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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, 1998
--------------------
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
to
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SEMPRA ENERGY
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(Exact name of registrant as specified in its charter)
CALIFORNIA 1-14201 33-0732627
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(State of incorporation (Commission (I.R.S. Employer
or organization) File Number) Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619)696-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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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. Glossary on page 43.
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 1999 was $5.6 billion.
Registrant's common stock outstanding as of February 28, 1999 was
240,111,553 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1998 Annual Report to Shareholders are incorporated
by reference into Parts I, II, and IV.
Portions of the Proxy Statement prepared for the May 1999 annual
meeting of shareholders are incorporated by reference into Part
III.
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . .21
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . .21
Item 4. Submission of Matters to a Vote of Security Holders. .22
Executive Officers of the Registrant . . . . . . . . .22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . .22
Item 6. Selected Financial Data. . . . . . . . . . . . . . . .23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . .23
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . .23
Item 8. Financial Statements and Supplementary Data. . . . . .24
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . .24
PART III
Item 10. Directors and Executive Officers of the Registrant . .24
Item 11. Executive Compensation . . . . . . . . . . . . . . . .24
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . .24
Item 13. Certain Relationships and Related Transactions . . . .24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . .25
Independent Auditors' Consent and Report on Schedule. . . . . .27
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .30
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . .31
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
This report includes forward-looking statements within the
definition of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. The words "estimates,"
"believes," "expects," "anticipates," "plans" and "intends,"
variations of such words, and similar expressions, are intended to
identify forward-looking statements that involve risks and
uncertainties which could cause actual results to differ materially
from those anticipated.
These statements are necessarily based upon various assumptions
involving judgments with respect to the future including, among
others, local, regional, national and international economic,
competitive, political and regulatory conditions and developments,
technological developments, capital market conditions, inflation
rates, interest rates, energy markets, weather conditions, business
and regulatory or legal decisions, the pace of deregulation of
retail natural gas and electricity industries, the timing and
success of business development efforts, and other uncertainties,
all of which are difficult to predict and many of which are beyond
the control of the Company. Accordingly, while the Company believes
that the assumptions are reasonable, there can be no assurance that
they will approximate actual experience, or that the expectations
will be realized. Readers are urged to carefully review and
consider the risks, uncertainties and other factors which affect
the Company's business described in this annual report and other
reports filed by the Company from time to time with the Securities
and Exchange Commission.
PART I
ITEM 1. BUSINESS
Description of Business
A description of Sempra Energy and its subsidiaries (the Company)
is given in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the 1998 Annual Report to
Shareholders, which is incorporated by reference.
GOVERNMENT REGULATION
Local Regulation
Southern California Gas Company (SoCalGas) has gas franchises with
the 236 legal jurisdictions in its service territory. These
franchises allow SoCalGas to locate facilities for the transmission
and distribution of natural gas in the streets and other public
places. Most of the franchises do not have fixed terms and continue
indefinitely. The range of expiration dates for the franchises with
definite terms is 2003 to 2041.
San Diego Gas and Electric (SDG&E) has separate electric and gas
franchises with the two counties and the 25 cities in its service
territory. These franchises allow SDG&E to locate facilities for
the transmission and distribution of electricity and natural gas in
the streets and other public places. The franchises do not have
fixed terms, except for the electric and natural gas franchises
with the cities of Chula Vista (2003), Encinitas (2012), San Diego
(2021) and Coronado (2028); and the natural gas franchises with the
city of Escondido (2036) and the county of San Diego (2030).
State Regulation
The California Public Utilities Commission (CPUC) regulates SDG&E's
and SoCalGas' 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 deregulation,
competition and the environment, to determine its future policies.
The California Energy Commission (CEC) 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 energy sources and for conservation programs.
The CEC sponsors alternative-energy research and development
projects, promotes energy conservation programs, and maintains a
state-wide plan of action in case of energy shortages. In addition,
the CEC certifies power-plant sites and related facilities within
California.
Federal Regulation
The Federal Energy Regulatory Commission (FERC) regulates
transmission access, the uniform systems of accounts, rates of
depreciation and electric rates involving sales for resale. The
FERC also regulates the interstate sale and transportation of
natural gas.
The Nuclear Regulatory Commission (NRC) 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 re-
analyze 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 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.
SoCalGas obtains a number of permits, authorizations and licenses
in connection with the transmission and distribution of natural
gas. They require periodic renewal, which results in continuing
regulation by the granting agency.
Other regulatory matters are described throughout this report.
SOURCES OF REVENUE
(In Millions of Dollars) 1998 1997 1996
- -------------------------------------------------------------------
Revenue by type of customer:
Gas:
Regular sales-
Residential $ 2,234 $ 1,957 $ 1,809
Commercial/Industrial 571 617 573
Utility Generation 9 14 9
--------- --------- ---------
2,814 2,588 2,391
Transportation & Exchange-
Residential 11 10 10
Commercial/Industrial 277 273 257
Utility Generation 66 76 70
Wholesale 7 12 10
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361 371 347
Balancing and Other (403) 5 (28)
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Total Gas Revenues 2,772 2,964 2,710
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Electric:
Residential 637 684 647
Commercial 643 680 625
Industrial 233 268 261
Balancing and Other 352 137 58
--------- --------- ---------
Total Electric Revenues 1,865 1,769 1,591
--------- --------- ---------
Total Utility Revenues $ 4,637 $ 4,733 $ 4,301
========= ========= =========
Industry segment information is contained in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and in Note 15 of the "Notes to Consolidated Financial
Statements" of the 1998 Annual Report to Shareholders, which is
incorporated by reference.
NATURAL GAS OPERATIONS
The Company purchases, sells, distributes, stores and transports
natural gas. SDG&E purchases natural gas for resale to its
customers in San Diego and southern Orange counties, and as fuel
for its generating plants. SoCalGas owns and operates a natural gas
distribution, transmission and storage system that supplies natural
gas in 535 cities and communities throughout a 23,000-square-mile
service territory comprising most of southern and part of central
California.
Supplies of Natural Gas
The Company buys natural gas under several short-term and long-term
contracts. Short-term purchases are based on monthly-spot-market
prices. The Company has firm pipeline capacity contracts with
pipeline companies that expire at various dates through 2023.
Most of the natural gas purchased and delivered by the Company is
produced outside of California. These supplies are delivered to the
Company's intrastate transmission system by interstate pipeline
companies, primarily El Paso Natural Gas Company and Transwestern
Natural Gas Company. These interstate companies provide
transportation services for supplies purchased from the Company's
transportation customers or other sources. The rates that
interstate pipeline companies may charge for natural gas and
transportation services are regulated by the FERC. Existing
pipeline capacity into California exceeds current demand by over 1
billion cubic feet (bcf) per day. The implications of this excess
are described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the 1998 Annual Report to
Shareholders, which is incorporated by reference.
The following table shows the sources of natural gas deliveries
from 1994 through 1998.
Year Ended December 31
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1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Natural Gas Purchases (billions of cubic feet):
Market 388 330 323 296 342
Long-Term Contracts 104 100 108 128 137
------- ------- ------- ------- -------
Total Gas Purchases 492 430 431 424 479
Customer-Owned and
Exchange Receipts 521 514 422 531 565
Storage Withdrawal
(Injection) - Net (28) (3) 42 (13) (9)
Company Use and
Unaccounted For (23) (11) (11) (5) (15)
------- ------- ------- ------- -------
Net Deliveries 962 930 884 937 1,020
======= ======= ======= ======= =======
Natural Gas Purchases: (millions of dollars)
Commodity Costs $1,092 $1,160 $ 879 $ 666 $ 890
Fixed Charges* 174 250 276 264 368
------- ------- ------- ------- -------
Total Gas Purchases $1,266 $1,410 $1,155 $ 930 $1,258
======= ======= ======= ======= =======
Average Commodity Cost of Gas Purchased
(Dollars per Thousand Cubic Feet) $ 2.22 $ 2.69 $ 2.04 $ 1.57 $ 1.86
======= ======= ======= ======= =======
* Fixed charges primarily include pipeline demand charges, take or pay
settlement costs, and other direct-billed amounts allocated over the
quantities delivered by the interstate pipelines serving SoCalGas.
Market-sensitive natural gas supplies (supplies purchased on the
spot market as well as under longer-term contracts ranging from one
month to ten years based on spot prices) accounted for 79 percent
of total natural gas volumes purchased by the Company during 1998,
as compared with 77 percent and 75 percent during 1997 and 1996,
respectively. These supplies were generally purchased at prices
significantly below those of long-term sources of supply.
During 1998, the Company delivered 962 bcf of natural gas through
its system. Approximately 54 percent of these deliveries were
customer-owned natural gas for which the Company provided
transportation services. The balance of natural gas deliveries was
gas purchased by the Company and resold to customers. The Company
estimates that sufficient natural gas supplies will be available to
meet the requirements of its customers for the next several years.
Customers
For regulatory purposes, customers are separated into core and
noncore customers. Core customers are primarily residential and
small commercial and industrial customers, without alternative fuel
capability. There are 5.6 million core customers (5.4 million
residential and 230,000 small commercial and industrial). Noncore
customers consist primarily of utility electric generation (UEG),
wholesale, and large commercial and industrial customers, and total
1,700.
Most core customers purchase natural gas directly from the Company.
Core customers are permitted to aggregate their natural gas
requirement and, up to a limit of 10 percent of the Company's core
market, to purchase natural gas directly from brokers or producers.
The Company continues to be obligated to purchase reliable supplies
of natural gas to serve the requirements of its core customers.
Noncore customers have the option of purchasing natural gas either
from the Company or from other sources, such as brokers or
producers, for delivery through the Company's transmission and
distribution system. The only natural gas supplies that the Company
may offer for sale to noncore customers are the same supplies that
it purchases for its core customers. Most noncore customers procure
their own natural gas supply.
In 1998 for SoCalGas, 87 percent of the CPUC-authorized natural gas
margin was allocated to the core customers, with 13 percent
allocated to the noncore customers. In 1998 for SDG&E, 90 percent
of the CPUC-authorized natural gas margin was allocated to the core
customers, with 10 percent allocated to the noncore customers.
