SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
...X..Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
September 30, 1994
For the quarterly period ended..................................................
Or
......Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to __________________________
Commission File Number 1-3779
SAN DIEGO GAS & ELECTRIC COMPANY
................................................................................
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1184800
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
................................................................................
(Address of principal executive offices) (Zip Code)
(619) 696-2000
Registrant's telephone number, including area code..............................
No Change
................................................................................
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes...X... No......
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
116,475,955
Common Stock outstanding October 31, 1994 .....................................
PART I - FINANCIAL INFORMATION
SAN DIEGO GAS & ELECTRIC COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(In thousands except per share amounts)
Three Months Ended
September 30,
1994 1993
---------- ----------
(Unaudited)
Operating Revenues
Electric . . . . . . . . . . . $387,144 $390,570
Gas . . . . . . . . . . . . 75,261 77,078
Diversified operations . . . . . . 29,081 27,387
---------- ----------
Total operating revenues . . . . . 491,486 495,035
---------- ----------
Operating Expenses
Electric fuel . . . . . . . . . 42,311 44,436
Purchased power . . . . . . . . 93,409 87,080
Gas purchased for resale . . . . . 24,567 32,779
Maintenance . . . . . . . . . . 15,400 20,569
Depreciation and decommissioning . . . 66,082 63,156
Property and other taxes . . . . . 11,221 11,046
Other . . . . . . . . . . . . 112,076 123,845
Income taxes . . . . . . . . . 43,797 35,267
---------- ----------
Total operating expenses . . . . . 408,863 418,178
---------- ----------
Operating Income 82,623 76,857
---------- ----------
Other Income and (Deductions)
Allowance for equity funds used
during construction . . . . . . . 1,196 3,775
Taxes on nonoperating income . . . . (2,349) (1,129)
Other--net . . . . . . . . . . 5,470 4,818
---------- ----------
Total other income and (deductions) . 4,317 7,464
---------- ----------
Income Before Interest Charges 86,940 84,321
---------- ----------
Interest Charges
Long-term debt . . . . . . . . . 23,534 22,608
Short-term debt and other . . . . . 3,959 3,600
Allowance for borrowed funds used
during construction . . . . . . . (342) (985)
---------- ----------
Net interest charges . . . . . . 27,151 25,223
---------- ----------
Net Income (before preferred dividend
requirements) . . . . . . . . . 59,789 59,098
Preferred Dividend Requirements . . . 1,916 2,282
---------- ----------
Earnings Applicable to Common Shares . . $57,873 $56,816
========== ==========
Average Common Shares Outstanding . . . 116,475 116,335
========== ==========
Earnings Per Common Share . . . . . $0.50 $0.49
========== ==========
Dividends Declared Per Common Share . . $0.38 $0.37
========== ==========
See notes to consolidated financial statements.
2
PART I - FINANCIAL INFORMATION
SAN DIEGO GAS & ELECTRIC COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(In thousands except per share amounts)
Nine Months Ended
September 30,
1994 1993
---------- ----------
(Unaudited)
Operating Revenues
Electric . . . . . . . . . . . $1,115,061 $1,111,218
Gas . . . . . . . . . . . . 252,371 257,190
Diversified operations . . . . . . 91,452 86,230
----------- -----------
Total operating revenues . . . . . 1,458,884 1,454,638
----------- -----------
Operating Expenses
Electric fuel . . . . . . . . . 110,677 126,076
Purchased power . . . . . . . . 256,376 245,126
Gas purchased for resale . . . . . 105,312 122,873
Maintenance . . . . . . . . . . 47,970 55,472
Depreciation and decommissioning . . . 197,255 185,471
Property and other taxes . . . . . 33,717 33,883
Other . . . . . . . . . . . . 365,184 349,388
Income taxes . . . . . . . . . 119,410 113,327
----------- -----------
Total operating expenses . . . . . 1,235,901 1,231,616
----------- -----------
Operating Income 222,983 223,022
----------- -----------
Other Income and (Deductions)
Writedown of intangibles. . . . . . (59,116) --
Writedown of real estate. . . . . . (25,000) --
Allowance for equity funds used
during construction . . . . . . . 6,036 13,851
Taxes on nonoperating income . . . . 9,853 (2,261)
Other--net . . . . . . . . . . 8,494 4,245
----------- -----------
Total other income and (deductions) . (59,733) 15,835
----------- -----------
Income Before Interest Charges 163,250 238,857
----------- -----------
Interest Charges
Long-term debt . . . . . . . . . 69,038 71,211
Short-term debt and other . . . . . 10,426 8,971
Allowance for borrowed funds used
during construction . . . . . . . (2,580) (3,229)
----------- -----------
Net interest charges . . . . . . 76,884 76,953
----------- -----------
Net Income (before preferred dividend
requirements) . . . . . . . . . 86,366 161,904
Preferred Dividend Requirements . . . 5,747 6,645
----------- -----------
Earnings Applicable to Common Shares . . $80,619 $155,259
=========== ===========
Average Common Shares Outstanding . . . 116,480 115,901
=========== ===========
Earnings Per Common Share . . . . . $0.69 $1.34
=========== ===========
Dividends Declared Per Common Share . . $1.14 $1.11
=========== ===========
See notes to consolidated financial statements.
