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| SRE > SEC Filings for SRE > Form 10-Q on 5-May-2009 | All Recent SEC Filings |
5-May-2009
Quarterly Report
You should read the following discussion in conjunction with the financial statements contained in this Form 10-Q, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our 2008 Annual Report on Form 10-K (Annual Report), and "Risk Factors" contained in our Annual Report and Part II of this Form 10-Q.
OVERVIEW
Sempra Energy is a Fortune 500 energy services holding company whose business units provide electric, natural gas and other energy products and services to their customers. Our operations are divided principally between the Sempra Utilities and Sempra Global. The Sempra Utilities consist of two California regulated public utility companies, 1) San Diego Gas & Electric Company (SDG&E) and 2) Southern California Gas Company (SoCalGas). Sempra Global consists of businesses engaged in providing energy products and services.
This report includes information for the following separate registrants:
§
Sempra Energy and its consolidated entities
§
SDG&E
§
Pacific Enterprises (PE), the holding company for SoCalGas
§
SoCalGas
References in this report to "we," "our" and "Sempra Energy Consolidated" are to Sempra Energy and its consolidated entities, collectively, unless otherwise indicated by the context.
PE's operations consist solely of those of SoCalGas and additional items (e.g., cash, intercompany accounts and equity) attributable to being a holding company for SoCalGas.
Below are the summary descriptions of our operating business units.
SEMPRA BUSINESS UNITS
The Sempra Utilities consist of SDG&E and SoCalGas.
SEMPRA UTILITIES
MARKET SERVICE TERRITORY
SAN DIEGO GAS & ELECTRIC § Serves the county of San
COMPANY (SDG&E) Provides electricity to Diego, CA and southern
A regulated public 3.4 million consumers (1.4 Orange County covering
utility; infrastructure million meters) 4,100 square miles
supports electric §
distribution and Provides natural gas to
transmission, and natural 3.1 million consumers
gas distribution (840,000 meters)
SOUTHERN CALIFORNIA GAS § Southern California and
COMPANY (SOCALGAS) Residential, commercial, portions of Central
A regulated public industrial, utility California (excluding San
utility; infrastructure electric generation and Diego County, the city of
supports natural gas wholesale customers Long Beach and the desert
distribution, transmission § area of San Bernardino
and storage Covers a population of County) covering 20,000
20.5 million (5.7 million square miles
meters)
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Sempra Global is a holding company for most of our subsidiaries that are not subject to California utility regulation. Sempra Global's principal business units, which provide energy-related products and services, are
§
Sempra Commodities
§
Sempra Generation
§
Sempra Pipelines & Storage
§
Sempra LNG
SEMPRA GLOBAL
MARKET GEOGRAPHIC REGION
SEMPRA COMMODITIES § §
RBS Sempra Commodities, a Natural gas; natural gas Global
joint venture with The liquids
Royal Bank of Scotland §
(RBS), a commodities- Power
marketing business §
Petroleum and petroleum
products
§
Coal
§
Emissions
§
Ethanol
§
Base metals
SEMPRA GENERATION § §
Develops, owns and Wholesale electricity U.S.A.
operates electric power §
plants Mexico
SEMPRA PIPELINES & STORAGE § §
Develops, owns and Natural gas U.S.A.
operates, or holds § §
interests in, natural gas Electricity Mexico
pipelines and storage §
facilities, and natural Argentina
gas and electric service §
providers Chile
§
Peru
SEMPRA LNG § §
Develops, owns and Natural gas U.S.A.
operates receipt terminals §
for importing liquefied Mexico
natural gas (LNG)
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RESULTS OF OPERATIONS
We discuss the following in Results of Operations:
§
Overall results of our operations and factors affecting those results
§
Our business unit results
§
Significant changes in revenues, costs and earnings between periods
In the three months ended March 31, 2009, our earnings increased $74 million (31%) to $316 million primarily due to higher earnings at Sempra Commodities and SDG&E.
Diluted earnings per share increased by $0.37 per share, $0.28 per share from increased earnings and $0.09 per share from a reduction in shares outstanding, primarily as a result of our $1 billion share repurchase in 2008.
The following table shows our earnings by business unit, which we discuss below in "Business Unit Results."
EARNINGS BY BUSINESS UNIT
(Dollars in millions)
Three months ended March 31,
2009 2008
Sempra Utilities:
SDG&E* $ 99 31 % $ 74 31 %
SoCalGas* 59 19 57 23
Sempra Global:
Sempra Commodities** 114 36 59 24
Sempra Generation 43 13 45 19
Sempra Pipelines & Storage 37 12 26 11
Sempra LNG (7) (2) (9) (4)
Parent and other*** (29) (9) (10) (4)
Earnings $ 316 100 % $ 242 100 %
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BUSINESS UNIT RESULTS
The following section is a discussion of earnings by business unit, as it appears in the table above.
