Sempra Energy/SDG&E/PE/SoCalGas 3-31-2009 10-Q


  

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

 

For the quarterly period ended

March 31, 2009

 

 

 

or

 

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from

 

 

to

 

 

 

 

 

Commission File No.

Exact Name of Registrants as Specified in their Charters, Address and Telephone Number

States of Incorporation

I.R.S. Employer
Identification Nos.

Former name, former address and former fiscal year, if changed since last report

1-14201

SEMPRA ENERGY

California

33-0732627

No change

 

101 Ash Street

 

 

 

 

San Diego, California 92101

 

 

 

 

(619)696-2034

 

 

 

 

 

 

 

 

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

 

8326 Century Park Court

 

 

 

 

San Diego, California 92123

 

 

 

 

(619)696-2000

 

 

 

 

 

 

 

 

1-40

PACIFIC ENTERPRISES

California

94-0743670

No change

 

101 Ash Street

 

 

 

 

San Diego, California 92101

 

 

 

 

(619)696-2020

 

 

 

 

 

 

 

 

1-1402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

 

555 West Fifth Street

 

 

 

 

Los Angeles, California 90013

 

 

 

 

(213)244-1200

 

 

 

 

 

 

 

 

 


Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days.

 

 

 

 

 

 

 

Yes

X

 

No

 





Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

 

 

 

 

 

Yes

 

 

No

 


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

 

Large
accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Sempra Energy

[  X  ]

[      ]

[       ]

[      ]

San Diego Gas & Electric Company

[       ]

[      ]

[  X  ]

[      ]

Pacific Enterprises

[       ]

[      ]

[  X  ]

[      ]

Southern California Gas Company

[       ]

[      ]

[  X  ]

[      ]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

 

 

 

Sempra Energy

Yes

 

 

No

X

San Diego Gas & Electric Company

Yes

 

 

No

X

Pacific Enterprises

Yes

 

 

No

X

Southern California Gas Company

Yes

 

 

No

X

 

 

 

 

 

 

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 on April 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

Sempra Energy

244,291,674 shares

San Diego Gas & Electric Company

Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy

Pacific Enterprises

Wholly owned by Sempra Energy

Southern California Gas Company

Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy

 

 

 




























SEMPRA ENERGY 10-Q
TABLE OF CONTENTS

 

 

Page

Information Regarding Forward-Looking Statements

4

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

61

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

80

Item 4.

Controls and Procedures

80

 

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

81

Item 1A.

Risk Factors

81

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

81

Item 4.

Submission of Matters to a Vote of Security Holders

82

Item 5.

Other Information

83

Item 6.

Exhibits

87

 

 

 

Signatures

89

 

 

 


This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.


You should read this report in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Part I - Item 1 sections are provided for each reporting company, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting companies are combined. All Items other than Part I – Item 1 are combined for the reporting companies.



INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the date of this report.

In this report, when we use words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "contemplates," "intends," "depends," "should," "could," "would," "may," "potential," "target," "goals," or similar expressions, or when we discuss our strategy, plans or intentions, we are making forward-looking statements.

Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include

§

local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments;

§

actions by the California Public Utilities Commission, the California State Legislature, the California Department of Water Resources, the Federal Energy Regulatory Commission, the Federal Reserve Board, and other regulatory and governmental bodies in the United States, the United Kingdom and other countries;

§

capital markets conditions and inflation, interest and exchange rates;

§

energy and trading markets, including the timing and extent of changes and volatility in commodity prices;

§

the availability of electric power, natural gas and liquefied natural gas;

§

weather conditions and conservation efforts;

§

war and terrorist attacks;

§

business, regulatory, environmental and legal decisions and requirements;

§

the status of deregulation of retail natural gas and electricity delivery;

§

the timing and success of business development efforts;

§

the resolution of litigation; and

§

other uncertainties, all of which are difficult to predict and many of which are beyond our control.

We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and other reports that we file with the Securities and Exchange Commission.



PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


SEMPRA ENERGY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

Three months ended March 31,

 

2009

2008*

 

(unaudited)

REVENUES

 

 

 

 

Sempra Utilities

$

 1,642 

$

 2,290 

Sempra Global and parent

 

 466 

 

 980 

    Total revenues

 

 2,108 

 

 3,270 

EXPENSES AND OTHER INCOME

 

 

 

 

Sempra Utilities:

 

 

 

 

    Cost of natural gas

 

 (540)

 

 (1,235)

    Cost of electric fuel and purchased power

 

 (171)

 

 (163)

Sempra Global and parent:

 

 

 

 

    Cost of natural gas, electric fuel and purchased power

 

 (268)

 

 (409)

    Other cost of sales

 

 (17)

 

 (136)

Operation and maintenance

 

 (516)

 

 (698)

Depreciation and amortization

 

 (183)

 

 (175)

Franchise fees and other taxes

 

 (82)

 

 (83)

Equity earnings:

 

 

 

 

    RBS Sempra Commodities LLP

 

 153 

 

 -

    Other

 

 7 

 

 6 

Other income, net

 

 3 

 

 19 

Interest income

 

 6 

 

 14 

Interest expense

 

 (82)

 

 (60)

Income before income taxes and equity earnings of certain

 

 

 

 

    unconsolidated subsidiaries

 

 418 

 

 350 

Income tax expense

 

 (109)

 

 (127)

Equity earnings, net of income tax

 

 16 

 

 21 

Net income

 

 325 

 

 244 

Earnings attributable to noncontrolling interests

 

 (7)

 

 -

Preferred dividends of subsidiaries

 

 (2)

 

 (2)

Earnings

$

 316 

$

 242 

 

 

 

 

 

Basic earnings per common share

$

 1.31 

$

 0.94 

Weighted-average number of shares outstanding, basic (thousands)

 

 241,766 

 

 258,624 

 

 

 

 

 

Diluted earnings per common share

$

 1.29 

$

 0.92 

Weighted-average number of shares outstanding, diluted (thousands)

 

 245,017 

 

 262,671 

Dividends declared per share of common stock

$

 0.39 

$

 0.32 

* As adjusted for the retrospective adoption of SFAS 160.

See Notes to Condensed Consolidated Financial Statements.




























SEMPRA ENERGY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008

 

(unaudited)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 720 

$

 331 

    Short-term investments

 

 176 

 

 176 

    Restricted cash

 

 27 

 

 27 

    Trade accounts receivable, net

 

 757 

 

 903 

    Other accounts and notes receivable, net

 

 125 

 

 78 

    Income taxes receivable

 

 2 

 

 195 

    Deferred income taxes

 

 48 

 

 31 

    Inventories

 

 150 

 

 320 

    Regulatory assets

 

 122 

 

 121 

    Fixed-price contracts and other derivatives

 

 123 

 

 160 

    Insurance receivable related to wildfire litigation (Note 10)

 

 900 

 

-

    Other

 

 177 

 

 134 

        Total current assets

 

 3,327 

 

 2,476 

 

 

 

 

 

Investments and other assets:

 

 

 

 

    Regulatory assets arising from fixed-price contracts and other derivatives

 

 263 

 

 264 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 1,210 

 

 1,188 

    Other regulatory assets

 

 543 

 

 534 

    Nuclear decommissioning trusts

 

 537 

 

 577 

    Investment in RBS Sempra Commodities LLP

 

 1,958 

 

 2,082 

    Other investments

 

 1,228 

 

 1,166 

    Goodwill and other intangible assets

 

 531 

 

 539 

    Sundry

 

 529 

 

 709 

        Total investments and other assets

 

 6,799 

 

 7,059 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 23,613 

 

 23,153 

    Less accumulated depreciation and amortization

 

 (6,405)

 

 (6,288)

        Property, plant and equipment, net

 

 17,208 

 

 16,865 

Total assets

$

 27,334 

$

 26,400 

See Notes to Condensed Consolidated Financial Statements.




























SEMPRA ENERGY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008*

 

(unaudited)

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Short-term debt

$

 426 

$

 503 

    Accounts payable - trade

 

 444 

 

 606 

    Accounts payable - other

 

 178 

 

 250 

    Due to unconsolidated affiliates

 

 31 

 

 38 

    Dividends and interest payable

 

 187 

 

 156 

    Accrued compensation and benefits

 

 146 

 

 280 

    Regulatory balancing accounts, net

 

 609 

 

 335 

    Current portion of long-term debt

 

 921 

 

 410 

    Fixed-price contracts and other derivatives

 

 196 

 

 180 

    Customer deposits

 

 159 

 

 170 

    Reserve for wildfire litigation (Note 10)

 

 900 

 

-

    Other

 

 703 

 

 684 

        Total current liabilities

 

 4,900 

 

 3,612 

Long-term debt

 

 6,044 

 

 6,544 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

    Due to unconsolidated affiliate

 

 102 

 

 102 

    Customer advances for construction

 

 153 

 

 155 

    Pension and other postretirement benefit obligations, net of plan assets

 

 1,508 

 

 1,487 

    Deferred income taxes

 

 944 

 

 946 

    Deferred investment tax credits

 

 55 

 

 57 

    Regulatory liabilities arising from removal obligations

 

 2,402 

 

 2,430 

    Asset retirement obligations

 

 1,177 

 

 1,159 

    Other regulatory liabilities

 

 216 

 

 219 

    Fixed-price contracts and other derivatives

 

 366 

 

 392 

    Deferred credits and other

 

 875 

 

 909 

        Total deferred credits and other liabilities

 

 7,798 

 

 7,856 

Preferred stock of subsidiary

 

 79 

 

 79 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

    Preferred stock (50 million shares authorized; none issued)

 

-

 

 -

    Common stock (750 million shares authorized; 244 million and 243 million

 

 

 

 

        shares outstanding at March 31, 2009 and December 31, 2008, respectively;

 

 

 

 

        no par value)

 

 2,281 

 

 2,265 

    Retained earnings

 

 6,456 

 

 6,235 

    Deferred compensation

 

 (16)

 

 (18)

    Accumulated other comprehensive income (loss)

 

 (474)

 

 (513)

        Total Sempra Energy shareholders' equity

 

 8,247 

 

 7,969 

    Preferred stock of subsidiaries

 

 100 

 

 100 

    Other noncontrolling interests

 

 166 

 

 240 

        Total equity

 

 8,513 

 

 8,309 

Total liabilities and equity

$

 27,334 

$

 26,400 

* As adjusted for the retrospective adoption of SFAS 160.

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.




























