UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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Commission file number 1-40
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PACIFIC ENTERPRISES
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(Exact name of registrant as specified in its charter)
California 94-0743670
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 West Fifth Street, Los Angeles, California 90013-1011
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(Address of principal executive offices)
(Zip Code)
(213) 244-1200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Common stock outstanding: Wholly owned by Sempra Energy
ITEM 1. FINANCIAL STATEMENTS.
PACIFIC ENTERPRISES AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
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1999 1998
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Revenues and Other Income:
Operating revenues $614 $669
Other 5 9
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Total 619 678
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Expenses:
Cost of natural gas distributed 256 290
Operating expenses 162 197
Depreciation and amortization 65 64
Franchise payments and other taxes 25 29
Preferred dividends of subsidiaries -- 1
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Total 508 581
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Income Before Interest and Income Taxes 111 97
Interest 23 19
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Income Before Income Taxes 88 78
Income Taxes 40 38
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Net Income 48 40
Preferred Dividend Requirements 1 1
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Earnings Applicable to
Common Shares $ 47 $ 39
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See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Balance at
------------------------
March 31, December 31,
1999 1998
(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents $ 311 $ 27
Accounts and notes receivable - trade 370 444
Accounts and notes receivable - other 28 18
Due from affiliates 127 119
Income taxes receivable 6 22
Deferred income taxes 167 130
Natural gas in storage 4 49
Materials and supplies 13 16
Prepaid expenses 27 19
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Total current assets 1,053 844
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Property, plant and equipment 6,157 6,152
Less accumulated depreciation and
amortization (3,207) (3,149)
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Total property, plant and
equipment - net 2,950 3,003
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Investments and other assets:
Regulatory assets 347 351
Other receivables 129 130
Investments 7 209
Other assets 60 61
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Total investments and
other assets 543 751
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Total $4,546 $4,598
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See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Balance at
-------------------------
March 31, December 31,
1999 1998
(Unaudited)
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ -- $ 43
Long-term debt due within one year 208 206
Accounts payable - trade 118 163
Accounts payable - other 234 245
Regulatory balancing accounts
overcollected - net 392 129
Interest accrued 49 47
Dividends payable 101 --
Other taxes payable 46 32
Other 94 149
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Total current liabilities 1,242 1,014
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Long-term Debt 970 985
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Deferred credits and other liabilities:
Post-retirement benefits other than pensions 190 210
Deferred income taxes - net 257 220
Deferred investment tax credits 57 58
Other deferred credits and
other liabilities 553 544
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Total deferred credits and
other liabilities 1,057 1,032
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Preferred stock of subsidiary 20 20
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Commitments and contingent liabilities (Note 3)
Shareholders' equity:
Capital stock:
Preferred 80 80
Common 1,134 1,117
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Total capital stock 1,214 1,197
Retained earnings 88 395
Deferred compensation relating to
Employee Stock Ownership Plan (45) (45)
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Total shareholders' equity 1,257 1,547
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Total $4,546 $4,598
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See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
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1999 1998
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Cash Flows from Operating Activities:
Net Income $ 48 $ 40
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 65 64
Deferred income taxes 36 5
Other - net (36) (1)
Net change in other working capital
components 205 423
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Net cash provided by operating
activities 318 531
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Cash Flows from Investing Activities:
Expenditures for property, plant and
equipment (33) (31)
(Increase) decrease in other investments 19 (70)
(Increase) decrease in other receivables,
regulatory assets and other assets 6 (2)
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Net cash used in investing activities (8) (103)
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Cash Flows from Financing Activities:
Capital contributions from parent 17 9
Repurchase of preferred stock of a subsidiary -- (75)
Issuance of long-term debt -- 75
Payment on long-term debt -- (151)
Decrease in short-term debt (43) (272)
Common dividends paid -- (31)
Preferred dividends paid -- (1)
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Net cash used in financing activities (26) (446)
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Increase (Decrease) in Cash and Cash Equivalents 284 (18)
Cash and Cash Equivalents, January 1 27 153
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Cash and Cash Equivalents, March 31 $ 311 $ 135
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Supplemental Disclosure of Cash Flow Information:
Interest payments (net of amount capitalized) $ 21 $ 20
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Income tax payments $ 53 $ 20
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See notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
This Quarterly Report on Form 10-Q is that of Pacific Enterprises (PE
or the Company), the parent company of Southern California Gas
Company (SoCalGas). The Company is a subsidiary of Sempra Energy, a
California-based Fortune 500 energy services company. The financial
statements herein are the Consolidated Financial Statements of PE and
its subsidiaries.
