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SEMPRA ENERGY 10-Q 2010

Documents found in this filing:

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

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

For the quarterly period ended

September 30, 2010

[ ]

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

For the transition period from

Commission File No.

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

States of Incorporation

I.R.S. Employer
Identification Nos.

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

1-14201

SEMPRA ENERGY

California

33-0732627

No change

101 Ash Street

San Diego, California 92101

(619)696-2034

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-40

PACIFIC ENTERPRISES

California

94-0743670

No change

101 Ash Street

San Diego, California 92101

(619)696-2020

1-1402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

555 West Fifth Street

Los Angeles, California 90013

(213)244-1200

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes

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

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Pacific Enterprises

Yes

Southern California Gas Company

Yes

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

Large
accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Sempra Energy

[ X ]

[ ]

San Diego Gas & Electric Company

[ ]

[ X ]

[ ]

Pacific Enterprises

[ ]

[ X ]

[ ]

Southern California Gas Company

[ ]

[ X ]

[ ]

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

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Pacific Enterprises

Yes

Southern California Gas Company

Yes

Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date.

Common stock outstanding on November 5, 2010:

Sempra Energy

240,054,962 shares

San Diego Gas & Electric Company

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

Pacific Enterprises

Wholly owned by Sempra Energy

Southern California Gas Company

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

SEMPRA ENERGY FORM 10-Q TABLE OF CONTENTS
		Page
Information Regarding Forward-Looking Statements		4

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	99
Item 4.	Controls and Procedures	100

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	101
Item 1A.	Risk Factors	101
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102
Item 6.	Exhibits	103

Signatures		105

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company provides information only as to itself and its consolidated entities and not as to any other company.

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

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

§capital markets conditions and inflation, interest and exchange rates;

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

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

§weather conditions and conservation efforts;

§war and terrorist attacks;

§business, regulatory, environmental and legal decisions and requirements;

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

§the timing and success of business development efforts;

§the resolution of litigation; and

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

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
	(unaudited)
REVENUES
Sempra Utilities	$	1,575	$	1,424	$	4,999	$	4,382
Sempra Global and parent		541		429		1,659		1,268
Total revenues		2,116		1,853		6,658		5,650
EXPENSES AND OTHER INCOME
Sempra Utilities:
Cost of natural gas		(285)		(208)		(1,402)		(997)
Cost of electric fuel and purchased power		(203)		(208)		(480)		(508)
Sempra Global and parent:
Cost of natural gas, electric fuel and purchased power		(292)		(220)		(887)		(675)
Other cost of sales		(23)		(19)		(68)		(52)
Litigation expense		(17)		(3)		(184)		-
Other operation and maintenance		(590)		(568)		(1,782)		(1,673)
Depreciation and amortization		(218)		(196)		(643)		(568)
Franchise fees and other taxes		(76)		(77)		(243)		(228)
Write-off of long-lived assets		-		-		-		(132)
Equity earnings (losses):
RBS Sempra Commodities LLP		(281)		105		(290)		384
Other		8		18		24		27
Other income, net		66		24		82		97
Interest income		5		5		13		16
Interest expense		(111)		(96)		(323)		(257)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries		99		410		475		1,084
Income tax benefit (expense)		32		(128)		(85)		(327)
Equity earnings (losses), net of income tax		(4)		20		42		59
Net income		127		302		432		816
Losses attributable to noncontrolling interests		6		17		34		22
Preferred dividends of subsidiaries		(2)		(2)		(7)		(7)
Earnings	$	131	$	317	$	459	$	831

Basic earnings per common share	$	0.53	$	1.30	$	1.86	$	3.42
Weighted-average number of shares outstanding, basic (thousands)		246,668		243,925		246,513		242,806