SEMPRA ENERGY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008*

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 325 

$

 244 

    Adjustments to reconcile net income to net cash provided

 

 

 

 

        by operating activities:

 

 

 

 

            Depreciation and amortization

 

 183 

 

 175 

            Deferred income taxes and investment tax credits

 

 (29)

 

 (58)

            Equity earnings

 

 (176)

 

 (27)

            Other

 

 49 

 

 32 

    Net change in other working capital components

 

 491 

 

 390 

    Distribution from RBS Sempra Commodities LLP

 

 305 

 

 -

    Changes in other assets

 

 10 

 

 (3)

    Changes in other liabilities

 

 (19)

 

 (22)

        Net cash provided by operating activities

 

 1,139 

 

 731 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (492)

 

 (544)

    Proceeds from sale of assets

 

 -

 

 10 

    Expenditures for investments

 

 (25)

 

 (579)

    Distributions from investments

 

 5 

 

 4 

    Purchases of nuclear decommissioning and other trust assets

 

 (45)

 

 (134)

    Proceeds from sales by nuclear decommissioning and other trusts

 

 42 

 

 135 

    Other

 

 (7)

 

 (1)

        Net cash used in investing activities

 

 (522)

 

 (1,109)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 (86)

 

 (82)

    Preferred dividends paid by subsidiaries

 

 (2)

 

 (2)

    Issuances of common stock

 

 10 

 

 4 

    Repurchases of common stock

 

 -

 

 (2)

    (Decrease) increase in short-term debt, net

 

 (77)

 

 566 

    Issuances of long-term debt

 

 22 

 

 52 

    Payments on long-term debt

 

 (6)

 

 (10)

    Purchase of noncontrolling interest

 

 (94)

 

 -

    Other

 

 5 

 

 (10)

        Net cash (used in) provided by financing activities

 

 (228)

 

 516 

 

 

 

 

 

Increase in cash and cash equivalents

 

 389 

 

 138 

Cash and cash equivalents, January 1

 

 331 

 

 668 

Cash and cash equivalents, March 31

$

 720 

$

 806 

* As adjusted for the retrospective adoption of SFAS 160.

See Notes to Condensed Consolidated Financial Statements.




























SEMPRA ENERGY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

 

(unaudited)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 56 

$

 50 

 

 

 

 

 

    Income tax (refunds) payments, net

$

 (52)

$

 9 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (117)

$

 (62)

 

 

 

 

 

    Dividends declared but not paid

$

 98 

$

 87 

See Notes to Condensed Consolidated Financial Statements.




SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008*

 

(unaudited)

Operating revenues

 

 

 

 

    Electric

$

 553 

$

 501 

    Natural gas

 

 179 

 

 245 

        Total operating revenues

 

 732 

 

 746 

Operating expenses

 

 

 

 

    Cost of electric fuel and purchased power

 

 171 

 

 163 

    Cost of natural gas

 

 87 

 

 152 

    Operation and maintenance

 

 181 

 

 187 

    Depreciation and amortization

 

 77 

 

 77 

    Franchise fees and other taxes

 

 41 

 

 38 

        Total operating expenses

 

 557 

 

 617 

Operating income

 

 175 

 

 129 

Other income, net

 

 17 

 

 3 

Interest income

 

 -

 

 2 

Interest expense

 

 (25)

 

 (27)

Income before income taxes

 

 167 

 

 107 

Income tax expense

 

 60 

 

 32 

Net income

 

 107 

 

 75 

Earnings attributable to noncontrolling interest

 

 (7)

 

 -

Earnings

 

 100 

 

 75 

Preferred dividend requirements

 

 1 

 

 1 

Earnings attributable to common shares

$

 99 

$

 74 

* As adjusted for the retrospective adoption of SFAS 160.

See Notes to Condensed Consolidated Financial Statements.




























SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008

 

(unaudited)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 40 

$

 19 

    Short-term investments

 

 24 

 

 24 

    Accounts receivable - trade

 

 220 

 

 225 

    Accounts receivable - other

 

 66 

 

 30 

    Due from unconsolidated affiliates

 

 1 

 

 29 

    Income taxes receivable

 

-

 

 22 

    Deferred income taxes

 

 33 

 

 17 

    Inventories

 

 64 

 

 62 

    Regulatory assets arising from fixed-price contracts and other derivatives

 

 97 

 

 94 

    Other regulatory assets

 

 7 

 

 8 

    Fixed-price contracts and other derivatives

 

 30 

 

 39 

    Insurance receivable related to wildfire litigation (Note 10)

 

 900 

 

-

    Other

 

 11 

 

 15 

        Total current assets

 

 1,493 

 

 584 

 

 

 

 

 

Other assets:

 

 

 

 

    Due from unconsolidated affiliate

 

 4 

 

 4 

    Deferred taxes recoverable in rates

 

 372 

 

 369 

    Regulatory assets arising from fixed-price contracts and other derivatives

 

 263 

 

 264 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 402 

 

 393 

    Other regulatory assets

 

 59 

 

 59 

    Nuclear decommissioning trusts

 

 537 

 

 577 

    Sundry

 

 34 

 

 154 

        Total other assets

 

 1,671 

 

 1,820 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 9,351 

 

 9,095 

    Less accumulated depreciation and amortization

 

 (2,464)

 

 (2,420)

        Property, plant and equipment, net

 

 6,887 

 

 6,675 

Total assets

$

 10,051 

$

 9,079 

See Notes to Condensed Consolidated Financial Statements.




























SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008*

 

(unaudited)

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Short-term debt

$

 98 

$

-

    Accounts payable

 

 186 

 

 261 

    Income taxes payable

 

 33 

 

-

    Due to unconsolidated affiliates

 

 29 

 

 1 

    Regulatory balancing accounts, net

 

 183 

 

 114 

    Customer deposits

 

 52 

 

 53 

    Fixed-price contracts and other derivatives

 

 74 

 

 77 

    Accrued compensation and benefits

 

 49 

 

 105 

    Current portion of long-term debt

 

 5 

 

 2 

    Reserve for wildfire litigation (Note 10)

 

 900 

 

-

    Other

 

 185 

 

 163 

        Total current liabilities

 

 1,794 

 

 776 

Long-term debt

 

 2,161 

 

 2,142 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

    Customer advances for construction

 

 22 

 

 26 

    Pension and other postretirement benefit obligations, net of plan assets

 

 427 

 

 419 

    Deferred income taxes

 

 654 

 

 628 

    Deferred investment tax credits

 

 26 

 

 26 

    Regulatory liabilities arising from removal obligations

 

 1,177 

 

 1,212 

    Asset retirement obligations

 

 558 

 

 550 

    Fixed-price contracts and other derivatives

 

 327 

 

 347 

    Deferred credits and other

 

 196 

 

 204 

        Total deferred credits and other liabilities

 

 3,387 

 

 3,412 

Contingently redeemable preferred stock

 

 79 

 

 79 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

    Common stock (255 million shares authorized; 117 million shares outstanding;

 

 

 

 

        no par value)

 

 1,138 

 

 1,138 

    Retained earnings

 

 1,366 

 

 1,417 

    Accumulated other comprehensive income (loss)

 

 (11)

 

 (13)

        Total SDG&E shareholders' equity

 

 2,493 

 

 2,542 

    Noncontrolling interest

 

 137 

 

 128 

        Total equity

 

 2,630 

 

 2,670 

Total liabilities and equity

$

 10,051 

$

 9,079 

* As adjusted for the retrospective adoption of SFAS 160.

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.




























SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008*

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 107 

$

 75 

    Adjustments to reconcile net income to net cash provided by

 

 

 

 

        operating activities:

 

 

 

 

            Depreciation and amortization

 

 77 

 

 77 

            Deferred income taxes and investment tax credits

 

 5 

 

 3 

            Other

 

 (12)

 

 (3)

    Net change in other working capital components

 

 77 

 

 134 

    Changes in other assets

 

 7 

 

 2 

    Changes in other liabilities

 

 (16)

 

 (10)

        Net cash provided by operating activities

 

 245 

 

 278 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (229)

 

 (235)

    Expenditures for short-term investments

 

-

 

 (236)

    Purchases of nuclear decommissioning trust assets

 

 (43)

 

 (134)

    Proceeds from sales by nuclear decommissioning trusts

 

 42 

 

 134 

    Decrease in loans to affiliates, net

 

 33 

 

-

    Other

 

-

 

 1 

        Net cash used in investing activities

 

 (197)

 

 (470)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 (150)

 

 -

    Preferred dividends paid

 

 (1)

 

 (1)

    Redemptions of preferred stock

 

-

 

 (14)

    Issuances of long-term debt

 

 22 

 

 47 

    Increase in short-term debt, net

 

 98 

 

 33 

    Capital contribution received by Otay Mesa VIE

 

 4 

 

-

        Net cash (used in) provided by financing activities

 

 (27)

 

 65 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 21 

 

 (127)

Cash and cash equivalents, January 1

 

 19 

 

 158 

Cash and cash equivalents, March 31

$

 40 

$

 31 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 14 

$

 15 

 

 

 

 

 

    Income tax payments (refunds), net

$

 1 

$

 (1)

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (71)

$

 (53)

 

 

 

 

 

    Dividends declared but not paid

$

 1 

$

 1 

* As adjusted for the retrospective adoption of SFAS 160.

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.




PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

 

(unaudited)

 

 

 

 

 

Operating revenues

$

 920 

$

 1,556 

Operating expenses

 

 

 

 

    Cost of natural gas

 

 455 

 

 1,087 

    Operation and maintenance

 

 251 

 

 250 

    Depreciation

 

 72 

 

 71 

    Franchise fees and other taxes

 

 32 

 

 39 

        Total operating expenses

 

 810 

 

 1,447 

Operating income

 

 110 

 

 109 

Other income, net

 

 1 

 

 -

Interest income

 

 1 

 

 7 

Interest expense

 

 (17)

 

 (17)

Income before income taxes

 

 95 

 

 99 

Income tax expense

 

 36 

 

 41 

Net income/Earnings

 

 59 

 

 58 

Preferred dividend requirements

 

 1 

 

 1 

Earnings attributable to common shares

$

 58 

$

 57 

See Notes to Condensed Consolidated Financial Statements.




























PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008 

 

(unaudited)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 593 

$

 206 

    Accounts receivable - trade

 

 455 

 

 572 

    Accounts receivable - other

 

 30 

 

 20 

    Due from unconsolidated affiliates

 

 40 

 

 5 

    Income taxes receivable

 

 -

 

 108 

    Inventories

 

 39 

 

 167 

    Other regulatory assets

 

 18 

 

 18 

    Other

 

 64 

 

 37 

        Total current assets

 

 1,239 

 

 1,133 

 

 

 

 

 

Other assets:

 

 

 

 

    Due from unconsolidated affiliates

 

 454 

 

 457 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 808 

 

 795 

    Other regulatory assets

 

 112 

 

 105 

    Sundry

 

 43 

 

 49 

        Total other assets

 

 1,417 

 

 1,406 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 8,904 

 

 8,816 

    Less accumulated depreciation and amortization

 

 (3,494)

 

 (3,448)

        Property, plant and equipment, net

 

 5,410 

 

 5,368 

Total assets

$

 8,066 

$

 7,907 

See Notes to Condensed Consolidated Financial Statements.




























PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008*

 

(unaudited)

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Accounts payable - trade

$

 183 

$

 257 

    Accounts payable - other

 

 125 

 

 163 

    Due to unconsolidated affiliates

 

 84 

 

 106 

    Income taxes payable

 

 12 

 

 -

    Deferred income taxes

 

 2 

 

 6 

    Regulatory balancing accounts, net

 

 426 

 

 221 

    Customer deposits

 

 105 

 

 114 

    Accrued compensation and benefits

 

 63 

 

 92 

    Current portion of long-term debt

 

 100 

 

 100 

    Other

 

 235 

 

 213 

        Total current liabilities

 

 1,335 

 

 1,272 

Long-term debt

 

 1,269 

 

 1,270 

Deferred credits and other liabilities:

 

 

 

 

    Customer advances for construction

 

 132 

 

 131 

    Pension and other postretirement benefit obligations, net of plan assets

 

 835 

 

 823 

    Deferred income taxes

 

 172 

 

 157 

    Deferred investment tax credits

 

 30 

 

 30 

    Regulatory liabilities arising from removal obligations

 

 1,225 

 

 1,218 

    Asset retirement obligations

 

 590 

 

 581 

    Deferred taxes refundable in rates

 

 210 

 

 214 

    Deferred credits and other

 

 249 

 

 251 

        Total deferred credits and other liabilities

 

 3,443 

 

 3,405 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

    Preferred stock

 

 80 

 

 80 

    Common stock (600 million shares authorized; 84 million shares outstanding;

 

 

 

 

        no par value)

 

 1,462 

 

 1,462 

    Retained earnings

 

 484 

 

 426 

    Accumulated other comprehensive income (loss)

 

 (27)

 

 (28)

        Total Pacific Enterprises shareholders' equity

 

 1,999 

 

 1,940 

    Preferred stock of subsidiary

 

 20 

 

 20 

        Total equity

 

 2,019 

 

 1,960 

Total liabilities and equity

$

 8,066 

$

 7,907 

* As adjusted for the retrospective adoption of SFAS 160.

See Notes to Condensed Consolidated Financial Statements.




























PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 59 

$

 58 

    Adjustments to reconcile net income to net cash provided by

 

 

 

 

        operating activities:

 

 

 

 

            Depreciation

 

 72 

 

 71 

            Deferred income taxes and investment tax credits

 

 6 

 

 (3)

            Other

 

 2 

 

 1 

    Net change in other working capital components

 

 357 

 

 458 

    Changes in other assets

 

 7 

 

 3 

    Changes in other liabilities

 

 (6)

 

 (16)

        Net cash provided by operating activities

 

 497 

 

 572 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (112)

 

 (116)

    Decrease (increase) in loans to affiliates, net

 

 3 

 

 (13)

        Net cash used in investing activities

 

 (109)

 

 (129)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 -

 

 (150)

    Preferred dividends paid

 

 (1)

 

 (1)

        Net cash used in financing activities

 

 (1)

 

 (151)

 

 

 

 

 

Increase in cash and cash equivalents

 

 387 

 

 292 

Cash and cash equivalents, January 1

 

 206 

 

 59 

Cash and cash equivalents, March 31

$

 593 

$

 351 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 9 

$

 9 

 

 

 

 

 

    Income tax refunds

$

 (23)

$

 -

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (15)

$

 (16)

 

 

 

 

 

    Dividends declared but not paid

$

 1 

$

 51 

See Notes to Condensed Consolidated Financial Statements.




























SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

 

(unaudited)

 

 

 

 

 

Operating revenues

$

 920 

$

 1,556 

Operating expenses

 

 

 

 

    Cost of natural gas

 

 455 

 

 1,087 

    Operation and maintenance

 

 251 

 

 249 

    Depreciation

 

 72 

 

 71 

    Franchise fees and other taxes

 

 32 

 

 39 

        Total operating expenses

 

 810 

 

 1,446 

Operating income

 

 110 

 

 110 

Other income, net

 

 1 

 

 -

Interest income

 

 1 

 

 3 

Interest expense

 

 (17)

 

 (16)

Income before income taxes

 

 95 

 

 97 

Income tax expense

 

 36 

 

 40 

Net income/Earnings attributable to common shares

$

 59 

$

 57 

See Notes to Condensed Consolidated Financial Statements.




























SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008

 

(unaudited)

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 593 

$

 206 

    Accounts receivable - trade

 

 455 

 

 572 

    Accounts receivable - other

 

 30 

 

 20 

    Due from unconsolidated affiliates

 

 4 

 

 -

    Income taxes receivable

 

 -

 

 41 

    Inventories

 

 39 

 

 167 

    Other regulatory assets

 

 18 

 

 18 

    Other

 

 64 

 

 37 

        Total current assets

 

 1,203 

 

 1,061 

 

 

 

 

 

Other assets:

 

 

 

 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 808 

 

 795 

    Other regulatory assets

 

 112 

 

 105 

    Sundry

 

 17 

 

 24 

        Total other assets

 

 937 

 

 924 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 8,903 

 

 8,814 

    Less accumulated depreciation and amortization

 

 (3,494)

 

 (3,448)

        Property, plant and equipment, net

 

 5,409 

 

 5,366 

Total assets

$

 7,549 

$

 7,351 

See Notes to Condensed Consolidated Financial Statements.




























SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

March 31,

December 31,

 

2009

2008

 

(unaudited)

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Accounts payable - trade

$

 183 

$

 257 

    Accounts payable - other

 

 125 

 

 163 

    Due to unconsolidated affiliates

 

 34 

 

 23 

    Income taxes payable

 

 15 

 

 -

    Deferred income taxes

 

 2 

 

 6 

    Regulatory balancing accounts, net

 

 426 

 

 221 

    Customer deposits

 

 105 

 

 114 

    Accrued compensation and benefits

 

 63 

 

 92 

    Current portion of long-term debt

 

 100 

 

 100 

    Other

 

 233 

 

 211 

        Total current liabilities

 

 1,286 

 

 1,187 

Long-term debt

 

 1,269 

 

 1,270 

Deferred credits and other liabilities:

 

 

 

 

    Customer advances for construction

 

 132 

 

 131 

    Pension and other postretirement benefit obligations, net of plan assets

 

 835 

 

 823 

    Deferred income taxes

 

 182 

 

 167 

    Deferred investment tax credits

 

 30 

 

 30 

    Regulatory liabilities arising from removal obligations

 

 1,225 

 

 1,218 

    Asset retirement obligations

 

 590 

 

 581 

    Deferred taxes refundable in rates

 

 210 

 

 214 

    Deferred credits and other

 

 240 

 

 240 

        Total deferred credits and other liabilities

 

 3,444 

 

 3,404 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

    Preferred stock

 

 22 

 

 22 

    Common stock (100 million shares authorized; 91 million shares outstanding;

 

 

 

 

        no par value)

 

 866 

 

 866 

    Retained earnings

 

 689 

 

 630 

    Accumulated other comprehensive income (loss)

 

 (27)

 

 (28)

        Total shareholders' equity

 

 1,550 

 

 1,490 

Total liabilities and shareholders' equity

$

 7,549 

$

 7,351 

See Notes to Condensed Consolidated Financial Statements.




























SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 59 

$

 57 

    Adjustments to reconcile net income to net cash provided by

 

 

 

 

        operating activities:

 

 

 

 

            Depreciation

 

 72 

 

 71 

            Deferred income taxes and investment tax credits

 

 6 

 

 (3)

            Other

 

 2 

 

 1 

    Net change in other working capital components

 

 357 

 

 456 

    Changes in other assets

 

 7 

 

 2 

    Changes in other liabilities

 

 (4)

 

 (15)

        Net cash provided by operating activities

 

 499 

 

 569 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (112)

 

 (116)

    Increase in loans to affiliates, net

 

 -

 

 (11)

        Net cash used in investing activities

 

 (112)

 

 (127)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 -

 

 (150)

        Net cash used in financing activities

 

 -

 

 (150)

 

 

 

 

 

Increase in cash and cash equivalents

 

 387 

 

 292 

Cash and cash equivalents, January 1

 

 206 

 

 59 

Cash and cash equivalents, March 31

$

 593 

$

 351 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 8 

$

 8 

 

 

 

 

 

    Income tax refunds

$

 (23)

$

 -

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (15)

$

 (16)

 

 

 

 

 

    Dividends declared but not paid

$

 -

$

 50 

See Notes to Condensed Consolidated Financial Statements.



SEMPRA ENERGY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. GENERAL  

PRINCIPLES OF CONSOLIDATION

Sempra Energy

Sempra Energy's Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 holding company, its consolidated subsidiaries, and a variable interest entity. Sempra Energy’s principal subsidiaries are the following:

§

San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), which we collectively refer to as the Sempra Utilities; and

§

Sempra Global, which is the holding company for Sempra Commodities, Sempra Generation, Sempra Pipelines & Storage, Sempra LNG and other, smaller businesses.  

Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control.

SDG&E

SDG&E's Condensed Consolidated Financial Statements include its accounts, the accounts of its sole subsidiary, SDG&E Funding LLC, and the accounts of Otay Mesa Energy Center LLC (Otay Mesa VIE), a variable interest entity of which SDG&E is the primary beneficiary, as discussed in Note 5 under "Variable Interest Entities."  SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy. The activities of SDG&E Funding LLC were substantially complete in 2007, and the entity was dissolved in 2008.  

Pacific Enterprises and SoCalGas

The Condensed Consolidated Financial Statements of Pacific Enterprises include the accounts of Pacific Enterprises (PE) and its subsidiary, SoCalGas.  Sempra Energy owns all of PE’s common stock and PE owns all of SoCalGas’ common stock. SoCalGas’ Condensed Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations.

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.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E, PE and SoCalGas. We provide separate information for SDG&E, PE and SoCalGas as required. When only information for SoCalGas is provided, it is the same for PE. References in this report to "we," "our" and "Sempra Energy Consolidated" are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within each set of consolidated financial statements.

We have prepared the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) and 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, except as we discuss below in "Presentation of Preferred Securities" and in Note 2.



You should read the information in this Quarterly Report in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008 (the Annual Report), which is a combined report for Sempra Energy, SDG&E, PE and SoCalGas.

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes, except for the adoption of new accounting standards as we discuss in Note 2.

The Sempra Utilities account for the economic effects of regulation on utility operations in accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation.

