SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1993
------------------------------------------------
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 Number 1-3779
SAN DIEGO GAS & ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
95-1184800
(I.R.S. Employer Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA
(Address of principal executive offices)
92101
(Zip code)
(619) 696-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Preference Stock (Cumulative)
Without Par Value (except $1.70
and $1.7625 Series) American and Pacific
Cumulative Preferred Stock, $20
Par Value (except 4.60% Series) American and Pacific
Common Stock, Without Par Value New York and Pacific
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Exhibit Index on page 31.
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 31, 1994:
Common Stock $2.8 Billion
Preferred Stock $18 Million
As of January 31, 1994, there were 116,480,387 shares of common stock,
without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1993 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV.
Portions of the March 1994 Proxy Statement prepared for the April 1994 annual
meeting of shareholders are incorporated by reference into Part III.
INDEX
PART I
ITEM 1. Business
Description of Business . . . . . . . . . . . . . .. . . . . 4
Government Regulation . . . . . . . . . . . . . . . . . . . 4
Competition . . . . . . . . . . . . . . . . . . . . . . . . 5
Sources of Revenue . . . . . . . . . . . . . . . . . . . . 5
Electric Operations
Introduction . . . . . . . . . . . . . . . . . . . . . . . 6
Resource Planning . . . . . . . . . . . . . . . . . . . . . 6
Electric Resources . . . . . . . . . . . . . . . . . . . . 6
Nuclear Generating Plants . . . . . . . . . . . . . . . . . 6
Oil/Gas Generating Plants . . . . . . . . . . . . . . . . . 7
Purchased Power . . . . . . . . . . . . . . . . . . . . . . 8
Power Pools . . . . . . . . . . . . . . . . . . . . . . . . 10
Transmission Arrangements . . . . . . . . . . . . . . . . . 11
Transmission Access . . . . . . . . . . . . . . . . . . . . 11
Fuel and Purchased Power Costs . . . . . . . . . . . . . . 12
Electric Fuel Supply . . . . . . . . . . . . . . . . . . . 12
Natural Gas Operations . . . . . . . . . . . . . . . . . . . . . 13
Rate Regulation
Base Rates . . . . . . . . . . . . . . . . . . . . . . . . 13
Fuel and Energy Rates . . . . . . . . . . . . . . . . . . . 13
Electric Fuel Costs and Sales Volumes . . . . . . . . . . . 14
Natural Gas Costs and Sales Volumes . . . . . . . . . . . . 14
Other Costs . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance-Based Ratemaking . . . . . . . . . . . . . . . 15
Electric Rates . . . . . . . . . . . . . . . . . . . . . . 16
Natural Gas Rates . . . . . . . . . . . . . . . . . . . . . 16
Environmental, Health and Safety
Electric and Magnetic Fields . . . . . . . . . . . . . . . 16
Hazardous Substances
BKK Corporation . . . . . . . . . . . . . . . . . . . . . 17
Waste Water Treatment . . . . . . . . . . . . . . . . . . 17
Aboveground Tanks . . . . . . . . . . . . . . . . . . . . 17
Underground Storage . . . . . . . . . . . . . . . . . . . 18
Station B . . . . . . . . . . . . . . . . . . . . . . . . 18
Encina Power Plant . . . . . . . . . . . . . . . . . . . 18
Manufactured Gas Plant Sites . . . . . . . . . . . . . . 19
Air Quality . . . . . . . . . . . . . . . . . . . . . . . . 19
Water Quality . . . . . . . . . . . . . . . . . . . . . . . 20
Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . 20
Transmission Line Aerial Safety . . . . . . . . . . . . . . 20
Other
Research, Development and Demonstration . . . . . . . . . . 20
Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Employees of Registrant . . . . . . . . . . . . . . . . . . 21
Foreign Operations . . . . . . . . . . . . . . . . . . . . 21
ITEM 2. Properties
Electric Properties . . . . . . . . . . . . . . . . . . . . . . . 21
Natural Gas Properties . . . . . . . . . . . . . . . . . . . . . 22
General Properties . . . . . . . . . . . . . . . . . . . . . . . 22
Subsidiary Properties . . . . . . . . . . . . . . . . . . . . . . 22
2
ITEM 3. Legal Proceedings
Century Power Litigation . . . . . . . . . . . . . . . . . . . . 22
City of San Diego Franchise . . . . . . . . . . . . . . . . . . 23
American Trails . . . . . . . . . . . . . . . . . . . . . . . . . 23
Subsidiary Shareholder . . . . . . . . . . . . . . . . . . . . . 24
Public Service Company of New Mexico . . . . . . . . . . . . . . 24
Canadian Natural Gas . . . . . . . . . . . . . . . . . . . . . . 25
Electric and Magnetic Fields
McCartin . . . . . . . . . . . . . . . . . . . . . . . . . 25
North City West . . . . . . . . . . . . . . . . . . . . . . 25
Blackburn vs. Watt . . . . . . . . . . . . . . . . . . . . 26
Graybill/Metropolitan Transit Development Board
Graybill . . . . . . . . . . . . . . . . . . . . . . . . . 26
Metropolitan Transit Development Board . . . . . . . . . . 27
Transphase Systems Litigation . . . . . . . . . . . . . . . . . . 27
Tang Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 27
Environmental Issues . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . 29
EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . 30
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 31
Independent Auditors' Consent . . . . . . . . . . . . . . . . . . . . . . 37
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3
PART I
ITEM 1. BUSINESS
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DESCRIPTION OF BUSINESS
San Diego Gas & Electric Company is an operating public utility organized and
existing under the laws of the State of California. SDG&E is engaged
principally in the electric and natural gas business. It generates and
purchases electric energy and distributes it to 1.1 million customers in San
Diego County and a portion of Orange County, California. It also purchases
natural gas and distributes it to 690,000 customers in San Diego County. In
addition, it transports electricity and natural gas for others. Factors
affecting SDG&E's utility operations include competition, population growth,
customers' bypass of its electric and gas system, nonutility generation,
changes in interest and inflation rates, environmental and other laws,
regulation, and deregulation.
SDG&E's diversified interests include three wholly owned subsidiaries: Enova
Corporation, which invests in affordable-housing projects; Califia Company,
which conducts leasing activities; and Pacific Diversified Capital Company,
which is a holding company for SDG&E's other subsidiaries. PDC owns an
80-percent share in Wahlco Environmental Systems, a supplier of air pollution
control and energy-saving products and services for utilities and other
industries. PDC's wholly owned subsidiary, Phase One Development is a
commercial real estate developer. Additional information concerning SDG&E's
subsidiaries is described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on Page 18 in the
1993 Annual Report to Shareholders and in Note 2 of the "Notes to Financial
Statements" beginning on Page 32 of the 1993 Annual Report to Shareholders.
GOVERNMENT REGULATION
Local Regulation
SDG&E has separate electric and gas franchises with the two counties and 25
cities in its service territory. These franchises allow SDG&E to locate
facilities for the transmission and distribution of electricity and gas in
the streets and other public places. The franchises do not have fixed terms,
except for the following:
GRANTOR TYPE EXPIRATION
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City of Chula Vista Electric and gas 1997
City of Encinitas Electric and gas 2012
City of San Diego Electric and gas 2021
City of Coronado Electric and gas 2028
City of Escondido Gas 2036
County of San Diego Gas 2030
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State Regulation
The California Public Utilities Commission consists of five members appointed
by the governor and confirmed by the senate. The commissioners serve
six-year terms and have the authority to regulate SDG&E's rates and
conditions of service, sales of securities, rate of return, rates of
depreciation, uniform systems of accounts, examination of records, and
long-term resource procurement. The CPUC also conducts various reviews of
utility performance and conducts investigations into various matters, such as
the environment, deregulation and competition, to determine its future
policies.
The California Energy Commission has discretion over electric demand
forecasts for the state and for specific service territories. Based upon
these forecasts, the CEC determines the need for additional plants and for
conservation programs. The CEC sponsors alternative-energy research and
development projects, promotes energy conservation programs, and maintains a
statewide plan of action in case of energy shortages. In addition, the CEC
certifies power plant sites and related facilities within California.
4
Federal Regulation
The Federal Energy Regulatory Commission regulates electric rates involving
sales for resale, transmission access, rates of depreciation and uniform
systems of accounts. The FERC also regulates the interstate sale and
transportation of natural gas.
The Nuclear Regulatory Commission oversees the licensing, construction and
operation of nuclear facilities. NRC regulations require extensive review of
the safety, radiological and environmental aspects of these facilities.
Periodically, the NRC requires that newly developed data and techniques be
used to reanalyze the design of a nuclear power plant and, as a result,
requires plant modifications as a condition of continued operation in some
cases.
Licenses and Permits
SDG&E obtains a number of permits, authorizations and licenses in connection
with the construction and operation of its electric generating plants.
Discharge permits, San Diego Air Pollution Control District permits and NRC
licenses are the most significant examples. The licenses and permits may be
revoked or modified by the granting agency if facts develop or events occur
that differ significantly from the facts and projections assumed in granting
the approval. Furthermore, discharge permits and other approvals are granted
for a term less than the expected life of the facility. They require
periodic renewal, which results in continuing regulation by the granting
agency.
Other regulatory matters are described throughout this report.
COMPETITION
This topic is discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on Page 18 of the 1993 Annual
Report to Shareholders and in "Rate Regulation" and "Electric Operations"
herein.
SOURCES OF REVENUE
(In Millions of Dollars) 1993 1992 1991
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Utility revenue by type of customer:
Electric -
Residential $ 615 $ 601 $ 561
Commercial 572 543 503
Industrial 250 245 230
Other 77 58 64
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Total Electric 1,514 1,447 1,358
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Gas -
Residential 195 181 184
Commercial 63 61 67
Industrial 40 54 68
Other 49 41 19
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Total Gas 347 337 338
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Total Utility 1,861 1,784 1,696
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Diversified Operations 119 87 93
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Total $1,980 $1,871 $1,789
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Industry segment information is contained in "Statements of Consolidated
Financial Information by Segments of Business" on Page 31 of the 1993 Annual
Report to Shareholders.
5
ELECTRIC OPERATIONS
INTRODUCTION
SDG&E's philosophy of providing adequate energy at the lowest possible cost
has been based on a combination of production from its own plants and
purchases from other producers. The purchases have been a combination of
short-term and long-term contracts and spot purchases. All resource
acquisitions are obtained through a competitive bidding process. This method
of acquisition is encouraged by both the CPUC and the CEC. It is likely this
process will continue into the foreseeable future in California. To date,
competitive bidding has been limited to generation sources and has not
included energy conservation measures that could reduce the need for
generation capacity. However, the CPUC has recently ordered utilities in the
state to implement pilot demonstration projects to allow others to
competitively bid to supply energy conservation services to utilities'
customers.
RESOURCE PLANNING
In 1992 the CPUC issued a decision on the Biennial Resource Plan Update
proceedings. As a result of the decision, SDG&E was required to allow
qualified nonutility power producers that cogenerate or use renewable energy
technologies to competitively bid for a portion of SDG&E's future capacity
needs. The decision also required SDG&E to implement energy-conservation
programs which would reduce SDG&E's future need for additional capacity. In
addition, the CPUC granted SDG&E the flexibility to determine how best to
meet its remaining capacity requirements.
In 1993 SDG&E was involved in various stages of completing three separate
solicitations for new power sources. These three solicitations include
contract negotiations for short-term purchased power ranging from 200 to 700
mw for the period 1994 through 1997, the BRPU auction for 491 mw of capacity
by 1997, and competitive bidding to determine whether the proposed 500-mw
South Bay Unit 3 Repower project could be replaced by lower-cost power.
Additional information concerning resource planning is discussed in
"Management's Discussion & Analysis of Financial Condition and Results of
Operations" beginning on Page 18 of the 1993 Annual Report to Shareholders.
ELECTRIC RESOURCES
Based on generating plants in service and purchased power contracts in place
as of January 31, 1994, the net megawatts of firm electric power available to
SDG&E during the next summer (normally the time of highest demand) are as
follows:
SOURCE NET MEGAWATTS
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Nuclear generating plants 430
Oil/gas generating plants 1,611
Combustion turbines 332
Long-term contracts with other utilities 675
Short-term contracts with other utilities 342
Contracts with others 217
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Total 3,607
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SDG&E'S 1993 system peak demand of 2,850 mw occurred on September 8, when the
net system capability, including power purchases, was 3,474 mw. SDG&E's
record system peak demand of 3,285 mw occurred on August 17, 1992, when the
net system capability was 3,669 mw.
NUCLEAR GENERATING PLANTS
SDG&E owns 20 percent of the three nuclear units at San Onofre Nuclear
Generating Station. The cities of Riverside and Anaheim own a total of 5
percent of SONGS 2 and 3. Southern California Edison Company owns the
remaining interests and operates the units.
6
In November 1992 the CPUC issued a decision to permanently shut down SONGS 1.
The NRC requires that SDG&E and Edison file a decommissioning plan in 1994,
although final dismantling will not occur until SONGS 2 and 3 are also
retired. The unit's spent nuclear fuel has been removed from the reactor and
stored on-site. In March 1993 the NRC issued a Possession-Only License for
SONGS 1, and the unit is expected to be in its final long-term permanently
defueled storage condition by April 1994.
SONGS 2 and 3 began commercial operation in August 1983 and April 1984,
respectively. SDG&E's share of the capacity is 214 mw of SONGS 2 and 216 mw
of SONGS 3.
Between 1991 and 1993, SDG&E spent $83 million on capital modifications and
additions for all three units and expects to spend $26 million in 1994 on
SONGS 2 and 3. SDG&E deposits funds in an external trust to provide for the
future dismantling and decontamination of the units. The shutdown of SONGS
1 will not affect contributions to the trust. For additional information,
see Note 5 of the "Notes to Consolidated Financial Statements" beginning on
Page 32 of the 1993 Annual Report to Shareholders.
In 1983 the CPUC adopted performance incentive plans for SONGS that set a
Target Capacity Factor range of 55 to 80 percent for SONGS 2 and 3. Energy
costs or savings outside that range are shared equally by SDG&E and its
customers. Since the TCF was adopted, these units have operated above 55
percent for each of their fuel cycles. In addition to always attaining the
minimum TCF, SONGS 2 and 3 have exceeded the range a total of four times in
the eleven completed cycles. However, there can be no assurance that they
will continue to achieve a 55 percent capacity factor.
Additional information concerning the SONGS units is described under
"Environmental, Health and Safety" and "Legal Proceedings" herein and in
"Management's Discussion & Analysis of Financial Condition and Results of
Operations" beginning on Page 18 of the 1993 Annual Report to Shareholders
and in Notes 5 and 9 of the "Notes to Consolidated Financial Statements"
beginning on Page 32 of the 1993 Annual Report to Shareholders.
OIL/GAS GENERATING PLANTS
SDG&E's South Bay and Encina power plants are equipped to burn either fuel
oil or natural gas. The four South Bay units went into operation between
1960 and 1971 and can generate 690 mw. The five Encina units began operation
between 1954 and 1978 and can generate 921 mw. SDG&E sold and leased back
Encina Unit 5 (315 mw) in 1978. The lease term is through 2004, with renewal
options for up to 15 additional years.
SDG&E has 19 combustion turbines that were placed in service from 1966 to
1979. They are located at various sites and are used only in times of peak
demand.
The Silver Gate plant is in storage and its 230 mw are not included in the
system's capability. Silver Gate is not currently scheduled to return to
service. The plant would have to comply with various environmental rules and
regulations before returning to service. The cost of compliance could be
significant.
Additional information concerning SDG&E's power plants is described under
"Environmental, Health and Safety," "Electric Resources" and "Electric
Properties" herein and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on Page 18 of the 1993 Annual
Report to Shareholders.
7
PURCHASED POWER
The following table lists significant contracts with other utilities and
others:
Megawatt
Supplier Period Commitment Source
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Long-Term Contracts with Other Utilities:
Bonneville Power May Through September 300 Hydro Power
Administration (1994, 1995, 1996)
Comision Federal de Through September 1997 150 Geothermal
Electricidad (Mexico)
Portland General Through December 1998 50 Hydro storage
Electric Company Through December 2013 75 Coal
Public Service Company Through April 2001 100 System supply
of New Mexico
Short-Term Contracts with Other Utilities:
Imperial Irrigation Through March 1994 150 System Supply
District
PacifiCorp Through December 1994 200 System Supply
Rocky Mountain Through December 1994 67 Coal
Generation Cooperative
Salt River Project Through December 1994 75 System Supply
Contracts with Others:
Bayside Cogeneration June 1995 through 50 Cogeneration
June 2025
Cities of Azusa, Banning Through December 1994 65 Coal
and Colton January-December 1995 40
Goal Line Limited November 1994 through 50 Cogeneration
Partnership November 2024
Sithe Energies Through December 2019 102 Cogeneration
USA, Inc.
Yuma Cogeneration June 1994 through 50 Cogeneration
Associates June 2024
8
The commitment with CFE is for energy and capacity. The others are for
capacity only. The capacity charges are based on the costs of the generating
facilities from which purchases are made. These charges generally cover
costs such as lease payments, operating and maintenance expenses,
transmission expenses, administrative and general expenses, depreciation,
state and local taxes, and a return on the seller's rate base (if a utility)
or other markup on the seller's cost.
Energy costs under the CFE contract are indexed to changes in Mayan crude oil
prices and the dollar/peso exchange rate. Energy costs under the other
contracts are based primarily on the cost of fuel used to generate the power.
The locations of the suppliers which have long-term contracts with SDG&E and
the primary transmission lines (and their capacities) used by SDG&E are shown
on the following map of the Western United States. The transmission capacity
shown for the Pacific Intertie does not reflect the effects of the temporary
earthquake damage discussed under "Transmission Arrangements - Pacific
Intertie" herein. Where applicable, interconnection to the primary lines is
provided by contract.
[MAP]
LONG-TERM CONTRACTS WITH OTHER UTILITIES
BONNEVILLE POWER ADMINISTRATION: In 1993 SDG&E and BPA entered into an
agreement for the exchange of capacity and energy. SDG&E provides BPA with
off-peak, non-firm energy in exchange for capacity and associated energy. In
addition, SDG&E makes energy available for BPA to purchase during the period
January through April of each year. To facilitate the exchange, SDG&E has an
agreement with Edison for 100 mw of firm transmission service from the
Nevada-Oregon border to SONGS.
COMISION FEDERAL DE ELECTRICIDAD: In 1986 SDG&E began the 10-year term of a
purchase agreement under which SDG&E purchases firm energy and capacity of
150 mw from CFE. In March 1990 SDG&E obtained an option, exercisable on or
before September 1, 1994, to extend the purchase agreement by up to 13
months.
PORTLAND GENERAL ELECTRIC COMPANY: In 1985 SDG&E and PGE entered into an
agreement for the purchase of 75 mw of capacity from PGE's Boardman Coal
Plant from January 1989 through December 2013. SDG&E pays a monthly capacity
charge plus a charge based upon the amount of energy received. In addition,
SDG&E has 50 mw of available firm hydro storage service with PGE through
9
December 1998. SDG&E has also purchased from PGE 75 mw of transmission
service in the northern section of the Pacific Intertie through December
2013.
PUBLIC SERVICE COMPANY OF NEW MEXICO: In 1985 SDG&E and PNM entered into an
agreement for the purchase of 100 mw of capacity from PNM's system from June
1988 through April 2001. SDG&E pays a capacity charge plus a charge based on
the amount of energy received.
SHORT-TERM CONTRACTS WITH OTHER UTILITIES
IMPERIAL IRRIGATION DISTRICT: In September 1993 SDG&E and IID entered into
an agreement for the purchase of 150 mw of firm energy through March 1994.
The energy charge is based on the amount of energy received.
PACIFICORP: In October 1993 SDG&E entered into an agreement with PacifiCorp
for the purchase of 200 mw of capacity during 1994. SDG&E pays a capacity
charge plus a charge based on the amount of energy received.
ROCKY MOUNTAIN GENERATION COOPERATIVE: In October 1993 SDG&E and RMGC
entered into an agreement for the purchase of 67 mw of capacity through
December 1994. SDG&E pays a capacity charge plus a charge based on the
amount of energy received.
SALT RIVER PROJECT: In December 1993 SDG&E and SRP entered into an agreement
for the purchase of 75 mw of capacity through December 1994. SDG&E pays a
capacity charge plus a charge based on the amount of energy received.
CONTRACTS WITH OTHERS
BAYSIDE COGENERATION: SDG&E and Bayside have entered into a 30-year
agreement for the purchase of 50 mw of capacity which is scheduled to begin
in June 1995. SDG&E will pay a capacity charge plus a charge based on the
amount of energy received.
CITIES OF AZUSA, BANNING AND COLTON: In 1993 SDG&E and the cities entered
into an agreement for the purchase of 65 mw of capacity from January 1994
through December 1994 and 40 mw of capacity from January 1995 through
December 1995. SDG&E pays a capacity charge plus a charge based on the
amount of energy received.
GOAL LINE LIMITED PARTNERSHIP: SDG&E and Goal Line have entered into a
30-year agreement for the purchase of 50 mw of capacity which is scheduled to
begin in November 1994. SDG&E will pay a capacity charge plus a charge based
on the amount of energy received.
SITHE ENERGIES USA, INC.: In April 1985 SDG&E entered into three 30-year
agreements for the purchase of 102 mw of capacity from December 1989 through
December 2019. SDG&E pays a capacity charge plus a charge for the amount of
energy received.
YUMA COGENERATION ASSOCIATES: SDG&E and Yuma Cogeneration Associates have
entered into a 30-year agreement for 50 mw of capacity which is scheduled to
begin in June 1994. SDG&E will pay a capacity charge plus a charge for the
amount of energy received.
Additional information concerning SDG&E's purchased power contracts is
described in "Legal Proceedings" herein and in Note 9 of the "Notes to
Consolidated Financial Statements" beginning on Page 32 of the 1993 Annual
Report to Shareholders.
POWER POOLS
In 1964 SDG&E, Pacific Gas & Electric and Edison entered into the California
Power Pool Agreement. It provides for the transfer of electrical capacity
and energy by purchase, sale or exchange during emergencies and at other
mutually determined times.
10
SDG&E is a participant in the Western Systems Power Pool, which involves an
electric power and transmission rate agreement with utilities and power
agencies located from British Columbia through the western states and as far
east as the Mississippi River. The 54 investor-owned and municipal
utilities, state and federal power agencies, and energy brokers share power
and information in order to increase efficiency and competition in the bulk
power market. Participants are able to target and coordinate delivery of
cost-effective sources of power from outside their service territories
through a centralized exchange of information.
TRANSMISSION ARRANGEMENTS
In addition to interconnections with other California utilities, SDG&E has
firm transmission capabilities for purchased power from the Northwest, the
Southwest and Mexico.
Pacific Intertie
SDG&E, PG&E and Edison share transmission capacity on the Pacific Intertie
under an agreement that expires in July 2007. The Pacific Intertie enables
SDG&E to purchase and receive surplus coal and hydroelectric power from the
Northwest. SDG&E's share of the intertie is 266 mw. SDG&E recently
purchased up to an additional 200 mw of firm rights on the Pacific Intertie
through 1996. In January 1994 a major earthquake centered in Los Angeles
County, California temporarily reduced SDG&E's share of the intertie's
available capacity to about 100 mw. Repairs to the transmission facilities
are scheduled to be completed in December 1994. SDG&E does not expect this
to have a significant impact on its transmission capabilities within
California.
Southwest Powerlink
SDG&E's 500-kilovolt Southwest Powerlink transmission line, which it shares
with Arizona Public Service Company and IID, extends from Palo Verde, Arizona
to San Diego and enables SDG&E to import power from the Southwest. SDG&E's
share of the line is 914 mw, although it can be less, depending on specific
system conditions.
Mexico Interconnection
Mexico's Baja California Norte system is connected to SDG&E's system via two
230-kilovolt interconnections with firm capability of 408 mw. SDG&E uses
this interconnection for transactions with CFE.
Additional Transmission Capabilities
Through an agreement with Edison, SDG&E has obtained the option to purchase
100 mw of transmission service on the existing Palo Verde - Devers
transmission line in the late 1990s. The agreement is contingent upon
Edison's construction of its second transmission line connecting the Palo
Verde Nuclear Generating Station in Arizona to the Devers substation near
Palm Springs, California. This agreement also provides SDG&E with the option
to exchange up to 200 mw of Southwest Powerlink transmission rights for up to
200 additional mw of Edison's rights on the first Palo Verde - Devers
transmission line. This exchange would enable both utilities to further
diversify their transmission paths.
SDG&E has indicated an interest in projects to obtain additional transmission
capabilities from the Rocky Mountain and Southwest regions and within
California.
TRANSMISSION ACCESS
As a result of the enactment of the National Energy Policy Act of 1992, the
FERC has established rules to implement the Act's transmission access
provisions. These rules specify FERC-required procedures for others'
requests for transmission service. Additional information regarding
transmission access is described in "Management's Discussion & Analysis of
Financial Condition and Results of Operations" beginning on Page 18 of the
1993 Annual Report to Shareholders.
11
FUEL AND PURCHASED-POWER COSTS
The following table shows the percentage of each electric fuel source used by
SDG&E and compares the costs of the fuels with each other and with the total
cost of purchased power:
Percent of Kwh Cents per Kwh
- ----------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------
Fuel oil 3.7% 0.6% 0.7% 2.7 4.0 4.2
Natural gas 24.4 27.4 22.7 3.4 3.1 3.2
Nuclear fuel 17.2 22.3 20.9 0.6 0.8 0.9
- ----------------------------------------------------------------------------
Total generation 45.3 50.3 44.3
Purchased power-net 54.7 49.7 55.7 3.5 3.8 3.5
- ----------------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
- ----------------------------------------------------------------------------
The cost of purchased power includes capacity costs as well as the costs of
fuel. The cost of natural gas includes transportation costs. The costs of
fuel oil, natural gas and nuclear fuel do not include SDG&E's capacity costs.
While fuel costs are significantly less for nuclear units than for other
units, capacity costs are higher.
ELECTRIC FUEL SUPPLY
Uranium
The nuclear fuel cycle includes services performed by others. These services
and the dates through which they are under contract are as follows:
Mining and milling of uranium concentrate(1) 1994
Conversion of uranium concentrate to uranium hexafluoride 1995
Enrichment of uranium hexafluoride(2) 1998
Fabrication of fuel assemblies 2000
Storage and disposal of spent fuel(3) _
1 SDG&E's contracted supplier of uranium concentrate is Pathfinder Mines
Corporation. However, the majority of the requirements will be supplied by
purchases from the spot market.
2 The Department of Energy is committed to offer any required enrichment
services through 2014.
3 Spent fuel is being stored at SONGS, where storage capacity will be
adequate at least through 2003. If necessary, modifications in fuel-storage
technology can be implemented that would provide, at additional cost, on-site
storage capacity for operation through 2014, the expiration date of the NRC
operating license. The DOE's plan is to make a permanent storage site for the
spent nuclear fuel available by 2010.
To the extent not currently provided by contract, the availability and the
cost of the various components of the nuclear fuel cycle for SDG&E's nuclear
facilities cannot be estimated at this time.
Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a
contract with the DOE for spent fuel disposal. Under the agreement, the DOE
is responsible for the ultimate disposal of spent fuel. SDG&E is paying a
disposal fee of $1 per megawatt-hour of net nuclear generation. Disposal
fees average $3 million per year. SDG&E recovers these disposal fees in
customer rates.
Additional information concerning nuclear fuel costs is discussed in Note 9
of the "Notes to Consolidated Financial Statements" beginning on Page 32 of
the 1993 Annual Report to Shareholders.
12
Fuel Oil
SDG&E has no long-term commitments to purchase fuel oil. The use of fuel oil
is dependent upon price differences between it and alternative fuels,
primarily natural gas. During 1993 SDG&E burned 1.1 million barrels of fuel
oil. Fuel oil usage in 1994 will depend on its price relative to natural gas
and the availability of natural gas and other alternatives. The
lowest-priced fuel will be used in order to minimize fuel costs for electric
generation.
NATURAL GAS OPERATIONS
- ---------------------------------------------------------------------------
SDG&E purchases natural gas for resale to its customers and for fuel in its
electric generating plants. All natural gas is delivered to SDG&E under
transportation and storage agreement with Southern California Gas Company
through two transmission pipelines with a combined capacity of 400 million
cubic feet per day. During 1993 SDG&E purchased approximately 102 billion
cubic feet of natural gas.
The majority of SDG&E's natural gas requirements are met through contracts of
less than one year. SDG&E purchases natural gas primarily from various
spot-market suppliers and from suppliers under short-term contracts. These
supplies originate in New Mexico, Oklahoma and Texas and are transported by
El Paso Natural Gas Company and by Transwestern Pipeline Company. In
November 1993 natural gas deliveries to SDG&E commenced under long-term
contracts with four Canadian suppliers when the Alberta-to-California
pipeline expansion project began commercial operation. This natural gas is
transported over Pacific Gas Transmission and PG&E pipelines to SDG&E's
system. The contracts have varying terms through 2004.
Additional information concerning SDG&E's gas operations is described under
"Legal Proceedings" herein and in "Management's Discussion & Analysis of
Financial Condition and Results of Operations" beginning on Page 18 of the
1993 Annual Report to Shareholders and Note 9 of the "Notes to Consolidated
Financial Statements" beginning on Page 32 of the 1993 Annual Report to
Shareholders.
RATE REGULATION
- -----------------------------------------------------------------------------
The following ratemaking procedures are changing under SDG&E's proposed
incentive-based ratemaking process which is described further under
"Performance-Based Ratemaking" below:
BASE RATES
Traditionally, SDG&E has filed a general rate application with the CPUC every
three years to determine its base rates. This allows SDG&E to recover its
basic non-fuel business costs such as the cost of operating and maintaining
the utility system, taxes, depreciation and the cost of accommodating system
growth. Between these general rate cases, an attrition procedure allows
adjustments in rates based on inflation and system growth. In addition,
SDG&E files an annual application to establish its cost of capital, which
reflects the cost of debt and equity. The most recent attrition and cost of
capital proceeding went into effect on January 1, 1994.
FUEL AND ENERGY RATES
The CPUC requires balancing accounts for fuel and purchased energy costs and
for sales volumes. The CPUC sets balancing account rates based on estimated
costs and sales volumes. Revenues are adjusted upward or downward to reflect
the differences between the authorized and actual volumes and costs. These
differences are accumulated in the balancing accounts and represent amounts
to be either recovered from customers or refunded to them. Periodically, the
CPUC adjusts SDG&E's rates to amortize the accumulated differences. As a
result, changes in SDG&E's fuel and purchased power costs or changes in
electric and gas sales volumes normally have not affected SDG&E's net income.
13
ELECTRIC FUEL COSTS AND SALES VOLUMES
Rates to recover electric fuel and purchased power costs are determined in
the Energy Cost Adjustment Clause proceeding. This proceeding take place
annually, although a semi-annual review is required if the anticipated rate
change exceeds a specified threshold. The proceedings take place in two
phases:
In the forecast phase, prices are set based on the estimated cost of fuel and
purchased power for the following year and are adjusted to reflect any
changes from the previous period. These adjustments are made by amortizing
any accumulation in the balancing accounts described above.
In the other phase, the reasonableness review, the CPUC evaluates the
prudence of SDG&E's fuel and purchased power transactions, electric
operations, and natural gas transactions and operations. As described under
"Performance-Based Ratemaking" these reviews will now only be required if
SDG&E's recorded fuel and energy expenses result in significant variances
from the established benchmarks.
The Electric Revenue Adjustment Mechanism compensates for variations in sales
volume compared to the estimates used for setting the non-fuel component of
rates. ERAM is designed to stabilize revenues, which may otherwise vary due
to changes in sales volumes largely resulting from weather fluctuations. Any
accumulation in the ERAM balancing account is amortized when new rates are
set in the ECAC proceeding.
NATURAL GAS COSTS AND SALES VOLUMES
Customer rates to recover the cost of purchasing and transporting natural gas
are determined in the Biennial Cost Allocation Proceeding. The BCAP
proceeding normally occurs every two years and is updated in the following
year for purposes of amortizing any accumulation in the gas balancing
accounts. Transportation costs include intrastate and interstate pipeline
charges, take-or-pay obligations, industry restructuring costs resulting from
changes in federal and state regulations, and transportation and storage
fees.
Balancing accounts for natural gas costs and sales volumes are similar to
those for electric costs and sales volumes. The natural gas balancing
accounts include the Purchased Gas Account for gas costs and the Gas Fixed
Cost Account for sales volumes. Balancing account coverage includes both
core customers (primarily residential and commercial customers) and noncore
customers (primarily large industrial customers). However, SDG&E receives
balancing account coverage on 75 percent of noncore GFCA overcollections and
undercollections.
OTHER COSTS
Energy Conservation Programs
Over the past several years, SDG&E has promoted conservation programs to
encourage efficient use of energy. The programs are designed to conserve
energy through the use of energy-efficiency measures that will reduce
customers' energy costs and offset the need to build additional power plants.
The costs of these programs are being recovered through electric and natural
gas rates. The programs contain an incentive mechanism that could increase
or decrease SDG&E's earnings, depending upon the performance of the programs
in meeting specified efficiency and expenditure targets. The CPUC has
encouraged expansion of these programs, authorizing expenditures annually of
$54 million for 1993 through 1995. However, the CPUC has also ordered
utilities to conduct a test program to determine if others could offer energy
conservation services at a lower cost than the utilities'.
Low Emission Vehicle Programs
Since 1991 SDG&E has conducted a CPUC-approved natural gas vehicle program.
The program includes building refueling stations, demonstrating new
technology, providing incentives and converting portions of SDG&E's fleet
vehicles to natural gas. The cost of this program is being recovered in
natural gas rates.
In 1993 SDG&E opened 14 refueling stations at existing gasoline stations
under cost-sharing arrangements with major oil companies in order to
demonstrate that natural gas is an economical alternative vehicle fuel that
14
could assist automobile companies in meeting federal and state clean air
standards. SDG&E plans to add eight more natural gas refueling stations in
1994. During 1993 there were 356 natural gas vehicles operating in San
Diego.
In July 1993 the CPUC issued a decision adopting guidelines for utility
participation in the CPUC's low-emission vehicle program to encourage the use
of electric and natural gas-powered vehicles. The six-year program will
provide funding to build natural gas vehicle refueling stations and electric
vehicle recharging stations, offer incentives for purchasing EVs and NGVs,
convert existing vehicles, and educate the public on the benefits of
alternative fuels. On November 1, 1993 SDG&E filed an application with the
CPUC, requesting $26 million to fund an EV program and to expand its existing
NGV program beginning in 1995. On February 3 the CPUC approved a portion of
SDG&E's EV program request by establishing a memorandum account for planned
expenditures of $530,000 for EV recharging stations and customer incentives
to purchase EVs. A final CPUC decision is expected in late 1994.
PERFORMANCE-BASED RATEMAKING
In October 1992 SDG&E applied to the CPUC to implement performance-based
ratemaking, requesting incentive regulation for: 1) natural gas procurement
and transportation; 2) electric generation and purchased energy; 3) base
rates and 4) long-term electric resource procurement.
On June 23, 1993 the CPUC approved the first two mechanisms on a two-year
experimental basis beginning August 1, 1993. These mechanisms will measure
SDG&E's ability to purchase and transport natural gas, and to generate energy
or purchase short-term energy at the lowest possible cost, by comparing
SDG&E's performance against various market benchmarks. SDG&E's shareholders
and customers will share in any savings or excess costs within predetermined
ranges.
Under the natural gas procurement and transportation mechanism, if SDG&E's
natural gas supply and transportation expenses exceed the benchmark by more
than 2 percent, SDG&E will recover one-half of the excess. However, if
expenses fall below the index, SDG&E's shareholders and customers will share
equally in the savings.
The benchmark to measure SDG&E's electric generation and purchased energy
performance is based upon the difference between SDG&E's actual and
authorized electric fuel and short-term purchased energy expenses. SDG&E
would be at risk for about one-half of the expenses that exceed the
authorized amount by 6 percent or less. SDG&E would be allowed to recover
expenses exceeding the 6 percent range, subject to a reasonableness review by
the CPUC. However, SDG&E would receive about one-half of the savings if
expenses fall below the authorized amount by 6 percent or less. SDG&E's
customers would receive 100 percent of the savings if expenses fall below the
6 percent range.
Under the proposed base-rate mechanism, SDG&E would forego its next General
Rate Case, scheduled for 1996, and utilize the proposed base-rate mechanism
for a 5-year period beginning in May 1994. SDG&E's initial revenue
requirements would be based on its 1993 General Rate Case Decision. This
would replace the CPUC's requirement for a costly and detailed examination of
SDG&E's costs every three years in the traditional General Rate Case.
However, SDG&E's annual cost of capital proceeding would be continued. This
streamlined approach would also allow SDG&E to respond more effectively to
competition and to other factors affecting rates.
The proposed base-rate mechanism has three components. The first is a
formula similar to the current attrition mechanism used to determine SDG&E's
annual revenue requirement for operating, maintenance and capital
expenditures. The second is a set of indicators which determine performance
standards for customer rates, employee safety, electric system reliability
and customer satisfaction. Each indicator specifies a range of possible
shareholder benefits and risks. SDG&E could be penalized up to a total of
$21 million should it fall significantly below these standards or earn up to
$19 million if it exceeds all of the performance targets. The third
component would set limits on SDG&E's rate of return. If SDG&E realizes an
actual rate of return that exceeds its authorized rate of return by one
percent to one and a half percent, it would be required to refund 25 percent
of the excess over one percent to customers. If SDG&E's rate of return
exceeds the authorized level by more than one and a half percent, SDG&E would
also refund 50 percent of that excess to customers. SDG&E would be at risk
if its rate of return falls less than three percent below the authorized
level. However, if SDG&E's rate of return falls three percent or more below
15
the authorized level, a rate case review would automatically occur. SDG&E
may request a rate case review any time its rate of return drops one and one
half percent or more below the authorized level. A CPUC decision is expected
in the second quarter of 1994.
SDG&E expects the long-term electric resource procurement mechanism to be
addressed after proceedings on the base-rate mechanism. This mechanism calls
for a bidding system under which SDG&E would compete with other utilities and
nonutility producers to provide long-term generating resources, including
long-term purchased-power capacity, to SDG&E customers. This mechanism would
eliminate the Biennial Resource Plan Update proceeding, replacing it with a
market-based approach to long-term electric-resource procurement. The CPUC
would have final approval of the resources selected by SDG&E.
ELECTRIC RATES
The average price per kilowatt-hour charged to electric customers was 9.4
cents in 1993 and 9.3 cents in 1992.
NATURAL GAS RATES
The average price per therm of natural gas charged to customers was to 55.1
cents in 1993 and 50.7 cents in 1992.
Additional information concerning rate regulation is described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on Page 18 of the 1993 Annual Report to Shareholders.
ENVIRONMENTAL, HEALTH AND SAFETY
- ---------------------------------------------------------------------------
SDG&E's operations are guided by federal, state and local environmental laws
and regulations governing air quality, water quality, hazardous substance
handling and disposal, land use, and solid waste. Compliance programs to
meet these laws and regulations increase the cost of electric and natural gas
service by requiring changes or delays in the location, design, construction
and operation of new facilities. SDG&E may also incur significant costs to
operate its facilities in compliance with these laws and regulations and to
mitigate or clean up the environment as a result of prior operations of SDG&E
or others. The costs of compliance with environmental laws and regulations
are normally recovered in customer rates. The CPUC is expected to continue
allowing the recovery of such costs, subject to reasonableness reviews.
ELECTRIC AND MAGNETIC FIELDS
Scientists are researching the possibility that exposure to power frequency
magnetic fields causes adverse health effects. This research, although often
referred to as relating to electric and magnetic fields, or EMFs, focuses on
magnetic fields. To date, some laboratory studies suggest that such exposure
creates biological effects, but those effects have not been shown to be
harmful.
The studies that have most concerned the public are epidemiological studies.
Some of those studies reported a weak correlation between the proximity of
homes to certain power lines and equipment and childhood leukemia. Other
studies reported weak correlations between computer estimates of historic
exposure and disease. Various wire configuration categories and the
historical computer calculations were used as substitutes for actual personal
exposure measurements, which were not available. When actual field levels
were measured in those studies, no correlation was found with disease.
Other epidemiological studies found no correlation between estimated exposure
and any disease. Scientists cannot explain why some studies using estimates
of past exposure report correlations between estimated fields and disease,
while others do not. Neither can scientists explain why no studies correlate
measured fields with disease.
In November 1993 the CPUC adopted an interim policy regarding EMFs.
Consistent with the more than twenty major scientific reviews of available
research literature, the CPUC concluded that no health risk has been
identified with exposure to low-frequency magnetic fields. To be responsive
to public concern and scientific uncertainty, the CPUC created two
utility-funded programs, a $2-million public-education program and a
16
$6-million research program, and directed utilities to adopt a low-cost EMF
reduction policy for new projects. The latter program, which will be
implemented until science provides more direction, entails reasonable design
changes to new projects to achieve a noticeable reduction of magnetic-field
levels. The CPUC indicated that these low-cost measures to reduce field
levels should not exceed 4 percent of the cost of new or upgraded facilities.
Such design changes will be subject to safety, reliability, efficiency and
other normal operational criteria. It is difficult at this time to predict
the impact of the CPUC's directives on SDG&E's operations. Final design
guidelines should be completed by mid-1994, following a series of workshops
scheduled by the CPUC.
Litigation concerning EMFs is discussed under "Legal Proceedings" herein.
HAZARDOUS SUBSTANCES
BKK Corporation
SDG&E was one of several hundred companies using the BKK Corporation's West
Covina facility, which operated under a permit for the disposal of hazardous
waste prior to its 1984 closure. The site is listed for cleanup in the
California Superfund Site Priority List under the Hazardous Substance Account
Act, which imposes cleanup liability on the sites' owners, operators or
users. The California Department of Toxic Substances Control is working with
the site owner/operator to determine whether a post-closure permit should be
issued for the facility. In addition, the U.S. Environmental Protection
Agency is overseeing BKK's assessment of potential releases from the site,
including releases into the groundwater, to determine whether any remediation
will be required. SDG&E believes the site owner/operator will perform any
required assessment and remedial activities. SDG&E is unable to estimate the
cost of cleaning up the site or what liability, if any, it may have for such
cleanup costs.