Diluted earnings per common share	$	0.53	$	1.27	$	1.84	$	3.37
Weighted-average number of shares outstanding, diluted (thousands)		249,811		248,461		249,773		246,875
Dividends declared per share of common stock	$	0.39	$	0.39	$	1.17	$	1.17
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	September 30,		December 31,
	2010		2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	547	$	110
Restricted cash		4		35
Trade accounts receivable		632		971
Other accounts and notes receivable		144		159
Due from unconsolidated affiliate		30		41
Income taxes receivable		312		221
Deferred income taxes		-		10
Inventories		296		197
Regulatory assets		97		54
Fixed-price contracts and other derivatives		84		77
Insurance receivable related to wildfire litigation (Note 10)		150		273
Other		199		147
Total current assets		2,495		2,295

Investments and other assets:
Restricted cash		27		-
Regulatory assets arising from fixed-price contracts and other derivatives		241		241
Regulatory assets arising from pension and other postretirement
benefit obligations		950		959
Other regulatory assets		973		603
Nuclear decommissioning trusts		737		678
Investment in RBS Sempra Commodities LLP		825		2,172
Other investments		2,317		2,151
Goodwill and other intangible assets		542		524
Sundry		621		608
Total investments and other assets		7,233		7,936

Property, plant and equipment:
Property, plant and equipment		26,286		25,034
Less accumulated depreciation and amortization		(7,065)		(6,753)
Property, plant and equipment, net ($523 at September 30, 2010 related to VIE)		19,221		18,281
Total assets	$	28,949	$	28,512
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	September 30,		December 31,
	2010		2009
	(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	574	$	618
Accounts payable - trade		572		522
Accounts payable - other		130		171
Due to unconsolidated affiliates		12		29
Deferred income taxes		16		-
Dividends and interest payable		232		190
Accrued compensation and benefits		247		264
Regulatory balancing accounts, net		242		382
Current portion of long-term debt		313		573
Fixed-price contracts and other derivatives		107		95
Customer deposits		133		145
Reserve for wildfire litigation (Note 10)		344		270
Other		855		629
Total current liabilities		3,777		3,888
Long-term debt ($357 at September 30, 2010 related to VIE)		8,032		7,460

Deferred credits and other liabilities:
Due to unconsolidated affiliate		-		2
Customer advances for construction		147		146
Pension and other postretirement benefit obligations, net of plan assets		1,225		1,252
Deferred income taxes		1,516		1,318
Deferred investment tax credits		52		54
Regulatory liabilities arising from removal obligations		2,635		2,557
Asset retirement obligations		1,327		1,277
Other regulatory liabilities		144		181
Fixed-price contracts and other derivatives		336		312
Deferred credits and other		672		735
Total deferred credits and other liabilities		8,054		7,834
Contingently redeemable preferred stock of subsidiary		79		79

Commitments and contingencies (Note 10)

Equity:
Preferred stock (50 million shares authorized; none issued)		-		-
Common stock (750 million shares authorized; 242 million and 247 million shares
outstanding at September 30, 2010 and December 31, 2009, respectively; no par
value)		2,012		2,418
Retained earnings		7,143		6,971
Deferred compensation		(9)		(13)
Accumulated other comprehensive income (loss)		(344)		(369)
Total Sempra Energy shareholders' equity		8,802		9,007
Preferred stock of subsidiaries		100		100
Other noncontrolling interests		105		144
Total equity		9,007		9,251
Total liabilities and equity	$	28,949	$	28,512
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Nine months ended September 30,
	2010		2009
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	432	$	816
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		643		568
Deferred income taxes and investment tax credits		133		181
Equity losses (earnings)		224		(470)
Write-off of long-lived assets		-		132
Fixed-price contracts and other derivatives		19		(27)
Other		(24)		42
Net change in other working capital components		(77)		220
Distributions from RBS Sempra Commodities LLP		198		407
Changes in other assets		76		81
Changes in other liabilities		(22)		(66)
Net cash provided by operating activities		1,602		1,884

