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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Exact
Name of
Commission Registrant IRS Employer
File as specified State of Identification
Number in its charter Incorporation Number
- ---------- -------------- -------------- --------------
1-3779 SAN DIEGO GAS &
ELECTRIC COMPANY California 95-1184800
1-11439 ENOVA CORPORATION California 33-0643023
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619)696-2000
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
San Diego Gas & Electric Company
Preference Stock (Cumulative)
Without Par Value (except $1.70 and $1.7625 Series) American
Cumulative Preferred Stock, $20 Par Value (except 4.60% Series) American
Enova Corporation
Common Stock, Without Par Value New York and Pacific
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
San Diego Gas & Electric Company None
Enova Corporation None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Exhibit Index on page 68. Glossary on page 75.
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997:
Enova Corporation Common Stock $2.6 Billion
San Diego Gas & Electric Company Preferred Stock $19 Million
Common Stock outstanding without par value as of February 28, 1997:
Enova Corporation: 116,614,314
San Diego Gas & Electric Company: Wholly owned by Enova Corporation
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1996 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV.
Portions of the March 1997 Proxy Statement prepared for the April 1997 annual
meeting of shareholders are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders. 22
Executive Officers of the Registrant . . . . . . . . 23
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . 24
Item 6. Selected Financial Data . . . . . . . . . . . . . . 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 26
Item 8. Financial Statements and Supplementary Data --
Enova Corporation. . . . . . . . . . . . . . . . . . 27
San Diego Gas & Electric Company . . . . . . . . . . 52
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 61
PART III
Item 10. Directors and Executive Officers of the Registrant . 61
Item 11. Executive Compensation . . . . . . . . . . . . . . . 61
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 61
Item 13. Certain Relationships and Related Transactions . . . 61
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . 62
Independent Auditors' Consent and Report on Schedule . . . . . 64
Supplemental Schedule. . . . . . . . . . . . . . . . . . . . . 65
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . 68
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
PART I - Enova Corporation/San Diego Gas & Electric:
ITEM 1. BUSINESS
Description of Business
A description of Enova Corporation and its subsidiaries, including a
discussion on the proposed business combination with Pacific Enterprises
Inc., is given in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 20 of the 1996
Annual Report to Shareholders. Additional information on the business
combination is described in Note 1 of the "Notes to Consolidated
Financial Statements" on page 37 of this 1996 Annual Report on Form
10-K.
GOVERNMENT REGULATION
Local Regulation
San Diego Gas & Electric has separate electric and gas franchises with
the two counties and the 25 cities in its service territory. These
franchises allow SDG&E to locate facilities for the transmission and
distribution of electricity and gas in the streets and other public
places. The franchises do not have fixed terms, except for the electric
and gas franchises with the cities of Chula Vista (expiring in 1997),
Encinitas (2012), San Diego (2021) and Coronado (2028); and the gas
franchises with the city of Escondido (2036) and the county of San Diego
(2030). Negotiations for a new agreement with Chula Vista are currently
in progress.
State Regulation
The California Public Utilities Commission consists of five members
appointed by the governor and confirmed by the senate for six-year
terms. The CPUC regulates SDG&E's rates and conditions of service, sales
of securities, rate of return, rates of depreciation, uniform systems of
accounts, examination of records, and long-term resource procurement.
The CPUC also conducts various reviews of utility performance and
conducts investigations into various matters, such as deregulation,
competition and the environment, to determine its future policies.
The California Energy Commission has discretion over electric-demand
forecasts for the state and for specific service territories. Based upon
these forecasts, the CEC determines the need for additional energy
sources and for conservation programs. The CEC sponsors alternative-
energy research and development projects, promotes energy conservation
programs, and maintains a state-wide plan of action in case of energy
shortages. In addition, the CEC certifies power-plant sites and related
facilities within California.
Federal Regulation
The Federal Energy Regulatory Commission regulates transmission access,
the uniform systems of accounts, rates of depreciation and electric
rates involving sales for resale. The FERC also regulates the interstate
sale and transportation of natural gas.
The Nuclear Regulatory Commission oversees the licensing, construction
and operation of nuclear facilities. NRC regulations require extensive
review of the safety, radiological and environmental aspects of these
facilities. Periodically, the NRC requires that newly developed data and
techniques be used to reanalyze the design of a nuclear power plant and,
as a result, requires plant modifications as a condition of continued
operation in some cases.
Licenses and Permits
SDG&E obtains a number of permits, authorizations and licenses in
connection with the construction and operation of its generating plants.
Discharge permits, San Diego Air Pollution Control District permits and
NRC licenses are the most significant examples. The licenses and permits
may be revoked or modified by the granting agency if facts develop or
events occur that differ significantly from the facts and projections
assumed in granting the approval. Furthermore, discharge permits and
other approvals are granted for a term less than the expected life of
the facility. They require periodic renewal, which results in continuing
regulation by the granting agency.
Other regulatory matters are described throughout this report.
SOURCES OF REVENUE
(In Millions of Dollars) 1996 1995 1994
- -------------------------------------------------------------------
Utility revenue by type of customer:
Electric-
Residential $ 642 $ 610 $ 612
Commercial 621 589 600
Industrial 259 250 231
Other 69 55 67
------ ------ ------
Total Electric 1,591 1,504 1,510
------ ------ ------
Gas-
Residential 210 189 204
Commercial 69 60 65
Industrial 32 25 31
Other 37 36 46
------ ------ ------
Total Gas 348 310 346
------ ------ ------
Total Utility 1,939 1,814 1,856
------ ------ ------
Other 54 57 56
------ ------ ------
Total $1,993 $1,871 $1,912
====== ====== ======
Industry segment information is contained in "Statements of Consolidated
Financial Information by Segments of Business" on page 34 of this 1996
Annual Report on Form 10-K.
CONSTRUCTION EXPENDITURES
Construction expenditures are described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 20 of the 1996 Annual Report to Shareholders.
ELECTRIC OPERATIONS
Introduction
In September 1996 the state of California enacted a law restructuring
California's electric utility industry (AB 1890). The legislation adopts
the December 1995 CPUC policy decision restructuring the industry to
stimulate competition and reduce rates. This is discussed in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders, and in Note 10 of the "Notes to Consolidated Financial
Statements" beginning on page 37 of this 1996 Annual Report on Form
10-K.
Resource Planning
SDG&E's ability to provide energy at the lowest possible cost has been
based on a combination of production from its own plants and purchases
from other producers. The purchases have been a combination of short-
term and long-term contracts and spot-market purchases. Most resource
acquisitions are obtained through a competitive bidding process. In
December 1994 the CPUC issued its Biennial Resource Plan Update decision
ordering SDG&E, Pacific Gas & Electric, and Southern California Edison
to allow qualified non-utility power producers that cogenerate or use
renewable energy technologies to bid for a portion of the utilities'
future capacity needs. As a result of the decision, SDG&E would be
required to enter into contracts (ranging in term from 17 to 30 years)
to purchase an additional 500 mw of power at an estimated cost of $2.3
billion beginning in 1997. Prices under these contracts could
significantly exceed the future market price. In February 1995 the FERC
issued an order declaring the BRPU auction procedures unlawful under
federal law. In July 1995 the CPUC issued a ruling encouraging SDG&E,
PG&E and Edison to reach settlements with the auction winners. SDG&E has
reached settlement with three auction winners, while settlement
discussions with the other two are ongoing.
In 1996 SDG&E also negotiated contracts for 1,140 mw of short-term
purchased power that will be available in 1997.
Additional information concerning resource planning is provided in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders and in Notes 9 and 10 of the "Notes to Consolidated
Financial Statements" beginning on page 37 of this 1996 Annual Report on
Form 10-K.
Electric Resources
Based on generating plants in service and purchased-power contracts in
place as of January 31, 1997, the net megawatts of electric power
expected to be available to SDG&E during the next summer (normally the
time of highest demand) are as follows:
Source Net Megawatts
--------------------------------------------------
Gas/oil generating plants 1,641
Combustion turbines 332
Nuclear generating plants 430
Long-term contracts with other utilities 225
Short-term contracts with other utilities 140
Contracts with others 1,158
-----
Total 3,926
=====
SDG&E's 1996 system peak demand of 3,299 mw occurred on August 29, when
the net system capability, including power purchases, was 3,753 mw. The
all-time record is 3,335 mw which was reached on August 17, 1992.
Gas/Oil Generating Plants: SDG&E's South Bay (Chula Vista, California)
and Encina (Carlsbad, California) power plants are equipped to burn
either natural gas or fuel oil. The four South Bay units went into
operation between 1960 and 1971 and can generate 690 mw. The five Encina
units began operation between 1954 and 1978 and can generate 951 mw.
SDG&E sold and leased back Encina Unit 5 (330 mw) in 1978. The lease
term is through 2004, with renewal options for up to 15 additional
years.
SDG&E has 19 combustion turbines that were placed in service from 1966
to 1979. They are located at various sites and are used only in times of
peak demand.
Nuclear Generating Plants: SDG&E owns 20 percent of the three nuclear
units at San Onofre Nuclear Generating Station (south of San Clemente,
California). The cities of Riverside and Anaheim own a total of 5
percent of SONGS 2 and 3. Southern California Edison Company owns the
remaining interests and operates the units.
SONGS 1 was removed from service in November 1992, when the CPUC issued
a decision to permanently shut down the unit. At that time SDG&E began
the recovery of its remaining capital investment, with full recovery
completed in April 1996. SDG&E and Edison filed a decommissioning plan
in November 1994, although final decommissioning will not occur until
SONGS 2 and 3 are also decommissioned. The unit's spent nuclear fuel has
been removed from the reactor and stored on-site. In March 1993 the NRC
issued a Possession-Only License for SONGS 1, and the unit was placed in
a long-term storage condition in May 1994.
SONGS 2 and 3 began commercial operation in August 1983 and April 1984,
respectively. SDG&E's share of the capacity is 214 mw of SONGS 2 and 216
mw of SONGS 3.
