10-KPeriod: FY2002

SEMPRA Annual Report, Year Ended Dec 31, 2002

Filed February 26, 2003For Securities:SRESREA

Summary

Sempra Energy's 2002 Form 10-K highlights a year of significant regulatory and operational shifts, particularly within its core California utility segments, Southern California Gas Company (SoCalGas) and San Diego Gas & Electric (SDG&E). The company navigated the complex landscape of California's energy market restructuring, which continued to influence operations and pricing. Despite a decrease in operating revenues compared to the previous year, Sempra demonstrated resilience, with operating income remaining stable and net income showing an increase. The company's diversified business segments, including Sempra Energy Trading (SET) and Sempra Energy Resources (SER), contributed to overall financial performance, with SET recording strong net income and SER showing a rebound after a net loss in the prior year. Key strategic developments include the ongoing management of electric industry restructuring impacts on SDG&E, including the DWR's role in power procurement and SDG&E's renewed authority to procure electricity starting in 2003, with a focus on renewable energy sources. For SoCalGas, the company is adapting to evolving natural gas industry restructuring, with regulatory decisions pending on proposed changes to procurement services and tariffs. Sempra Energy Global Enterprises, encompassing various non-utility businesses, continues to expand its reach, notably through SER's power plant development and SEI's international energy infrastructure projects. The company maintained a solid financial footing, though long-term debt saw an increase, reflecting investments in growth and infrastructure.

Key Highlights

  • 1Operating revenues decreased to $6.02 billion in 2002 from $7.73 billion in 2001, while operating income remained strong at $987 million, indicating efficient operations management.
  • 2Net income increased to $591 million ($2.87 diluted EPS) in 2002 from $518 million ($2.52 diluted EPS) in 2001, reflecting improved profitability across segments.
  • 3Sempra Energy Trading (SET) reported a net income of $126 million in 2002, a decrease from $196 million in 2001 but still a significant contributor to overall earnings.
  • 4Sempra Energy Resources (SER) significantly improved its performance, posting $60 million in net income in 2002 after a net loss of $27 million in 2001.
  • 5SDG&E regained authority to procure electric power for its customers starting January 1, 2003, with a mandated focus on increasing renewable energy sources.
  • 6The company is managing environmental remediation liabilities estimated at $45.6 million, with a significant portion authorized for recovery through regulatory mechanisms.
  • 7Employee count increased to 12,197 as of December 31, 2002, from 11,511 in the prior year, indicating potential growth and investment in human capital.

Frequently Asked Questions

Sempra Energy navigated significant regulatory challenges related to California's ongoing energy market restructuring for both electricity and natural gas. This included managing the impacts of electric industry deregulation on SDG&E, with legislative and regulatory responses aimed at stabilizing the market and controlling commodity prices. For SoCalGas, the company was adapting to evolving natural gas industry restructuring, awaiting CPUC decisions on proposed changes to procurement services and tariffs.

The company's diversified segments showed mixed but generally positive performance. Sempra Energy Trading (SET) contributed $126 million in net income, though lower than the previous year. Sempra Energy Resources (SER) saw a substantial turnaround, reporting $60 million in net income after a loss in 2001, driven by power plant development and contracts. Sempra Energy International (SEI) generated $26 million in net income, and Sempra Energy Solutions (SES) posted $21 million in net income, showing growth from the prior year.

Sempra Energy, through SDG&E, is actively pursuing renewable energy procurement. Mandated by new California legislation, SDG&E is required to procure at least one percent of its annual retail energy supply from renewable producers starting in 2003, increasing annually to reach a 20% portfolio by 2017. SDG&E has already entered into contracts with renewable suppliers for 237 megawatts of non-firm power starting in 2003 and is aiming to procure approximately four percent of its 2003 total energy sales from renewable sources.

Sempra Energy has estimated liabilities for environmental remediation totaling $45.6 million as of December 31, 2002. These liabilities primarily stem from historical manufactured gas plant sites and potential responsibilities at landfill and industrial waste disposal sites. The company has a regulatory mechanism in place to recover 90% of these cleanup costs through customer rates.