SECURITIES AND EXCHANGE COMMISSION  
 
                            WASHINGTON, D.C. 20549  
 
                                  FORM 10-Q  
(Mark One)  
  
[..X..]  Quarterly report pursuant to Section 13 or 15(d) of the  
         Securities Exchange Act of 1934  
                                               September 30, 1997     
For the quarterly period ended....................................... 
                                 Or                                   
[.....]  Transition report pursuant to Section 13 or 15(d) of the  
         Securities Exchange Act of 1934  
  
For the transition period from ________________  to _________________ 
 
               Name of                                                 
Commission     Registrant                             IRS Employer     
File           as specified        State of           Identification   
Number         in its charter      Incorporation      Number           
- ----------     --------------      --------------     --------------   
1-11439        ENOVA CORPORATION     California       33-0643023        
                                                                        
1-3779         SAN DIEGO GAS &                                         
               ELECTRIC COMPANY      California       95-1184800        
 
                                                                    
101 ASH STREET, SAN DIEGO, CALIFORNIA                           92101   
- ----------------------------------------                     ---------- 
(Address of principal executive offices)                     (Zip Code) 
                                                                        
 
Registrants' telephone number, including area code    (619) 696-2000    
                                                    ------------------- 
                                  No Change                             
- ----------------------------------------------------------------------- 
Former name, former address and former fiscal year, if changed since  
last report 
  
     Indicate by check mark whether the registrant (1) has filed all  
reports required to be filed by Sections 13 or 15(d) of the Securities  
Exchange Act of 1934 during the preceding 12 months (or for such shorter  
period that the registrant was required to file such reports), and  
(2) has been subject to such filing requirements for the past  
90 days.                                           Yes...X... No......  
  
     Indicate the number of shares outstanding of each of the issuer's  
classes of common stock, as of the latest practicable date.  
 
Common Stock outstanding September 30, 1997:                                 
 
Enova Corporation                                        113,616,714    
                                                         ----------- 
San Diego Gas & Electric Company      Wholly owned by Enova Corporation 
 
 
 

 
                             ENOVA CORPORATION 
 
                                    AND 
 
                      SAN DIEGO GAS & ELECTRIC COMPANY 
 
 
 
                                  CONTENTS 
 
                                         									Page No. 
                                                  -------- 
PART I.	FINANCIAL INFORMATION 
 
		Statements of Income. . . . . . . . . . . . . . . . 3 
		Balance Sheets. . . . . . . . . . . . . . . . . . . 5 
		Statements of Cash Flows. . . . . . . . . . . . . . 6 
		Notes to Financial Statements . . . . . . . . . . . 7 
 
Item 2.	Management's Discussion and Analysis of 
		Financial Condition and Results of Operations . . .11 
 
 
PART II.	OTHER INFORMATION 
 
Item 1.	Legal Proceedings . . . . . . . . . . . . . .21 
 
Item 6.	Exhibits and Reports on Form 8-K. . . . . . .23 
 
Signature . . . . . . . . . . . . . . . . . . . . . .24 
 
 
 
 
                                    2 
 
 
 