Although revenue from transportation throughput are less than for
natural gas sales, the Company generally earns the same margin
whether the Company buys the gas and sells it to the customer or
transports natural gas already owned by the customer.
The Company also provides natural gas storage services for noncore
and off-system customers on a bid and negotiated contract basis.
The storage service program provides opportunities for customers to
store natural gas on an "as available" basis, usually during the
summer to reduce winter purchases when natural gas costs are
generally higher. As of December 31, 1998, the Company stored
approximately 26 bcf of customer-owned gas.
Demand for Natural Gas
Natural gas is a principal energy source for residential,
commercial, industrial and UEG customers. Natural gas competes with
electricity for residential and commercial cooking, water heating,
space heating and clothes drying, and with other fuels for large
industrial, commercial and UEG uses. Growth in the natural-gas
markets is largely dependent upon the health and expansion of the
southern California economy. The Company added approximately 58,000
new customers in 1998. This represents a growth rate of 1.0
percent. The Company expects its growth for 1999 will continue at
about the 1998 level.
During 1998, 97 percent of residential energy customers in the
Company's service area used natural gas for water heating, 94
percent for space heating, 78 percent for cooking and 72 percent
for clothes drying.
Demand for natural gas by noncore customers is very sensitive to
the price of alternative competitive fuels. Although the number of
noncore customers in 1998 was only 1,700, it accounted for
approximately 12 percent of the authorized natural gas revenues and
57 percent of total natural gas volumes. External factors such as
weather, electric deregulation, the increased use of hydro-electric
power, competing pipeline bypass and general economic conditions
can result in significant shifts in this market. Natural gas demand
for large UEG customers is also greatly affected by the price and
availability of electric power generated in other areas and
purchased by the Company's UEG customers. Natural gas demand in
1998 for UEG customer use decreased as a result of decreased demand
for electricity. UEG customer demand increased in 1997 as a result
of higher demand for electricity and less availability of hydro-
electricity.
As a result of electric industry restructuring, natural gas demand
for electric generation within southern California competes with
electric power generated throughout the western United States.
Effective March 31, 1998, California consumers were given the
option of selecting their electric energy provider from a variety
of local and out-of-state producers. Although the electric industry
restructuring has no direct impact on the Company's natural-gas
operations, future volumes of natural gas transported for UEG
customers may be adversely affected to the extent that regulatory
changes divert electricity from the Company's service area.
Other
Additional information concerning customer demand and other aspects
of natural-gas operations is provided under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and in Note 13 of the "Notes to Consolidated Financial
Statements" of the 1998 Annual Report to Shareholders, which is
incorporated by reference.
ELECTRIC OPERATIONS
Resource Planning
In September 1996, California enacted a law restructuring
California's electric-utility industry. The legislation adopts the
December 1995 CPUC policy decision restructuring the industry to
stimulate competition and reduce rates. Beginning on March 31,
1998, customers were given the opportunity to choose to continue to
purchase their electricity from the local utility under regulated
tariffs, to enter into contracts with other energy-service
providers (direct access) or to buy their power from the
independent Power Exchange (PX) that serves as a wholesale power
pool allowing all energy producers to participate competitively.
Additional information concerning electric-industry restructuring
is provided in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Notes 13 and 14 of the
"Notes to Consolidated Financial Statements" of the 1998 Annual
Report to Shareholders, which is incorporated by reference.
Electric Resources
In connection with electric-industry restructuring, beginning March
31, 1998, the California investor-owned utilities (IOUs) are
obligated to bid their power supply, including owned generation and
purchased-power contracts, into the PX. The IOUs are also obligated
to purchase from the PX the power that they sell. Based on
generating plants in service and purchased-power contracts
currently in place, at February 28, 1999 the net megawatts (mw) of
electric power available to SDG&E to bid into the PX are as
follows:
Source Net mw
--------------------------------------------------
Gas/oil generating plants 1,641
Combustion turbines 332
Nuclear generating plants 430
Long-term contracts with other utilities 275
Contracts with others 593
-----
Total 3,271
=====
SDG&E reported an all-time record for electricity usage of 3,960 mw
on August 31, 1998. The previous record of 3,668 mw was reached on
September 4, 1997.
Gas/Oil Generating Plants: In connection with electric-industry
restructuring, in December 1998, SDG&E entered into agreements for
the sale of its South Bay and Encina power plants and 17 combustion
turbines. The sales are subject to regulatory approval and are
expected to close during the first half of 1999.
San Onofre Nuclear Generating Station (SONGS): SDG&E owns 20
percent of the three nuclear units at SONGS (south of San Clemente,
California). The cities of Riverside and Anaheim own a total of 5
percent of SONGS Units 2 and 3. Southern California Edison (Edison)
owns the remaining interests and operates the units.
SONGS Unit 1 was removed from service in November 1992 when the
CPUC issued a decision to permanently shut down the unit. At that
time SDG&E began the recovery of its remaining capital investment,
with full recovery completed in April 1996. SDG&E and Edison filed
a decommissioning plan in November 1994, although final
decommissioning is not scheduled to occur until 2013 when Units 2
and 3 are also decommissioned. However, SDG&E and the other owners
have requested that the CPUC grant authority to begin
decommissioning Unit 1 on January 1, 2000. 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 Unit 1, and the
unit was placed in a long-term storage condition in May 1994.
SONGS Units 2 and 3 began commercial operation in August 1983 and
April 1984, respectively. SDG&E's share of the capacity is 214 mw
of Unit 2 and 216 mw of Unit 3.
During 1998 SDG&E spent $14 million on capital modifications and
additions and expects to spend $11 million in 1999. SDG&E deposits
funds in an external trust to provide for the future dismantling
and decontamination of the units.
Additional Information: Additional information concerning SDG&E's
power plants, the SONGS units, nuclear decommissioning and industry
restructuring (including SDG&E's divestiture of its electric
generation assets) is provided immediately below and in
"Environmental Matters" and "Electric Properties," herein, as well
as in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in Notes 6, 13 and 14 of the "Notes
to Consolidated Financial Statements" of the 1998 Annual Report to
Shareholders, which is incorporated by reference.
Purchased Power: The following table lists contracts with the
various suppliers:
Megawatt
Supplier Period Commitment Source
- -------------------------------------------------------------------
Long-Term Contracts with Other Utilities:
Portland General
Electric (PGE) Through December 2013 75 Coal
Public Service
Company of
New Mexico (PNM) Through April 2001 100 System supply
PacifiCorp Through December 2001 100 System Supply
-----
Total 275
=====
Contracts with Others:
Illinova Power
Marketing Through December 1999 200 System Supply
LG&E Power Marketing Through December 2001 150 System Supply
Applied Energy Through December 2019 102 Cogeneration
Yuma Cogeneration Through June 2024 50 Cogeneration
Goal Line Limited Through December 2025 50 Cogeneration
Partnership
Other (89) Various 41 Cogeneration
------
Total 593
======
Under the contracts with PGE and PNM, SDG&E pays a capacity charge
plus a charge based on the amount of energy received. Charges under
these contracts are based on the selling utility's costs, including
a return on and depreciation of the utility's rate base (or lease
payments in cases where the utility does not own the property),
fuel expenses, operating and maintenance expenses, transmission
expenses, administrative and general expenses, and state and local
taxes. Charges under contracts from PacifiCorp, LG&E and Illinova
are for firm energy only and are based on the amount of energy
received. The prices under these contracts are at market value at
the time the contracts were negotiated. Costs under the remaining
contracts (all with Qualifying Facilities) are based on SDG&E's
avoided cost.
Additional information concerning SDG&E's purchased-power contracts
is described immediately below, and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in
Note 13 of the "Notes to Consolidated Financial Statements" of the
1998 Annual Report to Shareholders, which is incorporated by
reference.
Power Pools
In 1964 SDG&E, Pacific Gas & Electric (PG&E), and Edison entered
into the California Power Pool Agreement. It provided for the
transfer of electrical capacity and energy by purchase, sale or
exchange during emergencies and at other mutually determined times.
Due to electric-industry restructuring (discussed elsewhere herein)
the California Power Pool was terminated by the FERC in May 1997.
However, SDG&E, Edison, PG&E and the Los Angeles Department of
Water and Power will continue to abide by the provisions of the
existing California Statewide Emergency Plan for sharing capacity
and energy in the event of a severe resource emergency.
SDG&E is a participant in the Western Systems Power Pool (WSPP),
which includes an electric-power and transmission-rate agreement
with utilities and power agencies located throughout the United
States and Canada. More than 150 investor-owned and municipal
utilities, state and federal power agencies, energy brokers, and
power marketers 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. Although the extent has not
yet been determined, the status of the WSPP is likely to change due
to industry restructuring and the initiation of the PX and the
Independent System Operator (ISO).
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: The Pacific Intertie, consisting of AC and DC
transmission lines, enables SDG&E to purchase and receive surplus
coal and hydroelectric power from the Northwest. SDG&E, PG&E,
Edison and others share transmission capacity on the Pacific
Intertie under an agreement that expires in July 2007. SDG&E's
share of the intertie was 266 mw. Due to electric-industry
restructuring (see "Transmission Access" below), the operating
rights of SDG&E, Edison and PG&E on the Pacific Intertie have been
transferred to the ISO.
Southwest Powerlink: SDG&E's 500-kilovolt Southwest Powerlink
transmission line, which is shared with Arizona Public Service
Company and Imperial Irrigation District, 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 931 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 these interconnections
for transactions with Comision Federal de Electricidad (CFE),
Mexico's government-owned electric utility.
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. In
October 1997 the FERC approved the transfer of control by the
California IOUs of their transmission facilities to the ISO.
Beginning on March 31, 1998 the ISO is responsible for the
operation and control of the transmission lines. Additional
information regarding the ISO and transmission access is discussed
below and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the 1998 Annual Report to
Shareholders, which is incorporated by reference.
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 Kwhr Cents per Kwhr
- -------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ---- ---- ----
Natural gas 17.3% 19.8% 22.8% 3.0 3.3 2.8
Nuclear fuel 11.5 11.8 19.6 0.6 0.6 0.5
Fuel oil 0.1 1.1 2.4 2.2
----- ----- -----
Total generation 28.8 31.7 43.5
Purchased
power - net 26.3 68.3 56.5 3.6 2.8 3.1
ISO/PX 44.9 3.4
----- ----- -----
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 natural gas, nuclear fuel and fuel oil 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
Natural Gas: Information concerning natural gas is provided in
"Natural Gas Operations" herein.
