. The complaint req uested a declaration that the BLM violated federal law in approving Sunrise Powerlink and an injunction against any construction activities. Following the Courts dismissal of the original complaint, the plaintiffs filed an amended complaint in November 2010. SDG&E and the plaintiffs have filed separate motions with the Court for summary judgment of the amended complaint.
The CPUC and BLM jointly approved the final Project Modification Report for Sunrise Powerlink in September 2010, accepting all of the proposed modifications to the approved route and finding that no additional environmental studies are required. In December 2010, the IBLA dismissed an appeal challenging the BLMs approval of the Project Modification Report. The appeal, which also included a motion for a stay of construction of the project, had been filed in October 2010 by the plaintiffs in the pending BLM federal court lawsuit.
The United States Forest Service (USFS) issued a decision, in October 2010, rejecting all pending appeals and reaffirming its July 2010 decision approving the segment of Sunrise Powerlink's route within its jurisdiction. The USFS issued a special use permit to SDG&E in December 2010, which allows SDG&E to begin construction on USFS land. Also in the fourth quarter of 2010, the CPUC issued certain notices to proceed, clearing the way for SDG&E to begin construction.
In January 2011, project opponents filed a lawsuit in Federal District Court in San Diego, California alleging that the federal approvals for construction of the project on USFS land violated the National Environmental Policy Act (NEPA) and other federal environmental laws. The lawsuit asks the Court for injunctive relief preventing the USFS and the BLM from approving any ongoing or future construction activities.
On February 7, 2011, opponents of the Sunrise Powerlink filed a lawsuit in California Superior Court in Sacramento, California against the State Water Resources Control Board and SDG&E alleging that the water permit issued by the Board under the Federal Clean Water Act violated CEQA. The complaint seeks to have the permit set aside and requests an injunction be issued.
Sunrise Powerlink costs will be recovered in SDG&E's Electric Transmission Formula Rate, where SDG&E must demonstrate to the Federal Energy Regulatory Commission (FERC) that such costs were prudently incurred. The total amount invested by SDG&E in the Sunrise Powerlink project as of December 31, 2010 was $613 million, which is included in Property, Plant and Equipment on the Consolidated Balance Sheets of Sempra Energy and SDG&E.
Renewable Energy
Certain California electric retail sellers, including SDG&E, are required to deliver 20 percent of their retail energy sales from renewable energy sources. The rules governing this requirement, administered by both the CPUC and the California Energy Commission (CEC), are known as the Renewables Portfolio Standard (RPS) Program. In September 2009, the Governor of California issued an Executive Order which set a target for each California utility to procure 33 percent of their annual electric energy requirements from renewable energy sources by 2020. This Executive Order designates the California Air Resources Board (CARB) as the agency responsible for establishing the compliance rules and regulations under CARB's Assembly Bill 32 authority to regulate greenhouse gas emissions. In September 2010, CARB adopted a requirement known as the California Renewable Energy Standard (RES), wh ich obligates California utilities to procure 33 percent of their annual electric energy requirements from renewable energy sources by 2020. CARB has not yet issued the final version of formal regulations articulating the requirement, nor detailed how the RES will be implemented.
In 2008, the CPUC issued a decision defining flexible compliance mechanisms that can be used to defer compliance with or meet the RPS Program mandates in 2010 and beyond. The decision established that a finding by the CPUC of insufficient transmission is a permissible reason to defer compliance with the RPS Program mandates. This decision also confirmed that any renewable energy procured in excess of the established targets for prior years, currently and in the future, could be applied to any procurement shortfalls in the years 2010 and beyond.
SDG&E continues to procure renewable energy supplies to achieve the RPS Program goals and the Executive Order/RES requirements. A substantial number of these supply contracts, however, are contingent upon many factors, including:
§access to electric transmission infrastructure (including SDG&E's Sunrise Powerlink transmission line);
§timely regulatory approval of contracted renewable energy projects;
§the renewable energy project developers' ability to obtain project financing and permitting; and
§successful development and implementation of the renewable energy technologies.
SDG&E satisfied its RPS procurement obligations in 2010 through a combination of contracted deliveries and application of flexible compliance. SDG&E believes it will be able to maintain compliance with the RPS Program requirements based on its contracting activity and application of the flexible compliance mechanisms. SDG&E regularly reports the results of its RPS procurement to the CEC and CPUC. SDG&E's failure to comply with the RPS Program requirements could subject it to a CPUC-imposed penalty of 5 cents per kilowatt hour of renewable energy under-delivery up to a maximum penalty of $25 million per year. A determination regarding RES compliance is not possible at this time, as program details are not yet known.
Solar Photovoltaic Program
The CPUC issued a decision in September 2010 approving a new solar photovoltaic (PV) program for SDG&E. Under the adopted program, SDG&E may develop up to 100 MW of solar PV in its service area, consisting of up to 26 MW of utility owned generation and up to 74 MW of purchased power from independent producers. Individual project size may range up to 5 MW. Over the 5-year program, SDG&E will be allowed to spend up to $100 million in capital costs for the systems it owns, based on an overall cost cap of $3.50 per watt, including a 10-percent contingency factor. A cost cap of $235 per MWh will apply to purchased power under the program.
East County Substation
In August 2009, SDG&E filed an application with the CPUC for authorization to proceed with the East County Substation Project, which will include construction of a new 500/230/138-kV substation, rebuilding of the existing Boulevard Substation and construction of a new 138-kV transmission line connecting the two substations. The project, estimated to cost approximately $280 million, would allow interconnections from new renewable-generation sources and enhance the reliability of electric service to a number of communities. The CPUC and BLM published their draft joint environmental impact report and environmental impact statement in December 2010. A CPUC decision on this project is expected in 2011.
San Onofre Nuclear Generating Station ( SONGS)
Edison (78.21%), SDG&E (20%) and the city of Riverside (1.79%) jointly own SONGS. Edison is in the process of replacing the steam generator for Unit 3 at SONGS, which it expects to complete in the first quarter of 2011.Edison replaced the steam generator in Unit 2 in 2010. Total estimated project capital expenditure for both units, in 2004 dollars, is $671million, excluding AFUDC. SDG&E's current expected share is $171 million, of which it has incurred $145 million through December 31, 2010, and there are $7 million of firm commitments at December 31, 2010. The CPUC has approved SDG&E's participation in the replacement project as well as providing SDG&E with full recovery of current operating and maintenance costs via balancing account treatment.
Spent Nuclear Fuel
SONGS owners are responsible for interim storage of spent nuclear fuel generated at SONGS until the DOE accepts it for final disposal. Spent nuclear fuel has been stored in the SONGS Units 1, 2 and 3 spent fuel pools and in the ISFSI. Movement of all Unit 1 spent fuel to the ISFSI was completed in 2005.
§Spent fuel for Unit 2 is being stored in both the Unit 2 spent fuel pool and the ISFSI.
§Spent fuel for Unit 3 is being stored in both the Unit 3 spent fuel pool and the ISFSI.
A second ISFSI pad, completed in 2009, will provide sufficient storage capacity to allow for the continued operati on of SONGS through 2022.
NOTE 15. OTHER REGULATORY MATTERS
GENERAL RATE CASE (GRC)
The CPUC uses a general rate case proceeding to prospectively set rates sufficient to allow the Sempra Utilities to recover their reasonable cost of operations and to provide the opportunity to realize an acceptable rate of return on their investment. In December 2010, the Sempra Utilities filed their 2012 General Rate Case (GRC) appl ications to establish their authorized 2012 revenue requirements and the ratemaking mechanisms by which those requirements will change on an annual basis over the subsequent three-year (2013-2015) period. Fuel purchased to supply power plants, purchased power and natural gas costs are not included in the applications. In its request, SDG&E is seeking an increase of $253 million ($39 million for natural gas operations, and $214 million for electric operations) in 2012, relative to its authorized revenue requirement in 2011. SoCalGas is seeking an increase of $280 million in 2012.
Certain provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provide for companies to elect to deduct bonus depreciation for certain investments made after September 8, 2010 through December 31, 2012. This bonus depreciation will reduce SDG&E's and SoCalGas' rate base below the level included in the applications, and therefore reduce the amount of the increase requested by SDG&E and SoCalGas. Both SDG&E and SoCalGas will be advising the CPUC of the impact of the bonus depreciation in early 2011.
We expect final CPUC decisions in late 2011, with changes in rates to become effective on January 1, 2012.
UTILITY INCENTIVE MECHANISMS
The CPUC applies performance-based measures and incentive mechanisms to all California utilities. Under these, the Sempra Utilities have earnings potential above authorized base margins if they achieve or exceed specific performance and operating goals. Generally, for performance-based awards, if performance is above or below specific benchmarks, the utility is eligible for financial awards or subje ct to financial penalties. There are four general areas that operate under an incentive structure:
§operational incentives
§energy efficiency/demand side management
§natural gas procurement
§unbundled natural gas storage and system operator hub services
Incentive awards are included in our earnings when we receive any required CPUC approval of the award. We would record penalties for results below the specified benchmarks in earnings when we believe it is more likely than not that the CPUC would assess a penalty.
We provide a summary of the incentive awards recognized below.
UTILITY INCENTIVE AWARDS 2008-2010 font> |
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(Dollars in millions) |
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| Years ended December 31, | ||||||||
| 2010 | 2009 | 2008 | ||||||
Sempra Energy Consolidated |
|
|
|
|
|
|
|
|
|
Energy efficiency and demand side management | $ | 15 |
| $ | 2 |
| $ | 28 |
|
Unbundled natural gas storage and hub services |
| 15 |
|
| 19 |
|
| 15 |
|
Natural gas procurement |
| 12 |
|
| 7 |
|
| 12 |
|
Operational incentives |
| 1 |
|
| 1 |
|
| 12 |
|
Total awards | $ | 43 |
| $ | 29 |
| $ | 67 |
|
SDG&E |
|
|
|
|
|
|
|
|
|
Energy efficiency and demand side management | $ | 5 |
| $ | - |
| $ | 23 |
|
Natural gas procurement |
| - |
|
| - |
|
| 3 |
|
Operational incentives |
| 1 |
|
| 1 |
|
| 10 |
|
Total awards | $ | 6 |
| $ | 1 |
| $ | 36 |
|
SoCalGas |
|
|
|
|
|
|
|
|
|
Energy efficiency and demand side management | $ | 10 |
| $ | 2 |
| $ | 5 |
|
Unbundled natural gas storage and hub services |
| 15 |
|
| 19 |
|
| 15 |
|
Natural gas procurement |
| 12 |
|
| 7 |
|
| 9 |
|
Operational incentives |
| - |
|
| - |
|
| 2 |
|
Total awards | $ | 37 |
| $ | 28 |
| $ | 31 |
|
Energy Efficiency and Demand Side Management
The CPUC established incentive mechanisms that are based on the effectiveness of energy efficiency and demand side management programs. In December 2009, the CPUC awarded $0.3 million and $2.1 million, net of a 35 percent holdback pending a final true-up in 2010, to SDG&E and SoCalGas, respectively, for their performance during the 2006 2008 program period. In February 2010, the Sempra Utilities filed a petition with the CPUC to correct errors in the computation of these awards.
In December 2010, the CPUC additionally awarded $5.1 million and $9.9 million to SDG&E and SoCalGas, respectively, as the final true-up incentive awards for the 2006 2008 program period, which amounts incorporate the Sempra Utilities' petition to correct computational errors. The Sempra Utilities will file requests with the CPUC in June 2011 for any incentive awards for the 2009 program year. The CPUC is also considering future modifications to the incentive mechanism. A decision i s expected in early 2011 and would apply to the 2012 2014 program period.
