Sempra Energy 2010 Form 10-K Summary
Business context and reporting period
Sempra Energy filed a combined Form 10-K for the fiscal year ended December 31, 2010. The filing also covers wholly owned registrants San Diego Gas & Electric Company (SDG&E), Pacific Enterprises, and Southern California Gas Company (SoCalGas). The filing is an annual report, not a standalone fourth-quarter filing.
Sempra reported six segments: SDG&E, SoCalGas, Sempra Generation, Sempra Pipelines & Storage, Sempra LNG, and Sempra Commodities. Its operations include regulated California electric and natural-gas utilities, power generation, pipelines and storage, LNG infrastructure, and international energy businesses.
Financial metrics and liquidity
The supplied filing text does not provide clear consolidated Sempra Energy revenue, consolidated operating income, consolidated net income, consolidated cash flow from operations, consolidated margins, or consolidated debt totals. Those amounts are incorporated by reference to the 2010 Annual Report to Shareholders and its financial statement pages.
| Metric | 2010 | 2009 | Change or comment |
|---|---|---|---|
| Sempra parent net income | $739 million | $1.119 billion | Down $380 million, approximately 34% |
| Sempra parent diluted EPS | $2.98 | $4.52 | Down $1.54, approximately 34% |
| Sempra parent operating cash flow | $218 million | $97 million | Improved by $121 million |
| Sempra parent cash and equivalents | $157 million | $7 million | Increased by $150 million |
| Sempra parent long-term debt | $3.140 billion | $3.196 billion | Down $56 million |
| Sempra parent total current liabilities | $1.737 billion | $2.236 billion | Down $499 million |
| Sempra parent dividends paid | $364 million | $341 million | Increased by $23 million |
Parent-company investing cash flow was $1.314 billion in 2010, primarily reflecting a $1.204 billion net decrease in loans to affiliates and $100 million of dividends received from subsidiaries. Financing cash flow was negative $1.382 billion, including $502 million of share repurchases, $364 million of common dividends, and $565 million of debt repayments.
Parent debt maturities were identified as $32 million in 2011, $650 million in 2013, and $2.5 billion thereafter. The filing emphasizes that Sempra Energy's ability to pay dividends and service parent debt depends substantially on cash distributions from subsidiaries and access to external capital.
Selected operating indicators included 1.4 million SDG&E electric customer meters, 4,100 MW of SDG&E contracted and owned generation capacity, 134.1 Bcf of SoCalGas storage working capacity, and 13,504 consolidated employees at December 31, 2010.
Material changes versus the prior comparable period
- Parent-company net income and diluted EPS declined materially from 2009, while parent operating cash flow and year-end cash increased.
- Sempra and RBS divested substantially all RBS Sempra Commodities businesses and assets through three transactions in 2010 and one transaction in early 2011. Sempra's remaining investment in the partnership was $787 million at December 31, 2010.
- Sempra entered into a $500 million collared accelerated share acquisition program in September 2010. The program was expected to be completed in the first quarter of 2011; 2,407,994 shares were purchased in October 2010, with the final weighted-average cost not yet determinable.
- SDG&E began construction of the Sunrise Powerlink transmission project in fall 2010 and expected commercial operation in the second half of 2012. The project is designed to deliver up to 1,000 MW from the Imperial Valley to the San Diego region.
- SoCalGas added 24,000 gas meters in 2010, compared with 27,000 in 2009. SDG&E added 4,300 gas meters in 2010 versus 4,200 in 2009, and 7,000 electric meters in both years.
- Consolidated employees declined to 13,504 from 13,839.
Outlook, risks, contingencies, and unusual items
- Management expected 2011 customer-meter growth rates for SoCalGas and SDG&E to be comparable to 2010 levels.
- The 10-year Sempra Generation power sales agreement with the California Department of Water Resources, representing 8% of Sempra revenue in 2010, was scheduled to expire in September 2011. The filing warns that replacement sales or profitable operation of affected facilities may not be assured.
- California's Renewable Energy Standard adopted in September 2010 contemplated a 33% renewable-energy procurement requirement by 2020; final implementing regulations had not yet been issued.
- SDG&E expected substantially all reasonably incurred 2007 wildfire claim costs exceeding insurance and third-party recoveries to be recovered from customers, but recovery depended on future regulatory action and could be delayed for years.
- SDG&E's estimated share of SONGS marine-environment mitigation costs was $53 million, of which $36 million had been incurred and $17 million accrued for remaining costs through 2050.
- Environmental remediation accruals at December 31, 2010 were $0.6 million for SDG&E and $20.2 million for SoCalGas for sites eligible for recovery through the California Hazardous Waste Collaborative mechanism. SDG&E also reported $5.4 million of remediation costs not being recovered through that mechanism.
- Key risks include CPUC and FERC regulatory decisions, cost-recovery disallowances, environmental and greenhouse-gas requirements, commodity-price volatility, financing and credit-market conditions, project permitting and construction delays, counterparty performance, foreign operations, nuclear operations at SONGS, and pending litigation.
Important facts for investors to verify
- Review the incorporated 2010 Annual Report for consolidated revenue, earnings, cash flow, capital expenditures, margins, liquidity, debt, and segment results, which are not clearly included in the supplied text.
- Assess the financial impact and remaining obligations from the RBS Sempra Commodities divestitures, including the $787 million remaining investment and related guarantees.
- Monitor the outcome and timing of SDG&E's 2007 wildfire litigation and the required regulatory approval for customer recovery.
- Verify refinancing requirements, maturity concentration, credit ratings, and subsidiary restrictions on distributions to Sempra Energy.
- Track the Sunrise Powerlink schedule and costs, the SDG&E El Dorado plant purchase option, and other major capital projects.
- Evaluate the expiration of the DWR power contract, renewable-energy mandates, environmental compliance costs, and SONGS operating and decommissioning exposures.