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
March 31, 1998
For the quarterly period ended...........................
Or
[.....] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Name of
Commission Registrant IRS Employer
File as specified State of Identification
Number in its charter Incorporation Number
- ---------- -------------- -------------- --------------
1-11439 ENOVA CORPORATION California 33-0643023
1-3779 SAN DIEGO GAS &
ELECTRIC COMPANY California 95-1184800
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (619) 696-2000
---------------
No Change
- -------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 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......
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock outstanding April 30, 1998:
Enova Corporation 113,614,942
-----------
San Diego Gas & Electric Company Wholly owned by Enova Corporation
---------------------------------
ENOVA CORPORATION
AND
SAN DIEGO GAS & ELECTRIC COMPANY
CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Statements of Income. . . . . . . . . . . . . . . . 3
Balance Sheets. . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . .10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . .20
Item 4. Submission of Matters to Vote . . . . . . . .21
Item 6. Exhibits and Reports on Form 8-K. . . . . . .22
Signature . . . . . . . . . . . . . . . . . . . . . .23
STATEMENTS OF INCOME (unaudited)
In thousands except per share amounts
Enova Corporation
and Subsidiaries SDG&E
------------------- -------------------
For the three months ended March 31 1998 1997 1998 1997
------------------- -------------------
Operating Revenues
Electric $497,199 $373,670 $497,199 $373,670
Gas 108,654 120,966 108,654 120,966
Other 11,039 13,294 -- --
------------------- -------------------
Total operating revenues 616,892 507,930 605,853 494,636
------------------- -------------------
Operating Expenses
Electric fuel 30,614 39,681 30,614 39,681
Purchased power 96,057 87,750 96,057 87,661
Gas purchased for resale 52,333 67,881 52,333 67,761
Maintenance 20,444 21,966 20,444 21,966
Depreciation and decommissioning 204,067 85,707 198,713 80,622
Property and other taxes 11,290 11,712 11,290 11,626
General and administrative 47,749 44,601 45,028 39,070
Other 55,950 54,864 44,949 42,565
Income taxes 12,123 24,373 29,435 40,754
------------------- -------------------
Total operating expenses 530,627 438,535 528,863 431,706
------------------- -------------------
Operating Income 86,265 69,395 76,990 62,930
------------------- -------------------
Other Income and (Deductions)
Allowance for equity funds used
during construction 876 1,423 876 1,423
Taxes on nonoperating income 1,265 5,068 (2,528) 432
Other - net (2,792) (405) 6,013 (1,691)
------------------- -------------------
Net other income and
(deductions) (651) 6,086 4,361 164
------------------- -------------------
Income Before Interest Charges
and Preferred Dividends 85,614 75,481 81,351 63,094
------------------- -------------------
Interest Charges and Preferred Dividends
Long-term debt 31,713 21,729 27,314 17,925
Short-term debt and other 4,232 3,872 4,156 3,872
Allowance for borrowed funds
used during construction (342) (632) (342) (632)
Preferred dividend requirements of
SDG&E 1,646 1,646 -- --
------------------- -------------------
Net interest charges
and preferred dividends 37,249 26,615 31,128 21,165
------------------- -------------------
Net Income 48,365 48,866 50,223 41,929
Preferred Dividend Requirements -- -- 1,646 1,646
------------------- -------------------
Earnings Applicable to Common Shares $ 48,365 $ 48,866 $ 48,577 $ 40,283
=================== ===================
Average Common Shares Outstanding 113,616 116,452
===================
Earnings Per Common Share
(basic and diluted) $0.43 $0.42
===================
Dividends Declared Per Common Share $0.39 $0.39
===================
See notes to financial statements.
BALANCE SHEETS
In thousands of dollars
Enova Corporation
and Subsidiaries SDG&E
------------------------ ------------------------
Balance at March 31, December 31, March 31, December 31,
1998 1997 1998 1997
(unaudited) (unaudited)
----------- ------------ ----------- -----------
ASSETS
Utility plant - at original cost $5,921,128 $5,888,539 $5,921,128 $5,888,539
Accumulated depreciation
and decommissioning (3,137,994) (2,952,455) (3,137,994) (2,952,455)
----------- ------------ ----------- -----------
Utility plant-net 2,783,134 2,936,084 2,783,134 2,936,084
----------- ------------ ----------- -----------
Investments in partnerships and
unconsolidated subsidiaries 546,332 516,113 -- --
----------- ------------ ----------- -----------
Nuclear decommissioning trust 433,056 399,143 433,056 399,143
----------- ------------ ----------- -----------
Current assets
Cash and temporary investments 664,220 624,375 612,398 536,050
Accounts receivable 196,440 231,678 192,220 229,148
Notes receivable 27,713 27,083 -- --
Due from affiliates -- -- 58,792 125,417
Inventories 59,269 67,074 57,572 65,390
Other 37,159 89,826 26,368 51,840
----------- ------------ ----------- -----------
Total current assets 984,801 1,040,036 947,350 1,007,845
----------- ------------ ----------- -----------
Deferred taxes recoverable in rates 222,882 184,837 222,882 184,837
----------- ------------ ----------- -----------
Deferred charges and other assets 227,285 157,711 198,377 126,584
----------- ------------ ----------- -----------
Total $5,197,490 $5,233,924 $4,584,799 $4,654,493
=========== ============ =========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization
Common equity $1,573,788 $1,570,383 $1,291,639 $1,387,363
Preferred stock of SDG&E
Not subject to mandatory redemption 78,475 78,475 78,475 78,475
Subject to mandatory redemption 25,000 25,000 25,000 25,000
Long-term debt 2,003,396 2,057,033 1,766,775 1,787,823
----------- ------------ ----------- -----------
Total capitalization 3,680,659 3,730,891 3,161,889 3,278,661
----------- ------------ ----------- -----------
Current liabilities
Current portion of long-term debt 124,126 121,700 72,603 72,575
Accounts payable 148,390 163,395 145,783 161,039
Dividends payable 45,952 46,050 45,952 45,968
Interest and taxes accrued 25,234 23,160 57,215 10,468
Regulatory balancing accounts
overcollected - net 65,130 58,063 65,130 58,063
Other 129,837 146,267 97,529 114,388
----------- ------------ ----------- -----------
Total current liabilities 538,669 558,635 484,212 462,501
----------- ------------ ----------- -----------
Customer advances for construction 36,756 37,661 36,756 37,661
Accumulated deferred income taxes-net 489,629 501,030 459,825 471,890
Accumulated deferred investment
tax credits 93,635 62,332 93,635 62,332
Deferred credits and other liabilities 358,142 343,375 348,482 341,448
----------- ------------ ----------- -----------
Total $5,197,490 $5,233,924 $4,584,799 $4,654,493
=========== ============ =========== ===========
See notes to financial statements.