BUSINESS UNIT EARNINGS -- SEMPRA UTILITIES
(Dollars in millions)
[[Image Removed: [qtr1_2009002.gif]]]
SDG&E
SDG&E business unit earnings were
§
$99 million in the first three months of 2009 ($100 million before preferred dividends)
§
$74 million in the first three months of 2008 ($75 million before preferred dividends)
The increase of $25 million (34%) was due to:
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$16 million higher authorized margin due to the implementation of the 2008 General Rate Case (GRC) decision in the third quarter 2008;
§
$8 million higher CPUC authorized margin and lower operation and maintenance expenses; and
§
$6 million primarily from the favorable resolution of litigation in 2009; offset by
§
$9 million from the favorable resolution of prior years' income tax issues in 2008.
SoCalGas
SoCalGas business unit earnings were
§
$59 million in the first three months of 2009
§
$57 million in the first three months of 2008
The increase of $2 million (4%) was due to $3 million higher authorized margin due to the implementation of the 2008 GRC decision in the third quarter 2008.
BUSINESS UNIT EARNINGS (LOSSES) -- SEMPRA GLOBAL
(Dollars in millions)
[[Image Removed: [qtr1_2009004.gif]]]
Sempra Commodities
Sempra Commodities recorded business unit earnings of:
§
$114 million in the first three months of 2009
§
$59 million in the first three months of 2008
Results for the first quarter of 2009 primarily represent our equity earnings from RBS Sempra Commodities, formed on April 1, 2008. Results for the first quarter of 2008 represent 100% of the commodities-marketing businesses' earnings until the formation of the joint venture. The 2008 results included a $17 million write-down related to a counterparty credit issue.
Sempra Generation
Sempra Generation recorded business unit earnings of:
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$43 million in the first three months of 2009
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$45 million in the first three months of 2008
The decrease of $2 million (4%) included
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$9 million lower earnings from operations primarily due to plant scheduled major maintenance and associated downtime in 2009; offset by
§
$8 million lower taxes related to Sempra Generation's planned solar investments and Mexican currency translation and inflation adjustments.
Sempra Pipelines & Storage
Sempra Pipelines & Storage recorded business unit earnings of:
§
$37 million in the first three months of 2009
§
$26 million in the first three months of 2008
The increase of $11 million (42%) was primarily due to
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$9 million higher earnings from the commencement of LNG-related pipeline operations in Mexico in the second quarter of 2008; and
§
$6 million earnings from the operations of Mobile Gas acquired in October 2008; offset by
§
$7 million lower earnings due to foreign currency exchange-rate effects, primarily from its investments in Chile.
Mobile Gas typically reports its highest earnings in the first quarter, when heating demand is stronger due to colder weather.
Sempra LNG
Sempra LNG recorded losses of:
§
$7 million in the first three months of 2009
§
$9 million in the first three months of 2008
The decrease in losses of $2 million (22%) included
§
$9 million improved mark-to-market results related to a natural gas marketing agreement with RBS Sempra Commodities; offset by
§
a $10 million after-tax cash payment received in 2008 for the early termination of a capacity agreement for the Cameron LNG receipt terminal.
Parent and Other
Losses for Parent and Other were
§
$29 million in the first three months of 2009
§
$10 million in the first three months of 2008
The increase in losses of $19 million (190%) was due to:
§
$14 million higher net interest expense; and
§
$8 million higher investment losses on dedicated assets in support of our executive retirement and deferred compensation plans due to market declines. This amount is net of the reduction in deferred compensation liability associated with the investments.
CHANGES IN REVENUES, COSTS AND EARNINGS
This section contains a discussion of the differences between periods in the specific line items of the Condensed Consolidated Statements of Operations for Sempra Energy, SDG&E, PE and SoCalGas.
Sempra Utilities Revenues
The current regulatory framework permits the cost of natural gas purchased for core customers (primarily residential and small commercial and industrial customers) to be passed on to customers substantially as incurred. However, SoCalGas' Gas Cost Incentive Mechanism (GCIM) provides SoCalGas the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above market-based monthly benchmarks. The mechanism permits full recovery of costs incurred when average purchase costs are within a price range around a monthly benchmark price. Any higher costs or savings realized outside this range are shared between the core customers and SoCalGas. We provide further discussion in Note 9 of the Notes to Condensed Consolidated Financial Statements herein.
The regulatory framework permits SDG&E to recover the actual cost incurred to generate or procure electricity based on annual estimates of the cost of electricity supplied to core customers. The differences in cost between estimates and actual are recovered in the next year through rates.
Sempra Utilities: Natural Gas Revenues and Cost of Natural Gas
The tables below show natural gas revenues for Sempra Energy, SDG&E and SoCalGas for the three-month periods ended March 31. The Sempra Energy amounts reflect SDG&E and SoCalGas revenues, net of intercompany transactions. Because the cost of natural gas is recovered in rates, changes in the cost are reflected in the changes in revenues.