Between 1994 and 1996, SDG&E spent $46 million on capital modifications
and additions and expects to spend $15 million in 1997. SDG&E deposits
funds in an external trust to provide for the future dismantling and
decontamination of the units. The shutdown of SONGS 1 does not affect
contributions to the trust.
In 1983 the CPUC adopted performance-based incentive plans for SONGS
that set a Target Capacity Factor range of 55 percent to 80 percent for
Units 2 and 3. Energy costs or savings outside that range were shared
equally by SDG&E and its customers. Since the TCF was adopted, these
units have operated above 55 percent for each of their fuel cycles and
have exceeded 80 percent a total of seven times in the fourteen
completed cycles. In April 1996 the CPUC discontinued the TCF when it
approved the accelerated recovery of the existing capital costs of Units
2 and 3 (see below).
Additional Information: Additional information concerning SDG&E's power
plants, the SONGS units, nuclear decommissioning and the CPUC's industry
restructuring proposal is provided in "Environmental Matters," "Electric
Properties" and "Legal Proceedings" herein, in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" beginning
on page 20 of the 1996 Annual Report to Shareholders, and in Notes 5, 9
and 10 of the "Notes to Consolidated Financial Statements" beginning on
page 37 of this 1996 Annual Report on Form 10-K.
Purchased Power: The following table lists contracts with the various
suppliers:
Megawatt
Supplier Period Commitment Source
- ------------------------------------------------------------------------------------
Long-Term Contracts with Other Utilities:
Portland General Through December 1998 50 Hydro storage
Electric Through December 2013 75 Coal
Public Service Company Through April 2001 100 System supply
of New Mexico -----
Total summer availability (see page 6) 225
=====
Short-Term Contracts with Other Utilities:
Bonneville Power June through September 1997 140 System Supply
Administration -----
Total summer availability (see page 6) 140
=====
Contracts with Others:
Coastal Electric Services Through December 1997 100 System Supply
Electric Clearinghouse Through December 1997 200 System Supply
Enron Power Marketing Through December 1997 50 System Supply
e prime July through September 1997 100 System Supply
December 1997 75*
Goal Line Limited Through December 2025 50 Cogeneration
Partnership
Illinova Power Marketing Through December 1997 475 System Supply
January 1998 through 200*
December 1999
Applied Energy Through December 2019 102 Cogeneration
Yuma Cogeneration Through June 2024 50 Cogeneration
Other Various 31 Cogeneration
------
Total summer availability (see page 6) 1,158
======
* Not included in total 1997 summer availability.
Costs under contracts with qualifying facilities (identified above as
sourced from cogeneration) are based on SDG&E's avoided cost. Contracts
with power marketers are at market value at the time the contracts were
negotiated. Charges under contracts with other utilities are based on
the selling utility's costs, including a return on and depreciation of
the utility's rate base (or lease payments in cases where the utility
does not own the property), fuel expenses, operating and maintenance
expenses, transmission expenses, administrative and general expenses,
and state and local taxes.
Long-Term Contracts with Other Utilities
Portland General Electric: In 1985 SDG&E and PGE entered into an
agreement for the purchase of 75 MW of capacity from PGE's Boardman Coal
Plant from January 1989 through December 2013. SDG&E pays a monthly
capacity charge plus a charge based upon the amount of energy received.
In addition, SDG&E has 50 MW of available hydro storage service with PGE
through December 1998. SDG&E has also purchased 75 MW of transmission
service from PGE in the northern section of the Pacific Intertie through
December 2013.
Public Service Company of New Mexico: In 1985 SDG&E and PNM entered into
an agreement for the purchase of 100 MW of capacity from PNM's system
from June 1988 through April 2001. SDG&E pays a capacity charge plus a
charge based on the amount of energy received.
Short-Term Contracts with Other Utilities
Bonneville Power Administration: In October 1996 SDG&E and BPA entered
into an agreement for the purchase of 140 MW of firm energy from June
through September 1997. The energy charge is based on the amount of
energy received.
Contracts with Others
Coastal Electric Services: In December 1996 SDG&E and Coastal entered
into an agreement for the purchase of 100 MW of firm energy through
December 1997. The energy charge is based on the amount of energy
received.
Electric Clearinghouse: In December 1996 SDG&E and ECI entered into an
agreement for the purchase of 200 MW of firm energy through December
1997. The energy charge is based on the amount of energy received.
Enron Power Marketing: In November 1996 SDG&E and Enron entered into an
agreement for the purchase of 50 MW of firm energy through December
1997. The energy charge is based on the amount of energy received.
e prime: In November 1996 SDG&E and e prime entered into an agreement
for the purchase of 100 MW of capacity from July through September 1997,
and 75 MW of capacity in December 1997. SDG&E pays a capacity charge
plus a charge based on the amount of energy received.
Goal Line Limited Partnership: In December 1990 SDG&E and Goal Line
entered into a 30-year agreement for the purchase of 50 MW of firm
capacity, beginning in February 1995. SDG&E pays a firm capacity charge
plus a charge based on the amount of energy received.
Illinova Power Marketing: In October 1996 SDG&E and Illinova entered
into an agreement for the purchase of 475 MW of firm energy from January
1997 through December 1997, and 200 MW of firm energy from January 1998
through December 1999. SDG&E pays a charge based on the amount of energy
received.
Applied Energy (subsidiary of Sithe Energies, USA): In April 1985 SDG&E
entered into three 30-year agreements for the purchase of 102 MW of firm
capacity from December 1989 through December 2019. SDG&E pays a firm
capacity charge plus a charge based on the amount of energy received.
Yuma Cogeneration: In March 1990 SDG&E and Yuma Cogeneration entered
into a 30-year agreement for the purchase of 50 MW of firm capacity
which began in June 1994. SDG&E pays a firm capacity charge plus a
charge based on the amount of energy received.
Other: SDG&E currently purchases capacity and energy from 85 as-
available Qualifying Facilities. SDG&E pays a capacity charge plus a
charge based on the amount of energy received. These account for 31 MW
of capacity annually.
Additional information concerning SDG&E's purchased-power contracts is
described in "Legal Proceedings" herein, in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 20 of the 1996 Annual Report to Shareholders, and in Notes 9 and 10
of the "Notes to Consolidated Financial Statements" beginning on page 40
of the 1996 Annual Report to Shareholders.
Power Pools
In 1964 SDG&E, PG&E, and Edison entered into the California Power Pool
Agreement. It provides for the transfer of electrical capacity and
energy by purchase, sale or exchange during emergencies and at other
mutually determined times. On December 20, 1996 the three utilities
filed a request with the FERC to terminate the California Power Pool,
effective December 31, 1996. The FERC's decision is still pending. In
its place, SDG&E, PG&E and Edison have made an arrangement with the CPUC
that will provide for the transfer of capacity and energy in the event
of an emergency.
SDG&E is a participant in the Western Systems Power Pool, which includes
an electric power and transmission rate agreement with utilities and
power agencies located throughout the United States and Canada. More
than 150 investor-owned and municipal utilities, state and federal power
agencies, energy brokers, and power marketers share power and
information in order to increase efficiency and competition in the bulk
power market. Participants are able to target and coordinate delivery of
cost-effective sources of power from outside their service territories
through a centralized exchange of information. Although the extent has
not yet been determined, the status of the WSPP is likely to change due
to industry restructuring, and the creation of a regional power exchange
and an independent system operator (discussed below).
Transmission Arrangements
In addition to interconnections with other California utilities, SDG&E
has firm transmission capabilities for purchased power from the
Northwest, the Southwest and Mexico. It is expected that these
arrangements will either change or be eliminated with the creation of
the ISO (discussed below).
Pacific Intertie: The Pacific Intertie, consisting of AC and DC
transmission lines, enables SDG&E to purchase and receive surplus coal
and hydroelectric power from the Northwest. SDG&E, PG&E, Edison and
others share transmission capacity on the Pacific Intertie under an
agreement that expires in July 2007. SDG&E's share of the intertie is
266 MW.
Southwest Powerlink: SDG&E's 500-kilovolt Southwest Powerlink
transmission line, which it shares with Arizona Public Service Company
and Imperial Irrigation District, extends from Palo Verde, Arizona to
San Diego and enables SDG&E to import power from the Southwest. SDG&E's
share of the line is 931 MW, although it can be less, depending on
specific system conditions.
Mexico Interconnection: Mexico's Baja California Norte system is
connected to SDG&E's system via two 230-kilovolt interconnections with
firm capability of 408 MW. SDG&E uses this interconnection for
transactions with Comision Federal de Electricidad.
Additional Transmission Capabilities: Various studies have been
undertaken or are ongoing to determine the extent to which various path
ratings may be increased. SDG&E expects to receive an additional
allocation of approximately 39 MW East-of-the-Colorado-River and 94 MW
West-of-the-Colorado-River as a result of these various studies.
Transmission Access
As a result of the enactment of the National Energy Policy Act of 1992,
the FERC has established rules to implement the Act's transmission-
access provisions. These rules specify FERC-required procedures for
others' requests for transmission service. Beginning in January 1998 the
ISO will be responsible for the operation and control of the
transmission lines. Additional information regarding the ISO and
transmission access is discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" beginning
on page 20 of the 1996 Annual Report to Shareholders.
Power Exchange and Independent System Operator
The CPUC's electric restructuring decision provides that, beginning in
January 1998, customers will have the option to buy their electricity
through a power exchange that will obtain power from the lowest-bidding
suppliers. The power exchange will serve as a wholesale power pool
allowing all energy producers to competitively participate. The ISO will
schedule power transactions and access to the transmission system.
Additional information regarding the power exchange and ISO is discussed
in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders.
