Document
  
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, 2016
 
 
 
 
 
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
 
 


1

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 27, 2016:
 
 
 
 
 
 
 
Sempra Energy
250,060,973 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

 

 

2

SEMPRA ENERGY FORM 10-Q
SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q
SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
Page
 
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
Item 1A.
Item 6.
 
 
 

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.

3

 
 
 
 
 
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,” “assumes,” “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, legal and regulatory conditions, decisions and developments;
▪
actions and the timing of actions, including general rate case decisions, new regulations, issuances of permits to construct, operate, and maintain facilities and equipment and to use land, franchise agreements and licenses for operation, by the California Public Utilities Commission, California State Legislature, U.S. Department of Energy, California Division of Oil, Gas, and Geothermal Resources, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, California Energy Commission, U.S. Environmental Protection Agency, Pipeline and Hazardous Materials Safety Administration, California Air Resources Board, South Coast Air Quality Management District, Los Angeles County Department of Public Health, Mexican Competition Commission, states, cities and counties, and other regulatory and governmental bodies in the 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, risks in obtaining the consent of our partners, and risks in obtaining adequate and competitive financing for such projects;
▪
the resolution of civil and criminal litigation and regulatory investigations;
▪
deviations from regulatory precedent or practice that result in a reallocation of benefits or burdens among shareholders and ratepayers, and delays in, or disallowance or denial of, regulatory agency authorization to recover costs in rates from customers or regulatory agency approval for projects required to enhance safety and reliability;
▪
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, moratoriums on the ability to withdraw natural gas from or inject natural gas into storage facilities, pipeline explosions and equipment failures;
▪
energy markets; the timing and extent of changes and volatility in commodity prices; moves to reduce or eliminate reliance on natural gas as an energy source; and the impact on the value of our natural gas storage and related assets and our investments 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;
▪
risks posed by decisions and actions of third parties who control the operations of investments in which we do not have a controlling interest, and risks that our partners or counterparties will be unable (due to liquidity issues, bankruptcy or otherwise) or unwilling to fulfill their contractual commitments;
▪
weather conditions, natural disasters, catastrophic accidents, equipment failures, terrorist attacks and other events that may disrupt our operations, damage our facilities and systems, cause the release of greenhouse gases, radioactive materials and harmful emissions, and subject us to third-party liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance (including costs in excess of applicable policy limits) or may be disputed by insurers;
▪
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 and employees;
▪
the ability to win competitively bid infrastructure projects against a number of strong competitors willing to aggressively bid for these projects;
▪
capital markets conditions, including the availability of credit and the liquidity of our investments, and inflation, interest and currency exchange rates;
▪
disallowance of regulatory assets associated with, or decommissioning costs of, the San Onofre Nuclear Generating Station facility due to increased regulatory oversight, including motions to modify settlements;
▪
expropriation of assets by foreign governments and title and other property disputes;

4

▪
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 due to 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 impact on customer rates and other adverse consequences due to possible departing retail load resulting from customers transferring to Direct Access and Community Choice Aggregation;
▪
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; 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 and other reports that we file with the Securities and Exchange Commission.

5

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 September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
REVENUES
 
 
 
 
 
 
 
Utilities
$
2,264

 
$
2,213

 
$
6,700

 
$
6,768

Energy-related businesses
271

 
268

 
613

 
762

Total revenues
2,535

 
2,481

 
7,313

 
7,530

EXPENSES AND OTHER INCOME
 
 
 
 
 
 
 
Utilities:
 
 
 
 
 
 
 
Cost of natural gas
(208
)
 
(201
)
 
(702
)
 
(786
)
Cost of electric fuel and purchased power
(604
)
 
(666
)
 
(1,680
)
 
(1,645
)
Energy-related businesses:
 
 
 
 
 
 
 
Cost of natural gas, electric fuel and purchased power
(95
)
 
(91
)
 
(213
)
 
(262
)
Other cost of sales
(32
)
 
(34
)
 
(293
)
 
(111
)
Operation and maintenance
(703
)
 
(701
)
 
(2,109
)
 
(2,072
)
Depreciation and amortization
(328
)
 
(315
)
 
(970
)
 
(925
)
Franchise fees and other taxes
(108
)
 