Presentation of Preferred Securities

In connection with the adoption of Statement of Financial Accounting Standards (SFAS) 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS 160), as we discuss in Note 2, we evaluated the requirements of Emerging Issues Task Force (EITF) Topic No. 98, Classification and Measurement of Redeemable Securities (Topic D-98), with respect to the presentation of preferred securities. In previously issued financial statements, SDG&E classified certain preferred securities within the shareholders' equity section of the balance sheet. These preferred securities contain a contingent redemption feature that allows the holder to elect a majority of SDG&E's board of directors if dividends are not paid for eight consecutive quarters. Because such a redemption triggering event is not solely within the control of SDG&E, SDG&E has concluded that these preferred securities should have been pr esented separate from and outside of shareholders' equity in a manner consistent with temporary equity defined in Topic D-98. Although SDG&E believes that the effects are not material to the previously issued balance sheets, SDG&E has corrected the classification of these amounts as of December 31, 2008 for comparability purposes. This change, which affects preferred securities totaling $79 million at December 31, 2008 and March 31, 2009, affects only the balance sheet presentation of equity accounts and has no impact on earnings or on cash flows for any period presented.

NOTE 2. NEW ACCOUNTING STANDARDS

We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.  

SEMPRA ENERGY, SDG&E, PE AND SOCALGAS

SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51" (SFAS 160): SFAS 160 amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent.  

SFAS 160 provides guidance on the following:

§

how to report noncontrolling interests in a subsidiary in consolidated financial statements;

§

the amount of consolidated net income attributable to the parent and to the noncontrolling interest; and

§

changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.

We adopted SFAS 160 on January 1, 2009, and the presentation and disclosure requirements must be applied retrospectively. Accordingly, Sempra Energy’s, SDG&E’s and PE's condensed consolidated financial statements at December 31, 2008 and for the three months ended March 31, 2008 have been reclassified to conform to the new presentation. The adoption of SFAS 160 had no impact on SoCalGas’ financial statements. The pronouncement also



requires disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. We provide the required disclosure in Note 5.

SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133" (SFAS 161): SFAS 161 expands the disclosure requirements in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).

SFAS 161 requires disclosures about the following:

§

qualitative objectives and strategies for using derivatives;

§

quantitative disclosures of fair value amounts, and gains and losses on derivative instruments and related hedged items; and

§

credit-risk-related contingent features in derivative agreements.

We adopted SFAS 161 on January 1, 2009 and it is not required to be applied retrospectively. We provide the required disclosure in Note 7.  

FASB Staff Position (FSP) FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly” (FSP FAS 157-4): FSP FAS 157-4 concerns the determination of fair values for assets and liabilities when there is no active market or where the prices used might represent distressed sales. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The FSP also outlines factors to be used to determine whether there has been a significant decrease in the volume and level of activity for the assets and liabilities when compared with normal market activity.

FSP FAS 157-4 applies to us prospectively for interim and annual periods ending after June 15, 2009. We are in the process of evaluating the effects of this statement on our financial position and results of operations.  

FSP FAS 107-1 and APB 28-1, "Interim Disclosures About Fair Value of Financial Instruments" (FSP FAS 107-1 and APB 28-1):  FSP FAS 107-1 and APB 28-1 requires disclosure about the carrying amount and fair value of financial instruments for interim periods.  Prior to the issuance of this FSP, this disclosure was required only for annual periods.  

FSP FAS 107-1 and APB 28-1 applies to us prospectively for interim and annual periods ending after June 15, 2009. Our second quarter 2009 financial statements will include the additional disclosure.

FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS 124-2):  FSP FAS 115-2 and FAS 124-2 establishes a new model for determining and recording other-than-temporary impairment for debt securities.  

FSP FAS 115-2 and FAS 124-2 applies to us prospectively for interim and annual periods ending after June 15, 2009. We do not expect the effects of adopting this statement to have a material impact on our financial position or results of operations.  

FSP FAS 132(R)-1, "Employers’ Disclosures about Postretirement Benefit Plan Assets" (FSP FAS 132(R)-1):  FSP FAS 132(R)-1 requires annual disclosure about the assets held in postretirement benefit plans, including a breakdown by the level of the assets and a reconciliation of any change in Level 3 assets during the year. It requires that disclosures include information about the following:

§

valuation inputs, with detailed disclosure required about Level 3 assets

§

asset categories, broken down to relevant detail

§

concentration of risk in plan assets

FSP FAS 132(R)-1 applies to us prospectively for fiscal years ending after December 15, 2009.  Early application is permitted. We are in the process of evaluating the effect of this statement on our financial statement disclosures.



SEMPRA ENERGY

FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (FSP EITF 03-6-1): FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, they are required to be included when computing earnings per share (EPS) under the two-class method described in SFAS 128, Earnings per Share. All prior-period EPS data are to be adjusted retrospectively to conform with the provisions of this FSP. We adopted FSP EITF 03-6-1 on January 1, 2009 and it did not have a material impact on our EPS.

EITF Issue No. 08-6, "Equity Method Investment Accounting Considerations" (EITF 08-6):   EITF 08-6 clarifies accounting and impairment considerations involving equity method investments. We adopted EITF 08-6 on January 1, 2009 and it did not have a material impact on our financial position and results of operations.  

EITF Issue No. 08-5, "Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement" (EITF 08-5): EITF 08-5 provides that an issuer of a liability with a third-party credit enhancement that is inseparable from the liability may not include the effect of the credit enhancement in the fair value measurement of the liability. We adopted EITF 08-5 on January 1, 2009 and it did not have a material impact on our financial position or results of operations.

NOTE 3. RECENT EQUITY TRANSACTION

SEMPRA PIPELINES & STORAGE

Sempra Midstream, a subsidiary of Sempra Pipelines & Storage, owned 60 percent of Mississippi Hub, LLC (Mississippi Hub) at December 31, 2008. On January 16, 2009, Sempra Midstream purchased the remaining 40-percent ownership interest of Mississippi Hub for $94 million in cash.

NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

SEMPRA ENERGY AND SDG&E

Available-for-Sale Securities

In March 2008, Sempra Energy and SDG&E purchased $177 million and $236 million, respectively, of industrial development bonds. In December 2008, SDG&E remarketed $237 million of these industrial development bonds. The remaining $176 million of industrial development bonds, $24 million of which are held by SDG&E, are classified as available-for-sale securities and included in Short-Term Investments on the Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008. Sempra Energy and SDG&E intend to remarket the bonds by the end of 2009 and will make any necessary modifications to the bonds' credit and liquidity support at the time of their remarketing to investors. We discuss the bonds further in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA COMMODITIES

On April 1, 2008, Sempra Energy and The Royal Bank of Scotland (RBS) completed the formation of RBS Sempra Commodities LLP (RBS Sempra Commodities), a United Kingdom limited liability partnership formed to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy. We account for our investment in RBS Sempra Commodities under the equity method, and our share of partnership earnings is reported in the Sempra Commodities segment.



For the three months ended March 31, 2009, we had $153 million of pretax equity earnings from RBS Sempra Commodities. The partnership income that is distributable to us on an annual basis is computed on the partnership's basis of accounting, International Financial Reporting Standards (IFRS) as adopted by the European Union. For the three months ended March 31, 2009, this distributable income, on an IFRS basis, is $114 million. In the first quarter of 2009, we received the remaining distribution of 2008 partnership income of $305 million.

We have indemnified the partnership for certain litigation and tax liabilities related to the businesses purchased by the partnership. We recorded these obligations at a fair value of $5 million on April 1, 2008, the date we formed the partnership, and they are being amortized over 4 years.  

We provide information regarding the Sempra Commodities segment in Note 11.

The following table shows summarized financial information for RBS Sempra Commodities (on a GAAP basis):


 

Three months ended

(Dollars in millions)

March 31, 2009

Gross revenues and fee income

$

 509 

Gross profit

 

 486 

Income from continuing operations

 

 236 

Partnership net income

 

 236 


Available-for-Sale Securities

Sempra Commodities recorded purchases of available-for-sale securities of $1 million in the first quarter of 2008. Sempra Commodities had no sales and no impairment of available-for-sale securities in 2008 prior to the formation of RBS Sempra Commodities.

SEMPRA PIPELINES & STORAGE

Sempra Pipelines & Storage owns 43 percent of two Argentine natural gas utility holding companies, Sodigas Pampeana and Sodigas Sur. The Argentine economic decline and government responses (including Argentina’s unilateral, retroactive abrogation of utility agreements early in 2002) continue to adversely affect the operations of these Argentine utilities. In 2002, Sempra Pipelines & Storage initiated arbitration proceedings at the International Center for the Settlement of Investment Disputes (ICSID) under the 1994 Bilateral Investment Treaty between the United States and Argentina for recovery of the diminution of the value of its investments that has resulted from Argentine governmental actions. In September 2007, the tribunal officially closed the arbitration proceedings and awarded us compensation of $172 million, which includes interest up to the award date. In January 2008, Argentina filed an action at the ICSID seeking to annul the award. O n March 5, 2009, the ICSID ordered Argentina to place $75 million in escrow within 120 days, as tangible evidence of its preparedness to comply in good faith, as a condition of a continued stay in the annulment case. We will not recognize the award until collectibility is assured.

NOTE 5. OTHER FINANCIAL DATA

VARIABLE INTEREST ENTITIES

Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46 (revised December 2003), Consolidation of Variable Interest Entities - an interpretation of ARB No. 51 (FIN 46(R)), requires an enterprise to consolidate a variable interest entity (VIE), as defined in FIN 46(R), if the company is the primary beneficiary of the VIE’s activities. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess



§

the purpose and design of the VIE;

§

the nature of the VIE's risks and the risks we absorb; and

§

whether the variable interest holders will absorb a majority of the VIE's expected losses or receive a majority of its expected residual returns (or both).  

SDG&E has a 10-year agreement to purchase power to be generated at the Otay Mesa Energy Center (OMEC), a 573-megawatt (MW) generating facility currently under construction and expected to be in commercial operation in the fourth quarter of 2009.

As defined in FIN 46(R), the facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights and does not operate OMEC. We provide additional information about Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

Accordingly, Sempra Energy and SDG&E have consolidated Otay Mesa VIE. Otay Mesa VIE's equity of $137 million at March 31, 2009 and $128 million at December 31, 2008 is included in Noncontrolling Interest on the Sempra Energy and SDG&E Condensed Consolidated Balance Sheets.

OMEC LLC has a project finance credit facility with third party lenders, secured by its assets, that provides for up to $377 million for the construction of OMEC. SDG&E is not a party to the credit agreement and does not have any additional implicit or explicit financial responsibility to Otay Mesa VIE. The loan matures in April 2019. Borrowings under the facility bear interest at rates varying with market rates. OMEC LLC had $278 million of outstanding borrowings under this facility at March 31, 2009. In addition, OMEC LLC has entered into interest-rate swap agreements to moderate its exposure to interest-rate changes on this facility. We provide additional information concerning the interest-rate swaps in Note 7.

