Sempra Energy/SDG&E/SoCalGas September 30, 2015 10-Q


  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
 
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
September 30, 2015
   
 
or
   
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
   
to
 
     
 
 
Commission File No.
Exact Name of Registrants as Specified in their Charters, Address and Telephone Number
States of Incorporation
I.R.S. Employer
Identification Nos.
Former name, former address and former fiscal year, if changed since last report
1-14201
SEMPRA ENERGY
California
33-0732627
No change
 
488 8th Avenue
     
 
San Diego, California 92101
     
 
(619)696-2000
     
         
1-03779
SAN DIEGO GAS & ELECTRIC COMPANY
California
95-1184800
No change
 
8326 Century Park Court
     
 
San Diego, California 92123
     
 
(619)696-2000
     
         
1-01402
SOUTHERN CALIFORNIA GAS COMPANY
California
95-1240705
No change
 
555 West Fifth Street
     
 
Los Angeles, California 90013
     
 
(213)244-1200
     
         
 
 
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
           
 
Yes
X
 
No
 

 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
           
Sempra Energy
Yes
X
 
No
 
San Diego Gas & Electric Company
Yes
X
 
No
 
Southern California Gas Company
Yes
X
 
No
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large
accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Sempra Energy
[  X  ]
[      ]
[       ]
[      ]
San Diego Gas & Electric Company
[       ]
[      ]
[  X  ]
[      ]
Southern California Gas Company
[       ]
[      ]
[  X  ]
[      ]
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
           
Sempra Energy
Yes
   
No
X
San Diego Gas & Electric Company
Yes
   
No
X
Southern California Gas Company
Yes
   
No
X
           
 
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
           
Common stock outstanding on October 28, 2015:
         
           
Sempra Energy
248,210,449 shares
San Diego Gas & Electric Company
Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy
Southern California Gas Company
Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy
 
 
 
 
 
 
 

SEMPRA ENERGY FORM 10-Q
SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q
SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q
TABLE OF CONTENTS
 
 
Page
Information Regarding Forward-Looking Statements
4
   
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
82
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
126
Item 4.
Controls and Procedures
127
     
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings
128
Item 1A.
Risk Factors
128
Item 6.
Exhibits
128
     
Signatures
130
     

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

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

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
 

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
 
In this report, when we use words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “contemplates,” “intends,” “depends,” “should,” “could,” “would,” “will,” “confident,” “may,” “potential,” “possible,” “proposed,” “target,” “pursue,” “goals,” “outlook,” “maintain,” or similar expressions, or when we discuss our guidance, strategy, plans, goals, opportunities, projections, initiatives, objectives or intentions, we are making forward-looking statements.
 
Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include
 
§
local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments;
 
§
actions and the timing of actions, including issuances of permits to construct and licenses for operation, by the California Public Utilities Commission, California State Legislature, U.S. Department of Energy, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, Atomic Safety and Licensing Board, California Energy Commission, U.S. Environmental Protection Agency, California Air Resources Board, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate;
 
§
the timing and success of business development efforts and construction, maintenance and capital projects, including risks in obtaining, maintaining or extending permits, licenses, certificates and other authorizations on a timely basis and risks in obtaining adequate and competitive financing for such projects;
 
§
energy markets, including the timing and extent of changes and volatility in commodity prices, and the impact of any protracted reduction in oil and natural gas prices from historical averages;
 
§
the impact on the value of our natural gas storage assets from low natural gas prices, low volatility of natural gas prices and the inability to procure favorable long-term contracts for natural gas storage services;
 
§
delays in the timing of costs incurred and the timing of the regulatory agency authorization to recover such costs in rates from customers;
 
§
deviations from regulatory precedent or practice that result in a reallocation of benefits or burdens among shareholders and ratepayers;
 
§
capital markets conditions, including the availability of credit and the liquidity of our investments;
 
§
inflation, interest and currency exchange rates;
 
§
the impact of benchmark interest rates, generally Moody’s A-rated utility bond yields, on our California Utilities’ cost of capital;
 
§
the availability of electric power, natural gas and liquefied natural gas, and natural gas pipeline and storage capacity, including disruptions caused by failures in the North American transmission grid, pipeline explosions and equipment failures and the decommissioning of San Onofre Nuclear Generating Station (SONGS);
 
§
cybersecurity threats to the energy grid, natural gas storage and pipeline infrastructure, the information and systems used to operate our businesses and the confidentiality of our proprietary information and the personal information of our customers, terrorist attacks that threaten system operations and critical infrastructure, and wars;
 
§
the ability to win competitively bid infrastructure projects against a number of strong competitors willing to aggressively bid for these projects;
 
§
weather conditions, conservation efforts, natural disasters, catastrophic accidents, and other events that may disrupt our operations, damage our facilities and systems, and subject us to third-party liability for property damage or personal injuries;
 
§
risks that our partners or counterparties will be unable or unwilling to fulfill their contractual commitments;
 
§
risks posed by decisions and actions of third parties who control the operations of investments in which we do not have a controlling interest;
 
§
risks inherent with nuclear power facilities and radioactive materials storage, including the catastrophic release of such materials, the disallowance of the recovery of the investment in, or operating costs of, the nuclear facility due to an extended outage and facility closure, and increased regulatory oversight, including motions to modify settlements;
 
§
business, regulatory, environmental and legal decisions and requirements;
 
§
expropriation of assets by foreign governments and title and other property disputes;
 
§
the impact on reliability of San Diego Gas & Electric Company’s (SDG&E) electric transmission and distribution system due to increased amount and variability of power supply from renewable energy sources and increased reliance on natural gas and natural gas transmission systems;
 
§
the impact on competitive customer rates of the growth in distributed and local power generation and the corresponding decrease in demand for power delivered through SDG&E’s electric transmission and distribution system;
 
§
the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements due to insufficient market interest, unattractive pricing or other factors;
 
§
the resolution of litigation; and
 
§
other uncertainties, all of which are difficult to predict and many of which are beyond our control.
 