Natural Gas Procurement
The Sempra Utilities procure natural gas on behalf of their core natural gas customers. The CPUC has established incentive mechanisms to allow the Sempra Utilities the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. Beginning April 1, 2008, the SDG&E and SoCalGas core natural gas supply portfolios were combined, and SoCalGas now procures natural gas for SDG&E's core natural gas customers' requirements. All SDG&E assets associated with its core natural gas supply portfolio were transferred or assigned to SoCalGas. Accordingly, SDG&Es incentive mechanism for natural gas procurement awards or penalties ended as of the eff ective date of the combination of the core natural gas supply portfolios, and SoCalGas' gas cost incentive mechanism (GCIM) is applied on the combined portfolio basis going forward.
In January 2010, the CPUC approved a GCIM award of $12 million for SoCalGas' procurement activities during the 12-month period ending March 31, 2009. In June 2010, SoCalGas applied to the CPUC for approval of a GCIM award of $6 million for procurement activities during the 12-month period ending March 31, 2010. SoCalGas expects a CPUC decision in the third quarter of 2011.
Unbundled Natural Gas Storage and System Operator Hub Services
The CPUC has established a revenue sharing mechanism which provides for the sharing between ratepayers and SoCalGas (shareholders) of the net re venues generated by SoCalGas' unbundled natural gas storage and system operator hub services. Annual net revenues (revenues less allocated service costs) are shared on a graduated basis, as follows:
§the first $15 million of net revenue to be shared 90 percent ratepayers/10 percent shareholders;
§the next $15 million of net revenue to be shared 75 percent ratepayers/25 percent shareholders;
§all additional net revenues to be shared evenly between ratepayers and shareholders; and
Operational Incentives
The CPUC may establish operational incentives and associated performance benchmarks as part of a general rate case or cost of service proceeding. The Sempra Utilities currently have operational incentives that apply to their performance in the area of employee safety.
COST OF CAPITAL
A cost of capital proceeding determines the Sempra Utilities' authorized capital structure and the authorized rate of return that the Sempra Utilities may earn on their electric and natural gas distribution and electric generation assets.
SDG&E's authorized return on equity (ROE) is 11.10 percent and its authorized return on rate base (ROR) is 8.40 percent. SDG&E's current authorized capital structure is
§49.0 percent common equity
§5.75 percent preferred equity
§45.25 percent long-term debt
Unless the benchmark interest rates, as described be low, change from current levels, the authorized ROE and ROR will remain in effect until SDG&E's next cost of capital proceeding is completed. SDG&E's next cost of capital application is scheduled to be filed in April 2012 for a 2013 test year, consistent with the schedule for cost of capital applications for each of Southern California Edison (Edison) and Pacific Gas and Electric (PG&E).
SoCalGas' authorized ROE is 10.82 percent and its authorized ROR is 8.68 percent. These rates continue to be effective until market interest rate changes are large enough to trigger an automatic adjustment or until the CPUC orders a periodic review. In its 2012 GRC application, SoCalGas requested to file its next cost of capital application in April 2012 for a 2013 test year, at the same time as the other utilities. SoCalGas' current authorized capital structure is
§6.39 percent preferred equity
§45.61 percent long-term debt
In addition to establishing the authorized rate of return, a cost of capital proceeding also addresses market-based benchmarks to be monitored to determine whether an adjustment to the established authorized rate of return is required during the interim years between cost of capital proceedings. SDG&Es cost of capital benchmark is based on the 12-month average monthly A-rated utility bond yield as published by Moodys for the 12-month period October through September of each f iscal year. If this 12-month average falls outside of the range of 5.02 percent to 7.02 percent, SDG&Es authorized rate of return would be adjusted, upward or downward, by one-half of the difference between the 12-month average and 6.02 percent (SDG&Es benchmark interest rate), effective January 1 following the year in which the benchmark range was exceeded.
SoCalGas cost of capital trigger mechanism identifies two conditions for determining whether a change in the authorized rate of return is required. Both conditions are based on the 30-year Treasury Bond Yields one being the most recent 12-month rolling average yield and the second being the corresponding 12-month forecasted rolling yield on 30-year Treasury Bonds as published by Global Insights. If both interest rates fall outside a range of 3.88 percent to 6.88 percent, SoCalGas authorized rate of return would be adjusted, upward or downward, by o ne-half of the difference between the historical 12-month rolling average yield and 5.38 percent (SoCalGas' benchmark interest rate), effective January 1 following the year in which both conditions were exceeded.
At December 31, 2010, neither SDG&Es nor SoCalGas benchmark ranges have been exceeded.
ADVANCED METERING INFRASTRUCTURE
SDG&E
In April 2007, the CPUC approved SDG&E's request to install advanced meters with integrated two-way communications functionality, including electric remote disconnect and home area network capability. SDG&E estimates expenditures for this proje ct of $572 million (including approximately $480 million in capital investment). As of December 31, 2010, SDG&E had spent approximately $370 million on the project. This project involves replacing approximately 1.4 million electric meters and 850,000 natural gas meters throughout SDG&Es service territory. As of January 2011, SDG&E has installed approximately 1.2 million electric and 770,000 natural gas advanced meters, and is on schedule to substantially complete the project by the end of 2011.
SoCalGas
In April 2010, the CPUC issued a decision approving SoCalGas' application to upgrade approximately six million natural gas meters with an advanced metering infrastructure (AMI), subject to certain safeguards to better ensure its cost effectiveness for ratepayers. The approved cost of the project is $1.05 billion (including approximat ely $900 million in capital investment), with SoCalGas being subject to risk/reward sharing for costs above or below this amount. Installation of the meters is expected to begin in late 2012 and continue through 2017.
In May 2010, The Utility Reform Network (TURN) and the Utility Workers Union of America (UWUA) Local 132, parties opposing SoCalGas' AMI application, filed an application for rehearing of the CPUC's decision. In November 2010, the CPUC denied TURN's request for rehearing and the UWUA withdrew its request.
SDG&E REQUEST FOR AUTHORITY TO INVEST IN WIND FARM
In July 2010, SDG&E filed a request with the CPUC seeking authority to make a tax equity investment in the holding company of a wind farm project in an amount not to exceed $600 million. SDG&E is seeking to treat the investment as a rate-based asset for which it would earn its authorized rate of return. A CPUC decision is expected in 2011.
If approved by the CPUC, and after the wind farm project has met all of the conditions precedent set forth in the definitive documents, SDG&E would invest in one or more project holding companies in an amount not to exceed 80% of the project costs (not to exceed an aggregate amount of $600 million) upon the initiation of commercial operation of the project. SDG&E expects the project to be in commercial operation in the second half of 2012.
2007 WILDFIRES COST RECOVERY FOR COMPANY FACILITIES
In October 2010, the CPUC issued a decision approving a settlement agreement between SDG&E and the Division of Ratepayer Advocates (DRA), authorizing SDG&E to recover $43 million of capital costs incurred to replace and repair company facilities under CPUC jurisdiction damaged by the October 2007 wildfires. This decision was in response to an application that SDG&E filed with the CPUC in March 2009 seeking to recover $49.8 million of incremental costs ($43 million of capital costs and $6.8 million of operation and maintenance costs).
SDG&E also incurred $30.1 million of incremental costs for the replacement and repair of company facilities under FERC jurisdiction, which are currently being recovered in SDG&E's electric transmission rates.
We discuss recovery of 2007 wildfire litigation costs in Note 16.
INSURANCE COST RECOVERY
SDG&E filed a request with the CPUC in August 2009 seeking authorization to recover higher liability insurance premiums, which SDG&E began incurring commencing July 1, 2009, and any losses realized due to higher deductibles associated with the new policies. SDG&E requested a $29 million revenue requirement for the incremental increase in its general liability and wildfire liability insurance premium costs for the 2009/2010 policy period above what was authorized in rates in the 2008 GRC and proposed a mechanism for recovery of future liability insurance costs incurred in the 2010/2011 policy period and the first six months of the 2011/2012 policy period. SDG&E made the filing under the CPUCs rules allowing utilities to seek recovery of significant cost increases incurred between GRC filings resulting from unforeseen circumstan ces. The CPUC's rules allow a utility to seek recovery of incurred costs that meet certain criteria, subject to a $5 million deductible per event. SDG&E asked that the increase in liability insurance costs for the 2009/2010, 2010/2011 and the first six months of the 2011/2012 policy periods be deemed a single event subject to one $5 million deductible. In December 2010, the CPUC approved SDG&Es request for the $29 million revenue requirement, which was implemented in rates effective January 1, 2011, and authorized SDG&E to request recovery of the incremental insurance premiums for future policy periods, with the exception that the $5 million deductible be applied to each policy renewal period. SDG&E expects to file its request addressing the 2010/2011 policy period in early 2011. Including the effect of this approval, in the years ended December 31, 2010 and 2009, SDG&E's after-tax earnings were adversely impacted by $13 million and $9 million, respectively, due to the incremental insurance premiums as sociated with its wildfire coverage.
EXCESS WILDFIRE CLAIMS COST RECOVERY
SDG&E and SoCalGas filed an application, along with other related filings, with the CPUC in August 2009 proposing a new mechanism for the future recovery of all wildfire-related expenses for claims, litigation expenses and insurance premiums that are in excess of amounts authorized by the CPUC for recovery in rates. This application was made jointly with Edison and PG&E. In July 2010, the CPUC approved SDG&E's and SoCalGas' requests for separate regulatory accounts to record the subject expenses while the joint utility application is pending before the CPUC. Several parties protested the original application and, in response, the four utilities jointly submitted an amended application in August 2010. On February 18, 201 1, a ruling was issued by the Assigned Commissioner and Administrative Law Judge requiring applicants to show cause why the application should not be dismissed. We believe the parties can show that the application should not be dismissed and should continue to progress. In connection with these filings, SDG&E is seeking the recovery of costs incurred by SDG&E for the 2007 wildfire losses that are in excess of amounts recovered from its insurance coverage and other potentially responsible third parties, as well as similar costs for future wildfires, if and when incurred.
We provide additional information about 2007 wildfire litigation costs and their recovery in Note 16.
AIR QUALITY AND GREENHOUSE GAS REGULATION
Feder al and state legislative and regulatory bodies have recently adopted, and have proposed to adopt, several new air quality and greenhouse gas (GHG) standards that will impact the Sempra Utilities and Sempra Generation.
Among others, the California Legislature enacted Assembly Bill 32 (AB 32) and California Senate Bill 1368 in 2006. These laws mandate, among other things, reductions in greenhouse gas emissions and the payment of GHG administration fees annually. The CARB has adopted a number of regulations pursuant to AB 32, including CARB's GHG administration fees regulation and its greenhouse gas emissions trading regulation. The Association of Irritated Residents is challenging the scoping plan adopted by CARB upon which the AB 32 regulations are based (Association of Irritated Residents (AIR), et al. v. California Air Resources Board (CARB)). In late January 2011, the San Francisco County Superior Court issued a tentative d ecision that prohibits CARB from implementing its scoping plan until it is in complete compliance with its obligations under its certified regulatory program and CEQA. If the Court finalizes the tentative ruling as currently proposed, it may impact the substance and/or effective dates of the final AB 32 regulations.
The U.S. Environmental Protection Agency (EPA) has announced that it will complete a review of several national ambient air quality standards (NAAQS) by the end of 2011, including ozone (nitrogen oxide and volatile organic chemicals), particulate matter, nitrogen dioxide and sulfur dioxide. The EPA has also entered into a settlement agreement requiring it to propose GHG new source performance standards (NSPS) for new, modified and existing sources by May 2012. These new NAAQS and NSPS could result in more stringent emissions limits on fossil combustion, including fossil-fired electric generating plants.