STATEMENTS OF CASH FLOWS (unaudited)
In thousands of dollars
Enova Corporation
and Subsidiaries SDG&E
---------------------- ----------------------
For the three months ended March 31 1998 1997 1998 1997
---------- ---------- ---------- ----------
Cash Flows from Operating Activities
Net income $ 48,365 $ 48,866 $ 50,223 $ 41,929
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and decommissioning 204,067 85,707 198,713 80,622
Amortization of deferred charges and other assets 1,824 1,902 1,824 1,701
Amortization of deferred credits
and other liabilities (7,638) (9,832) (1,168) (1,060)
Allowance for equity funds used during construction (876) (1,423) (876) (1,423)
Deferred income taxes and investment tax credits (68,857) 2,214 69,021 30
Application of balancing accounts to stranded costs (86,000) -- (86,000) --
Other - net (947) 340 (19,865) (2,140)
Changes in working capital components
Accounts and notes receivable 34,608 2,753 36,928 3,251
Inventories 7,805 10,236 7,818 10,966
Other current assets 8,420 (1,413) (32) 814
Interest and taxes accrued 103,995 53,313 (8,617) 75,796
Accounts payable and other current liabilities (31,435) (66,206) (65,490) (79,222)
Regulatory balancing accounts 7,067 21,210 7,067 21,210
---------- ---------- ---------- ----------
Net cash provided by operating activities 220,398 147,667 189,546 152,474
---------- ---------- ---------- ----------
Cash Flows from Financing Activities
Regular dividends paid (44,399) (45,567) (45,963) (47,131)
Special dividend paid -- -- -- (66,150)
Repayment of long-term debt (50,059) (45,001) (19,868) (25,000)
Redemption of common stock (658) (66,314) -- --
Issuances of long-term debt -- 279 -- --
---------- ---------- ---------- ----------
Net cash used by financing activities (95,116) (156,603) (65,831) (138,281)
---------- ---------- ---------- ----------
Cash Flows from Investing Activities
Utility construction expenditures (40,957) (34,074) (40,957) (34,074)
Contributions to decommissioning funds (5,505) (5,505) (5,505) (5,505)
Other - net (38,975) 6,674 (905) (1,648)
---------- ---------- ---------- ----------
Net cash used by investing activities (85,437) (32,905) (47,367) (41,227)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and temporary
investments 39,845 (41,841) 76,348 (27,034)
Cash and temporary investments, beginning of year 624,375 173,079 536,050 81,409
---------- ---------- ---------- ----------
Cash and temporary investments, end of year $664,220 $131,238 $612,398 $ 54,375
========== ========== ========== ==========
Supplemental Disclosure of Cash Flow Information
Income tax refunds $(12,800) $(19,001) $(12,800) $(19,001)
========== ========== ========== ==========
Interest payments, net of amounts capitalized $ 39,060 $ 23,764 $ 25,494 $ 15,113
========== ========== ========== ==========
Supplemental Schedule of Noncash Activities:
Investing and Financing
Real estate investments $ -- $ 74,641 $ -- $ --
Cash paid -- -- -- --
---------- ---------- ---------- ----------
Liabilities assumed $ -- $ 74,641 $ -- $ --
========== ========== ========== ==========
Dividend to Parent of Intercompany Receivable $ -- $ -- $100,000 $ --
========== ========== ========== ==========
See notes to financial statements.
ENOVA CORPORATION/SAN DIEGO GAS & ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
This Quarterly Report on Form 10-Q is a combined filing of Enova
Corporation and SDG&E. The financial statements presented herein
represent the consolidated statements of Enova Corporation and its
subsidiaries (including SDG&E), as well as the stand-alone
statements of SDG&E. Unless otherwise indicated, the "Notes to
Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein pertain to
Enova Corporation as a consolidated entity.
The Registrants believe all adjustments necessary to present a fair
statement of the consolidated financial position and results of
operations for the periods covered by this report, consisting of
recurring accruals, have been made.
The Registrants' significant accounting policies, as well as those
of their subsidiaries, are described in the notes to consolidated
financial statements in Enova Corporation's 1997 Annual Report to
Shareholders. The same accounting policies are followed for interim
reporting purposes.
This quarterly report should be read in conjunction with the
Registrants' 1997 Annual Report on Form 10-K which included the
"Management's Discussion & Analysis of Financial Condition and
Results of Operations," as well as financial statements and notes
thereto.
2. BUSINESS COMBINATION
In October 1996 Enova and Pacific Enterprises Inc., parent company
of Southern California Gas Company, announced an agreement to
combine the two companies. Additional information on the proposed
business combination is discussed on page 11 in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
3. MATERIAL CONTINGENCIES
INDUSTRY RESTRUCTURING -- CALIFORNIA PUBLIC UTILITIES COMMISSION
In September 1996 the state of California enacted a law
restructuring California's electric utility industry (AB 1890). The
legislation adopts the December 1995 California Public Utilities
Commission (CPUC) policy decision that restructures the industry to
stimulate competition and reduce rates.