We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described herein and in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
 
 
 
 
 
PART I – FINANCIAL INFORMATION
 

ITEM 1. FINANCIAL STATEMENTS
 


SEMPRA ENERGY
               
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
               
   
Three months ended
Nine months ended
   
September 30,
September 30,
   
2015
2014
2015
2014
   
(unaudited)
REVENUES
               
Utilities
$
2,213
$
2,463
$
6,768
$
7,318
Energy-related businesses
 
268
 
352
 
762
 
970
    Total revenues
 
2,481
 
2,815
 
7,530
 
8,288
EXPENSES AND OTHER INCOME
               
Utilities:
               
    Cost of natural gas
 
(201)
 
(293)
 
(786)
 
(1,308)
    Cost of electric fuel and purchased power
 
(666)
 
(680)
 
(1,645)
 
(1,761)
Energy-related businesses:
               
    Cost of natural gas, electric fuel and purchased power
 
(91)
 
(163)
 
(262)
 
(427)
    Other cost of sales
 
(34)
 
(42)
 
(111)
 
(122)
Operation and maintenance
 
(701)
 
(726)
 
(2,072)
 
(2,131)
Depreciation and amortization
 
(315)
 
(292)
 
(925)
 
(866)
Franchise fees and other taxes
 
(111)
 
(104)
 
(314)
 
(301)
Plant closure adjustment
 
 
 
21
 
13
Gain on sale of equity interests and assets
 
 
19
 
62
 
48
Equity earnings, before income tax
 
33
 
22
 
79
 
62
Other income, net
 
12
 
29
 
88
 
118
Interest income
 
6
 
6
 
23
 
15
Interest expense
 
(143)
 
(144)
 
(416)
 
(418)
Income before income taxes and equity earnings
               
    of certain unconsolidated subsidiaries
 
270
 
447
 
1,272
 
1,210
Income tax expense
 
(15)
 
(71)
 
(276)
 
(291)
Equity earnings, net of income tax
 
27
 
7
 
64
 
22
Net income
 
282
 
383
 
1,060
 
941
Earnings attributable to noncontrolling interests
 
(34)
 
(35)
 
(79)
 
(76)
Preferred dividends of subsidiary
 
 
 
(1)
 
(1)
Earnings
$
248
$
348
$
980
$
864
                   
Basic earnings per common share
$
1.00
$
1.41
$
3.95
$
3.52
                   
Weighted-average number of shares outstanding,
               
    basic (thousands)
 
248,432
 
246,137
 
248,090
 
245,703
                   
Diluted earnings per common share
$
0.99
$
1.39
$
3.91
$
3.45
                   
Weighted-average number of shares outstanding,
               
    diluted (thousands)
 
251,024
 
250,771
 
250,665
 
250,278
                   
Dividends declared per share of common stock
$
0.70
$
0.66
$
2.10
$
1.98
See Notes to Condensed Consolidated Financial Statements.
       
 

 

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
   
Sempra Energy shareholders' equity
       
   
Pretax
Income tax
Net-of-tax
Noncontrolling
 
   
amount
(expense) benefit
amount
interests (after-tax)
Total
   
Three months ended September 30, 2015 and 2014
   
(unaudited)
2015:
                   
Net income
$
263
$
(15)
$
248
$
34
$
282
Other comprehensive income (loss):
                   
    Foreign currency translation adjustments
 
(92)
 
 
(92)
 
(8)
 
(100)
    Pension and other postretirement benefits
 
7
 
(2)
 
5
 
 
5
    Financial instruments
 
(128)
 
50
 
(78)
 
(3)
 
(81)
    Total other comprehensive loss
 
(213)
 
48
 
(165)
 
(11)
 
(176)
Comprehensive income
$
50
$
33
$
83
$
23
$
106
2014:
                   
Net income
$
419
$
(71)
$
348
$
35
$
383
Other comprehensive income (loss):
                   
    Foreign currency translation adjustments
 
(100)
 
 
(100)
 
(11)
 
(111)
    Pension and other postretirement benefits
 
8
 
(3)
 
5
 
 
5
    Financial instruments
 
(4)
 
1
 
(3)
 
3
 
    Total other comprehensive loss
 
(96)
 
(2)
 
(98)
 
(8)
 
(106)
Comprehensive income
$
323
$
(73)
$
250
$
27
$
277

   
Nine months ended September 30, 2015 and 2014
   
(unaudited)
2015:
                   
Net income
$
1,257
$
(276)
$
981
$
79
$
1,060
Other comprehensive income (loss):
                   
    Foreign currency translation adjustments
 
(197)
 
 
(197)
 
(21)
 
(218)
    Pension and other postretirement benefits
 
11
 
(4)
 
7
 
 
7
    Financial instruments
 
(122)
 
48
 
(74)
 
(2)
 
(76)
    Total other comprehensive loss
 
(308)
 
44
 
(264)
 
(23)
 
(287)
Comprehensive income
 
949
 
(232)
 
717
 
56
 
773
Preferred dividends of subsidiary
 
(1)
 
 
(1)
 
 
(1)
Comprehensive income, after preferred
                   
    dividends of subsidiary
$
948
$
(232)
$
716
$
56
$
772
2014:
                   
Net income
$
1,156
$
(291)
$
865
$
76
$
941
Other comprehensive income (loss):
                   
    Foreign currency translation adjustments
 
(141)
 
 
(141)
 
(12)
 
(153)
    Pension and other postretirement benefits
 
21
 
(8)
 
13
 
 
13
    Financial instruments
 
(24)
 
9
 
(15)
 
2
 
(13)
    Total other comprehensive loss
 
(144)
 
1
 
(143)
 
(10)
 
(153)
Comprehensive income
 
1,012
 
(290)
 
722
 
66
 
788
Preferred dividends of subsidiary
 
(1)
 
 
(1)
 
 
(1)
Comprehensive income, after preferred
                   
    dividends of subsidiary
$
1,011
$
(290)
$
721
$
66
$
787
See Notes to Condensed Consolidated Financial Statements.
 
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
   
September 30,
December 31,
 
2015
2014(1)
   
(unaudited)
   
ASSETS
       
Current assets:
       
    Cash and cash equivalents
$
697
$
570
    Restricted cash
 
13
 
11
    Trade accounts receivable, net
 
1,024
 
1,242
    Other accounts and notes receivable, net
 
176
 
152
    Due from unconsolidated affiliates
 
3
 
38
    Income taxes receivable
 
22
 
45
    Deferred income taxes
 
198
 
305
    Inventories
 
416
 
396
    Regulatory balancing accounts – undercollected
 
585
 
746
    Fixed-price contracts and other derivatives
 
66
 
93
    Asset held for sale, power plant
 
 
293
    Other
 
406
 
293
        Total current assets
 
3,606
 
4,184
           
Investments and other assets:
       
    Restricted cash
 
40
 
29
    Due from unconsolidated affiliates
 
175
 
188
    Regulatory assets
 
3,112
 
3,031
    Nuclear decommissioning trusts
 
1,060
 
1,131
    Investments
 
2,845
 
2,848
    Goodwill
 
847
 
931
    Other intangible assets
 
407
 
415
    Dedicated assets in support of certain benefit plans
 
459
 
512
    Sundry
 
701
 
561
        Total investments and other assets
 
9,646
 
9,646
           
Property, plant and equipment:
       
    Property, plant and equipment
 
37,280
 
35,407
    Less accumulated depreciation and amortization
 
(9,966)
 
(9,505)
        Property, plant and equipment, net ($390 and $410 at September 30, 2015 and
            December 31, 2014, respectively, related to VIE)
 
27,314
 
25,902
Total assets
$
40,566
$
39,732
(1)
Derived from audited financial statements.
       
