-----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, JvDMFpXoZreiWxiNZ7cvvmA8yFe3WE3ERsR4HeBHu37W6FQfJOaMYaBGoNldiBea jxQggwiHzDOqhiCjNT4hVA== 0000086521-99-000044.txt : 19990816 0000086521-99-000044.hdr.sgml : 19990816 ACCESSION NUMBER: 0000086521-99-000044 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN DIEGO GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000086521 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [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: 99687441 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 QUARTERLY REPORT FORM 10-Q 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 June 30, 1999 ------------------------------------- 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 CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in millions)

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

Electric Distribution (Dollars in millions, volumes in millions of Kwhrs)

Gas Sales, Transportation & Exchange (Dollars in millions, volumes in billion cubic feet)

YEAR 2000 ISSUES Most companies are affected by the inability of many automated systems and applications to process the year 2000 and beyond. The Year 2000 issues are the result of computer programs and other automated processes using two digits to identify a year, rather than four digits. Any of the Company's computer programs that include date-sensitive software may recognize a date using "00" as representing the year 1900, instead of the year 2000, or "01" as 1901, etc., which could lead to system malfunctions. The Year 2000 issue impacts both Information Technology ("IT") systems and also non-IT systems, including systems incorporating embedded processors. To address this problem, in 1996, both Pacific Enterprises and Enova Corporation established company-wide Year 2000 programs. These programs have now been consolidated into Sempra Energy's overall Year 2000 readiness effort. Sempra Energy has established a central Year 2000 Program Office, which reports to the Company's Chief Information Technology Officer and reports periodically to the audit committee of the Board of Directors. The Company's State of Readiness Sempra Energy has identified all significant IT and non-IT systems (including embedded systems) that might not be Year 2000 ready and categorizing them in the following areas: IT applications, computer hardware and software infrastructure, telecommunications, embedded systems, and third parties. The Company evaluated its exposure in all of these areas. These systems and applications are being tracked and measured through four key phases: inventory, assessment, remediation/testing, and Year 2000 readiness. The Company has prioritized so that, when possible, critical systems are being assessed and modified/replaced first. Critical systems are those applications and systems, including embedded processor technology, which, if not appropriately remediated, may have a significant impact on energy delivery, revenue collection or the safety of personnel, customers or facilities. The Company's Year 2000 testing effort includes functional testing of Year 2000 dates and validating that changes have not altered existing functionality. The Company uses an independent, internal review process to verify that the appropriate testing has occurred. The Company's Year 2000 project is currently on schedule, with critical energy delivery systems for both SoCalGas and SDG&E Year 2000 Ready as of June 30, 1999. The Company defines "Year 2000 Ready" as suitable for continued use into the year 2000 with no significant operational problems. Sempra Energy's current schedule for Year 2000 testing and readiness for non-critical systems is to be completed by the fourth quarter of 1999. In certain cases, this schedule is dependent upon the efforts of third parties, such as suppliers (including energy producers) and customers. Accordingly, delays by third parties may cause the Company's schedule to change. In addition, a continued readiness management process has been implemented to monitor and review the progress of Year 2000 readiness of the Company's systems. The Costs to Address the Company's Year 2000 Issues Sempra Energy's budget for the Year 2000 program is $48 million, of which $43 million has been spent. As the Company continues to assess its systems and as the remediation and testing efforts progress, cost estimates may change. The Company's Year 2000 readiness effort is being funded entirely by operating cash flows. The Risks of the Company's Year 2000 Issues Based upon its current assessment and testing of the Year 2000 issue, the Company believes the reasonably likely worst case Year 2000 scenarios to have the following impacts upon Sempra Energy and its operations. With