Nuclear Fuel: 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 2003
Conversion of uranium concentrate to uranium hexafluoride 2003
Enrichment of uranium hexafluoride(1) 2003
Fabrication of fuel assemblies 2003
Storage and disposal of spent fuel(2) --
(1) SDG&E has a contract with Urenco, a British consortium, for
enrichment services through 2003.
(2) Spent fuel is being stored at SONGS, where storage capacity
will be adequate at least through 2006. If necessary,
modifications in fuel-storage technology can be implemented to
provide on-site storage capacity for operation through 2013,
the expiration date of the NRC operating license. The plan of
the U.S. Department of Energy (DOE) is to provide a permanent
storage site for the spent nuclear fuel by 2010.
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 $0.90 per megawatt-
hour of net nuclear generation. Disposal fees average $3 million
per year.
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.
Additional information concerning nuclear-fuel costs is discussed
in Note 13 of the "Notes to Consolidated Financial Statements" of
the 1998 Annual Report to Shareholders, which is incorporated by
reference.
INTERNATIONAL OPERATIONS
Sempra Energy International (SEI) develops, operates and invests in
energy infrastructure projects, including natural gas distribution
systems and power generation facilities, outside of the United
States.
In August 1998, SEI was awarded a 10-year agreement by the Mexican
Federal Electric Commission (CFE) to supply natural gas to an
electric power plant in Rosarito, Baja California. The terms of
the agreement include a provision to construct a pipeline from the
US - Mexico border to the plant and call for SEI to provide a
complete energy supply package. In addition, SEI and Proxima Gas
S.A. de C.V., as partners in the Mexican companies Distribuidora de
Gas Natural (DGN) de Mexicali and Distribuidora de Gas Natural
(DGN) de Chihuahua, operate natural gas distribution systems in
Mexicali and Chihuahua, Mexico.
SEI also has interests in natural gas distribution partnerships in
Argentina and Uruguay. In March 1998, SEI increased its existing
investment in two Argentine natural gas utility holding companies
(Sodigas Pampeana S.A. and Sodigas Sur S.S.) from 12.5 percent to
21.5 percent, by purchasing an additional interest for $40 million.
The net losses for international operations were $4 million and $9
million, after-tax, for 1998 and 1997, respectively. Additional
information on international operations is discussed in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in Note 3 of the "Notes to Consolidated
Financial Statements" of the 1998 Annual Report to Shareholders,
which is incorporated by reference.
SEMPRA ENERGY TRADING (SET)
SET, a leading natural gas and power marketing firm headquartered
in Stamford, Connecticut, was jointly acquired by Pacific
Enterprises (PE) and Enova Corporation (Enova) on December 31,
1997. (PE and Enova combined to form Sempra Energy in June 1998.)
In July 1998, SET purchased a wholesale trading and commercial
marketing subsidiary of Consolidated Natural Gas, to expand its
operation in the eastern United States.
SET derives a substantial portion of its revenue from market making
and trading activities, as a principal, in natural gas, petroleum
and electricity. It quotes bid and offer prices to end users and
other market makers. It also earns trading profits as a dealer by
structuring and executing transactions that permit its
counterparties to manage their risk profiles. In addition, it takes
positions in energy markets based on the expectation of future
market conditions. For the year ended December 31, 1998, SET had
operating revenues of $110 million and after-tax net losses of $13
million. The losses were due to the amortization of costs
associated with the acquisition by PE and Enova. Additional
information on SET is discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in
Notes 3 and 10 of the "Notes to Consolidated Financial Statements"
of the 1998 Annual Report to Shareholders, which is incorporated by
reference.
RATES AND REGULATION
The Company's principal subsidiaries, SoCalGas and SDG&E, are
regulated by the CPUC. The CPUC consists of five commissioners
appointed by the Governor of California for staggered six-year
terms. Two of the five commissioner positions are currently vacant.
It is the responsibility of the CPUC to determine that utilities
operate within the best interests of their customers. The
regulatory structure is complex and has a substantial impact on the
profitability of the Company. Both the electric and gas industries
are currently undergoing transitions to competition (see below).
Electric Industry Restructuring
In September 1996, California enacted a law restructuring its
electric-utility industry. The legislation adopts the December 1995
CPUC policy decision restructuring the industry to stimulate
competition and reduce rates. Additional information on electric-
industry restructuring is discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in
Note 14 of the "Notes to Consolidated Financial Statements" of the
1998 Annual Report to Shareholders, which is incorporated by
reference.
Natural Gas Industry Restructuring
The natural gas industry experienced an initial phase of
restructuring during the 1980s by deregulating natural gas sales to
noncore customers. In January 1998, the CPUC released a staff
report initiating a project to assess the current market and
regulatory framework for California's natural gas industry. The
general goals of the plan are to consider reforms to the current
regulatory framework emphasizing market-oriented policies
benefiting California natural-gas customers. Additional information
on natural-gas industry restructuring is discussed in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and in Note 14 of the "Notes to Consolidated Financial
Statements" of the 1998 Annual Report to Shareholders, which is
incorporated by reference.
Balancing Accounts
Previously, earnings fluctuations from changes in the costs of fuel
oil, purchased energy and natural gas, and consumption levels for
electricity and the majority of natural gas were eliminated by
balancing accounts authorized by the CPUC. This is still the case
for most natural-gas operations. However, as a result of
California's electric restructuring law, overcollections recorded
in the electric balancing accounts were applied to transition cost
recovery, and fluctuations in costs and consumption levels can
affect earnings from electric operations. Additional information on
balancing accounts is discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in
Note 2 of the "Notes to Consolidated Financial Statements" of the
1998 Annual Report to Shareholders, which is incorporated by
reference.
Performance-Based Regulation (PBR)
To promote efficient operations and improved productivity and to
move away from reasonableness reviews and disallowances, the CPUC
has been directing utilities to use PBR. PBR has replaced the
general rate case and certain other regulatory proceedings for both
SoCalGas and SDG&E. Under PBR, regulators require future income
potential to be tied to achieving or exceeding specific performance
and productivity measures, as well as cost reductions, rather than
relying solely on expanding utility rate base in a market where a
utility already has a highly developed infrastructure. Additional
information on PBR is discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in
Note 14 of the "Notes to Consolidated Financial Statements" of the
1998 Annual Report to Shareholders, which is incorporated by
reference.
Biennial Cost Allocation Proceeding (BCAP)
Rates to recover the changes in natural gas fuel costs and changes
in the cost of natural gas transportation services are determined
in the BCAP. The BCAP adjusts rates to reflect variances in core
customer demand from estimates previously used in establishing core
customer rates. The mechanism substantially eliminates the effect
on core income of variances in core market demand and natural gas
costs subject to the limitations of the Gas Cost Incentive
Mechanism (GCIM) discussed below. The BCAP will continue under PBR.
Additional information on the BCAP is discussed in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and in Note 14 of the "Notes to Consolidated Financial
Statements" of the 1998 Annual Report to Shareholders, which is
incorporated by reference.
Gas Cost Incentive Mechanism (GCIM)
The GCIM is a process SoCalGas uses to evaluate its natural-gas
purchases, substantially replacing the previous process of
reasonableness reviews. Additional information on the GCIM is
discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note 14 of the "Notes
to Consolidated Financial Statements" of the 1998 Annual Report to
Shareholders, which is incorporated by reference.
Affiliate Transactions
In December 1997, the CPUC adopted rules establishing uniform
standards of conduct governing the manner in which California
investor-owned utilities conduct business with their affiliates.
The objective of these rules is to ensure that the utilities'
energy affiliates do not gain an unfair advantage over other
competitors in the marketplace and that utility customers do not
subsidize affiliate activities. Additional information on affiliate
transactions is discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in Note 14 of
the "Notes to Consolidated Financial Statements" of the 1998 Annual
Report to Shareholders, which is incorporated by reference.
Cost of Capital
Under PBR, annual Cost of Capital proceedings have been replaced by
an automatic adjustment mechanism if changes in certain indicies
exceed established tolerances. For 1999, SoCalGas is authorized to
earn a rate of return on rate base (ROR) of 9.49 percent and a rate
of return on common equity (ROE) of 11.6 percent, the same as in
1998, unless interest-rate changes are large enough to trigger an
automatic adjustment. SDG&E is seeking CPUC approval to establish
new, separate rates of return for SDG&E's electric-distribution and
natural-gas businesses. A CPUC decision is expected during the
second quarter of 1999. In 1998, SDG&E's natural gas and electric
distribution operations were authorized to earn an ROE of 11.6
percent and an ROR of 9.35 percent. Additional information on the
utilities' cost of capital is discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
in Note 14 of the "Notes to Consolidated Financial Statements" of
the 1998 Annual Report to Shareholders, which is incorporated by
reference.
ENVIRONMENTAL MATTERS
Discussions about environmental issues affecting the Company are
included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the 1998 Annual Report to
Shareholders, which is incorporated by reference. The following
should be read in conjunction with those discussions.
Hazardous Substances
The utilities lawfully disposed of wastes at facilities owned and
operated by other entities. Operations at these facilities may
result in actual or threatened risks to the environment or public
health. Under California law, redevelopment agencies are authorized
to require landowners to cleanup property within their
jurisdictions or, where the landowner or operator of such a
facility fails to complete any corrective action required,
applicable environmental laws may impose an obligation to undertake
corrective actions on the utilities and others who disposed of
hazardous wastes at the facility.
The Redevelopment Agency for the City of San Diego has exerted this
authority affecting Station A and adjacent properties to
accommodate a major league ballpark and ancillary development
proposed by the City. During the early 1900s, the Company and its
predecessors manufactured gas from coal and oil at its Station A
facility and at two small facilities in Escondido and Oceanside.