(111
)
 
(315
)
 
(314
)
Impairment losses
(132
)
 
—

 
(154
)
 
—

Plant closure adjustment
—

 
—

 
—

 
21

Gain on sale of assets
131

 
—

 
131

 
62

Equity earnings, before income tax
12

 
33

 
4

 
79

Remeasurement of equity method investment
617

 
—

 
617

 
—

Other income, net
26

 
12

 
98

 
88

Interest income
7

 
6

 
19

 
23

Interest expense
(136
)
 
(143
)
 
(421
)
 
(416
)
Income before income taxes and equity earnings of certain unconsolidated subsidiaries
982

 
270

 
1,325

 
1,272

Income tax expense
(282
)
 
(15
)
 
(284
)
 
(276
)
Equity earnings, net of income tax
19

 
27

 
69

 
64

Net income
719

 
282

 
1,110

 
1,060

Earnings attributable to noncontrolling interests
(97
)
 
(34
)
 
(118
)
 
(79
)
Preferred dividends of subsidiary
—

 
—

 
(1
)
 
(1
)
Earnings
$
622

 
$
248

 
$
991

 
$
980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
2.48

 
$
1.00

 
$
3.96

 
$
3.95

Weighted-average number of shares outstanding,
basic (thousands)
250,386

 
248,432

 
250,073

 
248,090

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
2.46

 
$
0.99

 
$
3.93

 
$
3.91

Weighted-average number of shares outstanding,
diluted (thousands)
252,405

 
251,024

 
251,976

 
250,665

 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
0.76

 
$
0.70

 
$
2.27

 
$
2.10

See Notes to Condensed Consolidated Financial Statements.

6

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
 
Sempra Energy shareholders’ equity
 
 
 
 
 
Pretax
amount
 
Income tax
(expense) benefit
 
Net-of-tax
amount
 
Noncontrolling
interests (after-tax)
 
Total
 
Three months ended September 30, 2016 and 2015
 
(unaudited)
2016:
 
 
 
 
 
 
 
 
 
Net income
$
904

 
$
(282
)
 
$
622

 
$
97

 
$
719

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(28
)
 
—

 
(28
)
 
(7
)
 
(35
)
Financial instruments
23

 
(10
)
 
13

 
5

 
18

Pension and other postretirement benefits
4

 
(2
)
 
2

 
—

 
2

Total other comprehensive loss
(1
)
 
(12
)
 
(13
)
 
(2
)
 
(15
)
Comprehensive income
$
903

 
$
(294
)
 
$
609

 
$
95

 
$
704

2015:
 
 
 
 
 
 
 
 
 
Net income
$
263

 
$
(15
)
 
$
248

 
$
34

 
$
282

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(92
)
 
—

 
(92
)
 
(8
)
 
(100
)
Financial instruments
(128
)
 
50

 
(78
)
 
(3
)
 
(81
)
Pension and other postretirement benefits
7

 
(2
)
 
5

 
—

 
5

Total other comprehensive loss
(213
)
 
48

 
(165
)
 
(11
)
 
(176
)
Comprehensive income
$
50

 
$
33

 
$
83

 
$
23

 
$
106

 
Nine months ended September 30, 2016 and 2015
 
(unaudited)
2016:
 
 
 
 
 
 
 
 
 
Net income
$
1,276

 
$
(284
)
 
$
992

 
$
118

 
$
1,110

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
51

 
—

 
51

 
(2
)
 
49

Financial instruments
(214
)
 
100

 
(114
)
 
1

 
(113
)
Pension and other postretirement benefits
8

 
(4
)
 
4

 
—

 
4

Total other comprehensive loss
(155
)
 
96

 
(59
)
 
(1
)
 
(60
)
Comprehensive income
1,121

 
(188
)
 
933

 
117

 
1,050

Preferred dividends of subsidiary
(1
)
 
—

 
(1
)
 
—

 
(1
)
Comprehensive income, after preferred
 
 
 
 
 
 
 
 
 
dividends of subsidiary
$
1,120

 
$
(188
)
 
$
932

 
$
117

 
$
1,049

2015:
 
 
 
 
 
 
 
 
 
Net income
$
1,257

 
$
(276
)
 
$
981

 
$
79

 
$
1,060

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(197
)
 
—

 
(197
)
 
(21
)
 
(218
)
Financial instruments
(122
)
 
48

 
(74
)
 
(2
)
 
(76
)
Pension and other postretirement benefits
11

 
(4
)
 
7

 
—

 
7

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

See Notes to Condensed Consolidated Financial Statements.

