-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MC24fM07WfchCNgdAlSFMEuDN9tkLqKlEKFBDkgnkjYsBK2Yk3NZsDC3h4CV72Hy iUdr+MgG5LS+j029YPl5/Q== /in/edgar/work/0000086521-00-000033/0000086521-00-000033.txt : 20001114 0000086521-00-000033.hdr.sgml : 20001114 ACCESSION NUMBER: 0000086521-00-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN DIEGO GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000086521 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 951184800 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03779 FILM NUMBER: 759348 BUSINESS ADDRESS: STREET 1: 8326 CENTURY PARK COURT CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6196962000 MAIL ADDRESS: STREET 1: P O BOX 1831 CITY: SAN DIEGO STATE: CA ZIP: 92112 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------------------------- 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.) 8326 Century Park Court, San Diego, California 92123 - ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (619) 696-2000 ---------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ----- ----- Common stock outstanding: Wholly owned by Enova Corporation PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY STATEMENTS OF CONSOLIDATED INCOME Dollars in millions

SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY STATEMENTS OF CONSOLIDATED INCOME Dollars in millions

SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS Dollars in millions

SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS Dollars in millions

SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS Dollars in millions

San Diego Gas & Electric Electric Distribution and Transmission For the nine-month periods ended September 30 (Volumes in millions of Kwhrs, dollars in millions)

San Diego Gas & Electric Gas Sales, Transportation and Exchange For the nine-month periods ended September 30 (Volumes in billion cubic feet, dollars in millions)