Environmental assessments have identified residual by-products from
the gas manufacturing process and subsurface hydrocarbon
contamination on portions of the Station A site. Initial cleanup
actions commenced in 1998, and are expected to be completed in
1999, at an estimated cost of $5 million. The Company is
negotiating with the redevelopment agency to create a cooperative
agreement as a result of which the Station A cleanup will be
performed under the oversight of the San Diego County Department of
Environmental Health, though the redevelopment agency will retain
its rights to enforce the cleanup in the event the Company did not
complete it. Contaminants resulting from the gas-manufacturing
process by-products were assessed at the Company's Escondido and
Oceanside sites. Remediation at the Escondido site has been
completed and a site-closure letter received. Remediation at the
Oceanside facility is in process and the cost is not expected to be
significant.
Station B is located in downtown San Diego and was operated as a
steam and electric-generating facility between 1911 and June 1993
when it was closed. Pursuant to a cleanup and abatement order, the
Company remediated hydrocarbon contamination discovered as a result
of the removal of three 100,000-gallon underground diesel-fuel
storage tanks from an adjacent substation. Asbestos was used in the
construction of the power plant. Activities to dismantle and
decommission the facility required the removal of the asbestos in a
manner complying with all applicable environmental, health and
safety laws. This work also included the removal or cleanup of
certain loose and flaking lead-based paints, small amounts of PCBs,
fuel oil and other substances. These activities were completed in
1998 at a cost of $6 million.
The Company is in the process of selling its electric-generating
assets. As a part of its environmental due diligence, the Company
conducted a thorough environmental assessment of the South Bay and
Encina power plants and 17 combustion turbine sites to determine
the environmental condition of each. Pursuant to the sale
agreements for such facilities, the utility and the buyers have
apportioned responsibility for such environmental conditions
generally based on contamination existing at the time of transfer
and the cleanup level necessary for the continued use of the sites
for electric generation. While the sites are relatively clean, the
assessments identified instances of contamination, principally
hydrocarbon releases, some of which were determined to be
significant and to require cleanup in accordance with the
agreement. Estimated costs to perform the necessary remediation are
$7 to $8 million at the South Bay power plant, $0.9 million at the
Encina power plant, and $1.9 million at the combustion turbine
sites. These costs will be offset against the sales price for the
facilities, together with other appropriate costs, and the
remaining net proceeds will be offset against the Company's other
transition costs.
The Company and its subsidiaries have been named as potential
responsible parties (PRPs) for two landfill sites and three
industrial waste disposal sites, as described below.
The Casmalia former waste disposal site operated as a Class I waste
disposal site which was composed of 6 landfills, 58 surface
impoundments, 11 disposal wells, 7 disposal trenches, 2 treatment
systems and one former pre-Resource Conservation and Recovery Act
drum burial area. The Company has estimated the costs of
remediation at Casmalia to be $1.1 million. In 1998, the Company
completed work efforts of $225,241. Remedial actions and
negotiations with other PRPs and the United States Environmental
Protection Agency (EPA) have been continuing since March 1993. The
Company is currently negotiating a final remedy with the EPA for
Operating Industries, Inc. (OII), a former landfill for both
household and industrial wastes. The total costs for remediation of
OII are estimated at $3 million, of which $644,133 was completed
during 1998. Remedial actions and negotiations have been in
progress since June 1986.
In the early 1990s, the Company was notified of hazards at two
former industrial waste treatment facilities, Industrial Waste
Processing (Industrial) and Cal Compact (Compact), where the
Company had disposed of wastes. A feasibility study and remedial
investigation have been submitted and accepted by the EPA for
Industrial. The total cost estimate for remediation of Industrial
is $300,000, of which approximately $3,700 of remedial action was
completed in 1998. The nature and extent for remediation of the
Compact site is estimated to be $120,000. During 1998, the Company
completed remedial efforts of this site at a cost of $48,000 and is
involved in ongoing negotiations with the California Department of
Toxic Substances Control (DTSC). The Company and 10 other entities
have also been named PRPs by the DTSC as liable for any required
corrective action regarding contamination at a site in Pico Rivera,
California. DTSC has taken this action because the Company and
others sold used electrical transformers to the site's owner. The
DTSC considers the Company to be responsible for 7.4 percent of the
transformer-related contamination at the site. The estimate for the
development of the cleanup plan is $1 million. The estimate for the
actual cleanup is in the $2 million to $8 million range.
At December 31, 1998, the Company's estimated remaining
investigation and remediation liability related to hazardous waste
sites not detailed above was $83 million, of which 90 percent is
authorized to be recovered through the Hazardous Waste
Collaborative mechanism. The Company believes that any costs not
ultimately recovered through rates, insurance or other means, upon
giving effect to previously established liabilities, will not have
a material adverse effect on the Company's consolidated results of
operations or its financial position.
Estimated liabilities for environmental remediation are recorded
when amounts are probable and estimable. Amounts authorized to be
recovered in rates under the Hazardous Waste Collaborative
mechanism are recorded as a regulatory asset. Possible recoveries
of environmental remediation liabilities from third parties are not
deducted from the liability.
Electric and Magnetic Fields (EMFs)
Although scientists continue to research the possibility that
exposure to EMFs causes adverse health effects, science, to date,
has not demonstrated a cause-and-effect relationship between
adverse health effects and exposure to the type of EMFs emitted by
utilities' power lines and other electrical facilities. 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 which have reported a weak correlation between
childhood leukemia and the proximity of homes to certain power
lines and equipment. 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 EMF levels and disease, while
others do not.
To respond to public concerns, the CPUC has directed California
utilities to adopt a low-cost EMF-reduction policy that requires
reasonable design changes to achieve noticeable reduction of EMF
levels that are anticipated from new projects. However, consistent
with the major scientific reviews of the available research
literature, the CPUC has indicated that no health risk has been
identified.
Air and Water Quality
As mentioned above, SDG&E has entered into agreements for the sale
of its fossil-fueled generating facilities. The completion of these
sales will, for the most part, eliminate the potential impact of
the following issues.
During 1996 and 1997, SDG&E installed equipment on South Bay Unit 1
in order to comply with the nitrogen-oxide-emission limits that the
APCD imposed on electric-generating boilers through its Rule 69.
The estimated capital costs for compliance with the rule have
decreased to an immaterial amount due to the sale of the electric-
generating power plants. The California Air Resources Board has
expressed concern that Rule 69 does not meet the requirements of
the California Clean Air Act and may advocate or propose more
restrictive emissions limitations which will likely cause SDG&E's
Rule 69 compliance costs to increase.
Wastewater discharge permits issued by the Regional Water Quality
Control Board (RWQCB) for the Company's Encina and South Bay power
plants are required to enable the utility to discharge its cooling
water and certain other wastewaters into the Pacific Ocean and into
San Diego Bay. Wastewater discharge permits are prerequisite to the
continuation of cooling-water and other wastewater discharges and,
therefore, the continued operation of the power plants as they are
currently configured. Increasingly stringent cooling-water and
wastewater discharge limitations may be imposed in the future and
the utility may be required to build additional facilities or
modify existing facilities to comply with these requirements. Such
facilities could include wastewater treatment facilities, cooling
towers, intake structures or offshore-discharge pipelines. Any
required construction could involve substantial expenditures, and
certain plants or units may be unavailable for electric generation
during construction.
In 1981, the Company submitted a demonstration study in support of
its request for two exceptions to certain thermal discharge
requirements imposed by the California Thermal Plan for Encina
power plant Unit 5. In November 1994, the RWQCB issued a new
discharge permit, subject to the results of certain additional
thermal discharge and cooling-water-related studies, to be used to
evaluate the exception requests. The results of these additional
studies were submitted to the RWQCB and the United States
Environmental Protection Agency in 1997. If the utility's exception
requests are denied, the utility could be required to construct
off-shore discharge facilities, or other structures at an estimated
cost of $75 million to $100 million or to perform mitigation, the
costs of which may be significant.
In November 1996, the RWQCB issued a new discharge permit to the
Company for the South Bay power plant. The Company filed an appeal
to the State Water Resources Control Board (SWRCB) of various
provisions which SDG&E considered unduly stringent. Certain of
these matters were resolved in negotiations among the RWQCB, the
SWRCB and certain environmental groups. The SWRCB dismissed the
remaining matters, which the Company thereafter appealed to the San
Diego County Superior Court. These latter issues were subsequently
settled through negotiations between the Company and the RWQCB. All
of the settled issues have been incorporated into the November 1996
NPDES permit by permit addendums adopted by the RWQCB. The Superior
Court case will be dismissed after the expiration of the RWQCB
appeal and EPA review periods.
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. It is expected that cleanup
of sites previously contaminated by underground tanks will occur
for an unknown number of years. The Company cannot predict the cost
of such cleanup.
In May 1987 the RWQCB issued the Company a cleanup and abatement
order for gasoline contamination originating from an underground
storage tank located at the Company's Mountain Empire Operation and
Maintenance facility. SDG&E assessed the extent of the
contamination, removed all contaminated soil and completed
remediation of the site. Monitoring of the site confirms its
remediation. The Company has applied for and is awaiting a site-
closure letter from the RWQCB.
OTHER
Year 2000
A discussion of the Company's plans to prepare its computer systems
and applications for the year 2000 and beyond is included in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" of the 1998 Annual Report to Shareholders,
which is incorporated by reference.
Wages
The utilities employ over 9,000 persons. Field, technical and most
clerical employees at SoCalGas area are represented by the Utility
Workers' Union of America or the International Chemical Workers'
Council. The collective bargaining agreement on wages, hours and
working conditions remains in effect through March 31, 2000.
Employees at SDG&E are represented by the Local 465 International
Brotherhood of Electrical Workers with two labor agreements. The
generation contract runs through February 28, 2001 and negotiations
for the utility contract (transmission and distribution) are
ongoing.
Employees of Registrant
As of December 31, 1998 the Company had 11,148 employees, compared
to 11,387 at December 31, 1997. The employment level decreased due
to synergies resulting from the Enova and Pacific Enterprises
business combination.
ITEM 2. PROPERTIES
Electric Properties
The Company's generating capacity is described in "Electric
Resources" herein.
The Company's electric transmission and distribution facilities
include substations, and overhead and underground lines.
Periodically various areas of the service territory require
expansion to handle customer growth.