These legislative and regulatory mandates could affect costs and growth at the Sempra Utilities and at Sempra Generation's power plants. Any cost impact at the Sempra Utilities is expected to be recoverable through rates. As discussed in Note 16 under "Environmental Issues," compliance with this and similar legislation could adversely affect Sempra Generation. However, such legislation could also have a positive impact on Sempra Generation because of an increasing preference for natural gas and renewables for electric generation, as opposed to other sources.
NOTE 16. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
We accrue losses for legal proceedings when it is probable that a loss has been incurred and the amounts of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to estimate with reasonable certainty the costs and effects of resolving these matters. Accordingly, actual costs incurred may differ materially from amounts accrued, may exceed applicable insurance coverages and could materially adversely affect our business, cash flows, results of operations, and financial condition.
At December 31, 2010, Sempra Energys accrued liabilities for material legal proceedings , on a consolidated basis, were $996 million, of which $201 million is for resolved matters. At December 31, 2010, these accrued liabilities for SDG&E and SoCalGas were $763 million and $25 million, respectively.
Liabilities of $762 million at Sempra Energy and SDG&E are offset by a settlement receivable for wildfire litigation of $300 million and restricted cash of $110 million received in 2010 in connection with the settlement.
SDG&E 2007 Wildfire Litigation
In October 2007, San Diego County experienced several catastrophic wildfires. Reports issued by the California Department of Forestry and Fire Protection (Cal Fire) concluded that two of these fires (the Witch and Rice fires) were SDG&E "power line caused" and that a third fire (the Guejito fire) occ urred when a wire securing a Cox Communications' (Cox) fiber optic cable came into contact with an SDG&E power line "causing an arc and starting the fire." Cal Fire reported that the Rice fire burned approximately 9,500 acres and damaged 206 homes and two commercial properties, and the Witch and Guejito fires merged and eventually burned approximately 198,000 acres, resulting in two fatalities, approximately 40 firefighters injured and approximately 1,141 homes destroyed.
A September 2008 staff report issued by the Consumer Protection and Safety Division of the CPUC reached substantially the same conclusions as the Cal Fire reports, but also contended that the power lines involved in the Witch and Rice fires and the lashing wire involved in the Guejito fire were not properly designed, constructed and maintained. In April 2010, proceedings initiated by the CPUC to determine if any of its rules were violated were settled with SDG&E 146;s payment of $14.75 million.
Numerous parties have sued SDG&E and Sempra Energy in San Diego County Superior Court seeking recovery of unspecified amounts of damages, including punitive damages, from the three fires. These include owners and insurers of properties that were destroyed or damaged in the fires and public entities seeking recovery of firefighting, emergency response, and environmental costs. They assert various bases for recovery, including inverse condemnation based upon a California Court of Appeal decision finding that another California investor-owned utility was subject to strict liability, without regard to foreseeability or negligence, for property damages resulting from a wildfire ignited by power lines.
In October 2010, the Court of Appeal affirmed the trial court's ruling that these claims must be pursued in individual lawsuits, rather than as class actions on behalf of all persons who incurred wildfire damages. In February 2011, the California Supreme Court denied a petition for review of the affirmance. No trial date is currently scheduled.
SDG&E filed cross-complaints against Cox seeking indemnification for any liability that SDG&E might incur in connection with the Guejito fire, two SDG&E contractors seeking indemnification in connection with the Witch fire, and one SDG&E contractor seeking indemnification in connection with the Rice fire.
In December 2010, SDG&E and Cox reached an agreement settling SDG&E's claims against Cox and Coxs insurers in the 2007 wildfire litigation (Cox Settlement). Among other things, the settlement agreement provides that:
§SDG&E will receive approximately $444 million, which SDG&E will use for wildfire related expenditures.
§SDG&E will defend and indemnify Cox against all compensatory damage claims and related costs arising out of the wildfires.
At December 31, 2010, the $300 million Settlement Receivable Related to Wildfire Litigation on the Consolidated Balance Sheets of Sempra Energy and SDG&E represents cash to be received in accordance with the terms of the Cox Settlement in several payments through March 2011. The Reserve for Wildfire Litigation on their Consolidated Balance Sheets at December 31, 2010, was increased in the fourth quarter of 2010 to include estimated additional liabilities for wildfire claims that related to the Cox S ettlement.
SDG&E has settled substantially all of the 19,000 claims of homeowner insurers relating to the three fires. Under the settlement agreements, SDG&E has paid or will pay 57.5 percent of the approximately $1.6 billion paid or reserved for payment by the insurers to their policyholders and received an assignment of the insurers claims against other parties potentially responsible for the fires.
The wildfire litigation also includes claims of non-insurer plaintiffs for damage to uninsured and underinsured structures, business interruption, evacuation expenses, agricultural damage, emotional harm, personal injuries and other losses. SDG&E has settled the claims of approximately 750 of these plaintiffs. Of the approximately 2,380 remaining plaintiffs, approximately 1,270 have thus far submitted settlement demands or damage informatio n. Individual and business claims total approximately $950 million and government entity claims total approximately $110 million. SDG&E expects to receive additional settlement demands and damage estimates as settlement negotiations continue.
SDG&E's settlement of claims and defense costs have exceeded its $1.1 billion of liability insurance coverage. It expects that its wildfire reserves and amounts paid to resolve wildfire claims will continue to increase as it obtains additional information; it is presently unable to reasonably estimate the amount or timing of recoveries from other potentially responsible parties, other than Cox.
SDG&E has concluded, however, that it is probable that it will be permitted to recover from its utility customers substantially all reasonably incurred costs of resolving wildfire claims in excess of its liability insuranc e coverage and any amounts recovered from other potentially responsible parties. Accordingly, although such recovery will require future regulatory actions, as of December 31, 2010, SDG&E recorded a regulatory asset in an amount substantially equal to the aggregate amount it has paid or reserved for payment for the resolution of wildfire claims and related costs in excess of its liability insurance coverage and amounts received or to be received from Cox. SDG&E will increase the regulatory asset as additional amounts are paid or reserves are recorded and reduce it by any amounts recovered from other potentially responsible parties.
As a consequence of the expected recovery of wildfire costs from utility customers, Sempra Energy and SDG&E expect no significant earnings impact from the resolution of the remaining wildfire claims. However, SDG&Es cash flow may be adversely affected due to the timing differences between the resol ution of claims and the recoveries from other potentially responsible parties and utility customers, which may extend over a number of years. Also, recovery from customers will require future regulatory actions, and a failure to obtain recovery, or any negative assessment of the likelihood of recovery, would likely have a material adverse effect on Sempra Energy's and SDG&E's cash flows and results of operations.
SDG&E will continue to gather information to evaluate and assess the remaining wildfire claims and the likelihood, amount and timing of related recoveries from other potentially responsible parties and utility customers and will make appropriate adjustments to wildfire reserves and the related regulatory asset as additional information becomes available.
Sempra Pipelines & Storage
Sempra LNG
Sempra LNG has been engaged in a long-running land dispute relating to property adjacent to its Energía Costa Azul liquefied natural gas (LNG) receipt terminal near Ensenada, Mexico. The adjacent property is not required by environmental or other regulatory permits for the operation of the terminal. A claimant to the adjacent property has nonetheless asserted that his health and safety are endangered by the operation of the facility. In June 2010, a Mexican federal appeals court revoked a district court order, issued at the behest of the claimant, directing Mexican regulatory authorities to provisionally suspend authorizations for the operation of the LNG terminal. In February 2011, based on a complaint by the claimant, the new Ensenada Mayor attempted to temporarily close the terminal based on claims of irregularities in municipal permits issu ed six years earlier. This attempt was promptly countermanded by Mexican federal and Baja California state authorities. No terminal permits or operations were affected as a result of these proceedings or events and the terminal has continued to operate normally.
Sempra LNG expects additional Mexican court proceedings and governmental actions regarding the claimants assertions as to whether the terminals permits should be modified or revoked in any manner.
The property claimant has also filed a lawsuit in U.S. district court in San Diego seeking compensatory and punitive damages and earnings from the Energía Costa Azul LNG terminal based on his allegations that he was wrongfully evicted from the adjacent property and that he has been harmed by other allegedly improper actions.
Other Litigation
In August 2007, the U.S. Court of Appeals for the Ninth Circuit issued a decision reversing and remanding certain FERC orders declining to provide refunds regarding short-term bilateral sales up to one month in the Pacific Northwest for the December 2000 to June 2001 time period. The FERC has not yet acted on the courts order. In December 2010, the FERC approved a comprehensive settlement previously reached by Sempra Energy and RBS Sempra Commodities with the State of California that we discuss below under "Resolved Matters Energy Crisis Litigation Settlement FERC Refund Proceedings." The settlement resolves all issues with regard to sales between the DWR and Sempra Commodities in the Pacific Northwest, but potential claims may exist regarding sales between Sempra Commodities and other buyers in the Pacific Nort hwest.
Pursuant to the agreements related to the formation of RBS Sempra Commodities, we have indemnified RBS should the liability from the final resolution of these matters be greater than the reserves related to Sempra Commodities. Pursuant to our agreement with the Noble Group as discussed in Note 4, we have also indemnified Noble Americas Gas & Power Corp. and its affiliates for all losses incurred by such parties resulting from these proceedings as related to Sempra Commodities.
Sempra Energy and several subsidiaries, along with three oil and natural gas companies, the City of Beverly Hills, and the Beverly Hills Unified School District, are defendants in a toxic tort lawsuit filed in Los Angeles County Superior Court by approximately 1,000 plaintiffs. This lawsuit claims that various emissions resulted in cancer or fear of cancer. W e have submitted the case to our insurers, who have reserved their rights with respect to coverage. In November 2006, the court granted the defendants' summary judgment motions based on lack of medical causation for the 12 initial plaintiffs scheduled to go to trial first. The court also granted summary judgment excluding punitive damages. The court has stayed the case as to the remaining plaintiffs pending the appeal of the rulings. A mediation occurred in June 2010, after which the plaintiffs counsel agreed to recommend a settlement of the lawsuits as to Sempra Energy and its subsidiaries for an amount that is not significant. Any such settlement will require approval by each of the plaintiffs. If approval is obtained, finalization of the settlement is expected to occur within six months.
We are also defendants in ordinary routine litigation incidental to our businesses, including personal injury, product liability , property damage and other claims. California juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these cases.
Resolved Matters
The accrued liabilities for legal proceedings described above include amounts for matters resolved in 2010 and prior years that are primarily related to certain litigation arising out of the 2000 2001 California energy crisis. We discuss certain commitments remaining from an energy crisis matter resolved prior to 2010 below under "Other Commitments."
The following is a description of the 2010 litigation settlements relating to California energy crisis matters.
Energy Crisis Litigation Settlement
Sempra Energy, RBS Sempra Commodities and Sempra Generation reached a comprehensive settlement with the State of California to resolve substantially all of their remaining energy crisis litigation for a total payment of $410 million. Described in more detail below, the matters resolved include the settlement of multiple actions brought by the California Department of Water Resources (DWR) and other parties with respect to the validity, pricing and operation of Sempra Generations contract with the DWR and the settlement of the FERC refund and manipulation proceedings against RBS Sempra Commodities. The FERC approved both settlements in December 2010.
The payment of $410 million was funded largely from previously recorded reserves and receivables at RBS Sempra Commodities. Sempra Energy also recorded an additional pretax charge of $159 million in the first quarter of 2010 to provide for the remainder of the settlement, including $139 million at Sempra Generation and $20 million at Sempra Commodities. The amount at Sempra Commodities was reduced by $11 million pretax in the fourth quarter of 2010 to reflect a receipt in January 2011 from an unrelated party that had a joint liability for the claim. In January 2011, Sempra Generation paid $130 million to the DWR under the terms of the settlement agreement.