Fuel and Purchased-Power Costs
The following table shows the percentage of each electric fuel source
used by SDG&E and compares the costs of the fuels with each other and
with the total cost of purchased power:
Percent of Kwhr Cents per Kwhr
- -----------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
----- ----- ----- ---- ---- ----
Natural gas 22.8% 21.7% 22.4% 2.8 2.3 3.1
Nuclear fuel 19.6 16.5 21.8 0.5 0.5 0.5
Fuel oil 1.1 0.1 1.4 2.2 2.1 2.6
----- ----- -----
Total generation 43.5 38.3 45.6
Purchased power-net 56.5 61.7 54.4 3.1 3.3 3.7
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
The cost of purchased power includes capacity costs as well as the costs
of fuel. The cost of natural gas includes transportation costs. The
costs of natural gas, nuclear fuel and fuel oil do not include SDG&E's
capacity costs. While fuel costs are significantly less for nuclear
units than for other units, capacity costs are higher.
Electric Fuel Supply
Natural Gas: Information concerning natural gas is provided in "Natural
Gas Operations" herein.
Nuclear Fuel: The nuclear-fuel cycle includes services performed by
others. These services and the dates through which they are under
contract are as follows:
Mining and milling of uranium concentrate 2003
Conversion of uranium concentrate to uranium hexafluoride 2003
Enrichment of uranium hexafluoride(1) 2003
Fabrication of fuel assemblies 2003
Storage and disposal of spent fuel(2) --
(1) The United States Enrichment Corporation, a government-owned
corporation, is committed to offer any required enrichment services
through 2014.
(2) Spent fuel is being stored at SONGS, where storage capacity will be
adequate at least through 2003. If necessary, modifications in fuel-
storage technology can be implemented to provide on-site storage
capacity for operation through 2014, the expiration date of the NRC
operating license. The DOE's plan is to provide a permanent storage site
for the spent nuclear fuel by 2010.
Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a
contract with the DOE for spent-fuel disposal. Under the agreement, the
DOE is responsible for the ultimate disposal of spent fuel. SDG&E is
paying a disposal fee of $0.91 per megawatt-hour of net nuclear
generation. Disposal fees average $2.7 million per year.
To the extent not currently provided by contract, the availability and
the cost of the various components of the nuclear-fuel cycle for SDG&E's
nuclear facilities cannot be estimated at this time.
Additional information concerning nuclear-fuel costs is discussed in
Note 9 of the "Notes to Consolidated Financial Statements" beginning on
page 37 of this 1996 Annual Report on Form 10-K.
Fuel Oil: SDG&E has no long-term commitments to purchase fuel oil. The
use of fuel oil is dependent upon price differences between it and
natural gas, and air-emission limitations associated with the San Diego
Air Pollution Control District's Rule 69. Additional information
concerning air-emission restrictions, including Rule 69, is provided in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders. During 1996 SDG&E burned 356,000 barrels of fuel oil.
NATURAL-GAS OPERATIONS
SDG&E purchases natural gas for resale to its customers and for fuel in
its generating plants. All natural gas is delivered to SDG&E under a
transportation and storage agreement with Southern California Gas
Company through two transmission pipelines with a combined capacity of
449 million cubic feet per day.
During 1996 SDG&E purchased approximately 94 billion cubic feet of
natural gas. The majority of SDG&E's natural-gas requirements are met
through contracts of less than one year. SDG&E purchases natural gas
primarily from various spot-market suppliers and from suppliers under
short-term contracts. These supplies originate in New Mexico, Oklahoma
and Texas, and are transported to the SoCal Gas Company pipeline at the
California border by El Paso Natural Gas Company and by Transwestern
Pipeline Company. SDG&E also has long-term contracts for natural gas
with four Canadian suppliers. Three of these suppliers have ceased
deliveries due to legal disputes. Natural gas from Canada is transported
to SDG&E's system over Alberta Natural Gas, Pacific Gas Transmission,
and PG&E pipelines. The natural-gas transportation contracts have
varying terms through 2023.
Additional information concerning SDG&E's gas operations is provided
under "Legal Proceedings" herein, in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 20 of the 1996 Annual Report to Shareholders, and in Note 9 of the
"Notes to Consolidated Financial Statements" beginning on page 37 of
this 1996 Annual Report on Form 10-K.
RATE REGULATION
Industry Restructuring
A description of electric industry restructuring occurring in the State
of California is given in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 20 of
the 1996 Annual Report to Shareholders, and in Note 10 of the "Notes to
Consolidated Financial Statements" beginning on page 37 of this 1996
Annual Report on Form 10-K.
Cost of Capital
A description of SDG&E's new cost of capital mechanism, the Market-
Indexed Capital Adjustment Mechanism (MICAM), is provided in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders. MICAM eliminates the annual cost of capital application.
SDG&E is required to file a report on MICAM's progress in March 2000
with recommendations for modifications, if any.
Electric Fuel Costs and Sales Volumes
Until the present time, rates to recover electric-fuel and purchased-
power costs were determined in the Energy Cost Adjustment Clause
proceeding. The Electric Revenue Adjustment Mechanism compensated for
variations in sales volume compared to the estimates used for setting
the non-fuel component of rates. However, both ECAC and ERAM may
potentially be eliminated as part of electric industry restructuring.
The elimination of ECAC and ERAM would cause the revenues associated
with electric fuel costs and sales volumes to be market driven. Although
no significant effect is expected for any full year, quarterly earnings
would significantly fluctuate beginning with the first quarter of 1997.
Additional information on balancing accounts is discussed below in
"Balancing Accounts" and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 20 of
the 1996 Annual Report to Shareholders.
Natural-Gas Costs and Sales Volumes
Natural-gas commodity rates are currently set monthly based on market
prices, subject to a cap for core customers. If the rates exceed the
cap, the difference is applied to natural-gas balancing accounts. In
February 1997 SDG&E filed a request with the CPUC to remove the cap to
reflect the significant increase in natural-gas prices during the past
year. Under traditional ratemaking, natural-gas rates were adjusted
annually based on a forecast of natural-gas prices. This resulted in
rate stability, but also contributed to significant accumulations in the
Purchased Gas Account (PGA). Rates to recover the cost of transporting
natural gas to SDG&E are determined in the Biennial Cost Allocation
Proceeding. The BCAP proceeding normally occurs every two years and is
updated in the interim year for purposes of amortizing any accumulation
in the balancing accounts. The natural-gas balancing accounts include
the PGA for natural-gas costs and the Gas Fixed Cost Account for sales
volumes. Balancing account coverage includes both core customers
(primarily residential and commercial customers) and noncore customers
(primarily large industrial customers). However, SDG&E does not receive
balancing account treatment on 25 percent of noncore GFCA
overcollections and undercollections.
Balancing Accounts
Until the present time, the CPUC required balancing accounts for fuel
and purchased energy costs and for sales volumes, setting balancing
account rates based on estimated costs and sales volumes. Revenues were
adjusted upward or downward to reflect the differences between
authorized and actual volumes and costs. These differences were
accumulated in the balancing accounts and represented amounts to be
either recovered from customers or returned to them. After the
application of $98 million of ECAC and ERAM overcollections to stranded
investments in December 1996, these balancing accounts were
overcollected by $35 million at December 31, 1996 and by $171 million at
December 31, 1995.
During late 1996 the CPUC ordered the three California investor-owned
utilities to continue to make refunds to customers for fuel overcharges,
disallowances by the CPUC and gas refunds from suppliers, stressing that
utility disallowances should not be applied to transition costs. The
disallowances are intended to benefit ratepayers by reducing rates and
to discourage utilities from making imprudent expenditures. The
utilities will establish an Electric Deferred Refund Account to be used
if the CPUC rules that certain revenues collected in rates should be
disallowed and refunded to customers. SDG&E does not currently have any
refunds or disallowances that would be entered into this account.
Performance-Based Ratemaking
CPUC policies continue to move away from traditional cost-of-service
regulation and toward incentive mechanisms. SDG&E implemented
performance-based ratemaking in 1993 for natural-gas procurement and
transportation, and for electric generation and purchased energy; and in
1994 for base rates. These mechanisms measure SDG&E's ability to
purchase and transport natural gas, and to generate or purchase energy
at the lowest possible cost, by comparing SDG&E's performance against
various market benchmarks. SDG&E's shareholders and customers share in
any savings or excess costs within predetermined ranges. A discussion of
the current status of these PBR programs is contained in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders.
Energy Conservation Programs
Over the past several years, SDG&E has promoted conservation programs to
encourage efficient use of energy. The programs are designed to conserve
energy through the use of energy-efficiency measures that will reduce
customers' energy costs and reduce the need to build additional power
plants. The costs of these programs are recovered from customers. The
programs contain an incentive mechanism that could increase or decrease
SDG&E's earnings, depending upon the performance of the programs in
meeting specified efficiency and expenditure targets. The CPUC has
encouraged expansion of these programs, authorizing annual expenditures
ranging from $54 million in 1993 to $60 million in 1996. However,
consistent with the industry trend toward increased competition, in
February 1997 the CPUC issued a decision removing the energy-efficiency
programs from utility control and moving the programs into the
competitive market. The decision directs the creation of an oversight
board that will develop program policies and procedures and select
program administrators. The utilities will no longer be involved with
program delivery to customers, but will be allowed to bid to become
administrators. The CPUC's goal is to have the transition complete by
January 1, 1998. In the interim, the current programs and earnings
mechanism will remain in effect.
Low-Emission Vehicle Programs
SDG&E has conducted a CPUC-approved natural-gas-vehicle program since
1991. The program includes building refueling stations, demonstrating
new technology, providing incentives and converting portions of SDG&E's
vehicle fleet to natural gas. The cost of this program is being
recovered in natural-gas rates. In November 1995 the CPUC issued its
decision authorizing funding for limited electric-vehicle and natural-
gas-vehicle programs through the year 2000 to allow recovery of costs
for operation and maintenance of SDG&E's EV and NGV fleets and NGV
fueling stations, and to allow recovery of transition costs to meet
existing commitments to customers. The decision requires the sale of
SDG&E's NGV fueling stations located on customer property within six
years. The CPUC approved a six-year program that provides a total of
$5.3 million for SDG&E's electric-vehicle program and $6.7 million for
its natural-gas-vehicle program over the six-year period.