Beginning on March 31, 1998 customers were given the opportunity to
choose to continue to purchase their electricity from the local
utility under regulated tariffs, to enter into contracts with other
energy service providers (i.e., private generators, brokers, etc.)
or buy their power from the independent Power Exchange (PX) that
serves as a wholesale power pool allowing all energy producers to
participate competitively. The PX obtains its power from qualifying
facilities, nuclear units and, lastly, from the lowest-bidding
suppliers. The California investor-owned electric utilities (IOUs)
are obligated to bid their power supply, including electric
generation and purchased-power contracts, into the PX. An
Independent System Operation (ISO) schedules power transactions and
access to the transmission system. The local utility continues to
provide distribution service regardless of which source the
customer chooses.
As discussed in Note 10 in the notes to consolidated financial
statements of the 1997 Annual Report to Shareholders, the IOUs have
been given a reasonable opportunity to recover their stranded costs
via a competition transition charge (CTC) to customers through
December 31, 2001. SDG&E has identified that its estimated
transition costs total $2 billion (net present value in 1998
dollars). Through March 31, 1998 SDG&E has recovered transition
costs of $0.3 billion for nuclear generation, $0.1 billion for non-
nuclear generation and $0.1 billion for purchased-power contracts.
Additionally, overcollections of $0.1 billion recorded in the
Energy Cost Adjustment Clause and Electric Revenue Adjustment
Mechanism balancing accounts at December 31, 1997 have been applied
to transition cost recovery, leaving approximately $1.4 billion for
future CTC recovery. Included therein is $0.4 billion for post-2001
purchased-power contract payments that may be recovered after 2001,
subject to an annual reasonableness review. During the 1998-2001
period, recovery of transition costs is limited by the rate cap
(discussed below). Generation plant additions made after December
20, 1995 are not eligible for transition cost recovery. Instead,
each utility must file a separate application seeking a
reasonableness review thereof. In March 1998 SDG&E reached an
agreement with the CPUC's Office of Ratepayer Advocates for the
recovery of $13.6 million of SDG&E's $14.5 million in 1996 capital
additions for the Encina and South Bay power plants. A final CPUC
decision is expected in the second quarter of 1998.
In November 1997 SDG&E announced a plan to auction its power plants
and other electric-generating assets. This plan includes the
divestiture of SDG&E's fossil power plants and combustion turbines,
its 20-percent interest in San Onofre Nuclear Generating Station
(SONGS) and its portfolio of long-term purchased-power contracts.
The power plants have a net book value as of March 31, 1998 of $700
million ($200 million for fossil and $500 million for SONGS). The
proceeds from the auction will be applied directly to SDG&E's
transition costs. SDG&E has proposed to the CPUC that the sale of
its fossil plants be completed by the end of 1998. Management
believes that the rates within the rate cap and the proceeds from
the sale of electric-generating assets will be sufficient to
recover all of SDG&E's approved transition costs by December 31,
2001, not including the post-2001 purchased-power contract payments
that may be recovered after 2001 (see discussion above). However,
if the proceeds from the sale of the power plants are less than
expected or if generation costs, principally fuel costs, are
greater than anticipated, SDG&E may be unable to recover all of its
approved transition costs. This would result in a charge against
earnings at the time it becomes probable that SDG&E will be unable
to recover all of the transition costs.
California's electric restructuring law (AB 1890) required a 10-
percent reduction of residential and small commercial customers'
rates beginning in January 1998. AB 1890 provided for the issuance
of rate-reduction bonds by an agency of the State of California to
enable the IOUs to achieve this rate reduction. In December 1997
$658 million of rate-reduction bonds were issued on SDG&E's behalf
at an average interest rate of 6.26 percent. These bonds are being
repaid over 10 years by SDG&E's residential and small commercial
customers via a charge on their electric bills. In 1997 SDG&E
formed a subsidiary, SDG&E Funding LLC, to facilitate the issuance
of the rate-reduction bonds. In exchange for the bond proceeds,
SDG&E sold to SDG&E Funding LLC all of its rights to the revenue
streams collected from customers. Consequently, the revenue streams
are not the property of SDG&E nor are they available to satisfy any
claims of SDG&E's creditors.
A coalition of consumer groups has organized a California ballot
initiative that, among other things, would possibly result in an
additional 10-percent rate reduction, require that this rate
reduction be achieved through the elimination or reduction of CTC
payments and prohibit the collection of the charge on customer
bills that would finance the rate reduction. SDG&E cannot predict
the final outcome of the initiative. If the initiative were to
qualify for the ballot, be voted into law and upheld by the courts,
the financial impact on SDG&E could be substantial. In December
1997 the California Supreme Court dismissed a petition submitted by
a related coalition of consumer groups to overturn the CPUC's Rate-
Reduction Bond financing orders.
AB 1890 includes a rate freeze for all customers. Until the earlier
of March 31, 2002, or when transition cost recovery is complete,
SDG&E's system average rate will be frozen at June 10, 1996 levels
(9.64 cents per kilowatt-hour (kwh)), except for the impact of
certain fuel cost changes and the 10-percent rate reduction
described above. Beginning in 1998 rates were fixed at 9.43 cents
per kwh, which includes the maximum permitted increase related to
fuel cost increases and the mandatory rate reduction.
SDG&E has been accounting for the economic effects of regulation on
all of its utility operations in accordance with SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," as
described in the notes to consolidated financial statements in the
1997 Annual Report to Shareholders. SDG&E has ceased the
application of SFAS No. 71 to its generation business, in
accordance with the conclusion of the Financial Accounting
Standards Board that the application of SFAS No. 71 should be
discontinued when legislation is issued that determines that a
portion of an entity's business will no longer be regulated. The
discontinuance of SFAS No. 71 has not resulted in a write-off of
SDG&E's generation assets, since the CPUC has approved the recovery
of these assets by the distribution portion of its business,
subject to the rate cap.
INDUSTRY RESTRUCTURING -- FEDERAL ENERGY REGULATORY COMMISSION
In October 1997 the FERC approved key elements of the California
IOUs' restructuring proposal. This included the transfer by the
IOUs of the operational control of their transmission facilities to
the ISO, which is under FERC jurisdiction. The FERC also approved
the establishment of the California PX to operate as an independent
wholesale power pool. The IOUs pay to the PX an up-front
restructuring charge (in four annual installments) and an
administrative-usage charge for each megawatt-hour of volume
transacted. SDG&E's share of the restructuring charge is
approximately $10 million, which is being recovered as a transition
cost. The IOUs have jointly guaranteed $300 million of commercial
loans to the ISO and Power Exchange for their development and
initial start-up. SDG&E's share of the guarantee is $30 million.