DWR Contract Among other relief from existing and potential disputes, all of the pending disputes related to the DWR contract have now been dismissed or withdrawn. These matters include the 2002 challenge brought by the California Energy Oversight Board (CEOB) and the CPUC at the FERC asserting that the DWR contract with Sempra Generation contained unjust and unreasonable rates; the DWRs appeal in response to the denial of its 2002 claims for misrepresentation and breach of contract in San Diego Superior Court; and the 2008 arbitration proceedings in which the DWR asserted that Sempra Generation had breached the parties' agreement in various operational respects, and violated the order issued by an earlier arbitration panel relating to the amount refunded to the DWR and the manner in which Sempra Generation operates.
FERC Refund Proceedings The settlement involving RBS Sempra Commodities includes, among other things, resolution of the following matters: the FERC's investigation of prices charged by various electric suppliers to buyers in the California Power Exchange (PX) and Independent System Operator (ISO) markets; a complaint involving short-term bilateral sales up to one month in the Pacific Northwest (that portion of the proceeding involving sales between the DWR and Sempra Commodities); the California Attorney General's compla int that electricity sellers had failed to comply with the FERC's quarterly reporting requirements; and the California Attorney General's complaint seeking to collect for alleged overcharges related to all short-term bilateral transactions between sellers and the DWR from January 18, 2001 through June 20, 2001.
FERC Manipulation Investigation The settlement involving RBS Sempra Commodities also includes resolution of the FERC's separate investigation into whether there was manipulation of short-term energy markets in the western United States that would constitute violations of applicable tariffs and warrant disgorgement of associated profits.
Sempra Energy and RBS Sempra Commodities have recorded reserves for the full amount of the settlement and other litigation.
In 2009 and 2010, as liabilities for wildfire litigation have become reasonably estimable, SDG&E has recorded related reserves as a liability. The impact of this liability is offset by (1) current receivables resulting from SDG&Es liability insurance (at December 31, 2009) and from amounts to be received from Cox (at December 31, 2010), and (2) the recognition of a regulatory asset, as discussed above, for reserves in excess of the insurance coverage and the Cox settlement and (3) $110 million of restricted cash received from Cox in 2010. There was no effect on SDG&E's or Sempra Energy's 2009 earnings from the recording of the reserves. The impact on their 2010 earnings was $20 million (after tax) for the year ended December 31, 2010. At December 31, 2010, wildfire litigation reserves were $762 million ($639 million in current and $123 million in long-term) and the receivable from Cox was $300 million.
NATURAL GAS CONTRACTS
Natural Gas
SoCalGas has the responsibility for procuring natural gas for both SDG&Es and SoCalGas core customers in a combined portfolio. SoCalGas buys natural gas under short-term and long-term contracts for this portfolio. Purchases are from various producing regions in the southwestern U.S., U.S. Rockies, and Canada and are primarily based on published monthly bid-week indices.
SoCalGas transports natural gas primarily under long-term firm interstate pipeline capacity agreements that provide for annual reservation charges, w hich are recovered in rates. SoCalGas has commitments with interstate pipeline companies for firm pipeline capacity under contracts that expire at various dates through 2025.
At December 31, 2010, the future minimum payments under existing natural gas contracts and natural gas storage and transportation contracts were
Sempra Energy Consolidated | ||||||
(Dollars in millions) | Transportation | Natural Gas(1) | Total(1) | |||
2011 | $ | 138 | $ | 567 | $ | 705 |
2012 |
| 119 |
| 130 |
| 249 |
2013 |
| 94 |
| 136 |
| 230 |
2014 |
| 70 |
| 140 |
| 210 |
2015 |
| 57 |
| 3 |
| 60 |
Thereafter |
| 271 |
| - |
| 271 |
Total minimum payments | $ | 749 | $ | 976 | $ | 1,725 |
(1) Excludes amounts related to LNG purchase agreem ents at Sempra LNG discussed below. |
SoCalGas | ||||||
(Dollars in millions) | Natural Gas |
Total | ||||
2011 | $ | 119 | $ | 437 | $ | 556 |
2012 |
| 100 |
| 2 |
| 102 |
2013 |
| 75 |
| 2 |
| 77 |
2014 |
| 51& nbsp; |
| 2 |
| 53 |
2015 |
| 38 |
| 3 |
| 41 |
Thereafter |
| 145 |
| - |
| 145 |
Total minimum payments | $ | 528 | $ | 446 | $ | 974 |
Total payments under natural gas contracts were:
| Years ended December 31, | |||||
(Dollars in millions) | 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated | $ | 2,097 | $ | 1,754 | $ | 3,469 |
SDG&E |
| - |
| - |
| 12 |
SoCalGas |
| 1,936 | p> | 1,452 |
| 3,145 |
LNG
Sempra LNG has various purchase agreements with major international companies for the supply of LNG to its Energía Costa Azul and Cameron receipt terminals. The agreements range from short-term to multi-year periods and are priced using a predetermined formula based on natural gas market indices.
Although these contracts specify a number of cargoes to be delivered, under their terms, customers may divert certain cargoes, which would reduce amounts paid under the contracts by Sempra LNG. As of December 31, 2010, if all cargoes under the contracts were to be delivered, future paymen ts under these contracts would be
§$1 billion in 2011
§$1.1 billion in 2012
§$972 million in 2013
§$833 million in 2014
§$858 million in 2015
§$13.4 billion in 2016 2029
The amounts above are based on forward prices of the index applicable to each contract from 2011 to 2020, plus an estimated one percent escalation per year beyond 2020. The LNG commitment amounts above are based on Sempra LNGs commitment to accept the maximum possible delivery of cargoes under the agreements. Actual LNG purchases in 2010 have been significantly lower than the maximum amount possible.
PURCHASED-POWER CONTRACTS
For 2011, SDG&E expects to receive 16 percent of its customer power requirements from DWR allocations. The remaining requirements are expected to be met as follows:
§SONGS: 20 percent
§Long-term contracts: 18 percent (of which 7 percent is provided by renewable energy contracts expiring on various dates through 2025)
§Other SDG&E-owned generation (including Palomar, Miramar and El Dorado) and tolling contracts (including OMEC): 36 percent
§Spot market purchases: 10 percent
The long-term contracts expire on various dates through 2035.
At December 31, 2010, the estimated future minimum payments under SDG&Es long-term purchased-power contracts (not including the DWR allocations) were:
(Dollars in millions) |
| ||
2011 |
| $ | 312 |
2012 |
|
| 253 |
2013 |
|
| 251 |
2014 |
|
| 210 |
2015 |
|
| 188 |
Thereafter |
| 1,137 | |
Total minimum payments(1) | $ | 2,351 | |
(1) | Excludes amounts related to Otay Mesa VIE, as it is consolidated by Sempra Energy and SDG&E, and purchase agreements accounted for as capital leases. |
The payments represent capacity charges and minimum energy purchases. SDG&E is required to pay additional amounts for actual purchases of energy that exceed the minimum energy commitments. Excluding DWR-allocated contracts, total payments under purchased-power contracts were
§$314 million in 2010
§$413 million in 2009
§$393 million in 2008
OPERATING LEASES
Sempra Energy, SDG&E and SoCalGas have operating leases on real and personal property expiring at various dates from 2011 to 2045. Certain leases on office facilities contain escalation clauses requiring annual increases in rent ranging from two percent to six percent at Sempra Energy and three percent to five percent at both SDG&E and SoCalGas. The rentals payable under these leases may increase by a fixed amount each year or by a percentage of a base year, and most leases contain extension options that we could exercise.
The Sempra Utilities had operating lease agreements for fleet vehicles with GE Capital which they terminated in November 2008. At that time, to replace the prior agreements, the Sempra Utilities entered into a new operating lease agreement for future acquisitions of fleet vehicles with RBS Asset Finance, Inc. with an aggregate maximum lease limit of $100 million.
Rent expense for all operating leases totaled
| Years ended December 31, | |||||
(Dollars in millions) | 2010 | 2009 | 2008 | |||
Sempra Energy Consolidated | $ | 85 | $ | 101 | $ | 100 |
SDG&E |
| 20 |
| 24 |
| 25 |
PE |
| 47 |
| 65 |
| 65 |
SoCalGas |
| 40 |
| 52 |
| 52 |
At December 31, 2010, the minimum rental commitments payable in future years under all noncancelable operating leases were as follows:
| Sempra |
|
| |||
| Energy |
|
| |||
(Dollars in millions) | Consolidated | SDG&E | PE / SoCalGas | |||
2011 | $ | 73 | $ | 18 | $ | 32 |
2012 |
| 67 |
| 17&nbs p; |
| 23 |
2013 |
| 65 |
| 17 |
| 23 |
2014 |
| 64 |
| 16 |
| 23 |
2015 |
| 63 |
| 16 |
| 24 |
Thereafter |
| 623 |
| 55 |
| 253 |
Total future rental commitments | $ | 955 | $ | 139 | $ | 378 |
CAPITAL LEASES
Utility Fleet Vehicles
The Sempra Utilities entered into agreements with U.S. Bancorp Equipment Finance in 2009 and with RBS Asset Finance, Inc. in 2010, to lease fleet vehicles that were under the agreements with GE Capital, which we discuss above. These are capital leases, and as of December 31, 2010, the related capital lease obligations were $39 million at Sempra Energy, $20 million at SDG&E and $19 million at SoCalGas. As of December 31, 2009, the related capital lease obligations were $47 million at Sempra Energy, $20 million at SDG&E and $27 million at SoCalGas.
At December 31, 2010, the future minimum lease payments and present value of the net minimum lease payments under these capital leases were as follows:
| Sempra | <
td colspan=2 style="BORDER-RIGHT:0px; PADDING-RIGHT:5.75pt; BORDER-TOP:0px; PADDING-LEFT:5.75pt; BACKGROUND:white; PADDING-BOTTOM:0in; BORDER-LEFT:0px; PADDING-TOP:0in; BORDER-BOTTOM:0px; HEIGHT:12pt" valign=bottom>
| ||||
| Energy |
|
| |||
(Dollars in millions) | Consolidated | SDG&E | SoCalGas | |||
2011 | $ | 17 | $ | 8 | $ | 9 |
2012 |
| 13 |
| 7 |
| 6 |
2013 |
| 7 |
| 4 |
| 3 |
2014 |
| 4 |
| 2 |
| 2 |
Total minimum lease payments |
| 41 |
| 21 |
| 20 |
Less: interest |
| (2) |
| (1) |
| (1) |
Present value of net minimum lease payments | $ | 39 | $ | 20 | $ | 19 |
|
|
|
|
|
|
|
The 2010 annual amortization charge for the utility fleet vehicles was $17 million at Sempra Energy, including $6 million at SDG&E and $11 million at SoCalGas. The 2009 annual amortization charge for the utility fleet vehicles was $3 million at Sempra Energy, including $1 million at SDG&E and $2 million at SoCalGas. There was no annual amortization charge for utility fleet vehicles in 2008.
Power Purchase Agreements
SDG&E has two power purchase agreements with peaker plant facilities that went into commercial operation in June 2010 and are accounted for as capital leases. As of December 31, 2010, capital lease obligations for these leases, each with a 25-year term, were valued at $182 million.