Natural Gas Properties
At December 31, 1998, the Company owned approximately 3,024 miles
of transmission and storage pipeline, 50,955 miles of distribution
pipeline and 49,520 miles of service piping. It also owned 12
transmission compressor stations and 6 underground storage
reservoirs (with a combined working storage capacity of
approximately 116 Bcf).
Other Properties
The 21-story corporate headquarters building at 101 Ash Street, San
Diego, is occupied pursuant to a capital lease through the year
2005. The lease has four separate five-year renewal options.
Southern California Gas Tower, a wholly owned subsidiary of
SoCalGas, has a 15-percent limited partnership interest in a 52-
story office building in downtown Los Angeles. SoCalGas leases
approximately half of the building through the year 2011. The lease
has six separate five-year renewal options.
SDG&E occupies an office complex at Century Park Court in San Diego
pursuant to an operating lease ending in the year 2007. The lease
can be renewed for two five-year periods.
The Company owns or leases other offices, operating and maintenance
centers, shops, service facilities, and certain equipment necessary
in the conduct of business.
ITEM 3. LEGAL PROCEEDINGS
Except for the matters referred to in the financial statements
incorporated by reference in Item 8 or referred to elsewhere in
this Annual Report, neither Sempra Energy nor any of its
subsidiaries is a party to, nor is their property the subject of,
any material pending legal proceedings other than routine
litigation incidental to its businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age* Positions
- ---------------------------------------------------------------------
Richard D. Farman 63 Chairman and Chief Executive Officer
Stephen L. Baum 57 Vice Chairman, President and Chief
Operating Officer
Donald E. Felsinger 51 Group President - Nonregulated
Business Units
Warren I. Mitchell 61 Group President - Regulated
Business Units
John R. Light 57 Executive Vice President and
General Counsel
Neal E. Schmale 52 Executive Vice President and
Chief Financial Officer
Jerry D. Florence 50 Senior Vice President - Corporate
Communications
Frederick E. John 52 Senior Vice President - External
Affairs
Margot A. Kyd 45 Senior Vice President and
Chief Administrative Officer
Frank H. Ault 54 Vice President and Controller
* As of December 31, 1998.
Each Executive Officer has been an officer of the Company or one of its
subsidiaries for more than five years, with the exception of
Mssrs. Light, Schmale and Florence. Prior to joining the Company in
1998, Mr. Light was a partner in the law firm of Latham & Watkins. Prior
to joining the Company in 1997, Mr. Schmale was Chief Financial Officer
of Unocal Corporation. Prior to joining the Company in 1998,
Mr. Florence held officer positions with Nissan North America, Inc. and
Nissan Motor Corporation, U.S.A.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common stock of Sempra Energy is traded on the New York and
Pacific stock exchanges. At February 28, 1999 there were
approximately 100,000 holders of record of the Company's common
stock. The quarterly common stock information required by Item 5
is included in the schedule of Quarterly Financial Data of the
1998 Annual Report to Shareholders, which is incorporated by
reference.
Dividend Restrictions
At December 31, 1998, $699 million of the Company's retained
earnings was available for future dividends due to the CPUC's
regulation of the utilities' capital structure. Additional
information is discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" of the 1998
Annual Report to Shareholders, which is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in millions)
At December 31, or for the years then ended
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
Income Statement Data:
Revenues and other income $ 5,525 $ 5,127 $ 4,524 $ 4,201 $ 4,539
Operating income $ 639 $ 939 $ 927 $ 886 $ 867
Net income $ 294 $ 432 $ 427 $ 401 $ 296
Balance Sheet Data:
Total assets $10,456 $10,756 $ 9,762 $ 9,837 $ 9,931
Long-term debt $ 2,795 $ 3,175 $ 2,704 $ 2,721 $ 2,889
Short-term debt (a) $ 373 $ 624 $ 481 $ 485 $ 645
Shareholders' equity $ 2,913 $ 2,959 $ 2,930 $ 2,815 $ 2,684
Per Share Data
Net income per common share:
Basic $ 1.24 $ 1.83 $ 1.77 $ 1.67 $ 1.23
Diluted $ 1.24 $ 1.82 $ 1.77 $ 1.67 $ 1.23
Dividends declared
Per common share $ 1.56 $ 1.27 $ 1.24 $ 1.22 $ 1.16
Book value per common share $ 12.29 $ 12.56 $ 12.21 $ 11.70 $ 11.18
(a) Includes bank and other notes payable, commercial paper borrowings and long-term
debt due within one year.
This data should be read in conjunction with the Consolidated Financial Statements
and notes to Consolidated Financial Statements contained in the 1998 Annual Report
to Shareholders, which is incorporated by reference.
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 pages 21 through 36 of the 1998 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is incorporated by reference
from pages 34 through 35 and from Note 10 of the notes to
Consolidated Financial Statements of the 1998 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated by reference
from pages 39 through 71 of the 1998 Annual Report to Shareholders.
See Item 14 for a listing of financial statements included in the
1998 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 the Proxy
Statement prepared for the May 1999 annual meeting of shareholders.
The information required on the Company's executive officers is set
forth in Item 4 herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference
from "Election of Directors" and "Executive Compensation" in the
Proxy Statement prepared for the May 1999 annual meeting of
shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated by reference
from "Election of Directors" in the Proxy Statement prepared for
the May 1999 annual meeting of shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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*
Statement of Management Responsibility for
Consolidated Financial Statements. . . . . . . . . . . 38
Independent Auditors' Report . . . . . . . . . . . . . . 38
Statements of Consolidated Income for the years
ended December 31, 1998, 1997 and 1996 . . . . . . . . 39
Consolidated Balance Sheets at December 31,
1998 and 1997. . . . . . . . . . . . . . . . . . . . . 40
Statements of Consolidated Cash Flows for the
years ended December 31, 1998, 1997 and 1996 . . . . . 42
Statements of Consolidated Changes in
Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . 44
Notes to Consolidated Financial Statements . . . . . . . 45
Quarterly Financial Data (Unaudited) . . . . . . . . . . 71
*Incorporated by reference from the indicated pages of the 1998
Annual Report to Shareholders.
2. Financial statement schedules
The following documents may be found in this report at the
indicated page numbers.
Independent Auditors' Consent and
Report on Schedule. . . . . . . . . . . . . . . . . . 27
Schedule I--Condensed Financial Information of Parent. . 28
Any other schedules for which provision is made in Regulation S-X
are not required under the instructions contained therein, are
inapplicable, or the information is included in the notes to the
Consolidated Financial Statements of the 1998 Annual Report to
Shareholders.
3. Exhibits
See Exhibit Index on page 31 of this report.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed after September 30,
1998:
A Current Report on Form 8-K filed November 4, 1998 discussed the
defeat of the Voter Initiative which sought to amend or repeal
California electric industry restructuring legislation in various
respects and announced the date of the 1999 Annual Meeting of
Shareholders.
A Current Report on Form 8-K filed December 16, 1998 announced the
execution of contracts for the sale of SDG&E's fossil-fueled power
plants.
A Current Report on Form 8-K filed February 23, 1999 announced the
agreement entered into by Sempra Energy and KN Energy, Inc. to
merge the two companies.
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholders of Sempra Energy:
We consent to the incorporation by reference in Registration
Statement Number 333-51309 on Form S-3 and Registration Statement
Number 333-56161 on Form S-8 of Sempra Energy of our report dated
January 27, 1999, except for Note 16 as to which the date is
February 22, 1999, incorporated by reference in the Annual Report
on Form 10-K of Sempra Energy for the year ended December 31,
1998.
Our audits of the financial statements referred to in our
aforementioned report also included the financial statement
schedule of Sempra Energy, listed in Item 14. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
San Diego, California
March 9, 1999
Schedule I -- CONDENSED FINANCIAL INFORMATION OF PARENT
SEMPRA ENERGY
Schedule 1
Condensed Financial Information of Parent
Condensed Statement of Income
(Dollars in millions, except per share amounts)
For the year ended December 31 1998
----------
Operating revenues and other income $ -
Operating expenses, interest and income taxes 10
----------
Loss before subsidiary earnings (10)
Subsidiary earnings 304
----------
Earnings applicable to common shares $ 294
==========
Average common shares outstanding (basic) 236,423
----------
Average common shares outstanding (diluted) 237,124
----------
Earnings per common share (basic) $ 1.24
----------
Earnings per common share (diluted) $ 1.24
==========
Condensed Balance Sheet
(Dollars in millions)
Balance at December 31 1998
----------
Assets:
Cash and temporary investments $ 67
Dividends receivable 100
Other current assets 174
----------
Total current assets 341
Investments in subsidiaries 2,820
Deferred charges and other assets 106
----------
Total Assets $ 3,267
==========
Liabilities and Shareholders' Equity:
Dividends payable $ 93
Other current liabilities 221
----------
Total current liabilities 314
Long-term liabilities 40
Common equity 2,913
----------
Total Liabilities and Shareholders' Equity $ 3,267
==========
SEMPRA ENERGY
Schedule 1 (continued)
Condensed Financial Information of Parent
Condensed Statement of Cash Flows
(Dollars in millions)
For the year ended December 31 1998
---------
Cash flows from operating activities $ 71
---------
Sale of common stock 4
Dividends paid (94)
---------
Cash flows from financing activities (90)
---------
Expenditures for property, plant and equipment (44)
Dividends received from subsidiaries 130
---------
Cash flows from investing activities 86
---------
Net cash flow 67
Cash and temporary investments,
beginning of year --
---------
Cash and temporary investments, end of year $ 67
=========
Non cash dividends received from subsidiaries $ 597
=========
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, hereunto duly authorized.
SEMPRA ENERGY
By:
/s/ Richard D. Farman .
Richard D. Farman
Chairman 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.