NUCLEAR INSURANCE
SDG&E and the co-owners of the SONGS units have purchased primary
insurance of $200 million, the maximum amount available, for public
liability claims. An additional $8.7 billion of coverage is
provided by secondary financial protection required by the Nuclear
Regulatory Commission and provides for loss sharing among utilities
owning nuclear reactors if a costly accident occurs. SDG&E could be
assessed retrospective premium adjustments of up to $32 million in
the event of a nuclear incident involving any of the licensed,
commercial reactors in the United States, if the amount of the loss
exceeds $200 million. In the event the public liability limit
stated above is insufficient, the Price-Anderson Act provides for
Congress to enact further revenue-raising measures to pay claims,
which could include an additional assessment on all licensed
reactor operators.
Insurance coverage is provided for up to $2.75 billion of property
damage and decontamination liability. Coverage is also provided for
the cost of replacement power, which includes indemnity payments
for up to three years, after a waiting period of 17 weeks. Coverage
is provided through mutual insurance companies owned by utilities
with nuclear facilities. If losses at any of the nuclear facilities
covered by the risk-sharing arrangements were to exceed the
accumulated funds available from these insurance programs, SDG&E
could be assessed retrospective premium adjustments of up to $6
million.
CANADIAN GAS
SDG&E has long-term pipeline capacity commitments to support its
contracts for Canadian natural-gas supplies. Certain of these
supply contracts are in litigation, while others are in the process
of being settled. If the supply of Canadian natural gas to SDG&E is
not resumed to a level approximating the related committed long-
term pipeline capacity, SDG&E intends to continue using the
capacity in other ways, including the release of a portion of this
capacity to third parties and the transport of replacement gas.
Additional information regarding the Canadian gas contracts in
litigation is provided under "Legal Proceedings" in the 1997 Annual
Report on Form 10-K beginning on page 16.
ITEM 2.
ENOVA CORPORATION/SAN DIEGO GAS & ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking
statements within the definition of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
When used in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the words "estimates",
"expects", "anticipates", "plans" and "intends," variations of such
words, and similar expressions are intended to identify forward-
looking statements that involve risks and uncertainties.
Although the Registrants believe that their expectations are based
on reasonable assumptions, they can give no assurance that those
expectations will be realized. Important factors that could cause
actual results to differ materially from those in the forward-
looking statements herein include political developments affecting
state and federal regulatory agencies, the pace and substance of
electric industry deregulation in California and in the United
States, the ability to effect a coordinated and orderly
implementation of both state legislation and the CPUC's
restructuring regulations, the consummation and timing of the
proposed business combination of Enova and Pacific Enterprises, the
timing and level of proceeds of sales of SDG&E's electric-
generating assets, the level of sales of electricity, the rate of
growth of nonutility subsidiary revenues, international political
developments, environmental regulations, and the timing and extent
of changes in interest rates and prices for natural gas and
electricity.
RESULTS OF OPERATIONS
The following discussions reflect the results for the three months
ended March 31, 1998 compared to the corresponding period in 1997:
EARNINGS
Basic and diluted earnings per common share for the first quarter
were $0.43 in 1998, compared to $0.42 for the corresponding period
in 1997. The increase in earnings in 1998 is due to numerous
offsetting factors, primarily the previously announced seasonal
variability related to the elimination of electric balancing
accounts, rewards reflecting SDG&E's performance under the Gas
Procurement Performance-Based Ratemaking (PBR) mechanism, expenses
associated with the Enova-Pacific Enterprises merger and lower
nonutility subsidiary earnings. The $0.42 earnings per share for
the first quarter of 1997 includes $0.04 of nonrecurring earnings
related to tax benefits from the 1995 sale of Wahlco Environmental
Systems, Inc. Additional information concerning the sale of Wahlco
is provided in Note 3 in the notes to consolidated financial
statements of the 1996 Annual Report to Shareholders.
OPERATING REVENUES
For the quarter ended March 31, 1998 electric revenues increased
from the corresponding period in 1997 primarily due to the recovery
of stranded costs via the competition transition charge (CTC) and
differences between forecasted and actual sales volume during the
first quarter of 1998. This included the January 1998 application
to stranded cost recovery of the $130-million balance in the
Interim Transition Cost Balancing Account which had been
transferred from the ECAC and ERAM balancing accounts at December
31, 1997 (see discussion in "Electric Balancing Accounts" below).
Recovery of stranded costs via the CTC will cause earnings to
fluctuate as the level of recovery fluctuates, but will be
partially offset by increases to depreciation and amortization. In
addition, the elimination of ECAC and ERAM, effective December 31,
1997, will cause earnings to be affected by electric-revenue
fluctuations due to differences between forecasted and actual sales
volume and forecasted and actual fuel and purchased-power costs.
These fluctuations will no longer be offset by the accrual or
deferral of revenue through the balancing accounts. Increases and
decreases in electric sales volume and fuel and purchased-power
costs will now impact earnings. Due to the delay in the ISO/PX
startup until March 31, 1998, fuel and purchased-power costs for
generation were placed temporarily in a balancing account and did
not have a negative impact on earnings during the first quarter of
1998.
OPERATING EXPENSES
For the quarter ended March 31, 1998 electric fuel expense
decreased from the corresponding period in 1997 primarily due to
decreases in natural-gas prices, offset by increases in both
natural-gas-fired and nuclear generation. The increase in
purchased-power expense for the first quarter of 1998 is primarily
due to increases in both purchased-power costs and capacity
charges. Gas purchased for resale decreased for the quarter ended
March 31, 1998 due to decreases in natural-gas prices.
In addition, for the quarter ended March 31, 1998 compared to the
corresponding period in 1997, depreciation and decommissioning
expense increased due to recovery of stranded costs via the CTC.