At December 31, 2010, the future minimum lease payments and present value of the net minimum lease payments under these capital leases for both Sempra Energy Consolidated and SDG&E were as follows:
(Dollars in millions) |
| ||
| 2011 | $ | 24 |
| 2012 |
| 24 |
| 2013 |
| 24 |
| 2014 |
| 24 |
| 2015 |
| 24 |
| Thereafter |
| 465 |
| Total minimum lease payments(1) |
| 585 |
| Less: estimated executory costs |
| (96) |
| Less: interest(2) |
| (307) |
| Present value of net minimum lease payments(3) | $ | 182 |
(1) | This amount will be recorded over the lives of the leases as Cost of Electric Fuel and Purchased Power on Sempra Energy's and SDG&E's Consolidated Statements of Operations. This expense will receive ratemaking treatment consistent with purchased-power costs. | ||
(2) | Amo unt necessary to reduce net minimum lease payments to present value at the inception of the leases. | ||
(3) | Includes $2 million in Current Portion of Long-Term Debt and $180 million in Long-Term Debt on Sempra Energy's and SDG&E's Consolidated Balance Sheets at December 31, 2010. |
The annual amortization charge for the power purchase agreements was $1 million for 2010.
CONSTRUCTION AND DEVELOPMENT PROJECTS
Sempra Energy has various capital projects in progress in the United States and in Mexico. The following is a summary of contractual commitments and contingencies related to the construction projects.
SDG&E
At December 31, 2010, SDG&E has commitments to make future payments of $594 million for construction projects including :
§$264 million for the engineering, material procurement and construction costs associated with the Sunrise Powerlink project;
§$243 million related to the replacement of the steam generators and other construction projects at SONGS; and
§$69 million for implementation of the Advanced Metering Infrastructure Program.
SDG&E expects future payments under these contractual commitments to be $384 million in 2011, $50 million in 2012, $30 million in 2013, $12 million in 2014, $12 million i n 2015 and $106 million thereafter.
SoCalGas
At December 31, 2010, SoCalGas has commitments to make future payments of $49 million for construction and infrastructure improvements for natural gas transmission and distribution operations. The future payments under these contractual commitments are expected to be $41 million in 2011 and $8 million in 2012.
Sempra Pipelines & Storage
Sempra Pipelines & Storage has commitments for the construction of natural gas storage facilities at Bay Gas and Mississippi Hub. At December 31, 2010, Sempra Pipelines & Storage expects to make payments of $9 million in 2011 and $1 mi llion in each of 2012 and 2013 at Bay Gas, and $7 million in each of 2011, 2012 and 2013 at Mississippi Hub under these contracts. Sempra Pipelines & Storages other businesses have construction commitments totaling $4 million in 2011 and $1 million in 2012.
GUARANTEES
Sempra Energys guarantees related to RBS Sempra Commodities, Rockies Express and Fowler Ridge II are discussed in Note 5.
As of December 31, 2010, SDG&E and SoCalGas did not have any outstanding guarantees.
SEMPRA GENERATIONS CONTRACT WITH THE DWR
In May 2001, Sempra Generation entered into a ten-year agreement with the DWR to supply up to 1,900 MW of power to California. Sempra Generation delivers energy to the DWR, primarily from its portfolio of natural gas-fired plants in the western United States and Baja California, Mexico. Additional information concerning this contract is provided under "Legal Proceedings Resolved Matters Energy Crisis Litigation Settlement DWR Contract" above. This agreement terminates in September 2011.
DEPARTMENT OF ENERGY NUCLEAR FUEL DISPOSAL
The Nuclear Waste Policy Act of 1982 made the DOE responsible for the disposal of spent nucl ear fuel. However, it is uncertain when the DOE will begin accepting spent nuclear fuel from SONGS. This delay will lead to increased costs for spent fuel storage. This cost will be recovered through SONGS revenue unless SDG&E is able to recover the increased cost from the federal government.
OTHER COMMITMENTS
At December 31, 2010, $69 million of current accrued liabilities at Sempra Energy relate to an energy crisis litigation settlement reported previously, under which Sempra Generation voluntarily agreed to reduce the price that it charges for power under its DWR contract. At the time of settlement, we recorded a liability for the estimated price reduction at present value, and we are applying it to offset the actual discount until the contract ends in September 2011.
Additional consideration for the settlement included an agreement that, for a period of 18 years beginning in 2011, Sempra LNG would sell to the Sempra Utilities, subject to annual CPUC approval, up to 500 million cubic feet (MMcf) per day of regasified LNG from Sempra LNG's Energía Costa Azul facility that is not delivered or sold in Mexico at the California border index minus $0.02 per MMBtu.
We discuss reserves at Sempra Energy and SDG&E for wildfire litigation above in "Legal Proceedings SDG&E 2007 Wildfire Litigation" and "Legal Proceedings Wildfire Reserves and Insurance and Settlement Receivables."
ENVIRONMENTAL ISSUES
Our operations are subject to federal, state and local environmental laws. We also are subject to regulations related to hazardous wastes, air and water quality, land use, solid waste disposal and the protection of wildlife. These laws and regulations require that we investigate and correct the effects of the release or disposal of materials at sites associated with our past and our present operations. These sites include those at which we have been identified as a Potentially Responsible Party (PRP) under the federal Superfund laws and similar state laws.
In addition, we are required to obtain numerous governmental permits, licenses and other approvals to construct facilities and operate our businesses. The related costs of environmental monitoring, pollution control equipment, cleanup costs, and emissions fees are significant. Increasing national and international concerns regarding global warming and mercury, carbon dioxide, nitrogen oxide and sulfur dioxide emissions could result in requirements for additional pollution control equipment or significant emissions fees or taxes that could adversely affect Sempra Generation. The Sempra Utilities' costs to operate their facilities in compliance with these laws and regulations generally have been recovered in customer rates.
We generally capitalize the significant costs we incur to mitigate or prevent future environmental contamination or extend the life, increase the capacity, or improve the safety or efficiency of property used in current operations. The following table shows (in millions) our capital expenditures in order to comply with environmental laws and regulations:
|
| Years ended December 31, | |||||
|
| 2010 | 2009 | 2008 | |||
Sempra Energy Co nsolidated(1) | $ | 21 | $ | 43 | $ | 30 | |
SDG&E |
| 10 |
| 24 |
| 18 | |
SoCalGas |
| 10 |
| 17 |
| 9 | |
(1) | In cases of non-wholly owned affiliates, includes only our share. |
Decreases in 2010 compared to 2009 are primarily due to a decrease in environmental-related spending on SoCalGas' natural gas transmission projects, completion of SDG&E's Miramar II facility and the change in our basis of presentation related to Orange Grove as described in Note 1. Increases in 2009 compared to 2008 are primari ly due to SoCalGas' spending on gas transmission projects, SDG&E's improvements to its electric transmission system and spending on emissions-control equipment. We have not identified any significant environmental issues outside the United States. From 2009 through 2013, SDG&E expects to incur costs of approximately $190 million for environmental mitigation measures associated with the Sunrise Powerlink construction project.
At the Sempra Utilities, costs that relate to current operations or an existing condition caused by past operations are generally recorded as a regulatory asset due to the probability that these costs will be recovered in rates.
The environmental issues currently facing us or resolved during the last three years include (1) investigation and remediation of the Sempra Utilities' manufactured-gas sites, (2) cleanup of third-party waste-disposal sites used by the Sempra Utilities at sites for which we have been identified as a PRP and (3) mitigation of damage to the marine environment caused by the cooling-water discharge from SONGS. The requirements for enhanced fish protection and restoration of 150 acres of coastal wetlands for the SONGS mitigation are in process and a 150-acre artificial reef was completed in 2008. The table below shows the status at December 31, 2010, of the Sempra Utilities' manufactured-gas sites and the third-party waste-disposal sites for which we have been identified as a PRP:
| # Sites | # Sites | ||
| Completed | In Process | ||
SDG&E |
|
|
|
|
Manufactured-gas sites |
| 3 |
| - |
Third-party waste-disposal sites |
| 1 |
| 1 |
SoCalGas |
|
|
|
|
Manufactured-gas sites |
| 36 |
| 6 |
Third-party waste-disposal sites |
| 1 |
| 1 |
We record environmental liabilities at undiscounted amounts when our liability is probable and the costs can be reasonably estimated. In many cases, however, investigations are not yet at a stage where we can determine whether we are liable or, if the liability is probable, to reasonably estimate the amount or range of amounts of the costs. Estimates of our liability are further subject to uncertainties such as the nature and extent of site contamination, evolving cleanup standards and imprecise engineering evaluations. We review our accruals periodically and, as investigations and cleanup proceed, we make adjustments as necessary. The following table shows (in millions) our accrued liabilities for environmental matters at December 31, 2010:
|
|
| Waste | Former Fossil- | Other |
| |||||
|
| Manufacture d- | Disposal | Fueled Power | Hazardous |
| |||||
|
| Gas Sites | Sites (PRP)(1) | Plants | Waste Sites | Total | |||||
SDG&E(2) | $ | 0.1 | $ | 0.2 | $ | 5.4 | $ | 0.3 | $ | 6.0 | |
SoCalGas |
| 19.5 |
| 0.5 |
| - |
| 0.2 |
| 20.2 | |
Other |
| 0.3 |
| 1.0 |
| - |
| - |
| 1.3 | |
Total Sempra Energy | $ | 19.9 | $ | 1.7 < /font> | $ | 5.4 | $ | 0.5 | $ | 27.5 | |
(1) | Sites for which we have been identified as a Potentiall y Responsible Party. | ||||||||||
(2) | Does not include SDG&E's liability for SONGS marine mitigation. |
We expect to pay the majority of these accruals over the next three years. In connection with the issuance of operating permits, SDG&E and the other owners of SONGS previously reached an agreement with the California Coastal Commission to mitigate the damage to the marine environment caused by the cooling-water discharge from SONGS. At December 31, 2010, SDG&E's share of the estimated mitigation costs remaining to be spent through 2050 is $17 million, which is recoverable in rates.
We discuss renewable energy requirements in Note 14 and greenhouse gas regulation in Note 15.
NUCLEAR INSURANCE
SDG&E and the other owners of San Onofre Nuclear Generating Station (SONGS) have insurance to cover claims from nuclear liability incidents arising at SO NGS. This insurance provides $375 million in coverage limits, the maximum amount available, including coverage for acts of terrorism. In addition, the Price-Anderson Act provides for up to $12.2 billion of secondary financial protection (SFP). If a nuclear liability loss occurring at any U.S. licensed/commercial reactor exceeds the $375 million insurance limit, all nuclear reactor owners could be required to contribute to the SFP. SDG&E's contribution would be up to $47 million. This amount is subject to an annual maximum of $7 million, unless a default occurs by any other SONGS owner. If the SFP is insufficient to cover the liability loss, SDG&E could be subject to an additional assessment.
The SONGS owners, including SDG&E, also have $2.75 billion of nuclear property, decontamination, and debris removal insurance. In addition, the SONGS owners have up to $490 million insurance coverage for outage expenses and replacement power costs due to accidental property damage. This coverage is limited to $3.5 million per week for the first 52 weeks, then $2.8 million per week for up to 110 additional weeks. There is a 12-week waiting period deductible. These insurance coverages are provided through a mutual insurance company. Insured members are subject to retrospective premium assessments. SDG&E could be assessed up to $8.5 million.
The nuclear property insurance program includes an industry aggregate loss limit for non-certified acts of terrorism (as defined by the Terrorism Risk Insurance Act). The industry aggregate loss limit for property claims arising from non-certified acts of terrorism is $3.24 billion. This is the maximum amount that will be paid to insured members who suffer losses or damages from these non-certified terrorist acts.
CONCENTRATION OF CREDIT RISK
We maintain credit policies and systems to manage our overall credit risk. These policies include an evaluation of potential counterparties' financial condition and an assignment of credit limits. These credit limits are established based on risk and return considerations under terms customarily available in the industry. We grant credit to utility customers and counterparties, substantially all of whom are located in our service territory, which covers most of Southern California and a portion of central California for SoCalGas, and all of San Diego County and an adjacent portion of Orange County for SDG&E.