The accompanying Consolidated Financial Statements have been prepared
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. In the opinion of
management, the accompanying statements reflect all adjustments
necessary for a fair presentation. These adjustments are of a normal
recurring nature. Certain changes in classification have been made to
prior presentations to conform to the current financial statement
presentation.
The Company's significant accounting policies, as well as those of
its subsidiaries, are described in the notes to Consolidated
Financial Statements in the Company's 1998 Annual Report. The same
accounting policies are followed for interim reporting purposes.
This Quarterly Report should be read in conjunction with the
Company's 1998 Annual Report, which includes the Consolidated
Financial Statements and notes thereto, and the annual "Management's
Discussion & Analysis of Financial Condition and Results of
Operations."
In conformity with generally accepted accounting principles,
SoCalGas' accounting policies reflect the financial effects of rate
regulation authorized by the California Public Utilities Commission
(CPUC). SoCalGas applies the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS No. 71). This statement requires cost-
based rate-regulated entities that meet certain criteria to reflect
the authorized recovery of costs due to regulatory decisions in their
financial statements. SoCalGas continues to meet the criteria of SFAS
No. 71 in accounting for its regulated operations.
2. BUSINESS COMBINATIONS
PE/Enova
On June 26, 1998 (pursuant to an October 1996 agreement) Enova and PE
completed a business combination in which the two companies became
subsidiaries of a new company named Sempra Energy. As a result of the
combination, (i) each outstanding share of common stock of Enova was
converted into one share of common stock of Sempra Energy, (ii) each
outstanding share of common stock of PE was converted into 1.5038
shares of common stock of Sempra Energy and (iii) the preferred stock
and/or preference stock of SDG&E, PE and SoCalGas remain outstanding.
Additional information on the business combination is discussed in
the Company's 1998 Annual Report.
Expenses incurred in connection with the business combination were
$0.3 million, after tax, and $0.5 million, after tax, for the three-
month periods ended March 31, 1999 and 1998, respectively. These
costs consisted primarily of employee-related costs, and investment
banking, legal, regulatory and consulting fees.
As a result of the business combination, PE dividended certain
nonutility subsidiaries to Sempra Energy during 1998. In March 1999,
Pacific Enterprises International (PEI) was dividended to Sempra
Energy. PE transferred its ownership interest in Sempra Energy
Solutions to Sempra Energy effective January 1999 and its ownership
interest in Sempra Energy Trading to Sempra Energy effective April
1999. At the end of April 1999, SoCalGas remains as the sole
subsidiary of PE.
KN Energy
On February 22, 1999, Sempra Energy and KN Energy, Inc. (KN Energy)
announced that their respective boards of directors had approved
Sempra Energy's acquisition of KN Energy, subject to approval by the
shareholders of both companies and by various federal and state
regulatory agencies. If the transaction is approved, holders of KN
Energy common stock will receive 1.115 shares of Sempra Energy common
stock or $25 in cash, or some combination thereof, for each share of
KN Energy common stock. In the aggregate, the cash portion of the
transaction will constitute not more than 30 percent of the total
consideration. The transaction will be treated as a purchase for
accounting purposes. On March 30, 1999, Sempra Energy was notified
that the U.S. Federal Trade Commission had granted the Company's
request for early clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to the proposed
merger.
3. MATERIAL CONTINGENCIES
NATURAL GAS INDUSTRY RESTRUCTURING
The natural gas industry experienced an initial phase of
restructuring during the 1980s by deregulating natural gas sales to
noncore customers. On January 21, 1998, the CPUC released a staff
report initiating a project to assess the current market and
regulatory framework for California's natural gas industry. The
general goals of the plan are to consider reforms to the current
regulatory framework emphasizing market-oriented policies benefiting
California's natural gas consumers.
In August 1998, California enacted a law prohibiting the CPUC from
enacting any natural gas industry restructuring decision for core
customers prior to January 1, 2000; the CPUC continues to study the
issue. During the implementation moratorium, the CPUC will hold
hearings throughout the state and intends to give the legislature a
draft ruling before adopting a final market-structure policy. SDG&E
and SoCalGas will actively participate in this effort.