SEMPRA ENERGY CONSOLIDATED
NATURAL GAS SALES, TRANSPORTATION AND EXCHANGE
(Volumes in billion cubic feet, dollars in millions)
Transportation
Natural Gas Sales and Exchange Total
Customer class Volumes Revenue Volumes Revenue Volumes Revenue
2009:
Residential 95 $ 851 - $ 1 95 $ 852
Commercial and
industrial 36 264 66 51 102 315
Electric generation
plants - - 55 14 55 14
Wholesale - - 7 2 7 2
131 $ 1,115 128 $ 68 259 1,183
Other revenues 24
Balancing accounts* (116)
Total $ 1,091
2008:
Residential 108 $ 1,293 - $ 2 108 $ 1,295
Commercial and
industrial 36 396 73 35 109 431
Electric generation
plants - - 58 21 58 21
Wholesale - - 7 2 7 2
144 $ 1,689 138 $ 60 282 1,749
Other revenues 44
Balancing accounts* (1)
Total $ 1,792
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During the three months ended March 31, 2009, our natural gas revenues decreased by $701 million (39%) to $1.1 billion, and the cost of natural gas decreased by $695 million (56%) to $540 million. The decrease in revenues was primarily due to substantially lower natural gas prices in 2009. To a lesser extent, the decrease was due to lower sales volumes resulting from a milder winter in 2009.
SDG&E
NATURAL GAS SALES, TRANSPORTATION AND EXCHANGE
(Volumes in billion cubic feet, dollars in millions)
Transportation
Natural Gas Sales and Exchange Total
Customer class Volumes Revenue Volumes Revenue Volumes Revenue
2009:
Residential 11 $ 127 - $ - 11 $ 127
Commercial and industrial 5 37 2 3 7 40
Electric generation plants - - 17 5 17 5
16 $ 164 19 $ 8 35 172
Other revenues 8
Balancing accounts (1)
Total* $ 179
2008:
Residential 14 $ 180 - $ - 14 $ 180
Commercial and industrial 5 56 2 3 7 59
Electric generation plants - - 18 7 18 7
19 $ 236 20 $ 10 39 246
Other revenues 6
Balancing accounts (7)
Total* $ 245
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During the three months ended March 31, 2009, SDG&E's natural gas revenues decreased by $66 million (27%) to $179 million, and the cost of natural gas decreased by $65 million (43%) to $87 million. The decrease in revenues was primarily due to substantially lower natural gas prices in 2009 and, to a lesser extent, lower volumes resulting from a milder winter in 2009.
SOCALGAS
NATURAL GAS SALES, TRANSPORTATION AND EXCHANGE
(Volumes in billion cubic feet, dollars in millions)
Transportation
Natural Gas Sales and Exchange Total
Customer class Volumes Revenue Volumes Revenue Volumes Revenue
2009:
Residential 84 $ 724 - $ 1 84 $ 725
Commercial and industrial 31 227 64 48 95 275
Electric generation plants - - 38 9 38 9
Wholesale - - 40 4 40 4
115 $ 951 142 $ 62 257 1,013
Other revenues 22
Balancing accounts (115)
Total* $ 920
2008:
Residential 94 $ 1,113 - $ 2 94 $ 1,115
Commercial and industrial 31 340 71 32 102 372
Electric generation plants - - 40 14 40 14
Wholesale - - 44 6 44 6
125 $ 1,453 155 $ 54 280 1,507
Other revenues 43
Balancing accounts 6
Total* $ 1,556
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During the three months ended March 31, 2009, SoCalGas' natural gas revenues decreased by $636 million (41%) to $920 million, and the cost of natural gas decreased by $632 million (58%) to $455 million. The decrease in revenues was primarily due to substantially lower natural gas prices in 2009 and, to a lesser extent, lower volumes resulting from a milder winter in 2009.
Sempra Utilities: Electric Revenues and Cost of Electric Fuel and Purchased Power
The table below shows electric revenues for Sempra Energy and SDG&E. Sempra Energy amounts are net of intercompany transactions. Because the cost of electricity is substantially recovered in rates, changes in the cost are reflected in the changes in revenues.
During the three months ended March 31, 2009, electric revenues increased by $53 million (11%) to $551 million at Sempra Energy and by $52 million (10%) to $553 million at SDG&E, and the cost of electric fuel and purchased power increased by $8 million (5%) to $171 million. The increase in revenues was primarily due to:
§
$24 million due to the implementation of the 2008 GRC decision in the third quarter of 2008;
§
$13 million higher authorized electric distribution, transmission and generation margins;
§
$8 million increase in cost of electric fuel and purchased power; and
§
$6 million higher recoverable expenses that are fully offset in operation and maintenance expenses.
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