As described above, Sempra Generation has a contract with the DWR to supply up to 1,900 MW of power to the state over 10 years, beginning in 2001. Sempra Generati on would be at risk for the amounts of outstanding billings and the continued viability of the contract if the DWR were to default on its payments under this contract. The average monthly billing related to this contract is $29 million and is normally collected by the end of the next month. This agreement terminates in September 2011.
When they become operational, projects at Sempra LNG and Sempra Pipelines & Storage place significant reliance on the ability of their suppliers and customers to perform on long-term agreements and on our ability to enforce contract terms in the event of nonperformance. We consider many factors, including the negotiation of supplier and customer agreements, when we evaluate and approve development projects.
In connection with certain transactions we discuss in Note 4, RBS is obligated to provide RBS Sempra Commodities with all working-capital requirements and credit support. However, as a transitional measure, we continue to provide back-up guarantees for a portion of RBS Sempra Commodities' trading obligations. We provide additional information regarding these back-up guarantees and other guarantees in Note 5.
NOTE 17. SEGMENT INFORMATION
We have six separately managed reportable segments, as follows:
1. SDG&E provide s electric service to San Diego and southern Orange counties and natural gas service to San Diego County.
2. SoCalGas is a natural gas distribution utility, serving customers throughout most of Southern California and part of central California.
3. Sempra Generation develops, owns and operates, or holds interests in, electric power plants and energy projects in Arizona, California, Colorado, Nevada, Indiana, Hawaii and Mexico to serve wholesale electricity markets in the United States and Mexico. Sempra Generation also includes the operating results of Sempra Rockies Marketing, which holds firm service capacity on the Rockies Express Pipeline.
4. Sempra Pipelines & Storage develops, owns and operates, or holds interests in, natural gas and propane pipelines and natural gas storage facilities in the United States and Mexico, and companies that provide natural gas or electricity services in Argentina, Chile, Mexico and Peru. We are currently pursuing the sale of our interests in the Argentine utilities, which we discuss further in Note 4 above. Sempra Pipelines & Storage also operates a natural gas distribution utility in Alabama.
5. Sempra LNG develops, owns and operates receipt terminals for importing LNG into the U.S. and Mexico, and has supply and marketing agreements to purchase and sell LNG and natural gas.
6. Sempra Commodities holds our investment in RBS Sempra Commodities, a joint venture with RBS. The partnership was formed in 2008 from our commodities-marketing businesses previously reported in this segment. The partnership's commodity trading businesses served customers in the global markets for natural gas and electricity, petroleum a nd petroleum products, and base metals.
Sempra Energy, RBS and the partnership divested substantially all of the businesses and assets of the partnership in four separate transactions completed in July, November and December of 2010 and in February 2011. We discuss these transactions and other matters concerning the partnership in Note 4.
We evaluate each segment's performance based on its contribution to Sempra Energy's reported earnings. The Sempra Utilities operate in essentially separate service territories, under separate regulatory frameworks and rate structures set by the CPUC. The Sempra Utilities' operations are based on rates set by the CPUC and the FERC. We describe the accounting policies of our segments in Note 1.
Sales to the DWR, which is a customer of the Sempra Generation segment and which is discussed in various sections of this Annual Report, comprised 8 percent of our revenues in 2010, 9 percent in 2009 and 10 percent in 2008.
In the first quarter of 2010, Sempra LNG became a reportable segment. We have revised segment disclosures for 2009 and 2008 to reflect this.
Due to the completion of RBS Sempra Commodities sales of its businesses and assets, which essentially completed our exit from the commodities trading business, we changed the composition of our reporting segments such that Sempra Rockies Marketing, which was previously included in the Sempra Commodities segment, is now included in the Sempra Generation segment. We have revised segment disclosures for 2009 and 2008 to reflect this.
SEGMENT INFORMATION | ||||||||||||
(Dollars in millions) | ||||||||||||
| Years ended December 31, | |||||||||||
| 2010 | 2009 | 2008 | |||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|   ; |
SDG&E | $ | 3,049 | 34 | % | $ | 2,916 | 36 | % | $ | 3,251 | 30 | % |
SoCalGas |
| 3,822 | 42 |
|
| 3,355 | 41 |
|
| 4,768 | 44 |
|
Sempra Generation |
| 1,172 | 13 |
|
| 1,179 | 15 |
|
| 1,827 | 17 |
|
Sempra Pipelines & Storage |
| 350 | 4 |
|
| 465 | 6 |
|
| 457 | 4 | < /td> |
Sempra LNG |
| 711 | 8 |
|
| 278 | 3 |
|
| 74 | 1 |
|
Sempra Commodities |
| - | - |
|
| - | - |
|
| 457 | 4 |
|
Adjustments and eliminations |
| 3 | - |
|
| - | - |
|
| (7) | - |
|
Intersegment revenues | < /p> | (104) | (1) |
|
| (87) | (1) |
|
| &nb sp;(69) | - |
|
Total | $ | 9,003 | 100 | % | $ | 8,106 | 100 | % | $ | 10,758 | 100 | % |
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
SDG&E | $ | 136 |
|
| $ | 104 |
|
| $ | 96 |
|
|
SoCalGas |
| 66 |
|
|
| 68 |
|
|
| 62 |
|
|
Sempra Generation |
| 13 |
|
|
| 12 |
|
|
| 16 |
|
|
Sempra Pipelines & Storage |
| 36 |
|
|
| 34 |
|
|
| 18 |
|
|
Sempra LNG |
| 48 |
|
| & nbsp; | 24 |
|
|
| 7 |
| < /p> |
Sempra Commodities |
| 5 |
|
|
| 7 |
|
|
| 22 |
|
|
All other |
| 306 |
|
|
| 279 |
|
|
| 149 |
|
|
Intercompany eliminations |
| (174) |
|
|
| (161) |
|
|
| (117) |
|
|
Total | $ | 436 |
|
| $ | 367 |
|
| $ | 253 |
|
|
INTEREST INCOME |
|
| < /td> |
|
|
|
|
|
|
|
|
|
SDG&E | $ | - |
|
| $ | 1 |
|
| $ | 6 |
|
|
SoCalGas |
| 1 |
|
|
| 3 |
|
|
| 11 |
| < p style="MARGIN:0in 0in 0pt"> |
Sempra Generation |
| 16 |
|
|
| 12 |
|
|
| 9 |
|
|
Sempra Pipelines & Storage |
| 15 |
|
|
| 17 |
|
|
| 18 |
|
|
Sempra LNG |
| 1 |
|
|
| - |
|
|
| - |
|
|
Sempra Commodities |
| 4 |
|
|
| - |
| p> |
| 7 |
|
|
All other |
| 153 |
|
|
| 149 |
|
|
| 111 |
|
|
Intercompany eliminations |
| (174) |
|
|
| (161) |
|
|
| (117) |
| &n bsp; |
Total | $ | 16 |
|
| $ | 21 |
|
| $ | 45 |
|
|
DEPRECIATION AND AMORTIZATION |
|
|
|
|
|
|
|
|
|
|
|
|
SDG&E< /font> | $ | 381 | 44 | % | $ | 329 | 42 | % | $ | 298 | 43 | % |
SoCalGas |
| 309 | 36 |
|
| 293 | 38 |
|
| 280 | 41 |
|
Sempra Generation | < /td> | 65 | 7 |
|
| 58 | 8 |
|
| 56 | 8 |
|
Sempra Pipelines & Storage |
| 44 | 5 |
|
| 45 | 6 |
|
| 20 | 3 |
|
Sempra LNG |
| 51 | 6 |
|
| 35 | 4 |
|
| 15 | 2 |
|
Sempra Commodities |
| - | - |
|
| - | - |
|
| 6 | 1 |
|
All other |
| 17 | 2 |
|
| 15 | 2 |
|
| 12 | 2 |
|
Total | $ | 867 | 100 | % | $ | 775 | 100 | % | $ | 687 | 100 | % |
INCOME TAX EXPENSE (BENEFIT) |
|
|
|
|
|
|
|
|
|
|
|
|
SDG&E | $ | 173 |
|
| $ | 177 |
|
| $ | 161 |
|
|
SoCalGas |
| 176 |
|
|
| 144 |
|
|
| 140 |
|
|
Sempra Generation |
| (7) |
|
|
| 108 |
|
|
| 99 |
|
|
Sempra Pipelines & Storage |
| 26 |
|
|
| (20) |
|
|
| 23 |
|
|
Sempra LNG |
| 25 | < /p> |
|
| (15) |
|
|
| & nbsp;(21) |
|
|
Sempra Commodities |
| (191) |
|
|
| 103 |
|
|
| 202 |
|
|
All other |
| (100) |
|
|
| (75) |
|
|
| (166) |
|
|
Total | $ | 102 |
|
| $ | 422 |
|
| $ | 438 |
|
|
SEGMENT INFORMATION (Continued) | |||||||||||||
(Dollars in millions) | |||||||||||||
|
| At December 31 or for the years ended December 31, | |||||||||||
|
| 2010 | 2009 | 2008 | |||||||||
EARNINGS (LOSSES) |
|
|
|
|
|
|
|
|
|
|
|
| |
SDG&E(1) | $ | 369 | 50 | % | $ | 344 | 31 | % | $ | 339 | 31 | % | |
SoCalGas(1) |
| 286 | 39 |
|
| 273 | 25 |
|
| 244 | 22 |
| |
Sempra Generation |
| 103 | 14 |
|
| 169 | 15 |
|
| 220 | 20 |
| |
Sempra Pipelines & Storage |
| 159 | 21 |
|
| 101 | 9 |
|
| 106 | 9 |
| |
Sempra LNG |
| 68 | 9 |
| p> | 16 | 1 |
|
| (46) | (4) | ||
Sempra Commodities |
| (155) | (21) |
|
| 338 | 30 |
|
| 347 | 31 |
| |
All other |
| (91) | (12) |
|
| (122) | (11) |
|
| (97) | (9) |
| |
Total | $ | 739 | 100 | % | $ | 1,119 | 100 | % | $ | 1,113 | 100 | % | |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| |
SDG&E | $ | 12,077 | 40 | % | $ | 10,229 | &n bsp;36 | % | $ | 9,079 | 34 | % | |
SoCalGas |
| 7,986 | 26 |
|
| 7,287 | 25 |
|
| 7,351 | 28 |
| |
Sempra Generation |
| 2,401 < /td> | 8 |
|
| 2,049 | 7 |
|
| 1,860 | 7 |
| |
Sempra Pipelines & Storage |
| 5,175 | 17 |
|
| 4,485 | 16 |
|
| 4,060 | 15 |
| |
Sempra LNG |
| 2,379 | 8 |
|
| 2,277 | 8 |
|
| 2,098 | 8 |
| |
Sempra Commodities |
| 1,981 | 7 |
|
| 2,253 | 8 |
|
| 2,092 | 8 |
| |
All other |
| 612 | 2 |
|
| 597 | 2 |
|
| 747 | 3 |
| |
Intersegment receivables |
| (2,328) | (8) |
|
| (665) | (2) |
|
| (887) | (3) |
| |
Total | $ | 30,283 | 100 | % | $ | 28,512 | 100 | % | $ | 26,400 | 100 | % | |
EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT |
|
|
|
|
|
|
|
|
|
|
|
| |
SDG&E | $ | 1,210 | 59 | % | $ | 955 | 50 | % | $ | 884 | 43 | % | |
SoCalGas |
| 503 | 24 |
|
| 480 | 25 |
|
| 454 | 22 |
| |
Sempra Generation |
| 135 | 7 |
|
| 38 | 2 |
|
| 59 | 3 |
| |
Sempra Pipelines & Storage |
| 192 | 9 |
|
| 200 | 11 |
|
| 264 | 13 |
| |
Sempra LNG |
| 18 | 1 |
|
| 235 | 12 |
|
| 365 | 17 |
| |
Sempra Commodities |
| - | - |
|
| - | - |
|
| 21 | 1 |
| |
All other |
| 4 | - |
|
| 4 | - |
|
| 14 | 1 |
| |
Total | $ | 2,062 | 100 | % | $ | 1,912 | 100 | % | $ | 2,061 | 100 | % | |
GEOGRAPHIC INFORMATION |
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Long-lived assets: |
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| |
United States | $ | 19,905 | 87 | % | $ | 19,870 | 88 | % | $ | 17,637 | 88 | % | |
Mexico |
| 2,217 | 10 |
|
| 1,954 | 9 |
|
| 1,929 | 10 |
| |
South America |
| 705 | 3 |
|
| 780 | 3 |
|
| 547 | 2 |
| |
Total | $ | 22,827 | 100 | % | $ | 22,604 | 100 | % | $ | 20,113 | 100 | % | |