3
SAN DIEGO GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, December 31,
1994 1993
-------------- -------------
(Unaudited)
ASSETS
Utility plant--at original cost . . . $5,281,870 $5,134,251
Accumulated depreciation and
decommissioning . . . . . . . . (2,147,059) (2,016,618)
------------- -------------
Utility plant--net . . . . . . . 3,134,811 3,117,633
------------- -------------
Investments and other property . . . 460,473 464,101
------------- -------------
Current assets
Cash and temporary investments . . . 43,989 17,450
Accounts receivable . . . . . . 213,391 205,712
Notes receivable . . . . . . . 30,475 29,201
Inventories . . . . . . . . . 96,392 84,922
Other . . . . . . . . . . . 37,630 40,810
------------- -------------
Total current assets . . . . . 421,877 378,095
------------- -------------
Construction funds held by trustee . . -- 58,042
Goodwill . . . . . . . . . . -- 53,921
Deferred taxes recoverable in rates . 286,452 311,564
Deferred charges and other assets . . 276,220 318,880
------------- -------------
Total . . . . . . . . . . . $4,579,833 $4,702,236
============= =============
CAPITALIZATION AND LIABILITIES
Capitalization
Common equity . . . . . . . . $1,463,124 $1,516,240
Preferred stock not subject to
mandatory redemption . . . . . . 93,493 93,493
Preferred stock subject to
mandatory redemption . . . . . . 25,000 25,000
Long-term debt . . . . . . . . 1,337,996 1,411,948
------------- -------------
Total capitalization . . . . . 2,919,613 3,046,681
------------- -------------
Current liabilities
Short-term borrowings . . . . . . 39,800 131,197
Long-term debt
redeemable within one year . . . . 115,000 88,000
Current portion of long-term debt . . 92,241 76,161
Accounts payable . . . . . . . 109,041 166,622
Dividends payable . . . . . . . 46,177 44,962
Taxes accrued . . . . . . . . 79,912 36,830
Interest accrued . . . . . . . 25,220 20,396
Regulatory balancing accounts
overcollected -- net . . . . . . 118,308 33,179
Other . . . . . . . . . . . 120,350 104,353
------------- -------------
Total current liabilities . . . . 746,049 701,700
------------- -------------
Customer advances for construction . . 38,277 41,729
Accumulated deferred income taxes--net. 495,323 520,076
Accumulated deferred investment
tax credits . . . . . . . . . 110,340 114,159
Deferred credits and other liabilities 270,231 277,891
------------- -------------
Total $4,579,833 $4,702,236
============= =============
See notes to consolidated financial statements.