Contracts, under which SDG&E acquires power from generation facilities otherwise unrelated to SDG&E, could result in a requirement for SDG&E to consolidate the entity that owns the facility. In accordance with FIN 46(R), SDG&E continues the process of determining if it has any such situations and, if so, gathering the information that would be needed to perform the consolidation. However, such information has not been made available to us and an evaluation of variable interests has not been completed for these entities that are grandfathered pursuant to FIN 46(R). The effects of any required consolidation are not expected to significantly affect the financial position, results of operations or liquidity of SDG&E.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost

The following three tables provide the components of net periodic benefit cost:


NET PERIODIC BENEFIT COST -- SEMPRA ENERGY CONSOLIDATED

(Dollars in millions)

 

Pension Benefits

Other Postretirement Benefits

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2009

2008

2009

2008

Service cost

$

 19 

$

 18 

$

 7 

$

 6 

Interest cost

 

 43 

 

 42 

 

 14 

 

 14 

Expected return on assets

 

 (35)

 

 (40)

 

 (12)

 

 (12)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost (credit)

 

 1 

 

 1 

 

 -

 

 (1)

    Actuarial loss

 

 6 

 

 2 

 

 1 

 

 -

Regulatory adjustment

 

 (26)

 

 (15)

 

 (1)

 

 1 

Total net periodic benefit cost

$

 8 

$

 8 

$

 9 

$

 8 




NET PERIODIC BENEFIT COST -- SDG&E

(Dollars in millions)

 

Pension Benefits

Other Postretirement Benefits

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2009

2008

2009

2008

Service cost

$

 6 

$

 6 

$

 2 

$

 2 

Interest cost

 

 12 

 

 12 

 

 2 

 

 2 

Expected return on assets

 

 (8)

 

 (12)

 

 (1)

 

 (1)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost

 

 1 

 

 -

 

 1 

 

 1 

    Actuarial loss

 

 4 

 

 1 

 

 -

 

 -

Regulatory adjustment

 

 (14)

 

 (6)

 

 -

 

 (1)

Total net periodic benefit cost

$

 1 

$

 1 

$

 4 

$

 3 


NET PERIODIC BENEFIT COST -- SOCALGAS

(Dollars in millions)

 

Pension Benefits

Other Postretirement Benefits

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2009

2008

2009

2008

Service cost

$

 11 

$

 10 

$

 5 

$

 4 

Interest cost

 

 25 

 

 25 

 

 11 

 

 11 

Expected return on assets

 

 (24)

 

 (26)

 

 (11)

 

 (11)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost (credit)

 

 1 

 

 1 

 

 (1)

 

 (1)

    Actuarial loss

 

 -

 

 -

 

 1 

 

 -

Regulatory adjustment

 

 (12)

 

 (9)

 

 (1)

 

 2 

Total net periodic benefit cost

$

 1 

$

 1 

$

 4 

$

 5 

Future Payments

The following table shows our year-to-date contributions to our pension and other postretirement benefit plans and the amounts we expect to contribute in 2009:


 

Sempra Energy

 

 

(Dollars in millions)

Consolidated

SDG&E

SoCalGas

Contributions through March 31, 2009:

 

 

 

 

 

 

    Pension plans

$

 14 

$

 -

$

 -

    Other postretirement benefit plans

 

 9 

 

 4 

 

 5 

Total expected contributions in 2009:

 

 

 

 

 

 

    Pension plans

$

 161 

$

 57 

$

 74 

    Other postretirement benefit plans

 

 48 

 

 17 

 

 29 



EARNINGS PER SHARE

The following table provides the per share computations for our earnings for the three months ended March 31, 2009 and 2008. Basic EPS is calculated by dividing earnings attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.


EARNINGS PER SHARE COMPUTATIONS

(Dollars in millions, except per share amounts; shares in thousands)

 

Three months ended

 

March 31,

 

2009

2008

Numerator:

 

 

 

 

    Earnings

$

 316 

$

 242 

 

 

 

 

 

Denominator:

 

 

 

 

    Weighted-average common shares outstanding for basic EPS

 

 241,766 

 

 258,624 

    Dilutive effect of stock options, restricted stock awards and restricted stock units

 

 3,251 

 

 4,047 

    Weighted-average common shares outstanding for diluted EPS

 

 245,017 

 

 262,671 

 

 

 

 

 

Earnings per share:

 

 

 

 

    Basic

$

 1.31 

$

 0.94 

    Diluted

$

 1.29 

$

 0.92 


The dilution from common stock options is based on the treasury stock method. Under this method, proceeds based on the exercise price plus unearned compensation and windfall tax benefits or tax shortfalls, as defined by SFAS 123 (revised 2004), Share-Based Payment (SFAS 123(R)), are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits are tax deductions we would receive upon the assumed exercise of stock options in excess of the deferred income taxes we recorded related to the compensation expense on the stock options. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. The calculation excludes options for which the exercise price for common stock was greater than the average market price during the period. We had 3,153,534 and 1,474,287 of such stock options outstanding during the three months ended March 31, 2009 and 2008, respect ively.

During the three months ended March 31, 2008, we had 2,500 stock options outstanding that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method. We had no such antidilutive stock options outstanding during the three months ended March 31, 2009.

The dilution from unvested restricted stock awards and units is also based on the treasury stock method. Assumed proceeds equal to the unearned compensation and windfall tax benefits or tax shortfalls related to the awards, as defined by SFAS 123(R), are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits or tax shortfalls are the difference between tax deductions we would receive upon the assumed vesting of restricted stock awards and units and the deferred income taxes we recorded related to the compensation expense on the restricted stock awards and units. We had 544,399 restricted stock units outstanding that were antidilutive during the three months ended March 31, 2008. There were no restricted stock awards or units outstanding that were antidilutive during the three months ended March 31, 2009.

SHARE-BASED COMPENSATION

We discuss our share-based compensation plans in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report. We recorded share-based compensation expense, net of income taxes, of $6 million and $8 million for the three months ended March 31, 2009 and 2008, respectively. Pursuant to our share-based compensation plans, we granted 868,200 non-qualified stock options, 37,200 restricted stock awards and 907,700 restricted stock units during the three months ended March 31, 2009, primarily in January 2009.

CAPITALIZED FINANCING COSTS

Capitalized financing costs include capitalized interest costs and, at the Sempra Utilities, an allowance for funds used during construction (AFUDC) related to both debt and equity financing of construction projects.  The following table shows capitalized financing costs for the three months ended March 31, 2009 and 2008.


CAPITALIZED FINANCING COSTS

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

SDG&E:

 

 

 

 

    AFUDC related to debt

$

 2 

$

 2 

    AFUDC related to equity

 

 6 

 

 6 

    Other capitalized financing costs

 

 -

 

 2 

        Total SDG&E

 

 8 

 

 10 

 

 

 

 

 

SoCalGas:

 

 

 

 

    AFUDC related to debt

 

 1 

 

 1 

    AFUDC related to equity

 

 2 

 

 2 

        Total SoCalGas

 

 3 

 

 3 

 

 

 

 

 

Sempra Global:

 

 

 

 

    Capitalized financing costs

 

 22 

 

 26 

Total Sempra Energy Consolidated

$

 33 

$

 39 



SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Sempra Energy, SDG&E and PE account for noncontrolling interests in their Condensed Consolidated Financial Statements under SFAS 160, as discussed in Note 2. The following two tables provide a reconciliation of Sempra Energy and SDG&E shareholders’ equity and noncontrolling interests for the three months ended March 31, 2009 and 2008. There were no changes in the equity of PE's noncontrolling interests in the three-month periods of 2009 or 2008.


SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS

(Dollars in millions)

 

 

Sempra

 

 

 

 

 

 

Energy

 

Non-

 

 

 

 

Shareholders'

 

controlling

 

Total

 

 

Equity

 

Interests

 

Equity

Balance at December 31, 2008

$

 7,969 

$

 340 

$

 8,309 

Net income

 

 318 

 

 7 

 

 325 

Comprehensive income adjustments:

 

 

 

 

 

 

    Foreign currency translation adjustments

 

 26 

 

 -

 

 26 

    Available-for-sale securities

 

 9 

 

 -

 

 9 

    Net actuarial gain

 

 1 

 

 -

 

 1 

    Financial instruments

 

 3 

 

 (3)

 

 -

Comprehensive income

 

 357 

 

 4 

 

 361 

Purchase of noncontrolling interest in subsidiary

 

 (10)

 

 (84)

 

 (94)

Share-based compensation expense

 

 10 

 

 -

 

 10 

Common stock dividends declared

 

 (95)

 

 -

 

 (95)

Preferred dividends of subsidiaries

 

 (2)

 

 -

 

 (2)

Issuance of common stock

 

 14 

 

 -

 

 14 

Common stock released from ESOP

 

 4 

 

 -

 

 4 

Equity contributed by noncontrolling interests

 

 -

 

 6 

 

 6 

Balance at March 31, 2009

$

 8,247 

$

 266 

$

 8,513 

Balance at December 31, 2007

$

 8,339 

$

 248 

$

 8,587 

Net income

 

 244 

 

 -

 

 244 

Comprehensive income adjustments:

 

 

 

 

 

 

    Foreign currency translation adjustments

 

 73 

 

 -

 

 73 

    Available-for-sale securities

 

 2 

 

 -

 

 2 

    Net actuarial gain

 

 1 

 

 -

 

 1 

    Financial instruments

 

 (18)

 

 (5)

 

 (23)

Comprehensive income

 

 302 

 

 (5)

 

 297 

Share-based compensation expense

 

 14 

 

 -

 

 14 

Common stock dividends declared

 

 (84)

 

 -

 

 (84)

Preferred dividends of subsidiaries

 

 (2)

 

 -

 

 (2)

Issuance of common stock

 

 4 

 

 -

 

 4 

Tax benefit related to share-based compensation

 

 1 

 

 -

 

 1 

Repurchase of common stock

 

 (2)

 

 -

 

 (2)

Common stock released from ESOP

 

 5 

 

 -

 

 5 

Equity contributed by noncontrolling interests

 

 -

 

 8 

 

 8 

Balance at March 31, 2008

$

 8,577 

$

 251 

$

 8,828 





SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST

(Dollars in millions)

 

 

SDG&E

 

Non-

 

 

 

 

Shareholders'

 

controlling

 

Total

 

 

Equity

 

Interest

 

Equity

Balance at December 31, 2008

$

 2,542 

$

 128 

$

 2,670 

Net income

 

 100 

 

 7 

 

 107 

Comprehensive income adjustments:

 

 

 

 

 

 

    Financial instruments

 

 2 

 

 (4)

 

 (2)

Comprehensive income

 

 102 

 

 3 

 

 105 

Common stock dividends declared

 

 (150)

 

 -

 

 (150)

Preferred stock dividends declared

 

 (1)

 

 -

 

 (1)

Equity contributed by noncontrolling interests

 

 -

 

 6 

 

 6 

Balance at March 31, 2009

$

 2,493 

$

 137 

$

 2,630 

Balance at December 31, 2007

$

 2,200 

$

 135 

$

 2,335 

Net income

 

 75 

 

 -

 

 75 

Comprehensive income adjustments:

 

 

 

 

 

 

    Financial instruments

 

 -

 

 (5)

 

 (5)

Comprehensive income

 

 75 

 

 (5)

 

 70 

Preferred stock dividends declared

 

 (1)

 

 -

 

 (1)

Equity contributed by noncontrolling interests

 

 -

 

 7 

 

 7 

Balance at March 31, 2008

$

 2,274 

$

 137 

$

 2,411 


The amounts for comprehensive income in the tables above are net of income tax expense (benefit) as follows:


INCOME TAX EXPENSE (BENEFIT) ASSOCIATED WITH OTHER COMPREHENSIVE INCOME

(Dollars in millions)

 

 

 Three months ended March 31,

 

 

2009 

 

2008 

 

 

Share-

 

Non-

 

 

 

Share-

 

Non-

 

 

 

 

holders'

 

controlling

 

Total

 

holders'

 

controlling

 

Total

 

 

 Equity

 

Interests

 

Equity

 

Equity

 

 Interests

 

Equity

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 2 

$

 -

$

 2 

$

 (12)

$

 -

$

 (12)

Available-for-sale securities

 

 3 

 

       -

 

 3 

 

 -

 

       -

 

 -

Net actuarial gain

 

 1 

 

       -

 

 1 

 

 1 

 

       -

 

 1 

 

 

 

 

 

 

 

 

 

 

 

 

 

SDG&E:

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 1 

$

 -

$

 1 

$

 -

$

 (12)

$

 (12)




COMPREHENSIVE INCOME

The following table provides a reconciliation of net income to comprehensive income and the associated income tax expense (benefit) for PE and SoCalGas.