respect to the Company's ability to provide energy to its domestic utility customers, the Company believes that the reasonably likely worst case scenario is for small, localized interruptions of utility service which are restored in a time frame that is within normal service levels. With respect to services that are essential to Sempra Energy's operations, such as customer service, business operations, supplies and emergency response capabilities, the scenario is for minor disruptions of essential services with rapid recovery and all essential information and processes ultimately recovered. To assist in preparing for and mitigating these possible scenarios, Sempra Energy is a member of several industry-wide efforts established to deal with Year 2000 problems affecting embedded systems and equipment used by the nation's natural gas and electric power companies. Under these efforts, participating utilities are working together to assess specific vendors' system problems and to test plans. These assessments will be shared by the industry as a whole to facilitate Year 2000 problem solving. A portion of this risk is due to the various Year 2000 Ready schedules of critical third party suppliers and customers. The Company continues to contact its critical suppliers and customers to survey their Year 2000 remediation programs. While risks related to the lack of Year 2000 readiness by third parties could materially and adversely affect the Company's business, results of operations and financial condition, the Company expects its Year 2000 readiness efforts to reduce significantly the Company's level of uncertainty about the impact of third party Year 2000 issues on both its IT systems and its non-IT systems. The Company's Contingency Plans The Company's contingency plans for Year-2000-related interruptions have been completed and were submitted to the CPUC on July 1, 1999. These plans will continue to be revised and improved during the remainder of 1999. The contingency plans include emergency backup and recovery procedures, replacing electronic applications with manual processes, and identification of alternate suppliers along with increasing inventory levels. In addition, the following key contingency actions will be taken. - -- Only critical system changes will be implemented during December 1999 and January 2000. - -- An hour-by-hour plan will be developed to cover key contingency actions. - -- On-site staffing will be in place at key operational and administrative locations. - -- Designated standby staff will be on-call with thirty-minute availability. - -- Emergency Operations Centers will be activated on December 31, 1999. - -- Walk-through drills will be held during the fourth quarter of 1999. Due to the speculative and uncertain nature of contingency planning, there can be no assurances that such plans actually will be sufficient to reduce the risk of material impacts on the Company's operations due to Year 2000 issues. FACTORS INFLUENCING FUTURE PERFORMANCE Because of the ratemaking and regulatory process, electric and natural gas industry restructuring, and the changing energy marketplace, there are several factors that will influence the Company's future financial performance. These factors are discussed in this section below. Industry Restructuring See discussion of industry restructuring in Note 3 of the notes to Consolidated Financial Statements. Electric-Generation Assets and Electric Rates Note 3 of the notes to Consolidated Financial Statements describes regulatory and legislative actions that affect SDG&E's electric rates, and the related sale of its fossil plants and recovery of the cost of all SDG&E generation-related assets. 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 both 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 rate base in a market where a utility already has a highly developed infrastructure. SDG&E continues to participate in PBR for its electric distribution and natural gas businesses. In December 1998, the CPUC approved SDG&E's Cost of Service proceeding, resulting in an authorized revenue increase of $12 million (an electric distribution increase of $18 million and a natural gas decrease of $6 million). New rates became effective on January 1, 1999. In January 1999, various proposed and alternate decisions were released on the PBR design issues of SDG&E's distribution PBR application. The proposed decision released by the CPUC's Administrative Law Judge recommended, among other things, a revenue-per-customer indexing mechanism rather than the rate-indexing mechanism proposed by SDG&E and much tighter earnings sharing bands than previously in effect for SDG&E. On May 13, 1999 the CPUC adopted a decision incorporating the rate-indexing mechanism proposed