QUASI-REORGANIZATION
In 1993, PE completed a strategic plan to refocus on its natural gas
utility and related businesses. The strategy included the divestiture
of its merchandising operations and all of its oil and natural gas
exploration and production business. In connection with the
divestitures, PE effected a quasi-reorganization for financial
reporting purposes, effective December 31, 1992. Certain of the
liabilities established in connection with discontinued operations
and the quasi-reorganization will be resolved in future years.
Management believes the provisions previously established for these
matters are adequate.
4. COMPREHENSIVE INCOME
In conformity with generally accepted accounting principles, the
Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." Comprehensive income for the
three-month periods ended March 31, 1999 and 1998 was equal to net
income.
5. SEGMENT INFORMATION
The Company has two separately managed reportable segments: SoCalGas
and Sempra Energy Trading (SET). However, see Note 2 regarding PE's
dividend of its SET holdings to Sempra Energy in April 1999. SoCalGas
is a natural gas distribution utility, serving customers throughout
most of southern California and part of central California. SET is
based in Stamford, Connecticut, and is engaged in the nationwide
wholesale trading and marketing of natural gas, power and petroleum.
The Company has a 50-percent ownership interest in SET, and accounts
for this investment on the equity method of accounting. However, for
segment reporting, items of income and assets for SET are reported at
100 percent. A corresponding adjustment is made to reconcile the
amounts to those that were reported by the Company under the equity
method. The accounting policies of the segments are the same as those
described in the notes to Consolidated Financial Statements in the
Company's 1998 Annual Report, and segment performance is evaluated by
management based on reported net income. Intersegment transactions
are generally recorded the same as sales or transactions with third
parties. Utility transactions are primarily based on rates set by the
CPUC. There were no significant changes in segment assets during the
three months ended March 31, 1999. Segment information of SoCalGas is
provided in the company's Quarterly Report on Form 10-Q for the
three-month period ended March 31, 1999.
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Three months ended
March 31,
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(Dollars in millions) 1999 1998
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Revenues and Other Income:
Southern California Gas $ 607 $ 664
Sempra Energy Trading 73 9
Sempra Energy Trading adjustment (73) (9)
All other 12 14
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Total $ 619 $ 678
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Net Income:
Southern California Gas* $ 47 $ 47
Sempra Energy Trading 1 (8)
Sempra Energy Trading adjustment (1) 4
All other 1 (3)
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Total $ 48 $ 40
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* after preferred dividends
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements contained in this Form 10-Q and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1998 Annual Report.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The words "estimates," "believes," "expects,"
"anticipates," "plans" and "intends," variations of such words, and
similar expressions are intended to identify forward-looking
statements that involve risks and uncertainties which could cause
actual results to differ materially from those anticipated.
These statements are necessarily based upon various assumptions
involving judgments with respect to the future including, among
others, local, regional, national and international economic,
competitive, political and regulatory conditions and developments;
technological developments; capital market conditions; inflation
rates; interest rates; energy markets; weather conditions; business,
regulatory or legal decisions; the pace of deregulation of retail
natural gas and electricity industries; the timing and success of
business development efforts; and other uncertainties, all of which
are difficult to predict and many of which are beyond the control of
the Company. Accordingly, while the Company believes that the
assumptions are reasonable, there can be no assurance that they will
approximate actual experience, or that the expectations will be
realized. Readers are urged to review and consider carefully the
risks, uncertainties and other factors which affect the Company's
business described in this quarterly report and other reports filed
by the Company from time to time with the Securities and Exchange
Commission. Readers are cautioned not to put undue reliance on any
forward-looking statements. For those statements, the Company claims
the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
BUSINESS COMBINATIONS
See Note 2 of the notes to Consolidated Financial Statements
regarding the PE/Enova business combination and the KN Energy
proposed merger.
CAPITAL RESOURCES AND LIQUIDITY
The Company's utility operations continue to be a major source of
liquidity. In addition, working capital requirements are met through
the issuance of short-term and long-term debt. These capital
resources are expected to remain available. Cash requirements
primarily include utility capital expenditures and repayments and
retirements of long-term debt. Major changes in cash flows not
described elsewhere are described below. Cash and cash equivalents at
March 31, 1999 are available for investment in utility plant, the
retirement of debt, and other corporate purposes.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operations decreased primarily due to payments on
behalf of affiliated companies and a decrease in collections on
regulatory balancing accounts compared to 1998. Overcollected
balancing accounts payable increased in 1999 and undercollected
balancing accounts receivable decreased in 1998 due to actual natural
gas costs' being lower than amounts collected in rates for both
periods.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment are estimated
to be $180 million for the full year 1999 and will be financed
primarily by internally generated funds and will largely represent
investment in utility operations. Construction, investment and
financing programs are continuously reviewed and revised in response
to changes in competition, customer growth, inflation, customer
rates, the cost of capital, and environmental and regulatory
requirements.
