UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[..X..] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 30, 2003
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 Name of Registrant, State of IRS Employer
File Incorporation, Address and Identification
Number Telephone Number Number
- ---------- ---------------------------------- --------------
1-40 Pacific Enterprises 94-0743670
(A California Corporation)
101 Ash Street
San Diego, California 92101
(619) 696-2020
1-1402 Southern California Gas Company 95-1240705
(A California Corporation)
555 West Fifth Street
Los Angeles, California 90013
(213) 244-1200
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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
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.
Common Stock outstanding:
Pacific Enterprises Wholly owned by Sempra Energy
Southern California Gas Company Wholly owned by Pacific Enterprises
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains statements that are not historical fact
and constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The words
"estimates," "believes," "expects," "anticipates," "plans," "intends,"
"may," "would" and "should" or similar expressions, or discussions of
strategy or of plans are intended to identify forward-looking
statements. Forward-looking statements are not guarantees of
performance. They involve risks, uncertainties and assumptions. Future
results may differ materially from those expressed in these forward-
looking statements.
Forward-looking statements are necessarily based upon various
assumptions involving judgments with respect to the future and other
risks, including, among others, local, regional, national and
international economic, competitive, political, legislative and
regulatory conditions and developments; actions by the California
Public Utilities Commission, the California Legislature, and the
Federal Energy Regulatory Commission; capital market conditions,
inflation rates, interest rates and exchange rates; energy and trading
markets, including the timing and extent of changes in commodity
prices; weather conditions and conservation efforts; war and terrorist
attacks; business, regulatory and legal decisions; the status of
deregulation of retail natural gas and electricity delivery; the timing
and success of business development efforts; and other uncertainties,
all of which are difficult to predict and many of which are beyond the
control of the companies. Readers are cautioned not to rely unduly on
any forward-looking statements and are urged to review and consider
carefully the risks, uncertainties and other factors which affect the
companies' business described in this report and other reports filed by
the companies from time to time with the Securities and Exchange
Commission.
ITEM 1. FINANCIAL STATEMENTS.
PACIFIC ENTERPRISES AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions)
Three months ended
September 30,
------------------
2003 2002
------- -------
OPERATING REVENUES $ 794 $ 597
------- -------
OPERATING EXPENSES
Cost of natural gas 333 192
Other operating expenses 270 207
Depreciation 73 69
Income taxes 39 46
Franchise fees and other taxes 23 20
------- -------
Total operating expenses 738 534
------- -------
Operating income 56 63
------- -------
Other income and (deductions)
Interest income 1 2
Regulatory interest - net 2 (1)
Allowance for equity funds used
during construction 4 2
Income taxes on non-operating income (2) --
Other - net (1) 2
------- -------
Total 4 5
------- -------
Interest charges
Long-term debt 9 8
Other -- 6
Allowance for borrowed funds used
during construction (1) (1)
------- -------
Total 8 13
------- -------
Net income 52 55
Preferred dividend requirements 1 1
------- -------
Earnings applicable to common shares $ 51 $ 54
======= =======
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions)
Nine months ended
September 30,
-----------------
2003 2002
------- -------
OPERATING REVENUES $ 2,622 $ 1,999
------- -------
OPERATING EXPENSES
Cost of natural gas 1,354 808
Other operating expenses 690 598
Depreciation 214 205
Income taxes 111 135
Franchise fees and other taxes 77 67
------- -------
Total operating expenses 2,446 1,813
------- -------
Operating income 176 186
------- -------
Other income and (deductions)
Interest income 6 8
Regulatory interest - net 1 (5)
Allowance for equity funds used
during construction 8 6
Income taxes on non-operating income (4) 3
Preferred dividends of subsidiaries (1) (1)
Other - net (3) 7
------- -------
Total 7 18
------- -------
Interest charges
Long-term debt 31 27
Other 9 15
Allowance for borrowed funds used
during construction (3) (2)
------- -------
Total 37 40
------- -------
Net income 146 164
Preferred dividend requirements 3 3
------- -------
Earnings applicable to common shares $ 143 $ 161
======= =======
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
September 30, December 31,
2003 2002
------------- -------------
ASSETS
Utility plant - at original cost $6,938 $6,701
Accumulated depreciation (4,092) (3,914)
------ ------
Utility plant - net 2,846 2,787
------ ------
Current assets:
Cash and cash equivalents 16 22
Accounts receivable - trade 265 458
Accounts receivable - other 25 44
Due from unconsolidated affiliates 3 83
Income taxes receivable 26 97
Deferred income taxes 76 55
Regulatory assets arising from fixed-price
contracts and other derivatives 86 92
Other regulatory assets 14 --
Inventories 151 76
Other 19 20
------ ------
Total current assets 681 947
------ ------
Other assets:
Due from unconsolidated affiliates 209 419
Regulatory assets arising from fixed-price
contracts and other derivatives 169 233
Sundry 150 173
------ ------
Total other assets 528 825
------ ------
Total assets $4,055 $4,559
====== ======
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
September 30, December 31,
2003 2002
------------- -------------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock (600 million shares authorized;
84 million shares outstanding) $1,349 $1,318
Retained earnings 179 286
------ ------
Total common equity 1,528 1,604
Preferred stock 80 80
------ ------
Total shareholders' equity 1,608 1,684
Long-term debt 438 657
------ ------
Total capitalization 2,046 2,341
------ ------
Current liabilities:
Short-term debt 40 --
Accounts payable - trade 211 200
Accounts payable - other 46 36
Due to unconsolidated affiliates 144 96
Regulatory balancing accounts - net 41 184
Interest payable 27 25
Regulatory liabilities -- 16
Fixed-price contracts and other derivatives 93 96
Current portion of long-term debt 100 175
Customer deposits 51 108
Other 263 265
------ ------
Total current liabilities 1,016 1,201
------ ------
Deferred credits and other liabilities:
Customer advances for construction 39 37
Post-retirement benefits other than pensions 74 77
Deferred income taxes 214 176
Deferred investment tax credits 45 47
Regulatory liabilities 91 121
Fixed-price contracts and other derivatives 169 233
Deferred credits and other liabilities 341 306
Preferred stock of subsidiary 20 20
------ ------
Total deferred credits and other liabilities 993 1,017
------ ------
Contingencies and commitments (Note 3)
Total liabilities and shareholders' equity $4,055 $4,559
====== ======
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
Nine months ended
September 30,
------------------
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 146 $ 164
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 214 205