Name/Title Signature Date
Principal Executive Officers:
Richard D. Farman
Chairman, Chief Executive
Officer /s/Richard D. Farman March 2, 1999
Stephen L. Baum
Vice Chairman, President,
Chief Operating Officer /s/Stephen L. Baum March 2, 1999
Principal Financial Officer:
Neal E. Schmale
Executive Vice President,
Chief Financial Officer /s/Neal E. Schmale March 2, 1999
Principal Accounting Officer:
Frank H. Ault
Vice President, Controller /s/Frank H. Ault March 2, 1999
Directors:
Richard D. Farman
Chairman /s/Richard D. Farman March 2, 1999
Stephen L. Baum
Vice Chairman /s/Stephen L. Baum March 2, 1999
Hyla H. Bertea
Director /s/Hyla H. Bertea March 2, 1999
Ann Burr
Director /s/Ann Burr March 2, 1999
Herbert L. Carter
Director /s/Herbert L. Carter March 2, 1999
Richard A. Collato
Director /s/Richard A. Collato March 2, 1999
Daniel W. Derbes
Director /s/Daniel W. Derbes March 2, 1999
Wilford D. Godbold, Jr.
Director /s/Wilford D. Godbold, Jr.March 2, 1999
Robert H. Goldsmith
Director /s/Robert H. Goldsmith March 2, 1999
William D. Jones
Director /s/William D. Jones March 2, 1999
Ignacio E. Lozano, Jr.
Director /s/Ignacio E. Lozano, Jr. March 2, 1999
Ralph R. Ocampo
Director /s/Ralph R. Ocampo March 2, 1999
William G. Ouchi
Director /s/William G. Ouchi March 2, 1999
Richard J. Stegemeier
Director /s/Richard J. Stegemeier March 2, 1999
Thomas C. Stickel
Director /s/Thomas C. Stickel March 2, 1999
Diana L. Walker
Director /s/Diana L. Walker March 2, 1999
EXHIBIT INDEX
The Forms 8, 8-B/A, 8-K, S-4, 10-K and 10-Q referred to herein were filed
under Commission File Number 1-40 (Pacific Enterprises), Commission File
Number 1-3779 (San Diego Gas & Electric), Commission File Number 1-1402
(Southern California Gas Company), Commission File Number 1-11439 (Enova
Corporation) and/or Commission File Number 333-30761 (SDG&E Funding LLC).
3.a The following exhibits relate to Sempra Energy and its subsidiaries
Exhibit 1 -- Underwriting Agreements
Enova Corporation and San Diego Gas & Electric Company (SDG&E)
- --------------------------------------------------------------
1.01 Underwriting Agreement dated December 4, 1997 (Incorporated by
reference from Form 8-K filed by SDG&E Funding LLC on
December 23, 1997 (Exhibit 1.1)).
Exhibit 2 -- Plan of Acquisition, reorganization, arrangement,
liquidation, or succession
Sempra Energy
- -------------
2.01 Agreement and Plan of Merger (the "Merger Agreement"), dated as of
February 20, 1999, among the Company, Cardinal Acquisition Corp., a
California corporation, and KN Energy, Inc., a Kansas corporation ("KN").
(Incorporated by reference from Form 8-K filed by Sempra Energy
filed on February 23, 1999.)
Exhibit 3 -- Bylaws and Articles of Incorporation
Bylaws
Sempra Energy
- -------------
3.01 Amended and Restated Bylaws of Sempra Energy effective May 26, 1998
(Incorporated by reference from the Registration Statement on Form S-8
Sempra Energy Registration No. 333-56161 dated June 5, 1998(Exhibit
3.2)) .
Articles of Incorporation
Sempra Energy
- -------------
3.02 Amended and Restated Articles of Incorporation of Sempra Energy
(Incorporated by reference to the Registration Statement on Form S-3 File
No. 333-51309 dated April 29, 1998, Exhibit 3.1).
Exhibit 4 -- Instruments Defining the Rights of Security Holders,
Including Indentures
The Company agrees to furnish a copy of each such instrument to the
Commission upon request.
Enova Corporation and San Diego Gas & Electric Company (SDG&E)
- --------------------------------------------------------------
4.01 Mortgage and Deed of Trust dated July 1, 1940. (Incorporated
by reference from SDG&E Registration No. 2-49810, Exhibit 2A.)
4.02 Second Supplemental Indenture dated as of March 1, 1948.
(Incorporated by reference from SDG&E Registration No. 2-49810,
Exhibit 2C.)
4.03 Ninth Supplemental Indenture dated as of August 1, 1968.
(Incorporated by reference from SDG&E Registration No. 2-68420,
Exhibit 2D.)
4.04 Tenth Supplemental Indenture dated as of December 1, 1968.
(Incorporated by reference from SDG&E Registration No. 2-36042,
Exhibit 2K.)
4.05 Sixteenth Supplemental Indenture dated August 28, 1975.
(Incorporated by reference from SDG&E Registration No. 2-68420,
Exhibit 2E.)
4.06 Thirtieth Supplemental Indenture dated September 28, 1983.
(Incorporated by reference from SDG&E Registration No. 33-34017,
Exhibit 4.3.)
Pacific Enterprises
- -------------------
4.07 Rights Agreement dated as of March 7, 1990 between Pacific
Enterprises and Security Pacific National Bank, as Rights Agent
(Pacific Enterprises September 25, 1992 Form 8-K; Exhibit 4).
Pacific Enterprises/Southern California Gas
- -------------------------------------------
4.09 First Mortgage Indenture of Southern California Gas Company to American
Trust Company dated as of October 1, 1940 (Registration Statement No.
2-4504 filed by Southern California Gas Company on September 16, 1940;
Exhibit B-4).
4.10 Supplemental Indenture of Southern California Gas Company to American
Trust Company dated as of July 1, 1947 (Registration Statement No. 2-
7072 filed by Southern California Gas Company on March 15, 1947;
Exhibit B-5).
4.11 Supplemental Indenture of Southern California Gas Company to American
Trust Company dated as of August 1, 1955 (Registration Statement No.
2-11997 filed by Pacific Lighting Corporation on October 26, 1955;
Exhibit 4.07).
4.12 Supplemental Indenture of Southern California Gas Company to American
Trust Company dated as of June 1, 1956 (Registration Statement No.
2-12456 filed by Southern California Gas Company on April 23, 1956;
Exhibit 2.08).
4.13 Supplemental Indenture of Southern California Gas Company to Wells Fargo
Bank, National Association dated as of August 1, 1972 (Registration
Statement No. 2-59832 filed by Southern California Gas Company on
September 6, 1977; Exhibit 2.19).
4.14 Supplemental Indenture of Southern California Gas Company to Wells Fargo
Bank, National Association dated as of May 1, 1976 (Registration
Statement No. 2-56034 filed by Southern California Gas Company on April
14, 1976; Exhibit 2.20).
4.15 Supplemental Indenture of Southern California Gas Company to Wells Fargo
Bank, National Association dated as of September 15, 1981 (Pacific
Enterprises 1981 Form 10-K; Exhibit 4.25).
4.16 Supplemental Indenture of Southern California Gas Company to
Manufacturers Hanover Trust Company of California, successor to Wells
Fargo Bank, National Association, and Crocker National Bank as
Successor Trustee dated as of May 18, 1984 (Southern California Gas
Company 1984 Form 10-K; Exhibit 4.29).
4.17 Supplemental Indenture of Southern California Gas Company to Bankers
Trust Company of California, N.A., successor to Wells Fargo Bank,
National Association dated as of January 15, 1988
(Pacific Enterprises 1987 Form 10-K; Exhibit 4.11).
4.18 Supplemental Indenture of Southern California Gas Company to First
Trust of California, National Association, successor to Bankers Trust
Company of California, N.A. dated as of August 15, 1992 (Registration
Statement No. 33-50826 filed by Southern California Gas Company on
August 13, 1992; Exhibit 4.37).
Exhibit 10 -- Material Contracts (Previously filed exhibits are
incorporated by reference from Forms 8-K, S-4, 10-K or
10-Q as referenced below).
Sempra Energy
- -------------
10.01 Amendment to Employment Agreement, effective December 1, 1998.
(Employment agreement, dated as of October 12, 1996 between
Mineral Energy Company and Stephen L. Baum (Enova 8-K filed
October 15,1996, Exhibit 10.2))
10.02 Amendment to Employment Agreement effective December 1, 1998.
(Employment contract dated as of October 12, 1996 between
Mineral Energy Company and Richard D. Farman (Enova 8-K filed
October 15, 1996, Exhibit 10.3)).
10.03 Amendment to Employment Agreement effective December 1, 1998.
(Employment contract, dated as of October 12, 1996 between
Mineral Energy Company and Donald E. Felsinger (Enova 8-K filed
October 15, 1996, Exhibit 10.4)).
10.04 Amendment to Employment Agreement effective December 1, 1998.
(Employment contract, dated as of October 12, 1996 between
Mineral Energy Company and Warren I. Mitchell (Enova 8-K filed
October 15, 1996, Exhibit 10.5)).
Enova Corporation and San Diego Gas & Electric Company (SDG&E)
- --------------------------------------------------------------
10.05 Transition Property Purchase and Sale Agreement dated December
16, 1997 (Incorporated by reference from Form 8-K filed by SDG&E
Funding LLC on December 23, 1997 (Exhibit 10.1)).
10.06 Transition Property Servicing Agreement dated December 16, 1997
(Incorporated by reference from Form 8-K filed by SDG&E Funding
LLC on December 23, 1997 (Exhibit 10.2)).
Pacific Enterprises
- --------------------
10.07 Form of Indemnification Agreement between Pacific Enterprises
and each of its directors and officers (Pacific Enterprises 1992
Form 10-K Exhibit 10.07).
10.08 Operating Agreement of Mineral JV, LLC, dated as of
January 13, 1997 (Registration Statement No. 333-21229
filed by Mineral Energy Company on February 5, 1997, Exhibit 10.5).
Compensation
Sempra Energy
- -------------
10.09 Sempra Energy Supplemental Executive Retirement Plan as amended
and restated effective July 1, 1998
10.10 Sempra Energy Deferred Compensation Agreement for Directors
effective June 1, 1998.
10.11 Sempra Energy Executive Incentive Plan effective June 1, 1998
10.12 Sempra Energy Executive Deferred Compensation Agreement
effective June 1, 1998
10.13 Sempra Energy Retirement Plan for Directors effective June 1, 1998
10.14 Sempra Energy 1998 Long Term Incentive Plan (Incorporated by reference
from the Registration Statement on Form S-8 Sempra Energy Registration
No. 333-56161 dated June 5, 1998 (Exhibit 4.1)).