 
STATEMENTS OF INCOME (unaudited) 
In thousands except per share amounts 
Enova Corporation and Subsidiaries SDG&E ----------------------- ------------------- For the three months ended September 30, 1997 1996 1997 1996 -------------------------------------------- Operating Revenues Electric $484,218 $419,809 $484,218 $419,809 Gas 82,079 73,676 82,079 73,676 Other 14,761 14,108 -- -- -------------------------------------------- Total operating revenues 581,058 507,593 566,297 493,485 -------------------------------------------- Operating Expenses Electric fuel 45,661 42,794 45,661 42,794 Purchased power 134,712 85,777 134,712 85,777 Gas purchased for resale 32,254 24,137 32,254 24,283 Maintenance 19,440 16,201 19,440 16,201 Depreciation and decommissioning 86,887 84,607 81,116 79,522 Property and other taxes 10,882 10,719 10,870 10,719 General and administrative 52,287 59,024 50,002 54,270 Other 56,618 50,786 45,041 38,937 Income taxes 46,958 46,262 61,207 59,154 -------------------------------------------- Total operating expenses 485,699 420,307 480,303 411,657 -------------------------------------------- Operating Income 95,359 87,286 85,994 81,828 -------------------------------------------- Other Income and (Deductions) Allowance for equity funds used during construction 1,402 1,443 1,402 1,443 Taxes on nonoperating income 2,880 (2,086) 536 (2,514) Other - net (7,707) 5,016 (1,955) 5,443 -------------------------------------------- Net other income and (deductions) (3,425) 4,373 (17) 4,372 -------------------------------------------- Income Before Interest Charges 91,934 91,659 85,977 86,200 -------------------------------------------- Interest Charges Long-term debt 21,361 22,423 17,293 19,228 Short-term debt and other 4,487 5,527 4,391 5,527 Allowance for borrowed funds used during construction (626) (682) (626) (682) Preferred dividend requirements of SDG&E 1,646 1,646 -- -- -------------------------------------------- Net interest charges 26,868 28,914 21,058 24,073 -------------------------------------------- Net Income 65,066 62,745 64,919 62,127 Preferred Dividend Requirements -- -- 1,646 1,646 -------------------------------------------- Earnings Applicable to Common Shares $65,066 $62,745 $63,273 $60,481 ============================================ Average Common Shares Outstanding 113,616 116,566 ======================= Earnings Per Common Share $0.57 $0.54 ======================= Dividends Declared Per Common Share $0.39 $0.39 ======================= See notes to financial statements.
3 STATEMENTS OF INCOME (unaudited) In thousands except per share amounts
Enova Corporation and Subsidiaries SDG&E ----------------------- -------------------- For the nine months ended September 30, 1997 1996 1997 1996 --------------------------------------------- Operating Revenues Electric $1,274,928 $1,164,073 $1,274,928 $1,164,073 Gas 277,897 239,575 277,897 239,575 Other 37,644 40,809 -- -- --------------------------------------------- Total operating revenues 1,590,469 1,444,457 1,552,825 1,403,648 --------------------------------------------- Operating Expenses Electric fuel 124,083 92,198 124,083 92,198 Purchased power 311,480 233,925 311,391 233,925 Gas purchased for resale 122,887 93,324 122,767 93,169 Maintenance 62,795 47,854 62,795 47,854 Depreciation and decommissioning 258,768 248,536 242,244 234,326 Property and other taxes 33,640 33,930 33,542 33,930 General and administrative 148,133 156,956 139,253 148,630 Other 164,841 154,187 128,502 119,370 Income taxes 113,848 128,744 161,102 164,406 --------------------------------------------- Total operating expenses 1,340,475 1,189,654 1,325,679 1,167,808 --------------------------------------------- Operating Income 249,994 254,803 227,146 235,840 --------------------------------------------- Other Income and (Deductions) Allowance for equity funds used during construction 4,271 4,159 4,271 4,159 Taxes on nonoperating income 8,579 (1,001) 1,824 (2,229) Other - net (10,313) 2,394 (6,392) 2,954 --------------------------------------------- Net other income and (deductions) 2,537 5,552 (297) 4,884 --------------------------------------------- Income Before Interest Charges 252,531 260,355 226,849 240,724 --------------------------------------------- Interest Charges Long-term debt 65,220 66,856 53,226 57,438 Short-term debt and other 13,987 14,891 13,795 14,891 Allowance for borrowed funds used during construction (1,923) (2,476) (1,923) (2,476) Preferred dividend requirements of SDG&E 4,937 4,937 -- -- --------------------------------------------- Net interest charges 82,221 84,208 65,098 69,853 --------------------------------------------- Net Income 170,310 176,147 161,751 170,871 Preferred Dividend Requirements -- -- 4,937 4,937 --------------------------------------------- Earnings Applicable to Common Shares $170,310 $176,147 $156,814 $165,934 ============================================= Average Common Shares Outstanding 114,551 116,567 ======================= Earnings Per Common Share $1.49 $1.51 ======================= Dividends Declared Per Common Share $1.17 $1.17 ======================= See notes to financial statements.
4 BALANCE SHEETS In thousands of dollars
Enova Corporation and Subsidiaries SDG&E -------------------------- -------------------------- Balance at September 30, December 31, September 30, December 31, 1997 1996 1997 1996 (unaudited) (unaudited) ------------- ------------ ------------- ------------ ASSETS Utility plant - at original cost $5,821,280 $5,704,464 $5,821,280 $5,704,464 Accumulated depreciation and decommissioning (2,871,008) (2,630,093) (2,871,008) (2,630,093) ----------- ----------- ----------- ----------- Utility plant-net 2,950,272 3,074,371 2,950,272 3,074,371 ----------- ----------- ----------- ----------- Investments and other property 802,063 650,188 388,158 337,520 ----------- ----------- ----------- ----------- Current assets Cash and temporary investments 143,058 173,079 48,891 81,409 Accounts receivable 255,001 186,529 251,422 187,986 Notes receivable 28,961 33,564 -- -- Inventories 67,001 63,437 65,710 63,078 Other 38,160 47,094 25,582 33,227 ----------- ----------- ----------- ----------- Total current assets 532,181 503,703 391,605 365,700 ----------- ----------- ----------- ----------- Deferred taxes recoverable in rates 175,367 189,193 175,367 189,193 ----------- ----------- ----------- ----------- Deferred charges and other assets 205,635 231,782 193,567 193,732 ----------- ----------- ----------- ----------- Total $4,665,518 $4,649,237 $4,098,969 $4,160,516 =========== =========== =========== =========== CAPITALIZATION AND LIABILITIES Capitalization Common equity $1,539,618 $1,569,670 $1,356,849 $1,404,136 Preferred stock of SDG&E Not subject to mandatory redemption 78,475 78,475 78,475 78,475 Subject to mandatory redemption 25,000 25,000 25,000 25,000 Long-term debt 1,465,483 1,479,338 1,218,151 1,284,816 ----------- ----------- ----------- ----------- Total capitalization 3,108,576 3,152,483 2,678,475 2,792,427 ----------- ----------- ----------- ----------- Current liabilities Current portion of long-term debt 57,622 69,902 6,748 33,639 Accounts payable 145,937 175,815 143,699 174,884 Due to affiliates -- -- 5,467 7,214 Dividends payable 45,956 47,213 45,956 47,131 Interest and taxes accrued 25,537 21,259 23,041 12,824 Regulatory balancing accounts overcollected-net 113,550 35,338 113,550 35,338 Other 178,413 158,317 122,583 110,743 ----------- ----------- ----------- ----------- Total current liabilities 567,015 507,844 461,044 421,773 ----------- ----------- ----------- ----------- Customer advances for construction 35,910 34,666 35,910 34,666 Accumulated deferred income taxes-net 498,233 497,400 477,148 487,119 Accumulated deferred investment tax credits 62,179 64,410 62,179 64,410 Deferred credits and other liabilities 393,605 392,434 384,213 360,121 ----------- ----------- ----------- ----------- Total $4,665,518 $4,649,237 $4,098,969 $4,160,516 =========== =========== ============ ============ See notes to financial statements.
5 STATEMENTS OF CASH FLOWS (unaudited) In thousands of dollars