Deferred income taxes and investment tax credits -- (7)
Net changes in other working capital components 44 253
Changes in other assets 6 (1)
Changes in other liabilities 13 (5)
------- -------
Net cash provided by operating activities 423 609
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (217) (213)
Affiliate loans - net 296 (144)
------- -------
Net cash provided by (used in) investing activities 79 (357)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (250) (100)
Preferred dividends paid (3) (3)
Payment of long-term debt (295) (100)
Increase (decrease) in short-term debt 40 (50)
------- -------
Net cash used in financing activities (508) (253)
------- -------
Decrease in cash and cash equivalents (6) (1)
Cash and cash equivalents, January 1 22 13
------- -------
Cash and cash equivalents, September 30 $ 16 $ 12
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized $ 32 $ 34
======= =======
Income tax payments, net of refunds $ 44 $ 151
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Assets contributed by Sempra Energy $ 48 $ --
Liabilities assumed (18) --
------- -------
Net assets contributed by Sempra Energy $ 30 $ --
======= =======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions)
Three months ended
September 30,
------------------
2003 2002
------- -------
OPERATING REVENUES $ 794 $ 597
------- -------
OPERATING EXPENSES
Cost of natural gas 333 192
Other operating expenses 268 205
Depreciation 73 69
Income taxes 39 47
Franchise fees and other taxes 23 20
------- -------
Total operating expenses 736 533
------- -------
Operating income 58 64
------- -------
Other income and (deductions)
Interest income 1 1
Regulatory interest - net 2 (1)
Allowance for equity funds used
during construction 4 2
Income taxes on non-operating income (2) --
Other - net (1) --
------- -------
Total 4 2
------- -------
Interest charges
Long-term debt 9 8
Other 1 3
Allowance for borrowed funds used
during construction (1) (1)
------- -------
Total 9 10
------- -------
Earnings applicable to common shares $ 53 $ 56
======= =======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions)
Nine months ended
September 30,
-----------------
2003 2002
------- -------
OPERATING REVENUES $ 2,622 $ 1,999
------- -------
OPERATING EXPENSES
Cost of natural gas 1,354 808
Other operating expenses 689 591
Depreciation 214 205
Income taxes 112 139
Franchise fees and other taxes 77 67
------- -------
Total operating expenses 2,446 1,810
------- -------
Operating income 176 189
------- -------
Other income and (deductions)
Interest income 3 3
Regulatory interest - net 1 (5)
Allowance for equity funds used
during construction 8 6
Income taxes on non-operating income (4) 5
Other - net (2) --
------- -------
Total 6 9
------- -------
Interest charges
Long-term debt 31 27
Other 5 5
Allowance for borrowed funds used
during construction (3) (2)
------- -------
Total 33 30
------- -------
Net income 149 168
Preferred dividend requirements 1 1
------- -------
Earnings applicable to common shares $ 148 $ 167
======= =======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
September 30, December 31,
2003 2002
------------- -------------
ASSETS
Utility plant - at original cost $6,938 $6,701
Accumulated depreciation (4,092) (3,914)
------ ------
Utility plant - net 2,846 2,787
------ ------
Current assets:
Cash and cash equivalents 16 22
Accounts receivable - trade 265 458
Accounts receivable - other 23 44
Due from unconsolidated affiliates -- 81
Income taxes receivable -- 28
Deferred income taxes 106 87
Regulatory assets arising from fixed-priced contracts
and other derivatives 86 92
Other regulatory assets 14 --
Inventories 151 76
Other 15 20
------ ------
Total current assets 676 908
------ ------
Other assets:
Regulatory assets arising from fixed-priced contracts
and other derivatives 169 233
Sundry 132 151
------ ------
Total other assets 301 384
------ ------
Total assets $3,823 $4,079
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
September 30, December 31,
2003 2002
------------- ------------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (100 million shares authorized;
91 million shares outstanding) $ 866 $ 836
Retained earnings 579 482
------ ------
Total common equity 1,445 1,318
Preferred stock 22 22
------ ------
Total shareholders' equity 1,467 1,340
Long-term debt 438 657
------ ------
Total capitalization 1,905 1,997
------ ------
Current liabilities:
Short-term debt 40 --
Accounts payable - trade 211 199
Accounts payable - other 46 36
Due to unconsolidated affiliates 76 31
Regulatory balancing accounts - net 41 184
Income taxes payable 46 --
Interest payable 26 24
Regulatory liabilities -- 16
Fixed-price contracts and other derivatives 93 96
Current portion of long-term debt 100 175
Customer deposits 51 108
Other 263 264
------ ------
Total current liabilities 993 1,133
------ ------
Deferred credits and other liabilities:
Customer advances for construction 39 37
Deferred income taxes 273 237
Deferred investment tax credits 45 47
Regulatory liabilities arising from deferred taxes 165 164
Other regulatory liabilities -- 37
Fixed-price contracts and other derivatives 169 233
Deferred credits and other liabilities 234 194
------ ------
Total deferred credits and other liabilities 925 949
------ ------
Contingencies and commitments (Note 3)
Total liabilities and shareholders' equity $3,823 $4,079
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
Nine months ended
September 30,
-------------------
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 149 $ 168
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 214 205
Deferred income taxes and investment tax credits (2) (12)
Net changes in other working capital components 53 249
Changes in other assets (1) --
Changes in other liabilities 18 (3)
------- -------
Net cash provided by operating activities 431 607
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (217) (213)
Loan to/from affiliate - net 86 (144)
------- -------
Net cash used in investing activities (131) (357)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (51) (101)
Payments of long-term debt (295) (100)
Increase (decrease) in short-term debt 40 (50)
------- -------
Net cash used in financing activities (306) (251)
------- -------
Decrease in cash and cash equivalents (6) (1)
Cash and cash equivalents, January 1 22 13
------- -------
Cash and cash equivalents, September 30 $ 16 $ 12
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized $ 28 $ 27
======= =======
Income tax payments, net of refunds $ 44 $ 151
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Assets contributed by Sempra Energy $ 48 $ --
Liabilities assumed (18) --
------- -------
Net assets contributed by Sempra Energy $ 30 $ --
======= =======
See notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
This Quarterly Report on Form 10-Q is that of Pacific Enterprises (PE)
and of Southern California Gas Company (SoCalGas)(collectively referred
to as the company or the companies). PE's common stock is wholly owned
by Sempra Energy, a California-based Fortune 500 holding company, and
PE owns all of the common stock of SoCalGas. The financial statements
herein are, in one case, the Consolidated Financial Statements of PE
and its subsidiary SoCalGas, and, in the second case, the Consolidated
Financial Statements of SoCalGas and its subsidiaries, which comprise
less than one percent of SoCalGas' consolidated financial position and
results of operations.