This CTC recovery offsets the increases to depreciation and
amortization (see discussion in "Operating Revenues" above). Income
tax expense decreased due to the increase in income tax benefits
related to Enova Financial's increased investments in affordable-
housing projects and changes in the treatment and timing of the
recognition of certain items due to electric industry
restructuring. This change in treatment results in income taxes
associated with certain regulatory items being deferred rather than
recorded as current tax expense.
OTHER
The change in taxes on nonoperating income for the quarter ended
March 31, 1998 compared to the corresponding period in 1997 is due
to tax benefits included in 1997 from the 1995 sale of Wahlco
Environmental Systems, Inc. Additional information concerning the
sale of Wahlco is provided in Note 3 in the notes to consolidated
financial statements of the 1996 Annual Report to Shareholders.
Interest charges related to long-term debt increased due to the
rate reduction bonds that were issued in December 1997.
BUSINESS COMBINATION
In March 1998 the CPUC issued its decision approving the business
combination of Enova Corporation and Pacific Enterprises (PE),
parent company of Southern California Gas Company (SoCalGas). In
approving the combination, the CPUC found that it will benefit
customers and the state and local economies, maintain or improve
the financial condition of the utilities and quality of management,
and be fair to employees and shareholders. The decision calls for
the 50/50 sharing of the combination's net cost savings between
shareholders and customers, but only for five years rather than the
ten years sought, leaving the proper treatment of savings after the
first five years to a future Commission. The decision disallows $54
million of the costs to achieve the business combination and
reduces the total net shareable savings from $1.1 billion to $340
million. In addition, the decision requires, among other things,
the divestiture by SDG&E of its gas-fired generation units (already
in progress - see "Electric Generation" below) and the sale by
SoCalGas of its options to purchase those portions of the Kern
River and Mojave Pipeline gas-transmission facilities within
California by September 1998. The CPUC decision adopts various
conditions to prevent the improper use of information and cross-
subsidies of affiliates by the regulated utilities, but it does not
include costly utility-to-utility transaction rules. The decision
also adopts a Negative Declaration, concluding that the combination
would not have a significant adverse effect on the environment.
In March 1998 Enova and PE reached an agreement with the U.S.
Department of Justice (DOJ) to gain clearance for the business
combination under the Hart-Scott-Rodino Antitrust Act. Under the
agreement, Enova has committed to follow through on its plan to
divest SDG&E's fossil-fuel power plants (see "Electric Generation"
below), with the new combined company required to gain prior DOJ
approval before it can acquire or control any existing California
generation facilities in excess of 500 megawatts.
Following a thorough review of the recent regulatory decisions,
Enova and PE remain committed to the completion of the business
combination, with the expected commencement of combined operations
in the summer of 1998. Final regulatory approvals must still be
gained from the Federal Energy Regulatory Commission (FERC) and the
Securities and Exchange Commission. In June 1997 the FERC
conditionally approved the combination subject to conditions that
the combined company will not unfairly use any potential market
power regarding natural-gas transportation to gas-fired electric-
generation plants. In its decision, the FERC required that Sempra
Energy adopt specific remedial measures to alleviate the market
power concerns and that the CPUC would commit to the enforcement of
these measures. The FERC also specifically noted that the
divestiture of SDG&E's natural-gas-fired generation plants would
eliminate any concerns about vertical market power arising from
transactions between SDG&E and SoCalGas. The FERC acknowledged that
these issues were clearly within the jurisdiction of the CPUC.
Earnings of the combined company will be negatively impacted in
1998 by delays in achieving cost savings from the combination
caused by the later-than-expected effective combination date, the
CPUC recovery disallowance of certain costs of the combination and
lower-than-anticipated earnings from the start-up of its nonutility
subsidiaries. Earnings in subsequent years will be impacted by the
future decision of the CPUC concerning the treatment of the
combination's cost savings after five years and the level of growth
at its nonutility subsidiaries.
ELECTRIC GENERATION
In November 1997 SDG&E announced a plan to auction its power plants
and other electric-generating assets, enabling it to continue to
concentrate its business on the transmission and distribution of
electricity and natural gas in a competitive marketplace. The plan
includes the divestiture of SDG&E's fossil plants - the Encina
(Carlsbad, California) and South Bay (Chula Vista, California)
plants - and its combustion turbines, as well as its 20-percent
interest in the San Onofre Nuclear Generating Station (SONGS) and
its portfolio of long-term purchased-power contracts, including
those with qualifying facilities. The power plants, including the
interest in SONGS, have a net book value as of March 31, 1998 of
$700 million ($200 million for fossil and $500 million for SONGS)
and a combined generating capacity of 2,400 megawatts. The proceeds
from the auction will be applied directly to SDG&E's transition
costs (see Note 3 of the notes to consolidated financial
statements). SDG&E has proposed to the CPUC that the sale of its
fossil plants be completed by the end of 1998.
In April 1998 El Dorado Energy, a joint venture of Sempra Energy
Resources (a recently formed Enova subsidiary) and Houston
Industries Power Generation, began construction on a 480-megawatt
natural-gas-fired power plant in Boulder City, Nevada. The $280
million project, which is expected to be completed in the fourth
quarter of 1999, will employ an advanced combined-cycle gas-turbine
technology, enabling it to efficiently produce electricity for sale
into the wholesale market in the western United States.
OTHER REGULATORY MATTERS
CALIFORNIA PUBLIC UTILITIES COMMISSION'S INDUSTRY RESTRUCTURING
In September 1996 the state of California enacted a law
restructuring California's electric utility industry to stimulate
competition and reduce rates. See additional discussion of industry
restructuring in Note 3 of the notes to consolidated financial
statements.
CONSUMER EDUCATION
In August 1997 the CPUC authorized $89 million in rate recovery to
fund California's Consumer Education Plan (CEP). SDG&E's share of
this amount is approximately $9 million. The CEP's objective is to
provide California electric customers information to help them
compare and choose among electric products and services in the
competitive environment. The CEP's program began in September 1997
and is expected to end by May 31, 1998.