SDG&E was named as a potentially responsible party with respect to two other
sites, the Rosen's Electrical Equipment Supply Company site in Pico Rivera,
California and the North American Environmental, Inc. site in Clearfield,
Utah. Additional information concerning these sites is described in
"Management's Discussion & Analysis of Financial Condition and Results of
Operations" beginning on Page 18 of the 1993 Annual Report to Shareholders.
Waste Water Treatment
SDG&E is authorized to operate the waste water treatment facilities at the
Encina and South Bay power plants under the California Hazardous Waste
Treatment Permit Reform Act of 1992. To comply with the state's regulations,
construction of secondary containment for the waste water treatment
facilities will be completed in 1994 at a total cost of $3 million. New
waste water storage tanks for these facilities, completed in 1991, may not be
operated under the plants' existing permits. SDG&E received authorization to
operate the new tanks from the California Department of Toxic Substances
Control pursuant to a variance from the hazardous waste facility permitting
requirements. In June 1993 this variance was withdrawn due to a change in
the department's policy. SDG&E is negotiating the terms and conditions of a
stipulation and order which would allow the continued operation of these
storage tanks. However, the state could withhold authorization and initiate
an enforcement action (and the imposition of fines and penalties), preventing
continued operation of the storage tanks. Alternative treatment methods,
which would not require the use of such tanks, may require additional
expenditures of approximately $2 million per year. However, the state is
expected to issue new regulations in 1994 which would allow continued
operation of the existing storage tanks.
Aboveground Tanks
California's 1989 Aboveground Petroleum Storage Act requires SDG&E to
establish and maintain monitoring programs to detect leaks in fuel oil
storage tanks. All diesel oil storage tanks which could pose a threat to the
environment have been reconstructed with a secondary bottom and a leak
detection system. The conversion began in 1991 and was completed in 1993 at
a total cost of $2 million.
17
Underground Storage
California has enacted legislation to protect ground water from contamination
by hazardous substances. Underground storage containers require permits,
inspections and periodic reports, as well as specific requirements for new
tanks, closure of old tanks and monitoring systems for all tanks. SDG&E's
capital program to comply with these requirements has cost $3 million to
date. It is expected that cleanup of sites previously contaminated by
underground tanks will occur for an unknown number of years. SDG&E cannot
predict the cost of such cleanup. Additionally, if a facility is
reactivated, the removal and replacement of existing tanks may be required.
Specific underground locations requiring assessment and/or remediation are
indicated below:
On May 29, 1987 the San Diego Regional Water Quality Control Board issued
SDG&E a cleanup and abatement order for gasoline contamination originating
from an underground storage tank located at SDG&E's Mountain Empire operation
and maintenance facility. To comply with the order SDG&E has implemented a
"pump and treat" program to remediate the site. Because the source of the
area's drinking water is near the contamination, the Department of Health
Services and the Board are expected to require SDG&E to further assess the
extent of the contamination and undertake alternative remediation to further
protect the drinking water from contamination. SDG&E is unable to estimate
the costs for the assessment or for alternative remediation.
On January 7, 1993 SDG&E was issued a notice of corrective action by the
Department of Health Services relative to soil contamination from used
lubrication oil associated with an underground tank located at SDG&E's South
Bay Operation and Maintenance facility. At present, SDG&E is unable to
estimate the extent of the contamination or the potential cleanup costs.
In 1993 SDG&E discovered a shallow underground tank-like structure while
installing underground electric facilities. The structure was located under
a public street immediately west of SDG&E's Station A facility. The past
ownership, operation and use of the structure is unknown. Hydrocarbon
contamination has been found in the vicinity of the structure, but it has not
been established whether the structure was the source of the contamination.
The San Diego County Department of Health Services has issued a cleanup and
abatement order to SDG&E. The order requires SDG&E to conduct a site
assessment to delineate the nature and scope of the contamination. SDG&E is
unable to estimate the nature and extent of the contamination or the
potential cleanup costs.
Station B
Station B is located in downtown San Diego and was operated as a generating
facility from 1911 until June 1993. During 1986, three 100,000-gallon
underground diesel-fuel storage tanks were removed. Pursuant to a cleanup
and abatement order, SDG&E remediated the existing hydrocarbon contamination.
Further analysis of PCB contamination in the area is required before site
closure. SDG&E is unable to estimate the extent of such PCB contamination or
what remediation, if any, will be required.
In addition, asbestos was used in the construction of the facility.
Renovation, reconditioning or demolition of the facility will require the
removal of the asbestos in a manner complying with all applicable
environmental, health and safety laws. The estimated capital cost of this
removal is between $6 million and $12 million.
Additionally, reuse of the facility would require the removal or cleanup of
PCBs, paints containing heavy metals and fuel oil. SDG&E is unable to
estimate the extent of this contamination or the cost of cleaning up these
materials.
Encina Power Plant
During 1993 SDG&E discovered the presence of hydrocarbon contamination in
subsurface soil at its Encina power plant. This contamination is located
north of its western fuel-storage facilities and is believed to be fuel oil
originating from a 1950s refueling spill. SDG&E has reported the discovery
of the contamination to governmental agencies and has determined it does not
pose a significant risk to the environment or to public health. SDG&E is
unable to estimate the cost of assessment and of cleaning up the
contamination.
18
Manufactured Gas Plant Sites
During the late 1800s and early 1900s SDG&E and its predecessors manufactured
gas from the combustion of fuel oil at a manufactured gas plant in downtown
San Diego (Station A) and at small facilities in the nearby cities of
Escondido and Oceanside. Although no tar pits common to town gas sites have
been found at the facilities, ash and other residual hazardous byproducts
from the gas-manufacturing process were found at the Escondido site during
grading for expansion of a substation. Remediation of the Escondido site has
been completed at a total cost of about $3 million. Based upon its
assessment and remediation activities, SDG&E has applied to the Department of
Health Services for a closure certification for the Escondido site.
SDG&E and the Department of Health Services are aware that hazardous
substances resulting from the operation of the Escondido manufactured gas
plant may be present on adjacent locations. SDG&E will coordinate any
required assessment or cleanup of any such locations with the department.
SDG&E has not found any similar town gas site residuals at the Station A
site. However, ash residue similar to that at Escondido was found on
property adjacent to SDG&E's Oceanside gas regulator station. This ash
residue has been covered with asphalt to prevent public exposure. Some ash
residue has also been observed in soil adjacent to Station A.
Due to the possibility that town gas residuals exist under the Station A and
Oceanside sites, SDG&E will implement an environmental assessment of the
sites in 1994 and 1995. SDG&E is unable to estimate the cost of assessment
and cleanup of these sites. However, the CPUC has approved SDG&E's
application to recover these costs in a future rate proceeding through the
reasonableness review process.
Litigation concerning hazardous substances is discussed in "Legal Proceedings
- - Graybill/Metropolitan Transit Development Board" herein.
AIR QUALITY
The San Diego Air Pollution Control District regulates air quality in San
Diego County in conformance with the California and federal Clean Air Acts.
California's standards are more restrictive than federal government
standards.
Although SDG&E facilities already comply with very strict emission limits and
contribute only about 3 percent of the air emissions in San Diego County, the
APCD is obligated to quantify the benefits of further reducing emissions from
all San Diego industry. The APCD has adopted Rule 69 to further reduce
nitrogen oxide emissions. This rule will require the retrofit of the Encina
and South Bay power plants with catalytic converters to remove approximately
87 percent of current nitrogen oxide emissions. The estimated capital cost
to comply with Rule 69 is $130 million. In addition, annual operating costs
will increase about $6 million after all units have been retrofitted. SDG&E
expects this to be completed by 2001.
The acid rain section of the federal Clean Air Act Amendments of 1990
requires SDG&E to upgrade the continuous emission monitors at its Encina and
South Bay power plants to provide more-complete emissions data. Installation
of the required continuous emission monitor upgrades will be completed in
1994 at an estimated cost of $5 million.
In 1990 the South Coast Air Quality Management District passed a rule which
will require SDG&E's older natural gas compressor engines at its Moreno
facility to either meet new stringent nitrogen oxide emission levels or be
converted to electric drive. In October 1993 the Air Quality District
adopted a new program called RECLAIM, which will replace existing rules and
require SDG&E's natural gas compressor engines at its Moreno facility to
reduce their nitrogen oxide emission levels by about 10 percent a year
through 2003. This will be accomplished through the installation of new
emission monitoring equipment, operational changes to take advantage of low
emitting engines, and engine retrofits. The cost of complying with the
proposed rule is expected to be $3 million.
19
WATER QUALITY
Discharge permits are required to enable SDG&E to discharge its cooling water
and its treated in-plant waste water, and are, therefore, a prerequisite to
the continued operation of SDG&E's power plants. The promulgation of water
quality-control plans by state and federal agencies may impose increasingly
stringent cooling-water and treated waste water discharge requirements on
SDG&E.
SDG&E is unable to predict the terms and conditions of any renewed permits or
their effects on plant or unit availability, the cost of constructing new
cooling water treatment facilities, or the cost of modifying the existing
treatment facilities. However, any modifications required by such permits
could involve substantial expenditures, and certain plants or units may be
unavailable for electric generation during such modification.
Additional information concerning discharge permits for the South Bay, Encina
and SONGS plants is provided in "Management's Discussion & Analysis of
Financial Condition and Results of Operations" beginning on Page 18 of the
1993 Annual Report to Shareholders.
ASBESTOS
The corporate office building at 101 Ash Street in San Diego is being
retrofitted with sprinklers over a two-year period in response to a City of
San Diego ordinance requiring all high-rise office buildings to be
retrofitted for fire protection by 1996. This is expected to be completed in
1994. Asbestos is being removed in the areas where the sprinklers are being
installed. The total cost of the asbestos removal will be about $2 million.
TRANSMISSION LINE AERIAL SAFETY
Criteria have been established by the State of California to determine the
necessity for installing aerial warning devices on overhead powerlines to
promote air-space safety. Nine spans on the Southwest Powerlink transmission
line in Imperial County fall within the criteria and will be marked at a cost
of approximately $115,000. Study of another 132 spans will determine whether
or not additional spans will be marked at a cost of approximately $13,000 per
span.
Based upon FAA recommendation, SDG&E is also installing aerial warning
markers on various segments of the 230-kv and other transmission lines within
its service territory. The cost of this project through 1993 was $2 million,
and $1 million is budgeted for 1994.
Additional information concerning SDG&E's environmental matters is described
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on Page 18 of the 1993 Annual Report to Shareholders
and in Note 9 of the "Notes to Consolidated Financial Statements" beginning
on Page 32 of the 1993 Annual Report to Shareholders.
OTHER
- ---------------------------------------------------------------------------
RESEARCH, DEVELOPMENT AND DEMONSTRATION
SDG&E conducts research and development in areas that provide value to SDG&E
and its customers. The Research, Development and Demonstration activities
are focused in the following areas:
1. The improvement of electric generation efficiency.
2. Development of technologies that enhance electric transmission,
distribution and customer utilization efficiency.
3. Participation in the Gas Research Institute and the Electric Power
Research Institute.
20
Highlights of the program include demonstration of molten carbonate fuel
cells, evaluation and implementation of distributed generation systems,
application of advanced telecommunication systems, and the development of
technology to reduce service interruptions and make other power quality
improvements for customers.
Research, development and demonstration costs averaged $7 million annually
over the past three years. The CPUC historically has permitted rate recovery
of research, development and demonstration expenditures.
WAGES
SDG&E and Local 465, International Brotherhood of Electrical Workers have a
labor agreement that ended on February 28, 1994. Negotiations for a new
agreement are expected to be concluded in early 1994.
EMPLOYEES OF REGISTRANT
As of December 31, 1993 SDG&E had 4,166 full-time employees and 63 part-time
employees compared to 4,249 full-time and 61 part-time employees at December
31, 1992. SDG&E's subsidiaries had 818 full-time employees at December 31,
1993 compared to 793 at December 31, 1992.
FOREIGN OPERATIONS
SDG&E foreign operations in 1993 included power purchases and sales with CFE
in Mexico and purchases of energy and natural gas from suppliers in Canada
and purchases of uranium from suppliers in Canada, Germany and Namibia.
SDG&E's subsidiaries operated in various foreign locations in 1993, including
Great Britain, Australia, Canada and Italy.
Additional information concerning foreign operations is described under
"Electric Operations" and "Natural Gas Operations" herein and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on Page 18 of the 1993 Annual Report to Shareholders
and in Note 9 of the "Notes to Consolidated Financial Statements" beginning
on Page 32 of the 1993 Annual Report to Shareholders.
ITEM 2. PROPERTIES
- ---------------------------------------------------------------------------
Substantially all utility plant is subject to the lien of the July 1, 1940
mortgage and deed of trust and its supplemental indentures between SDG&E and
the First Trust of California N.A. as trustee, securing the outstanding first
mortgage bonds.
ELECTRIC PROPERTIES
- --------------------------------------------------------------------------
As of December 31, 1993 SDG&E's installed generating capacity in megawatts,
based on summer ratings, was as follows:
PLANT LOCATION NET MEGAWATTS
- -------------------------------------------------------------------------
Encina Carlsbad 921
South Bay Chula Vista 690
San Onofre South of San Clemente 430*
Combustion Turbines (19) Various 332
Silver Gate** San Diego 0
- -------------------------------------------------------------------------
*SDG&E's 20 percent share.
**Placed in storage in 1984. Net generating capability is 230 mw.
Except for San Onofre and some of the combustion turbines, these plants are
equipped to burn either fuel oil or natural gas.
21
The system load factor was 64.2 percent in 1993 and ranged from 55.1 percent
to 64.2 percent for the past five years.
SDG&E's electric transmission and distribution facilities include sufficient
substations, and overhead and underground lines to accommodate current
customer needs. Various areas of the service territory require expansion
periodically to handle customer growth.
SDG&E owns an approved nuclear power plant site near Blythe, California.
NATURAL GAS PROPERTIES
- ---------------------------------------------------------------------------
SDG&E's natural gas facilities are located in San Diego and Riverside
counties and consist of the Encanto storage facility in San Diego,
transmission facilities and various high-pressure transmission pipelines,
high-pressure and low-pressure distribution mains, and service lines.
SDG&E's natural gas system is sufficient to meet customer demand and short-
term growth. SDG&E is currently undergoing an expansion of its high-pressure
transmission lines to accommodate expected long-term customer growth.
GENERAL PROPERTIES
- ---------------------------------------------------------------------------
The 21-story corporate office building at 101 Ash Street, San Diego is
occupied pursuant to an operating lease through the year 2005. The lease has
four separate five-year renewal options. The building is currently
undergoing a $15 million renovation which is expected to be completed during
1994. Additional information is provided under "Environmental, Health and
Safety" herein.
SDG&E also occupies an office complex at Century Park Court in San Diego
pursuant to a lease ending in the year 2007. The lease can be renewed for
two five-year periods. SDG&E also leases other office space in San Diego to
house its computer center under a three-year lease with options to renew for
an additional five years.
In addition, SDG&E occupies eight operating and maintenance centers, two
business centers, seven district offices, and five branch offices.
SUBSIDIARY PROPERTIES
- ---------------------------------------------------------------------------
Wahlco Environmental Systems, Inc. has manufacturing facilities in the
continental United States, Puerto Rico, Canada, Great Britain, Australia and
Italy, and a sales office in Singapore.
Additional information concerning SDG&E's properties is described under
"Electric Operations" and "Gas Operations" herein and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on Page 18 of the 1993 Annual Report to Shareholders and in Notes
2, 5 and 9 of the "Notes to Consolidated Financial Statements" beginning on
Page 32 of the 1993 Annual Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
- -----------------------------------------------------------------------------
The following proceedings, described in SDG&E's 1992 Annual Report on Form
10-K, were concluded during the year ended December 31, 1993: San Onofre
Nuclear Generating Station Unit 1, Springerville, Zuidema, Energy Factors,
American Tool and NCR. Information concerning the conclusion of these
proceedings is contained in SDG&E's Quarterly Reports on Form 10-Q for the
three-month periods ended March 31, 1993 and September 30, 1993 and in
SDG&E's Current Report on Form 8-K dated March 19, 1993.
CENTURY POWER LITIGATION
- ---------------------------------------------------------------------------
On April 1, 1987 Century Power Corporation, formerly Alamito Company,
submitted a filing to justify its rates for the following 24 months under a
power sales and interconnection agreement with SDG&E. The Federal Energy
Regulatory Commission permitted the rates to become effective as of June 1,
1987 subject to refund. In 1988 an administrative law judge ruled
22
unreasonable a component of rates based on the return on equity of Tucson
Electric Power Company, a supplier and former affiliate of Century. If the
decision stands, demand charges paid by SDG&E could be reduced by $12
million, plus interest, to be refunded principally to SDG&E customers. On
September 23, 1993 SDG&E filed a motion requesting the FERC to decide this
matter. On December 23, 1993 the FERC issued an order denying SDG&E's motion
on the grounds that the matter had been resolved under a settlement reached
by the parties in 1991 and approved by the FERC. On January 24, 1994 SDG&E
filed a request for rehearing.
On February 11, 1993 SDG&E filed a complaint with the FERC against Tucson and
Century seeking to adjust its purchase costs under the power sales and
interconnection agreement with Century. The complaint seeks summary
disposition and moves for an order directing Century and Tucson to refund
amounts that they improperly billed SDG&E in violation of the agreement. If
successful, SDG&E would be entitled to approximately $15 million, plus
interest, which would be refunded principally to SDG&E's customers. On April
23, 1993 Tucson and Century filed answers to the complaint, denying
liability. In addition, Tucson brought a counterclaim of approximately $3
million against SDG&E based on alleged underbillings.
SDG&E is unable to predict the ultimate outcome of this litigation.
CITY OF SAN DIEGO FRANCHISE
- ---------------------------------------------------------------------------
On February 13, 1990 following the announcement of the proposed merger of
SDG&E into Southern California Edison Company, the City of San Diego filed a
lawsuit in San Diego County Superior Court to confirm its position that
SDG&E's franchises with the city could not be transferred to Edison without
the consent of the city pursuant to the city charter and to SDG&E's
franchises. On December 28, 1993 the parties dismissed the complaint without
prejudice.
AMERICAN TRAILS
- ---------------------------------------------------------------------------
On August 23, 1985 Michael Bessey and others who owned American Trails, a
membership campground company, filed a complaint against Wahlco, Inc. and
others in the Superior Court of San Diego County for breach of contract,
negligence, fraud, intentional interference with contract, breach of the
implied covenant of good faith and fair dealing, and breach of fiduciary duty
in connection with contingent payments, which were not realized following the
redemption of plaintiffs' interest in American Trails Partners No. 1. The
plaintiffs are seeking compensatory damages in the amount of approximately
$12 million and punitive damages in an unspecified amount. Wahlco has
cross-complained against the plaintiffs for defrauding Wahlco into investing
$3 million in American Trails.
The trial took place in late 1991 before a superior court judge sitting
without a jury. On March 25, 1992 the trial judge indicated that the
plaintiffs would be awarded approximately $2 million plus fees. However, on
April 20, 1992, prior to entry of any judgments, the trial judge removed
himself from the case.
Another judge was assigned to the case and a new trial began on February 8,
1993. On March 24, 1993 the jury returned verdicts favorable to all
defendants on all of the plaintiffs' causes of action, except for breach of
contract and interference with contract claims against defendants Wahlco and
Robert Wahler, as to which the jury was not able to reach a verdict. On July
23, 1993 the trial court granted the motions of Wahlco and Robert Wahler for
summary judgment on the two remaining causes of action against them and
denied the plaintiffs' motion for a new trial. On September 21, 1993
judgment was entered by the court in favor of Wahlco and the other
defendants. As a result, all claims and causes of action by the plaintiffs
against Wahlco have been determined in favor of Wahlco. On October 7, 1993
the plaintiffs filed a notice of appeal from the court's judgment.
Wahlco intends to continue defending this lawsuit vigorously.
By agreements dated September 19, 1987, October 28, 1987, and March 1, 1990,
Robert R. Wahler, as Trustee of the Wahler Family Trust; John H. McDonald;
and Westfore, a California limited partnership, agreed, subject to certain
23
exceptions, to indemnify Pacific Diversified Capital Company and its
subsidiaries in connection with the American Trails litigation in diminishing
amounts through 1992, when the indemnification amount would decrease to zero.
Wahlco, Inc. notified these parties that it has a claim for indemnification
pursuant to the indemnification agreements. However, they have denied that
a current claim for indemnification exists.
SDG&E is unable to predict the ultimate outcome of this litigation.
SUBSIDIARY SHAREHOLDER
- ---------------------------------------------------------------------------
On June 22, 1990 an action was instituted in the U.S. District Court for the
Southern District of California against SDG&E; PDC; Wahlco Environmental
Systems, Inc.; each of the persons who was a director and/or an officer at
the time of WES's initial public offering (including an officer and certain
directors of SDG&E); and the managing underwriters for the offering,
Prudential-Bache Securities, Inc. and Salomon Brothers, Inc. This action,
for which class certification has been granted, was brought by Ronald
Kassover on behalf of all persons (other than defendants in the action) who
purchased WES's common stock during the class period of April 25, 1990 to
June 15, 1990.
The complaint, as amended, alleges various violations of federal and state
securities laws and various state law claims based upon alleged
misrepresentations made in WES's registration statement and prospectus
prepared in connection with the offering, WES's Report on Form 10-Q for the
first quarter of 1990, press releases, and other public documents and
statements. The alleged misrepresentations relate to WES's earnings,
customer orders, financial condition and future prospects. The amended
complaint further purports that, based upon these alleged misrepresentations
and omissions, the price of WES's common stock was inflated during the class
period and the plaintiff and the plaintiff class suffered damages as a result
of purchasing WES's common stock at inflated prices. The amended complaint
seeks a judgment for damages incurred by the plaintiff class during the class
period, for costs and attorneys' fees, for punitive damages, and for
injunctive relief against the disposition of defendants' assets.
On November 5, 1990 a second complaint was filed by Ralph Amanna. The
amended Amanna complaint makes allegations similar to those made in the
Kassover complaint and has been consolidated with the Kassover action. On
November 9, 1992 the court granted the defendants' motion for partial summary
judgment, resolving the majority of the material allegations in favor of the
defendants. The remaining allegations concern alleged wrong-doing associated
with an attempted debenture offering after the initial public offering.
The plaintiffs have filed a motion for reconsideration of the partial summary
judgment. The underwriters have filed a motion to dismiss all claims against
them, and the other defendants have joined in this motion. Hearings on these
motions were taken off the court's calendar pending the conclusion of
settlement negotiations.
In November 1993 a settlement in principle was reached whereby the entire
action would be resolved. The settlement requires the defendants to pay a
total of approximately $1 million to the plaintiffs in exchange for a
dismissal of the action in its entirety. The settlement will bind all of the
plaintiff class members who elect to participate in the settlement. It is
anticipated that the court will approve the settlement, and the action will
be dismissed.
PUBLIC SERVICE COMPANY OF NEW MEXICO
- -----------------------------------------------------------------------------
On October 27, 1993 SDG&E filed a complaint with the FERC against Public
Service Company of New Mexico, alleging that charges under a 1985 power
purchase agreement are unjust, unreasonable and discriminatory. SDG&E
requested that the FERC investigate the rates charged under the agreement and
establish a refund date effective December 26, 1993. The relief, if granted,
would reduce annual demand charges paid by SDG&E to PNM by up to $11 million
per year through April 2001. If approved, the proceeds principally would be
used to reduce customer bills.
On December 8, 1993 PNM answered the complaint and moved that it be
dismissed. PNM denied that the rates are unjust, unreasonable or
discriminatory and asserted that SDG&E's claims were barred by certain orders
issued by the FERC in 1988. SDG&E expects a decision from the FERC in 1994.
SDG&E is unable to predict the ultimate outcome of this litigation.
24
CANADIAN NATURAL GAS
- -----------------------------------------------------------------------------
During early 1991 SDG&E signed four long-term natural gas supply contracts
with Husky Oil Ltd., Canadian Hunter Ltd. and Noranda Inc., Bow Valley Energy
Inc., and Summit Resources Ltd. Canadian-sourced natural gas began flowing
to SDG&E under these contracts on November 1, 1993. Disputes have arisen
with each of these producers with respect to events which are alleged by the
producers to have occurred justifying a revision to the pricing terms of each
contract, and possibly their termination. Consequently, during December 1993
SDG&E filed complaints in the United States Federal District Court, Southern
District of California, seeking a declaration of SDG&E's contract rights.
Specifically, SDG&E states that, neither price revision nor contract
termination is warranted.
SDG&E is unable to predict the ultimate outcome of this litigation.
Additional information concerning these contracts is provided under "Natural
Gas Operations" herein and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on Page 18 of the
1993 Annual Report to Shareholders and in Note 9 of the "Notes to
Consolidated Financial Statements" beginning on Page 32 of the 1993 Annual
Report to Shareholders.
ELECTRIC AND MAGNETIC FIELDS
- -----------------------------------------------------------------------------
MCCARTIN
On November 13, 1992 a group of 25 individual plaintiffs filed a complaint
against SDG&E in the Orange County Superior Court for medical monitoring,
intentional infliction of emotional distress, negligent infliction of
emotional distress, strict products liability, negligent product liability,
trespass, nuisance, diminution in property value, inverse condemnation and
injunctive relief, alleging that plaintiffs have been damaged by EMF
radiation from SDG&E's power lines. The plaintiffs have not specified
damages.
On March 31, 1993 the trial court denied SDG&E's request to set aside all but
two of the plaintiffs' claims. On May 25, 1993 the California Court of
Appeals denied SDG&E's appeal of the trial court's denial of SDG&E's request
to set aside. A subsequent petition for review filed with the California
Supreme Court was also denied. On May 27, 1993 SDG&E filed its answer to the
complaint and discovery commenced.
On December 16, 1993 Martin and Joyce Covalt filed a complaint against SDG&E
in Orange County Superior Court for claims identical to those of the original
McCartin plaintiffs. The attorneys for the Covalts have indicated that they
will attempt to consolidate their complaint with the McCartin complaint.
SDG&E believes that the allegations made in both complaints are without merit
and intends to defend the lawsuit vigorously. The trial is scheduled to
begin on April 11, 1994.
SDG&E is unable to predict the ultimate outcome of this litigation.
NORTH CITY WEST
On June 14, 1993 the Peninsula at Del Mar Highlands Homeowners Association
filed a complaint with the Superior Court of San Diego County against the
City of San Diego and SDG&E to prevent SDG&E from continuing construction of
an electric substation in an area which is known as North City West. In the
complaint, plaintiffs sought to have the city either revoke previously issued
permits or reopen the hearing process to address alleged EMF concerns. On
July 6, 1993 the court denied the plaintiffs' motion for a temporary
restraining order. On July 30, 1993 the court denied the plaintiffs' motion
for a preliminary injunction. On September 28, 1993 the plaintiffs withdrew
their complaint and the court dismissed it without prejudice.
On August 18, 1993 the plaintiffs filed a complaint with the CPUC requesting
that construction of the substation be immediately halted until the CPUC
conducts an initial environmental assessment and determines whether an
25
environmental impact report is necessary. On September 22, 1993 SDG&E moved
to dismiss the complaint on the grounds that the city's environmental review
of the project in 1989 was proper and that the city, not the CPUC, has the
authority, under the California Environmental Quality Act, to review the
potential environmental impacts of substations. On January 7, 1994 the CPUC
dismissed the plaintiffs' complaint, ruling that the city had performed all
appropriate environmental reviews. One of the plaintiffs has filed an
application with the CPUC asking it to reconsider its January 7 decision.
SDG&E is unable to predict the ultimate outcome of this litigation.
BLACKBURN VS. WATT
Beginning on April 4, 1991 approximately 30 homeowners in the "Mar Lado
Highlands" real estate development filed a series of complaints in San Diego
Superior Court against the developer of the subdivision, TBSD Development,
and certain of its affiliates. The complaints allege, among other things,
that the defendants made fraudulent and negligent misrepresentations to the
plaintiffs in the course of the sale of the plaintiffs' homes. One of the
allegations involves the defendants' failure to adequately disclose the
siting of a SDG&E electric transmission line near a gasoline pipeline, which
the plaintiffs allege creates a significant risk of accident. Furthermore,
the plaintiffs allege that the defendants failed to disclose the health risks
associated with living in proximity to such power lines. The plaintiffs are
seeking rescission, restitution, certain specified and unspecified
compensatory damages, punitive damages, and attorneys' fees.
Beginning on June 23, 1993 the defendants filed a series of cross-complaints
against several other parties, including SDG&E, for indemnity, breach of
warranty, breach of contract, negligence, contribution, declaratory relief
and other remedies. The cross-complaints pertaining to SDG&E essentially
allege that the defendants had no duty to independently investigate the risks
associated with the power lines and that they merely passed along information
regarding such risks provided by SDG&E. Therefore, the defendants allege
that any liability arising from disclosures or nondisclosures relative to the
power lines are the sole responsibility of SDG&E.
SDG&E has filed answers to all of the cross-complaints. SDG&E believes the
cross-complaints are without merit and intends to defend these lawsuits
vigorously.
SDG&E is unable to predict the ultimate outcome of this litigation.
GRAYBILL/ METROPOLITAN TRANSIT DEVELOPMENT BOARD
- -----------------------------------------------------------------------------
GRAYBILL
On February 14, 1992 Graybill Terminal Company and others who own an oil
storage tank farm in San Diego filed a complaint against Union Oil Company of
California and others in the U.S. District Court for the Southern District of
California. The complaint alleges that the land on which the tank farm is
situated is contaminated with petroleum products and other chemicals.
On July 21, 1992 three of the defendants, Olson Development Company, 550 El
Camino Company and Carl Olson, filed a complaint in the same court against
SDG&E and others, alleging, among other things, violation of the
Comprehensive Environmental Response Compensation and Liability Act,
California Superfund, and other environmental laws. Olson Development and
550 El Camino are previous owners of the allegedly contaminated property.
This complaint alleges that SDG&E leased certain tanks, property and
pipelines on or adjacent to the allegedly contaminated property and that
contamination of soil, ground water, sewer systems and the San Diego Bay
occurred during the course of SDG&E's leasing of the tanks, property and
pipelines. The plaintiffs are seeking unspecified compensatory damages,
indemnity or contribution, and certain declaratory and equitable relief.
On August 10, 1992 SDG&E filed a counterclaim to the third-party complaint.
On August 17, 1992 SDG&E also filed a third-party complaint against Union Oil
Company. The court has dismissed all negligence causes of action against
SDG&E, but all other causes of action remain. Trial has been set for April
1994.
26
SDG&E is unable to predict the ultimate outcome of this litigation.
METROPOLITAN TRANSIT DEVELOPMENT BOARD
On October 13, 1993 MTDB filed a complaint in the San Diego County Superior
Court against certain of the defendants in the Graybill litigation, including
SDG&E. MTDB owns property located adjacent to the Graybill site and has
alleged that contamination from the Graybill site migrated beneath its
property, contaminating the soil and ground water. (MTDB had attempted to
intervene in the Graybill litigation, but the judge denied its motion.)
MTDB has alleged that SDG&E stored petroleum products at the Graybill site
and was also responsible for certain renovations to the site's fixtures and
equipment which stored and/or transported hazardous substances. MTDB has
also stated that SDG&E, at one time, owned and operated the MTDB property and
also owned certain fuel oil pipelines located on the property. MTDB's
complaint alleges, among other things, nuisance, trespass and negligence, and
seeks unspecified compensatory and special damages, indemnity, and certain
equitable and declaratory relief. On November 24, 1993 SDG&E filed an answer
to the complaint denying all of MTDB's allegations.
SDG&E is unable to predict the ultimate outcome of this litigation.
TRANSPHASE SYSTEMS LITIGATION
- ---------------------------------------------------------------------------
On May 3, 1993 Transphase Systems, Inc. filed a complaint against Southern
California Edison Company and SDG&E in the United States District Court for
the Central District of California. The complaint alleged that Edison and
SDG&E unlawfully constrained Transphase from selling its thermal energy
storage systems under utility-sponsored demand-side management programs in
violation of federal and state antitrust and unfair competition laws. The
plaintiff claimed not less than $50 million in actual damages, attorneys'
fees, prejudgment interest and costs. The plaintiff also sought certain
injunctive relief.
On August 25, 1993 Transphase filed a motion for a preliminary injunction to
order SDG&E to cease competitive bidding activities for all generation
resources until demand-side-resource providers were permitted to participate.
On October 7, 1993 the court dismissed all of Transphase's causes of action
with prejudice. On October 19, 1993 Transphase filed a notice of appeal of
the court's dismissal. The appeal is scheduled to be heard by the Ninth
Circuit Court of Appeals in May 1994.
SDG&E is unable to predict the ultimate outcome of this litigation.
Additional information concerning competitive bidding is described under
"Resources Planning" herein and in the "Management's Discussion & Analysis of
Financial Condition and Results of Operations" beginning on Page 18 of the
1993 Annual Report to Shareholders.
TANG LITIGATION
- -----------------------------------------------------------------------------
On August 10, 1993 R.C. Tang filed a complaint in the Los Angeles County
Superior Court against Southern California Edison Company, SDG&E, and SONGS
contractors Westinghouse, Bechtel and Combustion Engineering, for negligence,
strict products liability, express and implied warranty, statutory liability,
negligent and fraudulent misrepresentation, fraudulent concealment, and
negligent infliction of emotional distress, alleging that the plaintiff was
damaged by the emission of radiation while serving as an on-site Nuclear
Regulatory Commission inspector at SONGS from June 1985 through December
1986. The plaintiff has asked for general compensatory damages and punitive
damages.
The defendants removed the case to the United States District Court for the
Southern District of California in San Diego on September 2, 1993 and filed
an answer on September 14, 1993. On December 13, 1993 the court denied the
defendants' motion for summary judgment based on the defendants' compliance
with applicable permissive-dose limits of radiation. On February 7, 1994 the
27
judge declared a mistrial after the jury deadlocked with a vote of seven to
two in favor of R.C. Tang. A new trial date for the case has been set for
March 15, 1994.
The defendants believe that the allegations made in this complaint are
without merit and intend to defend this lawsuit vigorously.
SDG&E is unable to predict the ultimate outcome of this litigation.
ENVIRONMENTAL ISSUES
- ---------------------------------------------------------------------------
Other legal matters related to environmental issues are described under
"Environmental, Health and Safety" herein.
28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------------
None.
ITEM 4. EXECUTIVE OFFICERS OF THE REGISTRANT
- ---------------------------------------------------------------------------
NAME AGE POSITIONS (1989 - CURRENT)
- ---------------------------------------------------------------------------
Thomas A. Page 60 Chairman and Chief Executive Officer
since January 1983 and President from
1983 through 1991 and since January
1994.
- ---------------------------------------------------------------------------
Jack E. Thomas 61 President and Chief Operating Officer
from January 1992 until his retirement
in January 1994.
Executive Vice President and Chief
Operating Officer from 1986 through
1991.
- ---------------------------------------------------------------------------
Stephen L. Baum 53 Executive Vice President since January
1993.
Senior Vice President - Law and
Corporate Affairs and General Counsel
from January 1992 through December 1992.
Senior Vice President and General
Counsel from 1987 through 1991.
- ----------------------------------------------------------------------------
Donald E. Felsinger 46 Executive Vice President since January
1993.
Senior Vice President - Marketing and
Resource Development from January 1992
through December 1992.
Vice President - Marketing and Resource
Development from February 1989 through
1991.
Vice President - Marketing from 1986
through January 1989.
- ---------------------------------------------------------------------------
Gary D. Cotton 53 Senior Vice President - Customer
Operations since January 1993.
Senior Vice President - Customer
Services from January 1992 through
December 1992.
Senior Vice President - Engineering and
Operations from 1986 through 1991.
- -----------------------------------------------------------------------------
Edwin A. Guiles 44 Senior Vice President - Energy Supply
since January 1993.
Vice President - Engineering and
Operations from January 1992 through
December 1992.
Vice President - Corporate Planning from
1990 through 1991.
Director - Merger Transition from
January through December 1989.
- ---------------------------------------------------------------------------
R. Lee Haney 54 Senior Vice President - Customer and
Marketing Services since January 1993.
Senior Vice President - Finance and
Chief Financial Officer from 1990
through 1992.
Vice President - Finance, Chief
Financial Officer and Treasurer from
1988 through 1989.
- ---------------------------------------------------------------------------
Nad A. Peterson 67 Senior Vice President and General
Counsel since June 1993 and
Corporate Secretary since January
1994.
- ---------------------------------------------------------------------------
Frank H. Ault 49 Vice President and Controller since
January 1993.
Controller from May 1986 through
December 1992.
- ---------------------------------------------------------------------------
Ronald K. Fuller 56 Vice President - Governmental and
Regulatory Services since April 1984.
- ---------------------------------------------------------------------------
Margot A. Kyd 40 Vice President - Human Resources since
January 1993.
Vice President - Administrative Services
from 1988 through 1992.
- ---------------------------------------------------------------------------
Malyn K. Malquist 41 Vice President - Finance and Treasurer
since January 1993.
Treasurer from 1990 through 1992.
Assistant Treasurer and Director -
Finance from 1988 through 1989.
- ----------------------------------------------------------------------------
Delroy M. Richardson 55 Secretary from December 1986 until his
retirement in January 1994.
29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
SDG&E's common stock is traded on the New York and Pacific stock exchanges.
At December 31, 1993, there were 70,389 holders of SDG&E common stock.
Quarterly Common Stock Data (Unaudited)
1993 1992
-----------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- ------- ------- ------- ------- ------- ------- -------
Market price
High 26 5/8 26 7/8 27 3/4 27 1/2 22 3/4 23 1/2 25 3/8 24 1/2
Low 23 1/4 24 1/2 25 5/8 23 1/2 21 1/4 21 1/8 23 1/8 22 1/2
Dividends declared 37 37 37 37 36 36 36 36
-----------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------
The information required by Item 6 is incorporated by reference from the
Ten-Year Summary beginning on Page 16 of SDG&E's 1993 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
The information required by Item 7 is incorporated by reference from page 18
of SDG&E's 1993 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------
The information required by Item 8 is incorporated by reference from Pages 24
through 39 of SDG&E's 1993 Annual Report to Shareholders. See Item 14 of
this Form 10-K for a listing of financial statements included in the 1993
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------------------
The information required on Identification of Directors is incorporated by
reference from "Election of Directors" in SDG&E's March 1994 Proxy Statement.
The information required on executive officers is incorporated by reference
from Item 4.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from
"Executive Compensation and Transactions with Management and Others" in
SDG&E's March 1994 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from
"Security Ownership of Management and Certain Beneficial Holders" in SDG&E's
March 1994 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
None.
30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements
Page in
Annual Report*
Responsibility Report for the Consolidated Financial Statements 24
Statements of Consolidated Income for the years ended
December 31, 1993, 1992 and 1991. 25
Consolidated Balance Sheets at December 31, 1993 and 1992. 26
Statements of Consolidated Cash Flows for the years ended
December 31, 1993, 1992 and 1991 27
Statements of Consolidated Changes in Capital Stock and Retained
Earnings for the years ended December 31, 1993, 1992 and 1991. 28
Statements of Consolidated Capital Stock at
December 31, 1993 and 1992. 29
Statements of Consolidated Long-Term Debt at
December 31, 1993 and 1992. 30
Statements of Consolidated Financial Information by Segments
of Business for the years ended December 31, 1993, 1992 and 1991 31
Notes to Consolidated Financial Statements 32
Independent Auditors' Report 38
Quarterly Financial Data (Unaudited). 39
*Incorporated by reference from the indicated pages of the 1993 Annual Report
to Shareholders.
2. Financial statement schedules
The following schedules for the years ended December 31, 1993, 1992 and 1991
and the related independent auditors' report will be filed as an amendment to
this report:
Schedule II Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees
Schedules V and VI Property, Plant and Equipment; and Accumulated
Depreciation, Depletion and Amortization of Property,
Plant and Equipment
Schedule VIII Valuation and Qualifying Accounts
Schedule IX Short-Term Borrowings
Schedule X Supplementary Income Statement Information
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included
in the consolidated financial statements and the notes to consolidated
financial statements included herein.
31
3. Exhibits
The Forms 8, 8-K, 10-K and 10-Q referred to herein were filed under
Commission File Number 1-3779.
Exhibit 3 -- Bylaws and Articles of Incorporation
- - Bylaws
3.1 Restated Bylaws - December 20, 1993
- - Articles of Incorporation
3.2 Restated Articles of Incorporation - December 2, 1992 (Incorporated by
reference from SDG&E's 1992 Form 10-K, Ex 3.2)
3.3 Certificate of Determination of Preferences of Preference Stock
(cumulative), $1.82 series, without par value, of San Diego Gas & Electric
Company.
3.4 Certificate of Determination of Preferences of Preference Stock
(cumulative), $1.70 series, without par value, of San Diego Gas & Electric
Company.
Exhibit 4 -- Instruments Defining the Rights of Security Holders, Including
Indentures
4.1 Mortgage and Deed of Trust dated July 1, 1940. (Incorporated by
reference from Registration No. 2-49810, Ex. 2A.)
4.2 Second Supplemental Indenture dated as of March 1, 1948. (Incorporated
by reference from Registration No. 2-49810, Ex. 2C.)
4.3 Ninth Supplemental Indenture dated as of August 1, 1968. (Incorporated
by reference from Registration No. 2-68420, Ex. 2D.)
4.4 Tenth Supplemental Indenture dated as of December 1, 1968. (Incorporated
by reference from Registration No. 2-36042, Ex. 2K.)
4.5 Sixteenth Supplemental Indenture dated August 28, 1975. (Incorporated by
reference from Registration No. 2-68420, Ex. 2E.)
4.6 Thirtieth Supplemental Indenture dated September 28, 1983. (Incorporated
by reference from Registration No. 33-34017, Ex. 4.3.)
Exhibit 10 -- Material Contracts
10.1 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #3 (1994 compensation).
10.2 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #1 (1994 compensation, 1995 incentive).
10.3 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Nonemployee Directors (1994 compensation).
10.4 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan
1993 restricted stock award agreement.
10.5 Supplemental Executive Retirement Plan adopted on July 15, 1981 and
amended on April 24, 1985, October 20, 1986, April 28, 1987, October 24,
1988, November 21, 1988, October 28, 1991, May 28, 1992, May 24, 1993 and
November 22, 1993.
10.6 Amended 1986 Long-Term Incentive Plan, Restatement as of October 25,
1993.
10.7 Loan agreement with CIBC Inc. dated as of December 1, 1993.
10.8 Amendment to San Diego Gas & Electric Company and Southern California
Gas Company Restated Long-Term Wholesale Natural Gas Service Contract (see
Exhibit 10.53) dated March 26, 1993.