Sempra Energy also indirectly owns all of the common stock of San Diego
Gas & Electric (SDG&E). SoCalGas and SDG&E are collectively referred to
herein as "the California Utilities."
The accompanying Consolidated Financial Statements have been prepared
in accordance with the interim-period-reporting requirements of Form
10-Q. Results of operations for interim periods are not necessarily
indicative of results for the entire year. In the opinion of
management, the accompanying statements reflect all adjustments
necessary for a fair presentation. These adjustments are only of a
normal recurring nature. Certain changes in classification have been
made to prior presentations to conform to the current financial
statement presentation.
Information in this Quarterly Report is unaudited and should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 2002 (Annual Report) and the Quarterly Reports on Form
10-Q for the three months ended March 31, 2003 and June 30, 2003.
The companies' significant accounting policies are described in Note 1
of the notes to Consolidated Financial Statements in the Annual Report.
The same accounting policies are followed for interim reporting
purposes.
As described in the notes to Consolidated Financial Statements in the
Annual Report, SoCalGas accounts for the economic effects of regulation
on utility operations in accordance with Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation".
COMPREHENSIVE INCOME
The following is a reconciliation of net income to comprehensive
income.
Pacific Enterprises SoCalGas
----------------------------- ----------------------------
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
----------------------------- ----------------------------
(Dollars in millions) 2003 2002 2003 2002 2003 2002 2003 2002
- ----------------------------------------------------------------------------------
Net income $ 52 $ 55 $ 146 $ 164 $ 53 $ 56 $ 149 $ 168
Financial instruments -- -- -- (1)* -- -- -- (1)*
----------------------------------------------------------
Comprehensive income $ 52 $ 55 $ 146 $ 163 $ 53 $ 56 $ 149 $ 167
- ----------------------------------------------------------------------------------
* This did not affect the reported balance of accumulated other
comprehensive income related to this topic ($0 at the beginning and end of
the period) due to rounding.
2. NEW ACCOUNTING STANDARDS
SFAS 143, "Accounting for Asset Retirement Obligations": On January 1,
2003, the company recorded asset retirement obligations of $10 million
associated with the future retirement of three storage facilities.
The change in the asset retirement obligations for the nine months
ended September 30, 2003 is as follows (dollars in millions):
Balance as of January 1, 2003 $ --
Adoption of SFAS 143 10
Accretion expense 1
------
Balance as of September 30, 2003 $ 11
======
Had SFAS 143 been in effect, the asset retirement obligation liability
would have been $8 million as of January 1 and December 31, 2000, $9
million as of December 31, 2001 and $10 million as of December 31,
2002.
Except for the items noted above, the company has determined that there
is no other material retirement obligation associated with tangible
long-lived assets.
Implementation of SFAS 143 has had no effect on results of operations
and is not expected to have a significant one in the future.
SFAS 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities": SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS 133.
The adoption of SFAS 149 did not have an effect on the company's
consolidated results of operations and financial position.
3. MATERIAL CONTINGENCIES
NATURAL GAS INDUSTRY RESTRUCTURING
As discussed in Note 9 of the notes to Consolidated Financial
Statements in the Annual Report, in December 2001 the CPUC issued a
decision related to natural gas industry restructuring, with
implementation anticipated during 2002. During 2002 the California
Utilities filed a proposed implementation schedule and revised tariffs
and rules required for implementation. However, on February 27, 2003,
the CPUC issued a resolution rejecting without prejudice those proposed
tariffs and rules. The resolution ordered SoCalGas to file a new
application, which would address detailed proposals for implementation
of the December 2001 decision, but also would allow reconsideration of
the December 2001 decision. SoCalGas filed such an application on June
30, 2003, and proposed some modifications to the provisions of the
December 2001 decision to respond to concerns that it could lead to
higher natural gas costs for consumers.
The modifications include, among other things, a proposal not to
unbundle natural gas transmission, a higher market price cap on
receipt-point capacity transactions in the secondary market, deferral
of retail unbundling provisions, and a proposal to litigate
transmission and storage revenue requirements in the Cost of Service
case (see below). The proposed modifications would also remove
SoCalGas' exposure to risk or reward for the sale of receipt-point
capacity. The filing proposes implementation of these provisions on
April 1, 2004 and continuing through August 31, 2006. On September 29,
2003, the CPUC issued a ruling indicating that the proceeding will
initially only consider implementation of the original December 2001
decision, but the Assigned Commissioner said he will informally look at
the alternatives proposed by SoCalGas. The matter has been set for
hearing and a CPUC decision is expected by January 2004. If the
December 2001 decision is implemented, it is not expected to have a
material effect on the companies' earnings.
BORDER PRICE INVESTIGATION
In November 2002, the CPUC instituted an investigation into the
Southern California natural gas market and the price of natural gas
delivered to the California-Arizona (CA-AZ) border during the period of
March 2000 through May 2001. If the investigation determines that the
conduct of any respondent contributed to the natural gas price spikes
at the CA-AZ border during this period, the CPUC may modify the
respondent's applicable natural gas procurement incentive mechanism,
reduce the amount of any shareholder award for the period involved,
and/or order the respondent to issue a refund to ratepayers to offset
the higher rates paid. The California Utilities, included among the
respondents to the investigation, are fully cooperating in the
investigation and believe that the CPUC will ultimately determine that
they were not responsible for the high border prices during this
period. On August 1, 2003, the Administrative Law Judge (ALJ) issued a
revised schedule with hearings scheduled to begin in March 2004 and
with a Commission decision by late 2004.