See Notes to Condensed Consolidated Financial Statements.
       
 
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
   
September 30,
December 31,
 
2015
2014(1)
   
(unaudited)
   
LIABILITIES AND EQUITY
       
Current liabilities:
       
    Short-term debt
$
1,097
$
1,733
    Accounts payable – trade
 
1,091
 
1,198
    Accounts payable – other
 
143
 
155
    Due to unconsolidated affiliate
 
 
2
    Dividends and interest payable
 
343
 
282
    Accrued compensation and benefits
 
356
 
373
    Current portion of long-term debt
 
1,168
 
469
    Fixed-price contracts and other derivatives
 
73
 
55
    Customer deposits
 
152
 
153
    Other
 
695
 
649
        Total current liabilities
 
5,118
 
5,069
Long-term debt ($307 and $315 at September 30, 2015 and December 31, 2014, respectively,
     related to VIE)
 
12,527
 
12,167
           
Deferred credits and other liabilities:
       
    Customer advances for construction
 
145
 
144
    Pension and other postretirement benefit plan obligations, net of plan assets
 
1,114
 
1,064
    Deferred income taxes
 
3,057
 
3,003
    Deferred investment tax credits
 
34
 
37
    Regulatory liabilities arising from removal obligations
 
2,715
 
2,741
    Asset retirement obligations
 
2,068
 
2,048
    Fixed-price contracts and other derivatives
 
300
 
255
    Deferred credits and other
 
1,092
 
1,104
        Total deferred credits and other liabilities
 
10,525
 
10,396
           
Commitments and contingencies (Note 11)
       
           
Equity:
       
    Preferred stock (50 million shares authorized; none issued)
 
 
    Common stock (750 million shares authorized; 248 million and 246 million shares
       
        outstanding at September 30, 2015 and December 31, 2014, respectively; no par value)
 
2,587
 
2,484
    Retained earnings
 
9,799
 
9,339
    Accumulated other comprehensive income (loss)
 
(761)
 
(497)
        Total Sempra Energy shareholders’ equity
 
11,625
 
11,326
    Preferred stock of subsidiary
 
20
 
20
    Other noncontrolling interests
 
751
 
754
        Total equity
 
12,396
 
12,100
Total liabilities and equity
$
40,566
$
39,732
(1)
Derived from audited financial statements.
       
See Notes to Condensed Consolidated Financial Statements.
       
 
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
   
Nine months ended September 30,
   
2015
2014
   
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
       
    Net income
$
1,060
$
941
    Adjustments to reconcile net income to net cash provided by operating activities:
       
        Depreciation and amortization
 
925
 
866
        Deferred income taxes and investment tax credits
 
179
 
131
        Gain on sale of equity interests and assets
 
(62)
 
(48)
        Plant closure adjustment
 
(21)
 
(13)
        Equity earnings
 
(143)
 
(84)
        Fixed-price contracts and other derivatives
 
(20)
 
(19)
        Other
 
28
 
32
    Net change in other working capital components
 
260
 
(215)
    Changes in other assets
 
(112)
 
28
    Changes in other liabilities
 
(5)
 
42
        Net cash provided by operating activities
 
2,089
 
1,661
           
CASH FLOWS FROM INVESTING ACTIVITIES
       
    Expenditures for property, plant and equipment
 
(2,227)
 
(2,320)
    Expenditures for investments and acquisition of business
 
(183)
 
(192)
    Proceeds from sale of equity interests and assets, net of cash sold
 
347
 
92
    Distributions from investments
 
14
 
15
    Purchases of nuclear decommissioning and other trust assets
 
(407)
 
(505)
    Proceeds from sales by nuclear decommissioning and other trusts
 
431
 
498
    Decrease in restricted cash
 
68
 
156
    Increase in restricted cash
 
(81)
 
(139)
    Advances to unconsolidated affiliates
 
(24)
 
(100)
    Repayments of advances to unconsolidated affiliates
 
74
 
19
    Other
 
9
 
10
        Net cash used in investing activities
 
(1,979)
 
(2,466)
           
CASH FLOWS FROM FINANCING ACTIVITIES
       
    Common dividends paid
 
(468)
 
(450)
    Preferred dividends paid by subsidiary
 
(1)
 
(1)
    Issuances of common stock
 
41
 
43
    Repurchases of common stock
 
(74)
 
(38)
    Issuances of debt (maturities greater than 90 days)
 
2,058
 
3,063
    Payments on debt (maturities greater than 90 days)
 
(1,316)
 
(1,845)
    Decrease in short-term debt, net
 
(201)
 
(111)
    Net distributions to noncontrolling interests
 
(57)
 
(84)
    Other
 
47
 
(5)
        Net cash provided by financing activities
 
29
 
572
         
Effect of exchange rate changes on cash and cash equivalents
 
(12)
 
(4)
           
Increase (decrease) in cash and cash equivalents
 
127
 
(237)
Cash and cash equivalents, January 1
 
570
 
904
Cash and cash equivalents, September 30
$
697
$
667
See Notes to Condensed Consolidated Financial Statements.
       
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in millions)
   
Nine months ended September 30,
 
2015
2014
 
(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       
    Interest payments, net of amounts capitalized
$
355
$
359
    Income tax payments, net of refunds
 
37
 
154
           
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
       
    Acquisition of business:
       
          Assets acquired
$
10
$
          Liabilities assumed
 
(2)
 
          Accrued purchase price
 
(5)
 
          Cash paid
$
3
$
           
    Accrued capital expenditures
$
459
$
385
    Redemption of industrial development bonds
 
79
 
    Increase in capital lease obligations for investment in property, plant and equipment
 
 
60
    Dividends declared but not paid
 
179
 
166
    Financing of build-to-suit property
 
61
 
49
    Common dividends issued in stock
 
41
 
28
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Dollars in millions)
 