Electric Rates
The average price per kilowatt-hour charged to electric customers was
9.6 cents in 1996, 9.8 cents in 1995 and 9.7 cents in 1994.
Natural-Gas Rates
The average price per therm of natural gas charged to customers was 58.4
cents in 1996, 55.7 cents in 1995 and 59.9 cents in 1994.
ENVIRONMENTAL MATTERS
Discussions about environmental issues affecting SDG&E, including
electric and magnetic fields, hazardous substances, air quality, water
quality and wood pole preservatives, are included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 20 of the 1996 Annual Report to Shareholders. The
following should be read in conjunction with those discussions.
Hazardous Substances
The Hazardous Waste Collaborative approved by the CPUC in 1994 allows
utilities to recover 90 percent of certain costs to clean up hazardous
waste contamination and 70 percent of their costs related to obtaining
recovery of such cleanup costs from insurance carriers providing coverage
for such costs. Due to the fact that SDG&E disposes of its hazardous
wastes at facilities owned and operated by other entities, applicable
environmental laws may impose an obligation on SDG&E and others to
undertake corrective actions if the owner or operator of such a facility
fails to complete any required corrective actions.
This type of obligation has been imposed upon SDG&E with respect to a
site in Pico Rivera, California. SDG&E and 10 other entities have been
named potential responsible parties by the California Department of Toxic
Substances Control (DTSC) and are liable for any required corrective
action regarding contamination at the site. DTSC has taken this action
because SDG&E and others sold used electrical transformers to the site's
owner. The DTSC considers SDG&E to be responsible for 7.4 percent of the
transformer-related contamination at the site. The estimate for the
development of the cleanup plan is $850,000. SDG&E has contributed
$43,000 to the effort. The estimate for the actual cleanup, which will
commence in 1997, is in the $2 million to $8 million range.
Underground Storage: California has enacted legislation to protect ground
water from contamination by hazardous substances. Underground storage
containers require permits, inspections and periodic reports, as well as
specific requirements for new tanks, closure of old tanks and monitoring
systems for all tanks. It is expected that cleanup of sites previously
contaminated by underground tanks will occur for an unknown number of
years. SDG&E cannot predict the cost of such cleanup. Specific known
underground locations requiring assessment and/or remediation are
indicated below:
In May 1987 the San Diego Regional Water Quality Control Board issued
SDG&E a cleanup and abatement order for gasoline contamination
originating from an underground storage tank located at SDG&E's Mountain
Empire Operation and Maintenance facility. SDG&E assessed the extent of
the contamination, removed all contaminated soil and completed
remediation of the site. Monitoring of the site confirms its remediation.
SDG&E has applied for and is awaiting a site-closure letter from the
Regional Water Quality Control Board.
In January 1993 SDG&E was issued a Notice of Unauthorized Release by the
San Diego County Division of Environmental Health Services relative to
soil contamination from used motor oil associated with an underground
tank located at SDG&E's South Bay Operation and Maintenance facility.
SDG&E removed the tank and the associated contaminated soil. No
actionable levels of contamination remain on the site. SDG&E received a
site-closure letter in April 1996 from the San Diego County Division of
Environmental Health Services.
Station B: Station B is located in downtown San Diego and was operated as
a steam and generating facility between 1911 and June 1993. Pursuant to a
cleanup and abatement order, SDG&E remediated the hydrocarbon
contamination discovered as a result of the removal of three 100,000-
gallon underground diesel-fuel storage tanks from an adjacent substation.
Encina Power Plant: During 1993 SDG&E discovered the presence of
hydrocarbon contamination in subsurface soil at its Encina power plant.
The contamination was located near fuel-storage facilities and believed
to be fuel oil originating from a 1950s refueling spill. SDG&E has
remediated the contamination to the extent required by the San Diego
County Division of Environmental Health Services and received a site-
closure letter in October 1996.
OTHER
Research, Development and Demonstration
SDG&E conducts research and development in areas that provide value to
SDG&E and its customers. Annual research, development and demonstration
costs averaged $7 million over the past three years. The CPUC
historically has permitted rate recovery of research, development and
demonstration expenditures.
Wages
SDG&E and Local 465, International Brotherhood of Electrical Workers
have two labor agreements, a generation contract that runs through
February 28, 1998 and a utility contract (transmission and distribution)
that runs through August 31, 1998.
Employees of Registrant
As of December 31, 1996 SDG&E had 3,688 employees, compared to 3,880 at
December 31, 1995. Enova's other subsidiaries had 49 employees at
December 31, 1996 compared to 13 at December 31, 1995.
Foreign Operations
SDG&E foreign operations in 1996 included power purchases and sales with
CFE in Mexico; purchases of natural gas from suppliers in Canada; and
purchases of uranium from suppliers in Canada and Russia. Enova
International is part of a consortium that is developing a natural-gas
distribution system in Mexico.
Additional information concerning foreign operations is provided under
"Electric Operations" and "Natural Gas Operations" herein, in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on page 20 of the 1996 Annual Report to
Shareholders, and in Note 9 of the "Notes to Consolidated Financial
Statements" beginning on page 37 of this 1996 Annual Report on Form
10-K.
ITEM 2. PROPERTIES
Substantially all utility plant is subject to the lien of the July 1,
1940 mortgage and deed of trust and its supplemental indentures between
SDG&E and the First Trust of California N.A. as trustee, securing the
outstanding first-mortgage bonds.
Information concerning SDG&E's properties is provided below. Additional
information is provided under "Electric Operations" and "Gas Operations"
herein, in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" beginning on page 20 of the 1996 Annual
Report to Shareholders, and in Notes 2, 5, 9 and 10 of the "Notes to
Consolidated Financial Statements" beginning on page 37 of this 1996
Annual Report on Form 10-K.
Electric Properties
SDG&E's generating capacity is described in "Electric Resources",
herein.
The 1996 system load factor was 59 percent and ranged from 56 percent to
64 percent for the past five years.
SDG&E's electric transmission and distribution facilities include
substations, and overhead and underground lines. Periodically various
areas of the service territory require expansion to handle customer
growth.
SDG&E owns an approved nuclear power-plant site near Blythe, California.
Natural-Gas Properties
SDG&E's natural-gas facilities are located in San Diego and Riverside
counties and consist of the Moreno and Rainbow compressor stations,
various high-pressure transmission pipelines, high-pressure distribution
mains, and service lines. SDG&E's natural-gas system is sufficient to
meet customer demand and short-term growth. SDG&E is currently
undergoing an expansion of its high-pressure transmission lines to
accommodate expected long-term customer growth.
Other SDG&E Properties
The 21-story corporate office building at 101 Ash Street, San Diego is
occupied pursuant to a capital lease through the year 2005. The lease
has four separate five-year renewal options. SDG&E also occupies an
office complex at Century Park Court in San Diego pursuant to an
operating lease ending in the year 2007. The lease can be renewed for
two five-year periods.
In addition, SDG&E occupies eight operating and maintenance centers, two
business centers, six district offices, and five branch offices.
Non-utility Property
Phase One Development, a subsidiary of Pacific Diversified Capital,
holds one property in San Diego County, which will be sold for
residential use.
ITEM 3. LEGAL PROCEEDINGS
The Covalt proceeding, described in SDG&E's 1995 Annual Report on Form
10-K, was concluded during the year ended December 31, 1996. Information
concerning the conclusion of this proceeding is contained in SDG&E's
Quarterly Report on Form 10-Q for the three-month period ended September
30, 1996. Other legal proceedings are discussed below. Management
believes that these matters will not have a material adverse effect on
Enova's results of operations, financial condition or liquidity.
Public Service Company of New Mexico
On October 27, 1993 SDG&E filed a complaint with the FERC against Public
Service Company of New Mexico, alleging that charges under a 1985 power-
purchase agreement are unjust, unreasonable and discriminatory. SDG&E
requested that the FERC investigate the rates charged under the
agreement and establish December 26, 1993 as the effective refund date.
The relief, if granted, would reduce annual demand charges paid by SDG&E
to PNM by up to $11 million per year through April 2001. If approved,
the proceeds would be refunded principally to SDG&E customers.
On December 8, 1993 PNM answered the complaint and moved that it be
dismissed. PNM denied that the rates are unjust, unreasonable or
discriminatory and asserted that SDG&E's claims were barred by certain
orders issued by the FERC in 1988.
On March 18, 1996 SDG&E filed a second complaint with FERC against PNM,
alleging in part that applying the same methodology as SDG&E had used in
the 1993 complaint, but based on more recent cost information, results
in charges under the 1985 power purchase agreement that are unjust,
unreasonable and discriminatory. SDG&E requested that the FERC
investigate the rates charged under the 1985 agreement and establish May
17, 1996 as the effective refund date. The relief, if granted, would
reduce annual demand charges paid by SDG&E to PNM, in addition to the
amount from the first complaint, by up to $12 million per year. On April
26, 1996 PNM answered the second complaint and moved that it be
dismissed for the same reasons stated in its answer to the 1993
complaint.
Canadian Natural Gas
During early 1991 SDG&E signed four long-term natural gas supply
contracts with Husky Oil Ltd., Canadian Hunter Ltd. and Noranda Inc.,
Bow Valley Energy Inc., and Summit Resources Ltd. Canadian-sourced
natural gas began flowing to SDG&E under these contracts on November 1,
1993. Disputes have arisen with each of these producers with respect to
events which are alleged by the producers to have occurred justifying a
revision to the pricing terms of each contract, and possibly their
termination. Consequently, during December 1993 SDG&E filed complaints
in the United States Federal District Court, Southern District of
California, seeking a declaration of SDG&E's contract rights.
Specifically, SDG&E states that neither price revision nor contract
termination is warranted.