CPUC INVESTIGATION OF COMPLIANCE WITH AFFILIATE RULES
On February 27, 2003, the CPUC opened an investigation of the business
activities of SDG&E, SoCalGas and Sempra Energy to ensure that they
have complied with relevant statutes and CPUC decisions in the
management, oversight and operations of their companies. On September
18, 2003, the Commission suspended the procedural schedule until the
CPUC completes an independent audit to evaluate energy-related business
activities undertaken by Sempra Energy within the service territories
of SDG&E and SoCalGas, relative to holding company systems and
affiliate activities. The audit will be combined with the annual
affiliate audit and should be completed by the end of 2004. The scope
of the audit will be broader than the annual affiliate audit. In
addition to an evaluation of compliance with CPUC rules and
requirements, this audit will assess the potential for conflicts
between the interests of Sempra Energy and the interests of the
California Utilities and their ratepayers, and examine whether business
activities undertaken by the utilities and/or their holding company and
affiliates pose potential problems or unjust or unreasonable impacts on
utility customers.
COST OF SERVICE FILING
As previously reported, the California Utilities have filed cost of
service applications with the CPUC seeking rate increases designed to
reflect forecasts of 2004 capital and operating costs. SoCalGas is
requesting revenue increases of approximately $45 million. The CPUC's
Office of Ratepayer Advocates (ORA) filed its prepared testimony in the
applications on August 8, 2003, recommending rate decreases that would
reduce annual revenues by $121 million from their current level. The
Utility Reform Network (TURN) has proposed rates for SoCalGas that
would reduce annual revenues by $178 million from their current level.
Hearings are expected to conclude by the end of this month. The
procedural schedule for the cost of service applications permits a
decision as early as March 2004, and the California Utilities have
filed a petition for interim rate relief for the period from January 1,
2004 until the effective date of the decision. On November 3, 2003, the
CPUC ALJ released a Proposed Decision that would authorize the
California Utilities to create a memorandum account as of January 1,
2004, to record the difference between existing rates and those that
are later authorized in the Commission's final decision in this case.
The difference would then be amortized in rates. The full Commission
can vote on the Proposed Decision as soon as December 4, 2003. The
California Utilities have also filed for continuation through 2004 of
existing PBR mechanisms for service quality and safety that would
otherwise expire at the end of 2003.
GAS COST INCENTIVE MECHANISM (GCIM)
SoCalGas' GCIM allows SoCalGas to receive a share of the savings it
achieves by buying natural gas for customers below monthly benchmarks.
The mechanism permits full recovery of all costs within a tolerance
band above the benchmark price and refunds savings within a tolerance
band below the benchmark price. The costs outside the tolerance band
are shared between customers and shareholders.
On August 21, 2003, the CPUC approved SoCalGas' GCIM Years 7 and 8
shareholder rewards of $30.8 million and $17.4 million, respectively,
subject to refund or adjustment as determined by the Commission in the
Border Price Investigation described above. These rewards have been
included in income in the third quarter of 2003.
On June 16, 2003, SoCalGas filed an application with the CPUC
requesting a $6.3 million shareholder reward for GCIM Year 9 (April 1,
2002 through March 31, 2003). The company's natural gas purchasing
activities resulted in a net savings of $32.7 million to ratepayers
during Year 9, which led to the requested shareholder reward. This
application is pending before the CPUC, with approval expected in the
first half of 2004.
Performance incentives rewards are not included in the company's
earnings before CPUC approval is received.
DEMAND SIDE MANAGEMENT (DSM) AND ENERGY EFFICIENCY AWARDS
Since the 1990s, IOUs have been eligible to earn awards for
implementing and administering energy conservation and efficiency
programs. The California Utilities have offered these programs to
customers and have consistently achieved significant earnings
therefrom. On October 16, 2003, the CPUC issued a decision that the
pre-1998 DSM earnings mechanism would not be reopened. Therefore, the
CPUC will not redetermine the uncollected portion of past awards earned
by the IOUs and will not be recomputing the amounts of the awards, but
may adjust such amounts consistent with the application of known,
standard measurement and verification protocols.
The CPUC has consolidated the 2000, 2001, 2002 and 2003 award
applications. On May 2, 2003, the CPUC released an RFP to conduct a
review of the IOUs' studies used as the basis for the awards claims.
The review should be completed by the second quarter of 2004. All
outstanding claims are on hold pending completion of the independent
review. As of September 30, 2003, SoCalGas had $10 million in
DSM/energy efficiency rewards requested but pending CPUC approval and
had $3 million in rewards for which it has not yet requested approval.
FERC PRICE REPORTING PRACTICES SURVEYS
On September 26, 2003, FERC sent a survey to 266 companies concerning
natural gas and electric price reporting practices. The survey is
being conducted in support of FERC's "Policy Statement on Natural Gas
and Electric Price Indices" issued in July 2003, to measure industry
progress in voluntary reporting of energy trade data to publishers of
energy price indices. Responses to the survey were provided on behalf
of SoCalGas. A second survey is expected to be conducted in March 2004
in FERC's continuing effort to monitor energy price reporting.
LITIGATION
During the third quarter of 2003, the company recorded additional
charges against income for litigation costs and possible resolution of
certain cases. Management believes that none of these matters will have
further material adverse effect on the company's financial condition or
results of operations. Except for the matters referred to below,
neither the company nor its subsidiaries are party to, nor is their
property the subject of, any material pending legal proceedings other
than routine litigation incidental to their businesses.
Antitrust Litigation
Lawsuits filed in 2000 and currently consolidated in San Diego Superior
Court seek class-action certification and damages, alleging that Sempra
Energy, SoCalGas and SDG&E, along with El Paso Energy Corp. (El Paso)
and several of its affiliates, unlawfully sought to control natural gas
and electricity markets. In March 2003, plaintiffs in these cases and
the applicable El Paso entities announced that they had reached a $1.5
billion settlement, of which $125 million is allocated to customers of
the California Utilities. The proceeding against Sempra Energy and the
California Utilities has not been settled and continues to be
litigated.