32
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S JUNE 30,
1993 FORM 10-Q AS REFERENCED BELOW.
10.9 Loan agreement with the California Pollution Control Financing
Authority in connection with the issuance of $80 million of Pollution Control
Bonds dated as of June 1, 1993 (Exhibit 10.1).
10.10 Loan agreement with the City of San Diego in connection with the
issuance of $92.7 million of Industrial Development Bonds 1993 Series C dated
as of July 1, 1993 (Exhibit 10.2).
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S MARCH 31,
1993 FORM 10-Q AS REFERENCED BELOW.
10.11 Loan agreement with Mellon Bank, N.A dated as of April 15, 1993
(Exhibit 10.1).
10.12 Loan agreement with First Interstate Bank dated as of April 15, 1993
(Exhibit 10.2).
10.13 Loan agreement with the City of San Diego in connection with the
issuance of Industrial Development Bonds 1993 Series A dated as of April 1,
1993 (Exhibit 10.3).
10.14 Loan agreement with the City of San Diego in connection with the
issuance of Industrial Development Bonds 1993 Series B dated as of April 1,
1993 (Exhibit 10.4).
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S 1992 FORM
10-K AS REFERENCED BELOW.
10.15 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #3 (1993 compensation) (Exhibit 10.1).
10.16 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #1 (1993 compensation, 1994 incentive) (Exhibit 10.2).
10.17 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Nonemployee Directors (1993 compensation) (Exhibit 10.3).
10.18 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan
1992 restricted stock award agreement (Exhibit 10.4).
10.19 Loan agreement with the City of Chula Vista in connection with the
issuance of $250 million of Industrial Development Revenue Bonds, dated as of
December 1, 1992 (Exhibit 10.5).
10.20 Loan agreement with the City of San Diego in connection with the
issuance of $25 million of Industrial Development Revenue Bonds, dated as of
September 1, 1987 (Exhibit 10.6).
10.21 Nuclear Facilities Qualified CPUC Decommissioning Master Trust
Agreement for San Onofre Nuclear Generating Station, approved November 25,
1987 (Exhibit 10.7).
10.22 Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust
Agreement for San Onofre Nuclear Generating Station, approved November 25,
1987 (Exhibit 10.8).
10.23 Amended 1986 Long-Term Incentive Plan (Exhibit 10.9).
10.24 Loan agreement between Mellon Bank, N.A. and San Diego Gas & Electric
Company dated December 15, 1992, as amended (Exhibit 10.10).
10.25 Fuel Lease dated as of September 8, 1983 between SONGS Fuel Company,
as Lessor and San Diego Gas & Electric Company, as Lessee, and Amendment No.
1 to Fuel Lease, dated September 14, 1984 and Amendment No. 2 to Fuel Lease,
dated March 2, 1987 (Exhibit 10.11).
THE FOLLOWING EXHIBIT IS INCORPORATED BY REFERENCE FROM SDG&E'S SEPTEMBER 30,
1992 FORM 10-Q AS REFERENCED BELOW.
10.26 Loan Agreement with the City of San Diego in connection with the
issuance of $118.6 million of Industrial Development Revenue Bonds dated as
of September 1, 1992 (Exhibit 10.1).
33
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S 1991 FORM
10-K AS REFERENCED BELOW.
10.27 Gas Purchase Agreement, dated March 12, 1991 between Husky Oil
Operations Limited and San Diego Gas & Electric Company (Exhibit 10.1).
10.28 Gas Purchase Agreement, dated March 12, 1991 between Canadian Hunter
Marketing Limited and San Diego Gas & Electric Company (Exhibit 10.2).
10.29 Gas Purchase Agreement, dated March 12, 1991 between Bow Valley
Industries Limited and San Diego Gas & Electric Company (Exhibit 10.3).
10.30 Gas Purchase Agreement, dated March 12, 1991 between Summit Resources
Limited and San Diego Gas & Electric Company (Exhibit 10.4).
10.31 Service Agreement Applicable to Firm Transportation Service under Rate
Schedule FS-1, dated May 31, 1991 between Alberta Natural Gas Company Ltd.
and San Diego Gas & Electric Company (Exhibit 10.5).
10.32 Firm Transportation Service Agreement, dated December 31, 1991 between
Pacific Gas and Electric Company and San Diego Gas & Electric Company
(Exhibit 10.7).
10.33 Supplemental Executive Retirement Plan adopted on July 15, 1981 and
amended on April 24, 1985, October 20, 1986, April 28, 1987, October 24,
1988, November 21, 1988 and October 28, 1991 (Exhibit 10.8).
10.34 Uranium enrichment services contract between the U. S. Department of
Energy and Southern California Edison Company, as agent for SDG&E and others;
Contract DE-SC05-84UEO7541, dated November 5, 1984, effective June 1, 1984,
as amended by modifications dated September 13, 1985, January 8, April 10,
June 17 and August 8, 1986, March 26, 1987, February 20 and July 25, 1990,
and October 7, 1991 (Exhibit 10.9).
10.35 Loan agreement with California Pollution Control Financing Authority,
dated as of December 1, 1985, in connection with the issuance of $35 million
of pollution control bonds (Exhibit 10.10).
10.36 Loan agreement with California Pollution Control Financing Authority,
dated as of December 1, 1991, in connection with the issuance of $14.4
million of pollution control bonds (Exhibit 10.11).
10.37 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #3 (1992 compensation) (Exhibit 10.16).
10.38 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #1 (1992 compensation, 1993 incentive) (Exhibit
10.17).
10.39 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Nonemployee Directors (1992 compensation) (Exhibit 10.18).
10.40 Form of San Diego Gas & Electric Company Deferred Compensation
Agreement for Officers #1 (1991 compensation, 1992 incentive) (Exhibit
10.20).
10.41 Loan agreement with the City of San Diego in connection with the
issuance of $44.25 million of Industrial Development Revenue Bonds, dated as
of July 1, 1986 (Exhibit 10.36).
10.42 Loan agreement with the City of San Diego in connection with the
issuance of $81.35 million of Industrial Development Revenue Bonds, dated as
of December 1, 1986 (Exhibit 10.37).
10.43 Loan agreement with the City of San Diego in connection with the
issuance of $100 million of Industrial Development Revenue Bonds, dated as of
September 1, 1985 (Exhibit 10.38).
10.44 Executive Incentive Plan dated April 23, 1985 (Exhibit 10.39).
10.45 Loan agreement with California Pollution Control Financing Authority
dated as of December 1, 1984, in connection with the issuance of $27 million
of pollution control bonds (Exhibit 10.40).
35
10.46 Loan agreement with California Pollution Control Financing Authority
dated as of May 1, 1984, in connection with the issuance of $53 million of
pollution control bonds (Exhibit 10.41).
10.47 Lease agreement dated as of July 14, 1975 with New England Mutual Life
Insurance Company, as lessor (Exhibit 10.42).
THE FOLLOWING EXHIBIT IS INCORPORATED BY REFERENCE FROM SDG&E'S MARCH 31,
1991 FORM 10-Q AS REFERENCED BELOW.
10.48 Firm Transportation Service Agreement, dated April 25, 1991 between
Pacific Gas Transmission Company and San Diego Gas & Electric Company
(Exhibit 28.2).
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S 1990 FORM
10-K AS REFERENCED BELOW.
10.49 Agreement dated March 19, 1987, for the Purchase and Sale of Uranium
Concentrates between SDG&E and Saarberg-Interplan Uran GmbH (assigned to
Pathfinder Mines Corporation in June 1993) (Exhibit 10.5).
10.50 Second Amended San Onofre Agreement among Southern California Edison
Company, SDG&E, the City of Anaheim and the City of Riverside, dated February
26, 1987 (Exhibit 10.6).
10.51 San Diego Gas & Electric Company Retirement Plan for Directors,
adopted December 17, 1990 Exhibit 10.7).
10.52 San Diego Gas & Electric Company Executive Severance Allowance Plan,
as Amended and Restated, December 17, 1990 (Exhibit 10.8).
10.53 San Diego Gas & Electric Company and Southern California Gas Company
Restated Long-Term Wholesale Natural Gas Service Contract, dated September 1,
1990 (Exhibit 10.9).
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S 1989 FORM
10-K AS REFERENCED BELOW.
10.54 Amendment to the San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan adopted January 23, 1989 (Exhibit 10B).
10.55 Loan agreement between San Diego Trust & Savings Bank and SDG&E dated
January 1, 1989 as amended (Exhibit 10H).
10.56 Loan agreement between Union Bank and SDG&E dated November 1, 1988 as
amended (Exhibit 10I).
10.57 Loan agreement between Bank of America National Trust & Savings
Association and SDG&E dated November 1, 1988 as amended (Exhibit 10J).
10.58 Loan agreement between First Interstate Bank of California and SDG&E
dated November 1, 1988 as amended (Exhibit 10K).
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE FROM SDG&E'S 1988 FORM
10-K AS REFERENCED BELOW.
10.59 Severance Plan as amended August 22, 1988 (Exhibit 10A).
10.60 U. S. Navy contract for electric service, Contract
N62474-70-C-1200-P00414, dated September 29, 1988 (Exhibit 10C).
10.61 Employment agreement between San Diego Gas & Electric Company and
Thomas A. Page, dated June 15, 1988 (Exhibit 10E).
10.62 Public Service Company of New Mexico and San Diego Gas & Electric
Company 1988-2001 100 MW System Power Agreement dated November 4, 1985 and
Letter of Agreement dated April 28, 1986, June 4, 1986 and June 18, 1986
(Exhibit 10H).
10.63 San Diego Gas & Electric Company and Portland General Electric Company
Long-Term Power Sale and Transmission Service agreements dated November 5,
1985 (Exhibit 10I).
10.64 Comision Federal de Electricidad and San Diego Gas & Electric Company
Contract for the Purchase and Sale of Electric Capacity and Energy dated
November 20, 1980 and additional Agreement to the contract dated March 22,
1985 (Exhibit 10J).
36
10.65 U. S. Department of Energy contract for disposal of spent nuclear fuel
and/or high-level radioactive waste, entered into between the DOE and
Southern California Edison Company, as agent for SDG&E and others; Contract
DE-CR01-83NE44418, dated June 10, 1983 (Exhibit 10N).
10.66 Agreement with Arizona Public Service Company for Arizona transmission
system participation agreement - contract 790116 (Exhibit 10P).
10.67 City of San Diego Electric Franchise (Ordinance No.10466) (Exhibit
10Q).
10.68 City of San Diego Gas Franchise (Ordinance No.10465) (Exhibit 10R).
10.69 County of San Diego Electric Franchise (Ordinance No.3207) (Exhibit
10S).
10.70 County of San Diego Gas Franchise (Ordinance No.5669) (Exhibit 10T).
10.71 Supplemental Pension Agreement with Thomas A. Page, dated as of April
3, 1978 (Exhibit 10V).
10.72 Lease agreement dated as of June 15, 1978 with Lloyds Bank California,
as owner-trustee and lessor - Exhibit B to financing agreement of SDG&E's
Encina Unit 5 equipment trust (Exhibit 10W).
Exhibit 12 -- Statement re computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends for the years ended December 31, 1993, 1992, 1991,
1990 and 1989.
Exhibit 13 -- The financial statements and other documents listed under Part
IV Item 14(a)1. and Management's Discussion and Analysis of Financial
Condition and Results of Operations listed under Part II Item 7 of this form
10-K are incorporated by reference from the 1993 Annual Report to
Shareholders.
Exhibit 22 - Subsidiaries - See "Part I, Item 1. Description of Business."
Exhibit 24 - Independent Auditors' Consent, Page 37.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on December 22, 1993 to report the
resignation of Douglas O. Allred from SDG&E's Board of Directors.
36
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 25,
1994 (which report contains an explanatory paragraph referring to the
Company's consideration of alternative strategies for its 80 percent-owned
subsidiary, Wahlco Environmental Systems, Inc.) appearing on page 38 of the
1993 Annual Report to Shareholders of San Diego Gas & Electric Company in
this Annual Report on Form 10-K for the year ended December 31, 1993.
We also consent to the incorporation by reference of the above-mentioned
report in San Diego Gas & Electric Company Post-Effective Amendment No. 1 to
Registration Statement No. 33-46736 on Form S-3, Post-Effective Amendment No.
4 to Registration Statement No. 2-71653 on Form S-8, Registration Statement
No. 33-7108 on Form S-8, Amendment No. 1 to Registration Statement
No. 33-21971 on Form S-3, Registration Statement No. 33-45599 on Form S-3,
Registration Statement No. 33-52834 on Form S-3 and Registration Statement
No. 33-49837 on Form S-3; and SDO Parent Co., Inc. Registration Statement No.
2-98332 on Form S-4 as amended by Post-Effective Amendment No. 1 on Form S-3.
Deloitte & Touche
San Diego, California
March 3, 1994
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SAN DIEGO GAS & ELECTRIC COMPANY
February 28, 1994 By: /s/ Thomas A. Page
-----------------------------
Thomas A. Page
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
Signature Title Date
- -------------------------------------------------------------------------
Principal Executive Officer:
/s/ Thomas A. Page
- ---------------------------
Thomas A. Page Chairman, President and Chief February 28, 1994
Executive Officer and a
Director
Principal Financial Officer:
/s/ Malyn K. Malquist
- ---------------------------
Malyn K. Malquist Vice President-Finance and February 28, 1994
Treasurer
Principal Accounting Officer:
/s/ Frank H. Ault
- ---------------------------
Frank H. Ault Vice President and Controller February 28, 1994
Directors:
/s/ Richard C. Atkinson
- ---------------------------
Richard C. Atkinson Director February 28, 1994
/s/ Ann Burr
- ---------------------------
Ann Burr Director February 28, 1994
/s/ Richard A. Collato
- ---------------------------
Richard A. Collato Director February 28, 1994
/s/ Daniel W. Derbes
- ---------------------------
Daniel W. Derbes Director February 28, 1994
/s/ Robert H. Goldsmith
- ---------------------------
Robert H. Goldsmith Director February 28, 1994
/s/ Ralph R. Ocampo
- -------------------------
Ralph R. Ocampo Director February 28, 1994
/s/ Catherine Fitzgerald Wiggs
- --------------------------------
Catherine Fitzgerald Wiggs Director February 28, 1994
EXHIBIT 3.1
BYLAWS OF SAN DIEGO GAS & ELECTRIC COMPANY
------------------------------------------
RESTATED AS OF DECEMBER 20, 1993
ARTICLE ONE
-----------
Corporate Management
--------------------
The business and affairs of the corporation shall be managed, and
all corporate powers shall be exercised, by or under the direction of the
Board of Directors ("the Board"), subject to the Articles of Incorporation
and the California Corporations Code.
ARTICLE TWO
-----------
Officers
--------
Section 1. DESIGNATION. The officers of the corporation shall
consist of a Chairman of the Board ("Chairman") or a President, or both, one
or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a
Treasurer, one or more Assistant Treasurers, a Controller, one or more
Assistant Controllers, and such other officers as the Board may from time to
time elect. Any two or more of such offices may be held by the same person.
Section 2. TERM. The officers shall be elected by the Board as
soon as possible after the annual meeting of the Shareholders, and shall hold
office for one year or until their successors are duly elected. Any officers
may be removed from office at any time, with or without cause, by the vote of
a majority of the authorized number of Directors. The Board may fill
vacancies or elect new officers at any time.
Section 3. CHAIRMAN. The Chairman shall preside over meetings of
the Shareholders and of the Board, make a full report to each Shareholders'
annual meeting covering the next preceding fiscal year, and perform all other
duties designated by the Board.
Section 4. THE PRESIDENT. The President shall have the general
management and direction of the affairs of the corporation, subject to the
control of the Board. In the absence or disability of the Chairman, the
President shall perform the duties and exercise the powers of the Chairman.
Section 5. VICE PRESIDENTS. The Vice Presidents, one of whom
shall be the chief financial officer, shall have such duties as the President
or the Board shall designate.
Section 6. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be responsible for the issuance of securities and the management of the
corporation's cash, receivables and temporary investments.
Section 7. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall
attend all meetings of the Shareholders and the Board, keep a true and
accurate record of the proceedings of all such meetings and attest the same
by his or her signature, have charge of all books, documents and papers which
appertain to the office, have custody of the corporate seal and affix it to
all papers and documents requiring sealing, give all notices of meetings,
have the custody of the books of stock certificates and transfers, issue all
stock certificates, and perform all other duties usually appertaining to the
office and all duties designated by the bylaws, the President or the Board.
In the absence of the Secretary, any Assistant Secretary may perform the
duties and shall have the powers of the Secretary.
Section 8. TREASURER AND ASSISTANT TREASURER. The Treasurer shall
perform all duties usually appertaining to the office and all duties
designated by the President or the Board. In the absence of the Treasurer,
any Assistant Treasurer may perform the duties and shall have all the powers
of the Treasurer.
Section 9. CONTROLLER AND ASSISTANT CONTROLLER. The Controller
shall be responsible for establishing financial control policies for the
corporation, shall be its principal accounting officer, and shall perform all
duties usually appertaining to the office and all duties designated by the
President or the Board. In the absence of the Controller, any Assistant
Controller may perform the duties and shall have all the powers of the
Controller.
Section 10. CHIEF EXECUTIVE OFFICER. Either the Chairman or the
President shall be the chief executive officer.
Section 11. CHIEF OPERATING OFFICER. Either the President or any
Vice President shall be the chief operating officer.
ARTICLE THREE
-------------
Directors
---------
Section 1. NUMBER. The authorized number of Directors shall be
from a minimum of seven to a maximum of thirteen, unless changed by the vote
or written consent of holders of a majority of outstanding shares entitled to
vote. The Board of Directors shall fix by resolution the number of Directors
comprising the Board within the stated minimum and maximum number at its
discretion and without Shareholder approval.
Section 2. ELECTION. A Board shall be elected at each annual
meeting of the Shareholders, at any adjournment thereof, or at any special
meeting of the Shareholders called for that purpose. The Directors shall
hold office for one year or until their successors are duly elected. Any
candidate nominated by management for election to the Board shall be so
nominated without regard to his or her sex, race, color or creed.
Section 3. VACANCIES. Vacancies in the Board may be filled by a
majority of the remaining Directors, though less than a quorum, and each
Director so elected shall hold office for the unexpired term and until his or
her successor is elected.
Section 4. COMPENSATION. Members of the Board shall receive such
compensation as the Board may from time to time determine.
Section 5. REGULAR MEETINGS. The regular meetings of the Board
shall be held immediately after each annual meeting of the Shareholders in
April, and on the fourth Monday of each other month, at 1:00 p.m. at the
principal office of the corporation in San Diego, California. If any such
date is a legal holiday, the meeting shall be held on the next day which is
not a holiday. The Board may cancel, or designate a different date, time or
place for any regular meeting.
Section 6. SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman, the President or any two Directors.
Section 7. NOTICE OF MEETINGS. Written notice shall be given to
each Director of the date, time and place of each regular meeting and each
special meeting of the Board. If given by mail, such notice shall be mailed
to each Director at least four days before the date of such meeting, or such
notice may be given to each Director personally or by telegram at least 48
hours before the time of such meeting. Every notice of special meeting shall
state the purpose for which such meeting is called. Notice of a meeting need
not be given to any Director who signs a waiver of notice, whether before or
after the meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such Director.
Section 8. QUORUM. A majority of the authorized number of
Directors shall be necessary to constitute a quorum for the transaction of
business, and every act or decision of a majority of the Directors present at
a meeting at which a quorum is present shall be valid as the act of the
Board, provided that a meeting at which a quorum is initially present may
continue to transact business, notwithstanding the withdrawal of Directors,
if any action taken is approved by at least a majority of the required quorum
for such meeting. A majority of Directors present at any meeting, in the
absence of a quorum, may adjourn to another time.
Section 9. ACTION UPON CONSENT. Any action required or permitted
to be taken by the Board may be taken without a meeting, if all members of
the Board shall individually or collectively consent in writing to such
action.
Section 10. TELEPHONIC PARTICIPATION. Members of the Board may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in the meeting
can hear one another. Such participation constitutes presence in person at
the meeting.
Section 11. DIRECTORS EMERITUS. The Board may from time to time
elect one or more Directors Emeritus. Each Director Emeritus shall have the
privilege of attending meetings of the Board, upon invitation of the Chairman
or the President. No Director Emeritus shall be entitled to vote on any
business coming before the Board or be counted as a member of the Board for
any purpose whatsoever.
ARTICLE FOUR
------------
Committees
----------
Section 1. EXECUTIVE COMMITTEE. The Board shall appoint an
Executive Committee. The Chairman shall be ex officio the Chairman thereof,
unless the Board shall appoint another member as Chairman. The Executive
Committee shall be composed of members of the Board, and shall at all times
be subject to its control. The Executive Committee shall have all the
authority of the Board, except with respect to:
(a) The approval of any action which also requires Shareholders'
approval.
(b) The filling of vacancies on the Board or on any committee.
(c) The fixing of compensation of the Directors for serving on the
Board or on any committee.
(d) The amendment or repeal of bylaws or the adoption of new
bylaws.
(e) The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable.
(f) A distribution to the Shareholders.
(g) The appointment of other committees of the Board or the
members thereof.
Section 2. AUDIT COMMITTEE. The Board shall appoint an Audit
Committee comprised solely of Directors who are neither officers nor
employees of the corporation and who are free from any relationship that, in
the opinion of the Board, would interfere with the exercise of independent
judgment as committee members. The Audit Committee shall review and make
recommendations to the Board with respect to:
(a) The engagement of an independent accounting firm to audit the
corporation's financial statements and the terms of such
engagement.
(b) The policies and procedures for maintaining the corporation's
books and records and for furnishing appropriate information
to the independent auditor.
(c) The evaluation and implementation of any recommendations made
by the independent auditor.
(d) The adequacy of the corporation's internal audit controls and
related personnel.
(e) Such other matters relating to the corporation's financial
affairs and accounts as the Committee deems desirable.
Section 3. OTHER COMMITTEES. The Board may appoint such other
committees of its members as it shall deem desirable, and, within the
limitations specified for the Executive Committee, may vest such committees
with such powers and authorities as it shall see fit, and all such committees
shall at all times be subject to its control.
Section 4. NOTICE OF MEETINGS. Notice of each meeting of any
committee of the Board shall be given to each member of such committee, and
the giving of such notice shall be subject to the same requirements as the
giving of notice of meetings of the Board, unless the Board shall establish
different requirements for the giving of notice of committee meetings.
Section 5. CONDUCT OF MEETINGS. The provisions of these bylaws
with respect to the conduct of meetings of the Board shall govern the conduct
of committee meetings. Written minutes shall be kept of all committee
meetings.
ARTICLE FIVE
------------
Shareholder Meetings
--------------------
Section 1. ANNUAL MEETING. The annual meeting of the Shareholders
shall be held at 11:00 a.m. on the fourth Tuesday in April in each year or on
a date and at a time determined to be appropriate by the Board of Directors.
If such day is a legal holiday, the meeting shall be held on the next day
which is not a holiday.
Section 2. SPECIAL MEETINGS. Special meetings of the Shareholders
for any purpose whatsoever may be called at any time by the Chairman, the
President, or the Board, or by one or more Shareholders holding not less than
one-tenth of the voting power of the corporation.
Section 3. PLACE OF MEETINGS. All meetings of the Shareholders
shall be held at the principal office of the corporation in San Diego,
California, or at such other locations as may be designated by the Board.
Section 4. NOTICE OF MEETINGS. Written notice shall be given to
each Shareholder entitled to vote of the date, time, place and general
purpose of each meeting of Shareholders. Notice may be given personally, or
by mail, or by telegram, charges prepaid, to the Shareholder's address
appearing on the books of the corporation. If a Shareholder supplies no
address to the corporation, notice shall be deemed to be given if mailed to
the place where the principal office of the corporation is situated, or
published at least once in some newspaper of general circulation in the
county of said principal office. Notice of any meeting shall be sent to each
Shareholder entitled thereto not less than 10 or more than 60 days before
such meeting.
Section 5. VOTING. The Board may fix a time in the future not less
than 10 or more than 60 days preceding the date of any meeting of
Shareholders, or not more than 60 days preceding the date fixed for the
payment of any dividend or distribution, or for the allotment of rights, or
when any change or conversion or exchange of shares shall go into effect, as
a record date for the determination of the Shareholders entitled to notice of
and to vote at any such meeting or entitled to receive any such dividend or
distribution, or any such allotment of rights, or to exercise the rights in
respect to any such change, conversion, or exchange of shares. In such case
only Shareholders of record at the close of business on the date so fixed
shall be entitled to notice of and to vote at such meeting or to receive such
dividend, distribution or allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any shares on the books of
the corporation after any record date fixed as aforesaid. The Board may
close the books of the corporation against any transfer of shares during the
whole or any part of such period.
Section 6. QUORUM. At any Shareholders' meeting a majority of the
shares entitled to vote must be represented in order to constitute a quorum
for the transaction of business, but a majority of the shares present, or
represented by proxy, though less than a quorum, may adjourn the meeting to
some other date, and from day to day or from time to time thereafter until a
quorum is present.
Section 7. ELIMINATION OF CUMULATIVE VOTING. No holder of any
class of stock of the corporation shall be entitled to cumulate votes at any
election of Directors of the corporation.
ARTICLE SIX
-----------
Certificate of Shares
---------------------
Section 1. FORM. The Certificates of Shares of the corporation
shall state the name of the registered holder of the shares represented
thereby, and shall be signed by the Chairman or the President or a Vice
President, and by the Secretary or an Assistant Secretary. Any such
signature may be by facsimile thereof.
Section 2. SURRENDER. Upon a surrender to the Secretary, or to a
transfer agent or transfer clerk of the corporation, of a certificate or
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the corporation shall issue a new
certificate to the party entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 3. RIGHT OF TRANSFER. When a transfer of shares on the
books is requested, and there is a reasonable doubt as to the rights of the
persons seeking such transfer, the corporation, or its transfer agent or
transfer clerk, before entering the transfer of the shares on its books or
issuing any certificate therefor, may require from such person reasonable
proof of his or her rights, and, if there remains a reasonable doubt in
respect thereto, may refuse a transfer unless such person shall give adequate
security or a bond of indemnity executed by a corporate surety, or by two
individual sureties, satisfactory to the corporation as to form, amount and
responsibility of sureties.
Section 4. CONFLICTING CLAIMS. The corporation shall be entitled
to treat the holder of record of any shares as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not it shall have
express or other notice thereof, save as expressly provided by the laws of
the State of California.
Section 5. LOSS, THEFT AND DESTRUCTION. In the case of the
alleged loss, theft or destruction of any certificate of shares, another may
be issued in its place as follows: (1) the owner of the lost, stolen or
destroyed certificate shall file with the transfer agent of the corporation a
duly executed Affidavit or Loss and Indemnity Agreement and Certificate of
Coverage, accompanied by a check representing the cost of the bond as
outlined in any blanket lost securities and avoid administration bond
previously approved by the Directors of the corporation and executed by a
surety company satisfactory to them, which bond shall indemnify the
corporation, its transfer agents and registrars; or (2) the Board may, in its
discretion, authorize the issuance of a new certificate to replace a lost,
stolen or destroyed certificate on such other terms and conditions as it may
determine to be reasonable.
ARTICLE SEVEN
-------------
Indemnification of Agents of the Corporation
--------------------------------------------
Section 1: DEFINITIONS. For the purposes of this Article Seven,
"agent" means any person who (i) is or was a director, officer, employee or
other agent of the Corporation, (ii) is or was serving at the request of the
Corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise
or (iii) was a director, officer, employee or agent of a foreign or domestic
Corporation which was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor Corporation;
"proceeding" means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Sections 4 or 5(c) of this
Article Seven.
Section 2: INDEMNIFICATION FOR THIRD PARTY ACTIONS. The
Corporation shall have the power to indemnify any person who is or was a
party, or is threatened to be made a party, to any proceeding (other than an
action by or in the right of the Corporation to procure a judgment in its
favor) by reason of the fact that such person is or was an agent of the
Corporation against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably believed to
be in the best interests of the Corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of such person was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which the person reasonably believed to be in the best interests of
the Corporation or that the person had reasonable cause to believe that the
person's conduct was unlawful.
Section 3: INDEMNIFICATION FOR DERIVATIVE ACTIONS. The
Corporation shall have the power to indemnify any person who is or was a
party, or is threatened to be made a party, to any threatened, pending or
completed action by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that such person is or was an agent of the
Corporation against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such action if such person
acted in good faith, in a manner such person believed to be in the best
interests of the Corporation and its shareholders. No Indemnification shall
be made under this Section 3:
(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the
Corporation in the performance of such person's duty to the
Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses and then only to
the extent that the court shall determine; or
(b) Of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4: SUCCESSFUL DEFENSE. Notwithstanding any other
provision of this Article, to the extent that an agent of the Corporation has
been successful on the merits or otherwise (including the dismissal of an
action without prejudice or the settlement of a proceeding or action without
admission of liability) in defense of any proceeding referred to in Sections
2 or 3 of this Article, or in defense of any claim, issue or matter therein,
he or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith.
Section 5: DISCRETIONARY INDEMNIFICATION. Except as provided in
Section 4 of this Article Seven, any indemnification under Section 3 thereof
shall be made by the Corporation only if authorized in the specific case,
upon a determination that indemnification of the agent is proper in the
circumstances because the agent has met the applicable standard of conduct
set forth in Section 3, by:
(a) A majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(b) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(c) Approval by the affirmative vote of a majority of the shares
of this Corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the
required quorum) or by the written consent of holders of a
majority of the outstanding shares which would be entitled to
vote at such meeting and, for such purpose, the shares owned
by the person to be indemnified shall not be considered
outstanding or entitled to vote; or
(d) The court in which such proceeding is or was pending, upon
application made by the Corporation, the agent or the attorney
or other person rendering services in connection with the
defense, whether or not such application by said agent,
attorney or other person is opposed by the Corporation.
Section 6: ADVANCEMENT OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by the Corporation prior to the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of the agent to repay such amount if it shall be determined ultimately
that the agent is not entitled to be indemnified as authorized in this
Article Seven.
Section 7: RESTRICTION ON INDEMNIFICATION. No indemnification or
advance shall be made under this Article Seven, except as provided in
Sections 4 and 6 thereof, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Restated
Articles of Incorporation of the Corporation, its bylaws, a
resolution of the shareholders or an agreement in effect at
the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred
or other amounts were paid which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 8: NON-EXCLUSIVE. In the absence of any other basis for
indemnification of an agent, the Corporation can indemnify such agent
pursuant to this Article Seven. The indemnification provided by this Article
Seven shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any statute, bylaw, agreement,
vote of shareholders or disinterested directors or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office. The rights to indemnification under this Article Seven
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors,
and administrators of the person. Nothing contained in this Section 8 shall
affect any right to indemnification to which persons other than such
directors and officers may be entitled by contract or otherwise.
Section 9: EXPENSES AS A WITNESS. To the extent that any agent of
the Corporation is by reason of such position, or a position with another
entity at the request of the Corporation, a witness in any action, suit or
proceeding, he or she shall be indemnified against all costs and expenses
actually and reasonably incurred by him or her or on his or her behalf in
connection therewith.
Section 10: INSURANCE. The Board may purchase and maintain
directors and officers liability insurance, at its expense, to protect itself
and any director, officer or other named or specified agent of the
Corporation or another Corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss asserted against or
incurred by the agent in such capacity or arising out of the agent's status
as such, whether or not the Corporation would have the power to indemnify the
agent against such expense, liability or loss under the provisions of this
Article Seven or under California Law.
Section 11: SEPARABILITY. Each and every paragraph, sentence,
term and provision of this Article Seven is separate and distinct so that if
any paragraph, sentence, term or provision hereof shall be held to be invalid
or unenforceable for any reason, such invalidity or unenforceability shall
not affect the validity or unenforceability of any other paragraph, sentence,
term or provision hereof. To the extent required, any paragraph, sentence,
term or provision of this Article may be modified by a court of competent
jurisdiction to preserve its validity and to provide the claimant with,
subject to the limitations set forth in this Article and any agreement
between the Corporation and claimant, the broadest possible indemnification
permitted under applicable law. If this Article Seven or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless have the power to indemnify each
director, officer, employee, or other agent against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement with
respect to any action, suit, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a
grand jury proceeding and including an action or suit brought by or in the
right of the Corporation, to the full extent permitted by any applicable
portion of this Article Seven that shall not have been invalidated or by any
other applicable law.
Section 12: AGREEMENTS. Upon, and in the event of, a
determination of the Board to do so, the Corporation is authorized to enter
into indemnification agreements with some or all of its directors, officers,
employees and other agents providing for indemnification to the fullest
extent permissible under California law and the Corporation's Restated
Articles of Incorporation.
Section 13: RETROACTIVE APPEAL. In the event this Article Seven
is repealed or modified so as to reduce the protection afforded herein, the
indemnification provided by this Article shall remain in full force and
effect with respect to any act or omission occurring prior to such repeal or
modification.
ARTICLE EIGHT
-------------
Obligations
-----------
All obligations of the corporation, including promissory notes,
checks, drafts, bills of exchange, and contracts of every kind, and evidences
of indebtedness issued in the name of, or payable to, or executed on behalf
of the corporation, shall be signed or endorsed by such officer or officers,
or agent or agents, of the corporation and in such manner as, from time to
time, shall be determined by the Board.
ARTICLE NINE
------------
Corporate Seal
--------------
The corporate seal shall set forth the name of the corporation,
state, and date of incorporation.
ARTICLE TEN
-----------
Amendments
----------
These bylaws may be adopted, amended, or repealed by the vote of
Shareholders entitled to exercise a majority of the voting power of the
corporation or by the written assent of such Shareholders. Subject to such
right of Shareholders, these bylaws, other than a bylaw or amendment thereof
changing the authorized number of Directors, may be adopted, amended or
repealed by the Board.
ARTICLE ELEVEN
--------------
Availability of Bylaws
----------------------
A current copy of these bylaws shall be mailed or otherwise
furnished to any Shareholder of record within five days after receipt of a
request therefor.
EXHIBIT 3.3
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF PREFERENCE STOCK (CUMULATIVE), $1.82 SERIES,
WITHOUT PAR VALUE, OF
SAN DIEGO GAS & ELECTRIC COMPANY
MALYN K. MALQUIST and CONSTANCE K. GOATES certify that:
1. They are the Vice President of Finance and Treasurer, and the
Assistant Secretary, respectively, of San Diego Gas & Electric Company, a
California corporation.
2. The Executive Committee of the Board of Directors duly adopted the
following resolutions:
NOW, THEREFORE, BE IT RESOLVED, that Six Hundred Forty Thousand
(640,000) shares of this Corporation's unissued Preference Stock
(Cumulative), without par value, shall constitute a series designated
"Preference Stock (Cumulative), $1.82 Series, Without Par Value"
(referred to hereinafter as the "$1.82 Series Preference Stock"), and
having the rights, preferences, privileges and restrictions as follows:
SECTION I.
DIVIDEND RATE, LIQUIDATION PREFERENCES
1.1 DIVIDEND RATE. The holders of the $1.82 Series Preference
Stock shall be entitled to receive cumulative dividends at the rate of
$.455 per share per quarterly period from the date on which each
respective share of the $1.82 Series Preference Stock is originally
issued. The first such dividends shall be payable on January 15, 1994
for the period commencing on the date of original issuance of the $1.82
Series Preference Stock and ending on said January 15, and thereafter
quarterly on the fifteenth day of January, April, July and October in
each year.
1.2 PRO-RATA DIVIDENDS. The Corporation shall not declare or pay
any dividend on any shares of the $1.82 Series Preference Stock or on
any shares of any other series of Preference Stock (Cumulative) or
Cumulative Preferred Stock of the Corporation (together, the "Preferred
Stock") which ranks on a parity with the $1.82 Series Preference Stock
for any quarterly dividend period unless the Corporation shall declare
and pay or set apart for payment a ratable dividend on the $1.82 Series
Preference Stock and such parity Preferred Stock in proportion to the
full preferential amounts to which each such series is entitled.
1.3 LIQUIDATION PREFERENCES. In the event of any liquidation,
dissolution or winding-up of the Corporation, the holders of the
$1.82 Series Preference Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to shareholders,
before any distribution of the assets shall be made to the holders of
the Common Stock or any other class or series of stock ranking as to
dividends or assets junior to the $1.82 Series Preference Stock, $25.00
per share, plus an amount equal to the dividends accrued and unpaid
thereon, whether or not declared, to the date fixed for payment.
1.4 PRO-RATA DISTRIBUTION. If upon any liquidation, dissolution
or winding-up of the Corporation, the amounts payable with respect to
the $1.82 Series Preference Stock and any other series of Preferred
Stock of the Corporation which ranks on a parity with the $1.82 Series
Preference Stock are not paid in full, the holders of the $1.82 Series
Preference Stock and such parity Preferred Stock shall share ratably
in any distribution of assets in proportion to the full preferential
amounts to which they are entitled.
SECTION 2
REDEMPTION
2.1 OPTIONAL REDEMPTION. The $1.82 Series Preference stock
shall not be redeemable prior to November 15, 1998. Thereafter, the
$1.82 Series Preference Stock shall be redeemable, at the option of
the Corporation, at any time as a whole, or from time to time in
part, at $26.00 per share, plus in each case an amount equal to
dividends accrued and unpaid thereon to the redemption date.
2.2 GENERAL. At least 30 (but not more than 60) days' previous
notice of every redemption of the $1.82 Series Preference Stock
pursuant to section 2.1 shall be mailed, addressed to the holders of
record of the shares to be redeemed at their respective addresses, as
the same shall appear on the books of the Corporation, or in any case
where no such address shall appear, then addressed to such
shareholder at the principal office of the Corporation, but the
failure to mail such notice as aforesaid shall not invalidate the
redemption of the shares so redeemed. The particular shares of $1.82
Series Preference Stock to be redeemed by reason of section 2.1 shall
be selected pro-rata in proportion to the number of shares of $1.82
Series Preference Stock held by such holder; provided that any
fractional share that would otherwise be redeemed by virtue of any
pro-rata redemption shall be rounded to the nearest whole share.
SECTION 3.
MISCELLANEOUS PROVISIONS
3.1 RANKING. The $1.82 Series Preference Stock shall rank
equally with all series of the Cumulative Preferred Stock ($20 par
value) and all series of Preference Stock (Cumulative) of the
Corporation with respect to priority in the payment of dividends,
mandatory redemptions, and in the distribution of assets upon any
liquidation, whether voluntary or involuntary.
3.2 RESTRICTIONS ON DIVIDEND RIGHTS AND ACQUISITIONS OF OTHER
STOCK. So long as any of the $1.82 Series Preference Stock is
outstanding, the Corporation shall not declare or pay any dividend
on or make any distribution of property with respect to any of the
Common Stock or on any other stock of the Corporation having rights
or preferences as to dividends or assets junior to the rights and
preferences of the $1.82 Series Preference Stock, or redeem,
purchase or otherwise acquire any such stock or any stock on a
parity with the $1.82 Series Preference Stock for value unless in
each case full cumulative dividends on the $1.82 Series Preference
Stock then due and payable shall have been declared and paid or a
sum in cash sufficient for the payment thereof set apart for
payment.
3.3 STATUS OF REDEEMED OR REACQUIRED SHARES. All shares of
$1.82 Series Preference Stock redeemed or otherwise reacquired by
the Corporation shall not be reissued or otherwise disposed of as
part of the series created hereby but shall be retired and restored
to the status of authorized but unissued shares of Preference Stock
(Cumulative).
3.4 NO CONVERSION RIGHTS. No $1.82 Series Preference Stock
shall be convertible into or exchangeable for other securities of
the Corporation.
3.5 VOTING RIGHTS. The holders of the $1.82 Series Preference
Stock shall have the voting rights set forth with respect to the
Corporation's Preference Stock (Cumulative) in the Restated Articles
of Incorporation of the Corporation.
3.6 INCORPORATION BY REFERENCE. The rights, preferences,
privileges and restrictions expressly set forth in the Corporation's
Restated Articles of Incorporation, as amended, with respect to
Preference Stock (Cumulative) are hereby incorporated by this
reference.
3. The total number of shares of Preference Stock (Cumulative) which
this corporation is authorized to issue is 10,000,000 and the total
number of shares constituting the series designated "Preference Stock
(Cumulative), $1.82 Series, Without Par Value" is 640,000, and none of
the shares of said series have been issued.
We further declare under penalty of perjury under the laws of the State
of California that we have read the foregoing Certificate and know the
contents thereof and that the same is true and correct of our own knowledge.
Date: November 15, 1993 _____________________________________
Malyn K. Malquist, Vice President of Finance and
Treasurer of San Diego Gas & Electric Company
Date: November 15, 1993 ______________________________________
Constance K. Goates, Assistant Secretary of San
Diego Gas & Electric Company
EXHIBIT 3-4
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF PREFERENCE STOCK (CUMULATIVE), $1.70 SERIES,
WITHOUT PAR VALUE, OF
SAN DIEGO GAS AND ELECTRIC COMPANY
THOMAS A. PAGE and D. M. RICHARDSON certify that:
1. They are the Chairman of the Board and Chief Executive Officer, and
the Corporate Secretary, respectively, of San Diego Gas and Electric Company,
a California corporation.
2. The total number of shares of Preference Stock (Cumulative) which
this corporation is authorized to issue is 10,000,000 and the total number of
shares constituting the series designated "Preference Stock (Cumulative),
$1.70 Series, Without Par Value" is 1,400,000 and none of the shares of said
series have been issued.
3. The Executive Committee of the Board of Directors duly adopted the
following resolutions:
NOW, THEREFORE, BE IT RESOLVED, that One Million Four Hundred Thousand
(1,400,000) shares of this Corporation's unissued Preference Stock
(Cumulative), without par value, shall constitute a series designated
"Preference Stock (Cumulative), $1.70 Series, Without Par Value"
(referred to hereinafter as the "$1.70 Series Preference Stock"), and
having the rights, preferences, privileges and restrictions as follows:
SECTION
DIVIDEND RATE, LIQUIDATION PREFERENCES
1.1 DIVIDEND RATE. The holders of the $1.70 Series Preference Stock
shall be entitled to receive cumulative dividends at the rate of $.425 per
share per quarterly period from the date on which each respective share of
the $1.70 Series Preference Stock is originally issued. The first such
dividends shall be payable on October 15, 1993 for the period commencing on
the date of original issuance of the $1.70 Series Preference Stock and ending
on said October 15, and thereafter quarterly on the fifteenth day of January,
April, July and October in each year. Dividends payable on the $1.70 Series
Preference Stock for any period less than a full quarterly dividend period,
including the initial dividend period, shall be computed on the basis of a
360-day year consisting of 12 30-day months.