4
SAN DIEGO GAS & ELECTRIC COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands of dollars)
Nine Months Ended
September 30,
1994 1993
---------- ----------
(Unaudited)
Cash Flows From Operating Activities
Net Income . . . . . . . . . . . . $86,366 $161,904
Adjustments to reconcile net income to
net cash provided by operating activities
Writedown of intangibles . . . . . . . 59,116 --
Writedown of real estate . . . . . . . 25,000 --
Depreciation and decommissioning . . . . 197,255 185,471
Amortization of deferred charges
and other assets . . . . . . . . . 9,647 4,443
Amortization of deferred credits
and other liabilities. . . . . . . . (22,622) (11,332)
Allowance for equity funds
used during construction. . . . . . . (6,036) (13,851)
Deferred income taxes
and investment tax credits . . . . . . (15,538) (28,592)
Other--net . . . . . . . . . . . 31,304 11,571
Changes in working capital components:
Accounts and notes receivable . . . . . (8,953) (17,688)
Regulatory balancing accounts . . . . . 85,129 26,025
Inventories . . . . . . . . . . . (11,470) (17,792)
Other current assets . . . . . . . . 3,180 4,958
Accrued interest and taxes . . . . . . 51,059 75,782
Accounts payable
and other current liabilities . . . . . (41,584) (13,028)
---------- ----------
Net cash provided by operating activities 441,853 367,871
---------- ----------
Cash Flows From Financing Activities
Dividends paid . . . . . . . . . . (137,315) (133,552)
Short-term borrowings--net. . . . . . . (91,397) 598
Issuances of long-term debt . . . . . . -- 334,893
Repayment of long-term debt . . . . . . (26,733) (501,148)
Sale (redemption) of common stock . . . . (929) 36,777
Issuances of preferred stock . . . . . . -- 34,694
Redemption of preferred stock . . . . . -- (20,370)
---------- ----------
Net cash used by financing activities . . (256,374) (248,108)
---------- ----------
Cash Flows From Investing Activities
Utility construction expenditures . . . . (197,715) (208,908)
Withdrawals from construction
trust funds - net . . . . . . . . . 58,042 145,979
Contributions to decommissioning funds . . (16,527) (16,527)
Leasing investments . . . . . . . . . -- (19,729)
Other--net . . . . . . . . . . . . (2,740) (6,816)
---------- ----------
Net cash used by investing activities . . (158,940) (106,001)
---------- ----------
Net increase . . . . . . . . . . . 26,539 13,762
Cash and temporary investments,
beginning of period . . . . . . . . . 17,450 11,079
---------- ----------
Cash and temporary investments,
end of period . . . . . . . . . . . $43,989 $24,841
========== ==========
Supplemental Disclosures of Cash Flow Information
Income tax payments . . . . . . . . . $81,219 $71,484
========== ==========
Interest payments,
net of amounts capitalized . . . . . . $72,060 $80,047
========== ==========
Supplemental Schedule of Noncash Investing and
Financing Activities
Leasing investments . . . . . . . . $ -- $150,880
Real estate investments . . . . . . . 10,641 66,910
---------- ----------
Total assets acquired . . . . . . . 10,641 217,790
Cash paid . . . . . . . . . . . (52) (28,189)
---------- ----------
Liabilities assumed . . . . . . . . $10,589 $189,601
========== ==========
See notes to consolidated financial statements.
5
SAN DIEGO GAS & ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
1. GENERAL
SDG&E believes all adjustments necessary to present a fair
statement of the consolidated financial position and results
of operations for the periods covered by this report,
consisting of recurring accruals, have been made. Certain
prior year amounts have been reclassified for comparability.
SDG&E's significant accounting policies are described in the
notes to consolidated financial statements in its 1993 Annual
Report to Shareholders. SDG&E follows the same accounting
policies for interim reporting purposes.
This quarterly report should be read in conjunction with
SDG&E's 1993 Annual Report on Form 10-K and its Quarterly
Reports on Form 10-Q for the three months ended March 31, 1994
and June 30, 1994. The consolidated financial statements and
Management's Discussion & Analysis of Financial Condition and
Results of Operations included in SDG&E's 1993 Annual Report
to Shareholders were incorporated by reference into SDG&E's
1993 Annual Report on Form 10-K and filed as an exhibit
thereto.
2. MATERIAL CONTINGENCIES
INVESTMENT IN WAHLCO ENVIRONMENTAL SYSTEMS, INC.
SDG&E's investment in and advances to Wahlco aggregate $23
million at September 30, 1994 after the writedown of Wahlco's
goodwill and other assets as described below and in Note 3.
At September 30, 1994, Wahlco had consolidated net assets of
$9 million. During the years ended December 31, 1991, 1992 and
1993, Wahlco's net income (loss) was $12 million, ($13
million) and ($11 million). During those years Wahlco's cash
flow provided by (used in) operations was $7 million, ($7
million) and ($12 million). For the nine months ended
September 30, 1994 Wahlco had a net loss but its operations
provided a positive cash flow.
Historically, Wahlco's primary and most profitable product
line has been flue gas conditioning equipment, which is sold
to utilities with coal-fired generating plants. Since the
passage of the 1990 Clean Air Act Amendments, Wahlco's
prospects for future profitability have been significantly
associated with the size and timing of flue gas conditioning
equipment orders from utilities responding to that
legislation. Phase I of that legislation requires certain
utilities to submit compliance plans to the Environmental
Protection Agency by February 28, 1993 and to be in compliance
by January 1, 1995. Phase II requires the remaining utilities
with coal-fired generation to be in compliance by January 1,
2000.