Enova Corporation and Subsidiaries SDG&E ---------------------- ---------------------- For the nine months ended September 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Cash Flows from Operating Activities Net income $170,310 $176,147 $161,751 $170,871 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities Depreciation and decommissioning 258,768 248,536 242,244 234,326 Amortization of deferred charges and other assets 4,714 4,267 4,714 3,536 Amortization of deferred credits and other liabilities (28,737) (28,608) (3,183) (2,883) Allowance for equity funds used during construction (4,271) (4,159) (4,271) (4,159) Deferred income taxes and investment tax credits 3,289 (29,308) (14) (28,603) Other-net 31,267 23,199 5,611 5,080 Changes in working capital components Accounts and notes receivable (63,869) (27,009) (63,436) (16,467) Inventories (3,564) 4,045 (2,632) 4,924 Other current assets (2,826) (8,986) (702) (10,424) Interest and taxes accrued 40,885 62,054 35,910 64,440 Accounts payable and other current liabilities (6,171) (13,960) (21,331) (24,196) Regulatory balancing accounts 78,212 30,061 78,212 30,061 Cash used by discontinued operations -- -- -- (11,544) ---------- ---------- ---------- ---------- Net cash provided by operating activities 478,007 436,279 432,873 414,962 ---------- ---------- ---------- ---------- Cash Flows from Financing Activities Regular dividends paid (135,357) (136,388) (140,212) (141,594) Special dividend paid -- -- (66,150) -- Issuances of long-term debt -- 169,452 -- 167,152 Repayment of long-term debt (126,672) (199,816) (92,796) (174,743) Repurchase of common stock (66,314) (480) -- -- Redemption of preferred stock -- (15,155) -- (15,155) ---------- ---------- ---------- ---------- Net cash used by financing activities (328,343) (182,387) (299,158) (164,340) ---------- ---------- ---------- ---------- Cash Flows from Investing Activities Utility construction expenditures (141,544) (144,192) (141,544) (144,192) Contributions to decommissioning funds (16,527) (16,527) (16,527) (16,527) Other-net (21,614) 2,879 (8,162) 7,217 ---------- ---------- ---------- ---------- Net cash used by investing activities (179,685) (157,840) (166,233) (153,502) ---------- ---------- ---------- ---------- Net increase (decrease) (30,021) 96,052 (32,518) 97,120 Cash and temporary investments, beginning of period 173,079 96,429 81,409 20,755 ---------- ---------- ---------- ---------- Cash and temporary investments, end of period $143,058 $192,481 $ 48,891 $117,875 ========== ========== ========== ========== Supplemental Disclosure of Cash Flow Information Income tax payments (net of refunds) $ 84,761 $112,528 $135,745 $146,934 ========== ========== ========== ========== Interest payments, net of amounts capitalized $ 77,943 $ 74,754 $ 61,544 $ 64,570 ========== ========== ========== ========== Supplemental Schedule of Noncash Activities: Investing and Financing Real estate investments $101,576 $ 52,367 -- -- Cash paid (279) -- -- -- ---------- ---------- ---------- ---------- Liabilities assumed $101,297 $ 52,367 -- -- ========== ========== ========== ========== Net assets of affiliates transferred to parent -- -- -- $150,069 ========== ========== ========== ========== See notes to financial statements.
6 NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. GENERAL This Quarterly Report on Form 10-Q is a combined filing of Enova Corporation (Enova) and San Diego Gas & Electric (SDG&E). The financial statements presented herein represent the consolidated statements of Enova Corporation and its subsidiaries (including SDG&E), as well as the stand-alone statements of SDG&E. Unless otherwise indicated, the "Notes to Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein pertain both to SDG&E and to Enova as a consolidated entity. The Registrants believe all adjustments necessary to present a fair statement of the consolidated financial position and results of operations for the periods covered by this report, consisting of recurring accruals, have been made. The Registrants' significant accounting policies, as well as those of their subsidiaries, are described in the notes to consolidated financial statements in Enova Corporation's 1996 Annual Report to Shareholders. The same accounting policies are followed for interim reporting purposes. This quarterly report should be read in conjunction with the Registrants' 1996 Annual Report on Form 10-K, which included the financial statements and notes thereto, and their Quarterly Reports on Form 10-Q for the three months ended March 31, 1997 and the six months ended June 30, 1997. The "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Registrants' 1996 Annual Report to Shareholders was incorporated by reference into the Registrants' 1996 Annual Report on Form 10-K and filed as an exhibit thereto. 2. BUSINESS COMBINATION In October 1996 Enova and Pacific Enterprises Inc., parent company of Southern California Gas Company, announced an agreement to combine the two companies. Additional information on the proposed business combination is discussed on page 13 in "Management's Discussion and Analysis of Financial Condition and Results of Operations." 3. MATERIAL CONTINGENCIES INDUSTRY RESTRUCTURING -- CALIFORNIA PUBLIC UTILITIES COMMISSION In May 1997 the CPUC issued a decision stating that direct access will be available to all electric customers on January 1, 1998. The CPUC concluded that there are no technical or operational barriers to justify limiting direct access availability once electric restructuring commences. The decision gave power companies permission to begin direct marketing on July 1, 1997 and set November 1, 1997 as the date customers can begin choosing electricity providers. As discussed in Note 10 in the notes to consolidated financial statements of the 1996 Annual Report to Shareholders, electric utilities 7 will be allowed a reasonable opportunity to recover their stranded costs through December 31, 2001. SDG&E estimated its transition costs totaled $2 billion (net present value in 1998 dollars). These identified transition costs have been audited by independent auditors selected by the CPUC. The auditors found SDG&E's recorded and forecasted cost estimates reasonable and have identified $73 million as requiring further action before being deemed a recoverable CTC. Through September 30, 1997 SDG&E has recovered transition costs of $0.2 billion for nuclear generation and $0.1 billion for non-nuclear generation. Additionally, overcollections of $0.1 billion recorded in the Energy Cost Adjustment Clause and Electric Revenue Adjustment Mechanism balancing accounts as of December 31, 1996, have been applied to transition cost recovery, leaving approximately $1.6 billion for future CTC recovery. Included therein is $0.4 billion for post-2001 purchased- power-contract payments that may be recovered after 2001, subject to an annual reasonableness review. During the 1997-2001 period recovery of transition costs is limited by the rate cap (discussed below). In October 1997 a CPUC Administrative Law Judge issued a proposed decision allowing SDG&E the opportunity to recover of all of its sunk non-nuclear generation costs, with the exception of $39 million in fixed costs relating to gas transportation to power plants. An additional $34 million is still pending final determination. In any event, SDG&E is confident that the costs excluded from CTC recovery can be recovered through other CPUC proceedings. The decision does not include generation plant additions made after December 20, 1995. Instead, each utility must file a separate application seeking a reasonableness review thereof. In October 1997 SDG&E filed an application with the CPUC seeking the recovery of $13 million in 1996 capital additions for the Encina and South Bay power plants. A final CPUC decision is expected in the first half of 1998. California's electric restructuring law (AB 1890) requires a 10-percent reduction of residential and small commercial customers' rates beginning in January 1998. AB 1890 provides for the issuance of rate-reduction bonds by an agency of the State of California to enable the investor- owned utilities (IOUs) to achieve this rate reduction. In September 1997 the CPUC approved SDG&E's application for the issuance of up to $800 million in rate-reduction bonds. SDG&E estimated that it would need $710 million of bond proceeds to enable it to effect a sufficient decrease in rate base to finance the desired rate reduction. These bonds will be repaid over 10 years by SDG&E's residential and small commercial customers via a charge on their electric bills. In September 1997 SDG&E and the other California IOUs received a favorable Internal Revenue Service ruling on the tax treatment of the rate-reduction bonds. The ruling states that the bond proceeds are taxable over the life of bonds rather than at the time of issuance. The Securities and Exchange Commission (SEC) has ruled that these bonds should be reflected on the utilities' balance sheets as debt, even though the bonds would not be secured by utility assets, but rather by the revenue streams collected from the charge to residential and small commercial customers. SDG&E has formed a subsidiary, SDG&E Funding LLC., to facilitate the issuance of the rate-reduction bonds. In exchange for the proceeds from the bond 8 issue, SDG&E will sell to SDG&E Funding its rights to the revenue streams. AB 1890 includes a rate freeze for all customers. Until the earlier of March 31, 2002, or when transition cost recovery is complete, SDG&E's system average rate will be frozen at June 10, 1996 levels (9.64 cents per kilowatt-hour (kwh)), except for the impact of fuel cost changes and the 10-percent rate reduction. In any event, rates cannot be increased above 9.985 cents per kwh. During the first quarter of 1997, rising natural-gas prices resulted in electric rate increases that