1.2 PRO-RATA DIVIDENDS. The Corporation shall not declare or pay
any dividend on any shares of the $1.70 Series Preference Stock or on any
shares of any other series of Preference Stock (Cumulative) or Cumulative
Preferred Stock of the Corporation (together, the "Preferred Stock") which
ranks on a parity with the $1.70 Series Preference Stock for any quarterly
dividend period unless the Corporation shall declare and pay or set apart for
payment a ratable dividend on the $1.70 Series Preference Stock and such
parity Preferred Stock in proportion to the full preferential amounts to
which each such series is entitled.
1.3 LIQUIDATION PREFERENCES. In the event of any liquidation,
dissolution or winding-up of the Corporation, the holders of the $1.70 Series
Preference Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to shareholders, before any
distribution of the assets shall be made to the holders of the Common Stock
or any other class or series of stock ranking as to dividends or assets
junior to the $1.70 Series Preference Stock, an amount, in the case of
voluntary liquidation, dissolution or winding-up, equal to $25.850 per share
prior to October 15, 2003 and, thereafter, to the redemption price specified
in section 2.1 below applicable on the date of such voluntary liquidation,
dissolution or winding-up, and, in the case of involuntary liquidation,
dissolution or winding-up, $25 per share, plus, in the case of each share
(whether on voluntary or involuntary liquidation, dissolution or winding-up),
an amount equal to the dividends accrued and unpaid thereon, whether or not
declared, to the date fixed for payment.
1.4 PRO-RATA DISTRIBUTION. If upon any liquidation, dissolution
or winding-up of the Corporation, the amounts payable with respect to the
$1.70 Series Preference Stock and any other series of Preferred Stock of the
Corporation which ranks on a parity with the $1.70 Series Preference Stock
are not paid in full, the holders of the $1.70 Series Preference Stock and
such parity Preferred Stock shall share ratably in any distribution of assets
in proportion to the full preferential amounts to which they are entitled.
SECTION
REDEMPTION
2.1 OPTIONAL REDEMPTION. The $1.70 Series Preference Stock shall
not be redeemable prior to October 15, 2003. Thereafter, the $1.70 Series
Preference Stock shall be redeemable at the option of the Corporation, at any
time as a whole, or from time to time in part, at the following redemption
prices per share if redeemed during the 12-month period beginning October 15
in each of the following years: 2003 at $25.850; 2004 at $25.765; 2005 at
$25.680; 2006 at $25.595; 2007 at $25.510; 2008 at $25.425; 2009 at $25.340;
2010 at $25.255; 2011 at $25.170; 2012 at $25.085; 2013 and thereafter at
$25.000 per share, plus in each case an amount equal to dividends accrued and
unpaid thereon to the redemption date.
2.2 GENERAL. At least 30 (but not more than 60) days' previous
notice of every redemption of the $1.70 Series Preference Stock pursuant to
section 2.1 shall be mailed, addressed to the holders of record of the shares
to be redeemed at their respective addresses, as the same shall appear on the
books of the Corporation, or in any case where no such address shall appear,
then addressed to such shareholder at the principal office of the
Corporation, but the failure to mail such notice as aforesaid shall not
invalidate the redemption of the shares so redeemed. The particular shares
of $1.70 Series Preference Stock to be redeemed by reason of section 2.1
shall be selected pro rata in proportion to the number of shares of $1.70
Series Preference Stock held by such holder; provided that any fractional
share that would otherwise be redeemed by virtue of any pro-rata redemption
shall be rounded to the nearest whole share.
SECTION I.
MISCELLANEOUS PROVISIONS
3.1 RANKING. The $1.70 Series Preference Stock shall rank equally
with the Cumulative Preferred Stock ($20 par value) and all other series of
Preference Stock (Cumulative) of the Corporation with respect to priority in
the payment of dividends, mandatory redemptions, and in the distribution of
assets upon any liquidation, whether voluntary or involuntary.
3.2 RESTRICTIONS ON DIVIDEND RIGHTS AND ACQUISITIONS OF OTHER
STOCK. So long as any of the $1.70 Series Preference Stock is outstanding,
the Corporation shall not declare or pay any dividend on or make any
distribution of property with respect to any of the Common Stock or on any
other stock of the Corporation having rights or preferences as to dividends
or assets junior to the rights and preferences of the $1.70 Series Preference
Stock, or redeem, purchase or otherwise acquire any such stock or any stock
on a parity with the $1.70 Series Preference Stock for value unless in each
case full cumulative dividends on the $1.70 Series Preference Stock then due
and payable shall have been declared and paid or a sum in cash sufficient for
the payment thereof set apart for payment.
3.3 STATUS OF REDEEMED OR REACQUIRED SHARES. All shares of $1.70
Series Preference Stock redeemed or otherwise reacquired by the Corporation
shall not be reissued or otherwise disposed of as part of the series created
hereby but shall be retired and restored to the status of authorized but
unissued shares of Preference Stock (Cumulative).
3.4 NO CONVERSION RIGHTS. No $1.70 Series Preference Stock shall
be convertible into or exchangeable for other securities of the Corporation.
3.5 VOTING RIGHTS. The holders of the $1.70 Series Preference
Stock shall have the voting rights set forth with respect to the
Corporation's Preference Stock (Cumulative) in the Restated Articles of
Incorporation of the Corporation.
3.6 INCORPORATION BY REFERENCE. The rights, preferences,
privileges and restrictions expressly set forth in the Corporation's Restated
Articles of Incorporation, as amended, with respect to Preference Stock
(Cumulative) are hereby incorporated by this reference.
We further declare under penalty of perjury under the laws of the
State of California that we have read the foregoing Certificate and know the
contents thereof and that the same is true and correct of our own knowledge.
Date: August __, 1993 _________________________________
Thomas A. Page, Chairman of the Board and
Chief Executive Officer of San Diego Gas
and Electric Company
Date: August __, 1993 _________________________________
D. M. Richardson, Secretary of San Diego
Gas and Electric Company
EXHIBIT 10.1
SAN DIEGO GAS & ELECTRIC COMPANY
1994 DEFERRED COMPENSATION AGREEMENT
FOR OFFICERS #3
THIS AGREEMENT is made and entered into this 31st day of December, 1993, by and
between San Diego Gas & Electric Company (hereinafter "SDG&E") and
_____________________________________ (hereinafter "Officer"), an elected
officer of SDG&E.
WITNESSETH:
WHEREAS, SDG&E desires to provide Officer with the opportunity to defer
base compensation that is payable for services to be rendered after the date
of this Agreement and which, as a result of amendments to the Internal Revenue
Code ("Code") made by the Tax Reform Act of 1986 ("1986 Tax Act"), cannot be
contributed on Officer's behalf as Pretax Contributions to the SDG&E Savings
Plan ("Savings Plan"); and
WHEREAS, SDG&E desires to match, as an additional SDG&E contribution, a
percentage of the Officer's base compensation deferred pursuant to this
Agreement; and
WHEREAS, Officer and SDG&E desire that the payment of a portion of
Officer's base compensation and the additional matching contribution be deferred
pursuant to the terms and provisions of this Agreement.
NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. This Agreement shall be effective upon its execution by SDG&E and
Officer with respect to base compensation which would otherwise be payable to
Officer for services rendered after such execution and shall continue in effect
until this Agreement is terminated as provided herein. Officer shall be
eligible to enter into this Agreement only if Officer has elected the maximum
Basic Contribution under the Savings Plan for which Officer is eligible.
2. SDG&E shall credit to an account on SDG&E's books, in Officer's name,
that percentage of Officer's base compensation (in equal biweekly installments
of whole dollar amounts) otherwise payable to Officer as may be specified by
Officer in this Agreement's Election Form. The amount credited under this
paragraph 2 may not exceed the percentage of Officer's base compensation that
may be contributed as Pretax Contributions or After-tax Contributions under the
terms of the Savings Plan (determined prior to any reduction of such percentage
required under applicable law), reduced by any amount contributed by Officer as
After-tax Contributions or on Officer's behalf as Pretax Contributions to the
Savings Plan. Further, the amount credited under this paragraph 2 shall be
limited to an amount which, when added to SDG&E's matching contribution under
paragraph 3 of this Agreement and all allocations to his or her accounts under
the Savings Plan, does not exceed the maximum amount that could have been
allocated to Officer's Savings Plan accounts pursuant to Section 415 of the
Code, as in effect prior to the enactment of the 1986 Tax Act. For purposes of
this paragraph 2, "base compensation" shall include Officer's Pretax
Contributions to the Savings Plan. SDG&E shall have the sole and complete
authority to determine the maximum amount that may be credited under this
paragraph 2.
3. In addition, as amounts are credited to Officer's account under
paragraph 2, SDG&E shall also credit to Officer's account, as a matching
contribution, an amount equal to the SDG&E Matching Contributions that would
have been contributed on Officer's behalf to the Savings Plan (reduced by
Matching Contributions actually made to the Savings Plan for Officer) under the
provisions of the Code prior to enactment of the 1986 Tax Act, if the amount
deferred under paragraph 2 had been contributed to the Savings Plan as Pretax
Contributions or After-tax Contributions.
4. There shall be credited to Officer's account an additional amount
equal to seven percent (7%) per annum of the balance in Officer's account as of
the end of each month. SDG&E reserves the right to increase or decrease from
time to time such percentage credited with respect to amounts to be credited
under paragraphs 2 and 3 to the account after the date of such increase or
decrease, provided that upon a "change-in-control" (as defined in the SDG&E
Amended 1986 Long-Term Incentive Plan) no decrease will result in a percentage
credited under the previous sentence of less than the last published interest
rate shown in Moody's Average of Yields on Public Utility Bonds for a utility
having a rating equivalent to SDG&E.
5. All amounts credited to Officer's account pursuant to paragraphs 2,
3, and 4 hereof shall be paid to Officer upon his or her termination of services
as an Officer in the form and over the period specified by Officer on this
Agreement's Election Form; provided, however, the SDG&E Compensation Committee
("Committee") may, in its sole discretion, provide instead for payment of the
amount in Officer's account in a form and over a period determined by such
Committee except that the Committee's authority and discretion to change the
form or period of distribution shall terminate upon such a "change-in-control."
6. In the event of Officer's death after installment payments to Officer
have commenced hereunder, installment payments shall continue to be paid to the
person(s) specified by Officer on the Election Form for the remainder of the
period selected by Officer on the Election Form. In the event of Officer's
death before any payment has been made under this Agreement, Officer's account
shall be distributed or commence to be distributed, as soon as administratively
practicable after Officer's death, to the person(s) specified by Officer on this
Agreement's Election Form in the form and over the period selected on such
Election Form. The Committee may, in its sole discretion, provide instead for
payment of the amount in Officer's account to Officer's beneficiary in a form
and over a period determined by the Committee except that the Committee's
authority and discretion to change the form or period of distribution shall
terminate upon such a "change-in-control."
If Officer's spouse is the beneficiary, the annual amount of any
installment payments under this paragraph 6 shall at least equal the entire
annual income earned by the account and if the spouse dies prior to distribution
of all amounts in Officer's account, all undistributed income on such account
shall be distributed to the spouse's estate. Upon the death of Officer's
beneficiary, the balance in Officer's account (after the application of the
previous sentence, if the spouse is the beneficiary) shall be distributed to the
person(s) designated by the beneficiary on a form provided by SDG&E or, if no
designation is made, to the beneficiary's estate.
7. No amounts credited to Officer's account may be assigned, transferred,
encumbered, or made subject to any legal process for the payment of any claim
against Officer, Officer's spouse or other beneficiary. In no event shall
Officer, Officer's spouse, or other beneficiary have the right to recover any
amount credited to Officer's account other than in accordance with this
Agreement.
8. Nothing contained in this Agreement and no action taken pursuant to
the provisions of this Agreement shall create or be construed to create a trust
of any kind, or a fiduciary relationship between SDG&E and Officer or any other
person. To the extent that any person acquires a right to receive payments from
SDG&E under this Agreement, such right shall be no greater than the right of any
unsecured general creditor of SDG&E. Title to and beneficial ownership of any
assets, whether cash or investments, which SDG&E may earmark to pay the deferred
compensation hereunder, shall at all times remain assets of SDG&E and neither
Officer nor any other person shall, under this Agreement, have any property
interest whatsoever in any specific assets of SDG&E.
9. The existence of this Agreement shall not confer upon Officer the
right to continue to serve as an Officer for any period of time.
10. This Agreement shall be deemed to modify any provisions in an
employment agreement between Officer and SDG&E pertaining to the timing of
payment of base compensation and, in the event of any conflict between this
Agreement and such provisions of the employment agreement, this Agreement shall
control.
11. This Agreement may be terminated by SDG&E upon thirty days' written
notice to Officer. This Agreement will also terminate upon Officer's filing of
an election of a Basic Contribution percentage which is less than the maximum
for which he or she is eligible under the Savings Plan. Termination of the
Agreement shall be applicable only with respect to base compensation payable to
Officer on and after the first day of the calendar year following the date of
termination. Funds previously deferred and credited (and income earned on such
funds) will continue to be governed by the applicable year's Officer's Deferred
Compensation Agreement Election Form and Section 4 of this Agreement.
12. Officer acknowledges that Officer has been advised that Officer may
confer with and seek advice from a tax or financial advisor of Officer's choice
concerning this deferral. Officer further acknowledges that Officer has not
received tax advice from SDG&E nor has Officer relied upon information provided
by SDG&E in electing to make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year
written above.
OFFICER SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By: __________________________
EXHIBIT 10.2
SAN DIEGO GAS & ELECTRIC COMPANY
1994 DEFERRED COMPENSATION AGREEMENT
FOR OFFICERS #1
(1994 BASE COMPENSATION)
(1995 BONUS)
THIS AGREEMENT, made and entered into this 31st day of December, 1993, by
and between San Diego Gas & Electric Company, (hereinafter "Company") and
____________________________________ (hereinafter "Officer"), an elected Officer
of Company.
WITNESSETH:
WHEREAS, in addition to 1994 base compensation, incentive compensation
payable in the form of a single sum cash bonus may be paid to Officer in 1995
for outstanding performance in 1994 ("1995 Bonus"); and
WHEREAS, Officer and Company desire that the payment of said 1994 base
compensation and/or 1995 bonus to Officer be deferred, pursuant to the terms and
provisions of this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. This Agreement shall be effective on the first date after its execution
upon which Officer's bonus would otherwise be payable to Officer for outstanding
performance and shall continue in effect until this Agreement is terminated as
provided herein.
2. Company shall credit to an account on Company's books, in Officer's
name, that portion of such Officer's bonus otherwise payable to Officer as may
be specified by Officer on an Election Form submitted to Company simultaneously
with the execution of this Agreement. If an Officer has elected to defer 100%
of such Officer's bonus and the Officer is also participating in the Savings
Plan of San Diego Gas & Electric to the maximum extent permissible, such Officer
may also elect to defer, and Company shall credit to the Officer's account, a
portion of such Officer's base compensation (in equal monthly installments of
whole dollar amounts).
3. There shall be credited to Officer's account an additional amount equal
to seven percent (7%) per annum computed on the balance in Officer's account as
of the end of each month; provided, however, that Company reserves the right
to increase or decrease from time to time such amounts to be credited to the
account after the date of such increase or decrease, provided that upon a
"change-in-control" (as defined in the SDG&E Amended 1986 Long-Term Incentive
Plan) the percentage used shall not decrease to less than the last published
percentage shown in Moody's Average of Yields on Public Utility Bonds for a
utility having a rating equivalent to SDG&E.
4. All amounts credited to Officer's account pursuant to paragraphs 2 and
3 hereof shall be paid to Officer on the date(s) specified by Officer on this
Agreement's Election Form. In the event of Officer's death after installment
payments to Officer have commenced hereunder, installment payments shall
continue to be paid to the person(s) specified by Officer on the Election Form
for the remainder of the period selected by Officer on this Agreement's Election
Form. In the event of Officer's death before any payment has been made under
this Agreement, Officer's account shall be distributed or commence to be
distributed, as soon as administratively practicable after Officer's death, to
the person(s) specified by Officer on this Agreement's Election Form in the form
and over the period selected on such Election Form. The Company's Executive
Compensation Committee may, in its sole discretion, provide instead for payment
of the amount in Officer's account to Officer's beneficiary in a form and over
a period determined by the Committee except that the Committee's authority and
discretion to change the form or period of distribution shall terminate upon
such a "change-in-control." If Officer's spouse is the beneficiary, the annual
amount of any installment payments under this paragraph 4 shall at least equal
the entire annual income earned by the account and if the spouse dies prior to
distribution of all amounts in Officer's account, all undistributed income on
such account shall be distributed to the spouse's estate. Upon the death of
Officer's beneficiary, the balance in Officer's account (after the application
of the previous sentence, if the spouse is the beneficiary) shall be
distributed to the person(s) designated by the beneficiary on a form provided
by Company or, if no designation is made, to the beneficiary's estate.
5. No amounts credited to Officer's account may be assigned, transferred,
encumbered, or made subject to any legal process for the payment of any claim
against Officer, Officer's spouse or beneficiary. In no event shall Officer,
Officer's spouse or beneficiary have the right to recover any amounts credited
to Officer's account other than in accordance with this Agreement.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between Company and the Officer or any
other person. To the extent that any person acquires a right to receive
payments from Company under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of Company. Title to and
beneficial ownership of any assets, whether cash or investments which Company
may earmark to pay the deferred compensation hereunder, shall at all times
remain assets of Company and neither the Officer nor any other person shall,
under this Agreement, have any property interest whatsoever in any specific
assets of Company.
7. The existence of this Agreement shall not confer upon any Officer any
right to continue to serve as an Officer for any period of time.
8. This Agreement may be terminated by Company upon 30 days written
notice to the Officer. Such termination shall be applicable only with respect
to bonuses and/or base compensation payable to Officer on and after the first
day of the calendar year following the date of termination. Funds previously
deferred and credited (and income earned on such funds) will continue to be
governed by the applicable year's Officer's Deferred Compensation Agreement
Election Form and Section 3 of this Agreement.
9. Officer acknowledges that Officer has been advised that Officer may
confer with and seek advice from a tax or financial advisor of Officer's choice
concerning this deferral. Officer further acknowledges that Officer has not
received tax advice from SDG&E nor has Officer relied upon information provided
by SDG&E in electing to make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year
written above.
OFFICER SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By ____________________________
EXHIBIT 10.3
SAN DIEGO GAS & ELECTRIC COMPANY
1994 DEFERRED COMPENSATION AGREEMENT
FOR NONEMPLOYEE DIRECTORS
THIS AGREEMENT, made and entered into this 31st day of December, 1993, by
and between San Diego Gas & Electric Company, (hereinafter "SDG&E") and
______________________________________ (hereinafter "Director"), a member of the
Board of Directors of SDG&E (hereinafter the "Board"),
WITNESSETH:
WHEREAS, fees are paid to Directors as a retainer; and
WHEREAS, Director and SDG&E desire that the payment of said fees to
Director be deferred, pursuant to the terms and provisions of this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. This Agreement shall be effective on the first date subsequent to its
execution upon which Director's fees would otherwise be payable to Director for
service as a member of the Board and shall continue in effect until this
Agreement is terminated as provided herein.
2. SDG&E shall credit to an account on SDG&E's books, in Director's name,
that portion of such Director's fees otherwise payable to Director as may be
specified by Director on an election form submitted to SDG&E simultaneously with
the execution of this Agreement.
3. There shall be credited to Director's account an additional amount
equal to seven percent (7%) per annum computed on the balance in Director's
account as of the end of each month; provided, however, that SDG&E reserves the
right to increase or decrease from time to time such amount with respect to
amounts to be credited to the account subsequent to the date of such increase
or decrease, provided that upon a "change-in-control" (as defined in the SDG&E
Amended 1986 Long-Term Incentive Plan) the percentage used shall not decrease
to less than the last published rate shown in Moody's Average of Yields on
Public Utility Bonds for a utility having a rating equivalent to SDG&E.
4. All amounts credited to Director's account pursuant to paragraphs 2 and
3 hereof shall be paid to Director in a lump sum on the date specified by
Director on the Director's election form. In the event of Director's death
before any payment due under this paragraph 4 has been paid, such payment due
shall be paid in a lump sum to the person specified by the Director on the
election form as soon as administratively practicable.
5. No amounts credited to Director's account may be assigned, transferred,
encumbered, or made subject to any legal process for the payment of any claim
against Director, Director's spouse or beneficiary. In no event shall Director,
Director's spouse or beneficiary have the right to recover any fees credited to
Director's account other than in accordance with this Agreement.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between SDG&E and the Director or any
other person. To the extent that any person acquires a right to receive
payments from SDG&E under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of SDG&E. Title to and beneficial
ownership of any assets, whether cash or investments which SDG&E may earmark to
pay the deferred compensation hereunder, shall at all times remain assets of
SDG&E and neither the Director nor any other person shall, under this Agreement,
have any property interest whatsoever in any specific assets of SDG&E.
7. The existence of this Agreement shall not confer upon any Director any
right to continue to serve as a Director for any period of time.
8. This Agreement may be terminated by SDG&E upon 30 days written notice
to the Director. Such termination shall be applicable only with respect to fees
payable to Director on and after the first day of the calendar year following
the date of termination. Funds previously deferred and credited (and income
earned on such funds) will continue to be governed by the applicable year's
director election form and Section 3 of this Agreement.
9. Director acknowledges that Director has been advised that Director may
confer with and seek advice from a tax or financial advisor of Director's choice
concerning this deferral. Director further acknowledges that Director has not
received tax advice from SDG&E nor has Director relied upon information provided
by SDG&E in electing to make this deferral.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year
written above.
DIRECTOR SAN DIEGO GAS & ELECTRIC COMPANY
__________________________ By: ___________________________
EXHIBIT 10.4
SAN DIEGO GAS & ELECTRIC COMPANY
1986 LONG-TERM INCENTIVE PLAN
1993 RESTRICTED STOCK AWARD AGREEMENT
_______________________________________________
THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is
entered into this _____ day of _______________, 1993, by and
between SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation
("SDG&E") and _____________________
______________________________________________________________
("Participant").
WHEREAS, the Board of Directors of SDG&E ("the Board") has
adopted the 1986 Long-Term Incentive Plan (the "Plan"), which
provides for the granting to selected employees of SDG&E and its
subsidiaries of awards of Common Stock of SDG&E ("Restricted Stock
Awards");
WHEREAS, the grant of Restricted Stock Awards is intended as
an incentive which will attract and retain highly competent persons
as officers and key employees of SDG&E and its subsidiaries;
WHEREAS, Participant is a selected employee of SDG&E; and
WHEREAS, the Executive Compensation Committee of the Board
(the "Committee") has authorized, and the Board has approved, the
grant of a Restricted Stock Award to Participant pursuant to the
terms of the Plan.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. GRANT OF RESTRICTED STOCK AWARD
SDG&E hereby grants to Participant, on the terms, conditions
and restrictions hereinafter set forth, and in accordance with the
Plan which is incorporated herein, as a matter of separate
inducement to achieve a certain goal set by the Board and not in
lieu of any salary or other compensation for Participant's
services, a Restricted Stock Award consisting of
______________________________________ (_____________) shares of
the authorized but unissued shares of SDG&E Common Stock, (the
"Shares").
2. PURCHASE AND SALE OF SHARES
Participant hereby purchases and acquires the Shares, and
SDG&E hereby sells and transfers the Shares to Participant.
Concurrently with the execution hereof, SDG&E has delivered to
Participant, and Participant acknowledges receipt into escrow of,
a certificate or certificates evidencing the Shares, duly issued to
Participant by SDG&E. Concurrently with the execution hereof,
Participant acknowledges that the Secretary or Assistant Secretary
of SDG&E, holds on behalf of Participant all certificates
evidencing the Shares. Participant also acknowledges prior receipt
of a prospectus for the Plan, a copy of the Plan, and an Annual
Report of SDG&E for the year 1992. Participant shall execute all
such stock powers and other instruments of transfer in favor of
SDG&E as are necessary at any time in the future to perform this
contract.
3. PURCHASE PRICE; PAYMENT
The purchase price for the Shares shall be Two Dollars and
Fifty Cents ($2.50) per share. In payment thereof, Participant has
delivered to SDG&E, on the date first written above, and SDG&E
acknowledges receipt of, a check payable to SDG&E in the amount of
_________________________________________________________________
Dollars ($_________________). SDG&E agrees that Participant shall
be deemed a shareholder of record with respect to the Shares on the
date first written above.
4. RESTRICTED TERM
(a) The Restricted Term with respect to the Shares shall
commence on the date first above written. The restrictions will be
removed from and the restricted term will expire on one quarter of
the restricted shares after the end of each of the years 1994,
1995, 1996 and 1997 if:
(1) At the end of each of such years SDG&E's
earnings per share meets or exceeds the
target earnings per share as set by the
Committee.
(2) Beginning in 1995, at the end of any
quarter, the published quarterly earnings
meets or exceeds the previous year's
target earnings plus 25% of the annual
target per quarter.
(3) At the end of 1997, the restrictions on
any remaining Shares not released
previously will expire and the Shares
will be released to the Participant if a
total return to shareholders goal, as
determined by the Committee or the Board,
is met.
5. VOTING AND OTHER RIGHTS
During the Restricted Term, Participant shall, except as
otherwise provided herein, have all of the rights of a stockholder
with respect to all of the Shares subject to the Restricted Term,
including without limitation the right to vote such Shares and the
right to receive all dividends or other distributions with respect
to such Shares. In connection with the payment of such dividends
or other distributions, there shall be deducted any taxes or other
amounts required by any governmental authority to be withheld and
paid over to such authority for the account of Participant.
6. RESTRICTIONS ON INTER VIVOS TRANSFER
During the Restricted Term, the Shares subject to the
Restricted Term shall not be sold, assigned, transferred,
hypothecated or otherwise alienated, disposed of or encumbered
except as provided in the Plan. The certificate for such Shares
shall bear the following legend, or any other similar legend as may
be required by SDG&E:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ENCUMBERED OR DISPOSED OF EXCEPT AS PERMITTED BY
SAN DIEGO GAS & ELECTRIC COMPANY'S 1986 LONG-TERM INCENTIVE
PLAN OR THE COMMITTEE WHICH ADMINISTERS THAT PLAN."
7. TERMINATION OF PARTICIPANT'S
EMPLOYMENT
In the event Participant ceases to be employed by SDG&E at
any time before the end of the Restricted Term for any reason,
Participant shall sell, and SDG&E shall purchase all Shares subject
to the Restricted Term for a price of Two Dollars and Fifty Cents
($2.50) per share. Upon the delivery by SDG&E to its Secretary or
Assistant Secretary of (i) notice that Participant has ceased to be
so employed, and (ii) its check, payable to the order of
Participant, in the amount of such purchase price, said Secretary
or Assistant Secretary shall deliver to SDG&E all certificates
evidencing the Shares subject to the Restricted Term, accompanied
by stock powers and other instruments of transfer duly executed by
Participant, and shall deliver to Participant the check in the
amount of the purchase price for such Shares.
8. ELECTION TO RECOGNIZE INCOME
Check one:
a. ___ Participant elects, pursuant to the Internal
Revenue Code as amended, and the comparable provisions of state tax
law, to include in gross income in connection with the grant of
this Restricted Stock Award, all amounts now recognizable.
b. ___ Participant shall not elect, pursuant to the
Internal Revenue Code as amended, or comparable provisions of any
state tax law, to include any amount in gross income in connection
with the grant of this Restricted Stock Award.
9. WITHHOLDING AND REGISTRATION
(a) Upon recognition of income as elected in paragraph 8
above, Participant shall, with respect to such Shares, make
payment, in the form of cash or a cashier's check or in the manner
stated in paragraph 9(b) below, to SDG&E in an amount sufficient to
satisfy any taxes or other amounts SDG&E determines is required by
any governmental authority to be withheld and paid over by SDG&E or
any of its subsidiaries to such authority for the account of
Participant (collectively, "Withholding Taxes"), or shall otherwise
make arrangements satisfactory to SDG&E for the payment of such
amounts through withholding or otherwise. For purposes of
paragraph 8(a), such payment or arrangements shall be made by
DECEMBER ____, 1994. For purposes of paragraph 8(b), the date
shall be 30 days after the restrictions are removed. Participant
shall, if requested by SDG&E, make appropriate representations in
a form satisfactory to SDG&E that such Shares will not be sold
other than pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or an applicable exemption
from the registration requirements of such Act.
(b) Subject to the restrictions set forth in paragraph 9(c)
and such rules as the Committee may from time to time adopt and
upon approval by the Committee in its sole discretion, Participant
may elect to satisfy all or any portion of such Participant's tax
withholding obligations set forth in paragraph 9(a) by electing (i)
to have SDG&E withhold from delivery of any Shares otherwise
deliverable to Participant in the manner set forth in paragraph 10
hereof, a portion of such Shares to satisfy Withholding Taxes or
(ii) to deliver to SDG&E shares of Common Stock, no par value, of
SDG&E, other than those delivered to Participant in the manner set
forth in paragraph 10 hereof, to satisfy all or any portion of such
Participant's Withholding Taxes. The number of Shares withheld
from delivery or such other shares delivered shall equal the number
of shares the Committee, in its sole discretion, determines to have
a fair market value equal to the amount of such Participant's
Withholding Taxes required to be withheld or paid over by SDG&E or
any of its subsidiaries and which Participant elected to be
satisfied by withholding or delivery of shares.
(c) Participant's election to satisfy all or any portion of
Participants Withholding Taxes under paragraph 9(b) is subject to
the following restrictions:
(i) such election must be made in writing on or
before the date when the amount of Withholding
Taxes is required to be determined (the "Tax
Date");
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the approval
or disapproval of the Committee, in its sole
discretion;
(iv) the fair market value of the Shares to be
withheld or other shares of Common Stock to be
delivered to SDG&E for the purposes of
satisfying all or any portion of such
Participant's Withholding Taxes shall be deemed
to be the average of the highest and lowest
selling prices of such stock as reported on the
New York Stock Exchange Composite Transactions
Tape on the Tax Date, or if such stock is not
traded that day, then on the next preceding day
on which such stock was traded; and
(v) if Participant is or becomes subject to
Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), such
election must be made either six months or
more prior to the Tax Date or within a ten-day
period beginning on the third and ending on
the twelfth business day following release for
publication of SDG&E's quarterly or annual
summary statement of earnings in accordance
with Rule 16b-3(e)(3)(iii) under the 1934 Act;
provided that no such election may be made
within six months of the grant of such
Restricted Stock award, except in the case of
death or disability of Participant."
10. DELIVERY OF SHARES
Upon expiration of the Restricted Term applicable to any
shares as provided in the manner stated in paragraph 4 above and
payment by the Participant as required in paragraph 9 above, the
Secretary of SDG&E shall deliver to Participant all certificates
evidencing the Shares free of legend and no longer subject to the
Restricted Term and all restrictions set forth herein with respect
to such Shares shall terminate.
If at the end of 1997 the restrictions have not been
removed from and the Restricted Term has not expired on any of the
shares purchased by Participant under this Agreement, Participant
shall sell and SDG&E shall purchase all such shares for a price of
Two Dollars and Fifty Cents ($2.50) per share no later than
February 1, 1998. The Secretary or Assistant Secretary shall
deliver to SDG&E all certificates evidencing such shares
accompanied by stock powers and other instruments of transfer duly
executed by Participant and shall deliver to Participant a check in
the amount of the purchase price for such shares.
11. EFFECTS ON PARTICIPANT'S CONTINUED EMPLOYMENT
Participant's right, if any, to continue to serve SDG&E and
its subsidiaries as an officer or employee shall not be enlarged or
otherwise affected by the grant to him or her of this Restricted
Stock Award, nor shall such grant in any way restrict the right of
SDG&E or any of its subsidiaries to terminate Participant's
employment at any time.
12. FURTHER ACTION
Each party hereto agrees to perform any further acts and
to execute and deliver any documents which may be reasonably
necessary to carry out the provisions hereof.
13. PARTIES IN INTEREST AND GOVERNING LAW
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective assigns and
successors-in-interest, and shall be governed by and interpreted in
accordance with the laws of the State of California.
14. ENTIRE AGREEMENT
This Agreement contains the entire agreement and
understanding between the parties as to the subject matter hereof.
15. INVALID PROVISIONS
The invalidity or unenforceability of any particular
provision hereto shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
16. AMENDMENT
No amendment or modification hereof shall be valid unless
it shall be in writing and signed by both parties hereto.
17. COUNTERPARTS
This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and taken together shall
constitute one and the same document.
18. NOTICES
All notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficient in all
respects only if delivered in person or sent via certified mail,
postage prepaid, addressed as follows:
If to SDG&E: San Diego Gas & Electric Company
P.O. Box 1831
San Diego, CA 92112
Attention: Corporate Secretary
If to Participant:
________________________________________
________________________________________
________________________________________
or such other address as shall be furnished in writing by any such
party. Any such notice or communication shall be deemed to have
been delivered when delivered in person or 48 hours after the date
it has been mailed in the manner described above.
IN WITNESS WHEREOF, the parties hereto have executed this
Restricted Stock Award Agreement on the day and year first above
written.
PARTICIPANT
_____________________________________
SAN DIEGO GAS & ELECTRIC COMPANY
By:___________________________________
Title:_________________________________
EXHIBIT 10.5
CONFIDENTIAL
SAN DIEGO GAS & ELECTRIC COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Restated as of November 22, 1993)
1. PURPOSE AND NATURE OF PLAN; EFFECTIVE DATE.
The purpose of the San Diego Gas and Electric Company Supplemental
Executive Retirement Plan ("Plan") is to provide a retirement benefit in
addition to that provided under the San Diego Gas & Electric Company Pension
Plan to Officers or designated Executives of the Company.
The Plan is unfunded. Benefits are payable only from the general assets
of the Company, and not from any separate fund or trust. The Plan is exempt
from the requirements of the federal Employee Retirement Income Security Act of
1974 ("ERISA"), except for the reporting and disclosure requirements contained
in Part 1 of Subtitle of Title I of ERISA.
The Plan was effective July 15, 1981, and amended on April 24, 1985,
October 20, 1986, April 28, 1987, October 24, 1988, November 21, 1988, October
28, 1991, May 26, 1992, May 24, 1993, and November 22, 1993.
2. DEFINITIONS.
a. BOARD OF DIRECTORS means the Board of Directors of San Diego Gas &
Electric Company.
b. CAUSE means the termination of employment by the Company for:
i. the willful and continued failure to substantially perform
assigned duties with the Company (other than any such failure resulting from
incapacity due to physical or mental illness), after a request for substantial
performance is delivered by the Board which specifically identifies the manner
in which the Board believes the Officer or Executive has not substantially
performed assigned duties, or
ii. the willful engaging in gross misconduct materially and
demonstrably injurious to the Company. No act, or failure to act, shall be
considered "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Company.
Notwithstanding the foregoing, an Officer or Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to the Officer or Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board, excluding the Officer or Executive if a Board member, at a meeting
of the Board called and held for the purpose (after reasonable notice and an
opportunity, together with counsel, to be heard before the Board), finding that
in the good faith opinion of the Board the Officer or Executive was guilty of
conduct set forth above and specifying the particulars thereof in detail.
c. CHANGE-IN-CONTROL means (1) the dissolution or liquidation of the
Company, (2) a reorganization, merger, or consolidation of the Company with one
or more corporations as a result of which the Company is not the surviving
corporation, (3) the acquisition of beneficial ownership, directly or
indirectly, of more than 25% of the voting power of the outstanding stock of the
Company by one person, group, association, corporation, or other entity, (the
group) coupled with the election to the Board of Directors of new members who
were not originally nominated by the Board at the last annual meeting and who
constitute a new majority of the Board or (4) upon the sale of all or
substantially all the property of the Company. The term Change-in-Control shall
not apply to any reorganization or merger initiated voluntarily by the Company
in which the Company is the surviving entity. At such time, or within three
years thereafter, regardless of whether provisions are made in connection with
such transaction for the continuance of the Plan, if the Company or surviving
corporation shall terminate the Officer's or Executive's employment for other
than Cause, Retirement, Death, or Disability, or if the Officer or Executive
shall terminate employment for Good Reason, then the Officer or Executive shall
become eligible for and entitled to benefits calculated under the provisions in
Section 4.a.i. with survivor benefits calculated under the provisions of Section
4.e.i., both based upon ten years of service and calculated without reference
to the service ratio noted in Section 4.a.ii. Such benefit shall be paid by the
Company to the Officer or Executive in a lump sum, in cash, on the fifth day
following the date of termination. Except for any limitations of Section 280G
of the Internal Revenue Code described below, such amount will equal the
Actuarial Present Value of the benefit so determined. However, if the Officer
or Executive is otherwise eligible for Early Retirement pursuant to Section
2.f.i., he or she may, at his or her sole discretion, elect to receive the
benefit determined above as an early retirement benefit, reduced for early
commencement by the appropriate early retirement reduction factor as determined
in accordance with the Pension Plan, but without adjustment by the service ratio
noted in Section 4.a.ii. Actuarial Present Value shall be determined on the
basis of 7.75% interest and using the UP-1984 Unisex Pension Mortality Table for
post-retirement ages only. The Actuarial Present Value of the benefit
calculated pursuant to Section 4.a.i. shall be determined as the present value
of an annuity deferred to age 62 (or an immediate annuity, if the Officer or
Executive has attained a greater age on the date of determination) assuming an
eligible spouse at annuity commencement as described in the following two
sentences. If the Officer or Executive is married at the time of lump sum
payment, the Actuarial Present Value shall be calculated assuming the marriage
continues to retirement. If the Officer or Executive is unmarried, the
Actuarial Present Value shall be calculated assuming the presence of a spouse,
three years younger than the Officer or Executive, at retirement. The Actuarial
Present Value of the Offset to Retirement Benefits, pursuant to Section 4.b.
shall be determined as the present value of an annuity deferred to Normal
Retirement Age under the Pension Plan (or an immediate annuity, if the Officer
or Executive has attained a greater age on the date of determination) and
without reference to potential increases in such benefits pursuant to cost of
living adjustments. However, such amount shall not exceed 2.99 times the
Officer's or Executive's "annualized includable compensation for the base
period" (as defined in Section 280G(d) of the Internal Revenue Code of 1986, as
amended (the "Code")) applicable to the Change-in-Control of the Company prior
to such Date of Termination; PROVIDED, HOWEVER, that if the lump sum severance
payment under this Section, calculated as set forth above, either alone or
together with other payments which the Officer or Executive has the right to
receive from the Company, would constitute a "parachute payment" (as defined in
Section 280G of the Code), such lump sum severance payment shall be reduced to
the largest amount as will result in no portion of the lump sum severance
payment under this Section being subject to the excise tax imposed by Section
4999 of the Code. The determination of any reduction in the lump sum severance
payment under this Section pursuant to the foregoing proviso shall be made by
the Company in good faith, and such determination shall be conclusive and
binding on the Officer or Executive.
d. COMPANY means San Diego Gas & Electric Company.
e. EXECUTIVE means a management or highly compensated employee of the
Company (within the meaning of Section 201(2) of ERISA) who is designated by the
Board of Directors, in its discretion, to be eligible to participate in the
Plan.
f. FINAL PAY means the monthly base pay rate in effect during the month
immediately preceding Retirement, plus 1/12 of the average of the highest three
years' gross bonus awards, not necessarily consecutive, of the person concerned.
g. GOOD REASON means termination of employment by the Officer or Executive
when one or more of the following occurs without the Officer's or Executive's
express written consent within three years after a Change-in-Control:
i. an adverse and significant change in the Officer's or Executive's
position, duties, responsibilities or status with the Company, or a change in
business location to a point outside the Company's service territory, except in
connection with the termination of employment by the Company for Cause or
Disability, or as a result of voluntary Retirement at or after either the
Officer's or Executive's Early (i.i) or Normal Retirement Date (i.ii.), or
death, or for other than for Good Reason;
ii. a reduction by the Company in base salary or incentive compensation
opportunity;
iii. the taking of any action by the Company to eliminate benefit plans
without providing substitutes therefore, to reduce benefits thereunder or to
substantially diminish the aggregate value of incentive awards or other fringe
benefits including insurance and an automobile provided in accordance with the
Company's standard policy; or
iv. a failure by the Company to obtain from any successor, before the
succession takes place, an agreement to assume and perform this Plan.
h. OFFICER means an officer of the Company, but not including assistant
officers or assistants to officers. For example, an Assistant Secretary would
not be considered as an Officer for the purposes of the Plan.
i. PENSION PLAN means the San Diego Gas & Electric Company Pension Plan.
j. RETIREMENT.
i. EARLY RETIREMENT means retirement from service with the Company
anytime after attaining age 55 and completing 5 Years of Service, but before age
65. Provided there shall be no reduction in the Normal Retirement Benefit
computed under Section 4.a.ii. in the case of an Officer or Executive who has
attained age 62.
ii. NORMAL RETIREMENT means retirement from service with the Company at
age 65 or, if later, upon the fifth anniversary of the date on which the Officer
or Executive became eligible to participate in the Plan.
iii. LATE RETIREMENT means retirement from service with the Company after
Normal Retirement.
k. YEARS OF SERVICE means Years of Service as defined in the Pension Plan, but
including for purposes of this Plan only Years of Service from date of hire to
the earlier of date of death, date of Early Retirement, or attainment of age 65.
l. SURVIVING SPOUSE means the person legally married to an Officer or Executive
for at least one year prior to the Officer's or Executive's death.
m. PARTICIPANT means the Officers and Executives who have been designated by
the Company to participate in the Plan.
3. ELIGIBILITY AND PARTICIPATION.
All Officers and Executives (as defined in Section 2.e) are eligible to
participate in the Plan.