Thus far, sales of and orders for flue gas conditioning
equipment have not reached anticipated levels in the United
States as a result of many companies' delaying decisions on
how to comply with the Clean Air Act, and as a result of
increasing competition from the availability of federal
pollution credits, aggressive pricing strategies by
competitors, alternative methods of compliance, such as fuel
blending, and other options. In late 1993 Wahlco recorded a
restructuring charge to reflect the planned relocation of
Wahlco's manufacturing operations in Canada and West Virginia
to its other U.S. facilities. Wahlco has also recently reduced
the number of employees by one-third and reduced its
manufacturing square footage by about one-half. SDG&E
continues to consider alternative strategies relative to its
investment in Wahlco. Continued operating losses or the
implementation of other strategies could lead to the further
writeoff of a significant portion of SDG&E's remaining
investment in Wahlco, resulting in a further adverse effect on
SDG&E's earnings.
6
SAN DIEGO GAS & ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SAN ONOFRE NUCLEAR GENERATING STATION UNITS 2 & 3
SDG&E and the CPUC's Division of Ratepayer Advocates have
signed a Memorandum of Understanding to negotiate a settlement
on the recovery of costs associated with SONGS. Among the
terms to be negotiated is a proposal to recover SONGS 2 and 3
capital costs of more than $750 million over an eight-year
period beginning in 1996, rather than over the anticipated
operational life of the units, which is expected to extend to
2013. During the eight-year period, the authorized rate of
return would be reduced from 9.03 percent to 7.52 percent
(SDG&E's requested 1995 embedded cost of debt). SDG&E also
proposes a pay-for-performance plan that would encourage
continued efficient operation of the plant. Under the plan,
customers would pay about four cents for every kilowatt-hour
of electricity produced by the plants during the eight-year
period. This pricing plan would replace the traditional method
of recovering the units' operating expenses and capital
improvements. This is intended to make the plants more
competitive with other sources. However, SDG&E is unable to
predict the impact of this proposal, if approved, on results
of operations. Southern California Edison (majority owner and
operator of SONGS) has signed a similar Memorandum of
Understanding with the DRA. SDG&E, Edison and the DRA have
scheduled a settlement conference for November 3. A CPUC
decision is expected in the first half of 1995.
NUCLEAR INSURANCE
Public liability claims that could arise from a nuclear
incident are limited by law to $9 billion for each licensed
nuclear facility. For this exposure, SDG&E and the co-owners
of the San Onofre units have purchased primary insurance of
$200 million, the maximum amount available. The remaining
coverage is provided by secondary financial protection
required by the Nuclear Regulatory Commission and provides for
loss sharing among utilities owning nuclear reactors if a
costly accident occurs. SDG&E could be assessed retrospective
premium adjustments of up to $50 million in the event of a
nuclear incident involving any of the licensed, commercial
reactors in the United States, if the amount of the loss
exceeds $200 million.
Insurance coverage is provided for up to $2.8 billion of
property damage and decontamination liability. Coverage is
also provided for the cost of replacement power, which
includes indemnity payments for up to two years, after a
waiting period of 21 weeks. Coverage is provided primarily
through mutual insurance companies owned by utilities with
nuclear facilities. If losses at any of the nuclear
facilities covered by the risk-sharing arrangements were to
exceed the accumulated funds available for these insurance
programs, SDG&E could be assessed retrospective premium
adjustments of up to $8 million.
3. WRITEDOWNS
In June 1994 SDG&E recorded writedowns related to the utility
and its subsidiaries. The total amount of the writedowns was
$96 million before income taxes. $59 million represents the
writedown of goodwill and other intangible assets at Wahlco
Environmental Systems as a result of the depressed air
pollution-control market and increasing competition as
described in Note 2. SDG&E also recorded a $25 million
writedown of various commercial properties in Colorado Springs
and in San Diego to reflect continuing declines in commercial
real estate values. As a result of the California Public
Utilities Commission's proposal to restructure the electric
utility industry and the uncertainty concerning the impact of
competition, SDG&E also recorded a $12 million writedown of
various non-earning utility assets, including the South Bay
Repower project. (Additional information on the CPUC's
proposed industry restructuring and its potential impacts on
SDG&E is provided below under "Regulatory Matters" in
Management's Discussion & Analysis of Financial Condition and
Results of Operations.)