raised SDG&E's system average rate from 9.64 cents per kwh to 9.985 cents per kwh. SDG&E's ability to recover its stranded costs is dependent on its total revenues under the rate cap exceeding normal cost-of-service revenues during the transition period by at least the amount of the stranded costs. During the transition period SDG&E will not earn awards from special programs, such as demand-side management, unless total revenues are also adequate to cover the awards. Fuel-price volatility is the most significant variable in the ability of SDG&E to recover its stranded costs and program awards. SDG&E had been accounting for the economic effects of regulation on all of its utility operations in accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," as described in the notes to consolidated financial statements in the 1996 Annual Report to Shareholders. The SEC had indicated a concern that the California investor-owned utilities may not meet the criteria of SFAS No. 71 with respect to their electric generation net regulatory assets. SDG&E has ceased the application of SFAS No. 71, in accordance with the conclusion of the Emerging Issues Task Force of the Financial Accounting Standards Board that the discontinuance of SFAS No. 71 applied to the utilities' generation business would not result in a write-off of their net regulatory assets, since the CPUC has approved the recovery of these assets by the distribution portion of their business, subject to the rate cap. INDUSTRY RESTRUCTURING -- FEDERAL ENERGY REGULATORY COMMISSION The IOUs have jointly filed plans with the FERC, detailing the structure of California's independent system operator (ISO) that will manage the state's transmission grid and outlining the development of a power exchange to act as a spot market for trading electricity. The FERC has conditionally approved joint recommendations from the IOUs on the creation of an ISO and power exchange, but has required further information from the utilities as to their structure and operation. In October 1997 the power exchange and the ISO filed their proposed rate structures with the FERC. The ISO filing proposes that the California IOUs pay an up-front restructuring charge and an administrative usage charge for each megawatt-hour of volume transacted. SDG&E's share of the restructuring charge would be $8.5 million. The IOUs have jointly guaranteed $250 million of commercial loans to the ISO and power exchange for their development and initial start-up. SDG&E's share of the guarantee is $25 million. The IOUs have filed with the CPUC to increase this amount to $300 million, increasing SDG&E's share to $30 million. 9 NUCLEAR INSURANCE SDG&E and the co-owners of the San Onofre units have purchased primary insurance of $200 million, the maximum amount available, for public liability claims. An additional $8.7 billion of 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 $32 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. In the event the public liability limit stated above is insufficient, the Price-Anderson Act provides for Congress to enact further revenue- raising measures to pay claims, which could include an additional assessment on all licensed reactor operators. Insurance coverage is provided for up to $2.75 billion of property damage and decontamination liability. Coverage is also provided for the cost of replacement power, which includes indemnity payments for up to three years, after a waiting period of 17 weeks. Coverage is provided 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 from these insurance programs, SDG&E could be assessed retrospective premium adjustments of up to $5.1 million. CANADIAN GAS SDG&E has long-term pipeline capacity commitments related to its contracts for Canadian natural-gas supplies. These contracts are currently in litigation, as described in "Legal Proceedings" in the 1996 Annual Report on Form 10-K beginning on page 19. If the supply of Canadian natural-gas to SDG&E is not resumed to a level approximating the related committed long-term pipeline capacity, SDG&E intends to continue using the capacity in other ways, including the release of a portion of this capacity to third parties. 10 ITEM 2. ENOVA CORPORATION/SAN DIEGO GAS & ELECTRIC COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INFORMATION REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes forward-looking statements within the definition of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in "Management's Discussion and Analysis of Financial Condition and Results of Operations," the words "estimates", "expects", "anticipates", "plans" and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Although the Registrants believe that their expectations are based on reasonable assumptions, they can give no assurance that those expectations will be realized. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include political developments affecting state and federal regulatory agencies, the pace and substance of electric industry deregulation in California and in the United States, the ability to create a market for rate-reduction bonds, the ability to effect a coordinated and orderly implementation of both state legislation and the CPUC's restructuring regulations, the consummation and timing of the proposed business combination of Enova and Pacific Enterprises, the level of sales of electricity, international political developments, and the timing and extent of changes in interest rates and prices for natural gas and electricity. RESULTS OF OPERATIONS: EARNINGS Earnings per common share for the quarter ended September 30, 1997 were $0.57 compared to $0.54 for the corresponding period in 1996. Earnings per common share for the nine months ended September 30, 1997 were $1.49 compared to $1.51 for 1996. The 1997 increase in earnings for the quarter is primarily due to previously announced changes related to the elimination of electric balancing accounts, partially offset by expenses relating to the proposed business combination with Pacific Enterprises. Although the elimination of the balancing accounts is not expected to have a significant effect for any full year, quarterly earnings will fluctuate significantly, depending on monthly or seasonal changes in electric sales and fuel prices. In general, earnings are expected to be higher in high sales-volume months and lower in others. The 1997 decrease in earnings for the nine months is primarily due to the balancing accounts' elimination, partially offset by improved earnings at Enova's non-regulated subsidiaries. OPERATING REVENUES For the quarter ended September 30, 1997 electric revenues increased from the corresponding period in 1996 primarily due to increased sales volume due to weather. During the quarter SDG&E reached new all-time electric system peaks on three occasions, resulting in a new peak demand 11 of 3,668 megawatts reached on September 4, 1997. Prior to 1997 the record for electricity demand was 3,355 megawatts on August 17, 1992. Electric revenues increased for the nine months ended September 30, 1997 due to the increased sales volume and the accelerated recovery of San Onofre Nuclear Generating Station Units 2 and 3 which commenced in April 1996. Additional information concerning the recovery of SONGS Units 2 and 3 is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1996 Annual Report to Shareholders on page 27. Gas revenues increased for the quarter primarily due to an increase in natural-gas sales volume. Gas revenues increased for the nine months primarily due to an increase in sales volume and higher natural-gas prices during the first quarter of 1997. OPERATING EXPENSES For the nine months ended September 30, 1997 electric fuel expense increased from the corresponding period in 1996 primarily due to increases in natural-gas-fired generation and natural-gas prices, offset by a decrease in nuclear generation as a result of SONGS Units 2 and 3 refuelings during the first half of 1997. The increase in purchased- power expense for the quarter and the nine months is primarily due to the higher sales volume. The lower nuclear generation availability resulting from the SONGS refuelings also contributed to the increase in purchased-power expense for the nine months. Gas purchased for resale increased for the quarter due to the increase in sales volume. Gas purchased for resale increased for the nine months due to the increases in sales volume and in natural-gas prices in the first quarter of 1997. In addition, for the nine months ended September 30, 1997 maintenance expense increased due to the additional costs incurred during the SONGS Units 2 and 3 refuelings. Depreciation and decommissioning expense increased for the nine months due to the accelerated recovery of SONGS Units 2 and 3. The decrease in general and administrative expense for the quarter and the nine months is primarily due to higher 1996 costs for customer service, partially offset by the expenses relating to the business combination with Pacific