-----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, BMmnzuyo6vo8I7hnqIWJG1dPPCOkyzJKG/95RLuKy5+toP3QzO1Kla2Zaf0lTUh2 zPwi1SorH37uMwSbmIcLjQ== 0000086521-98-000017.txt : 19980817 0000086521-98-000017.hdr.sgml : 19980817 ACCESSION NUMBER: 0000086521-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CALIFORNIA GAS CO CENTRAL INDEX KEY: 0000092108 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 951240705 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01402 FILM NUMBER: 98689650 BUSINESS ADDRESS: STREET 1: 555 W FIFTH ST STREET 2: ML 14H1 CITY: LOS ANGELES STATE: CA ZIP: 90013-1011 BUSINESS PHONE: 2132441200 MAIL ADDRESS: STREET 1: 555 WEST 5TH STREET CITY: LOS ANGELES STATE: CA ZIP: 90051-1011 10-Q 1 QUARTERLY REPORT FORM 10-Q PAGE 1 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, 1998 ------------------------------------- Commission file number 1-1402 --------------------------------------------- SOUTHERN CALIFORNIA GAS COMPANY ----------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-1240705 - --------------------------------------------- ------------------ (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 555 West Fifth Street, Los Angeles, California 90013-1011 --------------------------------------------------------- (Address of principal executive offices) (Zip Code) (213) 244-1200 ---------------------------------------------------- (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 Pacific Enterprises PAGE 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (Unaudited) (In millions of dollars) Three Months Ended Six Months Ended June 30 June 30 ------------------- ------------------ 1998 1997 1998 1997 ------ ------- ------- ------ Operating Revenues $578 $575 $1,242 $1,303 ---- ---- ------ ------ Operating Expenses: Cost of gas distributed 185 167 486 517 Operating and maintenance 248 181 411 342 Depreciation 63 62 126 125 Income taxes 17 52 56 97 Other taxes and franchise fees 24 22 53 49 ---- ---- ------ ------ Total operating expenses 537 484 1,132 1,130 ---- ---- ------ ------ Operating income 41 91 110 173 ---- ---- ------ ------ Other Income and (Deductions) (3) -- (3) -- ---- ---- ------ ------ Income Before Interest Charges and Preferred Dividends 38 91 107 173 ---- ---- ------ ------ Interest Charges: Long-term debt 18 20 38 41 Other interest 2 (1) 4 1 Allowance for borrowed funds used during construction (1) -- (1) (1) ---- ---- ------ ------ Net interest charges 19 19 41 41 ---- ---- ------ ------ Net Income 19 72 66 132 Dividends on Preferred Stock -- 2 1 4 ---- ---- ------ ------ Earnings Applicable to Common Stock $ 19 $ 70 $ 65 $ 128 ==== ==== ====== ====== See notes to consolidated financial statements.
PAGE 3 SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (In millions of dollars)
June 30, December 31, 1998 1997 (Unaudited) ----------- ----------- Utility Plant - at original cost $6,024 $5,978 Accumulated depreciation 3,019 2,904 ------ ------ Utility plant - net 3,005 3,074 ------ ------ Current Assets: Cash and cash equivalents 42 -- Accounts and notes receivable 303 499 Regulatory balancing accounts - net -- 355 Deferred income taxes 55 11 Inventories 33 38 Other 3 14 ------ ------ Total current assets 436 917 ------ ------ Regulatory Assets 224 214 ------ ------ Total $3,665 $4,205 ====== ====== See notes to consolidated financial statements.
PAGE 4 SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET CAPITALIZATION AND LIABILITIES (In millions of dollars)
June 30, December 31, 1998 1997 (Unaudited) --------- ----------- Capitalization: Common equity $1,271 $1,370 Preferred stock 21 97 Long-term debt 1,041 968 ------ ------ Total capitalization 2,333 2,435 ------ ------ Current Liabilities: Short-term debt 46 351 Long-term debt due within one year -- 147 Accounts payable 356 417 Accrued interest 48 52 Accrued taxes 23 69 Regulatory balancing accounts - net 62 -- Other 118 78 ------ ------ Total current liabilities 653 1,114 ------ ------ Deferred Credits: Customer advances for construction 30 34 Deferred income taxes 385 373 Deferred investment tax credits 59 61 Other deferred credits 205 188 ------ ------ Total deferred credits 679 656 ------ ------ Total $3,665 $4,205 ====== ====== See notes to consolidated financial statements.