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Revenues: |
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| |
United States | $ | 8,118 | 90 | % | $ | 7,476 | 92 | % | $ | 9,743 | 91 | % | |
Mexico |
| 884 | 10 |
|
| 629 | 8 |   ; |
| 913 | &nbs p;8 |
| |
South America |
| 1 | - |
|
| 1 | - |
|
| 5 | - |
| |
Europe |
| - | - |
|
| - | - |
|
| 93 | 1 |
| |
Canada |
| - | - |
|
| - | - |
|
| (12) | - |
| |
Asia |
| - | - |
|
| - | - |
|
| 16 | - |
| |
Total | $ | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 9,003 | 100 | % | $ | 8,106 | 100 | % | $ | 10,758 | 100 | % | |
(1) | After preferred dividends. |
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NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
SEMPRA ENERGY | |||||||||
(In millions, except for per share amounts) | |||||||||
|
| Quarters ended | |||||||
|
| March 31 | June 30 | September 30 | December 31 | ||||
2010 |
|
|
|
|
|
|
|
| |
Revenues | $ | 2,534 | $ | 2,008 | $ | 2,116 | $ | 2,345 | |
Expenses and other income | $ | 2,395 | $ | 1,771 | $ | 2,017 | $ | 2,034 | |
|
|
|
|
|
|
|
|
|   ; |
Net income | $ | 100 | $ | 205 | $ | 127 | $ | 301 | |
Earnings attributable to Sempra Energy | $ | 106 | $ | 222 | $ | 131 | $ | 280 | |
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|
Basic per-share amounts(1): |
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| |
& nbsp; Net income | $ | 0.41 | $ | 0.83 | $ | 0.52 | $ | 1.26 | |
Earnings attributable to Sempra Energy | $ | 0.43 | $ | 0.90 | $ | 0.53 | $ | 1.17 | |
Weighted average common shares outstanding |
| 246.1 |
| 246.8 |
| 246.7 |
| 239.5 | |
|
| &n bsp; |
|
|
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|
|
|
Diluted per-share amounts(1): |
|
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|
| |
Net income | $ | 0.40 | $ | 0.82 | $ | 0.51 | $ | 1.24 | |
Earnings attributable to Sempra Energy | $ | 0.42 | | 0.89 | $ | 0.53 | $ | 1.15 | |
Weighted average common shares outstanding |
| 250.4 |
| 249.7 |
| 249.8 |
| &nbs p;242.5 | |
2009 |
|
|
|
|
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|
|
| |
Revenues |
$ | 2,108 | $ | 1,689 | $ | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 1,853 | $ | 2,456 | |
Expenses and other income | $ | 1,690 | $ | 1,433 | $ | 1,443 | $ | 2,064 | |
|
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|
|
|
|
|
Net income | $ | 325 | $ | 189 | $ | 302 | $ |   ;306 | |
Earnings attributable to Sempra Energy | $ | 316 | $ | 198 | $ | 317 | $ | 288 | |
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Basic per-share amounts(1): |
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| |
Net income | $ | 1.35 | $ | 0.78 | $ | 1.24 | $ | 1.25 | |
Earnings attributable to Sempra Energy | $ | 1.31 | $ | 0.82 | $ | 1.30 | $ | 1.18 | |
Weighted average common shares outstanding |
| 241.8 |
| 242.7 |
| 243.9 |
| 244.9 | |
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Diluted per-share amounts(1): |
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| |
Net income | $ | 1.33 | $ | 0.76 | $ | 1.21 | $ |
1.23 | |
Earnings attributable to Sempra Energy | $ | 1.29 | $ | 0.80 | $ | 1.27 | $ | 1.16 | |
Weighted average common shares outstanding |
| 245.0 |
| 247.1 |
| 248.5 |
| 248.7 | |
(1) | Earnings per share are computed independently for each of the quarters and therefore may not sum to the total for the year. | ||||||||
|
In the first quarter of 2010, Expenses and Other Income included $159 million in litigation expense related to the agreement in principle to settle certain energy crisis litigation. The litigation expense negatively impacted Net Income and Earnings Attributable to Sempra Energy by $96 million. Also in the first quarter of 2010, Earnings Attributable to Sempra Energy were negatively impacted by a $16 million write-down of deferred tax assets as a result of the change to U.S. tax law regarding the Medicare Part D subsidy.
In the third quarter of 2010, Expenses and Other Income included a $305 million write-down of our investment in RBS Sempra Commodities. This write-down and a write-down of our investment in Argentina negatively impacted Net Income and Earnings Attributable to Sempra Energy by $139 millio n and $24 million, respectively.
In all quarters in 2010, Expenses and Other Income, Net Income, and Earnings Attributable to Sempra Energy were negatively impacted by the lower equity earnings from Sempra Commodities, which were adversely impacted by: the sale of businesses within RBS Sempra Commodities; lower volatility in the U.S. natural gas and power business; and the disruptions caused by the process to sell the partnerships businesses.
In the second quarter of 2009, Expenses and Other Income included an asset write-off of $132 million related to Sempra Pipelines & Storage's Liberty Gas Storage project. The write-off negatively impacted Net Income and Earnings Attributable to Sempra Energy by $97 million and $64 million, respectively.
We d iscuss quarterly fluctuations related to SDG&E, PE and SoCalGas below.
SDG&E | ||||||||
(Dollars in millions) | ||||||||
| Quarters ended | |||||||
&nb sp; | March 31 | June 30 | September 30 | December 31 | ||||
2010 |
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|
Operating revenues | $ | 742 | $ | 692 | $ | 811 | $ | 804 |
Operating expenses |
| 604 |
| 546 |
| 613 |
| 629 |
Operating income | $ | 138 | $ | 146 | $ | 198 | $ | 175 |
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|
|
Net income | $ | 76 | $ | 55 td> | $ | 103 | $ | 124 |
(Earnings) losses attributable to noncontrolling interests |
| 8 |
| 21 |
| 5 |
| (18) |
Earnings |
| 84 |
| 76 |
| 108 | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:center" align=center> | 106 |
Dividends on preferred stock |
| (1) |
| (1) |
| (2) |
| (1) |
Earnings attributable to common shares | $ | 83 | $ | 75 | $ | 106 | $ | 105 |
2009 |
|
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|
|
|
|
Operating revenues | $ | 732 | $ | 631 | $ | 773 | $ | 780 |
Operating expenses |
| 557 |
| 518 |
| 601 |
| 651 |
Operating income | $ | 175 | $ | 113 | $ | 172 | $ | 129 |
|
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|
Net income | $ | 107 | $ | 91 | $ | 92 | $ | 83 |
(Earnings) losses attributable to noncontrolling interests |
| (7) |
| (20) |
| < font style="FONT-SIZE:9pt; COLOR:black; FONT-FAMILY:'Arial','sans-serif'"> 18 |
| (15) |
Earnings |
| 100 |
| 71 |
| 110 |
| 68 |
Dividends on preferred stock |
| (1) |
| (1) |
| (2) |
| (1) |
Earnings attributable to common shares | $ | 99 | $ | 70 | $ | 108 | $ | 67 |
|
Significant factors impacting Net Income and Earnings Attributable to Common Shares in 2010 as compared to 2009 included (dollars in millions):
| Quarters ended | ||||||||
|
| March 31 | J une 30 | September 30 | December 31 | ||||
Higher liability insurance premiums for wildfire coverage | $ | (5) | $ | (6) | $ | (5) | $ | (4) | |
Resolution of regulatory matters |
| - |
| 9 |
| (9) |
| | |
(Higher) lower litigation expense |
| (9) |
| 5 |
| (6) |
| (3) | |
Higher authorized margins(1) |
| - |
| 6 |
| 16 |
| 14 | |
Resolution of prior years' income tax issues |
| - |
| (10) |
| (1) |
| 9 | |
Write-down of deferred income tax assets related |
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| |
to Medicare Part D subsidy p> |
| (3) |
| - |
| -&nbs p; |
| - | |
(1) | These amounts are net of fluctuations in nonrecoverable operation and maintenance expenses. |
PE | ||||||||
(Dollars in millions) | ||||||||
| Quarters ended | |||||||
| March 31 | June 30 | September 30 | December 31 | ||||
2010 |
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|
Operating revenues | $ | 1,182 | $ | 834 | $ | 776 | $ | 1,030 |
Operating expenses |
| 1,047 |
| 717 |
|
640 |
| 901 |
Operating income | $ | 135 | $ | 117 | $ | 136 | $ | 129 |
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|
Net income | $ | 65 | $ | 71 | $ | 79 | $ | 75 < /font> |
Preferred dividends of subsidiary |
| - |
| (1) | < /p> | - |
| - |
Earnings |
| 65 |
| 70 |
| 79 |
| 75 |
Dividends on preferred stock |
| (1) |
| (1) |
| (1) |
| (1) |
Earnings attributable to common shares | $ | 64 | $ | 69 | $ | 78 | $ | 74 |
2009 |
|
|
|
|
|
|
|
|
Operating revenues | $ | 920 |
$ | 694 | $ | 662 | $ | 1,079 |
Operating expenses |
| 810 |
| 579 |
| 527 |
| 963 |
Operating income | $ | 110 | $ | 115 | $ | 135 | $ | 116 |
|
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|
|
Net income | $ | 59 | $ | 63 | $ | 73 | $ | 75 |
Preferred dividends of subsidiary |
| - |
| (1) |
| - |
| - |
Earnings |
| 59 |
| 62 |
| 73 |
| 75 |
Dividends on preferred stock |
| (1) |
| (1) |
| (1) |
| (1) |
Earnings attributable to common shares | $ | 58 | $ | 61 | $ | 72 | $ | 74 |
|
SOCALGAS | ||||||||
(Dollars in millions) | ||||||||
| Quarters ended | |||||||
| March 31 | June 30 | September 30 | December 31 | ||||
2010 |
|
|
|
|
|
|
|
|
Operating revenues | $ | 1,182 td> | $ | 834 | $ | 776 | $ | < p style="MARGIN:0in 0in 0pt; TEXT-ALIGN:right" align=right> 1,030 |
Operating expenses |
| 1,048 |
| 716 |
| 642 |
| 900 |
Operating income | $ | 134 | $ | 118 | $ | 134 | $ | 130 |
|
|
|
|
|
|
|
|
|
Net income | $ | 65&nbs p; | $ | 70 | $ | 78 | $ | 74 |
Dividends on preferred stock |
| - |
| (1) |
| - |
| - |
Earnings attributable to common shares | $ | 65 | $ | 69 | $ | 78 | $ | 74 |
2009 |
|
|
|
|
|
|
|
|
Operating revenues | $ | 920 | $ | 694 | $ | 662 | $ | 1,079 |
Operating expenses |
| 810 |
| 578 |
| 530 |
| 961 |
Operating income | $ | 110 | $ | 116 | $ | 132 | $ | 118 |
|
|
|
|
|
|
|
|
|
Net income | $ | 59 | $ | 66 | $ | 74 | $ | 75 |
Dividends on preferred stock |
| - |
| (1) |
| - |
| - |
Earnings attributable to common shares | $ | 59 | $ | 65 | $ | 74 | $ | 75 |
Increases in Operating Revenues and Operating Expenses in the first three quarters of 2010 compared to 2009 were largely driven by substantially higher natural gas prices. Compared to the first quarter of 2010, Operating Revenues and Operating Expenses were lower in the remaining quarters of 2010 due to lower natural gas prices and volumes.