* margin only for the months prior to the sale of the fossil-fuel plants. Electric revenues increased two percent for the nine-month period ended September 30, 2000 compared to the same period in 1999. The fluctuation is primarily due to the charge for a potential regulatory disallowance related to the acquisition to date of wholesale power in the deregulated California market and the decrease in base electric rates (the non-commodity portion) from the completion of stranded cost recovery (described in Note 2 of the notes to Consolidated Financial Statements), partially offset by the effect of higher pass- through electric commodity costs. Natural gas revenues increased 12 percent for the nine-month period ended September 30, 2000, compared to the corresponding period in 1999, primarily due to increased natural gas prices. Electric fuel and net purchased power expense increased 115 percent for the nine-month period ended September 30, 2000 compared to the corresponding period in 1999. The increase was primarily due to the higher price of electricity from the PX reflecting the recent supply/demand conditions described in Note 2 of the notes to Consolidated Financial Statements. Under the current regulatory framework, changes in on-system prices normally do not affect net income, as explained in the 1999 Annual Report. However, the recent supply/demand conditions referred to above resulted in a $50 million pretax charge to income in September 2000. Natural gas purchased for resale for the nine-month period ended September 30, 2000 increased 29 percent from the corresponding period in 1999. The increase was primarily due to higher natural gas prices. Under the current regulatory framework, changes in core-market natural gas prices do not affect net income since, as explained more fully in the 1999 Annual Report, current or future customer rates normally recover the actual cost of natural gas. Depreciation and decommissioning expense decreased 69 percent for the nine-month period ended September 30, 2000, compared to the corresponding period in 1999, due to the 1999 sale of the power plants and combustion turbines. Operating income decreased 16 percent for the nine-month period ended September 30, 2000 compared to the corresponding period in 1999. The decrease is primarily due to the charge for a potential regulatory disallowance related to the acquisition to date of wholesale power in the deregulated California market. FACTORS INFLUENCING FUTURE PERFORMANCE As discussed in more detail in Note 2 of the notes to Consolidated Financial Statements, a number of factors, including recent supply/demand conditions, have resulted in abnormally high electric commodity prices. This has caused SDG&E's monthly customer bills to be substantially higher than normal. Responses to these high rates have resulted in a temporary ceiling on electric rates, as described briefly below and in more detail in the Note. In September 2000 the California governor signed two bills (AB 265 and AB 970) passed by the California Legislature with respect to electricity pricing and power plant construction. AB 265 contains a commodity rate ceiling and stabilization plan that imposes a ceiling on the commodity rate for electricity that SDG&E can pass on to residential and small business customers on a current basis. The ceiling is retroactive to June 1, 2000, extends through December 31, 2002, and may be extended through December 31, 2003 if the CPUC determines that it is in the public interest. AB 265 also requires the CPUC to initiate a proceeding to assess alternatives for recovering undercollections (the cost of electricity purchased by SDG&E that cannot be passed on to customers on a current basis) resulting from the commodity rate ceiling. The legislation provides for the recovery of such undercollections (in excess of net revenues associated with sales of energy from utility-owned or managed generation assets) resulting from the reasonable and prudent costs of procuring the commodity. It also directs the CPUC to examine the prudence and reasonableness of SDG&E's procurement of wholesale energy on behalf of its customers. In October 2000, the CPUC commenced a thorough review of SDG&E's energy procurement practices for the period July 1999 through August 2000. A decision is expected in the third quarter of 2001. AB 970 speeds up the licensing and review of new power plants to increase supply and meet growing demand. The bill also encourages energy conservation, establishing new programs to reduce demand. To implement AB 265, on September 7, 2000, the CPUC unanimously approved a cap on electric rates. The ceiling on the electricity commodity portion of customers' bills is set at 6.5 cents/kWh. This is a "floating cap" that can float downward as prices decrease, but cannot exceed actual commodity costs without the permission of the CPUC. An interest-bearing balancing account would be established to record related undercollections resulting from the commodity rate ceiling with undercollected amounts to be recovered in a manner (not specified in the decision) intended to make SDG&E whole for the reasonable and prudent costs of procuring the electric commodity. This balancing account is classified as a regulatory asset on the Consolidated Balance Sheets due to its long-term nature. The undercollection is $254 million at September 30, 2000, is estimated to amount to $375 million by December 31, 2000, and grow to $550 million and $750 million at December 31, 2001 and 2002, respectively, based on NYMEX Palo Verde futures prices. If the CPUC later adopts the option granted it by the legislation to extend the ceiling for an additional year, the balance at December 31, 2003 is estimated to be $950 million. These amounts are higher than those recently discussed by the Company due to balancing-account treatment of contracts with Qualified Facilities and changes in NYMEX Palo Verde futures prices. These amounts could increase or decrease significantly due to variations between the forward prices used in the estimation process and the actual costs incurred, and could decrease to the extent that regulators permit overcollections in other balancing accounts to be applied against this undercollection and/or take actions to correct the California market, such as by adopting the $150 per MWh "soft cap" recently proposed by the FERC. In October 2000 SDG&E requested that the CPUC freeze the commodity rate at 6.5 cents/kWh instead of capping the rate at that amount. Under a rate freeze, in those months when the electric commodity cost is less than 6.5 cents/kWh, SDG&E would be able to collect more revenue than its current cost of electricity to offset the undercollection incurred when wholesale power prices are above that rate. California regulatory uncertainties have led Moody's Investors Service to change its rating outlook on SDG&E's securities from positive to negative. Moody's also changed the rating outlook on Sempra Energy's securities from stable to negative. Fitch IBCA, another major credit rating agency, also lowered its outlook on SDG&E's securities from stable to negative due to the uncertainty over the recovery of high wholesale energy prices not included in customer bills. Another major credit rating agency, Standard & Poor's, did not change the Company's rating outlook and believes the Company's long-term prognosis to be stable. Although some of the rating outlooks have changed, the Company's actual credit ratings have not. The Company's actual credit ratings are detailed in Note 2 of the notes to Consolidated Financial Statements. Performance of the Company in the near future 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 this section and in the notes to Consolidated Financial Statements. Industry Restructuring See discussion of industry restructuring in Note 2 of the notes to Consolidated Financial Statements. Electric-Generation Assets and Electric Rates Note 2 of the notes to Consolidated Financial Statements describes regulatory and legislative actions that affect SDG&E's electric rates. Performance-Based Regulation (PBR) To promote efficient operations and improved productivity and to move away from reasonableness reviews and disallowances, the CPUC has been directing utilities to use PBR. PBR has replaced the general rate case and certain other regulatory proceedings for the California utilities (SoCalGas and SDG&E). Under PBR, regulators require future income potential to be tied to achieving or exceeding specific performance and productivity goals, as well as cost reductions, rather than relying solely on expanding utility plant in a market where a utility already has a highly developed infrastructure. The utility's PBR mechanism is scheduled to be updated at December 31, 2002, to reflect, among other things, changes in costs and volumes. Key elements of the mechanisms include an initial reduction in base rates, an indexing mechanism that limits future rate increases to the inflation rate less a productivity factor, a sharing mechanism with customers if earnings exceed the authorized rate of return on rate base, and rate refunds to customers if service quality deteriorates or awards if service quality exceeds set standards. Specifically, the key elements of the mechanisms include the following: - -- Earnings up to 25 basis points in excess of the authorized rate of return on rate base are retained 100 percent by shareholders. Earnings that exceed the authorized rate of return on rate base by greater than 25 basis points are shared between customers and shareholders on a sliding scale that begins with 75 percent of the additional earnings being given back to customers and declining to 0 percent as earned returns approach 300 basis points above authorized amounts. There is no sharing if actual earnings fall below the authorized rate of return. In 1999, SDG&E was authorized to earn 9.05 percent on rate base. For 2000, the authorized return is 8.75 percent. - -- Base rates are indexed based on inflation less an estimated productivity factor. - -- SDG&E would be authorized to earn or be penalized up to a maximum of $14.5 million annually as a result of its performance related to employee safety, electric reliability, customer satisfaction, and call-center responsiveness. Annual cost of capital proceedings are replaced by an automatic adjustment mechanism. If changes in certain indices exceed established tolerances, there would be an automatic adjustment of rates for the change in the cost of capital according to a formula which applies a percentage of the change to various capital components. Cost of Capital Electric-industry restructuring has changed the method of calculating the utility's annual cost of capital. In June 1999, the CPUC adopted a 10.6 percent return on common equity and an 8.75 percent return on rate base for SDG&E's electric-distribution and natural gas businesses. The electric-transmission cost of capital is determined under a separate FERC proceeding. Biennial Cost Allocation Proceeding (BCAP) The BCAP determines how a utility's natural gas transportation costs are allocated among various customer classes (residential, commercial, industrial, etc.). In October 1998, the California utilities filed 1999 BCAP applications requesting that new rates become effective August 1, 1999, and remain in effect through December 31, 2002. On April 20, 2000, the CPUC issued a decision adopting overall decreases in natural gas revenues of $37 million for SDG&E for transportation rates effective June 1, 2000. Since the decrease reflects anticipated changes in corresponding costs, it has no effect on net income. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities." As amended, SFAS 133, which is effective for the company on January 1, 2001, requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position, measure those instruments at fair value and recognize changes in the fair value of derivatives in earnings in the period of change unless the derivative qualifies as an effective hedge that offsets certain exposures. The effect of this standard on the company's Consolidated Financial Statements has not yet been determined. In December 1999, the Securities Exchange Commission (SEC) staff issued Staff Accounting Bulletin (SAB) 101 - Revenue Recognition. SABs are not rules issued by the SEC. Rather, they represent interpretations and practices followed by the SEC's staff in administering the disclosure requirements of the federal securities laws. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements; it does not change the existing rules on revenue recognition. SAB 101 sets forth the basic criteria that must be met before revenue should be recorded. Implementation of SAB 101 is required by the fourth quarter of 2000 and will have no effect on the company's Consolidated Financial Statements. ITEM 3. MARKET RISK There have been no significant changes in the risk issues affecting the Company subsequent to those discussed in the Annual Report on Form 10-K for 1999. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except as otherwise described in this report, neither the Company nor its subsidiary are party to, nor is their property the subject of, any material pending legal proceedings other than routine litigation incidental to their businesses. ITEM 5. OTHER INFORMATION In August 2000 the Company announced that E.A. Guiles was appointed to the position of group president of the regulated business units of Sempra Energy, which was left vacant by the retirement of Warren Mitchell. Guiles has also been named chairman of SDG&E and of SoCalGas and continues as president of SoCalGas and its Energy Distribution Services business unit. In September 2000 Sempra Energy announced the appointment of Stephen L. Baum as chairman. He succeeds former chairman Richard D. Farman, who has retired. Baum continues as president and chief executive officer of Sempra Energy. 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. Exhibit 27 - Financial Data Schedules 27.1 Financial Data Schedule for the nine-month period ended September 30, 2000. (b) Reports on Form 8-K There were no reports on Form 8-K filed after June 30, 2000. SIGNATURE Pursuant to the requirement of the Securities Exchange Act of 1934, SDG&E has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SAN DIEGO GAS & ELECTRIC COMPANY (Registrant) Date: November 13, 2000 By: /s/ D.L. Reed ----------------------------- D.L. Reed President EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED STATEMENT OF CONSOLIDATED INCOME, BALANCE SHEET AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000086521 SAN DIEGO GAS & ELECTRIC COMPANY 1,000,000 9-MOS DEC-31-2000 SEP-30-2000 PER-BOOK 2,187 578 872 827 13 4,477 291 566 167 1,023 25 79 1,340 0 0 0 66 0 21 0 1,923 4,477 1,776 101 1,491 1,592 184 24 208 96 112 5 107 400 61 218 0 0