Enterprises. The increase in other expense for the quarter and the nine months reflects an increase in electric transmission expense associated with the higher sales volume. Income-tax expense decreased for the nine months due to the decrease in operating income and the increase in income-tax benefits related to Enova Financial's increased investments in affordable-housing projects. OTHER INCOME Other income decreased for the quarter and the nine months ended September 30, 1997 due to losses associated with the start-up of Energy Pacific, the joint venture of Enova and Pacific Enterprises to market integrated energy and energy-related products and services. For the nine months, these losses were partially offset by the first quarter 1997 tax benefits on nonoperating income relating to the 1995 sale of Wahlco Environmental Systems, Inc. Additional information concerning the sale 12 of Wahlco is provided in Note 3 in the notes to consolidated financial statements of the 1996 Annual Report to Shareholders. BUSINESS COMBINATION Consummation of the proposed business combination of Enova and Pacific Enterprises (PE) is conditional upon the approvals of the California Public Utilities Commission (CPUC) and various other regulatory bodies. In June 1997 the CPUC revised its procedural schedule for the business combination after delaying until July 1997 its final decision on the Performance-Based Ratemaking (PBR) proceeding for Southern California Gas Company (SoCalGas), PE's principal subsidiary. Under the new timeline, a CPUC Administrative Law Judge is expected to issue a proposed decision on the combination in late January 1998, with a CPUC decision scheduled for March 1998. The CPUC evidentiary hearings on the business combination concluded in October 1997. In July 1997 the CPUC issued its decision on SoCalGas's PBR proceeding. The decision adopts a rate-setting mechanism for SoCalGas that provides incentives for cost control and efficiency improvement, including comparisons of productivity and other factors against benchmarks based on industry performance. SoCalGas had been operating under traditional "cost of service" regulation. The decision provides for, among other things, a net rate reduction of $160 million. In August 1997 Enova and PE, after having reviewed the totality of circumstances surrounding the business combination, announced that both companies remain committed to its successful completion. Enova and PE further agreed to extend the deadline by which they must complete the combination from April 30, 1998 to September 1, 1998. In September 1997 the CPUC staff issued a final Negative Declaration, concluding that the business combination will not result in any activities or operational changes that may cause a significant adverse effect on the environment. In June 1997 the Federal Energy Regulatory Commission (FERC) approved the proposed business combination subject to conditions that the combined company will not unfairly use any potential market power regarding natural-gas transportation to gas-fired electric-generation plants. In its decision, the FERC acknowledged that this issue is clearly within the jurisdiction of the CPUC and the conditions will be considered during the CPUC review process. Various parties have since filed a joint petition with the FERC asking it for a rehearing. In August 1997 the Nuclear Regulatory Commission (NRC) approved the business combination, ruling that the creation of the new company will not affect SDG&E's qualifications to hold the license for its 20-percent interest in the San Onofre Nuclear Generating Station (SONGS). The NRC's approval was required since the business combination would result in an indirect transfer of control of the SONGS' license to the new company. 13 In August 1997 Enova and PE announced an agreement to jointly acquire AIG Trading Corporation, a leading natural-gas and power-marketing firm based in Greenwich, Connecticut, for $190 million. Enova and PE will also commit up to $35 million for certain long-term incentive compensation and retention arrangements. AIG will become a subsidiary of the new company formed by the business combination. The acquisition, subject to various federal regulatory approvals, is expected to be completed by the end of 1997. Remaining regulatory approvals and the commencement of combined operations are expected by the summer of 1998. Earnings of the combined company could be negatively impacted in 1998, and to a lesser extent in subsequent years by delays in achieving cost savings from the combination caused by the later-than-expected effective combination date, potential CPUC limitations on affiliate transactions by all California energy utilities (see below), the possibility that the CPUC might not permit recovery of certain costs of the combination and might reduce the period or percentage for shareholder participation in the related cost savings, and slower-than-anticipated growth in revenues from Energy Pacific. REGULATORY MATTERS: CALIFORNIA PUBLIC UTILITIES COMMISSION'S INDUSTRY RESTRUCTURING In December 1995 the CPUC issued its policy decision on the restructuring of California's electric utility industry to stimulate competition and reduce rates. In addition, in September 1996 California Governor Wilson signed into law a bill restructuring the industry. See additional discussion of industry restructuring in Note 3 of the notes to financial statements. AFFILIATE TRANSACTION GUIDELINES On October 31, 1997 the CPUC issued the ALJ's draft decision on guidelines for transactions between a utility that it regulates and the utility's affiliates that it does not regulate. If the final decision of the CPUC is substantially the same as the draft decision, it would limit the ability of Enova/SDG&E and the other California energy utilities (and the unregulated affiliates in each case) to operate as totally cohesive units by, among other things, restricting the sharing of information, facilities, etc., which would reduce opportunities for efficiencies and impact marketing opportunities for the affiliates. In addition, an alternate draft decision sponsored by two of the CPUC's five commissioners would add additional restrictions, such as prohibiting the energy utilities' affiliates from marketing in the respective utility's service territory for two years and banning the joint use of names and logos. 14 As expected, guidelines on transactions between SDG&E and SoCal Gas (see "Business Combinations" above) were not addressed; they were considered in the business combination proceedings and will be addressed in the decision that results therefrom. CONSUMER EDUCATION In August 1997 the CPUC authorized $89 million in rate recovery to fund California's Consumer Education Plan (CEP). SDG&E's share of this amount is approximately $9 million. The CEP's objective will be to provide California electric customers information to help them compare and choose among electric products and services in a competitive environment. The CEP's program began in September 1997 and is expected to end by May 31, 1998. In a draft decision, the CPUC rejected SDG&E's request for rate recovery of a $1.4 million SDG&E-specific CEP, which was to be an enhancement to the statewide program. The CPUC decision does allow SDG&E to recover certain customer-service costs associated with its additional customer inquiries concerning industry restructuring. PUBLIC POLICY PROGRAMS The CPUC has established a new administrative structure and initial funding levels to manage demand-side management, renewable-energy, low- income assistance, and research and development (R&D) programs beginning in January 1998. The CPUC has formed independent boards to oversee a competitive bidding process to administer demand-side management and low-income assistance programs. In an interim decision, the CPUC has required that the California IOUs transfer their administration of demand-side management and low-income programs to these independent boards by October 1998 and January 1999, respectively. Until the transition to a fully competitive energy-services market is complete, customers will be required to provide the funding. For 1998 SDG&E will be funded $32 million and $12 million for demand-side management and renewables programs, respectively. Low-income assistance funding will remain at 1996 authorized levels. The California Energy Commission will be allocated most of the $63 million authorized to administer the R&D programs, of which SDG&E will be funded $4 million. SDG&E cannot predict the impact on future earnings of these programs when the transition to the competitive markets is complete. ELECTRIC BALANCING ACCOUNTS In October 1997 the CPUC issued a decision eliminating the Electric Cost Adjustment Clause (ECAC) and the Electric Revenue Adjustment Mechanism (ERAM) balancing accounts effective December 31, 1997. The balances in these accounts will be transferred to the interim transition cost balancing account, subject to a reasonableness review. The