In January 1998 PE and Enova jointly acquired CES/Way International,
Inc. for a total of $79 million. CES/Way provides energy-efficiency
services, including energy audits, engineering design, project
management, construction, financing and contract maintenance.
Effective January 1999, PE transferred its ownership interest in
CES/Way to Sempra Energy.
In March 1998 PE increased its existing investment in two Argentine
natural gas utility holding companies from 12.5 percent to 21.5
percent by purchasing an additional interest for $40 million. In
March 1999 Pacific Enterprises International (PEI) was dividended to
Sempra Energy.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities decreased due to greater long-
term and short-term debt repayments, the redemption of SoCalGas'
preferred stock and the payment of dividends on common stock. On
February 2, 1998, SoCalGas redeemed all outstanding shares of 7-3/4%
Series Preferred Stock for a total cost of $75 million, including
unpaid dividends.
RESULTS OF OPERATIONS
Consolidated earnings consist primarily of the results from SoCalGas.
SoCalGas' net income for the three-month period ended March 31, 1999
was consistent with net income for the same period in 1998. The
increase in net income was due to the improved results of Sempra
Energy Trading (SET) due to higher trading gains.
UTILITY OPERATIONS
The table below summarizes the components of natural gas volumes and
revenues by customer class for the three months ended March 31, 1999
and 1998.
Gas Sales, Transportation & Exchange
(Dollars in millions, volumes in billion cubic feet)
Gas Sales Transportation & Exchange Total
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Throughput Revenue Throughput Revenue Throughput Revenue
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1999:
Residential 100 $ 619 1 $ 1 101 $ 620
Commercial and industrial 25 144 77 62 102 206
Utility electric generation* 16 7 16 7
Wholesale 45 16 45 16
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125 $ 763 139 $ 86 264 849
Balancing accounts and other (242)
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Total $ 607
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1998:
Residential 96 $ 710 1 $ 4 97 $ 714
Commercial and industrial 24 153 81 66 105 219
Utility electric generation* 23 11 23 11
Wholesale 43 13 43 13
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120 $ 863 148 $ 94 268 957
Balancing accounts and other (293)
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Total $ 664
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* The portion representing SDG&E's sales for electric generation includes
margin only.
Utility natural gas revenues decreased 9 percent for the three-month
period ended March 31, 1999, compared to the same period in 1998. The
decrease was primarily due to a decrease in the average cost of
natural gas and lower utility electric generating sales, partially
offset by a slight increase in sales to residential customers due to
customer growth and colder weather in 1999.
Cost of natural gas distributed decreased 15 percent for the three-
month period ended March 31, 1999 compared to the same period in
1998. The decrease was primarily due to a decrease in the average
cost of natural gas purchased and lower utility electric generating
sales. Under the current regulatory framework, changes in revenue
resulting from core market changes in volumes and the cost of natural
gas do not affect net income.
Operating expenses decreased 6 percent for the three-month period
ended March 31, 1999 compared to the same period in 1998 due to a
continuing emphasis on reducing operating costs to remain competitive
in the marketplace.
YEAR 2000 ISSUES
Most companies are affected by the inability of many automated
systems and applications to process the year 2000 and beyond. The
Year 2000 issues are the result of computer programs and other
automated processes using two digits to identify a year, rather than
four digits. Any of the Company's computer programs that include
date-sensitive software may recognize a date using "00" as
representing the year 1900, instead of the year 2000, or "01" as
1901, etc., which could lead to system malfunctions. The Year 2000
issue impacts both Information Technology ("IT") systems and also
non-IT systems, including systems incorporating embedded processors.
To address this problem, in 1996, both Pacific Enterprises and Enova
Corporation established company-wide Year 2000 programs. These
programs have now been consolidated into Sempra Energy's overall Year
2000 readiness effort. Sempra Energy has established a central Year
2000 Program Office, which reports to the Company's Chief Information
Technology Officer and reports periodically to the audit committee of
the Board of Directors.