7

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
September 30,
2016
 
December 31,
2015(1)
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
518

 
$
403

Restricted cash
14

 
27

Accounts receivable – trade, net
1,062

 
1,283

Accounts receivable – other
171

 
190

Due from unconsolidated affiliates
8

 
6

Income taxes receivable
28

 
30

Inventories
302

 
298

Regulatory balancing accounts – undercollected
248

 
307

Fixed-price contracts and other derivatives
53

 
80

Assets held for sale
181

 
—

Other
339

 
267

Total current assets
2,924

 
2,891

 
 
 
 
Other assets:
 
 
 
Restricted cash
12

 
20

Due from unconsolidated affiliates
195

 
186

Regulatory assets
3,424

 
3,273

Nuclear decommissioning trusts
1,068

 
1,063

Investments
1,840

 
2,905

Goodwill
2,150

 
819

Other intangible assets
397

 
404

Dedicated assets in support of certain benefit plans
439

 
464

Insurance receivable for Aliso Canyon costs
664

 
325

Deferred income taxes
211

 
120

Sundry
715

 
641

Total other assets
11,115

 
10,220

 
 
 
 
Property, plant and equipment:
 
 
 
Property, plant and equipment
41,938

 
38,200

Less accumulated depreciation and amortization
(10,451
)
 
(10,161
)
Property, plant and equipment, net ($365 and $383 at September 30, 2016 and
December 31, 2015, respectively, related to VIE)
31,487

 
28,039

Total assets
$
45,526

 
$
41,150

(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

8

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
 
 
 
 
September 30,
2016
 
December 31,
2015(1)
 
(unaudited)
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
2,869

 
$
622

Accounts payable – trade
1,173

 
1,133

Accounts payable – other
125

 
142

Due to unconsolidated affiliates
9

 
14

Dividends and interest payable
357

 
303

Accrued compensation and benefits
298

 
423

Regulatory balancing accounts – overcollected
146

 
34

Current portion of long-term debt
904

 
907

Fixed-price contracts and other derivatives
94

 
56

Customer deposits
153

 
153

Reserve for Aliso Canyon costs
73

 
274

Liabilities held for sale
35

 
—

Other
558

 
551

Total current liabilities
6,794

 
4,612

 
 
 
 
Long-term debt ($296 and $303 at September 30, 2016 and December 31, 2015, respectively,
related to VIE)
13,522

 
13,134

 
 
 
 
Deferred credits and other liabilities:
 
 
 
Customer advances for construction
153

 
149

Pension and other postretirement benefit plan obligations, net of plan assets
1,199

 
1,152

Deferred income taxes
3,326

 
3,157

Deferred investment tax credits
34

 
32

Regulatory liabilities arising from removal obligations
2,878

 
2,793

Asset retirement obligations
2,508

 
2,126

Fixed-price contracts and other derivatives
413

 
240

Deferred credits and other
1,508

 
1,176

Total deferred credits and other liabilities
12,019

 
10,825

 
 
 
 
Commitments and contingencies (Note 11)


 


 
 
 
 
Equity:
 
 
 
Preferred stock (50 million shares authorized; none issued)
—

 
—

Common stock (750 million shares authorized; 250 million and 248 million shares
outstanding at September 30, 2016 and December 31, 2015, respectively; no par value)
2,684

 
2,621

Retained earnings
10,527

 
9,994

Accumulated other comprehensive income (loss)
(865
)
 
(806
)
Total Sempra Energy shareholders’ equity
12,346

 
11,809

Preferred stock of subsidiary
20

 
20

Other noncontrolling interests
825

 
750

Total equity
13,191

 
12,579

Total liabilities and equity
$
45,526

 
$
41,150

(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

9

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2016
 
2015
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
1,110

 
$
1,060

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
970

 
925

Deferred income taxes and investment tax credits
170

 
179

Impairment losses
154

 
—

Plant closure adjustment
—

 
(21
)
Gain on sale of assets
(131
)
 