10.15 Sempra Energy 1998 Non-Employee Directors' Stock Plan.(Incorporated by
reference from the Registration Statement on Form S-8 Sempra Energy
Registration No. 333-56161 dated June 5, 1998(Exhibit 4.2)).
10.16 Enova Corporation 1986 Long-Term Incentive Plan amended and restated as
the Sempra Energy 1986 Long-Term Incentive Plan (Incorporated by
reference from the Registration Statement on Form S-8 Sempra Energy
Registration No. 333-56161(Exhibit 4.3)).
10.17 Pacific Lighting Corporation Stock Incentive Plan (amended and restated
as the Sempra Energy Stock Incentive Plan (Incorporated by reference
from the Registration Statement on Form S-8 Sempra Energy Registration
No. 333-56161(Exhibit 4.4)).
10.18 Pacific Enterprises Employee Stock Option Plan (amended and restated as
the Sempra Energy Employee Stock Option Plan Incorporated by reference
from the Registration Statement on Form S-8 Sempra Energy Registration
No. 333-56161(Exhibit 4.5)).
Enova Corporation and San Diego Gas & Electric (SDG&E)
- ------------------------------------------------------
10.19 Form of Amendment to San Diego Gas & Electric Company
Deferred Compensation Agreements for Officers #1 and #3 (1996
Form 10-K Exhibit 10.6).
10.20 Form of Enova Corporation 1998 Deferred Compensation Agreement
for Officers #1 (1998 compensation, 1998 bonus) (1997 Enova
Form 10-K Exhibit 10.15).
10.21 Form of Enova Corporation 1997 Deferred Compensation Agreement
for Officers #1 (1997 compensation, 1998 bonus) (1996 Form 10-K
Exhibit 10.7).
10.22 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #1 (1996 compensation,
1997 bonus)(1995 SDG&E Form 10-K Exhibit 10.1).
10.23 Form of Enova Corporation 1998 Deferred Compensation
Agreement for Officers #3. (1997 Enova Form 10-K
Exhibit 10.12).
10.24 Form of Enova Corporation 1997 Deferred Compensation
Agreement for Officers #3 (1997 compensation, 1998 bonus)(1996
Form 10-K Exhibit 10.10).
10.25 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Officers #3 (1996 compensation,
1997 bonus)(1995 SDG&E Form 10-K Exhibit 10.3).
10.26 Form of Enova Corporation 1998 Deferred Compensation
Agreement for Nonemployee Directors. (1997 Enova
Form 10-K Exhibit 10.16).
10.27 Form of Enova Corporation 1997 Deferred Compensation
Agreement for Nonemployee Directors (1996 Form 10-K Exhibit
10.13).
10.28 Form of San Diego Gas & Electric Company Deferred
Compensation Agreement for Nonemployee Directors (1996
compensation)(1995 SDG&E Form 10-K Exhibit 10.5).
10.29 Form of Enova Corporation 1986 Long-Term Incentive Plan
1997 restricted stock award agreement. (1997 Enova
Form 10-K Exhibit 10.18).
10.30 Form of Enova Corporation 1986 Long-Term Incentive Plan
1996 restricted stock award agreement (1996 Form 10-K
Exhibit 10.16).
10.31 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1995 restricted stock award agreement
(1995 SDG&E Form 10-K Exhibit 10.7).
10.32 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan Special 1995 restricted stock award
agreement (1995 SDG&E Form 10-K Exhibit 10.8).
10.33 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1994 restricted stock award agreement two-
year vesting (1995 SDG&E Form 10-K Exhibit 10.9).
10.34 Form of San Diego Gas & Electric Company 1986 Long-Term
Incentive Plan 1994 restricted stock award agreement
(1994 SDG&E Form 10-K Exhibit 10.4).
10.35 Amended 1986 Long-Term Incentive Plan, amended and restated
effective April 25, 1995 (SDG&E's Amendment No. 2 to
Form S-4 filed February 28, 1995).
10.36 Amended 1986 Long-Term Incentive Plan, Restatement as of
October 25, 1993 (1993 SDG&E Form 10-K Exhibit 10.6).
10.37 San Diego Gas & Electric Company Severance Plan effective
October 22, 1996 (1996 Form 10-K Exhibit 10.24).
10.38 San Diego Gas & Electric Company Severance Plan effective
on the date of the Enova Corporation -- Pacific Enterprises
business combination (1996 Form 10-K Exhibit 10.25).
10.39 San Diego Gas & Electric Company Retirement Plan for
Directors, restated as of October 24, 1994 (1994 SDG&E
Form 10-K Exhibit 10.5).
10.40 Executive Incentive Plan dated April 23, 1985 (1991 SDG&E
Form 10-K Exhibit 10.39).
10.41 Employment agreement between San Diego Gas & Electric
Company and Thomas A. Page, dated June 15, 1988 (1988 SDG&E
Form 10-K Exhibit 10E).
10.42 Supplemental Pension Agreement with Thomas A. Page, dated as
of April 3, 1978 (1988 SDG&E Form 10-K Exhibit 10V).
10.43 Supplemental Executive Retirement Plan restated as of
July 1, 1994 (1994 SDG&E Form 10-K Exhibit 10.14).
Pacific Enterprises/Southern California Gas Company
- ---------------------------------------------------
10.44 Restatement and Amendment of Pacific Enterprises 1979 Stock Option Plan
(Registration Statement No. 2-66833 filed by Pacific Lighting
Corporation on March 5, 1980, Exhibit 1.1).
10.45 Pacific Enterprises Supplemental Medical Reimbursement Plan for Senior
Officers (Pacific Lighting Corporation 1980 Form 10-K
Exhibit 10.24).
10.46 Pacific Enterprises Financial Services Program for Senior Officers
(Pacific Lighting Corporation 1980 Form 10-K Exhibit 10.25).
10.47 Pacific Enterprises Supplemental Retirement and Survivor Plan
(Pacific Lighting Corporation 1984 Form 10-K Exhibit 10.36).
10.48 Pacific Enterprises Stock Payment
Plan (Pacific Lighting Corporation 1984 Form 10-K Exhibit 10.37).
10.49 Pacific Enterprises Pension Restoration
Plan (Pacific Lighting Corporation 1980 Form 10-K Exhibit 10.28).
10.50 Southern California Gas Company Pension Restoration Plan For
Certain Management Employees (Pacific Lighting Corporation 1980
Form 10-K Exhibit 10.29).
10.51 Pacific Enterprises Executive Incentive
Plan (Pacific Enterprises 1987 Form 10-K; Exhibit 10.13).
10.52 Pacific Enterprises Deferred Compensation
Plan for Key Management Employees (Pacific Lighting
Corporation 1985 Form 10-K Exhibit 10.41).
10.53 Pacific Enterprises Employee Stock Ownership Plan and Trust Agreement
as amended effective October 1, 1992.
(Pacific Enterprises 1992 Form 10-K Exhibit 10.18).
10.54 Pacific Enterprises Stock Incentive Plan
(Registration Statement No. 33-21908 filed by Pacific Enterprises on
May 17, 1988 Exhibit 4.01).
10.55 Pacific Enterprises Retirement Plan for
Directors (Pacific Enterprises 1992 Form 10-K Exhibit 10.20).
10.56 Pacific Enterprises Director's Deferred
Compensation Plan (Pacific Enterprises 1992 Form 10-K; Exhibit 10.21).
10.57 Amended and Restated Pacific Enterprises Employee
Stock Option Plan (as of March 4, 1997)
(Pacific Enterprises 1996 Form 10-K Exhibit 10.17).
10.58 Form of Severance Agreement
(Pacific Enterprises 1996 Form 10-K Exhibit 10.18).
10.59 Form of Incentive Bonus Agreement
(Pacific Enterprises 1996 Form 10-K Exhibit 10.19).
Southern California Gas Company
- -------------------------------
10.60 Southern California Gas Company Retirement Savings Plan, as amended and
restated as of August 30, 1988 (Registration Statement No. 33-6357
filed by Pacific Enterprises on December 30, 1988; Exhibit 28.02).
10.61 Southern California Gas Company Statement of Life Insurance, Disability
Benefit and Pension Plans, as amended and restated as of January 1,
1985 (Southern California Gas Company 1984 Form 10-K; Exhibit 10.27).
10.62 Master Affiliate Service Agreement dated as of September 1, 1996
between Southern California Gas Company and Pacific Enterprises Energy
Services, as amended (Southern California Gas Company 1996 Form 10-K;
Exhibit 10.11).
Financing
Enova Corporation and San Diego Gas & Electric (SDG&E)
- ------------------------------------------------------
10.63 Loan agreement with the City of Chula Vista in connection
with the issuance of $25 million of Industrial Development
Bonds, dated as of October 1, 1997.(Enova 1997 Form 10-K
Exhibit 10.34).
10.64 Loan agreement with the City of Chula Vista in connection
with the issuance of $38.9 million of Industrial Development
Bonds, dated as of August 1, 1996 (1996 Form 10-K Exhibit
10.31).
10.65 Loan agreement with the City of Chula Vista in connection
with the issuance of $60 million of Industrial Development
Bonds, dated as of November 1, 1996 (1996 Form 10-K
Exhibit 10.32).
10.66 Loan agreement with City of San Diego in connection with
the issuance of $16.7 million of Industrial Development
Bonds, dated as of June 1, 1995 (June 30, 1995 SDG&E
Form 10-Q Exhibit 10.2).
10.67 Loan agreement with City of San Diego in connection with
the issuance of $57.7 million of Industrial Development
Bonds, dated as of June 1, 1995 (June 30, 1995 SDG&E
Form 10-Q Exhibit 10.3).
10.68 Loan agreement with the City of San Diego in connection with
the issuance of $92.9 million of Industrial Development
Bonds 1993 Series C dated as of July 1, 1993 (June 30, 1993
SDG&E Form 10-Q Exhibit 10.2).
10.69 Loan agreement with the City of San Diego in connection with
the issuance of $70.8 million of Industrial Development Bonds
1993 Series A dated as of April 1, 1993 (March 31, 1993 SDG&E
Form 10-Q Exhibit 10.3).
10.70 Loan agreement with the City of San Diego in connection with
the issuance of $118.6 million of Industrial Development
Bonds dated as of September 1, 1992 (Sept. 30, 1992 SDG&E
Form 10-Q Exhibit 10.1).