decision eliminates further ECAC proceedings for generation costs incurred beginning in January 1998. Additionally, the decision eliminates all other electric balancing accounts except for those associated with the 15 administration of public purpose funds (described above). For the nine months ended September 30, 1997 SDG&E had charged against earnings its undercollection in the ECAC balancing account under the expectation that this balance would continue to exist for the remainder of 1997 and could not be netted with its ERAM overcollection. Because the CPUC decision allows for the transfer of both accounts to the transition cost balancing account, SDG&E will record a favorable adjustment of $9 million, after income taxes, in its fourth-quarter 1997 earnings. PERFORMANCE-BASED RATEMAKING (PBR) Base Rates: In August 1997 SDG&E filed an advice letter with the CPUC to revise its 1996 Performance-Based Ratemaking Base-Rate Annual Report to reflect new data received from the Edison Electric Institute (EEI) relating to the national-rate comparison. The EEI revised its 1996 national average electric rate from 6.95 to 7.12 cents per kwh, causing SDG&E's calculation of the PBR price-performance benchmark to change from a $4 million penalty to a $3 million reward. This change also allows SDG&E to eliminate the $1.4 million two-way conditionality penalty that was originally filed for exceeding the national-rate benchmark. The effect of the change would result in a total PBR reward of $6.5 million as compared to a $1.9 million penalty that was previously reported. A CPUC decision is expected in December 1997. The CPUC has eliminated the price-performance indicator from SDG&E's Base- Rate PBR effective in 1997 since the electric-rate freeze renders this indicator meaningless. The five-year PBR mechanism, which began in 1994, is in its mid-course review by the CPUC. A CPUC Administrative Law Judge has ruled that SDG&E's requirement to file a 1999 General Rate Case should be eliminated and replaced by a 1999 Cost of Service study in its new PBR application due in December 1997. SDG&E's ability to control its costs within the limits of the revenues authorized by the study will impact future earnings. 1998 Revenues: In October 1997 SDG&E filed an advice letter with the CPUC to request an update to its electric distribution and gas base-rate revenue requirements to reflect the PBR base-rate revenue escalation for 1998. The escalation would increase SDG&E's authorized electric distribution revenues by $33 million and its gas base-rate amount by $7 million. The increase would not affect rates and, therefore, would reduce the amount available to recover stranded costs (see Note 3 of the notes to financial statements). A CPUC decision is expected in the fourth quarter of 1997. Natural Gas: In September 1997 SDG&E filed with the CPUC its application for a permanent Gas Procurement PBR mechanism. The filing proposes a mechanism structured around a commodity price cap plus an incremental adjustment, designed to recover transportation costs to the California border. 16 COST OF CAPITAL In October 1997 SDG&E filed with the CPUC its 1998 Market Indexed Capital Adjustment Mechanism (MICAM). MICAM, approved by the CPUC in 1996, adjusts SDG&E's authorized cost of capital based on changes in interest rates. For the current MICAM review, interest-rate movements over the past 12 months have not triggered the mechanism to change, resulting in SDG&E's 1998 cost of capital remaining at the 1997 authorized levels of 11.60 percent for the rate of return on equity and 9.35 percent for the rate of return on rate base. Excluded from this are the rates of return on nuclear and non-nuclear generating assets (recovered as transition costs), which are authorized at rates of 7.14 percent and 6.75 percent, respectively. ELECTRIC GENERATION GENERAL SDG&E is considering the divestiture of its non-nuclear generating assets, which would allow it to concentrate on providing electric distribution and other energy services in a deregulated market. Although the other California IOUs are required by the CPUC to divest themselves of at least 50 percent of their fossil-fueled power plants as part of industry restructuring, SDG&E is not under the same mandate. However, SDG&E's principal fossil plants (Encina and South Bay) may not be as competitive as newer facilities in a deregulated market. The FERC has ruled that it has jurisdiction over all electricity sales into the California Power Exchange, meaning that the buyers of divested California power plants would qualify as wholesale power generators. The FERC's ruling is expected to increase the interest in the California utilities' generating plants. SAN ONOFRE NUCLEAR GENERATING STATION UNITS 2 & 3 In October 1997 the California Coastal Commission (CCC) staff approved the SONGS owners plan to provide 150 acres of wetlands restoration, 150 acres of kelp reef and other mitigation that was ordered by the CCC in April 1997. A final CCC decision is expected in the fourth quarter of 1997. SDG&E's share of the cost is estimated to be $23 million. SONGS Units 2 and 3 are scheduled for 30-day mid-cycle outages for inspections of their steam generators in January 1998 and March 1998, respectively. These inspections were prompted when it was discovered in a routine inspection during last quarter's refueling of Unit 3 that the thickness of the heat transfer tubes' structural supports was significantly reduced, apparently due to erosion. LIQUIDITY AND CAPITAL RESOURCES: Utility operations continue to be a major source of liquidity. In addition, financing needs are met primarily through the issuance of 17 short-term and long-term debt, and common and preferred stock. These capital resources are expected to remain available. SDG&E's cash requirements include plant construction and other capital expenditures. Nonutility cash requirements include capital expenditures associated with subsidiary activities related to the plans to distribute natural gas in Mexico and the northeast United States; new products; affordable- housing, leasing and other investments; and repayments and retirements of long-term debt. In addition to changes described elsewhere, major changes in cash flows are described below. OPERATING ACTIVITIES Besides the effects of other items discussed in this report, there were other significant changes in cash flows from operations for the nine months ended September 30, 1997 compared to the corresponding 1996 period. Cash flows from accounts and notes receivable decreased due to an increase in accounts receivable at September 30, 1997 resulting from an increase in SDG&E's sales in September 1997. Regulatory balancing accounts increased due to overcollections in the ERAM and gas fixed cost accounts as a result of higher-than-authorized sales volumes. As discussed above, the December 31, 1996 ERAM balancing account has been applied to the recovery of transition costs and the new overcollected balance at December 31, 1997 will be similarly applied. FINANCING ACTIVITIES Enova Corporation anticipates that it will require only minimal amounts of short-term debt in 1997, primarily for utility operations. Enova does not expect to issue stock or long-term debt in 1997, other than for SDG&E-related refinancings. In conjunction with electric industry restructuring, rate-reduction bonds are expected to be issued by an agency of the State of California. Additional information concerning these bonds is provided in Note 3 of the notes to financial statements, above. During the first nine months of 1997 SDG&E and Califia repaid long-term debt of $87 million and $3 million, respectively. During that same period Enova Financial repaid $31 million and issued $101 million of long-term debt. SDG&E had short-term bank lines of $50 million and long-term bank lines of $380 million at September 30, 1997. Commitment fees are paid on the unused portion of the lines. There are no requirements for compensating balances. In March 1997 Enova Corporation repurchased three million shares of its outstanding common stock. Quarterly cash dividends of $0.39 per share were declared for the first three quarters of 1997 and for each quarter during the year ended December 31, 1996. The dividend payout ratio for the twelve months ended 18 September 30, 1997 and years ended December 31, 1996, 1995, 1994, 1993 and 1992 were 80 percent, 79 percent, 80 percent, 130 percent, 82 percent and 81 percent, respectively. The increase in the payout ratio for the year ended December 31, 1994 was due to the writedowns recorded during 1994. For additional information regarding the writedowns, see Enova Corporation's 1996 Annual Report on Form 10-K. The payment of future dividends is within the discretion of the directors and is dependent upon future business conditions, earnings and other factors. Net cash flows provided by operating activities currently are sufficient to maintain the payment of dividends at the anticipated level. SDG&E maintains its capital