4. BENEFITS.
a. RETIREMENT BENEFITS. Subject to the further provisions of this Section 4,
Retirement Benefits will be computed and paid as follows:
i. NORMAL RETIREMENT BENEFIT shall be a monthly benefit equal to 6% times
Years of Service (to a maximum of 10 years) times Final Pay.
ii. EARLY RETIREMENT BENEFIT shall be the Normal Retirement Benefit
accrued to the date of Early Retirement, multiplied by the ratio of the lesser
of his or her Years of Service to his or her date of Early Retirement or to age
62 over his or her Years of Service projected to age 62, and further multiplied
by the appropriate early retirement reduction factor as determined in accordance
with the Pension Plan.
iii. LATE RETIREMENT BENEFIT shall be the Normal Retirement Benefit accrued
to the Normal Retirement date (age 65) but not beyond, payable at Late
Retirement. However, the Board of Directors in its sole discretion, may
increase the amount of the Late Retirement Benefit if the Officer or Executive
concerned continues in the employment of the Company after age 65 at the request
of the Board of Directors.
b. OFFSET TO RETIREMENT BENEFITS. The retirement benefit payments set forth
in Section 4.a. shall be reduced by the amount of the retirement payments,
without regard to cost of living adjustments occurring after retirement, made
to the retired Officer or Executive under the Pension Plan.
c. NORMAL FORM OF RETIREMENT BENEFITS shall be a monthly benefit payable for
the lifetime of the Officer or Executive, with benefits payable after his or her
death to a Surviving Spouse in accordance with Section 4.e.
d. OPTIONAL FORMS OF RETIREMENT BENEFIT are not available.
e. DEATH BENEFIT.
i. If death occurs before or after Retirement, a monthly lifetime benefit
shall be payable to the Surviving Spouse of the Officer or Executive, equal to
3.0% times the Officer's or Executive's Year of Service (to a maximum of 10
years) times Final Pay.
ii. Any payments made pursuant to this Section 4.e. shall be reduced by
the amount of any benefits payable under the Pension Plan subsequent to the
death of the Officer or Executive.
f. TERMINATION OF SERVICE.
No benefits will be payable under the Plan upon the termination of service
of an Officer or Executive for reasons other than Death, Disability or
Retirement, Change-in-Control or Good Reason under the Plan.
g. DISABILITY BENEFIT.
i. If an Officer or Executive becomes disabled, as determined by the
Board of Directors, a monthly benefit shall be payable to such Officer or
Executive until the earlier of recovery, death or the later of age 65 or the
fifth anniversary of the commencement of the disability, equal to 60% of Final
Pay.
ii. Any payments made pursuant to this Section 4.g. shall be reduced by
the amount of any disability benefits payable to the Officer or Executive and
his or her family under any Company-sponsored disability program or governmental
disability program.
iii. Upon the cessation of Disability Benefits, subsequent Retirement or
Surviving Spouses' benefits shall be calculated in accordance with other
Sections of this Plan.
h. ADJUSTMENT OF BENEFITS.
Once determined, the benefits payable under the Plan may not be adjusted
upward or downward (other than in accordance with the offset provisions
contained in the Plan) except by action of the Board of Directors. Any such
adjustments shall be based upon, but need not be equivalent to, changes in the
Consumer Price Index, All Items, U.S. City Average, of the Bureau of Labor
Statistics of the U.S. Department of Labor. The Board of Directors reserves the
right to so adjust benefits payable under the Plan at any time, whether such
change occurs prior to the time an Officer or Executive retires or dies, or
after the time payment of benefits commences.
i. FORFEITURE OF BENEFITS.
As a condition of receiving benefits under the Plan, an Officer or
Executive shall not after Retirement voluntarily appear against the Company
before any judicial or administrative tribunal or legislative body, on any
matter about which he or she possesses any expertise or special knowledge
relative to the Company's business. Any breach of this condition will result
in complete forfeiture of any further benefits under the Plan.
5. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Pension Committee of the Pension Plan,
subject, however, to any action taken by the Board of Directors in respect to
the Plan. The Pension Committee shall have the authority to interpret the Plan,
shall file with the Department of Labor and distribute to the Officers or
Executives the reports and other information required by ERISA, and shall
otherwise be responsible for administration of the Plan.
The Committee (or the Board of Directors, to the extent provided in the Plan)
shall have the exclusive right and full discretion to interpret the Plan and
to decide any and all matters arising hereunder (including the right to remedy
possible ambiguities, inconsistencies or omissions), to make, amend and rescind
such rules as it deems necessary for the proper administration of the Plan and
to make all other determinations necessary or advisable for the administration
of the Plan, including determinations regarding eligibility for benefits under
the Plan and determinations of the amount of benefits payable under the Plan.
All interpretations of the Committee or the Board of Directors with respect to
any matter hereunder shall be final, conclusive and binding on all persons
affected thereby.
No member of the Committee shall vote on any matter affecting such member.
6. AMENDMENT AND TERMINATION OF THE PLAN.
The Board of Directors may amend or terminate the Plan at any time except that
no such amendment or termination may occur as a result of a Change-in-Control,
within three years after a Change-in-Control, or as a part of any plan to effect
a Change-in-Control. However, no such amendment or termination shall apply to
any person who has then qualified for or is receiving benefits under the Plan.
7. CLAIMS PROCEDURE.
The committee (and the Board of Directors, on the appeal of the denial of a
claim) has full discretion and the exclusive right to determine eligibility for
benefits under the Plan. The Committee's decision on a claim for benefits is
final and binding on all persons, except as to an appeal of the Committee's
denial of a claim to the Board of Directors. The Board of Directors' decision
on an appeal of the Committee's denial of a claim for benefits is final and
binding on all persons.
Any person who believes that benefits have been denied under the Plan to which
he or she believes he or she is entitled may file a written claim with the
Committee setting forth the nature of the benefit claimed, the amount thereof,
and the basis for the claim of entitlement to such benefit. The Committee shall
determine the validity of such claim and notify the claimant of the Committee's
determination by first class mail within 90 days of the receipt of the written
claim. In the case of a denial of claim, the notice shall set forth in
understandable language;
a. The specific reason for the denial;
b. Specific references to pertinent Plan provisions on which the denial is
based;
c. A description of any additional material or information necessary for the
Claimant to perfect the claim and an explanation of why such material or
information is necessary; and
d. An explanation of the Plan's claim review procedure.
Within 60 days of the receipt of a denial of his or her claim, the claimant, or
an authorized representative may file a written request for a full review by the
Board of Directors of the claim for benefits. The Board of Directors shall
fully review the claim for benefits and the prior denial of the claim and shall
provide an opportunity for the claimant, or an authorized representative to
review pertinent documents and submit issues and comments in writing. A
decision upon review of the claim shall be made by the Board of Directors within
60 days of receipt of the request for review. The decision on review shall be
in writing, and in understandable language, shall state the specific reasons for
the decision, and shall include specific references to the pertinent Plan
provisions on which the decision is based. The decision of the Board of
Directors after review shall be final and conclusive on all persons.
8. MISCELLANEOUS.
a. This Plan is "unfunded" and "maintained primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees" pursuant to Section 401(a)(1) of ERISA. Nothing
contained in this Plan and no action taken pursuant to the provisions of this
Plan shall create or be construed to create a trust of any kind or a fiduciary
relationship between the Company and an Officer, Executive, Surviving Spouse,
or any other person. To the extent that any person acquires a right to receive
payments from the Company under this Plan, such right shall be no greater than
the right of any unsecured general creditor of the Company. Title to and
beneficial ownership of any asset, whether case or investments, which the
Company may earmark to pay the deferred compensation hereunder shall at all
times remain assets of the Company, and neither an Executive, Officer, or
Surviving Spouse nor any other person shall, under this Plan, have any property
interest whatsoever in any specific assets in the Company.
b. If any provision in the Plan is held by a court of competent jurisdiction
to be invalid, void, or unenforceable, the remaining provisions shall
nevertheless continue in full force and effect without being impaired or
invalidated in any way.
c. The Committee shall not recognize any transfer, mortgage, pledge,
hypothecation, order or assignment by any Officer, Executive or Surviving Spouse
of all or part of his or her interest hereunder, and such interest shall not be
subject in any manner to transfer by operation of law, and shall be exempt from
the claims of creditors or other claimants from all orders, decrees, levies,
garnishment and/or executions and other legal or equitable process or
proceedings against such Officer, Executive or Surviving Spouse to the fullest
extent which may be permitted by law;
d. The Plan shall be construed in accordance with ERISA and, to the extent
not preempted by ERISA, the laws of the State of California.
9. OFFSET FOR CERTAIN BENEFITS PAYABLE UNDER SPLIT-DOLLAR LIFE INSURANCE
AGREEMENTS.
a. OFFSET VALUE
Some of the Participants under this Plan own life insurance policies (the
"Policies") purchased on their behalf by the Company. The ownership of these
Policies by each Participant is, however, subject to certain conditions (set
forth in a "Split-Dollar Insurance Agreement" between the Participant and the
Company) and, if the Participant fails to meet the conditions set forth in the
Split-Dollar Life Insurance Agreement, the Participant may lost certain rights
under the Policy. In the event that a Participant satisfies the conditions
specified in Section 4 or 5 of the Split-Dollar Life Insurance Agreement, so
that the Participant or his or her beneficiary becomes entitled to benefits
under one of those sections, the value of those benefits shall constitute an
offset to any benefits otherwise payable under this Plan. As the case may be,
this offset (the "Offset Value") shall be calculated by determining the value
of benefits paid or payable under the Split-Dollar Life Insurance Agreement,
that is, the cash value of the Policy, or in the case of the Participant's
death, the death benefits payable to the beneficiary under the Policy. At the
time when the Participant terminates employment, the Actuarial Equivalent (as
defined in paragraph 9.d) of the Offset Value shall be compared to the Actuarial
Equivalent (as defined in paragraph 9.d) of the benefits payable under this Plan
(the "Plan Value"), and the Plan Value shall be reduced by the Actuarial
Equivalent of the Offset Value. The Plan Value shall be calculated by assuming
that the Participant or beneficiary immediately commences the receipt of
benefits upon termination of employment.
b. MANNER AND CALCULATION OF PAYMENT.
i. At the time when the Participant terminates employment, if the Plan
Value exceeds the Actuarial Equivalent (as defined in paragraph 9.d) of the
Offset Value, the excess of the Plan Value over the Actuarial Equivalent of the
Offset Value shall be paid to the Participant or beneficiary in the manner
provided under this Plan; provided that, if the excess of the Plan Value over
the Actuarial Equivalent of the Offset Value is less than $10,000, such excess
shall be paid to the Participant or beneficiary at that time in a cash lump sum.
ii. Notwithstanding anything contained herein to the contrary, to avoid any
loss of benefits from the use of a mortality assumption of age 80 in the
definition of Actuarial Equivalent in paragraph 9.d, if the Participant or
Surviving Spouse survives past his or her 80th birthday, benefits shall be
payable to him or her in the manner and amount provided under this Plan as if
the offset provisions of this paragraph 9 had not been included in the Plan
document.
c. PAYMENT OF CERTAIN BENEFITS.
If the Policy described in paragraph 9.a insures the life of an individual other
than the Participant (the "Insured Party"), and if such Insured Party dies
prior to the Participant's becoming eligible for benefits under the Plan, and
if the Participant or the Participant's beneficiary subsequently becomes
eligible for benefits hereunder, the Plan Value (as defined in paragraph 9.a)
shall be offset by the Actuarial Equivalent (as defined in paragraph 9.d) of the
death benefit previously paid to the Participant or the Participant's
beneficiary pursuant to the Split-Dollar Life Insurance Agreement. If the Plan
Value exceeds the Actuarial Equivalent of the death benefit previously paid to
the Participant or the Participant's beneficiary, such excess shall thereupon
be paid in the manner provided under this Plan; provided that, if the remaining
amount of the Plan Value is less than $10,000, such amount shall be paid to the
Participant or beneficiary at that time in a cash lump sum. Paragraph 9.b.ii
shall also apply.
d. ACTUARIAL EQUIVALENT.
For purposes of this paragraph 9, the Actuarial Equivalent shall mean a benefit
in the form of a lump sum payment which has the equivalent value computed using
the interest rate as defined in paragraph 9.e., compounded annually, and
assuming that the Participant and Surviving Spouse each die on his or her 80th
birthday and, in the case of the Plan Value, computed without reference to any
potential increases in the benefit pursuant to cost of living adjustments;
provided, however, that, in the case of a benefit payable pursuant to paragraph
2.c hereof, the Actuarial Equivalent shall be the lump sum amount determined
under paragraph 2.c.
e. INTEREST RATE.
For purposes of this paragraph 9, the interest rate shall be fixed by the
Executive Compensation Committee effective on the date the Participant or his
or her beneficiary becomes entitled to benefits under the Split-Dollar Life
Insurance Agreement.
EXHIBIT 10.6
AMENDED 1986 LONG-TERM INCENTIVE PLAN
RESTATEMENT AS OF 10/25/93
1. PURPOSE OF THE PLAN.
The purpose of the 1986 Long-Term Incentive Plan is to promote the
interests of San Diego Gas & Electric Company and its shareholders by
encouraging officers and key employees to acquire stock or increase their
proprietary interest in the Company. By thus providing the opportunity to
acquire Company stock and receive incentive payments, the Company seeks to
attract and retain such key employees upon whose judgment, initiative, and
leadership the success of the Company largely depends.
2. DEFINITIONS.
Whenever the following terms are used in this Plan, they will have the
meanings specified below unless the context clearly indicates the contrary.
(a) "Board of Directors" means the Board of Directors of San Diego
Gas & Electric Company.
(b) "Change-in-Control" means (1) the dissolution or liquidation of
the Company, (2) a reorganization, merger, or consolidation of the Company with
one or more corporations as a result of which the Company is not the surviving
corporation, (3) the acquisition of beneficial ownership, directly or
indirectly, of more than 25% of the voting power of the outstanding stock of the
Company by one person, group, association, corporation, or other entity, (the
group) coupled with the election to the Board of Directors of new members who
were not originally nominated by the Board at the last annual meeting and who
constitute a new majority of the Board or (4) upon the sale of all or
substantially all the property of the Company. The term change-in-control shall
not apply to any reorganization or merger initiated voluntarily by the Company
in which the Company is the surviving entity.
(c) "Committee" means the committee appointed to administer the Plan
pursuant to Section 4.
(d) "Company" means San Diego Gas & Electric Company and its
subsidiaries.
(e) "Common Stock" means the common shares of San Diego Gas &
Electric Company and any class of common shares into which such common shares
may hereafter be converted.
(f) "Dividend Equivalent" means the additional amount of Common Stock
issued in connection with an option, as described in Section 12.
(g) "Eligible Person" means an Employee eligible to receive an
Incentive Award.
(h) "Employee" means any regular full-time employee of the Company,
or of any of its present or future subsidiary corporations, as defined in
Section 425(f) of the Internal Revenue Code of 1954, as amended (the "Code").
(i) "Fair Market Value" means the mean of the high and low sale
prices reported for the Common Stock on the New York Stock Exchange for the five
(5) trading days immediately preceding the date as of which such determination
is made.
(j) "Good Reason" means termination of employment by the Officer
when one or more of the following occurs without the Officer's express written
consent within three years after a change of control;
(i) an adverse and significant change in the Officer's position, duties,
responsibilities or status with the Company, or a change in business location
to a point outside the Company's service territory, except in connection with
the termination of employment by the Company for Cause or Disability, or as a
result of Voluntary Retirement at or after either the Officer's early (f.i.) or
Normal Retirement Date (f.ii.) or death, or for other than for Good Reason;
(ii) a reduction by the Company in base salary or incentive compensation
opportunity;
(iii) the taking of any action by the Company to eliminate benefit plans
without providing substitutes therefore, to reduce benefits thereunder or to
substantially diminish the aggregate value of incentive awards or other fringe
benefits including insurance and an automobile provided in accordance with the
Company's standard policy;
(iv) a failure by the Company to obtain from any successor, before the
succession takes place, an agreement to assume and perform this Plan; or
(k) "Holder" means a person holding an Incentive Award.
(l) "Incentive Award" means any Nonqualified Stock Option, Incentive
Stock Option, Restricted Stock, Stock Appreciation Right, Dividend Equivalent,
Stock Payment or Performance Award granted under the Plan.
(m) "Incentive Stock Option" means an option as defined under
Section 422 of the Code, including an Incentive Stock Option granted pursuant
to Section 7 of the Plan.
(n) "Nonqualified Stock Option" means an option other than an
Incentive Stock Option granted pursuant to Section 6 of the Plan.
(o) "Option" means either a Nonqualified Stock Option or Incentive
Stock Option.
(p) "Plan" means the 1986 Long-Term Incentive Plan as set forth
herein, which may be amended from time to time.
(q) "Restricted Stock" means Company stock sold to an eligible
person at not less than Two Dollars and Fifty Cents ($2.50) per share, which is
nontransferable and subject to substantial risk of forfeiture until restrictions
lapse.
(r) "Stock Appreciation Right" or "Right" means a right granted
pursuant to Section 9 of the Plan to receive a number of shares of Common Stock
or, in the discretion of the Committee, an amount of cash or a combination of
share and cash, based on the increase in the Fair Market Value or Book Value of
the shares subject to the right.
(s) "Performance Award" means an award whose value may be linked to
stock value, book value, or other specific performance criteria which may be set
by the Board of Directors, but which is paid in cash, stock, or a combination
of both.
(t) "Stock Payment" means a payment in shares of the Common Stock
to replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to an Employee in cash.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 3(c) and Section 14 of the
Plan, the aggregate number of shares of Common Stock that may be issued or
transferred pursuant to Incentive Awards or covered by Stock Appreciation Rights
unrelated to options under the Plan will not exceed 1,350,000.
(b) The shares to be delivered under the Plan will be made
available, at the discretion of the Board of Directors or the Committee, either
from authorized but unissued shares of Common Stock or from previously issued
shares of Common Stock reacquired by the Company, including shares purchased on
the open market.
(c) If any Incentive Award expires for any reason, the Common Stock
that could have been delivered will not be charged against the limitation
provided for in Section 3(a) and may again be made subject to Incentive Awards.
However, shares as to which an Option has been surrendered in connection with
the exercise of a related Stock Appreciation Right will not be available for any
future grant of Incentive Awards.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be administered by the Committee, which will
consist of two (2) or more directors (i) who are not eligible to receive
Incentive Awards under the Plan, and (ii) who have not been eligible, at any
time within one (1) year before appointment to the Committee, for selection as
persons to whom Incentive Awards or Common Stock may be granted pursuant to the
Plan or any other plan of the Company or any of its subsidiaries entitling the
participants therein to acquire stock, Stock Appreciation Rights, or Options of
the Company or any of its subsidiaries. Unless and until the Board of Directors
appoints other members, the members of the Committee shall be the members of the
Executive Salary Review Committee of the Board of Directors, as such Executive
Salary Review Committee may be constituted from time to time, excluding any
members of the Executive Salary Review Committee who do not satisfy the criteria
set forth in the preceding sentence.
(b) The Committee has and may exercise such powers and authority
of the Board of Directors as may be necessary or appropriate for the Committee
to carry out its functions as described in the Plan. The Committee has
authority in its discretion to determine the Eligible Persons to whom, and the
time or times at which, Incentive Awards may be granted and the number of shares
or Rights subject to each award. Subject to the express provisions of the Plan,
the Committee also has authority to interpret the Plan, and to determine the
terms and provisions of the respective Incentive Award agreements (which need
not be identical) and to make all other determinations necessary or advisable
for Plan administration. The Board of Directors has authority to prescribe,
amend, and rescind rules and regulations relating to the Plan. All
interpretations, determinations, and actions by the Board of Directors or the
Committee will be final, conclusive, and binding upon all parties.
(c) No member of the Board of Directors or the Committee will be
liable for any action or determination made in good faith by the Board of
Directors or the Committee with respect to the Plan or any Incentive and
Performance Award under it.
5. ELIGIBILITY AND DATE OF GRANT.
(a) The Committee has authority, in its sole discretion, to determine
and designate from time to time those Eligible Persons who are to be granted
Incentive Awards, the type of Incentive Awards to be granted, and the number of
Rights, shares of Common Stock, or the amount of cash subject to each Incentive
Award. Each Incentive Award will be evidenced by a written instrument and may
include any other terms and conditions consistent with the Plan, as the
Committee may determine.
(b) The date of grant of an Incentive Award will be the date the
Committee takes the necessary action to approve the grant; provided, however,
that if the minutes or appropriate resolutions of the Committee provide that an
Incentive Award is to be granted as of a date in the future, the date of grant
will be such future date.
6. NONQUALIFIED STOCK OPTIONS.
The Committee may approve the grant of Nonqualified Stock Options to
Eligible Persons, subject to the following terms and conditions:
(a) The purchase price of Common Stock under each Nonqualified Stock
Option may not be less than one hundred (100%) percent of the Fair Market Value
of the Common Stock on the date the Nonqualified Stock Option is granted.
(b) No Nonqualified Stock Option may be exercised after ten (10)
years and one day from the date of grant.
(c) Upon the exercise of a Nonqualified Stock Option, the purchase
price will be payable in full in cash and/or its equivalent, such as Common
Stock, acceptable to the Company. Any shares so assigned and delivered to the
Company in payment or partial payment of the purchase price will be valued at
their Fair Market Value on the exercise date.
(d) No fractional shares will be issued pursuant to the exercise of
a Nonqualified Stock Option nor will any cash payment be made in lieu of
fractional shares.
7. INCENTIVE STOCK OPTIONS.
The Committee may approve the grant of Incentive Stock Options to Eligible
Persons, subject to the following terms and conditions:
(a) The purchase price of each share of Common Stock under an
Incentive Stock Option will be at least equal to the Fair Market Value of a
share of the Common Stock on the date of grant; provided, however, that if an
Employee, at the time an Incentive Stock Option is granted, owns stock
representing more than ten (10%) percent of the total combined voting power of
all classes of stock of the Company (as defined in Section 425(e) or (d) of the
Code), then the Exercise Price of each share of Common Stock subject to such
Incentive Stock Option shall be at least one hundred and ten (110%) percent of
the Fair Market Value of such share of Common Stock, as determined in the manner
stated above.
(b) No Incentive Stock Option may be exercised after ten (10) years
from the date of grant; provided, however, that if any Employee, at the time an
Incentive Stock Option is granted to him, owns stock representing more than ten
(10%) percent of the total combined voting power of all classes of stock of the
Company (as defined in Section 425(e) or (d) of the Code), the Incentive Stock
Option granted shall not be exercisable after the expiration of five (5) years
from the date of grant. Each Incentive Stock Option granted under this Plan
shall also be subject to earlier termination as provided in this Plan.
(c) Upon the exercise of an Incentive Stock Option, the purchase
price will be payable in full in cash and/or its equivalent, such as Common
Stock, acceptable to the Company. Any shares so assigned and delivered to the
Company in payment or partial payment of the purchase price will be valued at
their Fair Market Value on the exercise date.
(d) The Fair Market Value (determined at the time the Incentive Stock
Option is granted) of the shares of Common Stock for which any Employee may be
granted Incentive Stock Options in any calendar year (including Incentive Stock
Options under all plans of the Company) will not exceed One Hundred Thousand
($100,000) Dollars plus any unused limit carryover to such year as determined
under Section 422(c)(4) of the Code.
(e) An Incentive Stock Option may not be exercised while there is
"outstanding" within the meaning of Section 422(c)(7) of the Code any Incentive
Stock Option granted before the granting of such Incentive Stock Option to
purchase stock in the Company, or in a predecessor corporation of any such
corporation. For this purpose, an Incentive Stock Option shall be treated as
outstanding until (i) it is exercised in full, (ii) the Stock Appreciation
Right, if any, related to such Incentive Stock Option is exercised in full, or
(iii) the Incentive Stock Option expires solely by reason of the expiration of
its original term.
(f) No fractional shares will be issued pursuant to the exercise of
an Incentive Stock Option nor will any cash payment be made in lieu of
fractional shares.
8. RESTRICTED STOCK.
The Committee may approve the grant of Restricted Stock to Eligible Persons,
subject to the following terms and conditions:
(a) The Committee in its discretion will determine the purchase
price which will not be less than Two Dollars and Fifty Cents ($2.50) per share.
(b) All shares of Restricted Stock sold or granted pursuant to the
Plan (including any shares of Restricted Stock received by the Holder as a
result of stock dividends, stock splits, or any other forms of capitalization)
will be subject to the following restrictions:
(i) The shares may not be sold, transferred, or otherwise alienated or
hypothecated until the restrictions are removed or expire.
(ii) The Committee may require the Holder to enter into an escrow agreement
providing that the certificates representing Restricted Stock sold or granted
pursuant to the Plan will remain in the physical custody of an escrow holder
until all restrictions are removed or expire.
(iii) Each certificate representing Restricted Stock sold or granted
pursuant to the Plan will bear a legend making appropriate reference to the
restrictions imposed on the Restricted Stock.
(iv) The Committee may impose restrictions on any shares sold pursuant to
the Plan as it may deem advisable, including, without limitation, restrictions
designed to facilitate exemption from or compliance with the Securities Exchange
Act of 1934, as amended, with requirements of any stock exchange upon which such
shares or shares of the same class are then listed and with any blue sky or
other securities laws applicable to such shares.
(c) The restrictions imposed under subparagraph (b) above upon
Restricted Stock will lapse in accordance with a schedule or other conditions
as determined by the Committee, subject to the provisions of Section 15,
subparagraph (e).
(d) Subject to the provisions of subparagraph (b) above and Section
15, subparagraph (e), the holder will have all rights of a shareholder with
respect to the Restricted Stock granted or sold, including the right to vote the
shares and receive all dividends and other distributions paid or made with
respect thereto.
9. STOCK APPRECIATION RIGHTS.
The Committee may approve the grant of Rights related or unrelated to
Options to Eligible Persons, subject to the following terms and conditions:
(a) A Stock Appreciation Right may be granted:
(i) at any time if unrelated to an option;
(ii) Either at the time of grant, or at any time thereafter during the
option term if related to a Nonqualified Stock Option;
(iii) only at the time of grant if related to an Incentive Stock Option.
(b) A Stock Appreciation Right grant in connection with an Option
will entitle the Holder of the related Option, upon exercise of the Stock
Appreciation Right, to surrender such Option, or any portion thereof to the
extent unexercised, with respect to the number of shares as to which such Stock
Appreciation Right is exercised, and to receive payment of an amount computed
pursuant to Section 9(d). Such Option will, to the extent surrendered, then
cease to be exercisable.
(c) Subject to Section 9(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or times,
and only to the extent that a related Option is exercisable, and will not be
transferable except to the extent that such related Option is exercisable, and
will not be transferable except to the extent that such related Option may be
transferable.
(d) Upon the exercise of a Stock Appreciation Right related to an
Option, the Holder will be entitled to receive payment of an amount determined
by multiplying:
(i) The difference obtained by subtracting the purchase price of a share
of Common Stock specified in the related Option from the Fair Market Value of
a share of Common Stock on the date of exercise of such Stock Appreciation
Right, by
(ii) The number of shares as to which such Stock Appreciation Right has
been exercised.
(e) The Committee may grant Stock Appreciation Rights unrelated to
Options to Eligible Persons. Section 9(d) shall be used to determine the
amount payable at exercise under such stock appreciation right if Fair Market
Value is not used, except that Fair Market Value shall not be used if the
Committee specified in the award that book value or other measure as deemed
appropriate by the Committee was to be used, and in lieu of "price . . .
specified in the related option," the initial share value specified in the award
shall be used.
(f) Payment of the amount determined under Section 9(d) or (e) may
be made solely in whole shares of Common Stock in a number determined at their
Fair Market Value on the date of exercise of the Stock Appreciation Richt or
alternatively, at the sole discretion of the Committee, solely in cash or in a
combination of cash and shares as the Committee deems advisable. If the
Committee decides to make full payment in shares of Common Stock, and the amount
payable results in a fractional share, payment for the fractional share will be
made in cash.
(g) The Committee may, at the time a Stock Appreciation Right is
granted, impose such conditions on the exercise of the Stock Appreciation Right
as may be required to satisfy the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 (or any other comparable provisions in effect
at the time or times in question). Without limiting the generality of the
foregoing, the Committee may determine that a Stock Appreciation Right may be
exercised only during the period beginning on the third business day and ending
on the twelfth business day following the publication of the Company's quarterly
and annual summarized financial data.
(h) No Stock Appreciation Right granted to an Officer of the Company
subject to 16(b) of the Securities and Exchange Act of 1934, may be exercised
before six (6) months after the date of grant, except in the event death or
disability of the Officer occurs before the expiration of the six-month period.
10. PERFORMANCE AWARDS.
The Committee may approve Performance Awards to Eligible Persons. Such
awards may be based on Common Stock performance over a period determined in
advance by the Committee or any other measures as determined appropriate by the
Committee. Payment will be in cash unless replaced by a Stock Payment in full
or in part as determined by the Committee.
11. STOCK PAYMENT.
The Committee may approve Stock Payments of Common Stock to Eligible Persons
for all or any portion of the compensation (other than base salary) that would
otherwise become payable to an Employee in cash.
12. DIVIDEND EQUIVALENTS.
A Holder may also be granted at no additional cost "Dividend Equivalents"
based on the dividends declared on the Common Stock on record dates during the
period between the date an Option is granted and the date such Option is
exercised, or such other equivalent period, as determined by the Committee. Such
Dividend Equivalents shall be converted to additional shares or cash by such
formula as may be determined by the Committee.
Dividend Equivalents shall be computed, as of each dividend record date,
both with respect to the number of shares under the Option and with respect to
the number of Dividend Equivalent shares previously earned by the Holder (or his
successor in interest) and not issued during the period prior to the dividend
record date.
13. ADJUSTMENT PROVISIONS.
(a) Subject to Section 13(b), if the outstanding shares of Common
Stock are increased, decreased, or exchanged for a different number or kind of
shares or other securities, or if additional shares or new or different shares
or other securities are distributed with respect to such shares of Common Stock
or other securities, through merger, consolidation, sale of all or substantially
all of the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment may be made in (i) the maximum
number and kind of shares provided in Section 3 of the Plan, (ii) the number and
kind of shares or other securities subject to the then outstanding Incentive
Awards, and (iii) the price for each share or other unit of any other securities
subject to then outstanding Incentive Awards without change in the aggregate
purchase price or value as to which Incentive Awards remain exercisable or
subject to restrictions.
(b) Unless a successor corporation, or its parent or a subsidiary,
agree to substitute new options, stock appreciation rights, performance awards
or restricted stock covered by its stock, with appropriate adjustments as to the
number and kind of shares and price, for all incentive awards then outstanding
and to continue the Plan all incentive awards then outstanding under the Plan
shall be fully vested and exercisable without restrictions upon a change in
control. Even if the substitution of new award and the continuation of the plan
are provided for upon a change in control, as described in the preceding
sentence, all incentive awards then outstanding under the Plan shall immediately
become fully vested in and exercisable without restrictions by any officer who
within three years after a change in control occurs is terminated for reasons
other than cause, retirement, death, or disability or who terminates employment
due to good reason.
(c) Despite the provisions of Section 13(a), upon dissolution or
liquidation of the Company, or upon a reorganization, merger, or consolidation
of the Company with one or more corporations as a result of which the Company
is not the surviving corporation, or upon the sale of all or substantially all
the property of the Company, all Options, Stock Appreciation Rights, and
Performance Awards then outstanding under the Plan will be fully vested and
exercisable and all restrictions on Restricted Stock will immediately cease,
unless provisions are made in connection with such transaction for the
continuance of the Plan and the assumption of the substitution for such
Incentive Awards of new Options, Stock Appreciation Rights, Performance Awards,
or Restricted Stock covering the stock of a successor employer corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices.
(d) Adjustments under Section 13(a) and 13(b) will be made by the
Committee, whose determination as to what adjustments will be made and the
extent thereof will be final, binding, and conclusive. No fractional interest
will be issued under the Plan on account of any such adjustments.
14. GENERAL PROVISIONS.
(a) With respect to any share of Common Stock issued or transferred
under any provision of the Plan, such shares may be issued or transferred
subject to such conditions, in addition to those specifically provided in the
Plan, as the Committee may direct.
(b) Nothing in the Plan or in any instrument executed pursuant to the
Plan will confer upon any Holder any right to continue in the employ of the
Company or any of its subsidiaries or affect the right of the Company to
terminate the employment of any Holder at any time with or without cause.
(c) No shares of Common Stock will be issued or transferred pursuant
to an Incentive Award unless and until all then applicable requirements imposed
by federal and state securities and other laws, rules, and regulations and by
any regulatory agencies having jurisdiction, and by any stock exchanges upon
which the Common Stock may be listed, have been fully met. As a condition
precedent to the issue of shares pursuant to the grant or exercise of an
Incentive Award, the Company may require the Holder to take any reasonable
action to meet such requirements.
(d) No Holder (individually or as a member of a group) and no
beneficiary or other person claiming under or through such Holder will have any
right, title, or interest in or to any shares of Common Stock allocated or
reserved under the Plan or subject to any Incentive Award except as to such
shares of Common Stock, if any, that have been issued or transferred to such
Holder.
(e) The Company may make such provisions as it deems appropriate to
withhold any taxes which it determines it is required to withhold in connection
with any Incentive or Performance Award.
(f) No Incentive Award and no right under the Plan, contingent or
otherwise, will be assignable or subject to any encumbrance, pledge (other than
a pledge to secure a loan from the Company), or charge of any nature except
that, under such rules and regulations as the Company may establish pursuant to
the terms of the Plan, a beneficiary may be designated with respect to an
Incentive Award in the event of death of a Holder of such Incentive Award. If
such beneficiary is the executor or administrator of the estate of the Holder
of such Incentive Award, any rights with respect to such Incentive Award may be
transferred to the person or persons or entity (including a trust) entitled
thereto under the will of the Holder of such Incentive Award, or, in the case
of intestacy, under the laws relating to intestacy. No Incentive Award which
is comprised of a "derivative security," as that term is defined in the Rules
promulgated under Section 16 of the Exchange Act, which includes Incentive Stock
Options, Nonqualified Stock Options, Stock Appreciation Rights, or Performance
Awards, shall be transferable by any Eligible Person other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order.
(g) Notwithstanding Section 14(f), the Committee may, to the extent
permitted by applicable law, and Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities and Exchange Act of 1934, permit a
Holder to assign the rights to exercise Options or Rights to a trust or to
exercise options or rights in favor of a trust, provided that, in the case of
Incentive Stock Options, such exercise in favor of a trust shall be permitted
only if and to the extent that such exercise is not deemed to be a transfer to
or exercise by someone other than the Holder in contravention of Section
422(b)(S) of the Code.
(h) Subject to Section 14(e) hereof and the limitations set forth
below, the Committee, in its sole discretion and subject to such Rules as the
Committee may adopt, may permit Eligible Persons to elect (a) to apply a portion
of the shares otherwise deliverable to them upon the lapse of any restrictions
on Restricted Stock (as defined under the Plan) withheld, or (b) to deliver any
other shares of the Common Stock, no par value, of the Company owned by such
Eligible Persons other than those received upon such lapse of restrictions, to
satisfy all or any portion of any taxes which the Company determines it is
required to withhold in connection with any grant of Restricted Stock pursuant
to Section 8 hereof or in connection with the lapse of any restrictions therein.
Any such Eligible Person must apply or deliver such number of shares of
Restricted Stock and/or Common Stock as the Committee, in its sole discretion,
determines to be equal in fair market value to the portion of such Eligible
Person's taxes required to be withheld by the Company and which the Eligible
Person elected to satisfy by withholding or delivering shares.
Any such elections by Eligible Persons to have shares which were
Restricted Stock, or to deliver other shares of Common Stock, under the Plan
will be subject to the following restrictions and such Rules as the Committee
may adopt:
(i) Such elections must be made in writing on or before the date when the
amount of taxes to be withheld is required to be determined (the "Tax Date");
(ii) All such elections shall be irrevocable;
(iii) All such elections shall be subject to the approval or disapproval of
the Committee, in its sole discretion;
(iv) The fair market value of the shares of Common Stock which were
Restricted Stock and are to be applied to satisfy, or any other shares of Common
Stock delivered to the Company for the purposes of satisfying all or any portion
of any Eligible Person's withholding tax obligations shall be deemed to be the
average of the highest and lowest selling prices of such stock on the New York
Stock Exchange Composite Transactions Tape on the Tax Date, or if such stock is
not traded that day, then on the next preceding day on which such stock was
traded; and
(v) An election made by an Eligible Person who is or becomes subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, must be made
either six months or more prior to the Tax Date or within a ten-day period
beginning on the third and ending on the twelfth business day following release
for publication of the Company's quarterly or annual summary statement of
earnings in accordance with Rule 16b-3(e)(3)(iii) under such Act; PROVIDED that
no such election may be made within six months of the grant of such Restricted
Stock awards except in the case of death or disability of the participant.
15. AMENDMENT AND TERMINATION.
(a) The Board of Directors will have the power, in its discretion,
to amend, suspend, or terminate the Plan at any time. No such amendment will,
without approval of the shareholders of the Company, except as provided in
Section 13 of the Plan:
(i) Change the class of persons eligible to receive Incentive Awards
under the Plan;
(ii) Materially increase the benefits accruing to Eligible Persons under
the Plan;
(iii) Increase the number of shares of Common Stock subject to the Plan;
(iv) Transfer the administration of the Plan to any person who is not a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934; or
(v) Permit the granting of Incentive Awards to members of the
Committee.
(b) The Committee may, with the consent of a Holder, make such
modifications in the terms and conditions of Incentive Award as it deems
advisable or cancel the Incentive Award (with or without consideration) with the
consent of the holder.
(c) No amendment, suspension, or termination of the Plan will,
without the consent of the Holder, alter, terminate, impair, or adversely affect
any right or obligation under any Incentive Award previously granted under the
Plan.
(d) A Stock Appreciation Right or an Option held by a person who was
an Employee at the time such Right or Option was granted will expire immediately
if and when the Holder ceases to be an Employee, except as follows:
(i) If the employment of an Employee is terminated by the Company other
than for cause, then the Stock Appreciation Rights and Options will expire three
(3) months thereafter unless by their terms they expire sooner. For purposes
of this provision, termination "for cause" shall include, but shall not be
limited to, termination because of dishonesty, criminal offense, or violation
of a work rule, and shall be determined by, and in the sole discretion of, the
Company. During the three (3) month period, the Stock Appreciation Rights and
Options may be exercised in accordance with their terms, but only to the extent
exercisable on the date of termination of employment.
(ii) If the Employee retires at normal retirement age or retires with the
consent of the Company at an earlier date, the Stock Appreciation Rights and
Options of the Employee will expire in accordance with their terms.
(iii) If an Employee dies or becomes permanently and totally disabled while
employed by the Company or subsidiary corporation, the Stock Appreciation Rights
and Options of the Employee will expire three (3) years after the date of death
or permanent and total disability unless by their terms they expire sooner. If
the Employee dies or becomes permanently and totally disabled within the three
(3) months referred to in subparagraph (i) above, the Stock Appreciation Rights
and Options will expire three (3) months after the date of death or permanent
and total disability, unless by their terms they expire sooner.
(e) In the event a Holder of Restricted Stock ceases to be an
Employee, all such Holder's Restricted Stock which remains subject to
substantial risk of forfeiture at the time his or her employment terminates will
be repurchased by the Company at the original price at which such Restricted
Stock had been purchased unless the Committee determines otherwise.
(f) In the event a Holder of a Performance Award ceases to be an
Employee, all such Holder's Performance Awards will terminate except in the case
of retirement, death, or permanent and total disability. The Committee, in its
discretion, may authorize full or partial payment of Performance Awards in all
cases involving retirement, death, or permanent and total disability.
(g) The Committee may in its sole discretion determine, with respect
to an Incentive Award, that any Holder who is on unpaid leave of absence for any
reason will be considered as still in the employ of the Company, provided that
rights to such Incentive Award during an unpaid leave of absence will be limited
to the extent to which such right was earned or vested at the commencement of
such leave of absence.
16. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
This Plan will become effective upon adoption by the Board of Directors of
the Company, subject, however, to approval by the stockholders of the Company
within twelve (12) months following the date of its adoption by the Board of
Directors. Any Incentive Awards granted hereunder prior to approval of the Plan
by the stockholders shall be granted subject to such approval and may not be
exercised or Common Stock irrevocably transferred until and unless such approval
has occurred. Unless previously terminated by the Board of Directors, the Plan
will terminate ten (10) years after its adoption by the Board of Directors.
EXHIBIT 10.7
_________________________________________________________________
LOAN AGREEMENT
BETWEEN
CIBC, INC.
AND
SAN DIEGO GAS & ELECTRIC COMPANY
Dated as of December 1, 1993
__________________________________________________________________
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS
1.1 Definitions........................................ 1
1.2 Interpretation..................................... 6
1.3 Financial Requirements............................. 7
ARTICLE II
AMOUNT AND TERMS OF CREDIT
2.1 Commitment for Loans............................... 7
2.2 Minimum Loan Amounts............................... 7
2.3 Notice of Borrowing................................ 8
2.4 Disbursement of Funds.............................. 8
2.5 Loan Account....................................... 8
2.6 Prepayment or Conversion of Loans.................. 8
2.7 Repayment of Principal and Payment of Interest..... 11
2.8 Commitment Fee..................................... 12
2.9 Type of Funds for Payment and Place of Payment..... 12
2.10 Past Due Payments.................................. 13
2.11 Indemnification for Breaking Deposits.............. 13
2.12 Changes in Funding Circumstances................... 13
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to the Loans.................. 16
3.2 Conditions Precedent to Each Loan.................. 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Borrower..... 18
TABLE OF CONTENTS (Continued)
Page
ARTICLE V
COVENANTS OF THE BORROWER
5.1 Covenants of the Borrower.......................... 19
ARTICLE VI
EVENTS OF DEFAULT
6.1 Default............................................ 21
ARTICLE VII
MISCELLANEOUS
7.1 Notice............................................. 24
7.2 Payment of Expenses................................ 24
7.3 Delay.............................................. 25
7.4 Survival of Representations and Warranties......... 25
7.5 Waiver............................................. 25
7.6 Delivery of Documents.............................. 25
7.7 Binding Effect..................................... 25
7.8 Governing Law...................................... 26
7.9 Execution In Counterparts.......................... 26
Annex I............................................ 27
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of December 1, 1993
between SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation (the
"Borrower"), and the bank identified in Annex 1 hereto (the "Bank"), with
respect to the following:
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS
1.1 DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"AGREEMENT" means this Loan Agreement, as amended, modified or
supplemented from time to time.
"AVAILABILITY PERIOD" means, initially, the period from the date of
this Agreement through October 31, 1994; PROVIDED, HOWEVER, that the
Availability Period shall be extended for successive one (1) year periods upon
(a) receipt by the Bank from the Borrower of a request for such extension, which
request shall be received at least sixty (60) days prior to the current
expiration date of the Availability Period, and (b) written approval of such
extension from the Bank to the Borrower, which approval shall be given at the
sole and absolute discretion of the Bank and shall be received at least thirty
(30) days prior to the current expiration date of the Availability Period.