Similar lawsuits have been filed by the Attorney General of Arizona and
the Attorney General of Nevada alleging that El Paso and certain Sempra
Energy subsidiaries unlawfully sought to control the natural gas market
in their respective states. In April 2003, Sierra Pacific Resources and
its utility subsidiary Nevada Power filed a lawsuit in U.S. District
Court in Las Vegas against major natural gas suppliers, including
Sempra Energy, the California Utilities and other company subsidiaries,
seeking damages resulting from an alleged conspiracy to drive up or
control natural gas prices, eliminate competition and increase market
volatility, breach of contract and wire fraud.
Price Reporting Practices
In the fourth quarter of 2002, Sempra Energy and SoCalGas were named as
defendants in a lawsuit filed in Los Angeles Superior Court against
various trade publications and other energy companies alleging that
energy prices were unlawfully manipulated by defendants' reporting
artificially inflated natural gas prices to trade publications. On July
8, 2003, the Superior Court granted the defendants' demurrer on the
grounds that the claims contained in the complaint were subject to the
Filed Rate Doctrine and were preempted by the Federal Power Act.
Plaintiffs have filed an amended complaint, and in September 2003
defendants filed a demurrer to the amended complaint.
PENDING INTERNAL REVENUE SERVICE MATTERS
The company is in discussions with the Internal Revenue Service (IRS)
to resolve issues related to various prior years' returns. A Revenue
Ruling dealing with utility balancing accounts, and discussions with
the IRS concerning this Ruling lead the company to believe it will be
entitled to reverse recorded interest associated with the reporting of
these items in prior periods. The company expects that these matters
will be resolved before year end and estimates that favorable
resolution could increase reported earnings by in excess of $10
million.
The company is unable to predict the net effect of the ultimate
resolution of these income tax matters.
RECENT SOUTHERN CALIFORNIA FIRES
Southern California experienced several major wildfires that began on
October 26, 2003. On October 27, 2003, Governor Gray Davis declared a
"state of emergency" for four counties, including three counties within
SoCalGas' service territory.
The declaration of a state of emergency invokes Public Utilities Code
Section 454.9, which authorizes a public utility to establish a
catastrophic event memorandum account (CEMA) to record all costs
associated with (1) restoring utility services to customers; (2)
repairing, replacing or restoring damaged utility facilities and (3)
complying with governmental agency orders in connection with events
declared disasters by competent state or federal authorities.
The costs recorded in the CEMA are recoverable in rates separate from
ordinary costs currently recovered in rates. Public Utilities Code
Section 454.9 requires that the CPUC hold expedited hearings in
response to the utilities' request for recovery. SoCalGas is recording
fire damage costs and the costs of restoring natural gas service in the
CEMA account, although there has not been significant damage to the
natural gas system. Therefore, the company expects no significant
effect on earnings from the fires.
4. FINANCIAL INSTRUMENTS
Note 7 of the notes to Consolidated Financial Statements in the Annual
Report discusses the companies' financial instruments, including the
adoption of SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" and SFAS 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". The effect is to recognize all derivatives as assets or
liabilities on the balance sheet, measure those instruments at fair
value, and recognize any changes in fair value in earnings for the
period that the change occurs unless the derivative qualifies as an
effective hedge that offsets other exposures.
The company utilizes derivative financial instruments to manage its
exposure to unfavorable changes in commodity prices, which are subject
to significant and often volatile fluctuations. Derivative financial
instruments include futures, forwards, swaps, options and long-term
delivery contracts. These contracts allow the company to predict with
greater certainty the effective prices to be received by the company
and its customers. In accordance with SFAS 133, the company has elected
to account for contracts that are settled by physical delivery at
historical cost, with gains and losses reflected in the income
statement at the contract settlement date.
Fixed-price contracts and other derivatives on the Consolidated Balance
Sheets primarily reflect the company's derivative gains and losses
related to long-term delivery contracts for natural gas transportation.
The company has established regulatory assets and liabilities to the
extent that these gains and losses are recoverable or payable through
future rates. The changes in fixed-price contracts and other
derivatives on the Consolidated Balance Sheets for the nine months
ended September 30, 2003 were primarily due to physical deliveries
under long-term natural gas transportation contracts. The transactions
associated with fixed-price contracts and other derivatives had no
material impact to the Statements of Consolidated Income for the nine
months ended September 30, 2003 or 2002.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements contained in this Form 10-Q and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Annual Report.
RESULTS OF OPERATIONS
Natural gas revenues increased to $2.6 billion for the nine months
ended September 30, 2003 from $2.0 billion for the corresponding period
in 2002, and the cost of natural gas increased to $1.4 billion in 2003
from $808 million in 2002. Additionally, natural gas revenues increased
to $794 million for the three months ended September 30, 2003 from $597
million for the corresponding period in 2002, and the cost of natural
gas increased to $333 million in 2003 from $192 million in 2002. These
changes were primarily attributable to $48 million of GCIM awards
recognized during the third quarter of 2003, as well as natural gas
price increases (which are passed on to customers) partially offset by
reduced volumes. See discussion of performance awards in Note 3 of the
notes to Consolidated Financial Statements.
Under the current regulatory framework, changes in core-market natural
gas prices for core customers (primarily residential and small
commercial and industrial customers) do not affect net income, since
core-customer rates generally recover the actual cost of natural gas on
a substantially concurrent basis and are fully balanced. However,
SoCalGas' GCIM allows SoCalGas to share in the savings or costs from
buying natural gas for customers below or above monthly benchmarks. The
mechanism permits full recovery of all costs within a tolerance band
above the benchmark price and refunds all savings within a tolerance
band below the benchmark price. The costs or savings outside the
tolerance band are shared between customers and shareholders.
The table below summarizes natural gas volumes and revenues by customer
class for the nine months ended September 30, 2003 and 2002.