(62
)
Equity earnings
(73
)
 
(143
)
Remeasurement of equity method investment
(617
)
 
—

Fixed-price contracts and other derivatives
39

 
(20
)
Other
50

 
28

Net change in other working capital components
224

 
260

Insurance receivable for Aliso Canyon costs
(339
)
 
—

Changes in other assets
(4
)
 
(112
)
Changes in other liabilities
138

 
(5
)
Net cash provided by operating activities
1,691

 
2,089

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Expenditures for property, plant and equipment
(3,087
)
 
(2,227
)
Expenditures for investments and acquisition of businesses, net of cash and cash
equivalents acquired
(1,212
)
 
(183
)
Proceeds from sale of assets, net of cash sold
761

 
347

Distributions from investments
23

 
14

Purchases of nuclear decommissioning and other trust assets
(418
)
 
(407
)
Proceeds from sales by nuclear decommissioning and other trusts
486

 
431

Increases in restricted cash
(53
)
 
(81
)
Decreases in restricted cash
71

 
68

Advances to unconsolidated affiliates
(12
)
 
(24
)
Repayments of advances to unconsolidated affiliates
11

 
74

Other
(2
)
 
9

Net cash used in investing activities
(3,432
)
 
(1,979
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Common dividends paid
(510
)
 
(468
)
Preferred dividends paid by subsidiary
(1
)
 
(1
)
Issuances of common stock
40

 
41

Repurchases of common stock
(55
)
 
(74
)
Issuances of debt (maturities greater than 90 days)
2,013

 
2,058

Payments on debt (maturities greater than 90 days)
(1,298
)
 
(1,316
)
Increase (decrease) in short-term debt, net
1,636

 
(201
)
Deposit for sale of noncontrolling interest
78

 
—

Net distributions to noncontrolling interests
(43
)
 
(57
)
Tax benefit related to share-based compensation
—

 
56

Other
(12
)
 
(9
)
Net cash provided by financing activities
1,848

 
29

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
8

 
(12
)
 
 
 
 
Increase in cash and cash equivalents
115

 
127

Cash and cash equivalents, January 1
403

 
570

Cash and cash equivalents, September 30
$
518

 
$
697

See Notes to Condensed Consolidated Financial Statements.

10

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in millions)
 
Nine months ended September 30,
 
2016
 
2015
 
(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Interest payments, net of amounts capitalized
$
367

 
$
355

Income tax payments, net of refunds
103

 
37

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Acquisition of businesses:
 
 
 
Assets acquired, net of cash and cash equivalents
$
2,692

 
$
10

Fair value of equity method investment immediately prior to acquisition
(1,144
)
 
—

Liabilities assumed
(448
)
 
(2
)
Accrued purchase price
(4
)
 
(5
)
Cash paid, net of cash and cash equivalents acquired
$
1,096

 
$
3

 
 
 
 
Accrued capital expenditures
$
483

 
$
459

Financing of build-to-suit property
—

 
61

Redemption of industrial development bonds
—

 
79

Common dividends issued in stock
40

 
41

Dividends declared but not paid
195

 
179

See Notes to Condensed Consolidated Financial Statements.

11

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
(Dollars in millions)
 
 
 
Three months ended
 September 30,
 
Nine months ended
 September 30,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
Operating revenues
 
 
 
 
 
 
 
Electric
$
1,111

 
$
1,140

 
$
2,851

 
$
2,819

Natural gas
98

 
90

 
341

 
349

Total operating revenues
1,209

 
1,230

 
3,192

 
3,168

Operating expenses
 
 
 
 
 
 
 
Cost of electric fuel and purchased power
364

 
427

 
926

 
906

Cost of natural gas
25

 
27

 
89

 
112

Operation and maintenance
268

 
251

 
780

 
723

Depreciation and amortization
161

 
152

 
478

 
446

Franchise fees and other taxes
68

 
73

 
190

 
193

Plant closure adjustment
—

 
—

 
—

 
(21
)
Total operating expenses
886

 
930

 
2,463

 
2,359

Operating income
323

 
300

 
729

 
809

Other income, net
11

 
8

 
38

 
26

Interest expense
(49
)
 
(51
)
 
(145
)
 
(155
)
Income before income taxes
285

 
257

 
622

 
680

Income tax expense
(91
)
 
(75
)
 
(204
)
 
(217
)
Net income
194

 
182

 
418

 
463

(Earnings) losses attributable to noncontrolling interest
(11
)
 
(12
)
 
1

 
(20
)
Earnings attributable to common shares
$
183

 
$
170

 
$
419

 
$
443

See Notes to Condensed Consolidated Financial Statements.