The Company's State of Readiness
Sempra Energy has identified all IT and non-IT systems (including
embedded systems) that might not be Year 2000 ready and categorizing
them in the following areas: IT applications, computer hardware and
software infrastructure, telecommunications, embedded systems, and
third parties. The Company evaluated its exposure in all of these
areas. These systems and applications are being tracked and measured
through four key phases: inventory, assessment, remediation/testing,
and Year 2000 readiness. The Company has prioritized so that, when
possible, critical systems are being assessed and modified/replaced
first. Critical systems are those applications and systems, including
embedded processor technology, which, if not appropriately
remediated, may have a significant impact on energy delivery, revenue
collection or the safety of personnel, customers or facilities. The
Company's Year 2000 testing effort includes functional testing of
Year 2000 dates and validating that changes have not altered existing
functionality. The Company uses an independent, internal review
process to verify that the appropriate testing has occurred.
The Company's Year 2000 project is currently on schedule and the
company estimates that all critical systems will be Year 2000 Ready
by June 30, 1999. The Company defines "Year 2000 Ready" as suitable
for continued use into the year 2000 with no significant operational
problems.
Sempra Energy's current schedule for Year 2000 testing, readiness and
development of contingency plans is subject to change depending upon
the remediation and testing phases of the Company's compliance effort
and upon developments that may arise as the Company continues to
assess its computer-based systems and operations. In addition, this
schedule is dependent upon the efforts of third parties, such as
suppliers (including energy producers) and customers. Accordingly,
delays by third parties may cause the Company's schedule to change.
The Costs to Address the Company's Year 2000 Issues
Sempra Energy's budget for the Year 2000 program is $48 million, of
which $40 million has been spent. As the Company continues to assess
its systems and as the remediation and testing efforts progress, cost
estimates may change. The Company's Year 2000 readiness effort is
being funded entirely by operating cash flows.
The Risks of the Company's Year 2000 Issues
Based upon its current assessment and testing of the Year 2000 issue,
the Company believes the reasonably likely worst case Year 2000
scenarios to have the following impacts upon Sempra Energy and its
operations. With respect to the Company's ability to provide energy
to its domestic utility customers, the Company believes that the
reasonably likely worst case scenario is for small, localized
interruptions of utility service which are restored in a time frame
that is within normal service levels. With respect to services that
are essential to Sempra Energy's operations, such as customer
service, business operations, supplies and emergency response
capabilities, the scenario is for minor disruptions of essential
services with rapid recovery and all essential information and
processes ultimately recovered.
To assist in preparing for and mitigating these possible scenarios,
Sempra Energy is a member of several industry-wide efforts
established to deal with Year 2000 problems affecting embedded
systems and equipment used by the nation's natural gas and electric
power companies. Under these efforts, participating utilities are
working together to assess specific vendors' system problems and to
test plans. These assessments will be shared by the industry as a
whole to facilitate Year 2000 problem solving.
A portion of this risk is due to the various Year 2000 Ready
schedules of critical third party suppliers and customers. The
Company continues to contact its critical suppliers and customers to
survey their Year 2000 remediation programs. While risks related to
the lack of Year 2000 readiness by third parties could materially and
adversely affect the Company's business, results of operations and
financial condition, the Company expects its Year 2000 readiness
efforts to reduce significantly the Company's level of uncertainty
about the impact of third party Year 2000 issues on both its IT
systems and its non-IT systems.
The Company's Contingency Plans
Sempra Energy's contingency plans for Year-2000-related interruptions
are being incorporated in the Company's existing overall emergency
preparedness plans. To the extent appropriate, such plans will
include emergency backup and recovery procedures, remediation of
existing systems parallel with installation of new systems, replacing
electronic applications with manual processes, identification of
alternate suppliers and increasing inventory levels. These
contingency plans are well underway and the Company plans to be
completed by June 30, 1999. Due to the speculative and uncertain
nature of contingency planning, there can be no assurances that such
plans actually will be sufficient to reduce the risk of material
impacts on the Company's operations due to Year 2000 issues.
FACTORS INFLUENCING FUTURE PERFORMANCE
The Company's performance in the near future will primarily depend on
the results of SoCalGas. Because of the ratemaking and regulatory
process, electric and natural gas industry restructuring, and the
changing energy marketplace, there are several factors that will
influence the Company's future financial performance. These factors
are discussed in this section and in "Other Operations" and
"International Operations" below.
KN Energy Acquisition
See discussion of the KN Energy acquisition in Note 2 of the notes to
Consolidated Financial Statements.
Industry Restructuring
See discussion of industry restructuring in Note 3 of the notes to
Consolidated Financial Statements.