On March 14, 1994 SDG&E voluntarily dismissed its complaint against Bow
Valley without prejudice. On April 24, 1994 the court denied the other
defendants' motions to dismiss SDG&E's complaints. These motions were
based on jurisdictional grounds. Two of the defendants, Bow Valley and
Husky Oil, filed claims on June 12, 1994 and June 29, 1994,
respectively, against SDG&E with the Queens Bench in Alberta, Canada,
seeking a declaration that they are entitled to damages or, in the
alternative, that they may terminate their respective contracts with
SDG&E. SDG&E has answered these claims. On March 1, 1995 SDG&E and
Husky Oil reached an agreement dismissing all of their respective claims
with prejudice.
Bow Valley and Summit Resources gave SDG&E notice that their natural-gas
supply contracts with SDG&E were terminated pursuant to provisions in
the contract that purportedly give them the right to do so. SDG&E has
responded that the notices were inappropriate and that it will seek both
contract and tort damages. Bow Valley and Summit have subsequently
ceased deliveries of natural gas to SDG&E.
In May 1996 the U.S. District Court granted Canadian Hunter's and
Summit's motion to dismiss the case, finding that the Alberta Sales of
Goods Act rendered the gas-purchase agreements between SDG&E and the
defendants voidable by either party. On June 1, 1996 Canadian Hunter
ceased deliveries of gas to SDG&E. On September 11, 1996 SDG&E filed in
the Ninth Circuit Federal Court of Appeals an appeal of the U.S.
District Court's judgment granting Summit's motion to dismiss the case.
A hearing date has not yet been established.
North City West
On June 14, 1993 the Peninsula at Del Mar Highlands Homeowners
Association filed a complaint with the Superior Court of San Diego
County against the City of San Diego and SDG&E to prevent SDG&E from
constructing and operating an electric substation in an area which is
known as North City West. In the complaint, the plaintiffs sought to
have the city either revoke previously issued permits or reopen the
hearing process to address alleged electric and magnetic field concerns.
On July 6, 1993 the court denied the plaintiffs' motion for a temporary
restraining order. On July 30, 1993 the court denied the plaintiffs'
motion for a preliminary injunction. On September 28, 1993 the
plaintiffs withdrew their complaint and the court dismissed it without
prejudice.
On August 18, 1993 the plaintiffs filed a complaint with the California
Public Utilities Commission requesting that the CPUC conduct an
environmental assessment. This complaint still is pending at the CPUC.
SONGS Personal Injury Litigation
SDG&E holds a 20-percent ownership interest in the San Onofre Nuclear
Generation Station. There have been six radiation personal injury cases
filed against various parties including Southern California Edison,
SDG&E, Combustion Engineering, and the Institute of Nuclear Power
Operations in Federal District Court, Southern District of California:
James (filed July 12, 1994), McLandrich (February 6, 1995), Metler (July
5, 1995), Knapp (August 31, 1995), Kennedy (November 17, 1995), and Rock
(November 28, 1995). The plaintiffs allege their various types of
leukemia or other forms of cancers were caused by radiation exposure
from "fuel fleas" (radioactive fuel particles).
On October 12, 1995 the jury in the James case determined that there was
no scientific link between the plaintiff's leukemia and the amount of
radiation he was exposed to while employed at SONGS as an employee of a
SONGS contractor. On August 15, 1996 the Ninth Circuit Court of Appeal
upheld the decision.
McLandrich, Metler and Knapp are wrongful death cases filed by the heirs
of former SONGS employees seeking unspecified amounts in compensatory
and punitive damages. Edison has been dismissed from McLandrich and
Metler based upon the District Court's ruling that Edison is an employer
and workers' compensation is the exclusive remedy for the plaintiffs.
McLandrich is on appeal, with SDG&E challenging the Court's
determination that SDG&E is not an employer and thus may not avail
itself of the workers' compensation exclusivity rule. Metler and Knapp
are stayed pending the outcome of the McLandrich appeal.
The Kennedy and Rock cases involve family members of current or former
SONGS employees who allege that the employees carried home fuel fleas
which caused the family members' illnesses. The plaintiffs are alleging
unspecified amounts of compensatory and punitive damages. SDG&E has not
been named in these actions.
Environmental and Regulatory Issues
Other legal matters related to environmental and regulatory issues are
described under "Environmental Matters" and "Rate Regulation" herein.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The shareholders of Enova Corporation approved the principal terms
of a business combination of Enova Corporation and Pacific
Enterprises, Inc. at a Special Meeting of Shareholders of Enova
Corporation on March 11, 1997. The number of shares voted or
withheld were as follows:
In Favor 88,409,548
Opposed 1,895,808
Abstained 1,746,091
ITEM 4. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions* (1992 - Current)
- ----------------------------------------------------------------------------------------------
Thomas A. Page 63 Chairman (Enova) since December 1994. Chairman since January 1983.
President and Chief Executive Officer (Enova) from December 1994
through December 1995.
Chief Executive Officer from January 1983 through December 1995.
President from 1983 through 1991 and from January 1994
through December 1995.
Stephen L. Baum 56 Vice Chairman since April 1996.
President and Chief Executive Officer (Enova) since January 1996.
Executive Vice President (Enova) from December 1994 through December 1995.
Executive Vice President from January 1993 through December 1995.
Senior Vice President - Law and Corporate Affairs and General
Counsel from January 1992 through December 1992.
Donald E. Felsinger 49 President and Chief Executive Officer since January 1996.
Executive Vice President (Enova) from December 1994 through
December 1995 and since April 1996.
Executive Vice President from January 1993 through December 1995.
Senior Vice President - Marketing and Resource Development
from January 1992 through December 1992.
Gary D. Cotton 56 Senior Vice President - Customer Operations since January 1993.
Senior Vice President - Customer Services from January 1992
through December 1992.
Edwin A. Guiles 47 Senior Vice President (Enova) from January 1997.
Senior Vice President - Energy Supply from January 1993 through
January 1997.
Vice President - Engineering and Operations from January 1992
through December 1992.
David R. Kuzma 51 Senior Vice President, Chief Financial Officer and Treasurer
(Enova) since November 1995.
Senior Vice President, Chief Financial Officer and Treasurer
since June 1995.
Chief Financial Officer, Senior Vice President and Treasurer of
Florida Progress Corporation from 1991 to 1995.
Frank H. Ault 52 Vice President and Controller (Enova) since December 1994.
Vice President and Controller since January 1993.
Controller from May 1986 through December 1992.
Kathleen A. Flanagan 46 Vice President - Corporate Communications since July 1994.
Manager - Corporate Communications at Southern California Edison
from 1991 to 1994.
Margot A. Kyd 43 Acting Vice President - Marketing and Customer Services since
January 1996.
Vice President - Human Resources (Enova) since January 1996.
Vice President - Human Resources since January 1993.
Vice President - Administrative Services from 1988 through 1992.
William L. Reed 45 Vice President - Regulatory Affairs since January 1996.
Vice President - Strategic Planning from August 1995 through December 1995.
Division Manager - Strategic Plans & Projects from August 1994
through July 1995.
Director - Energy Management from April 1993 through July 1994.
Director - Regulatory Affairs from 1990 through March 1993.
*All positions are at SDG&E unless otherwise noted.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Enova Corporation
Common stock of Enova Corporation is traded on the New York and Pacific stock
exchanges. At December 31, 1996 there were 79,146 holders of common stock. The
quarterly common stock information required by Item 5 is incorporated by
reference from page 51 of the 1996 Annual Report to Shareholders.
On March 11, 1997 Enova Corporation's board of directors authorized the
repurchase of up to 3 million of its outstanding shares of common stock.
Under the authorization, the purchases can be made periodically either in the
open market or through private transactions. Enova does not anticipate that
this repurchase will affect its ability to engage in future transactions that
would be accounted for as poolings of interests, including the pending
business combination with Pacific Enterprises.
San Diego Gas & Electric Company
All the common stock of San Diego Gas & Electric Company is owned by Enova
Corporation and is not publicly traded. The following table sets forth the
cash distributions on common stock paid to Enova Corporation by SDG&E:
1996
First Quarter $45,459,716
Second Quarter $45,460,652
Third Quarter $45,460,652
Fourth Quarter $45,485,207
Dividend Restrictions
The CPUC regulates SDG&E's capital structure, limiting the dividends it may pay
pay Enova. At December 31, 1996, $67 million of common equity was available for
for future dividends.
ITEM 6. SELECTED FINANCIAL DATA
Enova Corporation
In millions of dollars except per share amounts
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
For the years ended December 31
Operating revenues $1,993.5 $1,870.7 $1,912.2 $1,897.5 $1,789.0
Operating income $335.0 $345.7 $317.2 $303.9 $308.9
Income from continuing operations $230.9 $225.6 $199.3 $219.0 $211.5
Earnings applicable to
common shares $230.9 $225.8 $135.8 $210.2 $201.1
Earnings per common share from
continuing operations $1.98 $1.94 $1.71 $1.89 $1.86
Earnings per common share $1.98 $1.94 $1.17 $1.81 $1.77
Dividends declared per common share $1.56 $1.56 $1.52 $1.48 $1.44
At December 31
Total assets $4,649.2 $4,748.6 $4,662.9 $4,694.7 $4,472.8
Long-term debt and preferred stock
subject to mandatory redemption
(excludes current portion)* $1,504.3 $1,490.1 $1,479.2 $1,523.6 $1,647.3
*Includes long-term debt redeemable within one year.
This summary should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements beginning on page 27
27 of this 1996 Annual Report on Form 10-K.