PUBLIC PURPOSE PROGRAMS
The CPUC has established a new administrative structure and initial
funding levels to manage demand-side management, renewable-energy,
low-income assistance, and research and development (R&D) programs
beginning in January 1998. The CPUC has formed independent boards
to oversee a competitive bidding process to administer demand-side
management (DSM) and low-income assistance programs. In an interim
decision, the CPUC has required that the California IOUs transfer
their administration of demand-side management and low-income
programs to these independent boards by December 1998 and December
1999, respectively. Until the transition to a fully competitive
energy-services market is complete, customers will be required to
provide the funding. For 1998 SDG&E is being funded $32 million and
$12 million for demand-side management and renewables programs,
respectively. Low-income assistance funding remains at 1997
authorized levels ($12 million). The California Energy Commission
is being allocated most of the $63 million authorized to administer
the R&D programs, of which SDG&E is funded $4 million. SDG&E
earnings potential from DSM programs will be reduced when the
transition to the competitive markets is complete.
ELECTRIC BALANCING ACCOUNTS
In October 1997 the CPUC issued a decision eliminating the Electric
Cost Adjustment Clause (ECAC) and the Electric Revenue Adjustment
Mechanism (ERAM) balancing accounts effective December 31, 1997.
Net over-collections of $130 million for these accounts at December
31, 1997 were applied to transition cost recovery in the first
quarter of 1998 by the use of a new Interim Transition Cost
Balancing Account. The decision eliminates further ECAC proceedings
for generation costs incurred after 1997. The elimination of ECAC
and ERAM will cause annual earnings to be affected by electric-
revenue fluctuations due to differences between forecasted and
actual sales volume and forecasted and actual fuel and purchased-
power costs. The largest expected quarterly impacts will be reduced
first-quarter earnings and increased third-quarter earnings. In the
first quarter of 1998, there was no impact since the ISO/PX startup
was delayed until March 31.
PERFORMANCE-BASED RATEMAKING (PBR)
Distribution: In December 1997 the CPUC eliminated SDG&E's 1999
General Rate Case filing requirement and replaced it with a 1999
Cost of Service study in its new Distribution PBR application for
electric distribution and gas operations (filed in January 1998 to
begin in 1999). The application requests an increase in SDG&E's
revenue requirements for electric distribution and gas. The
electric distribution increase does not affect rates and,
therefore, if approved, reduces the amount available for transition
cost recovery.
The Distribution PBR proposes a formula for indexing year-to-year
gas and electric distribution rates due to inflationary impacts.
Rates under the new mechanism are self-calibrating and will be
reset each year based on SDG&E's financial performance achieved the
previous year. To the extent that return on rate base for any year
differs from the authorized rate by more than 100 basis points, the
next year's authorized rates will be adjusted up or down by an
amount equal to 20 percent of that excess.
SDG&E's performance will be measured and compared with quantitative
benchmarks for a set of indicators to determine whether a reward or
penalty is earned each year. The proposed PBR includes performance
indicators for customer satisfaction, employee safety, electric
system reliability, electric competition enhancement, environmental
citizenship and electric system maintenance. The total annual
maximum reward or penalty for all of the performance indicators
will be $20 million. SDG&E's ability to control its costs within
the limits of the revenues authorized by the study and succeed in
its performance indicators will impact future earnings.
Natural Gas: In February 1998 SDG&E reached an agreement with the
CPUC's Office of Ratepayer Advocates for a proposed permanent Gas
Procurement PBR mechanism. The new mechanism essentially continues
the existing mechanism, establishing a monthly benchmark against
which SDG&E's gas procurement activities are measured. The
resulting costs or savings will be shared equally between
shareholders and ratepayers. A final CPUC decision is expected in
July 1998.
NATURAL GAS RESTRUCTURING
In January 1998 the CPUC opened a rulemaking proceeding designed to
open the natural-gas industry to competition for all customers. The
rulemaking will allow residential and small commercial customers to
receive the price and service benefits already realized by larger
customers. In developing a natural-gas retail restructuring
proposal, the CPUC has provided several guiding principles: replace
traditional regulation with competition in those markets where
competition or the potential for competition exists, thereby
allowing market forces to dictate prices; reform regulation for
those utility functions that are not fully competitive; maintain a
standard of consumer protection in both competitive and
noncompetitive markets; and maintain supply reliability and ensure
the safety of consumers' natural-gas service. In March 1998 SDG&E
and SoCalGas submitted a joint filing to the CPUC, providing
comments on the CPUC's plan. The filing recommends that the CPUC
adopt an unbundled, open-access framework for gas storage and
transmission to be combined with the commodity-market competition
that currently exists. Hearings on the proposed restructuring began
in April 1998, with a final CPUC policy decision expected to be
issued by the end of 1998.
DISTRIBUTION COST OF CAPITAL
Electric industry restructuring has changed the method of
calculating SDG&E's annual cost of capital. SDG&E's 1998 cost of
capital, as regulated by the CPUC, remains at 1997 authorized
levels of 11.60 percent for the rate of return on equity and 9.35
percent for the rate of return on rate base. These rates apply only
to electric distribution and gas rate base, excluding electric
transmission (regulated by the FERC) and electric generation
(recovered as transition costs). In May 1998 SDG&E will file with
the CPUC its Unbundled Cost of Capital application for 1999 rates.
Historically, SDG&E's cost of capital has been determined on an
incremental basis, with annual adjustments made to reflect market
conditions. However, the current application will seek approval to
establish new separate rates for SDG&E's electric distribution and
gas businesses.
ENVIRONMENTAL MATTERS
In March 1998, the California Supreme Court denied a request for
review of a December 1997 California Court of Appeal case involving
Pacific Gas & Electric in which the Court of Appeal held that the
CPUC has exclusive jurisdiction over personal injury and property-
damage cases related to electric and magnetic fields.
LIQUIDITY AND CAPITAL RESOURCES
Utility operations continue to be a major source of liquidity.