12

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
 
SDG&E shareholder’s equity
 
 
 
 
 
Pretax
amount
 
Income tax
expense
 
Net-of-tax
amount
 
Noncontrolling
interest (after-tax)
 
Total
 
Three months ended September 30, 2016 and 2015
 
(unaudited)
2016:
 
 
 
 
 
 
 
 
 
Net income
$
274

 
$
(91
)
 
$
183

 
$
11

 
$
194

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Financial instruments
—

 
—

 
—

 
5

 
5

Total other comprehensive income
—

 
—

 
—

 
5

 
5

Comprehensive income
$
274

 
$
(91
)
 
$
183

 
$
16

 
$
199

2015:
 
 
 
 
 
 
 
 
 
Net income
$
245

 
$
(75
)
 
$
170

 
$
12

 
$
182

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Financial instruments
—

 
—

 
—

 
(1
)
 
(1
)
Total other comprehensive loss
—

 
—

 
—

 
(1
)
 
(1
)
Comprehensive income
$
245

 
$
(75
)
 
$
170

 
$
11

 
$
181

 
Nine months ended September 30, 2016 and 2015
 
(unaudited)
2016:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
623

 
$
(204
)
 
$
419

 
$
(1
)
 
$
418

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Financial instruments
—

 
—

 
—

 
4

 
4

Total other comprehensive income
—

 
—

 
—

 
4

 
4

Comprehensive income
$
623

 
$
(204
)
 
$
419

 
$
3

 
$
422

2015:
 
 
 
 
 
 
 
 
 
Net income/Comprehensive income
$
660

 
$
(217
)
 
$
443

 
$
20

 
$
463

See Notes to Condensed Consolidated Financial Statements.


13

SAN DIEGO GAS & ELECTRIC COMPANY
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
(Dollars in millions)
 
 
 
 
September 30,
2016
 
December 31,
2015(1)
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
23

 
$
20

Restricted cash
10

 
23

Accounts receivable – trade, net
358

 
331

Accounts receivable – other
17

 
17

Due from unconsolidated affiliates
88

 
1

Income taxes receivable
84

 
1

Inventories
73

 
75

Regulatory balancing accounts – net undercollected
248

 
307

Regulatory assets
124

 
107

Fixed-price contracts and other derivatives
23

 
53

Other
98

 
69

Total current assets
1,146

 
1,004

 
 
 
 
Other assets:
 
 
 
Deferred taxes recoverable in rates
971

 
914

Other regulatory assets
1,036

 
977

Nuclear decommissioning trusts
1,068

 
1,063

Sundry
373

 
301

Total other assets
3,448

 
3,255

 
 
 
 
Property, plant and equipment:
 
 
 
Property, plant and equipment
17,344

 
16,458

Less accumulated depreciation and amortization
(4,492
)
 
(4,202
)
Property, plant and equipment, net ($365 and $383 at September 30, 2016 and
December 31, 2015, respectively, related to VIE)
12,852

 
12,256

Total assets
$
17,446

 
$
16,515

(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

14

SAN DIEGO GAS & ELECTRIC COMPANY
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
 
 
 
(Dollars in millions)
 
 
 
 
September 30,
2016
 
December 31,
2015(1)
 
(unaudited)
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
54

 
$
168

Accounts payable
422

 
377

Due to unconsolidated affiliates
10

 
55

Interest payable
47

 
39

Accrued compensation and benefits
87

 
129

Accrued franchise fees
39

 
66

Current portion of long-term debt
191

 
50

Asset retirement obligations
72

 
99

Fixed-price contracts and other derivatives
59

 
51

Customer deposits
71

 
72

Other
116

 
101

Total current liabilities
1,168

 
1,207

 
 