Gas Sales, Transportation and Exchange
(Volumes in billion cubic feet, dollars in millions)
Gas Sales Transportation & Exchange Total
--------------------------------------------------------------
Volumes Revenue Volumes Revenue Volumes Revenue
--------------------------------------------------------------
2003:
Residential 165 $ 1,547 1 $ 5 166 $ 1,552
Commercial and industrial 79 559 206 134 285 693
Electric generation plants -- -- 141 39 141 39
Wholesale -- -- 100 23 100 23
--------------------------------------------------------------
244 $ 2,106 448 $ 201 692 2,307
Balancing accounts and other 315
--------
Total $ 2,622
- -----------------------------------------------------------------------------------------
2002:
Residential 182 $ 1,271 2 $ 5 184 $ 1,276
Commercial and industrial 73 377 215 116 288 493
Electric generation plants -- -- 168 32 168 32
Wholesale -- -- 121 17 121 17
--------------------------------------------------------------
255 $ 1,648 506 $ 170 761 1,818
Balancing accounts and other 181
--------
Total $ 1,999
- -----------------------------------------------------------------------------------------
SoCalGas recorded net income of $149 million and $168 million for the
nine-month periods ended September 30, 2003 and 2002, respectively, and
net income of $53 million and $56 million for the three-month periods
ended September 30, 2003 and 2002, respectively. The decreases were
primarily due to a $28 million after-tax charge for litigation and for
losses associated with a long-term sublease of portions of its
headquarters building, and the end of sharing of merger savings (which
positively impacted earnings by $13 million for the nine-month period
and $4 million for the three-month period in 2002). These factors were
partially offset by the after-tax recognition of $29 million in GCIM
awards in the third quarter of 2003. The non-recurring sublease losses
pertain to pre-2003 transactions, but are charged against current
operations because they are not material to annual financial
statements.
CAPITAL RESOURCES AND LIQUIDITY
SoCalGas' operations are the major source of liquidity. In addition,
working capital requirements can be met through the issuance of short-
term and long-term debt. Cash requirements primarily consist of capital
expenditures for utility plant. At September 30, 2003, the company had
$16 million in cash and $800 million (of which PE had $500 million for
the sole purpose of providing loans to Sempra Energy Global
Enterprises, another subsidiary of Sempra Energy, and SoCalGas had $300
million) in unused, committed lines of credit available, of which $40
million was supporting commercial paper. On July 10, 2003, the CPUC
issued a decision authorizing SoCalGas to issue up to $715 million of
additional long-term debt, of which not less than $500 million will be
used for the retirement of debt or preferred stock. The decision also
grants SoCalGas an exemption from the Competitive Bidding Rule and
permits SoCalGas to enter into interest-rate swaps, caps, collars and
currency-exchange contracts. On October 17, 2003, SoCalGas issued $250
million of 5.45% first mortgage bonds due in April 2018. The proceeds
will be used to replenish amounts previously expended to refund and
retire indebtedness and for general corporate purposes. This issuance
used up $33 million of the July 10, 2003 CPUC debt authorization.
Management believes these amounts and cash flows from operations and
new debt issuances will be adequate to finance capital expenditure
requirements and other commitments.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by PE's consolidated operating activities totaled
$423 million and $609 million for the nine months ended September 30,
2003 and 2002, respectively. Net cash provided by SoCalGas' operating
activities totaled $431 million and $607 million for the nine months
ended September 30, 2003 and 2002, respectively. The decreases were
primarily attributable to 2003's decrease in overcollected regulatory
balancing accounts resulting from lower natural gas usage and the
refunding of customers' deposits.
During the third quarter of 2003, SoCalGas made a pension plan
contribution of $1.3 million for the 2003 plan year.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided by PE's consolidated investing activities totaled $79
million for the nine months ended September 30, 2003 compared to net
cash used of $357 million for the corresponding period in 2002. The
change was primarily due to the $296 million repayment from Sempra
Energy in 2003 compared to $144 million of advances from SoCalGas to
Sempra Energy in 2002. Net cash used in SoCalGas' investing activities
totaled $131 million for the nine months ended September 30, 2003
compared to $357 million for the corresponding period in 2002. The
change was the same as for PE except that SoCalGas received $86 million
of the $296 repayment from Sempra Energy in 2003.
Capital expenditures for property, plant and equipment are estimated to
be $350 million for the full year 2003 and are being financed primarily
by internally generated funds and security issuances. Construction,
investment and financing programs are continuously reviewed and revised
in response to changes in competition, customer growth, inflation,
customer rates, the cost of capital, and environmental and regulatory
requirements.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in PE's consolidated financing activities totaled $508
million and $253 million for the nine months ended September 30, 2003
and 2002, respectively. Net cash used in SoCalGas' financing activities
totaled $306 million and $251 million for the nine months ended
September 30, 2003 and 2002, respectively. The increase in PE's cash
flows was attributable to the repayment of $70 million of medium-term
notes in January 2003, $100 million of 7.375% first-mortgage bonds in
April 2003 and $125 million of 7.5% first-mortgage bonds in August
2003, and an increase of $150 million in dividends paid to Sempra
Energy in 2003, partially offset by the issuance of $40 million of
short-term debt in 2003 (compared to a $50 million net reduction in
short-term debt in 2002). The increase in SoCalGas's cash flows was the
same as described above for PE, except for the change in dividends
paid, which reflect a $50 million decrease in dividends paid to PE in
2003.
CREDIT RATINGS
On October 7, 2003, Standard & Poor's reduced the corporate credit
ratings of SoCalGas from A+ to A, senior unsecured debt ratings from A
to A-, and preferred stock ratings from A- to BBB+. The company's prior
ratings for senior secured debt were affirmed at A+. All ratings were
issued with a stable outlook.
On October 14, 2003 Fitch Ratings affirmed the senior secured debt
ratings of SoCalGas at AA, senior unsecured debt ratings at AA-, and
preferred stock ratings at A+. PE's preferred stock rating was lowered
to A from A+. All ratings were issued with a stable outlook.
Moody's senior secured debt ratings of SoCalGas remained unchanged at
A1, the senior unsecured debt ratings at A2, and preferred stock
ratings at Baa1. All ratings maintained their prior stable outlook.