COMPREHENSIVE INCOME AND ASSOCIATED INCOME TAX EXPENSE (BENEFIT)

(Dollars in millions)

 

Comprehensive Income

Income Tax Expense (Benefit)

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2009

2008

2009

2008

PE:

 

 

 

 

 

 

 

 

Net income

$

 59 

$

 58 

$

 -

$

 -

Financial instruments

 

 1 

 

 (5)

 

 1 

 

 (4)

Comprehensive income

$

 60 

$

 53 

$

 1 

$

 (4)

SoCalGas:

 

 

 

 

 

 

 

 

Net income

$

 59 

$

 57 

$

 -

$

 -

Financial instruments

 

 1 

 

 (5)

 

 1 

 

 (4)

Comprehensive income

$

 60 

$

 52 

$

 1 

$

 (4)

TRANSACTIONS WITH AFFILIATES

Loans to Unconsolidated Affiliates

Sempra Pipelines & Storage has a U.S. dollar-denominated loan to Camuzzi Gas del Sur S.A., an affiliate of Sempra Pipelines & Storage’s Argentine investments, which we discuss in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report. The balance outstanding was $25 million at both March 31, 2009 and December 31, 2008. The loan bears interest at a variable rate of 8.435% at March 31, 2009. The loan is due in June 2009 and is fully reserved at March 31, 2009.

Loans from Unconsolidated Affiliates

Sempra Pipelines & Storage has a note payable, bearing interest at 6.73%, due to Chilquinta Energía Finance Co. LLC, an unconsolidated affiliate. The balance outstanding was $100 million at both March 31, 2009 and December 31, 2008. The note is secured by Sempra Pipelines & Storage’s investments in Chilquinta Energía S.A. and Luz del Sur S.A.A., which we discuss in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

Other Affiliate Transactions

Sempra Energy, SDG&E and SoCalGas provide certain services to each other, which are charged an allocable share of the cost of such services. Amounts due to/from affiliates are as follows:




AMOUNTS DUE TO AND FROM AFFILIATES AT SDG&E, PE AND SOCALGAS

(Dollars in millions)

 

 

March 31,

December 31,

 

2009

2008

SDG&E

 

 

 

 

Current:

 

 

 

 

    Due from Sempra Energy

$

 -

$

 20 

    Due from SoCalGas

 

 -

 

 8 

    Due from various affiliates

 

 1 

 

 1 

 

$

 1 

$

 29 

 

 

 

 

 

    Due to various affiliates

$

 -

$

 1 

    Due to SoCalGas

 

 4 

 

 -

    Due to Sempra Energy

 

 25 

 

 -

 

$

 29 

$

 1 

 

 

 

 

 

    Income taxes due to Sempra Energy*

$

 62 

$

 7 

 

 

 

 

 

Noncurrent:

 

 

 

 

    Promissory note due from Sempra Energy, variable rate based on

 

 

 

 

        short-term commercial paper rates (0.28% at March 31, 2009)

$

 4 

$

 4 

 

 

 

 

 

Pacific Enterprises

 

 

 

 

Current:

 

 

 

 

    Due from Sempra Energy

$

 31 

$

 -

    Due from various affiliates

 

 9 

 

 5 

 

$

 40 

$

 5 

 

 

 

 

 

    Due to affiliate

$

 84 

$

 83 

    Due to Sempra Energy

 

 -

 

 15 

    Due to SDG&E

 

 -

 

 8 

 

$

 84 

$

 106 

 

 

 

 

 

    Income taxes due to (from) Sempra Energy*

$

 52 

$

 (66)

 

 

 

 

 

Noncurrent:

 

 

 

 

    Promissory note due from Sempra Energy, variable rate based on

 

 

 

 

        short-term commercial paper rates (0.28% at March 31, 2009)

$

 454 

$

 457 

 

 

 

 

 

SoCalGas

 

 

 

 

Current:

 

 

 

 

    Due from SDG&E

$

 4 

$

 -

 

 

 

 

 

    Due to Sempra Energy

$

 34 

$

 15 

    Due to SDG&E

 

 -

 

 8 

 

$

 34 

$

 23 

 

 

 

 

 

    Income taxes due to Sempra Energy*

$

 54 

$

 1 

*

SDG&E, PE and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from the companies' having always filed a separate return.






Revenues from unconsolidated affiliates at the Sempra Utilities are as follows:


REVENUES FROM UNCONSOLIDATED AFFILIATES

AT THE SEMPRA UTILITIES

(Dollars in millions)

 

Three months ended

 

March 31,

 

2009

2008

SDG&E

$

$

SoCalGas

 

 




Transactions with RBS Sempra Commodities

Several of our business units engage in transactions with RBS Sempra Commodities. Amounts in our Condensed Consolidated Financial Statements related to these transactions are as follows:


AMOUNTS RECORDED FOR TRANSACTIONS WITH RBS SEMPRA COMMODITIES

(Dollars in millions)

 

 

 

Three months

 

 

ended

 

 

March 31, 2009

Revenues:

 

 

 

 

    SoCalGas

 

 

$

 1 

    Sempra Commodities

 

 

 

 2 

    Sempra Generation

 

 

 

 1 

    Sempra LNG*

 

 

 

 7 

        Total revenues

 

 

$

 11 

 

 

 

 

 

Cost of natural gas:

 

 

 

 

    SoCalGas

 

 

$

 4 

    Sempra Pipelines & Storage

 

 

 

 6 

        Total cost of natural gas

 

 

$

 10 

 

 

 

 

 

 

 

March 31,

December 31,

 

2009

2008

Fixed price contracts and other derivatives - Current Asset (Liability):

 

 

 

 

    Sempra Generation

$

 16 

$

 35 

    Sempra Pipelines & Storage

 

 2 

 

 -

    Sempra LNG

 

 (40)

 

 (44)

        Total

$

 (22)

$

 (9)

 

 

 

 

 

Due to unconsolidated affiliates:

 

 

 

 

    Sempra Commodities

$

 29 

$

 29 

    Sempra Generation

 

 -

 

 6 

    Sempra Pipelines & Storage

 

 2 

 

 3 

        Total

$

 31 

$

 38 

 

 

 

 

 

Due from unconsolidated affiliates:

 

 

 

 

    Sempra Commodities

$

 1 

$

 1 

    Sempra Generation

 

 11 

 

 -

    Sempra LNG

 

 1 

 

 1 

    Parent and other

 

 2 

 

 2 

        Total

$

 15 

$

 4 

*

Includes $5 million related to a marketing agreement with RBS Sempra Commodities which is subject to mark-to-market accounting. Under this agreement, which extends for five years beginning September 1, 2009, RBS Sempra Commodities will market natural gas that Sempra LNG purchases and does not sell under other contracts.

Revenues and Expenses with Unconsolidated Affiliates

For the quarter ended March 31, 2008, Sempra Commodities recorded $55 million of sales to unconsolidated affiliates.

OTHER INCOME (EXPENSE), NET

Other Income (Expense), Net on the Condensed Consolidated Statements of Operations consists of the following:


OTHER INCOME (EXPENSE), NET

(Dollars in millions)

 

 

Three months ended March 31,

 

 

2009

2008

Sempra Energy Consolidated:

 

 

 

 

Allowance for equity funds used during construction

$

 8 

$

 8 

Regulatory interest, net

 

 -

 

 (5)

Investment losses*

 

 (17)

 

 (4)

Gain on interest-rate swaps (Otay Mesa VIE)

 

 10 

 

 -

Sundry, net**

 

 2 

 

 20 

   

Total

$

 3 

$

 19 

SDG&E:

 

 

 

 

Allowance for equity funds used during construction

$

 6 

$

 6 

Regulatory interest, net

 

 -

 

 (4)

Gain on interest-rate swaps (Otay Mesa VIE)

 

 10 

 

 -

Sundry, net

 

 1 

 

 1 

   

Total

$

 17 

$

 3 

SoCalGas and PE:

 

 

 

 

Allowance for equity funds used during construction

$

 2 

$

 2 

Regulatory interest, net

 

 -

 

 (1)

Sundry, net

 

 (1)

 

 (1)

 

Total at SoCalGas and PE

$

 1 

$

 -

*

Represents investment losses on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans.

**

2008 includes a $16 million cash payment received for the early termination of a capacity agreement for the Cameron LNG receipt terminal.

INCOME TAXES

Sempra Energy

For the three months ended March 31, 2009, Sempra Energy's effective tax rate was 26% compared to 36% for the three months ended March 31, 2008.  This decrease in effective tax rate was due to:

§

a $9 million tax benefit in 2009 and a $7 million tax expense in 2008 due to Mexican currency translation and inflation adjustments;

§

higher tax deductions at the Sempra Utilities, as discussed below;

§

higher pretax income in countries with lower statutory rates; and

§

planned solar investments at Sempra Generation.

SDG&E

For the three months ended March 31, 2009, SDG&E’s effective tax rate was 36% compared to 30% for the three months ended March 31, 2008.  This increase in effective tax rate was due to:

§

$9 million favorable resolution in 2008 of prior years' income tax issues; offset by

§

larger exclusions from taxable income in 2009 related to the equity portion of AFUDC.