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(1,354)		(1,371)
Proceeds from sale of assets		-		179
Expenditures for investments and acquisition of businesses, net of cash acquired		(385)		(762)
Distributions from RBS Sempra Commodities LLP		849		-
Distributions from other investments		259		16
Purchases of nuclear decommissioning and other trust assets		(261)		(167)
Proceeds from sales by nuclear decommissioning and other trusts		261		155
Other		(2)		(20)
Net cash used in investing activities		(633)		(1,970)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(269)		(255)
Preferred dividends paid by subsidiaries		(7)		(7)
Issuances of common stock		29		52
Repurchases of common stock		(502)		-
Increase (decrease) in short-term debt, net		184		(52)
Issuances of debt (maturities greater than 90 days)		771		1,181
Payments on debt (maturities greater than 90 days)		(727)		(325)
Purchase of noncontrolling interest		-		(94)
Other		(11)		11
Net cash (used in) provided by financing activities		(532)		511

Increase in cash and cash equivalents		437		425
Cash and cash equivalents, January 1		110		331
Cash and cash equivalents, September 30	$	547	$	756
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Nine months ended September 30,
	2010		2009
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	264	$	201
Income tax payments, net of refunds		32		98

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Acquisition of business:
Assets acquired	$	303	$	-
Cash paid, net of cash acquired		(292)		-
Liabilities assumed	$	11	$	-

Increase in capital lease obligations for investments in property, plant and
equipment	$	183	$	2
Dividends declared but not paid		97		99
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
	(unaudited)
Operating revenues
Electric	$	718	$	695	$	1,870	$	1,783
Natural gas		93		78		375		353
Total operating revenues		811		773		2,245		2,136
Operating expenses
Cost of electric fuel and purchased power		203		208		480		508
Cost of natural gas		37		30		170		154
Operation and maintenance		235		236		704		649
Depreciation and amortization		96		81		283		239
Franchise fees and other taxes		42		46		126		126
Total operating expenses		613		601		1,763		1,676
Operating income		198		172		482		460
Other income (expense), net		(2)		1		(18)		45
Interest income		-		1		-		1
Interest expense		(37)		(29)		(99)		(75)
Income before income taxes		159		145		365		431
Income tax expense		(56)		(53)		(131)		(141)
Net income		103		92		234		290
Losses (earnings) attributable to noncontrolling interests		5		18		34		(9)
Earnings		108		110		268		281
Preferred dividend requirements		(2)		(2)		(4)		(4)
Earnings attributable to common shares	$	106	$	108	$	264	$	277
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	September 30,		December 31,
	2010		2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	332	$	13
Restricted cash		4		8
Accounts receivable - trade		216		229
Accounts receivable - other		33		85
Due from unconsolidated affiliates		4		8
Income taxes receivable		114		59
Deferred income taxes		36		41
Inventories		67		61
Regulatory assets arising from fixed-price contracts and other derivatives		73		30
Other regulatory assets		4		4
Fixed-price contracts and other derivatives		29		40
Insurance receivable related to wildfire litigation (Note 10)		150		273
Other		61		35
Total current assets		1,123		886

Other assets:
Due from unconsolidated affiliate		-		2
Deferred taxes recoverable in rates		474		415
Regulatory assets arising from fixed-price contracts and other derivatives		241		241
Regulatory assets arising from pension and other postretirement
benefit obligations		331		342
Regulatory assets arising from wildfire litigation costs		311		-
Other regulatory assets		72		53
Nuclear decommissioning trusts		737		678
Sundry		50		43
Total other assets		2,216		1,774