PAGE 5 SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited) (In millions of dollars)
Six Months Ended June 30 ------------------ 1998 1997 ---- ----- Cash Flows From Operating Activities: Net income $ 66 $132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 126 125 Deferred income taxes 12 12 Other (15) (8) Net change in other working capital components 481 143 ---- ---- Net cash provided by operating activities 670 404 ---- ---- Cash Flows from Financing Activities: Dividends paid (110) (181) Payment on long-term debt (149) (188) Increase (decrease) in short-term debt (305) 1 Issuance of long-term debt 75 -- Redemption of preferred stock (75) -- ---- ---- Net cash used in financing activities (564) (368) ---- ---- Cash Flows from Investing Activities: Expenditures for utility plant (54) (78) Other - net (10) 28 ---- ---- Net cash used in investing activities (64) (50) ---- ---- Increase (Decrease) in Cash and Cash Equivalents 42 (14) Cash and Cash Equivalents, beginning of period -- 14 ---- ---- Cash and Cash Equivalents, end of period $ 42 $ -- ==== ==== Supplemental Disclosure of Cash Flow Information: Income tax payments, net of refunds $ 33 $ 93 ==== ==== Interest payments, net of amount capitalized $ 45 $ 44 ==== ==== See notes to consolidated financial statements.
PAGE 6 SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL This Quarterly Report on Form 10-Q is a filing of Southern California Gas Company (SoCalGas), a wholly owned subsidiary of Pacific Enterprises (PE). The financial statements presented herein represent the consolidated financial statements of SoCalGas and its subsidiaries. The accompanying consolidated financial statements have been prepared in accordance with the interim-reporting requirements of Form 10-Q. This quarterly report should be read in conjunction with SoCalGas' 1997 Annual Report on Form 10-K which includes the financial statements and notes thereto, its Quarterly Report on Form 10-Q for the three months ended March 31, 1998, and the Current Report on Form 8-K filed by Sempra Energy (Commission no. 1-14201) with the Securities and Exchange Commission on June 30, 1998 in connection with the completion of the business combination of Pacific Enterprises and Enova Corporation. 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 of a normal recurring nature. Certain changes in account classification have been made to prior presentations to conform to the current financial statement presentation. In conformity with generally accepted accounting principles, the Company's accounting policies reflect the financial effects of rate regulation authorized by the California Public Utilities Commission (CPUC). The Company applies the provisions of the Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). This statement requires cost-based rate regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. The Company continues to meet the criteria of SFAS 71 in accounting for its regulated operations. 2. BUSINESS COMBINATION On June 26, 1998 (pursuant to an October 1996 agreement) Enova Corporation (Enova) and Pacific Enterprises (PE) combined the two companies into a new company named Sempra Energy. As a result of the combination, (i) each outstanding share of common stock of Enova was converted into one share of common stock of Sempra Energy, (ii) each outstanding share of common stock of PE was converted into 1.5038 shares of common stock of Sempra Energy and (iii) the preferred stock and/or preference stock of Enova's principal subsidiary, San Diego Gas & Electric Company (SDG&E); PE; and SoCalGas remain outstanding. Additional information on the business combination is discussed in the Current Report on Form 8-K filed by Sempra Energy (Commission no. 1-14201) on June 30, 1998 and incorporated herein by reference. Expenses incurred in connection with the business combination are $32 million and $7 million, after-tax, for the six-month periods ended June 30, 1998 and 1997, respectively. These costs consist primarily of employee-related costs, and investment banking, legal, regulatory and consulting fees. PAGE 7 3. COMPREHENSIVE INCOME In conformity with generally accepted accounting principles, the Company has adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income." Comprehensive income for the three-month and the six-month periods ended June 30, 1998 and 1997 was equal to net income. 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 Company's 1997 Form 10-K. INFORMATION REGARDING FORWARD-LOOKING COMMENTS The following discussion includes forward-looking statements within the definition of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "estimates", "believes", "expects", "anticipates", "plans" and "intends," variations of such words, and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. These statements are necessarily based upon various assumptions involving judgments with respect to the future including, among others, national, regional and local economic, competitive and regulatory conditions, technological developments, inflation rates, interest rates, energy markets, weather conditions, business and regulatory or legal decisions, and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, while the Company believes that the assumptions are reasonable, there can be no assurance that they will approximate actual experience, or that the expectations will be realized. CAPITAL RESOURCES AND LIQUIDITY Cash flows from operations for the six-month period ended June 30, 1998 increased $266 million from the corresponding period in 1997. The increase is primarily due to gas costs' being lower than amounts collected in rates (resulting in a decrease in previously undercollected regulatory balancing accounts) and an increase in gas volumes sold. Capital expenditures for utility plant are expected to be $180 million in 1998 and will be financed primarily by internally- generated funds. Cash used for financing activities for the six-month period ended June 30, 1998 increased $196 million from the corresponding period in 1997. The increase is primarily due to greater short-term debt repayments and the repurchase of preferred stock. On February 2, 1998, the Company redeemed all outstanding shares of 7-3/4% Series Preferred Stock for a total cost of $75 million, including unpaid dividends. RESULTS OF OPERATIONS The decreases in net income are primarily due to the lower base margin established in the PBR decision (see below) and the business-combination costs discussed in Note 2 of the notes to consolidated financial statements. PAGE 8 The table below compares the Company's throughput and revenues by customer class for the six-month periods ended June 30, 1998 and 1997.