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
EARNINGS
Earnings per share for the three months ended September 30,
1994 were up $0.01 from the same period in 1993. Earnings per
share for the nine months ended September 30, 1994 were down
$0.65 from the same period in 1993 due to the writedowns
described in Notes 2 and 3 of the notes to consolidated
financial statements.
OPERATING REVENUE AND EXPENSE
Gas purchased for resale decreased for the nine months ended
September 30, 1994 from the corresponding 1993 period
primarily due to lower sales volumes.
Revenues from diversified operations for the nine months ended
September 30, 1994 were up over the corresponding 1993 period,
primarily due to Califia's increased leasing activities,
partially offset by lower sales at Wahlco Environmental
Systems, resulting from the continuing poor market for air
pollution control products. Additional information concerning
Wahlco is described in Note 2 of the notes to consolidated
financial statements.
Other operating expenses increased for the nine months ended
September 30, 1994 from the corresponding 1993 period
primarily due to Califia's increased leasing activities.
REGULATORY MATTERS:
CALIFORNIA PUBLIC UTILITIES COMMISSION'S PROPOSED INDUSTRY
RESTRUCTURING
In April 1994 the CPUC announced its proposal to restructure
California's regulated electric utility industry to stimulate
competition and to lower rates. The proposed regulatory
framework would be phased in over a six-year period. Beginning
in 1996, the utilities' largest customers (i.e. customers
receiving service at transmission voltages) would be allowed
to purchase their energy from either utility or nonutility
suppliers. Other industrial and commercial customers would
have this choice by between 1997 and 1999 depending on their
energy requirements. Residential customers would have this
choice by 2002. The utilities would continue to provide
transmission and distribution services to customers that
switch to other suppliers. The CPUC also proposed that the
cost of providing these services and the cost of serving
remaining utility customers would be recovered through a
performance-based ratemaking process, replacing traditional
cost-of-service ratemaking.
The CPUC is holding several full-panel hearings and public-
participation hearings to address comments on its proposal.
These hearings involve discussions of whether the CPUC's
proposal or some other form of a competitive market should be
developed, whether direct access and retail competition would
be necessary for the CPUC to achieve its industry
restructuring objectives, how such a market would be
structured, and how the cost of the transition to competition
and cost of the various utility-sponsored social programs
should be shared.
Both the Federal Energy Regulatory Commission and the
California legislature have raised the issue of whether the
CPUC has the authority to unilaterally change the way rates
are determined and power is sold, since several California
statutes would need to be changed to accommodate the proposal
and since the FERC would have jurisdiction over interstate
power sales involving California's transmission network. The
California legislature has passed a resolution forming an
oversight committee to ensure the legislature's involvement in
the policies proposed by the CPUC, and that the policies
comply with
8
federal and state laws and achieve the objectives
of both competition and the various social programs that are
currently funded through utility rates.
SDG&E has proposed a multi-step process for the transition to
competition, including: the establishment of a schedule for
the transition to a competitive market that would allow the
recovery of the above-market cost of existing generating
plants, including the SONGS units, without having a
significant rate increase or an adverse impact on SDG&E's
earnings; the development of a fully competitive, pool-based
wholesale market with open access to the transmission system
for all power generators; and, to avoid self-dealing concerns,
the separation of fossil-fuel generation (power plants and
cogeneration contracts), transmission, and distribution
assets. SDG&E's proposal also foresees: the renegotiation of
long-term purchased power contracts, including contracts with
cogenerators, to lower the cost of contracts to market price,
but also to allow the recovery of any excess contract costs
and other transition costs by allocating these costs to all
utility customers through a distribution charge included in
retail rates; the replacement of the Biennial Resource Plan
Update process with short-term resource procurement; and, once
the wholesale market is in place, the establishment of direct
access to the competitive wholesale market for all customers
at the same time, beginning in four to five years, rather than
over the phase-in period ending in 2002 as proposed by the
CPUC.
As the restructuring of the industry evolves, SDG&E will
become more vulnerable to competition. California utilities'
rates are significantly higher than the national average.
However, among the investor-owned utilities in California,
SDG&E has been the lowest-cost producer and it has a lower
concentration of industrial customers, which make its
customers a less likely target for outside competitors. In
addition, SDG&E has not built a power plant in over 10 years,
which lowers the risk associated with the recovery of its
power-plant investment.