San Diego Gas & Electric Company
In millions of dollars except per share amounts
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
For the years ended December 31
Operating revenues $1,938.9 $1,814.1 $1,856.5 $1,861.3 $1,784.1
Operating income $308.8 $315.0 $302.6 $288.2 $307.4
Income from continuing operations $222.8 $219.0 $206.3 $215.9 $224.2
Net income (before preferred
dividend requirement $222.8 $233.5 $143.5 $218.7 $210.7
Preferred dividends $6.6 $7.7 $7.7 $8.5 $9.6
Earnings applicable to
common shares $216.2 $225.8 $135.8 $210.2 $201.1
At December 31
Total assets $4,160.5 $4,472.6 $4,353.3 $4,370.0 $4,046.1
Long-term debt and preferred stock
subject to mandatory redemption
(excludes current portion)* $1,309.8 $1,242.0 $1,239.1 $1,347.5 $1,509.8
*Includes long-term debt redeemable within one year.
This summary should be read in conjunction with the San Diego Gas & Electric
Company financial statements and notes to financial statements beginning on
page 52 of this 1996 Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Enova Corporation/San Diego Gas & Electric Company
The information required by Item 7 is incorporated by reference from pages 20
through 30 of the 1996 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data - Enova Corporation
ENOVA CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
In thousands except per share amounts
For the years ended December 31 1996 1995 1994
------------ ------------ ------------
Operating Revenues
Electric $1,590,882 $1,503,926 $1,510,320
Gas 348,035 310,142 346,183
Other 54,557 56,608 55,742
------------ ------------ ------------
Total operating revenues 1,993,474 1,870,676 1,912,245
------------ ------------ ------------
Operating Expenses
Electric fuel 134,350 100,256 143,339
Purchased power 310,731 341,727 342,612
Gas purchased for resale 152,408 113,355 146,579
Maintenance 57,652 91,740 70,776
Depreciation and decommissioning 332,490 278,239 262,238
Property and other taxes 44,764 45,566 44,746
General and administrative 262,058 210,207 207,908
Other 212,245 209,358 233,533
Income taxes 151,813 134,578 143,298
------------ ------------ ------------
Total operating expenses 1,658,511 1,525,026 1,595,029
------------ ------------ ------------
Operating Income 334,963 345,650 317,216
------------ ------------ ------------
Other Income and (Deductions)
Allowance for equity funds used
during construction 5,898 6,435 6,274
Taxes on nonoperating income 3,339 (27) 7,299
Other - net (3,265) (5,876) (19,117)
------------ ------------ ------------
Total other income and (deductions) 5,972 532 (5,544)
------------ ------------ ------------
Income Before Interest Charges and
Preferred Dividends 340,935 346,182 311,672
------------ ------------ ------------
Interest Charges and Preferred Dividends
Long-term debt 89,198 95,523 92,770
Short-term debt and other 17,516 20,215 14,619
Allowance for borrowed funds
used during construction (3,288) (2,865) (2,658)
Preferred dividend requirements of SDG&E 6,582 7,663 7,663
------------ ------------ ------------
Net interest charges and preferred dividends 110,008 120,536 112,394
------------ ------------ ------------
Income From Continuing Operations 230,927 225,646 199,278
Discontinued Operations, Net Of Income Taxes -- 148 (63,464)
------------ ------------ ------------
Earnings Applicable to Common Shares $ 230,927 $ 225,794 $ 135,814
============ ============ ============
Average Common Shares Outstanding 116,572 116,535 116,484
============ ============ ============
Earnings Per Common Share from
Continuing operations $ 1.98 $ 1.94 $ 1.71
============ ============ ============
Earnings Per Common Share $ 1.98 $ 1.94 $ 1.17
============ ============ ============
Dividends Declared Per Common Share $ 1.56 $ 1.56 $ 1.52
============ ============ ============
See notes to consolidated financial statements
ENOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
Balance at December 31 1996 1995
-------------- --------------
ASSETS
Utility plant - at original cost $5,704,464 $5,533,554
Accumulated depreciation and decommissioning (2,630,093) (2,355,213)
-------------- --------------
Utility plant-net 3,074,371 3,178,341
-------------- --------------
Investments and other property 650,188 532,289
-------------- --------------
Current assets
Cash and temporary investments 173,079 96,429
Accounts receivable 186,529 178,155
Notes receivable 33,564 34,498
Inventories 63,437 67,959
Other 47,094 22,946
-------------- --------------
Total current assets 503,703 399,987
-------------- --------------
Deferred taxes recoverable in rates 189,193 298,748
-------------- --------------
Deferred charges and other assets 231,782 339,259
-------------- --------------
Total $4,649,237 $4,748,624
============== ==============
CAPITALIZATION AND LIABILITIES
Capitalization (see Statements of Consolidated
Capital Stock and of Long-Term Debt)
Common equity $1,569,670 $1,520,070
Preferred stock not subject to mandatory redemption 78,475 93,475
Preferred stock subject to mandatory redemption 25,000 25,000
Long-term debt 1,479,338 1,350,094
-------------- --------------
Total capitalization 3,152,483 2,988,639
-------------- --------------
Current liabilities
Long-term debt redeemable within one year -- 115,000
Current portion of long-term debt 69,902 36,316
Accounts payable 175,815 145,517
Dividends payable 47,213 47,383
Interest accrued 21,259 22,537
Regulatory balancing accounts overcollected-net 35,338 170,761
Other 158,317 125,438
-------------- --------------
Total current liabilities 507,844 662,952
-------------- --------------
Customer advances for construction 34,666 34,698
Accumulated deferred income taxes-net 497,400 523,335
Accumulated deferred investment tax credits 64,410 104,226
Deferred credits and other liabilities 392,434 434,774
Contingencies and commitments (Notes 9 and 10) -- --
-------------- --------------
Total $4,649,237 $4,748,624
============== ==============
See notes to consolidated financial statements
ENOVA CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
In thousands of dollars
For the years ended December 31 1996 1995 1994
------------ ------------ ------------
Cash Flows from Operating Activities
Income from continuing operations $ 230,927 $ 225,646 $ 199,278
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities
Depreciation and decommissioning 332,490 278,239 262,238
Amortization of deferred charges and other assets 6,556 12,068 12,944
Writedown of real property and other assets -- -- 37,000
Amortization of deferred credits and other
liabilities (38,399) (32,975) (30,370)
Allowance for equity funds used during construction (5,898) (6,435) (6,274)
Deferred income taxes and investment tax credits (6,875) (42,237) (54,650)
Other-net 73,850 57,475 57,734
Changes in working capital components
Accounts and notes receivable (7,440) 7,141 (9,110)
Regulatory balancing accounts (37,313) 59,030 78,552
Inventories 4,522 7,648 506
Other current assets (14,242) (5,609) (1,518)
Interest and taxes accrued (28,199) 23,131 17,865
Accounts payable and other current liabilities 49,427 26,983 (9,271)
Cash flows provided by discontinued operations -- 6,148 3,790
----------- ------------- ------------
Net cash provided by operating activities 559,406 616,253 558,714
----------- ------------- ------------
Cash Flows from Financing Activities
Dividends paid (181,849) (180,625) (175,829)
Issuance of long-term debt 228,946 124,641 --
Repayment of long-term debt (286,668) (165,871) (90,255)
Short-term borrowings-net -- (89,325) (27,872)
Redemption of preferred stock (15,155) (18) --
Redemption of common stock (480) (241) (558)
------------ ------------ ------------
Net cash used by financing activities (255,206) (311,439) (294,514)
------------ ------------ ------------
Cash Flows from Investing Activities
Utility construction expenditures (208,850) (220,748) (263,709)
Withdrawals from construction trust funds - net -- -- 58,042
Contributions to decommissioning funds (22,038) (22,038) (22,038)
Other-net 3,338 3,874 (6,463)
Discontinued operations -- 5,122 (17,338)
------------ ------------ ------------
Net cash used by investing activities (227,550) (233,790) (251,506)
------------ ------------ ------------
Net increase 76,650 71,024 12,694
Cash and temporary investments, beginning of year 96,429 25,405 12,711
------------ ------------ ------------
Cash and temporary investments, end of year $ 173,079 $ 96,429 $ 25,405
============ ============ ============
Supplemental Schedule of Noncash Investing
and Financing Activities
Real estate investments $ 96,832 $ 50,496 $ 28,311
Cash paid -- (2,550) (452)
------------ ------------ ------------
Liabilities assumed $ 96,832 $ 47,946 $ 27,859
============ ============ ============
See notes to consolidated financial statements
ENOVA CORPORATION
STATEMENTS OF CONSOLIDATED CHANGES IN
CAPITAL STOCK AND RETAINED EARNINGS
In thousands of dollars
For the years ended December 31, 1994, 1995, 1996
Preferred Stock
-----------------------------
Not Subject Subject to Premium on
to Mandatory Mandatory Common Capital Retained
Redemption Redemption Stock Stock Earnings
--------- --------- --------- --------- ---------
Balance, January 1, 1994 $ 93,493 $ 25,000 $ 291,288 $ 565,119 $ 659,833
Earnings applicable to common shares 135,814
Long-term incentive plan activity-net 53 (611)
Common stock dividends declared (177,066)
- -------------------------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 93,493 25,000 291,341 564,508 618,581
Earnings applicable to common shares 225,794
Long-term incentive plan activity-net 117 1,530
Preferred stock retired (880 shares) (18) 8
Common stock dividends declared (181,809)
- -------------------------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 93,475 25,000 291,458 566,046 662,566
Earnings applicable to common shares 230,927
Long-term incentive plan activity-net 113 582
Preferred stock retired (150,000 shares) (15,000) (155)
Common stock dividends declared (181,867)
- -------------------------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 $ 78,475 $ 25,000 $ 291,571 $ 566,473 $ 711,626
========================== ========= ========= ========= ========= =========
See notes to consolidated financial statements.