Liquidity has been favorably impacted by the issuance of Rate
Reduction Bonds as described on page 7. In addition, financing
needs are met primarily through issuances of short-term and long-
term debt. These capital resources are expected to remain
available. Cash requirements include utility capital expenditures,
nonutility subsidiaries' investments, and repayments and
retirements of long-term debt. Nonutility cash requirements include
capital expenditures associated with subsidiary activities related
to the plans to distribute natural gas in Mexico and the eastern
United States; new products; investments in Sempra Energy Trading,
Sempra Energy Solutions, El Dorado Energy and other ventures; and
affordable-housing, leasing and other investments. In addition to
changes described elsewhere, major changes in cash flows are
described below.
OPERATING ACTIVITIES
Besides the effects of other items discussed in this report, the
only significant changes in cash flows from operations for the
three months ended March 31, 1998 compared to the corresponding
1997 period were related to accounts and notes receivable, other
current assets, accounts payable and other current liabilities,
accrued interest and taxes, and regulatory balancing accounts. Cash
flows from accounts and notes receivable increased due to a
decrease in utility customer receivables at March 31, 1998
resulting from a decrease in revenue billed to customers. This
decrease is attributable to decreases in gas and electric usage due
to weather and the 10-percent rate reduction. Cash flows from other
current assets increased due to a shift in Enova's net deferred tax
position from current assets to current liabilities, as also
reflected in the increase in cash flows from accrued taxes. The
increase in cash flows from accrued interest results from the
increase in accrued interest due to the timing of payments on long-
term debt. Cash flows from accounts payable and other current
liabilities increased due to the high level of natural-gas prices
in late 1996 and early 1997 which resulted in an amplified decrease
in the purchased-gas payable in March 1997. Cash flows from
regulatory balancing accounts increased due to the increase in the
gas balancing accounts reflecting continued overcollections
attributable to decreasing natural-gas prices.
FINANCING ACTIVITIES
Enova Corporation does not anticipate the need for short-term debt
in 1998. In addition, Enova does not expect to issue stock or long-
term debt in 1998, other than for stock issuances related to the
Enova - Pacific Enterprises business combination.
On May 1, 1998 SDG&E announced a voluntary tender for the entire
outstanding balances of three issuances of first mortgage bonds:
$54.3 million of 9.625-percent bonds, $43.7 million of 8.5-percent
bonds, and $80.0 million of 7.625-percent bonds. This, coupled with
the $32 million of variable-rate, taxable IDBs retired previously
and the $83 million of debt offset by temporary assets, will
complete the anticipated debt-related use of rate-reduction bond
proceeds. See discussion of rate-reduction bond proceeds on page 29
of "Management's Discussion & Analysis of Financial Condition and
Results of Operations" of the 1997 Annual Report to Shareholders.
Enova Financial and SDG&E repaid $30.2 million and $19.9 million,
respectively, of long-term debt during the first quarter of 1998
during the ordinary course of business. The amount repaid by SDG&E
includes $3.2 million of rate-reduction-bond repayments. During
that same period, no long-term debt was issued by either company.
SDG&E had short-term bank lines of $50 million and long-term bank
lines of $340 million with no short-term loans outstanding at March
31, 1998. Commitment fees are paid on the unused portion of the
lines and there are no requirements for compensating balances. The
$50 million short-term bank line expired on April 30, 1998 and has
been rewritten as a $30 million bank line expiring April 30, 1999.
A $60 million long-term bank line expires at year end 1998 and is
expected to be extended at that time.
Quarterly cash dividends of $0.39 per share were declared for the
first quarter of 1998 and for each quarter during the year ended
December 31, 1997. The dividend-payout ratio for the twelve months
ended March 31, 1998 and years ended December 31, 1997, 1996, 1995,
1994 and 1993 were 71 percent, 71 percent, 79 percent, 80 percent,
130 percent and 82 percent, respectively. The increase in the
payout ratio for the year ended December 31, 1994 was due to the
writedowns recorded during 1994. For additional information
regarding the writedowns, see Enova Corporation's 1996 Annual
Report on Form 10-K. The payment of future dividends is within the
discretion of the directors and is dependent upon future business
conditions, earnings and other factors. The CPUC regulates SDG&E's
capital structure, limiting the dividends it may pay Enova; this
restriction is not expected to affect Enova's ability to meet its
cash obligations. Net cash flows provided by operating activities
currently are sufficient to maintain the payment of dividends at
the current level.
SDG&E maintains its capital structure so as to obtain long-term
financing at the lowest possible rates. The following table shows
the percentages of capital represented by the various components.
The capital structures are net of the construction funds held by a
trustee in 1993.
March 31,
1997 1998
1993 1994 1995 1996 (A) (B) (A) (B)
- --------------------------------------------------------------------
Common equity 47% 48% 49% 50% 51% 41% 50% 40%
Preferred stock 4 4 4 4 4 3 4 3
Debt and leases 49 48 47 46 45 56 46 57
- --------------------------------------------------------------------
Total 100% 100% 100% 100% 100% 100% 100% 100%
- --------------------------------------------------------------------
(A) Excludes rate reduction bonds ($658 million at December 31, 1997
and $655 million at March 31, 1998).
(B) Includes rate reduction bonds ($658 million at December 31, 1997
and $655 million at March 31, 1998).
The following table lists key financial ratios for SDG&E.
Twelve Year
months ended ended
March 31, December 31,
1998 1997
------------ ------------
Pretax interest coverage* 5.9 X 5.8 X
Pretax interest coverage 5.4 X 5.8 X
Internal cash generation
-with accelerated depreciation** 207 % 192 %
-without accelerated depreciation** 151 % 165 %
Construction expenditures as
a percent of capitalization* 7.9 % 7.3 %
* Excludes December 1997 rate reduction bonds in calculation.