After October 31, 1994, Availability Period shall mean the period from the date
of the most recent extension of the Availability Period to the date set forth
in the then effective Annex 1 hereto as the expiration date of the Availability
Period.
"BANKING DAY" means a day on which banks are open for business in New
York, New York, Los Angeles, California, and Atlanta, Georgia, and on which
dealings are carried on in Dollar deposits in offshore Dollar interbank markets.
"BOARD" means the Board of Governors of the Federal Reserve System of
the United States (or any successor thereto).
"BORROWING" means a borrowing hereunder consisting of Loans made to
the Borrower by the Bank.
"BUSINESS DAY" means a day on which banks are open for business in New
York, New York, Los Angeles, California, and Atlanta, Georgia.
"CD LOAN" means a Loan for which interest is based on the CD Rate.
"CD RATE" means, for each CD Rate Interest Period, the rate of
interest (rounded upward, if necessary, to the nearest 1/8 of one percent)
determined pursuant to the following formula:
CD Rate = CERTIFICATE OF DEPOSIT RATE + Assessment Rate
1.00 - Reserve Percentage
Where,
(a) "ASSESSMENT RATE" means the rate (rounded upward, if necessary,
to the nearest 1/100 of one percent) determined by the Bank to be the net annual
assessment rate in effect on the first day of such CD Rate Interest Period for
calculating the net annual assessment payable to the Federal Deposit Insurance
Corporation (or any successor) for insuring deposits at offices of the Bank in
the United States.
(b) "CERTIFICATE OF DEPOSIT RATE" means, for each such CD Rate
Interest Period, the rate of interest determined by the Bank to be the
arithmetic average (rounded upward, if necessary, to the nearest 1/100 of one
percent) of the rates of interest bid by two or more certificate of deposit
dealers of recognized standing selected by the Bank for the purchase at face
value from the Bank of its Dollar certificates of deposit for such CD Rate
Interest Period and in the amount of such CD Loan to be outstanding during such
period at the time selected by the Bank on the first day of such CD Rate
Interest Period.
(c) "RESERVE PERCENTAGE" means, for such CD Rate Interest Period, the
total (expressed as a decimal) of the maximum reserve percentages (including,
but not limited to, marginal, emergency, supplemental, special, and other
reserve percentages), in effect on the first day of such CD Rate Interest
Period, prescribed by the Board for determining the reserves to be maintained
by member banks of the Federal Reserve System for non- personal time deposits
with a maturity equal to such CD Rate Interest Period.
"CD RATE INTEREST PERIOD" means, for each CD Loan, the period
commencing on the date the CD Loan is made and ending thirty (30), sixty (60),
ninety (90), one hundred eighty (180), two hundred seventy (270), or three
hundred sixty (360) days thereafter, or any other period as mutually agreed
upon, but never greater than 360 days, as requested by the Borrower pursuant to
a Notice of Borrowing.
"CD RATE MARGIN" means, with respect to any CD Rate Loan, the
percentage figure set forth in Annex 1 hereto as the CD Rate Margin.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time. Section references to the Code are to the Code, as in effect on the date
of this Agreement, and to any subsequent provisions of the Code amendatory
thereof, supplementary thereto or substituted therefor.
"COMMITMENT" means the amount set forth in Annex 1 hereto as the amount
of the Commitment, as the same may be reduced in accordance with Section 2.1(b)
hereof.
"COMMITMENT FEE" shall have the meaning given such term in Section 2.8
hereof.
"DEFAULT" means an event which, with the giving of notice, the lapse of
time, or both, shall become an Event of Default.
"DOLLAR" and the sign "$" each mean United States dollars or such coin
or currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts in the United States of
America.
"DOMESTIC LENDING OFFICE" means the office designated by the Bank as
such in Annex 1 hereto, or such other office or offices as the Bank may from
time to time select and notify to the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section
references to ERISA are to ERISA, as in effect at the date of this Agreement,
and to any subsequent provisions of ERISA amendatory thereto, supplementary
thereto or substituted therefor.
"ERISA AFFILIATE" means each person (as defined in Section 3(9) of ERISA)
which together with the Borrower or any Subsidiary would be deemed to be a
member of the same "controlled group" within the meaning of Sections 414(b) and
(c) of the Code.
"EVENT OF DEFAULT" has the meaning set forth in Article VI hereof.
"INTEREST PERIOD" means with respect to any CD Loan, the CD Rate Interest
Period for such Loan; and with respect to any Offshore Loan, the Offshore Rate
Interest Period for such Loan.
"LENDING OFFICE" means, with respect to each Offshore Loan, the Offshore
Lending Office, and with respect to all other Loans, the Domestic Lending
Office.
"LOAN" means a CD Loan, an Offshore Loan or a Reference Rate Loan.
"NOTICE OF BORROWING" shall have the meaning given such term in Section
2.3 hereof.
"OFFSHORE LENDING OFFICE" means the office designated by the Bank as such
in Annex 1 hereto, or such other office or offices as the Bank may from time to
time select and notify to the Borrower.
"OFFSHORE LOAN" means a Loan for which interest is based on the Offshore
Rate.
"OFFSHORE RATE" means, for each Offshore Rate Interest Period, the
interest rate per annum (rounded upward, if necessary to the nearest 1/100 of
one percent) determined pursuant to the following formula:
IBOR
Offshore Rate = 1 - Offshore Reserve Percentage
Where,
(a) "IBOR" means, for each such Offshore Rate Interest Period, the
rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to the Bank's Offshore Lending Office
in the offshore interbank market as at or about 11:00 a.m. New York City time
two (2) Banking Days prior to the beginning of such Offshore Rate Interest
Period for delivery on the first day of such Offshore Rate Interest Period, and
in an amount approximately equal to the amount of the Bank's Offshore Loan and
for a period approximately equal to such Offshore Rate Interest Period;
(b) "OFFSHORE RESERVE PERCENTAGE" means, for each such Offshore Rate
Interest Period, the maximum reserve percentage (expressed as a decimal) in
effect on the first day of the Offshore Rate Interest Period, prescribed by the
Board for determining the reserves to be maintained by member banks of the
Federal Reserve System for "Eurocurrency liabilities" or for any other category
of liabilities which includes deposits by reference to which the interest rate
on Offshore Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of the Bank to United
States residents.
"OFFSHORE RATE INTEREST PERIOD" means, for each Offshore Loan, the
period commencing on the date the Offshore Loan is made and ending one (1),
three (3), six (6), nine (9), or twelve (12) months thereafter, or, such other
period or periods as the Bank, in its sole and absolute discretion, shall agree
upon with the Borrower, but in any event not later than any other period as
mutually agreed upon, but never greater that 12 months, as requested by the
Borrower pursuant to a Notice of Borrowing.
"OFFSHORE RATE MARGIN" means, with respect to any Offshore Loan, the
percentage figure set forth in Annex 1 hereto as the Offshore Rate Margin.
"PARTICIPANT" shall have the meaning given such term in Section 7.7
hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means a corporation, an association, a partnership, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
"PLAN" means any multi-employer or single-employer plan as defined in
Section 4001 of ERISA, which is maintained or contributed to, or, at any time
during the five calendar years preceding the date of this Agreement, was
maintained or contributed to, for employees of the Borrower or any Subsidiary
or an ERISA Affiliate.
"REFERENCE RATE" means at any time the rate per annum then equal to the
greater of (x) the United States "Prime Rate" of the Bank as announced by the
Bank from time to time (said rate to change on the date of each change of such
"Prime Rate") and (y) the sum of one percent (1%) per annum and the Overnight
Federal Funds Rate (as defined hereafter). The term "Overnight Federal Funds
Rate" shall mean for any day the overnight rate per annum offered to the Bank
at 10:00 a.m. (New York City time) for any day in which such a rate is
available. For purposes of this Agreement, "Prime Rate" shall not necessarily
be equivalent to, or dependent upon, the lowest or best interest rate that the
Bank offers. Any change in the fluctuating interest rate hereunder resulting
from a change of the Reference Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the Reference
Rate, or if no such public announcement is made, on the date of such change.
"REFERENCE RATE LOAN" means a Loan for which interest is based on the
Reference Rate.
"REPAYMENT PERIOD" means the due date for any Loan disbursed prior to
the last day of the Availability Period, which due date shall be specified by
the borrower, and shall be no longer than one (1) year from the date of
disbursement of such Loan.
"REPORTABLE EVENT" means an event described in Section 4043(b) of ERISA
with respect to a Plan as to which the thirty (30) day notice requirement has
not been waived by the PBGC.
"SUBSIDIARY" means those Persons the decision-making process of which
is controlled by the Borrower, its Subsidiaries or individuals who control the
decision-making process of the Borrower.
"UNFUNDED CURRENT LIABILITY" of any Plan means the amount, if any, by
which the present value of the accrued benefits under the Plan as of the close
of its most recent Plan year exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.
1.2 INTERPRETATION
(a) Headings of articles and sections herein and the table of
contents hereof are solely for convenience of reference, do not constitute a
part hereof and shall not affect the meaning, construction or effect hereof.
(b) The words "herein," "hereof," "hereby," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Section or subdivision hereof.
1.3 FINANCIAL REQUIREMENTS
Unless otherwise specified in this Agreement, all accounting terms used
in this Agreement shall be interpreted, all financial information required under
this Agreement shall be prepared, and all financial computations required under
this Agreement shall be made, in accordance with generally accepted accounting
principles as in effect from time to time, applied on a basis consistent with
the most recent audited consolidated financial statements of the Borrower
delivered to the Bank.
ARTICLE II
AMOUNT AND TERMS OF CREDIT
2.1 COMMITMENT FOR LOANS
(a) COMMITMENT. Subject to the terms and conditions of this
Agreement, the Bank agrees, from time to time during the Availability Period,
to make Loans to the Borrower, which Loans shall be, at the option of the
Borrower, CD Loans, Offshore Loans or Reference Rate Loans; PROVIDED, HOWEVER,
that the aggregate principal amount of Loans outstanding shall not at any time
exceed the amount of the Commitment.
(b) REDUCTION OF THE COMMITMENT. The Borrower may permanently reduce
in whole or in part the unutilized portion of the Commitment by giving to the
Bank one (1) Business Day's written notice thereof, which notice shall specify
the date and the amount of such reduction; PROVIDED, THAT, the Borrower shall,
on or prior to the date of reduction or termination so specified, pay to the
Bank the accrued Commitment Fee for the period up to such date of reduction or
termination; and PROVIDED, FURTHER, that in no event shall the Commitment be
reduced below the aggregate amount of all Loans outstanding on the date of such
reduction.
2.2 MINIMUM LOAN AMOUNTS
(a) Each CD Loan and each Offshore Loan hereunder shall be in the
amount of One Million Dollars ($1,000,000) or integral multiples thereof.
(b) Each Reference Rate Loan shall be in a minimum aggregate
principal amount of Five Hundred Thousand Dollars ($500,000) or integral
multiples thereof.
2.3 NOTICE OF BORROWING
The disbursement of each Loan shall be made upon written or tested
telex request or telephone notice ("Notice of Borrowing") promptly followed by
written confirmation, which Notice of Borrowing shall be irrevocable, shall be
received by the Bank not later than 10:00 a.m. (Los Angeles time) at least (a)
two (2) Banking Days prior to the date of the Loan in the case of an Offshore
Loan, and (b) one (1) Business Day prior to the date of the Loan in the case of
a CD Loan, or Reference Rate Loan, and shall specify:
(i) The date of such Loan, which shall be a Business Day;
(ii) The aggregate principal amount of such Loan;
(iii) Whether the Loan is to be a CD Loan, Offshore Loan or
Reference Rate Loan; and
(iv) If such Loan is to be a CD Loan, or Offshore Loan, the
duration of the relevant Interest Period.
2.4 DISBURSEMENT OF FUNDS
Not later than 11:00 a.m. (Los Angeles time) on the date specified for
each Loan, the Bank shall make available such Loan, in immediately available
funds credited to the Borrower's bank account identified in Annex 1 hereto.
2.5 LOAN ACCOUNT
The Bank shall open and maintain on its books a loan account in the
Borrower's name and shall: (a) enter as debits thereto (i) each CD Loan,
Offshore Loan and Reference Rate Loan made to the Borrower and interest accrued
thereon; and (b) enter as credits thereto all repayments of principal and
payments of interest received by the Bank. The Bank shall give confirming
notice to the Borrower of each Loan made to the Borrower. The Bank's records
showing such entries shall be presumed correct, absent manifest error. Failure
to make any such entry or notice, however, shall not affect the obligations of
the Borrower in respect of each Loan.
2.6 PREPAYMENT OR CONVERSION OF LOANS
(a) The Borrower may prepay, at any time, any or all Loans, in whole
or in part, PROVIDED, THAT:
(i) The Bank has received irrevocable notice of such prepayment
not later than 10:00 a.m. (Los Angeles time) at least (A) one (1) Business Day
prior to the date thereof in the case of a CD Loan, or a Reference Rate Loan,
and (B) two (2) Banking Days prior to the date thereof in the case of an
Offshore Loan;
(ii) The notice of prepayment specifies (A) the
date of prepayment which shall be (x) a Business Day in the case of a CD Loan,
or a Reference Rate Loan, and (y) a Banking Day in the case of an Offshore Loan,
(B) the amount of the prepayment which shall be in an amount at least equal to
(x) One Million Dollars ($1,000,000) or integral multiples thereof in the case
of a CD Loan, a or an Offshore Loan, or (y) Five Hundred Thousand Dollars
($500,000) or integral multiples thereof in the case of a Reference Rate Loan;
and
(iii) On the date of prepayment, the Borrower pays to the Bank the
principal amount of the Loans being prepaid together with all accrued interest
thereon.
In addition, the Borrower shall pay to the Bank any amounts due under
Section 2.11 hereof as a result of any prepayment in accordance with the
terms of such Section 2.11.
(b) The Borrower may convert any or all outstanding loans of any type
into a Loan or Loans of another type provided for herein, PROVIDED, THAT:
(i) The Bank has received irrevocable notice of such conversion not
later than 10:00 a.m. (Los Angeles time) at least (A) one (1) Business Day
prior to the date thereof if a Loan will be converted into a CD Loan, or a
Reference Rate Loan, and (B) two (2) Banking Days prior to the date thereof if
a Loan will be converted into an Offshore Loan;
(ii) The notice of conversion specifies (A) the date of conversion
which shall be both (x) if applicable, the last day of the Interest Period of
the Loan to be converted, unless the Loan to be converted is a CD Loan, or
Offshore Loan affected by the circumstances described in Section 2.12(b)(i)(A)
or (B), in which case the requirements of this clause (x) shall not apply and
(y) a Business Day, (B) the amount of the Loan or Loans to be converted and (C)
the type of Loan into which a Loan or Loans is to be converted and the Interest
Period applicable thereto; and
(iii) On the date of conversion (A) the Borrower pays to the Bank the
accrued and unpaid interest due on the Loan to be converted, (B) no Default or
Event of Default has occurred or is continuing, (C) the Repayment Period has not
expired and (D), if the Loan to be converted is a CD Loan or Offshore Loan
affected by the circumstances described in Section 2.12(b) (i)(A), the Borrower
also pays to the Bank any additional amounts payable to the Bank in respect of
such Loan pursuant to Sections 2.11 and 2.12(b)(i) hereof.
(c) In the event the Borrower (i) does not provide the Bank with a
timely notice of conversion as required under Section 2.6(b) hereof and (ii)
either (A) does not repay to the Bank the principal amount of a CD Rate Loan or
an Offshore Loan at the end of the Interest Period applicable thereto, or (B),
if the Loan to be converted is a CD Loan or Offshore Loan affected by the
circumstances described in Section 2.12(b)(i) (A), does not pay the additional
amounts required to be paid on the date of conversion, then at the option of the
Bank, in its sole and absolute discretion, such Loan or Loans shall be converted
into Reference Rate Loans and shall bear interest as a Reference Rate Loan until
the earlier of repayment thereof or conversion thereof pursuant to Section
2.6(b) hereof; PROVIDED, THAT:
(i) No Default or Event of Default (other than the failure to repay
the principal amount of a Loan at the end of an applicable Interest Period) has
occurred or is continuing on the date of such conversion;
(ii) The Repayment Period has not expired.
In addition, the Borrower shall pay to the Bank accrued and unpaid
interest due on any Loan converted pursuant to this Section 2.6(c) within the
grace period provided in Section 6.1(b) hereof.
(d) Upon any conversion of a Loan pursuant to Sections 2.6(b) or (c)
hereof, the Bank shall make such entries in the loan account established in
accordance with Section 2.5 hereof to effect such conversion.
2.7 REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST
(a) CD LOANS. The outstanding principal balance of each CD Loan shall
bear interest at a rate per annum equal to the sum of the CD Rate and the CD
Rate Margin (such interest being computed daily on the basis of a three hundred
sixty (360) day year and actual days elapsed, which results in more interest
than if a three hundred sixty-five (365) day year were used). Interest on each
CD Loan shall be paid by the Borrower on the last day of the CD Rate Interest
Period for such CD Loan and, in addition, (i) if such CD Rate Interest Period
is one hundred eighty (180) days, on the date falling ninety (90) days after the
commencement of such CD Rate Interest Period and (ii) if such CD Rate Interest
Period is longer than one hundred eighty (180) days, on each date occurring at
three (3) month intervals after the first day of such Interest Period. The
entire outstanding principal amount of each CD Loan shall be repaid by the
Borrower on the last day of the CD Rate Interest Period for such CD Loan.
(b) OFFSHORE LOANS. The outstanding principal balance of each
Offshore Loan shall bear interest at a rate per annum equal to the sum of the
Offshore Rate and the Offshore Rate Margin (such interest being computed daily
on the basis of a three hundred sixty (360) day year and actual days elapsed,
which results in more interest than if a three hundred sixty-five (365) day year
were used). Interest on each Offshore Loan shall be paid, by the Borrower, on
the last day of the Offshore Rate Interest Period for such Offshore Loan and,
in addition, (i) if such Offshore Rate Interest Period is six (6) months, on the
date falling three (3) months after the commencement of such Offshore Rate
Interest Period, and (ii) if such Offshore Rate Interest Period is longer than
six (6) months, on each date occurring at three (3) month intervals after the
first day of the Offshore Rate Interest Period. The entire outstanding
principal amount of each Offshore Loan shall be repaid by the Borrower on the
last day of the Offshore Rate Interest Period for such Offshore Loan.
(c) REFERENCE RATE LOANS. The outstanding principal balance of each
Reference Rate Loan shall bear interest at a rate per annum equal to the
Reference Rate, (computed daily on the basis of a three hundred sixty-five (365)
or three hundred sixty-six (366) day year, as the case may be, and actual days
elapsed) as such Reference Rate shall change from time to time until principal
is paid in full to the Bank. Interest on each outstanding Reference Rate Loan
shall be paid by the Borrower quarterly in arrears commencing on the first
Business Day of the calendar quarter immediately following the quarter during
which such Reference Rate Loan was made to the Borrower, and upon payment in
full of the principal of the Reference Rate Loan. The entire outstanding
principal amount of each Reference Rate Loan made to the Borrower shall be
repaid by the Borrower on the last day of the Repayment Period.
2.8 COMMITMENT FEE
The Borrower shall pay the Bank a fee (the "Commitment Fee"), computed
at the per annum rate set forth in Annex 1 hereto as the Commitment Fee rate,
on the difference, if any, between the Commitment and the average daily total
outstanding Loans. The Commitment Fee shall be calculated on the basis of a
three hundred sixty-five (365) or three hundred sixty-six (366) day year, as the
case may be, and actual days elapsed. The accrued Commitment Fee shall be
payable quarterly in arrears with each respective quarter ending on January 31,
April 30, July 31, and October 31. Each such payment shall be due and payable
on the tenth day following receipt by the Borrower of notice from the Bank of
the amount due, and, if the Commitment expires or is terminated or reduced, then
on the tenth day following the date of such expiry, termination or reduction.
2.9 TYPE OF FUNDS FOR PAYMENT AND PLACE OF PAYMENT
(a) The Borrower shall make each payment to the Bank of principal of,
and interest on, the Loans, of the Commitment Fee and of other commissions or
fees hereunder, without setoff or counterclaim, when due, in immediately
available funds, not later than 11:00 A.M. Los Angeles time on such due date and
at its Domestic Lending Office (i) for the account of such office with respect
to any CD Loan or Reference Rate Loan, any payment related thereto, or any
payment of the Commitment Fee or other commissions or fees hereunder, and (ii)
for the account of the Offshore Lending Office with respect to any Offshore Loan
or payment related thereto.
(b) All sums received after such time shall be deemed received on the
next Banking Day in the case of a payment respecting an Offshore Loan, and the
next Business Day in all other cases. Except in the case of Offshore Loans,
whenever any payment to be made hereunder shall be due on a day which is not a
Business Day, the payment shall be made on the next succeeding Business Day.
In the case of Offshore Loans, the last day of the Offshore Rate Interest Period
(and therefore the due date for repayment of principal and interest on Offshore
Loans) shall be determined in accordance with the practices of the offshore
Dollar interbank markets as from time to time in effect. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon and fees shall accrue and be payable for such extended time.
2.10 PAST DUE PAYMENTS
If any sum of principal, interest or other sum due hereunder in
connection with a CD Loan or Offshore Loan is not paid when due, the Borrower
shall, on demand, indemnify the bank against any loss, cost or expense including
any loss of profit and any loss, cost or expense in liquidating or employing
deposits acquired from third parties in connection with such Loan, incurred by
the Bank as a consequence of any such failure to pay any sum of principal,
interest, or other sum when due hereunder. In addition, loans which are not
paid or converted, when due, shall bear interest until paid in full at the
Reference Rate.
2.11 INDEMNIFICATION FOR BREAKING DEPOSITS
If for any reason (including prepayment, conversion and acceleration)
the Bank receives any payment of principal of any CD Loan or Offshore Loan on
a day other than the last day of the Interest Period applicable to such Loan,
then the Borrower shall reimburse the Bank on demand for any loss incurred by
it as a result of the timing of such payment, including without limitation any
loss incurred in liquidating or employing deposits from third parties and
including loss of profit for the period after such payment. The Bank will
provide the Borrower with a written statement of said costs, losses, or payments
which certificate shall be presumed correct absent manifest error. If as a
result of prepayment, the Bank immediately reemploys the funds at a rate equal
to or greater than the rate on the Loan prepaid, then the Borrower will not be
obligated to reimburse the Bank for any cost.
2.12 CHANGES IN FUNDING CIRCUMSTANCES
(a) AVAILABILITY. In the event that the Bank shall determine, which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto, on the date any Notice of Borrowing is made that, by
reason of any changes arising after the date of this Agree- ment affecting the
offshore Dollar interbank markets or the secondary certificate of deposit
market, as the case may be, adequate and fair means do not exist for
ascertaining the applicable interest rate, then the Bank shall promptly give
notice (by telephone confirmed in writing) to the Borrower of such
determination. Thereafter, CD Loans and Offshore Loans, as the case may be,
shall no longer be available until such time as the Bank notifies the Borrower
that the circumstances giving rise to such notice by the Bank no longer exist,
and, at such time, the Bank's obligation to make CD Loans or Offshore Loans
shall be automatically reinstated.
(b) INCREASED COSTS AND ILLEGALITY OF LOANS
(i) In the event that the Bank shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon the Borrower):
(A) At any time, that the Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to any
CD Loan or Offshore Loan, other than any such increased costs or reductions in
the amounts received or receivable hereunder due to increased capital
requirements as set forth in Section 2.12(c) below, because of (x) any change
after the date of this Agreement in any applicable law or governmental rule,
regulation, order or request (whether or not having the force of law) (or in the
interpretation or administration thereof and including the introduction of any
new law or governmental rule, regulation, order or request), including, without
limitation, (1) a change in the basis of taxation of payments to the Bank or its
applicable Lending Office of the principal of or interest on the Loans or any
other amounts payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of the Bank or its
applicable Lending Office imposed by the jurisdiction in which its principal
office or applicable Lending Office is located) or (2) a change in official
reserve requirements, but, in all events, excluding reserves required under
Regulation D of the Board to the extent included in the computation of the CD
Rate or Offshore Rate, as the case may be, or (y) other circumstances affecting
the Bank or the offshore Dollar interbank markets, the secondary certificate of
deposit market, or the United States domestic money market generally, as the
case may be, or the position of the Bank in such market; or
(B) At any time, that the making or continuance of any CD Loan or
Offshore Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by the Bank with any
governmental request (whether or not having force of law) or (z) impracticable
as a result of a contingency occurring after the date of this Agreement which
materially and adversely affects the offshore Dollar interbank markets or the
secondary certificate of deposit market, as the case may be;
then, and in any such event, the Bank shall promptly give notice (by telephone
confirmed in writing) to the Borrower. Thereafter (x) in the case of clause (A)
above, the Borrower shall pay to the Bank, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as the Bank in its sole discretion shall
determine) as shall be required to compensate the Bank for such increased costs
or reductions in amounts received or receivable hereunder (a written notice as
to the additional amounts owed to the Bank, showing the basis for the
calculation thereof, sub- mitted to the Borrower by the Bank shall, absent
manifest error, be final and conclusive and binding on the Borrower) and (y) in
the case of clause (B) above, the Borrower shall take one of the actions
specified in Section 2.12(b)(ii) hereof as promptly as possible and, in any
event, within the time period required by law.
(ii) At any time that any CD Loan or Offshore Loan is affected by the
circumstances described in Section 2.12(b)(i)(A) or (B) above, the Borrower may
(and in the case of a CD Loan or Offshore Loan affected by the circumstances
described in Section 2.12(b)(i)(B) hereof shall) either (x) if the affected CD
Loan or Offshore Loan is then being made, cancel its Notice of Borrowing by
giving the Bank telephonic notice (confirmed in writing) of the cancellation on
the same date that the Borrower was notified by the Bank pursuant to Section
2.12(b)(i)(A) or (B) hereof or (y) if the affected CD Loan or Offshore Loan is
then outstanding, request the Bank to convert such CD Loan or Offshore Loan
under Section 2.6(b) hereof; PROVIDED, HOWEVER, that if the Borrower fails to
request conversion under such Section 2.6(b), then the Bank may convert the
Loans under Section 2.6(c) hereof in accordance with the terms thereof.
(c) CAPITAL ADEQUACY. If the Bank determines (which determination
shall, absent manifest error, be final, conclusive and binding upon the
Borrower) at any time that any applicable law or governmental rule, regulation,
order or request (whether or not having the force of law) concerning capital
adequacy, or any change in interpretation or administration thereof by any
governmental authority, central bank or comparable agency, will have the effect
of increasing the amount of capital required or expected to be maintained by the
Bank or any corporation controlling the Bank based on the existence of the
Commitment hereunder or its obligations hereunder to make Loans, the Borrower
shall pay to the Bank, upon its written demand therefor sent to the Borrower,
such additional amounts as shall be required to compensate the Bank for the
increased cost to the Bank as a result of such increase of capital. In
determining such additional amounts (in the form of an increased Commitment Fee
or such other form of compensation as the Bank shall in its sole discretion
determine), the Bank will act reasonably and in good faith and will use
averaging and attribution methods which are reasonable, provided that the Bank's
determination of compensation owing under this Section 2.12(c) shall, absent
manifest error, be final and conclusive and binding on the Borrower. The Bank,
upon determining that any additional amounts will be payable pursuant to the
Section 2.12(c), will send prompt written notice thereof to the Borrower, which
notice shall show the basis for calculation of such additional amounts.
ARTICLE III
CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO THE LOANS
The obligation of the Bank to make any Loans hereunder is subject to
the condition precedent that the Bank shall have received from the Borrower, on
or prior to the date of this Agreement, all of the following in form and
substance satisfactory to the Bank:
(a) A certified copy of the resolution of the Board of Directors of
the Borrower or the Executive Committee thereof (if such action by the Executive
Committee is authorized by the By-laws of the Borrower) evidencing the
authorization for the Borrowings herein provided and other matters contemplated
hereby and a certified copy of all documents evidencing necessary corporate
action and any governmental approval, including but not limited to those of the
California Public Utilities Commission, with respect to Borrowings under this
Loan Agreement;
(b) A favorable written opinion, in form and substance satisfactory
to the Bank, of the Vice President and General Counsel or Assistant General
Counsel of the Borrower as to the matters referred to in Sections 4.1(b) through
4.1(d) hereof;
(c) A signed copy of a Certificate of the Secretary or an Assistant
Secretary of the Borrower which shall certify the names of the officers of the
Borrower authorized to sign this Agreement and the other documents or
certificates to be delivered pursuant hereto by the Borrower or any of its
officers, together with the true signatures of each such officer. The Bank may
conclusively rely on such certificate until it shall receive a further
certificate of the Secretary or an Assistant Secretary of the Borrower
cancelling or amending the prior certificate and submitting the true signatures
of the officers named in such further certificate; and
(d) Such additional information, document or instruments as may be
reasonably requested by the Bank.
3.2 CONDITIONS PRECEDENT TO EACH LOAN
The obligation to disburse any Loan at any time (including any Loan
made on the date of this Agreement) is subject to the performance by the
Borrower of all its obligations under this Agreement and to the satisfaction of
the following further conditions:
(a) Timely receipt by the Bank of the appropriate Notice of
Borrowing from the Borrower;
(b) The representations and warranties contained in Sections 4.1(a)
through 4.1(g) hereof are true and accurate in all material respects as though
made on and as of the date of the Notice of Borrowing and the date of the Loan
requested therein;
(c) No Default or Event of Default has occurred and is continuing
on the date of the Notice of Borrowing and the date of the Loan and no Default
or Event of Default shall occur as a result of the making of the Loan; and
(d) Receipt by the Bank of such additional information concerning any
of the matters set forth in Article IV hereof as may be reasonably requested by
the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants for the benefit of the Bank as
follows:
(a) All financial statements, information and other data furnished by the
Borrower to the Bank in connection with the Borrower's application for credit
hereunder are, in all material respects, accurate and correct as of the date
thereof and such financial statements have been prepared in accordance with
generally accepted accounting principles and practices consistently applied and
accurately represent the financial condition of the Borrower;
(b) The Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California and has all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute, deliver and to perform all of its obligations under
this Agreement;
(c) The making and the performance by the Borrower of this Agreement have
been duly authorized by all necessary corporate action and do not contravene any
provision of law or of the Borrower's amended Articles of Incorporation or By-
Laws or of any indenture or agreement or instrument to which the Borrower is a
party or by which the Borrower or its properties may be bound or affected, and
this Agreement is binding on the Borrower;
(d) The Loans have been duly authorized by an order of the Public
Utilities Commission of the State of California, and any governmental authority,
commission or entity whose authorization is required, or, if such authorization
has not been obtained, such authorization is not required;
(e) No Default or Event of Default has occurred and is continuing or
would result from the incurring of obligations by the Borrower under this
Agreement;
(f) None of the proceeds of any Loan hereunder will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" (as defined in Regulation U, as
amended from time to time, of the Board). The Borrower is not engaged
principally, as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stocks within
the meaning of said Regulation U; and
(g) Each Plan is in substantial compliance with
ERISA; no Plan is insolvent or in reorganization; no Plan has any material
Unfunded Current Liability; no Plan has an accumulated or waived funding
deficiency or permitted decreases in its funding standard account within the
meaning of Section 412 of the Code; neither the Borrower, any Subsidiary nor any
ERISA Affiliate has incurred any material liability to or on account of a Plan
pursuant to Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to
incur any liability under any of the foregoing Sections on account of the
termination of participation in or contributions to any such Plan; no
proceedings have been instituted to terminate any Plan in a distressed
termination; no condition exists which presents a material risk to the Borrower
or any Subsidiary of incurring a liability to or on account of a Plan pursuant
to the foregoing provisions of ERISA and the Code; no lien imposed under the
Code or ERISA on the assets of the Borrower or any Subsidiary exists or is
likely to arise on account of any Plan; and the Borrower and each Subsidiary may
terminate contributions to any other employee benefit plans maintained by them
without incurring any material liability to any person interested therein.
ARTICLE V
COVENANTS OF THE BORROWER
5.1 COVENANTS OF THE BORROWER
So long as this Agreement shall be in effect and the Commitment has
not been terminated, and until the full and final payment of all principal of,
and interest on, all Loans and all other obligations hereunder, the Borrower
shall, unless the Bank shall otherwise consent in writing:
(a) Furnish the Bank with copies of the Borrower's 10-K statements,
10-Q statements, and other periodic statements, Registration Statements, 8-K
reports and any and all other reports, statements, or documents filed with the
Securities and Exchange Commission, promptly after such filings are made, and
(i) with respect to the Borrower's 10-K statements, in no event later than one
hundred twenty (120) days after the end of each year, and (ii) with respect to
the Borrower's 10-Q statements, in no event later than ninety (90) days after
the end of each quarter; and promptly after any request by the Bank such other
information regarding the Borrower's activities as the Bank may reasonably
request;
(b) Promptly upon demand by the Bank, pay to and reimburse the Bank
for all costs and expenses incurred by the Bank, by reason of payment by the
Bank of any governmental charges, taxes (other than taxes levied on earned
income) and penalties imposed on this Agreement or any other instrument issued
hereunder; and
(c) As soon as possible and, in any event, within ten (10) days after
the Borrower or any Subsidiary knows or has reason to know of the occurrence of
any of the following events, the Borrower or such Subsidiary, as the case may
be, will deliver to the Bank a certificate of the chief financial officer or
vice president of finance of the Borrower or such Subsidiary, as the case may
be, setting forth details as to such occurrence and such action, if any, which
the Borrower or such Subsidiary is required or proposes to take, together with
any notices required or proposed to be given to or filed with or by the Borrower
or such Subsidiary, the PBGC, a Plan participant or the Plan administrator with
respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application may be or has been made
to the Secretary of Labor for a waiver or modification of the minimum funding
standard (including any required installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to a Plan; that
a Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability
giving rise to a lien under ERISA, that proceedings may be or have been
instituted to terminate a Plan; that a proceeding has been instituted pursuant
to Section 515 of ERISA to collect a delinquent contribution to a Plan; or that
the Borrower or a Subsidiary or any ERISA Affiliate will or may incur any
liability (including any contingent or secondary liability) to or on account of
the termination of or withdrawal from a Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA. The Borrower will deliver to the Bank a complete copy
of the annual report (Form 5500) of each Plan required to be filed with the
Internal Revenue Service. In addition to any certificates or notices delivered
to the Bank pursuant to the first sentence hereof, copies of annual reports and
any other notices received by the Borrower or Subsidiary required to be
delivered to the Bank shall be delivered to the Bank no later than ten (10) days
after the later of the date such report or notice has been filed with the
Internal Revenue Service or the PBGC, given to Plan participants, or received
by the Borrower or any Subsidiary.
ARTICLE VI
EVENTS OF DEFAULT
6.1 DEFAULT
Upon the occurrence of any of the following events (each an "Event of
Default"):
(a) The Borrower shall fail to pay when due the principal amount of
any Loans; PROVIDED, HOWEVER, that if a Loan is converted pursuant to Section
2.6(b) or 2.6(c) hereof, then the failure to pay the principal amount of such
Loan, when due, shall not be deemed an Event of Default under this Section
6.1(a);
(b) The Borrower shall fail to pay, when due, any installment of
interest or any Commitment Fee due under this Agreement and such failure
continues for seven (7) days after written notice of such non-payment from the
Bank to the Borrower or, if the giving of such notice is not permitted or is
otherwise restricted by law, then such failure continues for seven (7) days;
(c) Any representation or warranty herein or in any agreement,
instrument or certificate executed pursuant hereto or in connection with any
transactions contemplated hereby shall prove to have been false or misleading
in any material respect when made or when deemed to have been made;
(d) The Borrower shall breach or default under any term or provision
of this Agreement not otherwise provided for in this Article VI within thirty
(30) days after written notice of breach or default from the Bank to the
Borrower;
(e) Any default shall occur under any other agreement involving the
borrowing of money or any extension of credit to which the Borrower may be a
party as obligor, if such default gives, or with the giving of notice or the
lapse of time or both would give, to the holder of the obligation the right to
accelerate the obligation or if the Borrower fails to pay any such obligation
when due (including any applicable cure periods) within seven (7) days after
written notice from the Bank to the Borrower;
(f) The Borrower shall fail to pay, when due, debts in excess of Ten
Million Dollars ($10,000,000);
(g) The Borrower shall fail to pay debts generally as they come due,
or admits in writing its inability to pay its debts as such debts become due,
files any petition or action for relief under any bankruptcy, reorganization,
insolvency, or moratorium law or any other law for the relief of, or relating
to, debtors, now or hereafter in effect, makes any assignment for the benefit
of creditors, or takes any corporate action in furtherance of any of the
foregoing;
(h) An involuntary petition shall be filed under any bankruptcy
statute against the Borrower, or a custodian, receiver, trustee, assignee for
the benefit of creditors (or other similar official) shall be appointed to take
possession, custody or control of the properties of the Borrower, unless such
petition or appointment is set aside or withdrawn or ceases to be in effect
within sixty (60) days from the date of said filing or appointment;
(i) Any financial statements, profit and loss statements or other
statements furnished by the Borrower to the Bank prove to be false or incorrect
in any material respect;
(j) There is any material change in the financial condition of the
Borrower which the Bank, in good faith, believes will impair the prospect of
payment or performance by the Borrower hereunder and which is not remedied
within seven (7) days following notice thereof from the Bank; or
(k) Any Plan shall fail to maintain the minimum funding standard
required for any Plan year or part thereof or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412 of
the Code; any Plan is, shall have been or is likely to be terminated or the
subject of termination proceedings under ERISA; any Plan shall have an Unfunded
Current Liability; or the Borrower or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under
Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; and there shall result
from any such event or events the imposition of a lien upon the assets of the
Borrower or any Subsidiary, the granting of a security interest, or a liability
or a material risk of incurring a liability to the PBGC or a Plan or a trustee
appointed under ERISA or a penalty under Section 4971 of the Code, which, in the
opinion of the Bank, will have a material adverse effect upon the business,
operations, condition (financial or otherwise) or prospects of the Borrower;
then, and in any such event, and at any time thereafter if an Event of Default
shall then be continuing, the Bank may take any or all of the following actions
(PROVIDED, THAT, if an Event of Default specified in Sections 6.1(g) or 6.1(h)
shall occur, the result which would occur upon the giving of written notice by
the Bank to the Borrower as specified in clauses (i) and (ii) below shall occur
without the giving of any such notice):
(i) Declare the Commitment terminated, whereupon any Commitment
Fee shall forthwith become due and payable without any other notice of any kind;
(ii) Declare the principal of and any accrued interest in respect
of all Loans and all other obligations owing hereunder to be, whereupon the same
shall become, forthwith due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower; and
(iii) Pursue any other remedies available to the Bank under this
Agreement or at law or equity.
ARTICLE VII
MISCELLANEOUS
7.1 NOTICE
All notices, requests or demands to or upon the Borrower shall be
given or made at the address set forth below:
BORROWER
NAME ADDRESS
San Diego Gas & Electric P.O. Box 1831
Company San Diego, California 92112
Attn: Cash Management
Supervisor
All notices, requests or demands to or upon the Bank shall be given or
made at the address set forth in Annex 1 hereto.
Except as otherwise provided herein, all such notices, requests and
demands given or made in connection with the terms and provisions of this
Agreement shall be deemed to have been given or made when sent by registered
mail, postage prepaid or, in case of telegraphic notice, when delivered to the
telegraphic company, addressed as specified in this Section 7.1 or by telephonic
contact followed by immediate written confirmation.
7.2 PAYMENT OF EXPENSES
The Borrower hereby agrees to pay all reasonable costs and expenses
(including, without limitation, the fees and disbursements of outside counsel
and the allocated costs, fees and disbursements for in-house legal services) of
the Bank in connection with: (a) the preparation, execution, delivery and
administration of this Agreement and the documents and instruments referred to
herein and any amendment, waiver, amendment or consent relating hereto or
thereto, (b) the enforcement of this Agreement and the documents and instruments
referred to herein, and (c) any refinancing or restructuring of the Commitment
in the nature of a "work-out".
7.3 DELAY
No failure to exercise, and no delay in exercising, on the part of the
Bank, of any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies otherwise
provided by law.
7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations, warranties, covenants and agreements of the Borrower
contained herein shall survive the making of Loans hereunder and shall continue
in full force and effect so long as any amount is outstanding hereunder.
7.5 WAIVER
This Agreement and any term or provision hereof may be changed,
waived, discharged or terminated by an instrument in writing executed by the
Borrower and the Bank. Any such change, waiver, discharge or termination
effected as above provided in this Section 7.5 shall be effective for all
purposes even as against the Bank and its successors or assigns who have not
joined therein.
7.6 DELIVERY OF DOCUMENTS
The Borrower agrees that any time or from time to time, upon the
written request of the Bank, the Borrower will execute and deliver such further
documents and do such further acts and things as the Bank may reasonably request
in order to fully effect the purposes of this Agreement and to provide for the
payment of the principal and the interest of any Loan made hereunder in
accordance with the terms and provisions hereof.
7.7 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the Bank,
the Borrower, and their respective successors and assigns. The Bank may at any
time sell, assign, grant participations in, or otherwise transfer to any other
person, firm, or corporation (a "Participant") all or part of the obligations
of the Borrower under this Agreement. The Borrower agrees that each such
disposition will give rise to a direct obligation of the Borrower to the
Participant. The Borrower authorizes the Bank and each Participant, upon the
occurrence of an Event of Default, to proceed directly by right of setoff or
banker's lien against any property of the Borrower in the possession of or under
the control of the Bank or such Participant, respectively. The Borrower
authorizes the Bank to disclose to any prospective Participant and any
Participant any and all information in Bank's possession concerning the Borrower
and this Agreement. The Participant shall, for the purposes of Section 2.12 of
this Agreement, be considered to be the "Bank,"; PROVIDED THAT, the Borrower
shall not have to pay any additional amounts under Section 2.12 of this
Agreement to such Participant unless such amount would have been payable to the
Bank.
7.8 GOVERNING LAW
This Agreement and all other agreements and instruments executed hereunder,
and the rights and obligations of the parties hereunder, shall be governed by
and construed and interpreted in accordance with the laws of the State of
California.
7.9 EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
hereinabove written.