FACTORS INFLUENCING FUTURE PERFORMANCE
Performance of the companies will depend primarily on the ratemaking
and regulatory process, electric and natural gas industry
restructuring, and the changing energy marketplace. These factors are
discussed in the Annual Report and in Note 3 of the notes to
Consolidated Financial Statements herein.
Income Tax Issues
Resolution of the income tax issues described in Note 3 of the notes to
Consolidated Financial Statements herein could have a material impact
on results of operations for 2003, or one or more future periods.
Natural Gas Restructuring and Rates
As discussed in the Annual Report, in December 2001 the CPUC issued a
decision related to natural gas industry restructuring, with
implementation anticipated during 2002. During 2002 the California
Utilities filed a proposed implementation schedule and revised tariffs
and rules required for implementation. However, on February 27, 2003,
the CPUC issued a resolution rejecting without prejudice those proposed
tariffs and rules. The resolution ordered SoCalGas to file a new
application, which would address detailed proposals for implementation
of the December 2001 decision, but also would allow reconsideration of
the December 2001 decision. SoCalGas filed such an application on June
30, 2003, and proposed some modifications to the provisions of the
December 2001 decision to respond to concerns that it could lead to
higher natural gas costs for consumers. The proposed modifications
would also remove SoCalGas' exposure to risk or reward for the sale of
receipt-point capacity. The filing proposes implementation of these
provisions on April 1, 2004 and continuing through August 31, 2006. On
September 29, 2003, the CPUC issued a ruling indicating that the
proceeding will initially only consider implementation of the original
December 2001 decision, but the Assigned Commissioner said he will
informally look at the alternatives proposed by SoCalGas. The matter
has been set for hearing and a CPUC decision is expected by January
2004. If the December 2001 decision is implemented, it is not expected
to have a material effect on the California Utilities' earnings.
CPUC Investigation of Compliance with Affiliate Rules
On February 27, 2003, the CPUC opened an investigation of the business
activities of SDG&E, SoCalGas and Sempra Energy to ensure that they
have complied with relevant statutes and CPUC decisions in the
management, oversight and operations of their companies. On September
18, 2003, the Commission suspended the procedural schedule until the
CPUC completes an independent audit to evaluate energy-related business
activities undertaken by Sempra Energy within the service territories
of SDG&E and SoCalGas, relative to holding company systems and
affiliate activities. The audit will be combined with the annual
affiliate audit and should be completed by the end of 2004. The scope
of the audit will be broader than the annual affiliate audit. In
addition to an evaluation of compliance with CPUC rules and
requirements, this audit will assess the potential for conflicts
between the interests of Sempra Energy and the interests of the
California Utilities and their ratepayers, and examine whether business
activities undertaken by the California Utilities and/or their holding
company and affiliates pose potential problems or unjust or
unreasonable impacts on utility customers.
Cost of Service Filing
As previously reported, the California Utilities have filed cost of
service applications with the CPUC seeking rate increases designed to
reflect forecasts of 2004 capital and operating costs. SoCalGas is
requesting revenue increases of approximately $45 million. The ORA
filed its prepared testimony in the applications on August 8, 2003,
recommending rate decreases that would reduce annual revenues by $121
million from their current level. TURN has proposed rates for SoCalGas
that would reduce annual revenues by $178 million from their current
level. Hearings are expected to conclude by the end of this month. The
procedural schedule for the cost of service applications permits a
decision as early as March 2004, and the California Utilities have
filed a petition for interim rate relief for the period from January 1,
2004 until the effective date of the decision. On November 3, 2003, the
CPUC ALJ released a Proposed Decision that would authorize the
California Utilities to create a memorandum account as of January 1,
2004, to record the difference between existing rates and those that
are later authorized in the Commission's final decision in this case.
The difference would then be amortized in rates. The full Commission
can vote on the Proposed Decision as soon as December 4, 2003. The
California Utilities have also filed for continuation through 2004 of
existing PBR mechanisms for service quality and safety that would
otherwise expire at the end of 2003.
An October 10, 2001 decision denied the California Utilities' request
to continue equal sharing between ratepayers and shareholders of the
estimated savings for the 1998 Enova-PE business combination that
created Sempra Energy and, instead, ordered that all of the estimated
2003 merger savings go to ratepayers. In 2002, merger savings to
shareholders for the three-month and nine-month periods were $4 million
and $13 million, respectively.
NEW ACCOUNTING STANDARDS
Relevant pronouncements that have recently become effective or that are
yet to be effective are SFAS 143, 148, 149 and 150, Interpretations 45
and 46, and EITF 02-3. See discussion in Note 2 of the notes to
Consolidated Financial Statements.
ITEM 3. MARKET RISK
There have been no significant changes in the risk issues affecting the
companies subsequent to those discussed in the Annual Report.
As of September 30, 2003, the total Value at Risk of SoCalGas' natural
gas positions was not material.
ITEM 4. CONTROLS AND PROCEDURES
The companies have designed and maintain disclosure controls and
procedures to ensure that information required to be disclosed in the
companies' reports under the Securities Exchange Act of 1934 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 companies'
management, including their Chief Executive Officers and Chief Financial
Officers, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating these controls and procedures,
management recognizes that any system of controls and procedures, no
matter how well designed and operated, can provide only reasonable
assurance of achieving the desired objectives and necessarily 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 the Chief Financial Officers,
the companies as of the date of this quarterly report have evaluated the
effectiveness of the design and operation of the companies' disclosure
controls and procedures. Based on that evaluation, the companies' Chief
Executive Officers and Chief Financial Officers have concluded that the
controls and procedures are effective.
There have been no significant changes in the companies' internal
controls or in other factors that could significantly affect the
internal controls subsequent to the date the companies completed their
evaluations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described in Note 3 of the notes to Consolidated Financial
Statements, neither the companies nor their subsidiaries are party to,
nor is their property the subject of, any material pending legal
proceedings other than routine litigation incidental to their
businesses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Fixed Charges of PE.
12.2 Computation of Ratio of Earnings to Fixed Charges of
SoCalGas.