ENOVA CORPORATION
STATEMENTS OF CONSOLIDATED CAPITAL STOCK
In thousands of dollars except call price
Balance at December 31 1996 1995
----------- ----------
COMMON EQUITY
Common stock, without par value, authorized
255,000,000 shares, outstanding: 1996,
116,628,735 shares; 1995, 116,583,358 shares $ 291,571 $ 291,458
Premium on capital stock 566,473 566,046
Retained earnings 711,626 662,566
----------- ----------
Total common equity $1,569,670 $1,520,070
=========== ==========
PREFERRED STOCK (A) Trading Call
Not subject to mandatory redemption Symbol(B) Price
$20 par value, authorized 1,375,000 shares --------- --------
5% Series, 375,000 shares outstanding SDOPrA $24.00 $ 7,500 $ 7,500
4.50% Series, 300,000 shares outstanding SDOPrB $21.20 6,000 6,000
4.40% Series, 325,000 shares outstanding SDOPrC $21.00 6,500 6,500
4.60% Series, 373,770 shares outstanding -- $20.25 7,475 7,475
Without par value (C)
$7.20 Series, outstanding: 1995, 150,000 shares SDOPrG -- -- 15,000
$1.70 Series, 1,400,000 shares outstanding -- $25.85(D) 35,000 35,000
$1.82 Series, 640,000 shares outstanding SDOPrH $26.00(D) 16,000 16,000
----------- ----------
Total not subject to mandatory redemption $ 78,475 $ 93,475
=========== ==========
Subject to mandatory redemption
Without par value (C)
$1.7625 Series, 1,000,000 shares outstanding(E) -- $25.00(D) $ 25,000 $ 25,000
=========== ===========
(A) All series of preferred stock have cumulative preferences as to dividends.
The $20 par value preferred stock has two votes per share, whereas the no
par value preferred stock is nonvoting. The $20 par value preferred stock
has a liquidation value at par. The no par value preferred stock has a
liquidation value of $25 per share.
(B) All listed shares are traded on the American Stock Exchange.
(C) Authorized 10,000,000 shares total (both subject to and not subject to
mandatory redemption).
(D) The $1.70 and $1.7625 series are not callable until 2003; the $1.82 series
is not callable until 1998. All other series are currently callable.
(E) The $1.7625 series has a sinking fund requirement to redeem 50,000 shares
per year from 2003 to 2007. The remaining 750,000 shares must be redeemed
in 2008.
See notes to consolidated financial statements.
ENOVA CORPORATION
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT
In thousands of dollars
First Call
Balance at December 31 Date 1996 1995
----------------- ---------- ----------
SDG&E
First mortgage bonds
5.5% Series I, due March 1, 1997 4/15/67 $ 25,000 $ 25,000
4.00% Series CC, due May 1, 2008(A) 9/1/96 -- 53,000
4.00% Series DD, due December 1, 2008(A) 9/1/96 -- 27,000
3.95% Series FF, due December 1, 2007(A) 8/1/96 -- 35,000
7.625% Series GG, due July 1, 2021(B) 7/1/96 -- 44,250
7.375% Series HH, due December 1, 2021(B) 12/1/96 -- 81,350
8.75% Series II, due March 1, 2023(B) 9/1/97 25,000 25,000
9.625% Series JJ, due April 15, 2020 4/15/00 100,000 100,000
6.8% Series KK, due June 1, 2015(A) Non-callable 14,400 14,400
8.5% Series LL, due April 1, 2022 4/1/02 60,000 60,000
7.625% Series MM, due June 15, 2002 Non-callable 80,000 80,000
6.1% and 6.4% Series NN, due September 1, 2018
and 2019(B) 9/1/02 118,615 118,615
Various % Series OO, due December 1, 2027(C) (D) 250,000 250,000
5.9% Series PP, due June 1, 2018(B) 6/1/03 70,795 70,795
Variable % Series QQ, due June 1, 2018(B) (E) 14,915 14,915
5.85% Series RR, due June 1, 2021(A) 6/1/03 60,000 60,000
5.9% Series SS, due September 1, 2018(B) 9/1/03 92,945 92,945
Variable % Series TT, due September 1, 2020(B) (E) 57,650 57,650
Variable % Series UU, due September 1, 2020(B) (E) 16,700 16,700
-------------- ---------- ----------
Total 986,020 1,226,620
---------- ----------
Unsecured bonds
5.90% Series CPCFA96A, due June 1, 2014(A) Non-callable 129,820 --
Variable % Series CV96A, due July 1, 2021(C) (E) 38,900 --
Variable % Series CV96B, due December 1, 2022(C) (E) 60,000 --
-------------- ---------- -----------
Total 228,720 --
---------- ----------
Capitalized leases 105,315 105,365
Other long-term debt 528 15,207
Unamortized discount on long-term debt (2,128) (6,331)
Long-term debt redeemable within one year -- (115,000)
Current portion of long-term debt (33,639) (8,835)
---------- ----------
Total SDG&E 1,284,816 1,217,026
---------- -----------
Other Subsidiaries
Debt incurred to acquire limited partnerships,
various rates, payable annually through 2007 219,051 142,198
Other long-term debt 11,734 18,351
Current portion of long-term debt (36,263) (27,481)
-------- --------
Total Other Subsidiaries 194,522 133,068
-------- --------
Total Enova $1,479,338 $1,350,094
=========== ==========
(A) Issued to secure SDG&E's obligation under a series of loan agreements with the
California Pollution Control Financing Authority under which the Authority loaned
proceeds from the sale of $115 million of variable-rate/demand (series CC, DD and FF)
and $204 million in fixed-rate (series KK, RR and CPCFA96A) tax-exempt pollution control
revenue bonds to the company to finance certain qualified facilities.
(B) Issued to secure SDG&E's obligation under a series of loan agreements with the City
of San Diego under which the city loaned the proceeds from the sale of industrial
development revenue bonds to the company to finance certain qualified facilities.
All series are tax-exempt except QQ and UU.
(C) Issued to secure SDG&E's obligation under a series of loan agreements with the City
of Chula Vista under which the city loaned the proceeds from the sale of $349 million
in tax-exempt industrial development revenue bonds to the company to finance certain
qualified facilities.
(D) The first call date for $75 million is December 1, 2002. The remaining $175 million of
the bonds is currently variable rate and is callable at various dates within
one year. Of this, $45 million is subject to a floating-to-fixed rate swap, which
expires December 15, 2002 (See Note 8).
(E) Callable at various dates within one year.
See notes to consolidated financial statements.
ENOVA CORPORATION
STATEMENTS OF CONSOLIDATED FINANCIAL
INFORMATION BY SEGMENTS OF BUSINESS
In thousands of dollars
At December 31 or for the
years then ended 1996 1995 1994
- ---------------------------------- ----------- ----------- -----------
Operating Revenues (A) $ 1,993,474 $ 1,870,676 $ 1,912,245
=========== =========== ===========
Operating Income
Electric operations $ 269,038 $ 263,346 $ 252,268
Gas operations 39,724 51,654 50,375
Other 26,201 30,650 14,573
----------- ----------- -----------
Total $ 334,963 $ 345,650 $ 317,216
=========== =========== ===========
Depreciation and Decommissioning
Electric operations $ 279,251 $ 227,616 $ 220,811
Gas operations 35,027 33,225 31,009
Other 18,212 17,398 10,418
----------- ----------- -----------
Total $ 332,490 $ 278,239 $ 262,238
=========== =========== ===========
Utility Plant Additions (B)
Electric operations $ 167,166 $ 171,151 $ 203,887
Gas operations 41,684 49,597 59,822
----------- ----------- -----------
Total $ 208,850 $ 220,748 $ 263,709
=========== =========== ===========
Identifiable Assets
Utility plant-net
Electric operations $ 2,625,620 $ 2,737,201 $ 2,790,167
Gas operations 448,751 441,140 423,468
----------- ----------- -----------
Total 3,074,371 3,178,341 3,213,635
----------- ----------- -----------
Inventories
Electric operations 47,445 53,828 56,209
Gas operations 15,633 14,131 19,398
Other 359 -- --
----------- ----------- -----------
Total 63,437 67,959 75,607
----------- ----------- -----------
Other identifiable assets
Electric operations 697,145 802,172 732,941
Gas operations 161,252 148,714 149,199
Other 488,102 434,940 373,076
----------- ----------- -----------
Total 1,346,499 1,385,826 1,255,216
----------- ----------- -----------
Other Utility Assets 164,930 116,498 118,521
----------- ----------- -----------
Total Assets $ 4,649,237 $ 4,748,624 $ 4,662,979
=========== =========== ===========
(A) The detail to operating revenues is provided in the Statements of
Consolidated Income. The gas operating revenues shown therein include
$9 million in 1996, $9 million in 1995 and $18 million in 1994, representing
the gross margin on sales to the electric segment. These margins arose from
interdepartmental transfers of $111 million in 1996, $85 million in 1995,
and $119 million in 1994, based on transfer pricing approved by the
California Public Utilities Commission in tariff rates.
(B) Excluding allowance for equity funds used during construction.
Utility income taxes and corporate expenses are allocated between electric and gas
operations in accordance with regulatory accounting requirements.
See notes to consolidated financial statements.
ENOVA CORPORATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands except per share amounts
Quarter ended March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------
1996
Operating revenues $ 465,897 $ 470,967 $ 507,593 $ 549,017
Operating expenses 372,905 396,442 420,307 468,857
----------- ---------- ---------- -----------
Operating income 92,992 74,525 87,286 80,160
Other income 1,168 11 4,373 420
Net interest charges 28,108 27,186 28,914 25,800
----------- ---------- ---------- -----------
Earnings applicable to common shares $ 66,052 $ 47,350 $ 62,745 $ 54,780
Average common shares outstanding 116,570 116,565 116,566 116,587
Earnings per common share $ 0.57 $ 0.41 $ 0.54 $ 0.47
1995
Operating revenues $ 477,955 $ 445,239 $ 478,689 $ 468,793
Operating expenses 384,300 365,751 388,387 386,588
----------- ---------- ---------- -----------
Operating income 93,655 79,488 90,302 82,205
Other income and (deductions) 1,744 (499) (1,102) 389
Net interest charges 29,975 31,010 29,296 30,255
----------- ---------- ---------- -----------
Income from continuing operations 65,424 47,979 59,904 52,339
Discontinued operations,
net of income taxes (5,490) (678) -- 6,316
----------- ---------- ---------- -----------
Earnings applicable to common shares $ 59,934 $ 47,301 $ 59,904 $ 58,655
Average common shares outstanding 116,533 116,534 116,538 116,545
Earnings per common share from
continuing operations $ 0.56 $ 0.41 $ 0.51 $ 0.45
Earnings per common share $ 0.51 $ 0.41 $ 0.51 $ 0.50
These amounts are unaudited, but in the opinion of Enova reflect all adjustments necessary
for a fair presentation.