The accompanying balance sheet includes approximately $1
billion of utility plant and regulatory assets related to
generating facilities. Recovery of these amounts is currently
being collected in electric rates over various periods of time
and the CPUC has stated that the recovery of remaining amounts
will be provided for in the new environment. However, if the
CPUC proceeds with the move to a competitive environment, if
the prices of competing suppliers are as anticipated, and if
the regulatory process does not provide for recovery of those
costs that are in excess of what will otherwise be recoverable
via market-based pricing structures, SDG&E would have to write
off a significant portion of the carrying amount of the
generating facilities and the related regulatory assets.
Additional information concerning the recovery of SONGS, which
is included in the above amount, is provided in Note 2 of the
notes to consolidated financial statements.
A CPUC decision setting forth policy conclusions is expected
in the first half of 1995. SDG&E cannot predict the impact of
the CPUC's final decision and the transition to a more
competitive environment on SDG&E's financial condition and
results of operations.
BIENNIAL RESOURCE PLAN UPDATE
On October 13 the CPUC voted 5-0 to delay its ruling on the
California utilities' petitions regarding the BRPU Decision
and to postpone the BRPU auction process for an indefinite
period. The CPUC had previously issued a "Notice of Intention
to Rule" to assure parties that the utilities' petitions would
be addressed at a future, unspecified date.
ENERGY COST ADJUSTMENT CLAUSE
On October 17, 1994 SDG&E filed its 1995 Energy Cost
Adjustment Clause application with the CPUC, requesting a
decrease of $67 million in electric rates. The request
reflects lower fuel and purchased power costs, and the
amortization of previous overcollections from customers,
including a refund of $15 million of unspent revenues for
demand-side management programs, partially offset by the two-
year amortization of the Bayside Cogeneration contract
termination payment. A CPUC decision is expected in April
1995, with the resultant rates effective May 1, 1995. Under
the
9
Performance-Based Ratemaking Generation and Dispatch and
the Gas Procurement mechanisms, fuel and energy operations and
expenses are not normally subject to CPUC reasonableness
reviews; however, SDG&E's nuclear operations and gas storage
operations remain subject to review. This proceeding will
include a review of those operations for the period from
August 1993 to July 1994. A CPUC decision is expected in
August 1995.
On October 31, 1994 SDG&E filed reports with the CPUC on the
results of the Generation and Dispatch and the Gas Procurement
mechanisms for the year ended July 31, 1994. SDG&E's fuel and
purchased power expenses fell below the benchmarks for these
mechanisms by $35 million. SDG&E's ECAC application (see
above) and its current Biennial Cost Allocation Proceeding
application give 75 percent of these savings to customers
through lower rates.
PERFORMANCE-BASED RATEMAKING - BASE RATES
On October 17, 1994, in conjunction with the ECAC application,
SDG&E filed its 1995 Performance-Based Ratemaking Base Rate
mechanism application with the CPUC, requesting a $40 million
increase in electric rates and an $8 million increase in gas
rates. The requested increase is based on the PBR mechanism's
revenue requirement formula for operating and maintenance
expenses, SONGS refueling costs, and capital-related costs
(including depreciation). A CPUC decision is expected in
December 1994, to be effective January 1, 1995. The combined
ECAC and PBR applications would result in an overall decrease
of $27 million in electric rates. SDG&E's gas rate request
will be combined with prior rate requests that are being
considered by the CPUC, including SDG&E's Biennial Cost
Allocation Proceeding, to be effective January 1, 1995. The
combined request would result in an overall decrease in gas
rates of $14 million. These requests exclude SDG&E's 1995 Cost
of Capital request discussed below.
1995 COST OF CAPITAL APPLICATION
On October 18, 1994 a CPUC Administrative Law Judge issued a
preliminary decision on SDG&E's 1995 Cost of Capital
application, recommending a return on equity of 11.65 percent
for an overall rate of return of 9.57 percent and an increase
in electric and gas rates of $21 million and $4 million,
respectively. SDG&E is requesting a return on equity of 12.45
percent for an overall rate of return of 9.95 percent and a
$44 million increase in electric and gas rates. SDG&E's 1994
authorized return on equity and rate of return are 10.85
percent and 9.03 percent, respectively. The ALJ recommended
ROEs ranging from 11.30 percent to 11.70 percent for the six
California investor-owned utilities. A CPUC decision is
expected by year end with rates effective January 1, 1995.