** Due to industry restructuring.
INVESTING ACTIVITIES
Cash used in investing activities for the three months ended March
31, 1998 included utility construction expenditures and payments to
the SONGS decommissioning trust. Utility construction expenditures
were $197 million in 1997 and are estimated to be $242 million in
1998. Nonutility expenditures were $158 million in 1997 and are
estimated to be $100 million in 1998. 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. Among other things, the level of utility
expenditures in the next few years will depend heavily on the
impacts of industry restructuring and the sale of SDG&E's Encina
and South Bay power plants and other electric-generating assets, as
well as the timing and extent of expenditures to comply with air-
emission reduction and other environmental requirements. Enova's
level of nonutility expenditures in the next few years will depend
primarily on activities such as Enova International's plan to
develop natural-gas distribution systems in Mexico, Sempra Energy
Solutions' activities including its plan to develop natural-gas
distributions systems outside of California, and the level of
investments by Enova and Enova Financial.
During the first quarter of 1998, Enova invested $0.6 million in
Distribuidora de Gas Natural de Mexicali and $3 million in El
Dorado Energy. In addition, in January 1998, Sempra Energy
Solutions completed the acquisition of CES/Way International as
previously reported. Investments in these and other nonutility
ventures are responsible for the change in cash used by other-net
investing activities during the three months ended March 31, 1998
as shown on the Statements of Cash Flows.
NEW ACCOUNTING STANDARDS
Enova has adopted Statement of Financial Accounting Standard (SFAS)
No. 130, "Reporting Comprehensive Income," which requires the
reporting and display of comprehensive income and its components.
These components are items that affect equity without having been
recognized in the determination of net income. Enova had no such
items during the three months ended March 31, 1998.
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," requires annual and interim disclosure of certain
information about a company's products and services. Under SFAS
131, operating segments are to be determined consistent with the
way that management organizes and evaluates financial information
internally. The impact of the adoption of SFAS 131 is the potential
redefinition of Enova's segments, possibly electric operations, gas
operations, energy services and other. Enova is not reporting this
information at this time as it is not required for interim periods
in the initial year of application. However, the disclosure of
limited segment information will be required for interim periods
during years subsequent to the initial year of application.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as discussed below, there have been no significant
subsequent developments in litigation proceedings that were
outstanding at December 31, 1997, nor have there been any
significant new litigation proceedings since that date.
SONGS PERSONAL INJURY LITIGATION
As described in the "Legal Proceedings -- SONGS Personal Injury
Litigation" section on page 18 of the Registrants' Annual Report on
Form 10-K, SDG&E holds a 20-percent interest in the San Onofre
Nuclear Generating Station, and seven radiation personal injury
cases have been filed against various parties in which plaintiffs
allege that their various types of leukemia or other forms of
cancers were caused by radiation exposure to "fuel fleas"
(radioactive fuel particles). On March 6, 1998, the jury in one of
these seven cases, the Kennedy litigation, reached a verdict in
favor of defendants Southern California Edison and Combustion
Engineering on all counts. A Motion for New Trial was filed on
March 20, 1998 and has been scheduled for hearing on June 11, 1998.
SDG&E was not a party to this action; however, because of its
ownership interest in SONGS, SDG&E may be adversely affected if
plaintiffs are successful.
CANADIAN NATURAL GAS
SDG&E and Canadian Hunter settled their dispute, and on April 8,
1998, the U.S. District Court entered an order in the case
dismissing the litigation with prejudice.
ITEM 4. SUBMISSION OF MATTERS TO VOTE
ENOVA CORPORATION
The shareholders of Enova Corporation elected three Class III
Directors at the annual meeting on April 28, 1998. The name of each
nominee and the number of shares voted for or withheld were as
follows:
Nominees Votes For Votes Withheld
- ------------------------------------------------------------------
W.D. Jones 90,254,837 1,601,110
R.R. Ocampo 90,196,530 1,659,417
T.C. Stickel 90,267,582 1,588,365
Additional information concerning the election of the board of
directors is contained in Enova Corporation's 1998 Proxy Statement
and Notice of Annual Meeting.
SAN DIEGO GAS & ELECTRIC COMPANY
The shareholders of San Diego Gas & Electric Company elected 9
directors at the annual meeting on April 28, 1998. The name of each
nominee and the number of votes for or withheld are summarized
below. All 116,583,358 common shares, which are owned by Enova
Corporation, were voted for the nominees. The $20 par value
preferred stock, of which there are 1,373,770 shares outstanding,
has two votes per share.
Nominees Votes For Votes Withheld
- ------------------------------------------------------------------
R.C. Atkinson 118,263,484 31,570
A. Burr 118,266,074 28,980
R.A. Collato 118,266,854 28,200
D.W. Derbes 118,264,844 30,210
R.H. Goldsmith 118,266,174 28,880
E.A. Guiles 118,266,844 28,210
W.D. Jones 118,266,654 28,400
R.R. Ocampo 118,264,128 30,926
T.C. Stickel 118,266,254 28,800
Additional information concerning the election of the board of
directors is contained in SDG&E's 1998 Proxy Statement and Notice
of Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends as required under
SDG&E's August 1993 registration of 5,000,000 shares of
Preference Stock (Cumulative).
Exhibit 27 - Financial Data Schedules
27.1 Financial Data Schedule for the quarter ended March 31,
1998 for Enova Corporation.
27.2 Financial Data Schedule for the quarter ended March 31,
1998 for SDG&E.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on March 16, 1998 to
announce the U.S. Department of Justice clearance received
for the Enova - Pacific Enterprises merger and the issuance
of CPUC Commissioner Josiah L. Neeper's alternate decision
regarding the merger.
A Current Report on Form 8-K was filed on March 27, 1998 to
announce the issuance of the CPUC's final decision approving
the Enova - Pacific Enterprises merger.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this quarterly report to be signed
on its behalf by the undersigned thereunto duly authorized.
ENOVA CORPORATION
(Registrant)
Date: May 6, 1998 By: /s/ F. H. Ault
----------------------------
(Signature)
F. H. AULT
Vice President and Controller
and
SAN DIEGO GAS & ELECTRIC COMPANY
(Registrant)
Date: May 6, 1998 By: /s/ F. H. Ault
----------------------------
(Signature)
F. H. AULT
Vice President, Chief Financial
Officer, Treasurer and Controller