 
Three months ended
Nine months ended
 
September 30,
September 30,
 
2015
2014
2015
2014
 
(unaudited)
Operating revenues
               
    Electric
$
1,140
$
1,133
$
2,819
$
2,892
    Natural gas
 
90
 
100
 
349
 
391
        Total operating revenues
 
1,230
 
1,233
 
3,168
 
3,283
Operating expenses
               
    Cost of electric fuel and purchased power
 
427
 
441
 
906
 
1,036
    Cost of natural gas
 
27
 
39
 
112
 
165
    Operation and maintenance
 
251
 
276
 
723
 
784
    Depreciation
 
152
 
134
 
446
 
395
    Franchise fees and other taxes
 
73
 
67
 
193
 
177
    Plant closure adjustment
 
 
 
(21)
 
(13)
        Total operating expenses
 
930
 
957
 
2,359
 
2,544
Operating income
 
300
 
276
 
809
 
739
Other income, net
 
8
 
9
 
26
 
29
Interest expense
 
(51)
 
(51)
 
(155)
 
(152)
Income before income taxes
 
257
 
234
 
680
 
616
Income tax expense
 
(75)
 
(65)
 
(217)
 
(217)
Net income
 
182
 
169
 
463
 
399
Earnings attributable to noncontrolling interest
 
(12)
 
(12)
 
(20)
 
(20)
Earnings attributable to common shares
$
170
$
157
$
443
$
379
See Notes to Condensed Consolidated Financial Statements.
       
 

 


SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
 
SDG&E shareholder's equity
   
 
Pretax
Income tax
Net-of-tax
Noncontrolling
 
 
amount
expense
amount
interest (after-tax)
Total
 
Three months ended September 30, 2015 and 2014
 
(unaudited)
2015:
                   
Net income
$
245
$
(75)
$
170
$
12
$
182
Other comprehensive loss:
                   
    Financial instruments
 
 
 
 
(1)
 
(1)
    Total other comprehensive loss
 
 
 
 
(1)
 
(1)
Comprehensive income
$
245
$
(75)
$
170
$
11
$
181
2014:
                   
Net income
$
222
$
(65)
$
157
$
12
$
169
Other comprehensive income:
                   
    Pension and other postretirement benefits
 
1
 
 
1
 
 
1
    Financial instruments
 
 
 
 
4
 
4
    Total other comprehensive income
 
1
 
 
1
 
4
 
5
Comprehensive income
$
223
$
(65)
$
158
$
16
$
174

 
Nine months ended September 30, 2015 and 2014
 
(unaudited)
2015:
                   
Net income/Comprehensive income
$
660
$
(217)
$
443
$
20
$
463
2014:
                   
Net income
$
596
$
(217)
$
379
$
20
$
399
Other comprehensive income:
                   
    Pension and other postretirement benefits
 
3
 
(1)
 
2
 
 
2
    Financial instruments
 
 
 
 
3
 
3
    Total other comprehensive income
 
3
 
(1)
 
2
 
3
 
5
Comprehensive income
$
599
$
(218)
$
381
$
23
$
404
See Notes to Condensed Consolidated Financial Statements.
 
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
   
September 30,
December 31,
   
2015
2014(1)
   
(unaudited)
   
ASSETS
       
Current assets:
       
    Cash and cash equivalents
$
20
$
8
    Restricted cash
 
9
 
8
    Accounts receivable – trade, net
 
411
 
285
    Accounts receivable – other, net
 
27
 
35
    Due from unconsolidated affiliates
 
1
 
1
    Income taxes receivable
 
13
 
    Inventories
 
71
 
73
    Regulatory balancing accounts – net undercollected
 
495
 
711
    Regulatory assets
 
146
 
54
    Fixed-price contracts and other derivatives
 
20
 
44
    Other
 
135
 
125
        Total current assets
 
1,348
 
1,344
           
Other assets:
       
    Restricted cash
 
12
 
11
    Deferred taxes recoverable in rates
 
870
 
824
    Other regulatory assets
 
1,000
 
1,086
    Nuclear decommissioning trusts
 
1,060
 
1,131
    Sundry
 
376
 
282
        Total other assets
 
3,318
 
3,334
           
Property, plant and equipment:
       
    Property, plant and equipment
 
16,131
 
15,478
    Less accumulated depreciation
 
(4,105)
 
(3,860)
        Property, plant and equipment, net ($390 and $410 at September 30, 2015 and
            December 31, 2014, respectively, related to VIE)
 
12,026
 
11,618
Total assets
$
16,692
$
16,296
(1)
Derived from audited financial statements.
       
See Notes to Condensed Consolidated Financial Statements.
       
 
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
   
September 30,
December 31,
   
2015
2014(1)
   
(unaudited)
   
LIABILITIES AND EQUITY
       
Current liabilities:
       
    Short-term debt
$
44
$
246
    Accounts payable
 
408
 
441
    Due to unconsolidated affiliates
 
22
 
21
    Income taxes payable
 
 
30
    Deferred income taxes
 
243
 
53
    Interest payable
 
49
 
40
    Accrued compensation and benefits
 
110
 
124
    Current portion of long-term debt
 
301
 
365
    Asset retirement obligations
 
108
 
120
    Fixed-price contracts and other derivatives
 
62
 
40
    Customer deposits
 
71
 
71
    Other
 
264
 
237
        Total current liabilities
 
1,682
 
1,788
Long-term debt ($307 and $315 at September 30, 2015 and December 31, 2014,
    respectively, related to VIE)
 
4,477
 
4,319
           
Deferred credits and other liabilities:
       
    Customer advances for construction
 
43
 
41
    Pension and other postretirement benefit plan obligations, net of plan assets
 
227
 
216
    Deferred income taxes
 
2,155
 
2,121
    Deferred investment tax credits
 
19
 
22
    Regulatory liabilities arising from removal obligations
 
1,538
 
1,557
    Asset retirement obligations
 
740
 
754
    Fixed-price contracts and other derivatives
 
170
 
153
    Deferred credits and other
 
352
 
333
        Total deferred credits and other liabilities
 
5,244
 
5,197
           
Commitments and contingencies (Note 11)
       
           
Equity:
       
    Common stock (255 million shares authorized; 117 million shares outstanding;
       
        no par value)
 
1,338
 
1,338
    Retained earnings
 
3,899
 
3,606
    Accumulated other comprehensive income (loss)
 
(12)
 
(12)
        Total SDG&E shareholder's equity
 
5,225
 
4,932
    Noncontrolling interest
 
64
 
60
        Total equity
 
5,289
 
4,992
Total liabilities and equity
$
16,692
$
16,296
(1)
Derived from audited financial statements.
       
See Notes to Condensed Consolidated Financial Statements.
       