NOTE 19. SUBSEQUENT EVENT
On January 19, 2011, Sempra Pipelines & Storage agreed to acquire from AEI its interests in Chilquinta Energía S.A. (Chilquinta Energía) and Luz del Sur S.A. (Luz del Sur) for approximately $875 million.
As of December 31, 2010, Sempra Pipelines & Storage and AEI each own 50 percent of Chilquinta Energía and approximately 38 percent of Luz del Sur. When this transaction is completed, Sempra Pipelines & Storage will own 100 percent of Chilquinta Energía and approximately 76 percent of Luz del Sur, with the remaining shares of Luz del Sur held by institutional investors and the general public. As part of our acquisition of AEIs interest in Luz del Sur, we are required to launch a tender offer to the minority shareholders of Luz del Sur to purchase their shares at a price as determined by an independent appraiser. As part of this transaction, Sempra Pipelines & Storage has also agreed t o acquire AEIs interests in two energy-services companies, Tecnored S.A. and Tecsur S.A.
We expect the transaction to close in the second quarter of 2011, subject to closing conditions, including obtaining regulatory approvals and resolution of certain tax matters.
We provide additional information about Sempra Pipelines & Storages investments in Chilquinta Energía and Luz del Sur in Note 4.
GLOSSARY 2010 Tax Act Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 FIN FASB Interpretation AB 32 California Assembly Bill 32 Fowler Ridge II Fowler Ridge II Wind Farm AFUDC Allowance for funds used during construction GAAP Accounting Principles Generally Accepted in the United States of America
AMI Advanced Metering Infrastructure GCIM
p> Gas Cost Incentive Mechanism AOCI Accumulated other comprehensive income (loss) GGLNG Gazprom Global LNG Limited AROs Asset retirement obligations GHG Greenhouse Gas ASC Accounting Standards Codification GRC General Rate Case ASU Accounting Standards Update HRA Health Reimbursement Arrangement Bay Gas Bay Gas Storage Company IBLA Interior Board of Land Appeals Bcf Billion cubic feet ICSID International Center for the Settlement of Investment Disputes Black-Scholes Model Black-Scholes option-pricing model IFRS International Financial Reporting Standards BLM Bureau of Land Management IOUs Investor-owned Utilities Cal Fire California Department of Forestry and Fire Protection ISFSI Independent spent fuel storage installation CARB California Air Resources Board ISO Independent System Operator CBD Center for Biological Diversity/Sierra Club JP Morgan J.P. Morgan Chase & Co. CEC California Energy Commission J.P. Morgan Ventures<
/p> J.P. Morgan Ventures Energy Corporation Cedar Creek II Cedar Creek II Wind Farm LLC KMP Kinder Morgan Energy Partners, L.P. CEOB California Energy Oversight Board kV Kilovolt CEQA California Environmental Quality Act Liberty Liberty Gas Storage, LLC CFE Comisión Federal de Electricidad LIFO Last-in first-out inventory CFTC U.S. Commodity Futures Trading Commission LNG
Liquefied natural gas Chilquinta Energía Chilquinta Energía S.A. Luz del Sur Luz del Sur S.A. Conoco ConocoPhillips MBFC Mississippi Business Finance Corporation Cox Cox Communications Mcf Thousand cubic feet CPUC California Public Utilities Commission Midstream Services Sempra Midstream Services CRRs Congestion revenue rights Mississippi Hub Mississippi Hub, LLC DOE U.S. Department of Energy MMBtu Million British Thermal Units (of natural gas) DRA Division of Ratepayer Advocates MMcf Million cubic feet DWR California Department of Water Resources Mobile Gas Mobile Gas Service Corporation Ecogas Ecogas Mexico, S de RL de CV MSCI Morgan Stanley Capital International Edison Southern California Edison Company MSCI EAFE index MSCI Index for equity market performance in Europe, Australasia and Far East Elk Hills Elk Hills Power MW Megawatt EPA Environmental Protection Agency MWh Megawatt hour EPS Earnings per share NAAQS National Ambient Air Quality Standards ERRP Early Retiree Reinsurance Program NEPA National Environmental Policy Act ESOP Employee stock ownership plan Noble Group Noble Group Ltd. FASB Financial Account
ing Standards Board NOLs Net operating losses
font> FERC Federal Energy Regulatory Commission NRC Nuclear Regulatory Commission
GLOSSARY (CONTINUED) |
|
| ||
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| |
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|
|
NSPS | New Source Performance Standards |
| ROE | Return on equity |
OCI | Other comprehensive income |
| ROR | Return on rate base |
OMEC | Otay Mesa Energy Center |
| RPS | Renewables Portfolio Standard |
OMEC LLC | Otay Mesa Energy Center LLC |
| SCE | Southern California Edison Company |
Orange Grove | Orange Grove Energy L.P. |
| SDG&E | San Diego Gas & Electric Company |
Orange Grove VIE | Orange Grove Energy L.P. |
| Sempra Utilities | San Diego Gas & Electric Company and Southern California Gas Company |
Otay Mesa VIE | Otay Mesa Energy Center LLC |
| SFP | Secondary Financial Protection |
OTC | Over-the-counter |
| Shell | Shell México Gas Natural |
PBOP | Other postretirement benefit plans |
| SoCalGas | Southern California Gas Company |
PBOP plan trusts | Postretirement benefit plan trusts |
| SONGS | San Onofre Nuclear Generating Station |
PE | Pacific Enterprises |
| S&P | Standard & Poor's |
PEMEX | Petroleos Mexicanos (the Mexican state-owned oil company) |
| Tangguh PSC | Tangguh PSC Contractors |
PG&E | Pacific Gas and Electric |
| The Committee | Pension and Benefits Investment Committee |
PPACA | Patient Protection and Affordable Care Act |
| The Plan | Sempra Energy 2008 Long Term Incentive Plan for EnergyS outh, Inc. Employees and Other Eligible Individuals |
PRP | Potentially Responsible Party |
| The Prior Plan | 2008 Incentive Plan of EnergySouth, Inc. |
PV | Photovoltaic |
| Trust | ESOP trust |
PX | Power Exchange |
| TURN | The Utility Reform Network |
RBS | The Royal Bank of Scotland |
| UCAN | Utility Consumers' Action Network |
RBS Sempra Commodities | RBS Sempra Commodities LLP |
| USFS | United States Forest Service |
RDS | Retiree Drug Subsidy |
| UWUA | Utility Workers Union of America |
RES | California Renewable Energy Standard |
| VaR | Value at Risk |
REX | Rockies Express Pipeline |
| VEBA | Voluntary Employee Beneficiary Association< /p> |
Rockies Express | Rockies Express Pipeline LLC |
| VIE | Variable Interest Entity |
Exhibit 21.1
Sempra Energy
Schedule of Significant Subsidiaries
at December 31, 2010
| State of Incorporation or Other Jurisdiction |
Enova Corporation | California |
Pacific Enterprises | California |
Pacific Enterprises International | California |
San Diego Gas & Electric Company | California |
Sempra Commodities, Inc. | Delaware |
Sempra Energy International | California |
Sempra Energy Holdings III B.V. | Netherlands |
Sempra Energy Holdings VII B.V. | Netherlands |
Sempra Energy Holdings VIII B.V. | Netherlands |
Sempra Global | Delaware |
Southern California Gas Company | California |
Exhibit 21.2
Pacific Enterprises
Schedule of Significant Subsidiaries
at December 31, 2010
| State of Incorporation or Other Jurisdiction |
Southern California Gas Company | California |
EXHIBIT 31.1
CERTIFICATION
I, Donald E. Felsinger, certify that:
1.
I have reviewed this report on Form 10-K of Sempra Energy;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Donald E. Felsinger |
Donald E. Felsinger |
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Mark A. Snell, certify that:
1.
I have reviewed this report on Form 10-K of Sempra Energy;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Mark A. Snell |
Mark A. Snell |
Chief Financial Officer |
EXHIBIT 31.3
CERTIFICATION
I, Jessie J. Knight, Jr., certify that:
1.
I have reviewed this report on Form 10-K of San Diego Gas & Electric Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Jessie J. Knight, Jr. |
Jessie J. Knight, Jr. |
Chief Executive Officer |
EXHIBIT 31.4
CERTIFICATION
I, Robert M. Schlax, certify that:
1.
I have reviewed this report on Form 10-K of San Diego Gas & Electric Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Robert M. Schlax |
Robert M. Schlax |
Chief Financial Officer |
EXHIBIT 31.5
CERTIFICATION
I, Michael W. Allman, certify that:
1.
I have reviewed this report on Form 10-K of Pacific Enterprises;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Michael W. Allman |
Michael W. Allman |
Chief Executive Officer |
EXHIBIT 31.6
CERTIFICATION
I, Robert M. Schlax, certify that:
1.
I have reviewed this report on Form 10-K of Pacific Enterprises;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Robert M. Schlax |
Robert M. Schlax |
Chief Financial Officer |
EXHIBIT 31.7
CERTIFICATION
I, Michael W. Allman, certify that:
1.
I have reviewed this report on Form 10-K of Southern California Gas Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Michael W. Allman |
Michael W. Allman |
Chief Executive Officer |
EXHIBIT 31.8
CERTIFICATION
I, Robert M. Schlax, certify that:
1.
I have reviewed this report on Form 10-K of Southern California Gas Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 24, 2011
/S/ Robert M. Schlax |
Robert M. Schlax |
Chief Financial Officer |
Exhibit 32.1
Statement of Chief Executive Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of Sempra Energy (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Donald E. Felsinger |
Donald E. Felsinger |
Chief Executive Officer |
Exhibit 32.2
Statement of Chief Financial Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of Sempra Energy (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
Exhibit 32.3
Statement of Chief Executive Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of San Diego Gas & Electric Company (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Jessie J. Knight, Jr. |
Jessie J. Knight, Jr. |
Chief Executive Officer |
Exhibit 32.4
Statement of Chief Financial Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of San Diego Gas & Electric Company (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Robert M. Schlax |
Robert M. Schlax |
Chief Financial Officer |
Exhibit 32.5
Statement of Chief Executive Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of Pacific Enterprises (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Michael W. Allman |
Michael W. Allman |
Chief Executive Officer |
Exhibit 32.6
Statement of Chief Financial Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of Pacific Enterprises (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Robert M. Schlax |
Robert M. Schlax |
Chief Financial Officer |
Exhibit 32.7
Statement of Chief Executive Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of Southern California Gas Company (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Michael W. Allman |
Michael W. Allman |
Chief Executive Officer |
Exhibit 32.8
Statement of Chief Financial Officer
Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of Southern California Gas Company (the "Company") certifies that:
(i)
the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2010 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 24, 2011
/S/ Robert M. Schlax |
Robert M. Schlax |
Chief Financial Officer |