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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
------ -------
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
- --------------------------------------------------------------
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
- --------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Utility revenue by type of customer:
Electric -
Residential $ 615 $ 601 $ 561
Commercial 572 543 503
Industrial 250 245 230
Other 77 58 64
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
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
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------
Total 3,607
- ------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
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