 
 
Long-term debt ($296 and $303 at September 30, 2016 and December 31, 2015,
respectively, related to VIE)
4,660

 
4,455

 
 
 
 
Deferred credits and other liabilities:
 
 
 
Customer advances for construction
53

 
46

Pension and other postretirement benefit plan obligations, net of plan assets
226

 
212

Deferred income taxes
2,628

 
2,472

Deferred investment tax credits
21

 
19

Regulatory liabilities arising from removal obligations
1,742

 
1,629

Asset retirement obligations
760

 
729

Fixed-price contracts and other derivatives
207

 
106

Deferred credits and other
441

 
364

Total deferred credits and other liabilities
6,078

 
5,577

 
 
 
 
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
4,160

 
3,893

Accumulated other comprehensive income (loss)
(8
)
 
(8
)
Total SDG&E shareholder’s equity
5,490

 
5,223

Noncontrolling interest
50

 
53

Total equity
5,540

 
5,276

Total liabilities and equity
$
17,446

 
$
16,515

(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.


15

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2016
 
2015
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
418

 
$
463

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
478

 
446

Deferred income taxes and investment tax credits
98

 
170

Plant closure adjustment
—

 
(21
)
Fixed-price contracts and other derivatives
(2
)
 
(3
)
Other
(29
)
 
(14
)
Net change in other working capital components
14

 
136

Changes in other assets
(47
)
 
(93
)
Changes in other liabilities
3

 
10

Net cash provided by operating activities
933

 
1,094

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Expenditures for property, plant and equipment
(959
)
 
(835
)
Purchases of nuclear decommissioning trust assets
(415
)
 
(404
)
Proceeds from sales by nuclear decommissioning trusts
486

 
431

Increases in restricted cash
(30
)
 
(29
)
Decreases in restricted cash
43

 
27

Increase in loans to affiliate, net
(107
)
 
—

Net cash used in investing activities
(982
)
 
(810
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Common dividends paid
(175
)
 
(150
)
Issuances of debt (maturities greater than 90 days)
498

 
388

Payments on debt (maturities greater than 90 days)
(148
)
 
(294
)
Decrease in short-term debt, net
(114
)
 
(202
)
Capital distributions made by VIE
(6
)
 
(14
)
Other
(3
)
 
—

Net cash provided by (used in) financing activities
52

 
(272
)
 
 
 
 
Increase in cash and cash equivalents
3

 
12

Cash and cash equivalents, January 1
20

 
8

Cash and cash equivalents, September 30
$
23

 
$
20

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Interest payments, net of amounts capitalized
$
132

 
$
141

Income tax payments, net
165

 
62

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY
 
 
 
Accrued capital expenditures
$
139

 
$
142

See Notes to Condensed Consolidated Financial Statements.

16

SOUTHERN CALIFORNIA GAS COMPANY
 
 
 
 
CONDENSED STATEMENTS OF OPERATIONS
 
 
 
 
(Dollars in millions)
 
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
 
 
 
 
 
 
 
 
Operating revenues
$
686

 
$
620

 
$
2,336

 
$
2,448

Operating expenses
 
 
 
 
 
 
 
Cost of natural gas
171

 
163

 
571

 
626

Operation and maintenance
322

 
325

 
966

 
985

Depreciation and amortization
121

 
116

 
355

 
342

Franchise fees and other taxes
33

 
29

 
100

 
94

Impairment losses
1

 
—

 
23

 
—

Total operating expenses
648

 
633

 
2,015

 
2,047

Operating income (loss)
38

 
(13
)
 
321

 
401

Other income, net
8

 
8

 
24

 
25

Interest income
—

 
—

 
—

 
3

Interest expense
(25
)
 
(23
)
 
(71
)
 
(61
)
Income (loss) before income taxes
21

 
(28
)
 
274

 
368

Income tax (expense) benefit
(21
)
 
20

 
(75
)
 
(91
)
Net (loss) income
—

 
(8
)
 
199

 
277

Preferred dividend requirements
—

 
—

 
(1
)
 
(1
)
(Losses) earnings attributable to common shares
$
—

 
$
(8
)
 
$
198

 
$
276

See Notes to Condensed Financial Statements.