Performance-Based Regulation (PBR)
To promote efficient operations and improved productivity and to move
away from reasonableness reviews and disallowances, the CPUC has been
directing utilities to use PBR. PBR has replaced the general rate
case and certain other regulatory proceedings for both SoCalGas and
SDG&E. Under PBR, regulators require future income potential to be
tied to achieving or exceeding specific performance and productivity
goals, as well as cost reductions, rather than relying solely on
expanding utility rate base in a market where a utility already has a
highly developed infrastructure.
SoCalGas' PBR is in effect through December 31, 2002; however, the
CPUC decision allows for the possibility that changes to the PBR
mechanism could be adopted in a decision to be issued in SoCalGas'
1999 Biennial Cost Allocation Proceeding (BCAP) application which is
anticipated to become effective at year-end 1999.
Cost of Capital
Under PBR, annual Cost of Capital proceedings were replaced by an
automatic adjustment mechanism if changes in certain indices exceed
established tolerances. For 1999, SoCalGas is authorized to earn a
rate of return on common equity (ROE) of 11.6 percent and a 9.49
percent return on rate base (ROR), unchanged from 1998.
Annual Earnings Assessment Proceeding
An application was filed in May 1999 to recover shareholder rewards
for the Demand Side Management (DSM) programs and incentives earned
for its energy-efficiency and low-income programs totaling $5
million. The revenue requirement increase is proposed to become
effective on January 1, 2000. The DSM rewards and low-income program
incentives will be collected and recorded in earnings over ten years.
The energy-efficiency program incentives are recovered in one year.
Rewards and incentives for these programs are subject to CPUC
approval.
The CPUC has extended interim utility administration of energy-
efficiency and low-income programs through December 31, 2001.
OTHER OPERATIONS
Sempra Energy Solutions (Solutions), formed in 1997 as a joint
venture of PE and Enova, incorporates several existing unregulated
businesses from each of PE and Enova. Effective January 1999, PE
transferred its ownership interest in Solutions to Sempra Energy.
Sempra Energy Trading Corp. (SET), a leading natural-gas power
marketing firm headquartered in Stamford, Connecticut, was jointly
acquired by PE and Enova on December 31, 1997. For the three-month
period ended March 31, 1999, SET recorded after-tax income of $1
million, compared to a net loss of $7 million in the first quarter of
1998. The increase in income was primarily due to SET's acquisition
of CNG Energy Services Corporation, a subsidiary of Pittsburgh-based
Consolidated Natural Gas Company, in July 1998. Effective April 1999,
PE transferred its ownership interest in SET to Sempra Energy.
INTERNATIONAL OPERATIONS
In conjunction with the PE/Enova business combination, in March 1999,
Enova's and PE's ownership interests in international subsidiaries
were transferred to Sempra Energy at book value.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters referred to in the Company's 1998 Annual
Report or referred to elsewhere in this Quarterly Report on Form 10-Q
for the three months ended March 31, 1999, neither the Company nor
any of its affiliates is a party to, nor is its property the subject
of, any material pending legal proceedings other than routine
litigation incidental to its businesses.
ITEM 4. SUBMISSION OF MATTERS TO VOTE
At the annual meeting on May 11, 1999, the Company's shareholders
elected 16 directors to hold office until the next annual meeting and
until their successors have been elected and qualified. The name of
each nominee and the number of shares voted for or withheld were as
follows:
Nominees Votes For Votes Withheld
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Stephen L. Baum 83,917,664 --
Hyla H. Bertea 83,917,664 --
Ann L. Burr 83,917,664 --
Herbert L. Carter 83,917,664 --
Richard A. Collato 83,917,664 --
Daniel W. Derbes 83,917,664 --
Richard D. Farman 83,917,664 --
Wilford D. Godbold, Jr. 83,917,664 --
Robert H. Goldsmith 83,917,664 --
William D. Jones 83,917,664 --
Ignacio E. Lozano, Jr. 83,917,664 --
Ralph R. Ocampo 83,917,664 --
William G. Ouchi 83,917,664 --
Richard J. Stegemeier 83,917,664 --
Thomas C. Stickel 83,917,664 --
Diana L. Walker 83,917,664 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 - Material Contracts - Compensation
10.1 Form of Sempra Energy Severance Pay Agreement
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedule for the three months ended
March 31, 1999.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PACIFIC ENTERPRISES
-------------------
(Registrant)
Date: May 14, 1999 By: /s/ F. H. Ault
----------------------------
F. H. Ault
Vice President and Controller
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