by SDG&E, but also approved the tighter sharing bands. The decision also adopted an all-party settlement on various performance incentives, allowing SDG&E the opportunity to accrue up to $14.5 million annually in performance rewards or penalties. Certain intervenors are requesting a rehearing of the rate-indexing mechanism. Cost of Capital Under PBR, annual Cost of Capital proceedings were replaced by an automatic adjustment mechanism if changes in certain indices exceed established tolerances. For SDG&E, electric-industry restructuring is changing the method of calculating the utility's annual cost of capital. SDG&E's May 1998 application to the CPUC for unbundled rates established new, separate rates of return for SDG&E's electric distribution and natural gas businesses. The application proposed a 12.00 percent ROE, which would produce an overall ROR of 9.33 percent. A CPUC decision in June 1999 granted SDG&E an ROE of 10.6 percent (overall ROR of 8.75 percent). This resulted in annual revenue requirement reductions of $14.6 million and $4.8 million for electric distribution and SDG&E gas sales, respectively, effective July 1, 1999. SDG&E filed an Application for Rehearing of this decision in July 1999, requesting that the ROE be increased to 10.8 percent after correcting computational errors in the original decision. Annual Earnings Assessment Proceeding An application was filed in May 1999 to recover shareholder rewards for the Demand Side Management (DSM) programs and incentives earned for its energy-efficiency and low-income programs totaling $12 million ($10 million for electric and $2 million for gas). The revenue requirement increase is proposed to become effective on January 1, 2000. The DSM rewards and low-income program incentives will be collected and recorded in earnings over ten years. The energy-efficiency program incentives are recovered in one year. Rewards and incentives for these programs are subject to CPUC approval. The CPUC has extended interim utility administration of energy- efficiency and low-income programs through December 31, 2001. Biennial Cost Allocation Proceeding (BCAP) The BCAP determines how a utility's costs are allocated among various customer classes (residential, commercial, industrial, etc.). SDG&E filed the 1999 BCAP application in October 1998, with hearings held during the first half of 1999. At the conclusion of hearings, a joint BCAP recommendation was reached proposing, among other things, an overall natural gas rate reduction of $11 million for SDG&E. A CPUC decision is expected in early 2000. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except for the matters referred to in the Company's 1998 Annual Report or referred to elsewhere in this Quarterly Report on Form 10-Q for the six months ended June 30, 1999, neither the Company nor any of its affiliates is a party to, nor is its property the subject of, any material pending legal proceedings other than routine litigation incidental to its businesses. ITEM 4. SUBMISSION OF MATTERS TO VOTE At the annual meeting on May 11, 1999, the Company's shareholders elected 15 directors to hold office until the next annual meeting and until their successors have been elected and qualified. The name of each nominee and the number of shares voted for or withheld were as follows: Nominees Votes For Votes Withheld - ------------------------------------------------------------------- Hyla H. Bertea 116,583,358 -- Ann L. Burr 116,583,358 -- Herbert L. Carter 116,583,358 -- Richard A. Collato 116,583,358 -- Daniel W. Derbes 116,583,358 -- Wilford D. Godbold, Jr. 116,583,358 -- Robert H. Goldsmith 116,583,358 -- William D. Jones 116,583,358 -- Ignacio E. Lozano, Jr. 116,583,358 -- Warren I. Mitchell 116,583,358 -- Ralph R. Ocampo 116,583,358 -- William G. Ouchi 116,583,358 -- Richard J. Stegemeier 116,583,358 -- Thomas C. Stickel 116,583,358 -- Diana L. Walker 116,583,358 -- 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 six months ended June 30, 1999. (b) Reports on Form 8-K A Current Report on Form 8-K filed May 21, 1999 announced the completion of the sales of SDG&E's Encina Power Plant, 17 combustion turbines, and South Bay Power Plant. 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: August 12, 1999 By: /s/ E.A. Guiles ----------------------------- E.A. Guiles President EX-12 2 EXHIBIT 12.1 SAN DIEGO GAS & ELECTRIC COMPANY COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in millions)

EX-27 3
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 6-MOS DEC-31-1999 JUN-30-1999 PER-BOOK 2,143 507 1,097 398 12 4,157 291 566 367 1,224 25 78 1,470 0 0 0 66 0 16 0 1,278 4,157 1,201 38 1,025 1,063 138 12 150 48 102 3 99 0 43 (111) 0 0

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