 
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2015
2014
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
       
    Net income
$
463
$
399
    Adjustments to reconcile net income to net cash provided by operating activities:
       
        Depreciation
 
446
 
395
        Deferred income taxes and investment tax credits
 
170
 
193
        Plant closure adjustment
 
(21)
 
(13)
        Fixed-price contracts and other derivatives
 
(3)
 
(5)
        Other
 
(14)
 
(30)
    Net change in other working capital components
 
136
 
(252)
    Changes in other assets
 
(93)
 
106
    Changes in other liabilities
 
10
 
28
        Net cash provided by operating activities
 
1,094
 
821
         
CASH FLOWS FROM INVESTING ACTIVITIES
       
    Expenditures for property, plant and equipment
 
(835)
 
(790)
    Purchases of nuclear decommissioning trust assets
 
(404)
 
(501)
    Proceeds from sales by nuclear decommissioning trusts
 
431
 
498
    Decrease in restricted cash
 
27
 
109
    Increase in restricted cash
 
(29)
 
(96)
    Other
 
 
(16)
        Net cash used in investing activities
 
(810)
 
(796)
         
CASH FLOWS FROM FINANCING ACTIVITIES
       
    Common dividends paid
 
(150)
 
    Issuances of long-term debt
 
388
 
100
    Payments on long-term debt
 
(294)
 
(22)
    Decrease in short-term debt, net
 
(202)
 
(59)
    Capital distributions made by Otay Mesa VIE
 
(14)
 
(38)
        Net cash used in financing activities
 
(272)
 
(19)
         
Increase in cash and cash equivalents
 
12
 
6
Cash and cash equivalents, January 1
 
8
 
27
Cash and cash equivalents, September 30
$
20
$
33
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       
    Interest payments, net of amounts capitalized
$
141
$
136
    Income tax payments (refunds), net
 
62
 
(4)
         
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
       
    Accrued capital expenditures
$
142
$
118
    Increase in capital lease obligations for investment in property, plant and equipment
 
 
60
See Notes to Condensed Consolidated Financial Statements.
 
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
       
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
       
(Dollars in millions)
       
 
Three months ended
September 30,
Nine months ended
September 30,
 
2015
2014
2015
2014
 
(unaudited)
                 
Operating revenues
$
620
$
855
$
2,448
$
2,857
Operating expenses
               
    Cost of natural gas
 
163
 
237
 
626
 
1,066
    Operation and maintenance
 
325
 
326
 
985
 
968
    Depreciation
 
116
 
109
 
342
 
321
    Franchise fees and other taxes
 
29
 
30
 
94
 
98
        Total operating expenses
 
633
 
702
 
2,047
 
2,453
Operating (loss) income
 
(13)
 
153
 
401
 
404
Other income, net
 
8
 
6
 
25
 
13
Interest income
 
 
 
3
 
Interest expense
 
(23)
 
(17)
 
(61)
 
(50)
(Loss) income before income taxes
 
(28)
 
142
 
368
 
367
Income tax benefit (expense)
 
20
 
(44)
 
(91)
 
(110)
Net (loss) income
 
(8)
 
98
 
277
 
257
Preferred dividend requirements
 
 
 
(1)
 
(1)
(Losses) earnings attributable to common shares
$
(8)
$
98
$
276
$
256
See Notes to Condensed Consolidated Financial Statements.
       
 
 

 

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
 
Pretax
Income tax
Net-of-tax
 
amount
benefit (expense)
amount
 
Three months ended September 30, 2015 and 2014
 
(unaudited)
2015:
           
Net loss/Comprehensive loss
$
(28)
$
20
$
(8)
2014:
           
Net income
$
142
$
(44)
$
98
Other comprehensive income:
           
    Pension and other postretirement benefits
 
4
 
(2)
 
2
    Total other comprehensive income
 
4
 
(2)
 
2
Comprehensive income
$
146
$
(46)
$
100

 
Nine months ended September 30, 2015 and 2014
 
(unaudited)
2015:
           
Net income/Comprehensive income
$
368
$
(91)
$
277
2014:
           
Net income
$
367
$
(110)
$
257
Other comprehensive income:
           
    Pension and other postretirement benefits
 
4
 
(2)
 
2
    Total other comprehensive income
 
4
 
(2)
 
2
Comprehensive income
$
371
$
(112)
$
259
See Notes to Condensed Consolidated Financial Statements.
           
 
 
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
   
September 30,
December 31,
   
2015
2014(1)
   
(unaudited)
   
ASSETS
       
Current assets:
       
    Cash and cash equivalents
$
123
$
85
    Accounts receivable – trade, net
 
301
 
586
    Accounts receivable – other, net
 
69
 
51
    Due from unconsolidated affiliates
 
220
 
4
    Income taxes receivable
 
25
 
5
    Inventories
 
192
 
181
    Regulatory balancing accounts – net undercollected
 
90
 
35
    Regulatory assets
 
7
 
5
    Other
 
39
 
36
        Total current assets
 
1,066
 
988
         
Other assets:
       
    Regulatory assets arising from pension obligations
 
665
 
617
    Other regulatory assets
 
543
 
472
    Sundry
 
176
 
140
        Total other assets
 
1,384
 
1,229
         
Property, plant and equipment:
       
    Property, plant and equipment
 
13,739
 
12,886
    Less accumulated depreciation
 
(4,834)
 
(4,642)
        Property, plant and equipment, net
 
8,905
 
8,244
Total assets
$
11,355
$
10,461
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
 
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
   
September 30,
December 31,
   
2015
2014(1)
   
(unaudited)
   
LIABILITIES AND SHAREHOLDERS' EQUITY
       
Current liabilities:
       
    Short-term debt
$
$
50
    Accounts payable – trade
 
355
 
532
    Accounts payable – other
 
77
 
88
    Due to unconsolidated affiliates
 
51
 
13
    Deferred income taxes
 
171
 
53
    Accrued compensation and benefits
 
144
 
129
    Current portion of long-term debt
 
9
 
    Customer deposits
 
74
 
75
    Other
 
164
 
149
        Total current liabilities
 
1,045
 
1,089
         
Long-term debt
 
2,498
 
1,906
Deferred credits and other liabilities:
       
    Customer advances for construction
 
102
 
102
    Pension obligation, net of plan assets
 
682
 
633
    Deferred income taxes
 
1,270
 
1,212
    Deferred investment tax credits
 
14
 
16
    Regulatory liabilities arising from removal obligations
 
1,158
 
1,167
    Asset retirement obligations
 
1,286
 
1,255
    Deferred credits and other
 
293
 
300
        Total deferred credits and other liabilities
 
4,805
 
4,685
         
Commitments and contingencies (Note 11)
       