10.71 Loan agreement with the City of Chula Vista in connection
with the issuance of $250 million of Industrial Development
Bonds, dated as of December 1, 1992 (1992 SDG&E Form 10-K
Exhibit 10.5).
10.72 Loan agreement with the City of San Diego in connection with
the issuance of $25 million of Industrial Development
Bonds, dated as of September 1, 1987 (1992 SDG&E Form 10-K
Exhibit 10.6).
10.73 Loan agreement with the California Pollution Control Financing
Authority in connection with the issuance of $129.82 million
of Pollution Control Bonds, dated as of June 1, 1996
(1996 Form 10-K Exhibit 10.41).
10.74 Loan agreement with the California Pollution Control
Financing Authority in connection with the issuance of $60
million of Pollution Control Bonds dated as of June 1, 1993
(June 30, 1993 SDG&E Form 10-Q Exhibit 10.1).
10.75 Loan agreement with the California Pollution Control Financing
Authority, dated as of December 1, 1991, in connection with
the issuance of $14.4 million of Pollution Control Bonds
(1991 SDG&E Form 10-K Exhibit 10.11).
Natural Gas Commodity, Transportation and Storage
Enova Corporation and San Diego Gas & Electric (SDG&E)
- ------------------------------------------------------
10.76 Third Amending Agreement, dated November 1, 1997 between
Husky Oil Operations Limited and San Diego Gas & Electric
Company.(1997 Enova Corporation Form 10-K Exhibit 10.50).
10.77 Second Amending Agreement, dated January 1, 1997 between
Husky Oil Operations Limited and San Diego Gas & Electric
Company. (1997 Enova Corporation Form 10-K Exhibit 10.51).
10.78 Amending Agreement dated November 1, 1994 between Husky
Oil Operations Limited and San Diego Gas & Electric Company.
(1997 Enova Corporation Form 10-K Exhibit 10.52).
10.79 Gas Purchase Agreement, dated March 12, 1991 between Husky
Oil Operations Limited and San Diego Gas & Electric Company
(1991 SDG&E Form 10-K Exhibit 10.1).
10.80 Gas Purchase Agreement, dated March 12, 1991 between
Canadian Hunter Marketing Limited and San Diego Gas &
Electric Company (1991 SDG&E Form 10-K Exhibit 10.2).
10.81 Gas Purchase Agreement, dated March 12, 1991 between Bow
Valley Industries Limited and San Diego Gas & Electric
Company (1991 SDG&E Form 10-K Exhibit 10.3).
10.82 Gas Purchase Agreement, dated March 12, 1991 between Summit
Resources Limited and San Diego Gas & Electric Company (1991
SDG&E Form 10-K Exhibit 10.4).
10.83 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 (1991 SDG&E Form 10-K Exhibit 10.5).
10.84 Amendment to Firm Transportation Service Agreement, dated
December 2, 1996, between Pacific Gas and Electric Company
and San Diego Gas & Electric Company. (1997 Enova Corporation
Form 10-K Exhibit 10.58).
10.85 Firm Transportation Service Agreement, dated December 31,
1991 between Pacific Gas and Electric Company and San Diego
Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.7).
10.86 Firm Transportation Service Agreement, dated October 13, 1994
between Pacific Gas Transmission Company and San Diego Gas
& Electric Company. (1997 Enova Corporation
Form 10-K Exhibit 10.60)
Nuclear
Enova Corporation and San Diego Gas & Electric (SDG&E)
- ------------------------------------------------------
10.87 Uranium enrichment services contract between the U.S.
Department of Energy (DOE assigned its rights to the U.S.
Enrichment Corporation, a U.S. government-owned corporation,
on July 1, 1993) 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
(1991 SDG&E Form 10-K Exhibit 10.9).
10.88 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 (1992 SDG&E Form 10-K Exhibit 10.11).
10.89 Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station,
approved November 25, 1987 (1992 SDG&E Form 10-K Exhibit 10.7).
10.90 Amendment No. 1 to the Qualified CPUC Decommissioning Master
Trust Agreement dated September 22, 1994 (see Exhibit 10.89
herein)(1994 SDG&E Form 10-K Exhibit 10.56).
10.91 Second Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station
(see Exhibit 10.89 herein)(1994 SDG&E Form 10-K Exhibit 10.57).
10.92 Third Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station
(see Exhibit 10.89 herein)(1996 Form 10-K Exhibit 10.59).
10.93 Fourth Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station
(see Exhibit 10.89 herein)(1996 Form 10-K Exhibit 10.60).
10.94 Nuclear Facilities Non-Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station,
approved November 25, 1987 (1992 SDG&E Form 10-K Exhibit 10.8).
10.95 First Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Non-Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station
(see Exhibit 10.94 herein)(1996 Form 10-K Exhibit 10.62).
10.96 Second Amendment to the San Diego Gas & Electric Company
Nuclear Facilities Non-Qualified CPUC Decommissioning Master
Trust Agreement for San Onofre Nuclear Generating Station
(see Exhibit 10.94 herein)(1996 Form 10-K Exhibit 10.63).
10.97 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 (1990 SDG&E
Form 10-K Exhibit 10.6).
10.98 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 (1988 SDG&E Form 10-K Exhibit 10N).
Purchased Power
10.99 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 (1988 SDG&E
Form 10-K Exhibit 10H).
10.100 San Diego Gas & Electric Company and Portland General
Electric Company Long-Term Power Sale and Transmission
Service agreements dated November 5, 1985 (1988 SDG&E Form
10-K Exhibit 10I).
Other
10.101 U. S. Navy contract for electric service, Contract
N62474-70-C-1200-P00414, dated September 29, 1988 (1988 SDG&E
Form 10-K Exhibit 10C).
10.102 Lease agreement dated as of March 25, 1992 with American
National Insurance Company as lessor of an office complex at
Century Park (1994 SDG&E Form 10-K Exhibit 10.70).
10.103 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
(1988 SDG&E Form 10-K Exhibit 10W).
10.104 Amendment to Lease agreement dated as of July 1, 1993 with
Sanwa Bank California, as owner-trustee and lessor - Exhibit
B to secured loan agreement of SDG&E's Encina Unit 5
equipment trust (See Exhibit 10.103 herein)(1994 SDG&E Form
10-K Exhibit 10.72).
10.105 Lease agreement dated as of July 14, 1975 with New England
Mutual Life Insurance Company, as lessor (1991 SDG&E Form 10-K
Exhibit 10.42).
10.106 Assignment of Lease agreement dated as of November 19, 1993
to Shapery Developers as lessor by New England Mutual
Life Insurance Company (See Exhibit 10.105 herein)(1994 SDG&E
Form 10-K Exhibit 10.74).
Exhibit 11 -- Statement re: Computation Of Per Share Earnings
11.01 Sempra Energy Computation of Earnings per Share (see Consolidated
Statements of Income and Note 12 of the notes to Consolidated Financial
Statements contained in Exhibit 13.01).
Exhibit 12 -- Statement re: Computation Of Ratios
12.01 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the years ended December
31, 1998, 1997, 1996, 1995 and 1994.
Exhibit 13 -- Annual Report to Security Holders
13.01 Sempra Energy 1998 Annual Report to Shareholders. (Such report, except
for the portions thereof which are expressly incorporated by reference
in this Annual Report, is furnished for the information of the
Securities and Exchange Commission and is not to be deemed "filed" as
part of this Annual Report).
Exhibit 21 -- Subsidiaries
See Notes 1 and 3 of notes to consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Exhibit 13.01
Exhibit 23 -- Independent Auditors' Consent, page 27.
Exhibit 27 -- Financial Data Schedules
27.01 Financial Data Schedule for the year ended December 31, 1998.
GLOSSARY
AB 1890 Assembly Bill 1890 - California's electric
restructuring law
AFUDC Allowance for Funds Used During
Construction
APCD Air Pollution Control District
BCAP Biennial Cost Allocation Proceeding
Bcf One Billion Cubic Feet (of natural gas)
BRPU Biennial Resource Plan Update
BTU British Thermal Unit
CEC California Energy Commission
CFE Comision Federal de Electricidad
CPUC California Public Utilities Commission
CTC Competition Transition Charge
DOE Department of Energy
DGN Distribuidora de Gas Natural
DTSC Department of Toxic Substances Control
Edison Southern California Edison Company
EMF Electric and Magnetic Fields
Enova Enova Corporation and its wholly owned
subsidiaries
EOR Enhanced Oil Recovery
EPS Earnings Per Share
ESOP Employee Stock Ownership Plan
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
GCIM Gas Cost Incentive Mechanism
GRC General Rate Case
IDBs Industrial Development Bonds
IOUs Investor-Owned Utilities
ISO Independent System Operator
IT Information Technology
Kv Kilovolt
Kwhr Kilowatt Hour
LG&E Louisville Gas & Electric Power Marketing
Mcf Thousand Cubic Feet (of natural gas)
Mmcfd Million Cubic Feet (of natural gas) per day
Mw Megawatt
NPDES National Pollutant Discharge Elimination
System
NRC Nuclear Regulatory Commission
ORA Office of Ratepayer Advocates
OTC Over The Counter
PBR Performance-Based Ratemaking
PCB Polychlorinated Biphenyl
PE Pacific Enterprises
PG&E Pacific Gas and Electric Company
PGE Portland General Electric Company
PNM Public Service Company of New Mexico
PX Power Exchange
QF Qualifying Facility
ROE Return on Equity
ROR Rate of Return
RWQCB Regional Water Quality Control Board
SDG&E San Diego Gas & Electric Company
SEC Securities and Exchange Commission
SEF Sempra Energy Financial
SEI Sempra Energy International
SER Sempra Energy Resources
SES Sempra Energy Solutions
SET Sempra Energy Trading
SEUV Sempra Energy Utility Ventures
SFAS Statement of Financial Accounting Standards
SoCalGas Southern California Gas Company
SONGS San Onofre Nuclear Generating Station
Southwest Powerlink A transmission line connecting San Diego to
Phoenix and intermediate points
SWRCB State Water Resources Control Board
UEG Utility electric generation
VaR Value at Risk
WSPP Western Systems Power Pool
40