SAN DIEGO GAS & ELECTRIC COMPANY
By______________________________
Title:__________________________
CIBC, INC.
By______________________________
Title:__________________________
ANNEX 1
(Effective December 1, 1993 to October 31, 1994)
This Annex 1 is attached to and forms a part of the Loan Agreement, dated
as of December 1, 1993, between CIBC, Inc. and San Diego Gas and Electric
Company (the "Borrower").
NAME OF BANK CIBC, Inc.
Amount of Bank $10,000,000
Commitment (ten million dollars)
Commitment Fee Rate One-tenth of one percent (.1%) on unused portion
payable quarterly in arrears.
Expiration Date of
Availability Period October 31, 1994
CD Rate Margin One-quarter of one percent (1/4%)
Offshore Rate Margin One-quarter of one percent (1/4%)
Bank Account of the Bank of America
Borrower 1850 Gateway Blvd., Concord, CA
ABA #121000358
San Diego Gas & Electric Company
Account #00506-00076
Domestic Lending Office Maryann Stathis, Senior Associate
Treasury Services, CIBC - Atlanta
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, GA 30339
Telephone: (404) 319-4831
Telecopier: (404) 319-4950
Telex: 54-5413
Wire Instructions:
Morgan Guaranty Bank
New York, New York
ABA #021-000-238
f/a CIBC - New York
# 630-00-480
Attn: Credit Operations, Atlanta
Ref: San Diego Gas & Electric Co.
Offshore Lending Office Same as "Domestic Lending Office"
Bank Contact for Loan Maryann Stathis, Senior Associate
Advances, Repayments, Ref: "Domestic Lending Office"
Repricing and Rollovers
Address for Notices Clare C. Coyne, Senior Associate
to Bank for Adminis- Credit Operations, CIBC - Atlanta
trative Matters Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, GA 30339
Telephone: (404) 319-4836
Telecopier: (404) 319-4950
Telex: 54-2413
EXHIBIT 10.8
Amendment to Restated Contract.
This Amendment is entered into as of the 26th day of March, 1993, by and between
San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company
(SoCalGas), to amend the Restated Long-Term Natural Gas Service Contract between
the parties dated September 1, 1990 ("Restated Contract"). All definitions set
forth in the Restated Contract are incorporated by reference herein as if set
forth in full.
NOW THEREFORE, in consideration of the promises and mutual understandings set
forth below, the parties agree as follows:
1. Firm Interstate Pipeline Capacity
(a) Notwithstanding any provision in the Restated Contract, SDG&E's
reservation of interstate pipeline capacity from SoCalGas under the Restated
Contract shall be reduced from 300 MMcf/d (310,500 Dth/d) to 90 MMcf/d (93,150
Dth/d), which is consistent with California Public Utilities Commission (CPUC)
Decision No. D.91 025, as supplemented by D.92-07-025 and Resolution No. G-3023.
The 93,150 Dth/d shall consist of 67,275 Dth/d on the El Paso interstate
pipeline system, and 25,875 Dth/d on the Transwestern pipeline system. This
reservation of interstate capacity is for SDG&E's core load usage. The
interstate capacity for both interstate gas pipelines will be assigned to SDG&E
via Pre-Arranged Deal, and, subject to acceptance by such interstate pipelines,
the assignments shall be made effective upon the date of full implementation of
the CPUC's capacity brokering rules in accordance with Resolution No. G-3023.
In the event of partial implementation of capacity brokering, the 25,875 Dth/d
of interstate capacity on the Transwestern pipeline will be assigned to SDG&E
upon the implementation date of such partial implementation in accordance with
D.92-07-025 and Resolution No. G-3045.
(b) Notwithstanding any provision in the Restated Contract, as of the
implementation date of the CPUC's Capacity Brokering rules (currently
contemplated to occur on August 1, 1993), Transwestern and El Paso interstate
demand charges shall, consistent with D.9111-025 and D.92-07-025, be removed
from the rates charged to SDG&E under the Restated Contract. In the event of a
partial implementation of Capacity Brokering, only the Transwestern pipeline
demand charges shall be removed from SDG&E's rates on the date of such partial
implementation. Upon such partial implementation, the El Paso demand charges
shall be removed thereafter from the rates charged to SDG&E immediately upon
full implementation of Capacity Brokering.
2. Rate Changes
To accommodate changes to rates in the future resulting from CPUC actions,
Section 3.1.6 of the Restated Contract is amended as follows:
(a) Demand Charge and Volumetric charges in Sections 3.1.1 and 3.1.2 shall
be adjusted one (1) time during each Contract Year starting from the base
established by CPUC Decision D.90-01-015, consistent with any subsequent CPUC
Cost Allocation Proceeding or other CPUC decisions. SoCalGas shall be entitled
to select the date of adjustment for any Contract Year, which date shall in no
event be prior to effective date(s) of the Cost Allocation Proceeding or other
CPUC decision(s) on which it is based. Subsequent Cost Allocation Proceedings
or other CPUC decision(s) during such Contract Year, issued after the date
selected by SoCalGas for the next Contract Year, shall become effective as of
the date selected by SoCalGas for the next Contract Year immediately following.
Adjustments or refunds deferred from a contract year to the next immediately
following Contract Year shall be subject to interest from the effective date of
the CPUC Decision applicable thereto. Such interest, whether payable by SDG&E
(for any increase) or SoCalGas (for any decrease), shall be calculated at the
interest rate applicable to SoCalGas' balancing accounts under section F of the
SoCalGas Tariff Preliminary Statement, or its successor. Thus, for example, the
difference in authorized rates computed from a CPUC CAP (Cost Allocation
Proceeding) decision which is effective on October 1 of a Contract Year, but not
translated to a rate change under this Contract until the following January 1,
shall also reflect three (3) months interest thereon.
(b) Amended Appendix B is attached hereto and incorporated herein to
demonstrate how such adjustments to the rates will be made. As of March 16,
1990, the Amended Appendix B supersedes and replaces the previous Appendix B.
A new Appendix B shall be agreed upon and automatically incorporated by
reference herein as of the effective date therefor established under Section
3.1.6(a).
(c) Demand Charge and Volumetric charges in Sections 3.1.1 and 3.1.2 may
also be adjusted, as mutually agreed between SoCalGas and SDG&E more than once
each year to coincide with the timing of implementation of the CPUC CAP or other
CPUC decisions.
3. Continuation of Restated Contract
Except as set forth in this Amendment, the Restated Contract shall continue in
full force and effect.
NOW THEREFORE, the authorized representatives of the parties have executed two
(2) duplicate copies of this Amendment as of the date first set forth above.
SAN DIEGO GAS & ELECTRIC COMPANY SOUTHERN CALIFORNIA GAS COMPANY
By _____________________________ By _____________________________
Edwin A. Guile Eric . Nelson
Title Senior VP, Energy Supply Title: Manager of Major Markets
EXHIBIT 12.1
SAN DIEGO GAS & ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
(Unaudited)
Fixed Charges:
Interest:
Long-Term Debt $ 87,962 $ 97,894 $ 98,802 $100,776 $ 93,402
Short-Term Debt 13,984 12,301 8,234 6,242 7,980
Amortization of Debt
Discount and Expense,
Less Premium 2,420 2,465 2,471 2,881 4,162
Interest Portion of
Annual Rentals 23,664 20,898 18,067 14,677 19,206
---------- ---------- ---------- ----------- ----------
Total Fixed
Charges 128,030 133,558 127,574 124,576 124,750
---------- ---------- ---------- ----------- ----------
Preferred Dividends
Requirements 11,202 10,863 10,535 9,600 8,565
Ratio of Income Before
Tax to Net Income 1.79480 1.75499 1.63017 1.72369 1.67794
---------- ---------- ---------- ----------- ----------
Preferred Dividends
for Purpose of Ratio 20,105 19,064 17,174 16,547 14,372
---------- ---------- ---------- ---------- ----------
Total Fixed Charges
and Preferred
Dividends for
Purpose of Ratio $148,135 $152,622 $144,748 $141,123 $139,122
========== ========== ========== ========== ==========
Earnings:
Net Income (before
preferred dividend
requirements) $179,434 $207,841 $208,060 $210,657 $218,715
Add:
Fixed Charges
(from above) 128,030 133,558 127,574 124,576 124,750
Less: Fixed Charges
Capitalized 3,481 3,306 2,907 2,242 5,789
Taxes on Income 142,614 156,917 131,114 152,451 148,275
---------- ---------- ---------- ---------- ----------
Total Earnings for
Purpose of Ratio $446,597 $495,010 $463,841 $485,442 $485,951
========== ========== ========== ========== ==========
Ratio of Earnings
to Combined Fixed
Charges and Preferred
Dividends 3.01 3.24 3.20 3.44 3.49
========== ========== ========== ========== ==========
EXCERPT FROM TEN-YEAR SUMMARY PAGES 16-17
In millions of dollars except per share amounts
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
For the years ended December 31
Operating revenues $1,980.1 $1,870.9 $1,789.0 $1,771.9 $1,669.5
Operating income 293.7 296.3 315.5 314.0 284.8
Net income (before preferred
dividend requirements) 218.7 210.7 208.1 207.8 187.1
Earnings per common share 1.81 1.77 1.76 1.76 1.57
Dividends declared per common share 1.48 1.44 1.3875 1.35 1.35
At December 31
Total assets 4,702.2 4,199.8 3,747.6 3,656.6 3,546.5
Long-term debt and preferred stock
subject to mandatory redemption
(excludes current portion)*** 1,525.0 1,651.9 1,331.2 1,337.1 1,287.2
*Includes ($7.7) million from the cumulative effect of change in accounting
principle.
**Includes ($0.07) for cumulative effect of change in accounting principle.
***Includes long-term debt redeemable within one year.
This summary should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements contained elsewhere
in this report.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
San Diego Gas & Electric Company is an operating public utility engaged in the
electric and gas businesses. SDG&E generates and purchases electric energy and
distributes it to 1.1 million customers in San Diego County and an adjacent
portion of Orange County, California. It also purchases natural gas and
distributes it to 690,000 customers in San Diego County. SDG&E also transports
electricity and gas for others.
SDG&E has diversified into other businesses. SDG&E owns an 80-percent share of
Wahlco Environmental Systems, which designs and manufactures air-pollution
control and power-efficiency equipment for electric utilities and other power
producers, refineries, and other manufacturers. Wholly owned Enova Corporation
invests in limited partnerships representing about 300 affordable-housing
projects located throughout the United States. Wholly owned Califia Company
leases computer equipment. The investments in Enova and Califia are expected to
provide income tax benefits over the next several years. Additional information
regarding SDG&E's subsidiaries is described in Note 2 of the notes to
consolidated financial statements.
REVENUES
Electric revenues increased 5 percent in 1993 and 7 percent in 1992. The 1993
increase reflects higher authorized costs and increased sales to other
utilities. The 1992 increase reflects higher authorized costs and higher
volumes as a result of warmer weather.
Gas revenues increased 3 percent in 1993 and decreased 1 percent in 1992. The
1993 increase reflects higher authorized costs, partially offset by lower sales
volume as a result of customers' purchases of gas directly from other
suppliers. The 1992 decrease reflects lower sales volume due to warmer weather
and customers' purchases of gas directly from other suppliers, partially offset
by higher authorized costs.
Revenues from diversified operations contributed 6 percent of SDG&E's
consolidated revenues in 1993, 5 percent in 1992 and 5 percent in 1991. The
1993 increase in revenues from diversified operations primarily resulted from
Califia's leasing activities. Wahlco's revenues remained the same in 1993 after
decreasing in 1992 due to lower sales of flue gas conditioning systems. The
market for flue gas conditioning systems has not developed in the United States
as a result of many companies' delaying decisions on how to comply with the
Clean Air Act. Wahlco also faces increasing competition from the availability
of federal pollution credits, suppliers of lower-cost alternative systems and
other options. In late 1993 Wahlco recorded a restructuring charge to reflect
the planned relocation of Wahlco's manufacturing operations in Canada and West
Virginia to its other U.S. facilities.
OPERATING EXPENSES
Purchased-power expense increased in 1993 due to purchases of short-term energy
to replace lower-cost nuclear generation resulting from the refueling of the
San Onofre Nuclear Generating Station Units 2 and 3 during 1993 and the
permanent shutdown of Unit 1 in late 1992. Electric fuel expense remained the
same in 1993, reflecting lower generation offset by higher prices for natural
gas. Electric fuel and purchased-power expense increased in 1992 primarily
due to higher volumes.
The decrease in gas purchased for resale in 1993 reflects the lower sales
volumes resulting from customers' purchases of gas directly from other
suppliers, partially offset by higher prices for natural gas. Gas purchased for
resale decreased in 1992 due to lower volumes and customers' purchases of gas
directly from other suppliers.
Other operating expenses increased in 1993 primarily due to higher utility
operating and maintenance expenses, higher subsidiary operating expenses
arising from Califia's increased leasing activities and higher depreciation as
a result of the accelerated recovery of SDG&E's remaining investment in SONGS
Unit 1. Other operating expenses increased in 1992 primarily due to new energy
conservation programs.
OTHER INCOME AND DEDUCTIONS
The only significant change in other income and deductions was the 1992
increase due to the shutdown of SONGS Unit 1 and the related rate recovery
of Unit 1 costs.
EARNINGS
In 1993 earnings per common share were $1.81, compared to earnings of
$1.77 in 1992 and $1.76 in 1991. The increase in earnings in 1993 is due
primarily to improved subsidiary results. The increase in earnings in 1992 is
due primarily to the rate recovery of SONGS Unit 1 costs and to the partial
restoration of the California Public Utilities Commission's 1989 Southwest
Powerlink disallowance, partially offset by subsidiary losses and the $15
million merger termination fee paid by Southern California Edison in 1991 and
the related income tax benefit from the merger expenses that SDG&E incurred in
prior years.
SDG&E's nonutility subsidiaries contributed 2 cents to earnings per common
share in 1993, reduced earnings by 12 cents per common share in 1992 and
contributed 5 cents per common share to earnings in 1991.
LIQUIDITY AND CAPITAL RESOURCES
Utility operations continue to be a major source of liquidity for SDG&E. In
addition, SDG&E's financing needs are met primarily through issuances of short-
and long-term debt and of common and preferred stock. These capital resources
are expected to remain available. Cash requirements include plant construction
and other capital expenditures, subsidiaries' affordable-housing and leasing
investments, and retirements of long-term debt.
18
CASH FLOWS FROM OPERATING ACTIVITIES
The major changes in cash flows from operations among the three years result
from changes in regulatory balancing accounts, income taxes, and accounts
payable and other current liabilities. The change in cash flows related to
regulatory balancing accounts in 1993 compared to 1992 was due primarily to
higher prices for natural gas and the replacement of lower-cost nuclear
generation with purchased power and gas-fired generation due to the refueling
of SONGS Units 2 and 3 during 1993 and the shutdown of SONGS Unit 1 in
late 1992. The change in cash flows related to regulatory balancing accounts
in 1992 compared to 1991 was due primarily to the higher cost of fuel and
purchased power, partially offset by higher sales volume in 1992. The changes
in cash flows related to income taxes were due primarily to higher income
tax payments in 1992 in connection with a preliminary settlement with the
Internal Revenue Service on the timing of certain deductions in prior
years. The changes in cash flows related to accounts payable and other
liabilities were due primarily to 1991 gas-supplier refunds that were applied
to customers' bills in 1992.
CASH FLOWS FROM FINANCING ACTIVITIES
During 1993 SDG&E issued $370 million of first mortgage bonds and other
long-term debt, including $179 million of tax-exempt Industrial Development
Bonds issued through the City of San Diego and $60 million of tax-exempt
Pollution Control Bonds issued through the California Pollution Financing
Authority. The cash flows from these issuances and from operations were used
to refinance higher-cost IDBs, other first mortgage bonds and other
long-term debt. In addition, SDG&E reacquired preferred stock at a cost of
$65 million and issued $51 million of preferred stock at a lower dividend
rate. SDG&E plans to issue $55 million of preferred stock in 1994. Through
its employee savings and common stock investment plans, SDG&E issued
$39 million of common stock in 1993 and plans no such issues in 1994.
SDG&E's utility capital structure is one factor that has enabled it to obtain
long-term financing at attractive rates. The following table shows the
percentages of capital represented by the various components. The capital
structures are net of the construction funds held by a trustee in 1992 and
1993.
1989 1990 1991 1992 1993 Goal
---------------------------------------------------
Common equity 45% 45% 47% 47% 47% 45-48%
Preferred stock 6 6 5 5 4 5-7
Debt and leases 49 49 48 48 49 46-49
---------------------------------------------------
Total 100% 100% 100% 100% 100% 100%
During 1993 the major credit-rating agencies issued statements indicating that
competition and changes in regulation are subjecting utilities to greater
risks. In October 1993 Standard & Poor's Corporation, after completing a review
of the industry, concluded that more stringent risk-assessment standards were
appropriate and revised ratings outlooks for about one-third of the utilities
from "stable" to "negative." SDG&E's outlook is rated "negative." However,
SDG&E's long-term debt ratings have not changed since 1985. Moody's Investors
Service and Standard & Poor's recently reaffirmed their ratings of Aa3 and A+,
respectively, for SDG&E's long-term debt.
CASH FLOWS FROM INVESTING ACTIVITIES
Sources of cash for investing activities in 1993 included $190 million
withdrawn from the construction trust fund, into which $248 million of
proceeds from issuances of IDBs was deposited in 1992. Cash used in
investing activities in 1993 included utility construction expenditures,
payments to the nuclear decommissioning trust, and subsidiaries' leasing
activities and investments in affordable-housing projects. Construction
expenditures, excluding nuclear fuel and the allowance for equity funds used
during construction, were $354 million in 1993 and are estimated to be about
$260 million in 1994. SDG&E continuously reviews its construction, investment
and financing programs and revises them in response to changes in competition,
customer growth, inflation, customer rates, the cost of capital, and
environmental and regulatory requirements. Among other things, the level of
expenditures in the next few years after 1994 will depend heavily on the timing
of expenditures to comply with air emission reduction and other environmental
requirements, and on whether SDG&E proceeds with its proposed South Bay Repower
project and its plan to transport natural gas to Mexico. These matters are
discussed below.
Payments to the nuclear decommissioning trust are expected to continue until
the units are decommissioned, which is not expected to occur before 2014.
Although Unit 1 was permanently shut down in 1992, it is expected to be
decommissioned concurrently with Units 2 and 3.
REGULATORY MATTERS
ELECTRIC RATES
In December 1993 the CPUC issued decisions on the 1994 Cost of Capital and
Operational Attrition proceedings, authorizing returns on equity from 10.85
percent to 11.1 percent for the six energy utilities under the CPUC's
jurisdiction. This is a decrease from 1993 authorized returns which ranged
from 11.8 percent to 11.95 percent. The CPUC lowered the rates of return
of California utilities due to its concern for California's poor economy. The
CPUC authorized a 10.85 percent return on equity for SDG&E (compared to 11.85
percent for 1993), for an overall rate of return of 9.03 percent (compared to
9.94 percent for 1993). The CPUC also authorized an attrition increase which
19
results in a $1 million increase in electric and gas rates when combined with
the effects of the Cost of Capital decision. The attrition increase reflects
expected higher operating and maintenance expenses, capital expenditures and
other non-fuel costs associated with SDG&E's 1994 operations. The CPUC's
decision was effective January 1, 1994.
On July 21, 1993 the CPUC issued its decision on the forecast phase of SDG&E's
1993 Energy Cost Adjustment Clause proceeding, approving a $53 million increase
in electric rates effective August 1, 1993. The increase reflects higher fuel
and purchased-power expenses and the recovery of SDG&E's remaining investment
in SONGS Unit 1.
On September 29, 1993 SDG&E filed its 1994 ECAC application and has requested
an increase of $56 million in electric rates to cover expected higher fuel and
purchased-power expenses, and recovery of prior undercollections from
customers. A CPUC decision is expected in May 1994 with rates effective June 1,
1994. The CPUC is reviewing the reasonableness of SDG&E's fuel and
purchased-power expenses and operations for the ECAC periods from August 1,
1991 to July 31, 1993. CPUC decisions are expected in 1994. Included will be
the CPUC's assessment of SDG&E's administration of its 75-megawatt
purchased-power contract with Portland General Electric for the three years
ended July 31, 1992.
GAS RATES
During 1992 the CPUC initiated its Gas Bypass Rulemaking proceeding
to consider rules allowing utilities to discount prices to avoid losing
customers who would otherwise have their gas transported by others. The CPUC
may also eliminate balancing account coverage for transportation costs
associated with noncore customers, which would increase utilities' risk of
recovering certain costs. A CPUC decision is expected in 1994.
On May 19, 1993 the CPUC issued its Long-Run Marginal Cost decision, requiring
a larger portion of gas transportation costs to be allocated to residential
customers, thereby lowering rates for large industrial customers. The decision
is intended to help California industries become more competitive, and
will reduce the large industrial customers' incentives to leave utilities'
systems. The decision reduced SDG&E's annual payments to Southern California
Gas Company by $5 million, effective June 1, 1993, and results in significantly
lowered rates for SDG&E's large industrial customers, with only slightly
increased rates for SDG&E's residential customers.
The Federal Energy Regulatory Commission's Order 636 required interstate
pipeline companies to make pipeline capacity directly available to retail and
wholesale customers by November 1, 1993. In addition, the CPUC's Gas Capacity
Brokering decision required SoCal Gas to make its long-term rights to
interstate capacity available to its retail and wholesale customers beginning
in August 1993. As a result SDG&E reduced its commitment to SoCal Gas for firm
interstate pipeline capacity to reflect its core customer demand, allowing
SDG&E to bid for capacity to meet its noncore customer demand as needed on a
short-term basis (core customers are primarily residential and commercial
customers).
In September 1993 SDG&E filed its Biennial Cost Allocation Proceeding
application to recover higher expected natural gas prices and to recover prior
undercollections of gas costs. On January 1, 1994 the CPUC approved a portion
of SDG&E's application, authorizing a $10 million increase in SDG&E's gas rates
to reflect SoCal Gas's request for interim rate relief to recover stranded
costs associated with SoCal Gas's long-term interstate transportation
contracts. A decision on the remainder of the BCAP application is expected in
late 1994.
SAN ONOFRE NUCLEAR GENERATING STATION UNIT 1
In November 1992 the CPUC issued a decision to permanently shut down SONGS
Unit 1. The decision authorized Edison and SDG&E to recover their investments
in Unit 1, of which SDG&E's share was $111 million, over a four-year period.
SDG&E is authorized to recover its investment earning a return of 9.1 percent.
PERFORMANCE-BASED RATEMAKING
In October 1992 SDG&E applied to the CPUC to implement performance-based
ratemaking, requesting incentive regulation for: 1) gas procurement and
transportation; 2) electric generation and purchased power; 3) base rates and
4) long-term electric-resource procurement.
On June 23, 1993 the CPUC approved the first two mechanisms on a two-year
experimental basis beginning August 1, 1993. These mechanisms will measure
SDG&E's ability to purchase and transport natural gas and to generate energy or
purchase short-term energy at the lowest possible cost, by comparing SDG&E's
performance against various market benchmarks. SDG&E's shareholders and
customers will share in any savings or excess costs within predetermined
ranges.
Under the proposed base-rate mechanism, SDG&E would forego its 1996 General
Rate Case (although SDG&E's annual cost of capital proceeding would be
continued) and utilize the proposed base-rate mechanism for a five-year period
beginning in May 1994. The mechanism has three components, which incorporate a
range of possible shareholder benefits and risks. The first is a formula
similar to the current attrition mechanism used to determine SDG&E's annual
revenue requirement for operating, maintenance and capital expenditures. The
second consists of a set of indicators which determine performance standards
for customer rates, employee safety, electric system reliability and customer
satisfaction. The third component establishes a revenue-sharing mechanism based
on SDG&E's rate of return.
20
On December 7, 1993 SDG&E; the CPUC's Division of Ratepayer Advocates; and the
U.S. Navy, SDG&E's largest customer, filed testimony agreeing on the base-rate
mechanism. However, the Utility Consumers' Action Network, a utility-customer
advocate group, filed with the CPUC a request for modification of SDG&E's
proposal. The City of San Diego has filed a request to participate in the
proceeding. On January 14, 1994 SDG&E filed rebuttal testimony to UCAN's
petition. Hearings were concluded on January 28, 1994. A CPUC decision is
expected in the second quarter of 1994.
SDG&E expects the long-term electric-resource procurement mechanism to be
addressed after proceedings on the base-rate mechanism. This proposal, which
does not have a risk-sharing mechanism, calls for a bidding system, under which
SDG&E would compete with other utilities and nonutility producers to provide
long-term generating resources, including long-term purchased capacity, to
SDG&E customers. This mechanism would replace the Biennial Resource Plan Update
proceeding with a market-based approach to long-term electric-resource
procurement. The CPUC would have final approval of the resources selected by
SDG&E.
RESOURCE PLANNING
During the period 1994 through 1997, SDG&E is projecting an electric load
growth of 1 percent to 1.5 percent per year for both sales and peak demand. The
combination of load growth and terminating purchased-power contracts results in
a need for additional capacity.
In June 1993 the CPUC issued its final decision on the BRPU proceeding,
requiring SDG&E to competitively bid for 491 mw of capacity beginning in 1997,
including alternatives to SDG&E's proposed 291-mw Encina Repower project. The
decision also required a minimum of 100 mw to be supplied from renewable
resources such as geothermal, solar- and wind-generated power. On December 9,
1993 SDG&E announced the preliminary list of successful bids, of which the
majority were cogeneration projects and the remainder were wind, geothermal,
solar and biomass projects. Based on preliminary assessments, several of the
bids that represented alternatives to the Encina Repower project were priced
lower than SDG&E's proposal. The winning bids were scheduled to be announced in
May 1994. However, on December 21, 1993 SDG&E filed a Petition for Modification
of the BRPU decision, indicating that SDG&E's customers would be required to
pay up to $800 million in excess energy costs over a 30-year period under the
CPUC's bidding rules. These include the "second-price auction" rule, which
requires SDG&E to reject the lowest bid prices and use the next higher range of
bid prices as the basis for paying for BRPU energy. SDG&E's petition requests
that it pay for the 491 mw of capacity at the lowest bid prices. The petition
also requests that SDG&E be allowed to procure replacement capacity if a
selected bidder is unable to perform under the bid terms.
SDG&E is considering the addition of 500 mw of capacity to its system by either
repowering its South Bay power plant or by purchasing capacity from others.
SDG&E has filed an application with the CPUC for a Certificate of Public
Convenience and Necessity, requesting approval of the South Bay Repower project
and recovery of the project's capital costs and operating and maintenance
expenses in the same manner as a typical qualifying nonutility producer selling
power to SDG&E under a purchased-power contract. SDG&E would be at risk if it
exceeds the proposed cost of construction, financing and operation of the
plant. SDG&E would also be at risk to meet certain performance standards
measuring the plant's efficiency and output.
SDG&E also initiated a competitive bidding process to assess alternatives to
the South Bay Repower project. Bids were submitted by independent power
producers, cogenerators and others. In November 1993 SDG&E announced the
preliminary results of the competitive bidding process. The South Bay Repower
project was found to be competitive based on standardized guidelines
established for all bidders. However, the CPUC is evaluating SDG&E's
application to determine whether the South Bay Repower project would be the
most cost-effective means of supplying additional capacity to SDG&E in 1997.
The project also requires approval by the California Energy Commission. SDG&E
is reconsidering its application and is curtailing preliminary expenditures on
the project pending CPUC resolution of issues arising from the BRPU auction and
clearer direction on how utilities should plan to meet their needs for
additional generating capacity.
COMPETITION
SDG&E faces significant challenges as competition emerges in the electric and
gas industries as a result of ongoing restructuring by federal and state
regulatory authorities. These challenges include price competition, customers'
bypass of SDG&E's electric and gas systems, nonutility generation, transmission
access, retail wheeling, unfavorable economic conditions in California, and
reduced customer growth within SDG&E's service territory.
The CPUC is considering reforming the electric utility industry in California
and has identified several alternatives. One alternative would be to adopt
limited reform by establishing a performance-based ratemaking mechanism, but no
longer assuring utilities' recovery of fuel and other costs. This would be
accomplished through the elimination of balancing accounts and rate adjustment
mechanisms, which stabilize utilities' revenues for fluctuations in sales
volumes and adjust future rates for variance from forecasted costs for fuel and
purchased power. A second alternative would be to adopt retail wheeling in
21
California, allowing commercial and industrial customers to procure energy from
producers other than their local utility. A third alternative would involve a
complete restructuring of the electric industry, which would require utilities
to divest of their power plants and become "common carrier" transmission and
distribution facilities and which would require customers to procure their
energy from others, using the utilities only for transmission.
The CPUC is also considering other means of enhancing competition, by allowing
others to offer services typically performed by utilities. For example, the
CPUC has ordered a test program to see if others could effectively provide
lower-cost energy conservation services to utilities' customers.
The National Energy Policy Act was passed in 1992 to increase competition in
the wholesale electric-generation market and to lower energy prices by easing
restrictions on independent power production and by establishing a new class of
electricity providers called "exempt wholesale generators." This allows both
utilities and nonutility producers to operate generating facilities in more
than one state with fewer restrictions imposed by the federal government. In
certain circumstances the act also authorizes the FERC to require a utility to
provide transmission service for others over its existing facilities or to
build new facilities, if necessary. Recent CPUC decisions also will affect
SDG&E's use of its transmission system. As a result of the CPUC's BRPU
decision, SDG&E will be responsible for upgrading its transmission system and
arranging for the transmission of power to its system from other producers.
Several states are considering adopting retail wheeling, which will allow other
producers to sell energy to a utility's retail customers. However, many issues
and complications still need to be resolved.
As the restructuring of the electric industry evolves, SDG&E will become more
vulnerable to competition. California utilities' rates are significantly higher
than the national average. SDG&E's industrial customers pay electricity prices
that are among the highest in the Southwest. However, since 1989 SDG&E has been
the lowest-cost provider of electricity among the major, investor-owned
California utilities. In addition, SDG&E has a lower concentration of
industrial customers, making its customers a less likely target for outside
competitors. Furthermore, about 50 percent of SDG&E's capacity needs are met
through purchased power, which limits SDG&E's risk of recovering its power
plant investment.
Restructuring of the gas utility industry at the federal and state levels has
allowed customers to bypass utilities as suppliers of natural gas. Nonutility
electric producers may now use a utility's facilities to transport gas
purchased from nonutility suppliers. Also, smaller customers may form groups to
buy gas from another supplier.
SOURCES OF FUEL AND ENERGY
SDG&E's primary sources of fuel and energy include surplus energy from other
utilities in the Southwest and the Northwest, natural gas from Canada and the
Southwest, and uranium from Canada and Germany. SDG&E expects its purchased
fuel and energy costs to remain relatively low in the next few years due to
the continued availability of surplus energy in the Southwest and the
availability of natural gas. During 1993 SDG&E began receiving low-cost gas
from Canada. SDG&E is currently involved in litigation concerning the
contracts for this gas. SDG&E cannot predict the outcome of the litigation
but does not expect that even an unfavorable outcome would have a material
effect on its financial condition or results of operations. SDG&E also
purchases a significant portion of its gas supplies from short-term sources in
the Southwest. Although short-term natural gas supplies and prices remain
volatile due to weather and other conditions, these sources should provide
SDG&E with an adequate supply of low-cost natural gas.
PROPOSED TRANSPORTATION OF GAS TO MEXICO
In 1993 SDG&E and SoCal Gas submitted a joint proposal to transport natural
gas to Mexico. The project is subject to approval by Mexico and various
federal, state and local agencies, and involves the construction of an
80-mile pipeline from SoCal Gas's service territory to the Mexican border.
In August 1993 the FERC issued a permit to SDG&E and SoCal Gas, allowing
them to make natural gas available to Mexico at the Tijuana border. The
project's plans include providing gas to the nearby Rosarito power
plant, which would be expanded and converted from oil-fired to gas-fired,
thereby reducing air pollution in Mexico and California. Mexico has also
expressed interest in obtaining gas at another border crossing to serve the
area's industrial customers. As a result, a related application was filed with
the FERC for permission to transport gas to Mexicali through SoCal Gas's
existing systems in the Imperial Valley. Competing proposals have been
submitted by others. SDG&E would face significant competition if one of the
other proposals is selected and a major pipeline begins operating near SDG&E's
service territory.
CUSTOMER GROWTH
Due to the continuing recession in California, customer growth has remained
low, increasing about 1 percent annually in 1993 and 1992. The cutbacks in
defense spending and construction have contributed to the loss of jobs in San
Diego County. Fewer commercial businesses are being established in California
due to the high cost of taxes and regulations.
ENVIRONMENTAL MATTERS
SDG&E's operations are conducted in accordance with federal, state and local
environmental laws and regulations governing hazardous wastes, air and water
quality, land use, and solid waste disposal. SDG&E incurs significant costs to
operate its facilities in compliance with these laws and regulations, and to
22
clean up the environment as a result of prior operations of SDG&E or of others.
The costs of compliance with environmental laws and regulations are normally
recovered in customer rates. The CPUC is expected to continue allowing the
recovery of such costs, subject to reasonableness reviews.
Capital expenditures to comply with environmental laws and regulations were $8
million for 1993 and $4 million for 1992. The estimated capital expenditures
for the next 5 years are $31 million in 1994, $35 million in 1995, $32 million
in 1996, $24 million in 1997 and $13 million in 1998. These expenditures
primarily include the estimated cost of retrofitting SDG&E's power plants to
reduce air emissions and exclude potential expenditures to comply with
water-discharge requirements for the Encina, South Bay and SONGS power plants.
HAZARDOUS WASTES
In 1993 the CPUC, the U.S. Environmental Protection Agency and the California
Environmental Protection Agency prepared the Hazardous Substance Cleanup
Cost Recovery Collaborative Report. Its proposed procedure would allow
utilities to recover 90 percent of hazardous-waste cleanup costs from
customers. Until such a procedure is adopted, SDG&E will continue to seek
recovery of these costs pursuant to a reasonableness review process by the
CPUC.
In 1992 the U.S. Environmental Protection Agency named SDG&E as a potentially
responsible party, for the North American Environmental, Inc. site in
Clearfield, Utah. The EPA is evaluating the extent of the site's contamination
and potential cleanup costs. The individual liability among the PRPs has not
been determined. As a result, SDG&E's ultimate liability, if any, cannot be
determined. The contractor who had disposed of SDG&E's hazardous wastes at the
site has agreed to indemnify SDG&E against liability for cleanup costs, if any,
associated with the site.
On December 6, 1993 SDG&E received notification that the California Department
of Toxic Substances Control had assumed responsibility for remediation
activities at the Rosen's Electrical Equipment Supply Company site in Pico
Rivera, California. PCB contamination was previously found on and near the
site. SDG&E sold transformers to Rosen's in the early 1980s and has been
identified as a PRP for the site under California law. SDG&E, seven other named
PRPs and others may be held liable for the cost of assessment and cleanup of
the site. The state has indicated that SDG&E may be held responsible for about
7 percent of the hazardous waste at the site. SDG&E is investigating this
matter. Based on available information, SDG&E is unable to estimate the range
of liability, if any, it may have for remediating this site.
SDG&E has identified or has been associated with various other sites which
require remediation under federal, state or local environmental laws. SDG&E
will be held partially or indirectly responsible for cleaning up some of these
sites. SDG&E cannot determine the extent of its responsibility for remediation
of these sites. Furthermore, the timing for assessing the costs of cleanup at
these sites and the number of others that may also be responsible and their
ability to share in the cost of the cleanup is unknown.
ELECTRIC AND MAGNETIC FIELDS
SDG&E and other utilities are involved in litigation concerning electric
and magnetic fields. An unfavorable outcome of EMF litigation could
have a significant impact on the future operations of the electric utility
industry, especially if relocation of existing power lines is ultimately
required. To date, science has demonstrated no cause-and-effect relationship
between cancer and exposure to the type of electric and magnetic fields
emitted by utilities' transmission lines and generating facilities.
In November 1993 the CPUC adopted an interim policy regarding EMFs. Consistent
with the major scientific reviews of available research literature, the CPUC
concluded that no health risk has been identified with exposure to EMFs.
However, to respond to public concern and scientific uncertainty, the CPUC
created a public education program and a research program and directed
utilities to adopt a low-cost EMF-reduction policy for new projects. The latter
program, which will be implemented until science provides more direction,
entails reasonable design changes to achieve noticeable reduction of EMF
levels anticipated from new projects.
EMISSION ALLOWANCES
In 1996 SDG&E must begin to comply with nitrogen oxide emission limits imposed
by the San Diego Air Pollution Control District. Full compliance is required
by 2001. The cost of compliance includes retrofitting SDG&E's power plants
and is estimated to be $130 million in capital costs and increased operating
costs.
WATER QUALITY
In 1989 SDG&E submitted applications to the San Diego Regional Water
Quality Control Board to renew the discharge permits for its South Bay
and Encina power plants. Supplemental renewal applications were submitted in
1993. SDG&E anticipates that the Water Quality Board and the U.S. Environmental
Protection Agency will make their determinations in 1994 regarding SDG&E's
applications. The permits are required to enable SDG&E to discharge its cooling
water and its treated in-plant waste water and are, therefore, prerequisites to
the continued operation of its power plants.
In addition, increasingly stringent cooling water and treated waste water
discharge limitations may be imposed, and SDG&E may be required to build
additional facilities to comply with these requirements. Such facilities could
include waste water treatment facilities, cooling towers or offshore discharge
pipelines.
23
The California Coastal Commission required a study of the offshore impact on
the marine environment from the cooling water discharge by SONGS Units 2 and 3.
The Marine Review Committee, acting on behalf of the Coastal Commission,
concluded there is some environmental damage caused by the discharge. To
mitigate the environmental damage, the California Coastal Commission ordered
Edison and SDG&E to improve the plant's fish-protection system, build a
300-acre artificial reef to help restore kelp beds, and restore 150 acres of
coastal wetlands. SDG&E may be required to incur capital costs of up to $30
million to comply with this order.
Responsibility Report for the Consolidated Financial Statements
SDG&E is responsible for the consolidated financial statements and
other data in this annual report. To meet its responsibility for
the reliability of the consolidated financial statements, SDG&E has
developed a system of internal accounting controls and engages a
firm of independent auditors. The board of directors of SDG&E
carries out its responsibility for the consolidated financial
statements through its audit committee, composed of directors who
are not officers or employees of SDG&E.
Management maintains the system of internal accounting controls,
which it believes is adequate to provide reasonable, but not
absolute, assurance that its assets are safeguarded, transactions
are executed in accordance with its objectives, and the financial
records and reports are reliable for preparing the consolidated
financial statements in accordance with generally accepted
accounting principles.
The concept of reasonable assurance recognizes that the cost of a
system of internal accounting controls should not exceed the
benefits derived and that management makes estimates and judgments
of these cost/benefit factors. The system of internal accounting
controls is supported by an extensive program of internal audits,
selection and training of qualified personnel, and written policies
and procedures.
SDG&E's independent auditors, Deloitte & Touche, are engaged to
audit SDG&E's consolidated financial statements in accordance with
generally accepted auditing standards for the purpose of expressing
their opinion as to whether SDG&E's consolidated financial
statements are presented fairly, in all material respects, in
accordance with generally accepted accounting principles.
The audit committee discusses with SDG&E's internal auditors and
the independent auditors the overall scope and specific plans for
their respective audits. The committee also discusses SDG&E's
consolidated financial statements and the adequacy of SDG&E's
internal controls. The committee met twice during the fiscal year
with the internal auditors and the independent auditors without
management present, to discuss the results of their examinations,
their evaluations of SDG&E's internal controls, and the overall
quality of SDG&E's financial reporting. The internal auditors and
the independent auditors have full and free access to the committee
throughout the year.
SDG&E's management has prepared the consolidated financial
statements and other data in this annual report. In the opinion of
SDG&E, the consolidated financial statements, which include amounts
based on estimates and judgments of management, have been prepared
in conformity with generally accepted accounting principles.
Frank H. Ault
Vice President and Controller
24
STATEMENTS OF CONSOLIDATED INCOME
In thousands except per share amounts
For the years ended December 31 1993 1992 1991
----------- ----------- -----------
Operating Revenues
Electric . . . . . . . . . . . . . . $1,514,608 $1,447,118 $1,357,554
Gas . . . . . . . . . . . . . . . . . 346,658 336,992 338,161
Diversified operations . . . . . . . 118,849 86,790 93,297
----------- ----------- -----------
Total operating revenues . . . . . 1,980,115 1,870,900 1,789,012
----------- ----------- -----------
Operating Expenses
Electric fuel . . . . . . . . . . . . 174,444 174,849 151,012
Purchased power . . . . . . . . . . . 325,966 311,046 304,833
Gas purchased for resale . . . . . . 165,876 167,385 183,274
Maintenance . . . . . . . . . . . . . 81,788 73,040 68,134
Depreciation and decommissioning . . 250,619 213,661 195,360
Property and other taxes . . . . . . 44,902 45,769 44,795
Other . . . . . . . . . . . . . . . . 494,369 439,569 395,449
Income taxes . . . . . . . . . . . . 148,477 149,274 130,641
----------- ----------- -----------
Total operating expenses . . . . . 1,686,441 1,574,593 1,473,498
----------- ----------- -----------
Operating Income . . . . . . . . . . . 293,674 296,307 315,514
----------- ----------- -----------
Other Income and (Deductions)
Allowance for equity funds used
during construction . . . . . . . . 17,909 7,547 6,083
Taxes on nonoperating income . . . . 202 (3,177) (473)
Other - net . . . . . . . . . . . . . 8,229 16,294 (6,751)
----------- ----------- -----------
Total other income and (deductions) 26,340 20,664 (1,141)
----------- ----------- -----------
Income Before Interest Charges . . . . 320,014 316,971 314,373
----------- ----------- -----------
Interest Charges
Long-term debt . . . . . . . . . . . 93,402 100,776 98,802
Short-term debt and other . . . . . . 12,142 9,123 10,705
Allowance for borrowed funds used
during construction . . . . . . . . (4,245) (3,585) (3,194)
----------- ----------- -----------
Net interest charges . . . . . . . 101,299 106,314 106,313
----------- ----------- -----------
Net Income (before preferred dividend
requirements) . . . . . . . . . . . . 218,715 210,657 208,060
Preferred Dividend Requirements . . . . 8,565 9,600 10,535
----------- ----------- -----------
Earnings Applicable to Common Shares . $ 210,150 $ 201,057 $ 197,525
Average Common Shares Outstanding . . . 116,049 113,806 111,988
Earnings Per Common Share . . . . . . . $ 1.81 $ 1.77 $ 1.76
Dividends Declared Per Common Share . . $ 1.48 $ 1.44 $ 1.3875
See notes to consolidated financial statements.