PE and SoCalGas

For the three months ended March 31, 2009, PE's and SoCalGas’ effective tax rate was 38% compared to 41% for the three months ended March 31, 2008.  This decrease in effective tax rate was due to larger tax deductions for self-developed software costs.

NOTE 6. DEBT AND CREDIT FACILITIES

COMMITTED LINES OF CREDIT

At March 31, 2009, Sempra Energy had $4.3 billion in committed lines of credit to provide liquidity and to support commercial paper and variable-rate demand notes, the major components of which are detailed below. Available unused credit on these lines at March 31, 2009 was $2.9 billion. We discuss the terms of our credit agreements in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

These amounts exclude lines of credit associated with Sempra Commodities, some of which we continue to guarantee, as we discuss below in "RBS Sempra Commodities." RBS has replaced Sempra Energy as guarantor on all uncommitted lines of credit associated with Sempra Commodities. To the extent that Sempra Energy's credit support arrangements, including Sempra Commodities' committed facilities, have not been terminated or replaced, RBS has indemnified Sempra Energy for any claims or losses arising in connection with those arrangements.

Sempra Global

Sempra Global has a $2.5 billion, three-year syndicated revolving credit agreement expiring in 2011. At March 31, 2009, Sempra Global had letters of credit of $17 million outstanding and no outstanding borrowings under the facility. The facility provides support for $878 million of commercial paper outstanding at March 31, 2009. At March 31, 2009, $600 million of the commercial paper outstanding has been classified as long-term debt based on management’s intent and ability to maintain this level of borrowing on a long-term basis either supported by this credit facility or by issuing long-term debt.

Sempra Generation

Sempra Generation has a $1 billion, three-year syndicated revolving credit agreement expiring in 2011. At March 31, 2009, Sempra Generation had no outstanding borrowings under the facility.

Sempra Utilities

SDG&E and SoCalGas have a combined $800 million, three-year syndicated revolving credit agreement expiring in 2011. The agreement permits each utility to individually borrow up to $600 million, subject to a combined limit of $800 million for both utilities. At March 31, 2009, SDG&E and SoCalGas had no outstanding borrowings under this facility. SDG&E had $98 million of commercial paper, $110 million of outstanding letters of credit and $237 million of variable-rate demand notes outstanding supported by this facility at March 31, 2009.

RBS Sempra Commodities

RBS is obligated to provide RBS Sempra Commodities with all growth capital, working-capital requirements and credit support. However, as a transitional measure, we continue to provide back-up guarantees for a portion of RBS Sempra Commodities’ trading obligations and for certain credit facilities with third party lenders pending novation (legal transfer) of the remaining trading obligations to RBS. Some of these back-up guarantees may continue for a prolonged period of time. RBS has fully indemnified us for any claims or losses in connection with these arrangements. RBS has been greatly affected by the world-wide turmoil in banking and became indirectly controlled by the government of the United Kingdom in December 2008.

RBS Sempra Commodities’ net trading liabilities and credit facilities supported by Sempra Energy’s guarantees at March 31, 2009 were



§

$905 million of net trading liabilities consisting of guaranteed trading obligations net of collateral. The amount of guaranteed net trading liabilities varies from day to day with the value of the trading obligations and related collateral.

§

$500 million under a three-year revolving credit facility expiring on May 4, 2009.

Sempra Energy also has guaranteed $344 million of $1.72 billion of RBS Sempra Commodities' commitments under an additional credit facility expiring September 29, 2010. Extensions of credit under the committed facility, which total $798 million at March 31, 2009, are limited to and secured by a borrowing base consisting of receivables, inventories and other joint venture assets that are valued at varying percentages of current market value. At March 31, 2009, the gross market value of the borrowing base assets was $2.4 billion. The facility will be reduced and end as the borrowing base assets are transferred to RBS as established by the joint venture agreement.

OTHER GUARANTEES

Sempra Energy, Conoco Phillips (Conoco) and Kinder Morgan Energy Partners, L.P. (KMP) currently hold 25 percent, 24 percent and 51 percent ownership interests, respectively, in Rockies Express. Rockies Express is constructing a natural gas pipeline to link natural gas producing areas in the Rocky Mountain region to the upper Midwest and the eastern United States. Rockies Express has a $2 billion, five-year credit facility expiring in 2011 that provides for revolving extensions of credit that are guaranteed by Sempra Energy, Conoco and KMP in proportion to their respective ownership percentages.

Borrowings under the facility bear interest at rates varying with market rates plus a margin that varies with the credit ratings of the lowest-rated guarantor. The facility requires each guarantor to comply with various financial and other covenants comparable to those contained in its senior unsecured credit facilities. In the case of Sempra Energy, the primary requirement is that we maintain a ratio of total indebtedness to total capitalization (as defined in the facility) of no more than 65 percent at the end of each quarter. Rockies Express had $1.9 billion of outstanding borrowings under this facility at March 31, 2009. In addition, Rockies Express had $600 million of floating rate notes outstanding at March 31, 2009 and maturing in September 2009 that are guaranteed by Sempra Energy, Conoco and KMP in proportion to their respective ownership percentages. The fair value to us of these guarantees is negligible.

WEIGHTED AVERAGE INTEREST RATES

At March 31, 2009, the weighted average interest rates on the total short-term debt outstanding at Sempra Energy and SDG&E, including commercial paper borrowings classified as long-term at Sempra Energy, were 2.83 percent and 0.25 percent, respectively.

INTEREST-RATE SWAPS

We discuss our fair value interest-rate swaps and interest-rate swaps to hedge cash flows in Note 7.



NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS

On January 1, 2009, we adopted SFAS 161 as discussed in Note 2. The adoption of SFAS 161 had no impact on our consolidated financial statements, but requires additional disclosures, which we provide below. Comparative disclosures for periods prior to the date of adoption are not required and we have not provided them.

We use derivative instruments primarily to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. Generally, we use derivative instruments to manage commodity market risk and benchmark interest rate risk.

Our use of derivatives for these risks is integrated into the economic management of our anticipated revenues, anticipated expenses, assets and liabilities. Derivatives may be effective in mitigating these risks that could lead to declines in anticipated revenues or increases in anticipated expenses, or that our asset values may fall or our liabilities increase. Accordingly, our derivative activity summarized below generally represents an impact that is intended to offset associated revenues, expenses, assets or liabilities that are not presented below.

All derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets. Each derivative is designated as 1) a cash flow hedge, 2) a fair value hedge, or 3) is undesignated. Depending on the applicability of hedge accounting and, for the Sempra Utilities, the requirement to pass impacts through to customers, the impact of derivative instruments may be offset in other comprehensive income (cash flow hedge), on the balance sheet (fair value hedges and regulatory offsets), or recognized in earnings.  

In certain cases, we apply the normal purchase or sale exception to derivative accounting and have other commodity contracts that are not derivatives. These contracts are not recorded at fair value and are therefore excluded from the disclosures below.

HEDGE ACCOUNTING

We may designate a derivative as a cash flow hedging instrument if it effectively converts anticipated revenues or expenses to a fixed dollar amount. We may utilize cash flow hedge accounting for derivative commodity instruments and interest-rate instruments. Designating cash flow hedges is dependent on the business context in which the instrument is being used, the effectiveness of the instrument in offsetting the risk that a given future revenue or expense item may vary, and other criteria.

We may designate a derivative as a fair value hedging instrument if it effectively converts our own debt from a fixed interest rate to a variable rate, which results in fixing the fair value of the debt. We may utilize fair value hedge accounting for derivative interest-rate instruments. Designating fair value hedges is dependent on the instrument being used, the effectiveness of the instrument in offsetting changes in the fair value of our debt instruments, and other criteria.

ENERGY DERIVATIVES

Our market risk is primarily related to natural gas and electricity price volatility and the specific physical locations where we transact. We use energy derivatives to manage these risks. The use of energy derivatives in our various businesses depends on the particular energy market, and the operating and regulatory environments applicable to the business.

§

The Sempra Utilities use natural gas energy derivatives, on their customers' behalf, with the objective of managing price risk and lowering natural gas costs. These derivatives include fixed price natural gas positions, options and basis risk instruments. The majority of these transaction programs are governed by risk management and transacting activity plans that have been filed with and approved by the California Public Utilities Commission (CPUC). Natural gas derivative activities are recorded as commodity costs. Commodity costs are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Condensed



Consolidated Statements of Operations are reflected in Cost of Electric Fuel and Purchased Power or in Cost of Natural Gas.

§

SDG&E is allocated and may purchase congestion revenue rights (CRRs), which serve to reduce electricity transmission risk on behalf of customers. Unrealized gains and losses do not impact earnings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs are recorded in Cost of Electric Fuel and Purchased Power on the Condensed Consolidated Statements of Operations. We provide further discussion in Note 8.

§

Sempra Generation uses natural gas and electricity instruments to market and optimize the earnings of their power generation fleet. Gains and losses associated with these derivatives are recognized in Sempra Global and Parent Revenues or in Cost of Natural Gas, Electric Fuel and Purchased Power on the Condensed Consolidated Statements of Operations.

§

Sempra LNG and Sempra Pipelines & Storage use natural gas derivatives to market and optimize the earnings of the LNG business and Sempra Pipelines & Storage's natural gas storage and transportation assets. Sempra LNG derivatives are undesignated and their impact on earnings is recorded in Sempra Global and Parent Revenues on the Condensed Consolidated Statements of Operations.  Sempra Pipelines & Storage derivatives are either designated as cash flow hedges or are undesignated. The impacts on earnings are recognized in Sempra Global and Parent Revenues or in Cost of Natural Gas, Electric Fuel and Purchased Power on the Condensed Consolidated Statements of Operations.

From time to time, our various businesses, including the Sempra Utilities, may use other energy derivatives to hedge exposures such as the price of vehicle fuel. These derivatives are typically accounted for as cash flow hedges.

We summarize net commodity derivative volumes as of March 31, 2009 as follows:


Business Unit and Commodity

Volume

 

Sempra Utilities:

 

 

 

SDG&E:

 

 

 

 

Natural gas

21 million MMBtu

*

 

 

Congestion revenue rights

22 million MWH

**

 

SoCalGas - natural gas

1 million MMBtu

 

 

 

 

 

 

Sempra Global:

 

 

 

Sempra LNG - natural gas

9 million MMBtu

 

 

Sempra Pipelines & Storage - natural gas

4 million MMBtu

 

 

Sempra Generation - electric power

1 million MWH

 

*

Million British Thermal units (of natural gas)

 

**

Megawatt hours

 


In addition to the amounts noted above, we frequently use commodity derivatives to manage risks associated with the physical locations of our customers, assets and other contractual obligations, such as gas purchases.