LIQUIDITY AND CAPITAL RESOURCES:
Sources of cash for 1994 through 1998 are expected to consist
of income from operations and issuances of stock and debt.
Cash requirements for 1994 through 1998 include the
construction program and retirements of long-term debt. SDG&E
conducts a continuing review of its construction, investment
and financing programs. They are revised in response to
changes in competition, customer growth, inflation, customer
rates, the cost of capital, and environmental and regulatory
requirements.
SDG&E anticipates that it will continue to have short-term
borrowings in 1994 due to construction expenditures' exceeding
the amount of available funds generated internally. SDG&E does
not expect to issue preferred stock or long-term debt in 1994.
SDG&E's employee savings and common stock investment plans
permit SDG&E to issue common stock or to purchase it on the
open market. Currently, SDG&E is purchasing the stock on the
open market.
10
SDG&E maintains its utility capital structure to obtain
long-term financing at the lowest possible rates. The
following table lists key financial ratios for SDG&E's utility
operations. The capital structure at December 31, 1993 is
shown net of construction funds held by trustee:
September 30, December 31,
1994 1993
or the twelve or the year
months then ended then ended
Pretax interest coverage 5.0X 4.7X
Internal cash generation 81% 78%
Construction
expenditures as a percent of
capitalization 11.8% 12.0%
Capital structure:
Common equity 47% 47%
Preferred stock 4% 4%
Debt and leases 49% 49%
Besides the effects of items discussed in the preceding pages,
the changes in cash flows provided by operating activities for
the nine months ended September 30, 1994 compared to the
corresponding 1993 period were related to the changes in
accounts payable and other current liabilities, and in
balancing accounts. The change in accounts payable and other
current liabilities was primarily due to lower accruals for
construction activity and for employee compensation at
September 30, 1994. The change in balancing accounts was
primarily due to higher electric sales and lower-than-expected
fuel and purchased power costs. Also for the above periods,
the changes in cash flows related to financing activities were
primarily due to the issuances of common stock and the
refinancing of high-cost debt and preferred stock in 1993. The
change in cash flows related to investing activities was
primarily due to leasing investments occurring in 1993 and the
withdrawal of the remaining balance in the construction trust
fund in 1994.
Construction expenditures were $354 million in 1993 and are
expected to be approximately $275 million in 1994. The level
of expenditures in the next few years will depend heavily on
the CPUC's proposed industry restructuring (as described in
"Regulatory Matters" above), the timing of expenditures to
comply with air emission reduction and other environmental
requirements, and SDG&E's proposal to transport natural gas to
Mexico. (Additional information concerning SDG&E's proposal to
transport gas to Mexico is provided in SDG&E's 1993 Annual on
Form 10-K.)
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no significant subsequent developments in the
Century Power, American Trails, Public Service Company of New
Mexico, North City West or MTDB proceedings. Background
information concerning these and the following proceedings is
contained in SDG&E's 1993 Annual Report on Form 10-K and in
its March 31, 1994 and June 30, 1994 Quarterly Reports on Form
10-Q.
Canadian Natural Gas Litigation:
Bow Valley Energy, Inc. and Summit Resources Ltd. gave SDG&E
notice that their natural gas supply contracts with SDG&E were
terminated pursuant to provisions in the contracts purportedly
giving them the right to do so. SDG&E has responded that the
notices were inappropriate and that it may seek both contract
and tort damages. SDG&E cannot predict the ultimate outcome of
these proceedings.
McCartin/Covalt Litigation:
McCartin:
On August 19, 1994 the plaintiffs filed a notice of appeal of
the trial court's decision. SDG&E cannot predict the ultimate
outcome of this proceeding.
Covalt:
On August 17, 1994 the California Court of Appeals agreed to
rule on SDG&E's petition to review the ruling of an Orange
County Superior Court judge who recently denied SDG&E's motion
to dismiss the Covalt complaint. Oral arguments are scheduled
for November 16, 1994. SDG&E cannot predict the ultimate
outcome of this proceeding.
Transphase Systems Litigation:
On September 1, 1994 Transphase filed a petition with the
United States Supreme Court to have the Court review the
dismissal of its case by the lower courts. On September 30,
1994 SDG&E filed its opposition to the petition. SDG&E cannot
predict the ultimate outcome of this proceeding.