         
Shareholders' equity:
       
    Preferred stock
 
22
 
22
    Common stock (100 million shares authorized; 91 million shares outstanding;
       
        no par value)
 
866
 
866
    Retained earnings
 
2,137
 
1,911
    Accumulated other comprehensive income (loss)
 
(18)
 
(18)
        Total shareholders' equity
 
3,007
 
2,781
Total liabilities and shareholders' equity
$
11,355
$
10,461
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2015
2014
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
       
    Net income
$
277
$
257
    Adjustments to reconcile net income to net cash provided by operating activities:
       
        Depreciation
 
342
 
321
        Deferred income taxes and investment tax credits
 
98
 
94
        Other
 
(18)
 
(2)
    Net change in other working capital components
 
48
 
(19)
    Changes in other assets
 
(57)
 
(70)
    Changes in other liabilities
 
 
15
        Net cash provided by operating activities
 
690
 
596
         
CASH FLOWS FROM INVESTING ACTIVITIES
       
    Expenditures for property, plant and equipment
 
(946)
 
(764)
    Increase in loans to affiliates, net
 
(250)
 
(281)
        Net cash used in investing activities
 
(1,196)
 
(1,045)
         
CASH FLOWS FROM FINANCING ACTIVITIES
       
    Preferred dividends paid
 
(1)
 
(1)
    Issuances of long-term debt
 
599
 
747
    Repayment of long-term debt
 
 
(250)
    Decrease in short-term debt, net
 
(50)
 
(42)
    Other
 
(4)
 
(7)
        Net cash provided by financing activities
 
544
 
447
         
Increase (decrease) in cash and cash equivalents
 
38
 
(2)
Cash and cash equivalents, January 1
 
85
 
27
Cash and cash equivalents, September 30
$
123
$
25
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       
    Interest payments, net of amounts capitalized
$
53
$
43
    Income tax payments, net
 
11
 
19
         
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
       
    Accrued capital expenditures
$
172
$
137
    Dividends declared but not paid
 
50
 
See Notes to Condensed Consolidated Financial Statements.

 
 
 
 
 
SEMPRA ENERGY AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 

 

NOTE 1. GENERAL
 

 
IMPACT OF SEASONALIZATION AT SEMPRA ENERGY AND SOUTHERN CALIFORNIA GAS COMPANY
 
In the first quarter of 2015, Southern California Gas Company (SoCalGas) adopted a California Public Utilities Commission (CPUC) decision in the Triennial Cost Allocation Proceeding (TCAP) requiring SoCalGas to recognize annual authorized revenue for core natural gas customers using seasonal factors established in the TCAP, instead of recognizing such revenue ratably over the year as was previously required. This “seasonalization” resulted in $158 million lower operating revenues and $113 million lower earnings for both Sempra Energy and SoCalGas for the three months ended September 30, 2015 compared to the same period in 2014, and $67 million lower operating revenues and $48 million lower earnings for both Sempra Energy and SoCalGas for the first nine months of 2015 compared to the same period in 2014. While this seasonalization will cause variability in comparable revenue and earnings from quarter to quarter within the year, it will not impact full-year 2015 results nor have any impact on cash flows. Accordingly, substantially all of SoCalGas’ annual earnings will be recognized in the first and fourth quarters of the year. We discuss the CPUC decision further in Note 10.
 
 
PRINCIPLES OF CONSOLIDATION
 
 
Sempra Energy
 
Sempra Energy’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 energy-services holding company, and its consolidated subsidiaries and variable interest entities (VIEs). Sempra Energy’s principal operating units are
 
§
San Diego Gas & Electric Company (SDG&E) and SoCalGas, which are separate, reportable segments;
 
§
Sempra International, which includes our Sempra South American Utilities and Sempra Mexico reportable segments; and
 
§
Sempra U.S. Gas & Power, which includes our Sempra Renewables and Sempra Natural Gas reportable segments.
 
We provide descriptions of each of our segments in Note 12.
 
We refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include the utilities in our Sempra International and Sempra U.S. Gas & Power operating units. Sempra Global is the holding company for most of our subsidiaries that are not subject to California utility regulation. All references in these Notes to “Sempra International,” “Sempra U.S. Gas & Power” and their respective reportable segments are not intended to refer to any legal entity with the same or similar name.
 
Our Sempra Mexico segment includes the operating companies of our subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova), as well as certain holding companies and risk management activity. We discuss IEnova further in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014 (the Annual Report), which includes the combined reports for Sempra Energy, SDG&E and SoCalGas.
 
Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated entities in Notes 3 and 4 herein and in the Notes to Consolidated Financial Statements in the Annual Report.
 
 
SDG&E
 
SDG&E’s Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss in Note 5 under “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.
 
 
SoCalGas
 
SoCalGas’ Condensed Consolidated Financial Statements include its accounts and the de minimis accounts of inactive subsidiaries. SoCalGas’ common stock is wholly owned by Pacific Enterprises, which is a wholly owned subsidiary of Sempra Energy.
 

 
BASIS OF PRESENTATION
 

This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.
 
We have prepared the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after September 30, 2015 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.
 
All December 31, 2014 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2014 Consolidated Financial Statements in the Annual Report. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of U.S. GAAP and the Securities and Exchange Commission.
 
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes.
 
You should read the information in this Quarterly Report in conjunction with the Annual Report.
 


 
Regulated Operations
 

Sempra South American Utilities has controlling interests in two electric distribution utilities in South America, Chilquinta Energía S.A. (Chilquinta Energía) in Chile and Luz del Sur S.A.A. (Luz del Sur) in Peru. Sempra Natural Gas owns Mobile Gas Service Corporation (Mobile Gas) in southwest Alabama and Willmut Gas Company (Willmut Gas) in Mississippi, and Sempra Mexico owns Ecogas México, S. de R.L. de C.V. (Ecogas) in northern Mexico, all natural gas distribution utilities. The California Utilities, Sempra Natural Gas’ Mobile Gas and Willmut Gas, and Sempra Mexico’s Ecogas prepare their financial statements in accordance with U.S. GAAP provisions governing regulated operations, as we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
 


 

NOTE 2. NEW ACCOUNTING STANDARDS
 

We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, cash flows or disclosures.
 


 
SEMPRA ENERGY, SDG&E AND SOCALGAS
 

Accounting Standards Update (ASU) 2014-09,Revenue from Contracts with Customers(ASU 2014-09) and ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” (ASU 2015-14): ASU 2014-09 provides accounting guidance for revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including real estate. This guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach.
 