INTEREST-RATE DERIVATIVES

We are exposed to interest-rate changes primarily as a result of our current and expected use of financing. We periodically enter into interest-rate derivative agreements intended to moderate our exposure to interest-rate changes and to lower our overall costs of borrowing. We utilize fixed-to-floating interest-rate swaps, which are typically designated as fair-value hedges, as a means to achieve our targeted level of variable-rate debt as a percent of total debt. In addition, we utilize floating-to-fixed interest-rate derivatives, which are typically designated as cash flow hedges, to lock in interest-rates in anticipation of future financings.  



Interest-rate derivatives are utilized by the Sempra Utilities as well as by other Sempra Energy subsidiaries. Although the Sempra Utilities generally recover borrowing costs in rates over time, and the use of interest-rate derivatives is subject to certain regulatory constraints, the impact of interest-rate derivatives may not be recovered from customers as timely as described above with regard to natural gas derivatives. Accordingly, interest-rate derivatives are generally accounted for as hedges at the Sempra Utilities, as at the rest of Sempra Energy's subsidiaries.

The net notional amount of our interest-rate derivatives as of March 31, 2009 was:


 

March 31, 2009

(Dollars in millions)

Notional Debt

Maturities

Sempra Energy Consolidated*

$

215-355

2009-2019

SDG&E*

 

285-375

2019

SoCalGas

 

150

2011

* Includes Otay Mesa VIE. All of SDG&E's interest-rate derivatives relate to Otay Mesa VIE.



FINANCIAL STATEMENT PRESENTATION

The following table provides the fair values of derivative instruments, without consideration of margin deposits held or posted, on the Condensed Consolidated Balance Sheets as of March 31, 2009:


DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

 

March 31, 2009

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

 

credits

 

 

 

Current

 

 

 

Current

 

and other

 

 

 

assets:

 

 

 

liabilities:

 

liabilities:

 

 

 

Fixed-price

 

Investments

 

Fixed-price

 

Fixed-price

 

 

 

contracts

 

and other

 

contracts

 

contracts

Derivatives designated as hedging instruments

 

and other

 

assets:

 

and other

 

and other

 

under SFAS 133

 

derivatives

 

Sundry

 

derivatives

 

derivatives

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

Interest-rate instruments

$

 10 

$

 8 

$

 2 

$

 1 

 

Commodity contracts not subject to rate recovery

 

 2 

 

 -

 

 19 

 

 -

 

    Offsetting commodity contracts

 

 (3)

 

 -

 

 (3)

 

 -

 

Total

$

 9 

$

 8 

$

 18 

$

 1 

SoCalGas:

 

 

 

 

 

 

 

 

 

Interest-rate instruments

$

 -

$

 8 

$

 -

$

 -

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

under SFAS 133

 

 

 

 

 

 

 

 

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

Interest-rate instruments*

$

 -

$

 45 

$

 13 

$

 97 

 

Commodity contracts not subject to rate recovery

 

 229 

 

 2 

 

 235 

 

 4 

 

    Offsetting commodity contracts

 

 (129)

 

 (2)

 

 (129)

 

 (2)

 

Commodity contracts subject to rate recovery

 

 31 

 

 12 

 

 92 

 

 9 

 

    Offsetting commodity contracts

 

 (67)

 

 (9)

 

 (67)

 

 (9)

 

Total

$

 64 

$

 48 

$

 144 

$

 99 

SDG&E:

 

 

 

 

 

 

 

 

 

Interest-rate instruments*

$

 -

$

 -

$

 13 

$

 61 

 

Commodity contracts subject to rate recovery

 

 18 

 

 12 

 

 79 

 

 9 

 

    Offsetting commodity contracts

 

 (54)

 

 (9)

 

 (54)

 

 (9)

 

Total

$

 (36)

$

 3 

$

 38 

$

 61 

SoCalGas:

 

 

 

 

 

 

 

 

 

Commodity contracts subject to rate recovery

$

 13 

$

 -

$

 13 

$

 -

 

    Offsetting commodity contracts

 

 (13)

 

 -

 

 (13)

 

 -

 

Total

$

 -

$

 -

$

 -

$

 -

*

Includes Otay Mesa VIE. All of SDG&E's amounts relate to Otay Mesa VIE.




The effects of derivative instruments designated as hedges under SFAS 133 on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 were:


FAIR VALUE HEDGE IMPACT ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

 

Three months ended March 31, 2009

 

 

Gain (loss) on derivative

 

 

recognized in earnings

 

Location

 

Amount

Sempra Energy Consolidated:

 

 

 

 

Interest-rate instruments*

Other Income, Net

$

 (6)

SoCalGas:

 

 

 

 

Interest-rate instrument*

Other Income, Net

$

 (2)

*

There has been no hedge ineffectiveness on these swaps. Changes in the fair values of the interest-rate swap agreements are exactly offset by changes in the fair value of the underlying long-term debt.


CASH FLOW HEDGE IMPACT ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

 

 

Three months ended March 31, 2009

 

 

 

Amount of pretax

 

 

 

 

 

 

 

gain (loss)

 

 

 

 

 

 

 

on derivative

 

Gain (loss) reclassified from AOCI

 

 

 

recognized in OCI

 

into earnings (effective portion)

 

 

(effective portion)

 

Location

 

Amount

Sempra Energy Consolidated:

 

 

 

 

 

 

 

Interest-rate instruments

$

 (3)

 

Interest Expense

$

 (3)

 

Commodity contracts not subject

 

 

 

Revenues: Sempra Global

 

 

 

    to rate recovery

 

 11 

 

    and Parent

 

 17 

 

Commodity contracts not subject

 

 

 

Cost of Natural Gas, Electric

 

 

 

    to rate recovery

 

 (4)

 

    Fuel and Purchased Power

 

 (5)

 

Commodity contracts not subject

 

 

 

Equity Earnings: RBS

 

 

 

    to rate recovery

 

 -

 

    Sempra Commodities LLP

 

 (9)

 

Total

$

 4 

 

 

$

 -

SDG&E:

 

 

 

 

 

 

 

Interest-rate instruments

$

 -

 

Interest Expense

$

 (2)

SoCalGas:

 

 

 

 

 

 

 

Interest-rate instrument

$

 -

 

Interest Expense

$

 (1)


Sempra Energy expects that losses of $10 million, which are net of income tax benefit, that are currently recorded in Accumulated Other Comprehensive Income (Loss) related to these cash flow hedges will be reclassified into earnings during the next twelve months as the hedged items affect earnings. Actual amounts ultimately reclassified to earnings depend on the commodity prices and interest rates in effect when derivative contracts that are currently outstanding mature. For all forecasted transactions, the maximum term over which we are hedging exposures to the variability of cash flows, excluding interest payments on variable-rate debt, is 28 months at March 31, 2009.

SDG&E and SoCalGas expect that losses of a negligible amount and $3 million, respectively, which are net of income tax benefit, that are currently recorded in Accumulated Other Comprehensive Income (Loss) related to these cash flow hedges will be reclassified into earnings during the next twelve months as the hedged items affect earnings.




The effects of derivative instruments not designated as hedging instruments under SFAS 133 on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 were:


UNDESIGNATED DERIVATIVE IMPACT ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

 

Three months ended March 31, 2009

 

 

Gain (loss) on derivative

 

 

recognized in earnings

 

Location

 

Amount

Sempra Energy Consolidated:

 

 

 

 

Interest-rate instruments*

Other Income, Net

$

 10 

 

Commodity contracts not subject to rate recovery

Revenues: Sempra Global and Parent

 

 (16)

 

Commodity contracts not subject to rate recovery

Cost of Natural Gas, Electric

 

 

 

 

    Fuel and Purchased Power

 

 8 

 

Commodity contracts subject to rate recovery

Cost of Electric Fuel

 

 

 

 

    and Purchased Power

 

 (49)

 

Commodity contracts subject to rate recovery

Cost of Natural Gas

 

 (1)

 

Total

 

$

 (48)

SDG&E:

 

 

 

 

Interest-rate instruments*

Other Income, Net

$

 10 

 

Commodity contracts subject to rate recovery

Cost of Electric Fuel

 

 

 

 

    and Purchased Power

 

 (49)

 

Total

 

$

 (39)

SoCalGas:

 

 

 

 

Commodity contracts subject to rate recovery

Cost of Natural Gas

$

 (1)

*

Related to Otay Mesa VIE. Sempra Energy Consolidated also includes offsetting instruments.

 

 

CONTINGENT FEATURES

For Sempra Energy and SDG&E, certain of our derivative instruments contain credit limits which vary depending upon our credit rating.  Generally, these provisions, if applicable, may reduce our credit limit if a specified credit rating agency reduces our rating. In certain cases, if our credit rating were to fall below investment grade, the counterparty to these derivative liability instruments could request immediate payment or demand immediate and ongoing full collateralization. For Sempra Energy and SDG&E, the total fair value of this group of derivative instruments in a net liability position at March 31, 2009 is $25 million. The aggregate fair value of assets that are already posted as collateral at March 31, 2009 is $6 million. As of March 31, 2009, if our credit rating were reduced below investment grade, $19 million of additional assets  could be required to be posted as collateral for these derivative contracts.

For Sempra Energy, SDG&E, PE and SoCalGas, some of our derivative contracts contain a provision that would permit the counterparty, in certain circumstances, to request adequate assurance of our performance under the contract. Such additional assurance, if needed, is not material and is not included in the amounts above.



NOTE 8. FAIR VALUE MEASUREMENTS

Derivative Positions Net of Cash Collateral

In accordance with FSP FIN 39-1, Amendment of FASB Interpretation No. 39, each Condensed Consolidated Balance Sheet reflects the offsetting of net derivative positions with fair value amounts for cash collateral with the same counterparty when management believes a legal right of offset exists.

The following table provides the amount of fair value of cash collateral receivables and payables that were offset against net derivative positions in the Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008:  

 

March 31,

December 31,

(Dollars in millions)

2009

2008

Receivables:

 

 

 

 

    Sempra Energy Consolidated

$

 76 

$

 63 

    SDG&E

 

 61 

 

 52 

    SoCalGas

 

 3 

 

 11 

Payables:

 

 

 

 

    Sempra Energy Consolidated

$

 37 

$

 38 


The following table provides the amount of fair value of cash collateral that was not offset in the Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008:


 

March 31,

December 31,

(Dollars in millions)

2009

2008

Sempra Energy Consolidated

$

 13 

$

 28 

SDG&E

 

 6 

 

 21 

SoCalGas

 

 5 

 

 7 


Fair Value Hierarchy

We discuss the valuation techniques we use to measure fair value and the definition of the three levels of the fair value hierarchy, as defined in SFAS 157, Fair Value Measurements (SFAS 157), and our netting policy for derivative positions in Notes 1, 2 and 11 of the Notes to Consolidated Financial Statements in the Annual Report.

The three tables below, by level within the fair value hierarchy, set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2009 and December 31, 2008. As required by SFAS 157, we classify financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities, and their placement within the fair value hierarchy levels.

The determination of fair values incorporates various factors required under SFAS 157. These factors include not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests), but also the impact of the risk of our non