Property, plant and equipment:
Property, plant and equipment		10,816		10,156
Less accumulated depreciation and amortization		(2,659)		(2,587)
Property, plant and equipment, net ($523 at September 30, 2010 related to VIE)		8,157		7,569
Total assets	$	11,496	$	10,229
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	September 30,		December 31,
	2010		2009
	(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	-	$	33
Accounts payable		229		249
Due to unconsolidated affiliate		21		-
Accrued compensation and benefits		93		104
Regulatory balancing accounts, net		79		159
Current portion of long-term debt		22		45
Fixed-price contracts and other derivatives		50		51
Customer deposits		53		56
Reserve for wildfire litigation (Note 10)		344		270
Other		172		157
Total current liabilities		1,063		1,124
Long-term debt ($357 at September 30, 2010 related to VIE)		3,473		2,623

Deferred credits and other liabilities:
Customer advances for construction		21		23
Pension and other postretirement benefit obligations, net of plan assets		354		370
Deferred income taxes		953		774
Deferred investment tax credits		26		26
Regulatory liabilities arising from removal obligations		1,376		1,330
Asset retirement obligations		601		585
Fixed-price contracts and other derivatives		278		265
Deferred credits and other		161		145
Total deferred credits and other liabilities		3,770		3,518
Contingently redeemable preferred stock		79		79

Commitments and contingencies (Note 10)

Equity:
Common stock (255 million shares authorized; 117 million shares outstanding;
no par value)		1,138		1,138
Retained earnings		1,875		1,611
Accumulated other comprehensive income (loss)		(9)		(10)
Total SDG&E shareholders' equity		3,004		2,739
Noncontrolling interest		107		146
Total equity		3,111		2,885
Total liabilities and equity	$	11,496	$	10,229
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Nine months ended
	September 30,
	2010		2009
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	234	$	290
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		283		239
Deferred income taxes and investment tax credits		125		35
Fixed-price contracts and other derivatives		42		(28)
Other		(24)		(14)
Net change in other working capital components		(247)		115
Changes in other assets		15		20
Changes in other liabilities		(12)		(38)
Net cash provided by operating activities		416		619

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(822)		(633)
Expenditures for short-term investments		-		(152)
Proceeds from sale of short-term investments		-		176
Purchases of nuclear decommissioning trust assets		(256)		(161)
Proceeds from sales by nuclear decommissioning trusts		248		155
Decrease in loans to affiliates, net		13		33
Net decrease in restricted cash		4		-
Other		-		2
Net cash used in investing activities		(813)		(580)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		-		(150)
Capital contribution received by Otay Mesa VIE		-		4
Capital distribution made by Otay Mesa VIE		(10)		-
Preferred dividends paid		(4)		(4)
Issuances of long-term debt		744		386
Payments on long-term debt		(7)		-
Other		(7)		(3)
Net cash provided by financing activities		716		233

Increase in cash and cash equivalents		319		272
Cash and cash equivalents, January 1		13		19
Cash and cash equivalents, September 30	$	332	$	291

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	67	$	51
Income tax payments, net of refunds		61		144

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Increase in capital lease obligations for investments in property, plant and
equipment	$	183	$	-
Dividends declared but not paid		1		1
See Notes to Condensed Consolidated Financial Statements.

PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
	(unaudited)

Operating revenues	$	776	$	662	$	2,792	$	2,276
Operating expenses
Cost of natural gas		252		180		1,244		849
Operation and maintenance		283		249		838		766
Depreciation		78		73		230		220
Franchise fees and other taxes		27		25		92		81
Total operating expenses		640		527		2,404		1,916
Operating income		136		135		388		360
Other income (expense), net		2		(4)		8		1
Interest income		-		-		1		3
Interest expense		(17)		(17)		(50)		(52)
Income before income taxes		121		114		347		312
Income tax expense		(42)		(41)		(132)		(117)
Net income		79		73		215		195
Preferred dividends of subsidiary		-		-		(1)		(1)
Earnings		79		73		214		194
Preferred dividend requirements		(1)		(1)		(3)		(3)
Earnings attributable to common shares	$	78	$	72	$	211	$	191
See Notes to Condensed Consolidated Financial Statements.

PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	September 30,

SEMPRA ENERGY (SRE)

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