17

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
 
Pretax
amount
 
Income tax (expense) benefit
 
Net-of-tax
amount
 
Three months ended September 30, 2016 and 2015
 
(unaudited)
2016:
 
 
 
 
 
Net income
$
21

 
$
(21
)
 
$
—

Other comprehensive income (loss):
 
 
 
 
 
Financial instruments
1

 
—

 
1

Total other comprehensive income
1

 
—

 
1

Comprehensive income
$
22

 
$
(21
)
 
$
1

2015:
 
 
 
 
 
Net loss/Comprehensive loss
$
(28
)
 
$
20

 
$
(8
)
 
Nine months ended September 30, 2016 and 2015
 
(unaudited)
2016:
 
 
 
 
 
Net income
$
274

 
$
(75
)
 
$
199

Other comprehensive income (loss):
 
 
 
 
 
Financial instruments
1

 
—

 
1

Total other comprehensive income
1

 
—

 
1

Comprehensive income
$
275

 
$
(75
)
 
$
200

2015:
 
 
 
 
 
Net income/Comprehensive income
$
368

 
$
(91
)
 
$
277

See Notes to Condensed Financial Statements.

18

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED BALANCE SHEETS
(Dollars in millions)
 
September 30,
2016
 
December 31,
2015(1)
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8

 
$
58

Accounts receivable – trade, net
344

 
635

Accounts receivable – other
81

 
99

Due from unconsolidated affiliates
35

 
48

Income taxes receivable
12

 
—

Inventories
77

 
79

Regulatory assets
8

 
7

Other
70

 
40

Total current assets
635

 
966

 
 
 
 
Other assets:
 
 
 
Regulatory assets arising from pension obligations
747

 
699

Other regulatory assets
637

 
636

Insurance receivable for Aliso Canyon costs
664

 
325

Sundry
276

 
207

Total other assets
2,324

 
1,867

 
 
 
 
Property, plant and equipment:
 
 
 
Property, plant and equipment
15,186

 
14,171

Less accumulated depreciation and amortization
(4,997
)
 
(4,900
)
Property, plant and equipment, net
10,189

 
9,271

Total assets
$
13,148

 
$
12,104

(1)
Derived from audited financial statements.
See Notes to Condensed Financial Statements.

19

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
 
September 30,
2016
 
December 31,
2015(1)
 
(unaudited)
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable – trade
$
330

 
$
422

Accounts payable – other
72

 
76

Income taxes payable
—

 
3

Accrued compensation and benefits
119

 
160

Regulatory balancing accounts – net overcollected
146

 
34

Current portion of long-term debt
1

 
9

Customer deposits
76

 
76

Reserve for Aliso Canyon costs
73

 
274

Other
182

 
184

Total current liabilities
999

 
1,238

 
 
 
 
Long-term debt
2,982

 
2,481

 
 
 
 
Deferred credits and other liabilities:
 
 
 
Customer advances for construction
101

 
103

Pension obligation, net of plan assets
765

 
716

Deferred income taxes
1,643

 
1,532

Deferred investment tax credits
12

 
14

Regulatory liabilities arising from removal obligations
1,136

 
1,145

Asset retirement obligations
1,714

 
1,354

Deferred credits and other
433

 
372

Total deferred credits and other liabilities
5,804

 
5,236

 
 
 
 
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
2,493

 
2,280

Accumulated other comprehensive income (loss)
(18
)
 
(19
)
Total shareholders’ equity
3,363

 
3,149

Total liabilities and shareholders’ equity
$
13,148

 
$
12,104

(1)
Derived from audited financial statements.
See Notes to Condensed Financial Statements.


20


SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2016
 
2015
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
199

 
$
277

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
355

 
342

Deferred income taxes and investment tax credits
52

 
98

Impairment losses
23

 
—

Other
(22
)
 
(18
)
Net change in other working capital components
135

 
48

Insurance receivable for Aliso Canyon costs
(339
)
 
—

Changes in other assets
2

 
(57
)
Changes in other liabilities
4

 
—

Net cash provided by operating activities
409

 
690

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Expenditures for property, plant and equipment
(949
)
 
(946
)
Increase in loans to affiliate, net
(1
)
 
(250
)