ASU 2015-14 defers the effective date of ASU 2014-09 by one year for all entities and permits early adoption on a limited basis. For public entities, ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016, and is effective for interim periods in the year of adoption. We have not yet selected the year in which we will adopt the standard or our transition method, nor have we determined the effect of the standard on our ongoing financial reporting.
 
ASU 2015-03, “Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03) and ASU 2015-15, “Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (ASU 2015-15): ASU 2015-03 provides guidance on the financial statement presentation of debt issuance costs and requires an entity to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the related long-term debt liability. This guidance must be applied using a full retrospective approach for all periods presented in the period of adoption.
 
We will adopt ASU 2015-03 for our annual reporting period ending December 31, 2015, and the adoption will not affect our results of operations or cash flows. Deferred debt issuance costs that are the subject of ASU 2015-03 are included in Sundry on the Sempra Energy, SDG&E and SoCalGas Condensed Consolidated Balance Sheets and total $78 million, $32 million, and $18 million at September 30, 2015, respectively, and $72 million, $33 million, and $15 million at December 31, 2014, respectively.
 
ASU 2015-15 clarifies ASU 2015-03 to provide additional guidance related to line-of-credit arrangements and states that the Securities and Exchange Commission staff would not object to an entity continuing to defer and present costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred costs ratably over the term of the line-of-credit arrangements, regardless of whether there are any outstanding borrowings on the line-of-credit arrangements. We will adopt ASU 2015-15 for our annual reporting period ending December 31, 2015 and will continue to include deferred costs related to our line-of-credit arrangements that are the subject of ASU 2015-15 in Sundry on the Sempra Energy, SDG&E and SoCalGas Condensed Consolidated Balance Sheets.
 
ASU 2015-16, “Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments” (ASU 2015-16): ASU 2015-16 eliminates the requirement that acquirers in a business combination account for measurement-period adjustments retrospectively. Instead, the acquirers will recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date. We will adopt ASU 2015-16 for our annual reporting period ending December 31, 2015.  Any subsequent measurement-period adjustments to the purchase price allocation related to the acquisition of Gasoductos de Chihuahua that we discuss in Note 3 will occur after the adoption of ASU 2015-16 and will be recognized in the period in which the adjustments are determined.
 


 

NOTE 3. ACQUISITION AND DIVESTITURE ACTIVITY
 


 
PENDING ACQUISITION
 


 
Sempra Mexico
 

IEnova and Petróleos Mexicanos (or PEMEX, the Mexican state-owned oil company), are 50-50 partners in the joint venture Gasoductos de Chihuahua (GdC). On July 31, 2015, IEnova entered into an agreement to purchase PEMEX’s 50-percent interest for $1.325 billion (excluding the assumption of approximately $170 million of net debt), increasing its interest from 50 percent to 100 percent. GdC develops and operates energy infrastructure in Mexico. The assets involved in the acquisition include three natural gas pipelines, an ethane pipeline, and a liquid petroleum gas pipeline and associated storage terminal. The transaction excludes the Los Ramones Norte pipeline that IEnova will continue to develop under a separate joint venture with PEMEX, through which IEnova’s interest in the project will remain at the current 25 percent. IEnova shareholders approved the transaction in September 2015. The transaction is subject to satisfactory completion of the Mexican anti-trust review and other customary closing conditions and is expected to close by the end of 2015.
 
After financing at the IEnova level, we expect the acquisition to be accretive to Sempra Energy’s diluted earnings per share, based on the joint venture’s strong historical performance. We expect the transaction to have additional benefits, including an ongoing relationship with PEMEX for joint development of new projects in the future; opportunities for asset optimization and expansion into areas such as the transportation and storage of refined products; and a larger platform and presence in Mexico to participate in energy sector reform.
 
IEnova currently accounts for its 50-percent interest in GdC as an equity method investment. At closing, GdC will become a wholly owned, consolidated subsidiary of IEnova. We anticipate that we will recognize a noncash gain associated with the remeasurement of our equity interest in GdC upon consummation of the transaction, however, as the transaction has not yet closed, we are unable to reasonably estimate the gain at this time.
 
We expect the acquisition to be funded with a combination of debt and equity at IEnova. Sempra Global has committed to IEnova to provide approximately $1.325 billion of interim financing for the transaction. If IEnova elects to borrow this money, it expects to repay all or a substantial portion of the loan with proceeds from a planned equity offering. IEnova is also arranging to receive bank commitments of up to $1.0 billion to have an alternate source of capital to repay a portion of the interim financing from Sempra Global. Sempra Energy intends to participate in the planned equity offering with proceeds of dividends from IEnova that otherwise would be repatriated to the U.S.
 


 
MESQUITE POWER SALE
 


 
Sempra Natural Gas
 

In April 2015, Sempra Natural Gas sold the remaining 625-megawatt (MW) block of the Mesquite Power plant, together with a related power sales contract, for net cash proceeds of $347 million. We recognized a pretax gain on the sale of $61 million ($36 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015. The asset was classified as held for sale at December 31, 2014.
 


 
SALE OF EQUITY INTERESTS AND JOINT VENTURE INVESTMENT
 

During the nine months ended September 30, 2014, Sempra Energy completed the sale of equity interests in various subsidiaries that were previously wholly owned. The following table summarizes the deconsolidation of those subsidiaries, and we discuss each transaction below:
 


DECONSOLIDATION OF SUBSIDIARIES
(Dollars in millions)
 
   
Energía
Sierra Juárez
Copper Mountain Solar 3
Sempra Energy
Consolidated
   
At July 16, 2014
At March 13, 2014
   
Proceeds from sale, net of negligible transaction costs
$
26
$
68
$
94
Cash
 
(2)
 
(2)
 
(4)
Other current assets
 
(11)
 
 
(11)
Property, plant and equipment, net
 
(137)
 
(247)
 
(384)
Other assets
 
(16)
 
(11)
 
(27)
Accounts payable and accrued expenses
 
10
 
82
 
92
Due to affiliate
 
39
 
 
39
Long-term debt, including current portion
 
82
 
97
 
179
Other liabilities
 
7
 
3
 
10
Accumulated other comprehensive income
 
(5)
 
(2)
 
(7)
Gain on sale of equity interests
 
(19)
 
(27)
 
(46)
(Increase) in equity method investments upon deconsolidation
$
(26)
$
(39)
$
(65)


 
Sempra Mexico
 

In July 2014, Sempra Mexico completed the sale of a 50-percent interest in the 155-MW first phase of its Energía Sierra Juárez wind project to a wholly owned subsidiary of InterGen N.V. for cash proceeds of $24 million, net of $2 million cash sold. Sempra Mexico recognized a pretax gain on the sale of $19 million ($14 million after-tax) included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2014. The gain on sale included a $7 million after-tax gain attributable to the remeasurement of the retained investment to fair value. Our remaining 50-percent interest in Energía Sierra Juárez is accounted for under the equity method.
 