25
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
Balance at December 31 1993 1992
------------ ------------
ASSETS
Utility plant - at original cost . . . . . . . . $5,134,251 $4,818,867
Accumulated depreciation and decommissioning . . (2,016,618) (1,840,175)
------------ ------------
Utility plant-net . . . . . . . . . . . . . . 3,117,633 2,978,692
------------ ------------
Investments and other property . . . . . . . . . 464,101 299,010
------------ ------------
Current assets
Cash and temporary investments . . . . . . . . 17,450 11,079
Accounts receivable . . . . . . . . . . . . . 205,712 198,743
Notes receivable . . . . . . . . . . . . . . . 29,201 11,291
Inventories . . . . . . . . . . . . . . . . . 84,922 87,065
Other . . . . . . . . . . . . . . . . . . . . 40,810 45,849
------------ ------------
Total current assets . . . . . . . . . . . 378,095 354,027
------------ ------------
Construction funds held by trustee . . . . . . . 58,042 248,267
Goodwill . . . . . . . . . . . . . . . . . . . . 53,921 56,013
Deferred taxes recoverable in rates . . . . . . 311,564 294,818
Deferred charges and other assets . . . . . . . 318,880 263,745
------------ ------------
Total . . . . . . . . . . . . . . . . . . $4,702,236 $4,494,572
============ ============
CAPITALIZATION AND LIABILITIES
Capitalization (see Statements of Consolidated
Capital Stock and of Long-Term Debt)
Common equity . . . . . . . . . . . . . . . $1,516,240 $1,441,439
Preferred stock
Not subject to mandatory redemption . . . . 93,493 62,493
Subject to mandatory redemption . . . . . . 25,000 68,200
Long-term debt . . . . . . . . . . . . . . . 1,411,948 1,495,734
------------ ------------
Total capitalization . . . . . . . . . . . 3,046,681 3,067,866
------------ ------------
Current liabilities
Short-term borrowings . . . . . . . . . . . . 131,197 82,749
Long-term debt redeemable within one year . . 88,000 88,000
Current portion of long-term debt . . . . . . 76,161 24,152
Accounts payable . . . . . . . . . . . . . . . 166,622 156,155
Dividends payable . . . . . . . . . . . . . . 44,962 43,298
Taxes accrued . . . . . . . . . . . . . . . . 36,830 43,656
Interest accrued . . . . . . . . . . . . . . . 20,396 24,778
Regulatory balancing accounts overcollected-net 33,179 46,424
Other . . . . . . . . . . . . . . . . . . . . 104,353 80,729
------------ ------------
Total current liabilities . . . . . . . . 701,700 589,941
------------ ------------
Customer advances for construction . . . . . . . 41,729 49,698
Accumulated deferred income taxes-net . . . . . 520,076 495,844
Accumulated deferred investment tax credits . . 114,159 119,258
Deferred credits and other liabilities . . . . . 277,891 171,965
Contingencies and commitments (Notes 2 and 9) . _ _
------------ ------------
Total . . . . . . . . . . . . . . . . . . $4,702,236 $4,494,572
============ ============
See notes to consolidated financial statements.
26
STATEMENTS OF CONSOLIDATED CASH FLOWS
In thousands of dollars
For the years ended December 31 1993 1992 1991
--------- -------- --------
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . . . . . . . . . . . . $218,715 $210,657 $208,060
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and decommissioning . . . . . . . . . . 250,619 213,661 195,360
Amortization of deferred charges and other assets . . 11,141 1,923 1,402
Allowance for equity funds used during construction . (17,909) (7,547) (6,083)
Deferred income taxes and investment tax credits . . 45,606 (11,031) (11,377)
Other-net . . . . . . . . . . . . . . . . . . . . . . 3,564 (2,752) 764
Changes in working capital components net
of effects from purchases of subsidiaries
Accounts and notes receivable . . . . . . . . . . . . (10,479) (1,326) (25,340)
Regulatory balancing accounts . . . . . . . . . . . . (13,245) 24,647 35,786
Inventories . . . . . . . . . . . . . . . . . . . . . 4,616 7,401 9,857
Other current assets . . . . . . . . . . . . . . . . 5,039 (2,360) 681
Accrued interest and taxes . . . . . . . . . . . . . (19,141) (30,682) 26,959
Accounts payable and other current liabilities . . . 19,691 (16,952) 40,984
--------- --------- ---------
Net cash provided by operating activities . . . . . 498,217 385,639 477,053
--------- --------- ---------
Cash Flows from Financing Activities
Dividends paid . . . . . . . . . . . . . . . . . . . (178,708) (172,211) (164,436)
Short-term borrowings-net . . . . . . . . . . . . . . 48,448 38,781 (22,138)
Issuance of long-term debt . . . . . . . . . . . . . 369,893 509,200 38,792
Repayment of long-term debt . . . . . . . . . . . . . (531,526) (236,994) (20,595)
Sale of common stock . . . . . . . . . . . . . . . . 38,850 58,176 11,712
Issuance of preferred stock . . . . . . . . . . . . . 50,636 24,733 -
Redemption of preferred stock . . . . . . . . . . . . (65,228) (40,195) (3,000)
--------- --------- ---------
Net cash provided (used) by financing activities . (267,635) 181,490 (159,665)
--------- --------- ---------
Cash Flows from Investing Activities
Utility construction expenditures . . . . . . . . . . (354,391) (280,281) (254,953)
Withdrawals from (contributions to)
construction trust funds-net . . . . . . . . . . . 190,225 (248,267) -
Contributions to decommissioning funds . . . . . . . (22,038) (22,038) (22,038)
Purchase of assets and subsidiaries . . . . . . . . . (3,887) (7,833) (16,115)
Sale of assets . . . . . . . . . . . . . . . . . . . 2,709 3,952 -
Other-net . . . . . . . . . . . . . . . . . . . . . . (36,829) (18,499) (18,895)
--------- --------- ---------
Net cash used by investing activities . . . . . . . (224,211) (572,966) (312,001)
--------- --------- ---------
Net increase (decrease) . . . . . . . . . . . . . . . . . 6,371 (5,837) 5,387
Cash and temporary investments beginning of period . . . . 11,079 16,916 11,529
--------- --------- ---------
Cash and temporary investments end of period . . . . . . . $ 17,450 $ 11,079 $ 16,916
========= ========= =========
Supplemental Schedule of Noncash Investing
and Financing Activities
Subsidiaries' acquisitions
Assets acquired . . . . . . . . . . . . . . . . . . $235,158 $115,054 $ 23,747
Cash paid . . . . . . . . . . . . . . . . . . . . . (28,209) (14,368) (6,917)
--------- --------- ---------
Liabilities assumed . . . . . . . . . . . . . . . . $206,949 $100,686 $ 16,830
========= ========= =========
See notes to consolidated financial statements.
27
STATEMENTS OF CONSOLIDATED CHANGES IN CAPITAL STOCK AND RETAINED EARNINGS
Preferred Stock
---------------------------
Not Subject to Subject to
Mandatory Mandatory Common Premium on Retained
Redemption Redemption Stock Capital Stock Earnings
- --------------------------------------------------------------------------------
In thousands of dollars
For the years ended December 31, 1991, 1992, 1993
- --------------------------------------------------------------------------------
Balance, December 31, 1990 $87,493 $55,000 $279,745 $469,743 $546,127
Net income 208,060
Common stock sold (598,232 shares) 1,495 10,217
Vesting of previously restricted shares 559
Sinking fund requirement (3,000)
Dividends declared
Preferred stock (10,524)
Common stock (155,436)
- --------------------------------------------------------------------------------
Balance, December 31, 1991 87,493 52,000 281,240 480,519 588,227
Net income 210,657
Common stock sold (2,537,756 shares) 6,345 50,625
Vesting of previously restricted shares 1,206
Preferred stock sold (1,000,000 shares) 25,000 (267)
Preferred stock retired (1,070,000 shares)(25,000) (7,000) (2,597) (940)
Sinking fund requirement (1,800)
Dividends declared
Preferred stock (9,533)
Common stock (164,043)
- --------------------------------------------------------------------------------
Balance, December 31, 1992 62,493 68,200 287,585 529,486 624,368
Net income 218,715
Common stock sold (1,481,241 shares) 3,703 33,209
Vesting of previously restricted shares 1,938
Preferred stock sold (2,040,000 shares) 51,000 (364)
Preferred stock retired (633,700 shares)(20,000) (43,200) 850 (2,878)
Dividends declared
Preferred stock (8,526)
Common stock (171,846)
- --------------------------------------------------------------------------------
Balance, December 31, 1993 $93,493 $25,000 $291,288 $565,119 $659,833
==================================================
See notes to consolidated financial statements.
28
STATEMENTS OF CONSOLIDATED CAPITAL STOCK
In thousands of dollars except call price
Balance at December 31 1993 1992
----------- -----------
COMMON EQUITY
Common stock, without par value, authorized
255,000,000 shares, outstanding: 1993,
116,515,073 shares; 1992, 115,033,832 shares $ 291,288 $ 287,585
Premium on capital stock 565,119 529,486
Retained earnings 659,833 624,368
----------- -----------
Total common equity $1,516,240 $1,441,439
PREFERRED STOCK (A) Call
Not subject to mandatory redemption Price
$20 par value, authorized 1,375,000 shares ---------
5% Series, 375,000 shares outstanding $ 24.00 $ 7,500 $ 7,500
4 1/2% Series, 300,000 shares outstanding 21.20 6,000 6,000
4.40% Series, 325,000 shares outstanding 21.00 6,500 6,500
4.60% Series, 374,650 shares outstanding 20.25 7,493 7,493
Without par value (B)
$7.20 Series, 150,000 shares outstanding 101.00 15,000 15,000
$1.70 Series, 1,400,000 shares outstanding 25.85(D) 35,000 -
$1.82 Series, 640,000 shares outstanding 26.00(D) 16,000 -
$7.80 Series, outstanding: 1992,
200,000 shares - - 20,000
--------- -------- --------
Total not subject to mandatory redemption $93,493 $62,493
-------- --------
Subject to mandatory redemption
Without par value (B)
$1.7625 Series, 1,000,000 shares outstanding(C) $ 25.00(D) $25,000 $25,000
$7.05 Series, outstanding: 1992, 433,700 shares - - 43,370
Current sinking fund requirement - (170)
-------- --------
Total subject to mandatory redemption $25,000 $68,200
======== ========
(A) All series of preferred stock have cumulative preferences as to dividends.
The $20 par value preferred stock has two votes per share, whereas the no
par value preferred stock is nonvoting. The $20 par value preferred stock
has a liquidation value at par. The no par value preferred stock has a
liquidation value of $25 per share, except for the $7.20 series, which has
a liquidation value of $100 per share.
(B) Authorized 10,000,000 shares total (both subject to and not subject to
mandatory redemption).
(C) The $1.7625 series has a sinking fund requirement to redeem 50,000 shares
per year from 2003 to 2007. The remaining shares must be redeemed in 2008.
(D) The $1.70 and $1.7625 series are not callable until 2003; the $1.82 series
is not callable until 1998.
See notes to consolidated financial statements.
29
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT
In thousands of dollars
Balance at December 31 1993 1992
----------- -----------
First mortgage bonds
5 1/2%, due 1994 - 1997 . . . . . . . . . . . . $ 33,468 $ 33,868
7 5/8%, due 2002 . . . . . . . . . . . . . . . 80,000 80,000
2.9% - 4.25%, due 2007 - 2008* . . . . . . . . 115,000 115,000
5.85% - 6.8%, due 2015 - 2021 . . . . . . . . 356,755 133,015
3.3%, due 2018* . . . . . . . . . . . . . . . 14,915 -
7 3/8% - 9 5/8%, due 2020 - 2023 . . . . . . . 384,950 384,950
1.3% - 3.9%, due 2027* . . . . . . . . . . . . 250,000 250,000
Series retired in 1993 . . . . . . . . . . . - 412,035
----------- -----------
Total . . . . . . . . . . . . . . . . . . 1,235,088 1,408,868
----------- -----------
Capitalized leases . . . . . . . . . . . . . . . 124,782 124,875
Other long-term debt, 3.0%-9.67%, due 1994-2001* 224,559 88,305
Unamortized discount on long-term debt . . . . . (8,320) (14,162)
Long-term debt redeemable within one year . . . (88,000) (88,000)
Current portion of long-term debt . . . . . . . (76,161) (24,152)
----------- -----------
Total . . . . . . . . . . . . . . . . . . $1,411,948 $1,495,734
=========== ===========
*Interest rates on $453 million of these notes are variable and tied to various
financial indices.
See notes to consolidated financial statements.
30
STATEMENTS OF CONSOLIDATED FINANCIAL INFORMATION BY SEGMENTS OF BUSINESS
In thousands of dollars
At December 31 or for the years then ended 1993 1992 1991
- -------------------------------------------------------------------------------
Operating Revenues* $1,980,115 $1,870,900 $1,789,012
---------- ---------- ----------
Operating Income
Electric operations . . . . . . . . . . $ 263,643 $ 270,172 $ 266,402
Gas operations . . . . . . . . . . . . 24,571 37,234 37,405
Diversified operations . . . . . . . . 5,460 (11,099) 11,707
---------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 293,674 $ 296,307 $ 315,514
---------- ---------- ----------
Depreciation and Decommissioning
Electric operations . . . . . . . . . . $ 210,890 $ 178,513 $ 164,194
Gas operations . . . . . . . . . . . . 28,215 27,667 25,536
Diversified operations . . . . . . . . 11,514 7,481 5,630
---------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 250,619 $ 213,661 $ 195,360
---------- ---------- ----------
Utility Plant Additions**
Electric operations . . . . . . . . . . $ 291,456 $ 236,918 $ 210,958
Gas operations . . . . . . . . . . . . 62,935 43,363 43,995
---------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 354,391 $ 280,281 $ 254,953
---------- ---------- ----------
Identifiable Assets
Utility plant-net
Electric operations . . . . . . . . . $2,724,139 $2,623,058 $2,692,492
Gas operations . . . . . . . . . . . 393,494 355,634 339,307
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 3,117,633 2,978,692 3,031,799
---------- ---------- ----------
Inventories
Electric operations . . . . . . . . . 57,410 62,170 65,358
Gas operations . . . . . . . . . . . 18,703 14,056 19,508
Diversified operations . . . . . . . 8,809 10,839 9,349
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 84,922 87,065 94,215
---------- ---------- ----------
Other identifiable assets
Electric operations . . . . . . . . . 744,335 861,236 533,833
Gas operations . . . . . . . . . . . 139,631 175,156 109,829
Diversified operations . . . . . . . 504,359 288,914 188,712
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 1,388,325 1,325,306 832,374
---------- ---------- ----------
Other Assets . . . . . . . . . . . . . . 111,356 103,509 88,286
---------- ---------- ----------
Total Assets . . . . . . . . . . . . . . $4,702,236 $4,494,572 $4,046,674
========== ========== ==========
*The detail to operating revenues is provided in the Statements of Consolidated
Income. The gas operating revenues shown therein include $16 million in 1993,
$17 million in 1992 and $10 million in 1991, representing the gross margin on
sales to the electric segment. These margins arose from interdepartmental
transfers of $141 million in 1993, $142 million in 1992 and $116 million in
1991, based on transfer pricing approved by the California Public Utilities
Commission in tariff rates.
**Excluding allowance for equity funds used during construction.
Utility income taxes and corporate expenses are allocated between electric and
gas operations in accordance with regulatory accounting requirements.
See notes to consolidated financial statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Accounting Policies
UTILITY PLANT AND DEPRECIATION
Utility plant represents the buildings, equipment and other facilities used
to provide electric and gas service. The cost of utility plant includes
labor, material, contract services and other related items, and an allowance
for funds used during construction. The cost of retired depreciable utility
plant, plus removal expenses minus salvage value is charged to accumulated
depreciation.
Depreciation expense reflects the straight-line remaining useful life method.
The provisions for depreciation approximated 4.13 percent of average
depreciable utility plant in 1993, 3.99 percent in 1992 and 3.98 percent in
1991.
INVENTORIES
At December 31, 1993 inventories include $55 million of materials and
supplies ($57 million in 1992), and $30 million of fuel oil and natural gas
($30 million in 1992). Materials and supplies are valued at average cost, and
fuel oil and natural gas are valued by the last-in first-out, or LIFO,
method.
OTHER CURRENT ASSETS
Included in other current assets at December 31, 1993 is $26 million of
investment in SONGS 1 which will be recovered in 1994. The noncurrent portion
of the $88 million investment is included in "Deferred Charges and Other
Assets" on the Consolidated Balance Sheets.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The allowance represents the cost of funds used to finance the construction
of utility plant and is added to the cost of utility plant. AFDC also
increases income, partly as an offset to interest charges shown in the
Statements of Consolidated Income, although it is not a current source of
cash.
REVENUES AND REGULATORY BALANCING ACCOUNTS
Revenues from utility customers consist of deliveries to customers and the
changes in regulatory balancing accounts. Earnings fluctuations from changes
in the costs of fuel oil, purchased energy and natural gas, and consumption
levels for electricity and the majority of natural gas are eliminated by
balancing accounts authorized by the California Public Utilities Commission.
The balances of these accounts represent amounts that will be recovered from,
or repaid to, customers by adjustments to future prices.
GOODWILL
Goodwill arose from the acquisition of certain businesses by Pacific
Diversified Capital (see Note 2). It is being amortized on a straight-line
basis over 40 years. The accumulated amortization at December 31, 1993 was
$7.7 million ($6.1 million in 1992).
DEFERRED CHARGES AND OTHER ASSETS
Deferred charges include unrecovered premium on early retirement of debt and
other regulatory-related expenditures that SDG&E will recover in future
rates. These items are amortized as recovered in rates.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Temporary investments are highly liquid investments with original maturities
of three months or less.
OTHER
Certain prior year amounts have been reclassified for comparability. In
addition, certain prior year amounts have been restated to give retroactive
effect to the adoption of Statement of Financial Accounting Standard (SFAS)
No. 109, Accounting for Income Taxes.
2 INVESTMENT IN NON-REGULATED SUBSIDIARIES
The consolidated financial statements include the accounts of San Diego Gas &
Electric and its wholly owned subsidiaries: Califia Company, Enova
Corporation and Pacific Diversified Capital Company. Califia and Enova are
engaged in non-utility investment activities. Pacific Diversified Capital is
a holding company owning Phase One Development, Inc. and 80 percent of Wahlco
Environmental Systems, Inc.
INVESTMENT IN WAHLCO ENVIRONMENTAL SYSTEMS, INC.
SDG&E's investment in and advances to Wahlco aggregate $72 million at
December 31, 1993. At December 31, 1993 Wahlco had consolidated net assets
of $73 million (including $54 million of goodwill). During the years ended
December 31, 1991, 1992 and 1993, Wahlco's net income (loss) was $12 million,
($13 million) and ($11 million). During those years Wahlco's cash flow
provided by (used in) operations was $7 million, ($7 million) and ($12
million). Historically, Wahlco's primary and most profitable product line
has been flue gas conditioning equipment, which is sold to utilities with
coal-fired generating plants. Since the passage of the 1990 Clean Air Act
Amendments, Wahlco's prospects for future profitability have been
significantly associated with the size and timing of flue gas conditioning
equipment orders from utilities responding to that legislation.
Phase I of that legislation requires certain utilities to submit compliance
plans to the Environmental Protection Agency by February 28, 1993 and to be
in compliance by January 1, 1995. Phase II requires the remaining utilities
with coal-fired generation to be in compliance by January 1, 2000.
Thus far, sales of and orders for flue gas conditioning equipment have not
reached anticipated levels. Therefore, SDG&E is considering alternative
strategies relative to Wahlco, which may result in a charge to SDG&E's future
earnings.
32
3 LONG-TERM DEBT
Amounts and due dates of long-term debt are shown on the Statements of
Consolidated Long-Term Debt. Excluding capital leases, which are described in
Note 9, combined aggregate maturities and sinking fund requirements of
long-term debt are $68 million for 1994, $45 million for 1995, $34 million
for 1996, $49 million for 1997 and $21 million for 1998. SDG&E has CPUC
authorization to issue an additional $263 million in debt.
FIRST MORTGAGE BONDS
First mortgage bonds are secured by a lien on substantially all utility
plant. Additional first mortgage bonds may be issued upon compliance with the
provisions of the bond indenture. Certain of the first mortgage bonds may be
called at SDG&E's option.
First mortgage bonds totaling $380 million have variable interest rate
provisions. On $115 million, bondholders may elect to redeem their bonds at
the annual interest adjustment dates. Redemption of $27 million of these
cannot occur before 1995. For purposes of determining the aggregate
maturities listed above, it is assumed that these issues will not be redeemed
before scheduled maturity.
During 1993 SDG&E issued $239 million of first mortgage bonds and retired
$412 million of first mortgage bonds prior to scheduled maturities.
OTHER DEBT
At December 31, 1993 SDG&E had two $50 million bank lines providing a
committed source of long-term borrowings, of which $60 million was
outstanding. Bank lines, unless renewed by SDG&E, expire in 1994 and 1995. A
commitment fee is paid on the unused portion of the lines and there are no
requirements for compensating balances.
Loans of $149 million and $69 million at December 31, 1993 and 1992,
respectively, are secured by subsidiary equipment, real estate and other
investments.
INTEREST
Interest payments, including those applicable to short-term borrowings,
amounted to $106 million in 1993, $108 million in 1992 and $107 million in
1991. Interest payments of $34 million in 1992 on income taxes in connection
with a preliminary settlement with the Internal Revenue Service are included
with income taxes in Note 7.
SDG&E periodically enters into interest rate swap and cap agreements to
moderate its exposure to interest rate changes and to lower its overall cost
of borrowings (see Note 8). At December 31, 1993 SDG&E had such agreements,
maturing in 1996 and 2002, with underlying debt aggregating $120 million.
These agreements have effectively fixed interest rates on the underlying
variable rate debt at 5.4% to 6.3%. SDG&E is exposed to potential losses
should other parties to the agreement not perform. Such nonperformance is not
anticipated.
4 SHORT-TERM BORROWINGS
At December 31, 1993 and 1992 short-term borrowings and weighted average
interest rates for the outstanding balances were:
In millions of dollars 1993 1992
- -----------------------------------------------------------------------------
Balance Interest Rate Balance Interest Rate
Bank loans $ 91 3.4% $ - -
Subsidiaries' bank credit line 40 5.2% 14 6.0%
Commercial paper - - 69 3.7%
Total $131 $83
- -----------------------------------------------------------------------------
At December 31, 1993 SDG&E had various bank lines, aggregating $150 million,
available to support commercial paper and bank loans. SDG&E's subsidiaries
had a bank credit line that provided for borrowings up to $40 million at the
prime rate. A commitment fee is paid on the unused portion of the lines.
There were no requirements for compensating balances.
5 FACILITIES UNDER JOINT OWNERSHIP
The San Onofre nuclear power plant and the Southwest Powerlink transmission
line are jointly owned with other utilities. SDG&E's interests at December
31, 1993 were:
In millions of dollars
- -----------------------------------------------------------------------------
Project San Southwest
Onofre Powerlink
- -----------------------------------------------------------------------------
Ownership interest (%) 20 89
Utility plant in service $1,083 $210
Accumulated depreciation $ 335 $ 67
Construction work in progress $ 21 $ -
- -----------------------------------------------------------------------------
Each participant in the projects must provide its own financing.
SDG&E's share of operating expenses is included in its Statements of
Consolidated Income.
SDG&E's share of future dismantling and decontamination costs for the San
Onofre units is estimated to be $322 million. These costs are included in
setting rates and are expected to be fully recovered by 2014, the estimated
last year of service. SDG&E invests in externally managed trust funds the
amounts collected in rates. At December 31, 1993 the trust funds had a market
value of $191 million, which includes $10.7 million in unrealized gains and
which is included in "Investments and Other Property" on the Consolidated
Balance Sheets. The securities held by the trust are adjusted to market value
in accordance with SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities, issued in May 1993 and implemented by SDG&E as of
December 31, 1993. Additional information regarding San Onofre is included
in Note 9.
36
6 EMPLOYEE BENEFIT PLANS
SDG&E has a defined-benefit pension plan, which covers substantially all
utility employees. Benefits are related to the employees' compensation. Plan
assets consist primarily of common stocks and bonds.
SDG&E funds the plan based on the aggregate cost actuarial method. Net
pension cost consisted of the following for the year ended December 31:
In thousands of dollars 1993 1992 1991
- -----------------------------------------------------------------------------
Cost related to current service $18,233 $17,838 $17,054
Interest on projected benefit obligation 29,745 27,933 24,725
Return on plan assets (39,351) (23,267) (71,388)
Other (8,627) (25,325) 35,199
Net cost (benefit) $ - $(2,821) $ 5,590
- -----------------------------------------------------------------------------
The plan's status was as follows at December 31:
In thousands of dollars 1993 1992
- -----------------------------------------------------------------------------
Accumulated benefit obligation
Vested $304,053 $259,292
Nonvested 10,616 9,380
Total $314,669 $268,672
Plan assets at fair value $435,371 $404,894
Projected benefit obligation 457,710 393,906
Plan assets less projected
benefit obligation (22,339) 10,988
Unrecognized effect of accounting change (1,835) (2,064)
Unrecognized prior service cost 14,043 15,130
Unrecognized actuarial losses (gains) 10,131 (24,054)
Amount recognized as an asset $ - $ -
- ----------------------------------------------------------------------------
The projected benefit obligation assumes a 7.5 percent actuarial discount
rate in 1993 (8.0 percent in 1992) and a 6.0 percent average annual salary
increase. The expected long-term rate of return on plan assets is 8.5
percent. The impact of decreasing the actuarial discount rate was to increase
the accumulated benefit obligation and projected benefit obligation by
approximately $22 million and $38 million, respectively.
Eligible employees may make a contribution of 1 percent to 15 percent of
their base pay to SDG&E's savings plan for investment in mutual funds or in
SDG&E common stock. SDG&E contributes amounts equal to up to 3 percent of
participants' base compensation for investment in SDG&E common stock.
SDG&E's expense for the pension and the savings plans and a supplemental
retirement plan for a limited number of key employees was approximately $4
million in 1993, $1 million in 1992 and $9 million in 1991.
SDG&E has a long-term incentive stock compensation plan that provides for
aggregate awards of up to 2,700,000 shares of common stock over a 10-year
period ending in 1996. In each of the last eight years SDG&E issued
approximately 40,000 shares to 60,000 shares of stock to officers and key
employees for $2.50 per share, subject to buy-back if certain corporate goals
are not met.
SDG&E provides certain health and life insurance benefits to retired utility
employees. Prior to 1993, SDG&E expensed these benefits when paid and such
amounts were normally recovered in rates. Effective January 1, 1993, SDG&E
adopted SFAS 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, which requires that these benefits be accrued during the
employee's years of service, up to the year of benefit eligibility. The
transition obligation of approximately $47 million is being amortized over 20
years. SDG&E will recover the cost of these benefits based upon actuarial
calculations and funding limitations. The amounts expensed for these benefits
were $5 million in 1993, $4 million in 1992 and $3 million in 1991.
7 INCOME TAXES
SDG&E has adopted SFAS 109, Accounting for Income Taxes, retroactive to
January 1, 1989.
SFAS 109 requires the use of the balance sheet method of accounting for
income taxes. Under this method, a deferred tax asset or liability represents
the tax effect of temporary differences between the financial statement and
tax bases of assets and liabilities and is measured using the latest enacted
tax rates.
As a result of adopting SFAS 109, SDG&E recorded additional deferred income
taxes related to the allowance for funds used during construction and other
temporary differences for which deferred income taxes had not been provided.
Existing deferred income taxes were reduced due to intervening income tax
rate reductions, and a deferred income tax asset related to unamortized
investment tax credits was recorded. The net effect of these changes is
almost entirely offset by a regulatory asset of $312 million at December 31,
1993 ($295 million at December 31, 1992). This regulatory asset is expected
to be recovered in future rates and will be adjusted as it is recovered
through the ratemaking process as tax rates and laws change.
Also as a result of adopting SFAS 109, 1989 net income was decreased by $8
million, or $0.07 per share. This decrease results from the write-down of
deferred tax assets initially recorded at prior tax rates in excess of
current tax rates. These excess deferred taxes will not be recovered in
future rates.
Effective January 1, 1993, the federal statutory tax rate increased to 35
percent from 34 percent. This change increased SDG&E's net deferred tax
liability by approximately $14 million. The impact on income tax expense was
not significant.
34
Income tax payments totaled $116 million in 1993, $192 million in 1992 and
$115 million in 1991.
COMPONENTS OF ACCUMULATED DEFERRED INCOME TAXES
In thousands of dollars 1993 1992
- ---------------------------------------------------------------------------
Deferred tax liabilities
Differences in book and tax bases
of utility plant $650,429 $611,408
Loss on reacquired debt 28,572 13,761
Other 86,126 70,598
Total deferred tax liabilities 765,127 695,767
Deferred tax assets
Unamortized investment tax credits 79,479 80,102
Equipment leasing activities 61,533 26,247
Other 118,673 114,470
Total deferred tax assets 259,685 220,819
Net deferred income tax liability 505,442 474,948
Current portion of deferred income taxes 14,634 20,896
Accumulated deferred income taxes-net $520,076 $495,844
- ---------------------------------------------------------------------------
COMPONENTS OF INCOME TAX EXPENSE
In thousands of dollars 1993 1992 1991
- ---------------------------------------------------------------------------
Current
Federal $ 79,848 $134,635 $107,959
State 22,821 28,847 34,532
Total current taxes 102,669 163,482 142,491
Deferred
Federal 43,365 (2,248) 1,106
State 7,001 (3,638) (7,519)
Total deferred taxes 50,366 (5,886) (6,413)
Deferred investment tax credits-net (4,760) (5,145) (4,964)
Total income tax expense $148,275 $152,451 $131,114
- ---------------------------------------------------------------------------
Federal and state income taxes are allocated between operating income and
other income.
RECONCILIATION OF STATUTORY FEDERAL INCOME TAX RATE TO EFFECTIVE RATE
In thousands of dollars 1993 1992 1991
- ---------------------------------------------------------------------------
Income before federal
income taxes $337,168 $337,899 $312,161
Statutory federal income tax rate 35.0% 34.0% 34.0%
Depreciation 5.0 3.7 4.2
Tax credits (3.9) (2.8) (2.1)
Allowance for funds used
during construction (1.9) (0.7) (0.6)
Equipment leasing activities (1.8) - -
Other-net 2.7 3.5 (2.2)
Effective federal income
tax rate 35.1% 37.7% 33.3%
- ----------------------------------------------------------------------------
8 FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, Disclosures About Fair Market Value of Financial Instruments,
requires disclosure of the fair value of financial instruments, whether
recognized in the statement of financial position, for which it is
practicable to estimate fair value. The following methods and assumptions
were used to estimate the fair value of each class of financial instruments.
CASH AND TEMPORARY INVESTMENTS, NOTES RECEIVABLE, AND DIVIDENDS PAYABLE
The carrying amount approximates fair value due to the short maturity of
those instruments.
FUNDS HELD IN TRUST
Funds held in trust include construction trust funds and the SONGS
decommissioning trust (included in "Construction Funds held by Trustee" and
"Investments and Other Property," respectively, on the Consolidated Balance
Sheets). The fair value of the funds held in trust was based on quoted market
values.
INVESTMENTS IN LIMITED PARTNERSHIPS AND NONCURRENT NOTES RECEIVABLE
The fair value of investments in limited partnerships and noncurrent notes
receivable (included in "Investments and Other Property" and "Deferred
Charges and Other Assets," respectively, on the Consolidated Balance Sheets)
was estimated to approximate carrying value due to the relatively short
periods of time between the purchase dates and the valuation date and the
relative market stability during those periods.
OTHER ASSETS
Included in other assets are GNMA and FNMA marketable securities whose fair
values are based upon market quotes for the same or similar financial
instruments.
DEPOSITS FROM CUSTOMERS
Deposits from customers include deposits from residential and commercial
customers (included in "Other Current Liabilities" on the Consolidated
Balance Sheets) and customer advances for construction. The carrying amount
of deposits from residential and commercial customers approximates fair value
due to the short maturity period. The fair value of customer advances for
construction was estimated by discounting future cash flows.
DEBT AND PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
The fair value of SDG&E's debt and preferred stock issues was estimated based
on quoted market prices for them or for similar issues, or on the current
rates offered to SDG&E for debt and stock of the same maturities.
INTEREST RATE CAP AND SWAP AGREEMENTS
The fair value of the agreements at December 31, 1993 is the amount required
to terminate them, which was estimated at $4 million. There were no estimated
termination costs at December 31, 1992.
36
The carrying amounts and related estimated fair values of SDG&E's financial
instruments were as follows:
In millions of dollars 1993 1992
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------
Assets
Cash and temporary
investments $ 17.5 $ 17.5 $ 11.1 $ 11.1
Funds held in trust 249.4 251.2 396.1 401.4
Notes receivable 149.9 149.9 65.6 65.6
Investments in limited
partnerships 113.8 113.8 42.0 42.0
Other 36.3 36.8 27.1 27.3
Liabilities
Dividends payable 45.0 45.0 43.3 43.3
Short-term and
current portion of
long-term debt 247.2 247.2 185.9 186.0
Deposits from customers 60.4 55.0 65.9 58.1
Long-term debt 1,295.3 1,380.5 1,337.6 1,439.7
Preferred stock subject to
mandatory redemption 25.0 27.3 68.4 69.1
- -----------------------------------------------------------------------------
9 CONTINGENCIES AND COMMITMENTS
PURCHASED POWER CONTRACTS
SDG&E buys electric power under several long-term contracts. Purchases may be
made of 2 percent to 10 percent of plant output under these contracts, except
for one contract under which SDG&E may purchase 74 percent of plant output,
providing approximately 2 percent of SDG&E's total system requirements. The
contracts expire on various dates between 1995 and 2019.
At December 31, 1993 the future minimum payments under the contracts were:
In millions of dollars
- -----------------------------------------------------------------------------
1994 $ 196
1995 194
1996 178
1997 144
1998 149
Thereafter 752
-------
Total minimum payments $1,613
These payments represent capacity charges and minimum energy purchases. If
SDG&E exercises its option to extend the applicable contract, total minimum
payments would increase by approximately $51 million. SDG&E is required to
pay additional amounts for actual deliveries of energy under the contracts.
Total payments, including energy payments, under the contracts were $258
million in 1993, $253 million in 1992 and $245 million in 1991.
NATURAL GAS CONTRACTS
SDG&E has a contract with Southern California Gas Company that provides SDG&E
with intrastate transportation capacity on SoCal's gas pipelines and with
capacity in its storage facilities through August 1995. Implementation of
FERC Order 636 (Capacity Reallocation) in 1993 made it possible for SDG&E to
obtain directly interstate pipeline capacity, which had been provided by
SoCal under the contract.
SDG&E's long-term contracts with interstate pipelines for transportation
capacity became effective in 1993 and expire on various dates between 1995
and 2023. SDG&E also has four long-term gas supply contracts, which became
effective in 1993. The contracts expire between 2001 and 2004. These gas
supply contracts are intended to supply 16 percent of SDG&E's natural gas
requirements.
At December 31,1993 the future minimum payments under natural gas contracts
were:
In millions of dollars
- ---------------------------------------------------------------------------
Transportation Natural
and Storage Gas
- ---------------------------------------------------------------------------
1994 $ 84 $ 42
1995 65 45
1996 20 48
1997 19 51
1998 18 54
Thereafter 271 294
------- -------
Total minimum payments $477 $534
- ---------------------------------------------------------------------------
Total payments under the contracts were $86 million in 1993, $80 million in
1992 and $83 million in 1991.
LEASES
Nuclear fuel, office buildings, a generating facility and other properties
are financed by long-term capital leases. Utility plant included $193 million
at December 31, 1993 and $209 million at December 31, 1992 related to these
leases. The associated accumulated amortization was $74 million and
$91 million, respectively. SDG&E also leases office facilities, computer
equipment and vehicles under operating leases. Certain leases on office
facilities contain escalation clauses requiring annual increases in rent
ranging from 2 percent to 2 1/2 percent.
The minimum rental commitments payable in future years under all
noncancellable leases were:
In millions of dollars
- ----------------------------------------------------------------------------
Operating Capitalized
Leases Leases
- ----------------------------------------------------------------------------
1994 $ 61 $ 26
1995 56 28
1996 56 12
1997 49 12
1998 33 12
Thereafter 36 68
Total future rental commitments $291 158
Imputed interest (6% to 9%) (33)
Net commitment $125
- ---------------------------------------------------------------------------
Rental payments totaled $91 million in 1993, $57 million in 1992 and $58
million in 1991. The increase from 1992 to 1993 was due to Califia's leasing
activities.
ENVIRONMENTAL ISSUES
SDG&E's operations are conducted in accordance with federal, state and local
environmental laws and regulations governing hazardous wastes, air and water
quality, land use, and solid waste disposal. SDG&E incurs significant costs
to operate its facilities in compliance with these laws and regulations. The
costs of compliance with environmental laws and regulations are normally
recovered in customer rates. The CPUC is expected to continue allowing the
recovery of such costs, subject to reasonableness reviews.
SDG&E has identified, or has been associated with, various sites which
require remediation under federal, state or local environmental laws. SDG&E
may be partially or indirectly responsible for cleaning up these sites. SDG&E
cannot determine the extent of its responsibility for remediation for these
sites. Furthermore, the timing for assessing the costs of cleanup at these
sites, and the number of others who may be also responsible and their ability
to share in the cost of the cleanup, is not known.
Environmental liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and at least the minimum costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
the earlier of completion of a feasibility study or SDG&E's commitment to a
formal plan of action.
NUCLEAR INSURANCE
Public liability claims that could arise from a nuclear incident are limited
by law to $9.4 billion for each licensed nuclear facility. For this exposure,
SDG&E and the co-owners of the San Onofre units have purchased primary
insurance of $200 million, the maximum amount available. The remaining
coverage is provided by secondary financial protection required by the
Nuclear Regulatory Commission and provides for loss sharing among utilities
owning nuclear reactors if a costly accident occurs. SDG&E could be assessed
retrospective premium adjustments of up to $50 million in the event of a
nuclear incident involving any of the licensed, commercial reactors in the
United States, if the amount of the loss exceeds $200 million.
Insurance coverage is provided for up to $2.8 billion of property damage and
decontamination liability. Coverage also is provided for the cost of
replacement power, which includes indemnity payments for up to two years,
after a waiting period of 21 weeks. Coverage is provided primarily through
mutual insurance companies owned by utilities with nuclear facilities. If
losses at any of the nuclear facilities covered by the risk-sharing
arrangements were to exceed the accumulated funds available for these
insurance programs, SDG&E could be assessed retrospective premium adjustments
of up to $8 million.
DEPARTMENT OF ENERGY DECOMMISSIONING
The Energy Policy Act of 1992 established a fund for the decontamination and
decommissioning of the Department of Energy nuclear fuel enrichment
facilities. Utilities using the DOE services are contributing a total of $2.3
billion, subject to adjustment for inflation, over a 15-year period beginning
in 1993. Each utility's share is based on its share of enrichment services
purchased from the DOE. SDG&E's share of the contribution is estimated to be
$1 million per year.
LITIGATION
SDG&E is involved in various legal matters, including those arising out of
the ordinary course of business. Management believes that these matters will
not have a material adverse effect on SDG&E's results of operations,
financial condition or cash flows.
DISTRIBUTION SYSTEM CONVERSION
Under a CPUC-mandated program and through franchise agreements with various
cities, SDG&E is committed in varying amounts to convert overhead
distribution facilities to underground. As of December 31, 1993 the aggregate
unexpended amount of this commitment was approximately $85 million. SDG&E
expended approximately $22 million in 1993, $18 million in 1992 and $15
million in 1991 under this program.
CONCENTRATION OF CREDIT RISK
SDG&E grants credit to its utility customers, substantially all of whom are
located in its service territory, which covers all of San Diego County and
the southern portion of Orange County.
37
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF SAN DIEGO GAS & ELECTRIC COMPANY:
We have audited the accompanying consolidated balance sheets and the
consolidated statements of capital stock and long-term debt of San Diego Gas
& Electric Company and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, changes in capital stock and retained
earnings, cash flows, and financial information by segments of business for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of San Diego Gas & Electric
Company and subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company is considering alternative strategies related to its 80 percent-owned
subsidiary, Wahlco Environmental Systems, Inc., which may result in a charge
to the Company's future earnings.
Deloitte & Touche
San Diego, California
February 25, 1994
36
QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands except per share amounts
- ---------------------------------------------------------------------------------------------------------
Quarter ended March 31 June 30 September 30 December 31
1992
Operating revenues $471,333 $436,556 $487,802 $475,209
Operating expenses 392,921 367,713 411,740 402,219
Operating income 78,412 68,843 76,062 72,990
Other income (expense) 2,379 (234) 5,162 13,357
Net interest charges 26,447 27,074 26,532 26,261
Net income (before preferred dividend requirements) 54,344 41,535 54,692 60,086
Preferred dividend requirements 2,607 2,582 2,541 1,870
Earnings applicable to common shares $ 51,737 $ 38,953 $ 52,151 $ 58,216
Average common shares outstanding 112,800 113,476 114,134 114,800
Earnings per common share $ 0.46 $ 0.34 $ 0.46 $ 0.51
- ---------------------------------------------------------------------------------------------------------
1993
Operating revenues $492,343 $467,260 $495,035 $525,477
Operating expenses 414,557 398,881 418,178 454,825
Operating income 77,786 68,379 76,857 70,652
Other income 7,122 1,249 7,464 10,505
Net interest charges 26,331 25,399 25,223 24,346
Net income (before preferred dividend requirements) 58,577 44,229 59,098 56,811
Preferred dividend requirements 2,182 2,181 2,282 1,920
Earnings applicable to common shares $ 56,395 $ 42,048 $ 56,816 $ 54,891
Average common shares outstanding 115,450 115,908 116,335 116,489
Earnings per common share $ 0.49 $ 0.36 $ 0.49 $ 0.47
- ---------------------------------------------------------------------------------------------------------
These amounts are unaudited, but in the opinion of SDG&E reflect all adjustments
necessary for a fair presentation.
39