Transportation Gas Sales and Exchanges Total ------------------- ------------------- ------------------- Throughput Revenue Throughput Revenue Throughput Revenue (Revenues in millions of dollars, volume in billion cubic feet) ------------------- ------------------- ------------------- 1998: Residential 154 $1,153 2 $ 7 156 $1,160 Commercial and industrial 43 259 157 136 200 395 Utility electric generation 40 20 40 20 Wholesale 74 30 74 30 Exchange 3 3 ------------------- ------------------- ------------------- Total in rates 197 $1,412 276 $193 473 1,605 Balancing accounts and other (363) ------- Total operating revenues $1,242 ======= 1997: Residential 128 $ 866 1 $ 5 129 $871 Commercial and industrial 44 280 149 124 193 404 Utility electric generation 56 28 56 28 Wholesale 69 31 69 31 Exchange 2 1 2 1 ------------------ ------------------- ------------------- Total in rates 172 $1,146 277 $189 449 1,335 Balancing accounts and other (32) ------- Total operating revenues $1,303 =======
The decrease in year-to-date operating revenues is primarily due to the margin reduction established in PBR (see below) and lower prices for gas. The increase in total throughput was primarily due to colder weather in 1998 compared to 1997. The decrease in the cost of gas is primarily due to a decrease in the average cost of gas purchased to $2.11 per thousand cubic feet (MCF) for the six-month period ended June 30, 1998, compared to $2.45 per MCF in the corresponding period of 1997. Under the current regulatory framework, changes in revenue resulting from changes in core market volumes and cost of gas do not affect net income. The increase in operating and maintenance expense is primarily due to the favorable settlements of contingencies in the first half of 1997. Recent CPUC Regulatory Activity Under the Gas Cost Incentive Mechanism (GCIM), the Company can recover all costs within a "tolerance band" above the benchmark price and refunds all savings within the tolerance band below the benchmark price. The cost of purchases or savings outside the PAGE 9 tolerance band is shared equally between customers and shareholders. The Company's gas costs were below the specified GCIM benchmark for the annual period ended March 1997. In June 1997 the Company filed a motion with the CPUC requesting a reward for shareholders under the procurement portion of the incentive mechanism. A reward of $11 million was approved by the CPUC in June 1998 and is included in income for the three-month period ended June 30, 1998. The CPUC has approved the use of gas futures for managing risks associated with the GCIM. The Company enters into gas futures contracts in the open market on a limited basis to mitigate risk and better manage gas costs. Regulatory Activity Influencing Future Performance On July 16, 1997, the CPUC issued its final decision on the Company's application for Performance Based Ratemaking (PBR), which was filed with the CPUC in 1995. PBR replaces the general rate case and certain other regulatory proceedings through December 31, 2002. Under PBR, regulators allow future income potential to be tied to achieving or exceeding specific performance and productivity measures, rather than relying solely on expanding utility rate base in a market where the Company already has a highly developed infrastructure. Key elements of the PBR include a 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. The Company implemented the base-margin reduction on August 1, 1997, and all other PBR elements on January 1, 1998. The CPUC intends the PBR decision to be in effect for five years; however, the CPUC decision allows for the possibility that changes to the PBR mechanism could be adopted in a decision to be issued in the Company's 1998 Biennial Cost Allocation Proceeding (BCAP) application which is anticipated to become effective August 1, 1999. Under PBR, annual Cost of Capital proceedings are replaced by an automatic adjustment mechanism if changes in certain indices exceed established tolerances. The mechanism is triggered if interest rates increase or decrease by more than 150 basis points and are forecasted to vary by at least 150 basis points for the next year. If this occurs, there would be an automatic adjustment of rates for the change in the cost of capital according to a pre-established formula which applies a percentage of the change to various capital components. For 1998, the Company is authorized to earn a rate of return on common equity of 11.6 percent and a 9.49 percent return on rate base, the same as in 1997. The Company has considered the effect of Statement of Financial Accounting Standard No. 121 "Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to Be Disposed Of" (SFAS 121) on its financial statements, including the potential effect of electric industry restructuring. Although the Company believes that the volume of gas transported may be adversely impacted by electric restructuring, it is not anticipated to result in an impairment of assets as defined in SFAS 121 because the expected undiscounted future cash flows from the gas transportation infrastructure are greater than the assets' carrying amounts. PAGE 10 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedules 27.1 Financial Data Schedule for the six months ended June 30, 1998 for SoCalGas. (b) Reports on Form 8-K A Current Report on Form 8-K filed on July 1, 1998 announced the completion of the business combination between Enova Corporation and Pacific Enterprises, and the related changes in control. PAGE 11 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHERN CALIFORNIA GAS COMPANY ------------------------------- (Registrant) /s/ Warren Mitchell Date: August 14, 1998 By: --------------------------- Warren Mitchell Chairman and President EX-27 2 EXHIBIT 27 (FDS) FILED WITH FORM 10-Q
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. 0000092108 SOUTHERN CALIFORNIA GAS COMPANY 1,000,000 YEAR DEC-31-1998 JUN-30-1998 PER-BOOK 3,005 0 436 224 0 3,665 835 0 436 1,271 0 21 1,041 46 0 0 0 0 0 0 1,286 3,665 1,242 56 1,076 1,132 110 (3) 107 41 66 1 65 109 0 670 0 0
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