EX-12 3 0003.txt COMPUTATION OF RATIOS EXHIBIT 12.1 SAN DIEGO GAS & ELECTRIC COMPANY COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in millions)
For the nine months ended September 30, 1995 1996 1997 1998 1999 2000 --------- -------- -------- --------- --------- --------- Fixed Charges and Preferred Stock Dividends: Interest: Long-Term Debt $ 82 $ 76 $ 69 $ 55 $ 49 $37 Rate Reduction Bonds -- -- -- 41 35 24 Short-Term Debt & Other 18 13 14 14 40 32 Amortization of Debt Discount and Expense, Less Premium 5 5 5 8 7 4 Interest Portion of Annual Rentals 10 8 10 7 5 2 --------- -------- -------- ------- --------- ---------- Total Fixed Charges 115 102 98 125 136 99 --------- -------- -------- -------- --------- ---------- Preferred Dividends for Purpose of Ratio (1) 14 13 13 11 10 10 --------- -------- -------- -------- --------- --------- Total Fixed Charges and Preferred Stock Dividends For Purpose of Ratio $129 $115 $111 $136 $146 $109 ========== ======== ======== ======== ========= ========= Earnings: Net Income (before preferred dividend requirements) $219 $222 $238 $191 $199 $112 Add: Fixed charges (from above) 115 102 98 125 136 99 Less: Fixed charges capitalized 2 1 2 1 1 -- Taxes on Income 173 198 219 141 126 114 --------- - ------- -------- --------- --------- -------- Total Earnings for Purpose of Ratio $505 $521 $553 $456 $460 $325 ========= ======== ======== ======== ========= ======== Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 3.92 4.54 5.00 3.36 3.15 2.98 ========= ======== ======== ======== ========= ======== (1) In computing this ratio, "Preferred dividends" represents the before-tax earnings necessary to pay such dividends, computed at the effective tax rates for the applicable periods.
~~-----END PRIVACY-ENHANCED MESSAGE-----~~