ENOVA CORPORATION
Quarterly Common Stock Data (Unaudited)
1996 1995
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Market price
High 24 3/4 23 1/8 23 23 21 5/8 22 7/8 23 1/4 23 7/8
Low 21 5/8 20 3/8 20 1/2 21 5/8 19 1/8 20 1/8 20 3/4 21 7/8
Dividends declared $0.39 $0.39 $0.39 $0.39 $0.39 $0.39 $0.39 $0.39
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Enova Corporation:
We have audited the accompanying consolidated balance sheets and the
statements of consolidated capital stock and of consolidated long-term debt
of Enova Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related statements of consolidated income, consolidated changes in
capital stock and retained earnings, consolidated cash flows, and
consolidated financial information by segments of business for each of the
three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Enova Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Diego, California
March 11, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENOVA CORPORATION
NOTE 1: BUSINESS COMBINATION
On October 14, 1996, Enova Corporation and Pacific Enterprises, Inc., parent
company of Southern California Gas Company, announced an agreement to combine
the two companies. As a result of the combination, which was unanimously
approved by the boards of directors of both companies, (i) each outstanding
share of common stock of Enova will be converted into one share of common
stock of the new company, (ii) each outstanding share of common stock of
Pacific Enterprises will be converted into 1.5038 shares of common stock of
the new company and (iii) the preferred stock and preference stock
of SDG&E, Pacific Enterprises and Southern California Gas will remain
outstanding. On March 11, 1997, the combination was approved by the
shareholders of both companies.
Consummation of the combination is conditional upon the approvals of the
California Public Utilities Commission and various other regulatory bodies,
with completion expected by the end of 1997. The combination will be a tax-
free transaction and is expected to be accounted for as a pooling of
interests.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations On January 1, 1996, Enova Corporation (referred to
herein as Enova, which includes the parent and its wholly owned subsidiaries)
became the parent of SDG&E and its unregulated subsidiaries (referred to herein
as non-utility subsidiaries). SDG&E's outstanding common stock was converted
on a share-for-share basis into Enova common stock. SDG&E's debt securities,
preferred and preference stock were unaffected and remain with SDG&E.
The consolidated financial statements include Enova and its wholly owned
subsidiaries. The subsidiaries include SDG&E, Califia, Enova Financial, Enova
Energy, Enova Technologies, Enova International and Pacific Diversified Capital.
In 1996, non-utility subsidiaries contributed 8 percent to operating income (9
percent in 1995 and 8 percent in 1994). In June 1995, SDG&E sold its interest in
Wahlco Environmental Systems. Prior periods have been restated to account for
the net results of Wahlco as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30 "Reporting the Effects of a Disposal
Disposal of a Segment of Business." Additional information concerning Wahlco is
is described in Note 3.
Utility Plant and Depreciation Utility plant represents the buildings,
equipment and other facilities used by SDG&E to provide electric and gas
service. The cost of utility plant includes labor, material, contract services
and related items, and an allowance for funds used during construction. The cost
cost of retired depreciable utility plant, plus removal costs minus salvage
value is charged to accumulated depreciation. Information regarding industry
restructuring and its effect on utility plant is included in Note 10.
Utility plant in service by major functional categories at December 31, 1996,
are: electric generation $1.8 billion, electric distribution
$2.2 billion, electric transmission $0.7 billion, other electric
$0.2 billion and gas operations $0.8 billion. The corresponding
amounts at December 31, 1995, were essentially the same as 1996. Accumulated
depreciation and decommissioning of electric and gas utility plant in service
at December 31, 1996, are $2.2 billion and $0.4 billion, respectively and at
December 31, 1995, were $2.1 billion and $0.3 billion, respectively.
Depreciation expense is based on the straight-line method, over the useful
lives of the assets or a shorter period prescribed by the CPUC (for SONGS, see
below). The provisions for depreciation as a percentage of average depreciable
utility plant (by major functional categories) in 1996 and (in 1995, 1994,
respectively) are: electric generation 7.57 (4.04, 4.04), electric distribution
4.38 (4.36, 4.35), electric transmission 3.25 (3.21, 3.24), other electric 5.95
(5.89, 5.88) and gas operations 4.07 (4.06, 4.11). The increase for electric
generation in 1996 reflects the accelerated recovery of San Onofre Nuclear
Generating Station Units 2 and 3 approved by the California Public Utilities
Commission in April 1996.
Inventories Included in inventories at December 31, 1996, are SDG&E's $40
million of materials and supplies ($42 million in 1995), and $23 million of
fuel oil and natural gas ($26 million in 1995). Materials and supplies are
valued at average cost; fuel oil and natural gas are valued by the last-in
first-out (LIFO) method.
Other Current Assets Included in other current assets at December 31, 1996,
is $33 million for SDG&E's deferred income taxes.
Short-term Borrowings There were no short-term borrowings at December 31,
1996 and 1995. At December 31, 1996, SDG&E had $50 million of bank lines
available to support commercial paper. Commitment fees are paid on the unused
portion of the lines and there are no requirements for compensating balances.
Other Current Liabilities Included in other current liabilities at December
31, 1996, is Califia's $33 million current portion of deferred lease revenue
($34 million in 1995) and $33 million for SDG&E's accrued vacation and sick
leave ($26 million in 1995). The $21 million noncurrent portion ($54 million
in 1995) of Califia's deferred lease revenue is included in "Deferred Credits
and Other Charges." These deferred revenues are amortized over the lease terms.
Allowance for Funds Used During Construction The allowance represents the
cost of funds used to finance the construction of utility plant and is added to
the cost of utility plant. AFUDC also increases income, as an offset to inter-
est charges shown in the Statements of Consolidated Income, although it is
not a current source of cash. The average rate used to compute AFUDC was 9.36
percent in 1996, 9.74 percent in 1995 and 8.80 percent in 1994.
Effects of Regulation SDG&E's accounting policies conform with generally
accepted accounting principles for regulated enterprises and reflect the
policies of the California Public Utilities Commission and the Federal Energy
Regulatory Commission. SDG&E prepares its financial statements in accordance
with the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting For the Effects of Certain Types of Regulation," under which a
regulated utility may record a regulatory asset if it is probable that,
through the rate-making process, the utility will recover that asset
from customers. Regulatory liabilities represent future reductions in revenues
for amounts due to customers. To the extent that a portion of SDG&E's
operations is no longer subject to SFAS No. 71, or recovery is no longer
probable as a result of changes in regulation
and/or SDG&E's competitive position, the related regulatory assets and
liabilities would be written off. In addition, a new accounting standard,
effective for 1996 financial statements, SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
affects utility plant and regulatory assets such that a loss must be recognized
whenever a regulator excludes all or part of an asset's cost from rate base. As
discussed in Note 10, California recently enacted a law restructuring the
electric-utility industry. The law adopts the December 1995 CPUC policy
decision, and allows California utilities to recover existing utility plant
and regulatory assets over a transition period that ends in 2001.
SDG&E continues to evaluate the applicability of SFAS No. 71 and SFAS
No. 121 as industry restructuring progresses, taking into consideration
concerns from the Securities and Exchange Commission that California's
investor-owned utilities may not meet the criteria of SFAS No. 71
with respect to their generation operations. Discussions with the
SEC are ongoing. However, if SDG&E discontinues the application of SFAS No.
71 to its generation operations, the write-off of its generation-related
regulatory assets and liabilities would not have a material impact on its
financial condition or results of operations. Additional information
concerning regulatory assets and liabilities is described below in "Revenues
and Regulatory Balancing Accounts" and in Note 10.
Revenues and Regulatory Balancing Accounts Revenues from utility customers
consist of deliveries to customers and the changes in regulatory balancing
accounts. Earnings fluctuations from changes in the costs of fuel oil, purchased
energy and natural gas, and consumption levels for electricity and the majority
of natural gas previously were eliminated by balancing accounts authorized by
the California Public Utilities Commission. This is still the case for natural
gas. However, as a result of California's electric restructuring law, the $98
million of overcollections recorded in the Energy Cost Adjustment Clause and
Electric Revenue Adjustment Mechanism balancing accounts as of December 31,
1996 were credited to deferred charges and other assets; and the elimination of
ECAC and ERAM will result in quarter-to-quarter earnings volatility in 1997 and
future. years. Additional information on industry restructuring is included
in Note 10.
Deferred Charges and Other Assets Deferred charges include SDG&E's
unrecovered premium on early retirement of debt and other regulatory-related
expenditures that SDG&E expects to recover in future rates. These items are
amortized as recovered in rates. Deferred charges at December 31, 1996, also
include the net regulatory asset associated with SDG&E's generation operations,
including the effect of the transfer of the balancing accounts discussed in the
preceding paragraph. This classification arises from recent electric industry
restructuring, which is discussed in Note 10.
Writedowns In June 1994, Enova recorded writedowns related to SDG&E and non-
utility subsidiaries. Enova recorded a $25 million writedown of various
commercial properties, including $19 million of non-utility subsidiary proper-
ties in Colorado Springs and in San Diego, to reflect continuing declines in
commercial real estate values. SDG&E also recorded a $12 million writedown of
various non-earning utility assets, including the South Bay Repower project.
Other writedowns, associated with discontinued operations, are described in
Note 3.
Use of