James Litigation:
On August 11, 1994 defendants Southern California Edison, San
Diego Gas & Electric Company and Combustion Engineering filed
a motion to dismiss plaintiffs' complaint. Oral argument on
defendants' motion is set for December 12, 1994. Trial is
currently scheduled to begin on May 31, 1995. SDG&E cannot
predict the ultimate outcome of this proceeding.
Yuma Cogeneration Litigation:
On September 28, 1994 SDG&E and the defendants Yuma
Cogeneration Associates, California Energy Yuma Corporation,
California Energy Development Corporation and California
Energy Company, Inc. agreed to dismiss SDG&E's complaint with
prejudice. SDG&E's complaint was dismissed by the court on
September 28, 1994.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends as required under
SDG&E's August 1993 registration of 5,000,000 shares of
Preference Stock (Cumulative).
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedules for the nine months ended
September 30, 1994.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on September 8, 1994
announcing that SDG&E had reached an understanding with the
California Public Utilities Commission's Division of Ratepayer
Advocates to negotiate a settlement on the recovery of costs
associated with the San Onofre Nuclear Generating Station.
A Current Report on Form 8-K was filed on October 26, 1994
announcing the appointments of Thomas C. Stickel and William
D. Jones to SDG&E's Board of Directors.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this quarterly report to be signed on
its behalf by the undersigned thereunto duly authorized.
SAN DIEGO GAS & ELECTRIC COMPANY
(Registrant)
November 2, 1994 By /s/ F. H. Ault
- ---------------- ----------------------------
Date (Signature)
F. H. Ault
Vice President and Controller
14
EXHIBIT 12.1
SAN DIEGO GAS & ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
Nine Months
Ended
1989 1990 1991 1992 1993 9/30/94
---------- ---------- ---------- ---------- ---------- ------------
Fixed Charges:
Interest:
Long-Term Debt $ 87,962 $ 97,894 $ 98,802 $100,776 $93,402 $ 69,038
Short-Term Debt 13,984 12,301 8,234 6,242 7,980 6,995
Amortization of Debt
Discount and Expense,
Less Premium 2,420 2,465 2,471 2,881 4,162 3,431
Interest Portion of
Annual Rentals 23,664 20,898 18,067 14,677 19,206 16,688
---------- ---------- ---------- ----------- ---------- ----------
Total Fixed
Charges 128,030 133,558 127,574 124,576 124,750 96,152
---------- ---------- ---------- ----------- ---------- ----------
Preferred Dividends
Requirements 11,202 10,863 10,535 9,600 8,565 5,747
Ratio of Income Before
Tax to Net Income 1.79480 1.75499 1.63017 1.72369 1.67794 2.26852
---------- ---------- ---------- ----------- ---------- ----------
Preferred Dividends
for Purpose of Ratio 20,105 19,064 17,174 16,547 14,372 13,037
---------- ---------- ---------- ---------- ---------- ----------
Total Fixed Charges
and Preferred
Dividends for
Purpose of Ratio $148,135 $152,622 $144,748 $141,123 $139,122 $109,189
========== ========== ========== ========== ========== ==========
Earnings:
Net Income (before
preferred dividend
requirements) $179,434 $207,841 $208,060 $210,657 $218,715 $ 86,366
Add:
Fixed Charges
(from above) 128,030 133,558 127,574 124,576 124,750 96,152
Less: Fixed Charges
Capitalized 3,481 3,306 2,907 2,242 5,789 5,051
Taxes on Income 142,614 156,917 131,114 152,451 148,275 109,557
---------- ---------- ---------- ---------- ---------- -----------
Total Earnings for
Purpose of Ratio $446,597 $495,010 $463,841 $485,442 $485,951 $287,024
========== ========== ========== ========== ========== ===========
Ratio of Earnings
to Combined Fixed
Charges and Preferred
Dividends 3.01 3.24 3.20 3.44 3.49 2.63
========== ========== ========== ========== ========== ===========
UT
1000
9-MOS
DEC-31-1994
SEP-30-1994
PER-BOOK
3,134,811
460,473
421,877
166,282
396,390
4,579,833
291,190
564,264
607,670
1,463,124
25,000
93,493
1,118,967
39,800
117,548
0
198,974
0
101,481
8,267
1,413,179
4,579,833
1,458,884
119,410
1,116,491
1,235,901
222,983
(59,733)
163,250
76,884
86,366
5,747
80,619
132,783
62,334
441,853
0.69
0.69