structure so as to obtain long-term financing at the lowest possible 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. Sept. 30, 1992 1993 1994 1995 1996 1997 ----------------------------------------------------------- Common equity 47% 47% 48% 49% 50% 50% Preferred stock 5 4 4 4 4 4 Debt and leases 48 49 48 47 46 46 ----------------------------------------------------------- Total 100% 100% 100% 100% 100% 100% ----------------------------------------------------------- The following table lists key financial ratios for SDG&E. Twelve Year months ended ended September 30, December 31, 1997 1996 ----------------- ------------- Pretax interest coverage 5.3 X 5.2 X Internal cash generation 153 % 127 % Construction expenditures as a percent of capitalization 7.9 % 7.4 % DERIVATIVES: Registrants use derivative financial instruments to reduce exposure to fluctuations in interest rates, foreign currency exchange rates and natural-gas prices. These financial instruments are with major investment firms and expose Registrants to market and credit risks if the counterparties fail to perform. These risks may at times be concentrated with certain counterparties, although counterparty non- performance is not anticipated. Registrants do not use derivatives for trading or speculative purposes. At September 30, 1997 SDG&E had one interest-rate swap agreement: a floating-to-fixed-rate swap maturing in 2002 associated with $45 million of variable-rate bonds. SDG&E's pension fund periodically uses foreign currency forward contracts to reduce its exposure from exchange-rate fluctuations associated with certain investments in foreign equity securities. These contracts generally have maturities ranging from three to six months. 19 At September 30, 1997 Enova had various open natural-gas futures positions to hedge against the volatility of natural-gas prices. The total amount of these open positions was immaterial. There were no other derivative financial instruments outstanding at September 30, 1997. INVESTING ACTIVITIES Cash used in investing activities for the nine months ended September 30, 1997 included utility construction expenditures and payments to the SONGS decommissioning trust. Utility construction expenditures, excluding nuclear fuel and the allowance for equity funds used during construction, were $209 million in 1996 and are estimated to be $218 million in 1997. Enova 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, SDG&E's level of expenditures in the next few years will depend heavily on the impacts of industry restructuring, and on the timing of expenditures to comply with air-emission reduction and other environmental requirements. Payments to the nuclear decommissioning trust are expected to continue until SONGS is decommissioned. In April 1997 Enova invested $21 million in Energy Pacific. Enova's level of non-utility expenditures in the next few years will depend primarily on the activities of its subsidiaries other than SDG&E, including Enova International's plan to develop natural-gas distribution systems in Mexico. In July 1997 Enova International and its partners, Pacific Enterprises International and Proxima S.A. de C.V., delivered its first supply of natural gas to Baja California. The Mexican company formed by the three partners, Distribuidora de Gas Natural de Mexicali, will invest up to $25 million during the first five years of the 30-year license period to supply natural gas to the region. In March 1997 the Mexican Energy Regulatory Commission awarded the partners its second natural-gas privatization license in Mexico, allowing the partnership to build and operate a natural-gas distribution system in Chihuahua. The partnership plans to invest approximately $50 million in the project and serve at least 50,000 customers in the first five years of operation. In September 1997 Energy Pacific formed a joint venture with Bangor Hydro to build, own and operate a $40 million natural-gas distribution system in Bangor, Maine. The joint venture plans to file with the Maine Public Utilities Commission to provide natural-gas service for the first time to residential, commercial and industrial customers in the Bangor area. Finally, as discussed in Note 2 of the notes to financial statements, Enova has agreed to provide 50 percent of the total funding ($190 million plus additional incentive commitments) to acquire AIG Trading Corporation. 20 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Other than as discussed below, there have been no significant subsequent developments in litigation proceedings that were outstanding at December 31, 1996, nor have there been any significant new litigation proceedings since that date. SONGS Pricing Southern California Edison (Edison) and SDG&E are co-owners of the San Onofre Nuclear Generating Station. SDG&E owns a 20-percent interest. In May 1997 Ayad Rubaii, an employee of Edison, filed a complaint under the federal False Claims Act against Edison and SDG&E in United States District Court for the Southern District of California. The complaint was unsealed in July 1997 and served upon Edison and SDG&E in September 1997. In the complaint, the plaintiff alleges that Edison and SDG&E have overcharged customers since early 1996 for energy produced at SONGS under a pricing mechanism approved by the CPUC and codified by the State Legislature in AB 1890. The plaintiff alleges that he filed the lawsuit on behalf of the United States Government. The Department of Justice has elected not to intervene in the lawsuit, but could elect to do so in the future if new information becomes available. The plaintiff is claiming damages of $383 million from Edison and $102 million from SDG&E. Under the False Claims Act, any damages would be trebled and penalties could be assessed. SDG&E intends to vigorously defend this action. SDG&E cannot predict the ultimate outcome. Employee Benefits In September 1997 two individual plaintiffs filed a complaint (Mascari v. SDG&E) in United States District Court for the Southern District of California on behalf of themselves and a purported class consisting of temporary employees and independent contractors employed at SDG&E. Plaintiffs allege that they are and have been common law employees of SDG&E and, as such, under recent Ninth Circuit decisional law, are and have been entitled to participate in SDG&E's health and welfare, defined benefit and defined contribution plans. They seek to recover past and future benefits under each plan. In October 1997 SDG&E filed its answer to the complaint, denying that the plaintiffs were or are entitled to any benefits and denying the appropriateness of a class. SDG&E intends to vigorously defend this action. SDG&E cannot predict the ultimate outcome. Public Service Company of New Mexico As described in the "Legal Proceedings -- Public Service of New Mexico" section on page 19 of the Registrants' 1996 Annual Report on Form 10-K, SDG&E has filed two previous complaints with the FERC against Public Service of New Mexico (PNM). In August 1997 SDG&E filed a third complaint against PNM alleging that the demand rate paid by SDG&E under the PNM power-purchase agreement during 1996 was unjust and unreasonable, resulting in an overcharge of up to $9.6 million during this period. 21 SONGS Personal Injury Litigation As described in the "Legal Proceedings -- SONGS Personal Injury Litigation" section on page 21 of the Registrants' 1996 Annual Report on Form 10-K, the McLandrich wrongful death case is currently on appeal. The Ninth Circuit Court of Appeals rejected SDG&E's petition for permission to challenge the lower court's determination that SDG&E is not an employer and thus may not avail itself of the workers' compensation exclusivity rule. McLandrich, Metler and Knapp are stayed pending the outcome of a plaintiff appeal in McLandrich, challenging the District Court's ruling that Southern California Edison can avail itself to the workers' compensation exclusivity rule. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 12 - Computation of ratios 12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends as required under SDG&E's August 1993 registration of 5,000,000 shares of Preference Stock (Cumulative). Exhibit 27 - Financial Data Schedules 27.1 Financial Data Schedule for the nine months ended September 30, 1997 for Enova Corporation. 27.2 Financial Data Schedule for the nine months ended September 30, 1997 for SDG&E. (b) Reports on Form 8-K A Current Report on Form 8-K was filed on August 12, 1997 announcing the joint acquisition of AIG Trading Corp. by Enova Corporation and Pacific Enterprises (PE), and the amendment to the Enova and PE merger agreement extending the completion deadline from April 30, 1998 to September 1, 1998. 23 SIGNATURE Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized. ENOVA CORPORATION SAN DIEGO GAS & ELECTRIC COMPANY (Registrants) Date: November 4, 1997 By: /s/ F. H. Ault ---------------------------------- (Signature) F. H. AULT Vice President and Controller 24
 