Exhibit 31 -- Section 302 Certifications
31.1 Statement of PE's Chief Executive Officer pursuant
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.2 Statement of PE's Chief Financial Officer pursuant
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.3 Statement of SoCalGas' Chief Executive Officer pursuant
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.4 Statement of SoCalGas' Chief Financial Officer pursuant
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
Exhibit 32 -- Section 906 Certifications
32.1 Statement of PE's Chief Executive Officer pursuant
to 18 U.S.C. Sec. 1350.
32.2 Statement of PE's Chief Financial Officer pursuant
to 18 U.S.C. Sec. 1350.
32.3 Statement of SoCalGas' Chief Executive Officer pursuant
to 18 U.S.C. Sec. 1350.
32.4 Statement of SoCalGas' Chief Financial Officer pursuant
to 18 U.S.C. Sec. 1350.
(b) Reports on Form 8-K
The following report on Form 8-K was filed after June 30, 2003:
Current Report on Form 8-K filed August 7, 2003, filing as an exhibit
Sempra Energy's press release of August 7, 2003, giving the financial
results for the three months ended June 30, 2003.
Current Report on Form 8-K filed September 2, 2003, announcing CPUC
approval of certain performance rewards and the CPUC's denial of
rehearing requested by opponents of an approved settlement agreement
with SDG&E.
Current Report on Form 8-K filed November 6, 2003, filing as an exhibit
Sempra Energy's press release of November 6, 2003, giving the financial
results for the three months ended September 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
PACIFIC ENTERPRISES
-------------------
(Registrant)
Date: November 6, 2003 By: /s/ F. H. Ault
----------------------------
F. H. Ault
Sr. Vice President and Controller
SOUTHERN CALIFORNIA GAS COMPANY
-------------------------------
(Registrant)
By: /s/ D.L. Reed
---------------------------
D.L. Reed
President and
Chief Financial Officer
EXHIBIT 12.1
PACIFIC ENTERPRISES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Nine
months
ended
September 30,
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -----------
Fixed Charges:
Interest $ 84 $ 82 $ 72 $ 88 $ 63 $ 40
Interest portion of
annual rentals 11 3 4 3 2 1
Preferred dividends
of subsidiaries (1) 2 2 2 2 2 2
-------- -------- -------- -------- -------- ---------
Total Fixed Charges
for Purpose of Ratio $ 97 $ 87 $ 78 $ 93 $ 67 $ 43
======== ======== ======== ======== ======== =========
Earnings:
Pretax income from
continuing operations $274 $350 $396 $377 $383 $261
Total Fixed Charges
(from above) 97 87 78 93 67 43
-------- -------- -------- -------- ------- ---------
Total Earnings for
Purpose of Ratio $371 $437 $474 $470 $450 $304
======== ======== ======== ======== ======= ==========
Ratio of Earnings
to Fixed Charges 3.82 5.02 6.08 5.05 6.72 7.07
======== ======== ======== ======== ======= ==========
(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
SOUTHERN CALIFORNIA GAS COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Nine
months
September 30,
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
Fixed Charges:
Interest $ 81 $ 62 $ 72 $ 70 $ 47 $ 36
Interest portion of
annual rentals 4 3 4 3 2 1
-------- -------- -------- -------- -------- --------
Total fixed charges
for purpose of ratio $ 85 $ 65 $ 76 $ 73 $ 49 $ 37
======== ======== ======== ======== ======== ========
Earnings:
Pretax income from
continuing operations $287 $383 $390 $377 $391 $265
Add: Total fixed charges
(from above) 85 65 76 73 49 37
-------- -------- -------- -------- -------- --------
Total earnings for
purpose of ratio $372 $448 $466 $450 $440 $302
======== ======== ======== ======== ======== ========
Ratio of earnings
To fixed charges 4.38 6.89 6.13 6.16 8.98 8.16
======== ======== ======== ======== ======== ========
EXHIBIT 31.1
CERTIFICATION
I, Stephen L. Baum, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Pacific
Enterprises;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements and other financial
information included in this Quarterly 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 Quarterly 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)) for the
registrant and we 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 Quarterly Report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and
c) 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 that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
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 function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls 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 controls over financial reporting.
November 6, 2003
/S/ STEPHEN L. BAUM
Stephen L. Baum
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Neal E. Schmale, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Pacific
Enterprises;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements and other financial
information included in this Quarterly 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 Quarterly 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)) for the
registrant and we 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 Quarterly Report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and
c) 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 that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
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 function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls 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 controls over financial reporting.
November 6, 2003
/S/ NEAL E. SCHMALE
Neal E. Schmale
Chief Financial Officer
EXHIBIT 31.3
CERTIFICATION
I, Edwin A. Guiles, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Southern
California Gas Company;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements and other financial
information included in this Quarterly 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 Quarterly 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)) for the
registrant and we 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 Quarterly Report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and
c) 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 that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
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 function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls 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 controls over financial reporting.
November 6, 2003
/S/ EDWIN A. GUILES
Edwin A. Guiles
Chief Executive Officer
EXHIBIT 31.4
CERTIFICATION
I, Debra L. Reed, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Southern
California Gas Company;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements and other financial
information included in this Quarterly 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 Quarterly 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)) for the
registrant and we 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 Quarterly Report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and
c) 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 that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
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 function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls 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 controls over financial reporting.
November 6, 2003
/S/ DEBRA L. REED
Debra L. Reed
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
Pacific Enterprises (the "Company") certifies that:
(i) the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended September 30, 2003 (the "Quarterly 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 Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
November 6, 2003
/S/ STEPHEN L. BAUM
______________________
Stephen L. Baum
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
Pacific Enterprises (the "Company") certifies that:
(i) the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended September 30, 2003 (the "Quarterly 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 Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
November 6, 2003
/S/ NEAL E. SCHMALE
______________________
Neal E. Schmale
Chief Financial Officer
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
Southern California Gas Company (the "Company") certifies that:
(i) the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended September 30, 2003 (the "Quarterly 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 Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
November 6, 2003
/S/ EDWIN A. GUILES
______________________
Edwin A. Guiles
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
Southern California Gas Company (the "Company") certifies that:
(i) the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended September 30, 2003 (the "Quarterly 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 Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
November 6, 2003
/S/ DEBRA L. REED
______________________
Debra L. Reed
Chief Financial Officer