 
Sempra Renewables
 

In March 2014, Sempra Renewables formed a joint venture with Consolidated Edison Development (Con Edison Development), a non-related party, by selling a 50-percent interest in its 250-MW Copper Mountain Solar 3 solar power facility for $66 million in cash, net of $2 million cash sold. Sempra Renewables recognized a pretax gain on the sale of $27 million ($16 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2014. Our remaining 50-percent interest in Copper Mountain Solar 3 is accounted for under the equity method. Based on the nature of the underlying assets, this investment is considered in-substance real estate. Therefore, in accordance with applicable U.S. GAAP, the Copper Mountain Solar 3 equity method investment was measured at historical cost and no portion of the gain was attributable to a remeasurement of the retained investment to fair value.
 
In May 2014, Sempra Renewables invested $109 million (and an additional $12 million in November 2014, as adjusted for financial position at closing) to become a 50-percent partner with Con Edison Development in four fully operating solar facilities in California. We discuss our investment in the California solar partnership further in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
 
In March 2015, Sempra Renewables acquired a 100-percent interest in the Black Oak Getty Wind project, a 78-MW wind farm under development in Stearns County, Minnesota. The wind farm has a 20-year power purchase agreement with Minnesota Municipal Power Agency. The total acquisition cost for the project is $8 million.
 


 

NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
 

We provide additional information concerning our equity method investments in Notes 3 and 4 of the Notes to Consolidated Financial Statements in the Annual Report.
 


 
SEMPRA RENEWABLES
 

In addition to Sempra Renewables’ investment in the California solar partnership discussed in Note 3 above, during the nine months ended September 30, 2015 and 2014, Sempra Renewables invested cash of $18 million and $76 million, respectively, in its other renewable energy joint ventures.
 


 
SEMPRA NATURAL GAS
 

During the nine months ended September 30, 2015, Sempra Natural Gas invested $10 million of cash in its joint venture, Cameron LNG Holdings, LLC (Cameron LNG Holdings or Cameron LNG JV), and capitalized $36 million of interest related to this equity method investment that has not commenced planned principal operations.
 
In April 2015, Sempra Natural Gas invested $113 million of cash in its equity method investment, Rockies Express Pipeline LLC, a partnership that operates the Rockies Express pipeline, to repay project debt that matured in early 2015.
 


 

NOTE 5. OTHER FINANCIAL DATA
 


 
INVENTORIES
 

The components of inventories by segment are as follows:
 


INVENTORY BALANCES
(Dollars in millions)
   
Natural gas
Liquefied natural gas
Materials and supplies
Total
   
September 30,
2015
December 31,
2014
September 30,
2015
December 31,
2014
September 30,
2015
December 31,
2014
September 30,
2015
December 31,
2014
SDG&E
$
4
$
8
$
$
$
67
$
65
$
71
$
73
SoCalGas
 
162
 
155
 
 
 
30
 
26
 
192
 
181
Sempra South American
                               
     Utilities
 
 
 
 
 
34
 
33
 
34
 
33
Sempra Mexico
 
 
 
7
 
9
 
10
 
9
 
17
 
18
Sempra Renewables
 
 
 
 
 
2
 
2
 
2
 
2
Sempra Natural Gas
 
95
 
83
 
4
 
5
 
1
 
1
 
100
 
89
Sempra Energy
                               
     Consolidated
$
261
$
246
$
11
$
14
$
144
$
136
$
416
$
396

GOODWILL
 

We discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. The decrease in goodwill from $931 million at December 31, 2014 to $847 million at September 30, 2015 is due to foreign currency translation at Sempra South American Utilities. We record the offset of this fluctuation in Other Comprehensive Income (Loss).
 

 
VARIABLE INTEREST ENTITIES (VIE)
 
We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess
 
§
the purpose and design of the VIE;
 
§
the nature of the VIE’s risks and the risks we absorb;
 
§
the power to direct activities that most significantly impact the economic performance of the VIE; and
 
§
the obligation to absorb losses or right to receive benefits that could be significant to the VIE.
 
 
SDG&E
 
Tolling Agreements
 
SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based upon our analysis, the ability to direct the dispatch of electricity may have the most significant impact on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. We determine if SDG&E is the primary beneficiary in these cases based on a qualitative approach in which we consider the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE, as we discuss below.
 
Otay Mesa VIE
 
SDG&E has an agreement to purchase power generated at the Otay Mesa Energy Center (OMEC), a 605-MW generating facility. In addition to tolling, the agreement provides SDG&E with the option to purchase the power plant at the end of the contract term in 2019, or upon earlier termination of the purchased-power agreement, at a predetermined price subject to adjustments based on performance of the facility. If SDG&E does not exercise its option, under certain circumstances, it may be required to purchase the power plant at a predetermined price, which we refer to as the put option.
 
The facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights, holds no equity in OMEC LLC and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Accordingly, SDG&E and Sempra Energy have consolidated Otay Mesa VIE. Otay Mesa VIE’s equity of $64 million at September 30, 2015 and $60 million at December 31, 2014 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.
 
OMEC LLC has a loan outstanding of $317 million at September 30, 2015, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is secured by OMEC’s property, plant and equipment. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC. The loan fully matures in April 2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 7.
 
The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The captions in the table below generally correspond to SDG&E’s Condensed Consolidated Statements of Operations.
 
 
AMOUNTS ASSOCIATED WITH OTAY MESA VIE
       
(Dollars in millions)
       
 
Three months ended September 30,
Nine months ended September 30,
 
2015
2014
2015
2014
Operating expenses
               
    Cost of electric fuel and purchased power
$
(27)
$
(27)
$
(66)
$
(67)
    Operation and maintenance
 
3
 
3
 
13
 
13
    Depreciation
 
7
 
7
 
19
 
21
        Total operating expenses
 
(17)
 
(17)
 
(34)
 
(33)
Operating income
 
17
 
17
 
34
 
33
Interest expense
 
(5)
 
(5)
 
(14)
 
(13)
Income before income taxes/Net income
 
12
 
12
 
20
 
20
Earnings attributable to noncontrolling interest
 
(12)
 
(12)
 
(20)
 
(20)
   Earnings attributable to common shares
$
$
$
$
                 
 
We provide additional information regarding Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.