                                  EXHIBIT 12.1 
                          SAN DIEGO GAS & ELECTRIC COMPANY 
            COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES 
                           AND PREFERRED STOCK DIVIDENDS 

9 Months Ended 1992 1993 1994 1995 1996 9/30/97 --------- ---------- ---------- ---------- ---------- ---------- Fixed Charges: Interest: Long-Term Debt $ 97,067 $ 84,830 $ 81,749 $ 82,591 $ 76,463 $ 53,226 Short-Term Debt 5,043 6,676 8,894 17,886 12,635 9,980 Amortization of Debt Discount and Expense, Less Premium 2,881 4,162 4,604 4,870 4,881 3,815 Interest Portion of Annual Rentals 14,558 9,881 9,496 9,631 8,446 7,230 ---------- ---------- ----------- --------- ----------- ---------- Total Fixed Charges 119,549 105,549 104,743 114,978 102,425 74,250 ---------- ---------- ----------- --------- ----------- ---------- Preferred Dividends Requirements 9,600 8,565 7,663 7,663 6,582 4,937 Ratio of Income Before Tax to Net Income 1.71389 1.79353 1.83501 1.78991 1.88864 1.98471 ---------- ----------- ----------- ---------- ---------- ---------- Preferred Dividends for Purpose of Ratio 16,453 15,362 14,062 13,716 12,431 9,799 ---------- ----------- ----------- ---------- ---------- ---------- Total Fixed Charges and Preferred Dividends for Purpose of Ratio $136,002 $120,911 $118,805 $128,694 $114,856 $ 84,049 ========== =========== ========== ========== ========== ========== Earnings: Net Income (before preferred dividend requirements) $224,177 $215,872 $206,296 $219,049 $222,765 $161,751 Add: Fixed Charges (from above) 119,549 105,549 104,743 114,978 102,425 74,250 Less: Fixed Charges Capitalized 1,262 1,483 1,424 2,040 1,495 1,903 Taxes on Income 160,038 171,300 172,259 173,029 197,958 159,278 ---------- ---------- ---------- ---------- ----------- --------- Total Earnings for Purpose of Ratio $502,502 $491,238 $481,874 $505,016 $521,653 $393,376 ========== ========== ========== ========== =========== ========= Ratio of Earnings to Combined Fixed Charges and Preferred Dividends 3.69 4.06 4.06 3.92 4.54 4.68 ========== ========== ========== ========== =========== =========
 

UT 1,000 YEAR DEC-31-1997 SEP-30-1997 PER-BOOK 2,950,272 802,063 532,181 97,804 283,198 4,665,518 284,042 507,741 747,835 1,539,618 25,000 78,475 1,126,553 0 247,332 0 50,926 0 91,598 6,696 1,499,320 4,665,518 1,590,469 113,848 1,226,627 1,340,475 249,994 2,537 252,531 82,221 170,310 0 170,310 135,357 53,226 478,007 1.49 1.49