01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Sempra Energy's 2015 Form 10-K (combined filing with SDG&E and SoCalGas) reports a year of earnings growth overshadowed by a major operational and legal event.
Sempra's 2015 earnings rose 16% to $1.349 billiona, or $5.37 diluted EPS, driven by stronger California utility results, higher Sempra Mexico pipeline earnings, and a $61 million gain on the sale of the remaining Mesquite Power block. The dominant risk factor is the October 2015 Aliso Canyon gas leak at SoCalGas, which was permanently sealed on February 18, 2016. As of February 24, 2016, 83 lawsuits had been filed, criminal and civil actions are pending, and SoCalGas has recorded estimated leak costs of $330 million, with a $325 million insurance receivable and a $274 million reserve.
Management stated that costs not covered by insurance could have a material adverse effect, and the Aliso Canyon facility (63% of SoCalGas's owned storage) has a $243 millionb net book value that could face impairment if it remains out of service. Beyond the leak, the filing highlights a large capital program, with roughly $5.1 billion of expected 2016 capital expenditures and investments, and the Cameron LNG liquefaction project (about $7 billion incremental, with Sempra guaranteeing $3.7 billion of project debt).
Balance-sheet and liquidity indicators remain solid: investment-grade ratings (BBB+ at Sempra, A1 at the utilities), $3.7 billionc of available unused credit, and a board-approved dividend increase to $0.755 per quarter ($3.02 annualized). Key regulatory items include the 2016 General Rate Case settlements, SDG&E's roughly $379 million wildfire cost recovery request, and pending CPUC action on the SONGS settlement.
02—Key points
Key Highlights
- 2015 earnings rose 16% to $1.349 billion ($5.37 diluted EPS), with SDG&E earnings up to $587 million and SoCalGas up to $419 million.
- Aliso Canyon gas leak (discovered October 2015, sealed February 18, 2016): 83 lawsuits filed, criminal misdemeanor complaint from the LA District Attorney, and estimated costs of $330 million, offset by a $325 million insurance receivable.
- Aliso Canyon storage facility represents 63% of SoCalGas's owned storage capacity; a prolonged outage could trigger an impairment on its $243 million net book value.
- Dividend raised to $0.755 per quarter ($3.02 annualized), up from $2.80, and Sempra's debt-to-capitalization and investment-grade ratings were maintained.
- Cameron LNG JV three-train liquefaction project (~$7 billion incremental investment, ~$10 billion total) targets commercial operation in 2018; Sempra guarantees up to $3.7 billion of project debt.
- Expected 2016 capital expenditures and investments of about $5.1 billion, with $2.7 billion at the California Utilities and $2.4 billion at other subsidiaries.
- Pending regulatory matters include a 2016 GRC decision expected in Q2 2016, a $379 million 2007 wildfire cost recovery request, and a $2.1 billion Pipeline Safety Enhancement Plan with cost-recovery risk.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $10.23B$11.04B | −7.3% |
| Interest Expense | $561.00M$554.00M | +1.3% |
| Net Income | $1.35B$1.16B | +16.2% |
| EPS (Basic) | $2.71$2.36 | +15.0% |
| EPS (Diluted) | $2.69$2.31 | +16.0% |
| Shares Outstanding (Basic) | 496.50M491.78M | +1.0% |
| Shares Outstanding (Diluted) | 501.85M501.31M | +0.1% |
05—Questions
Frequently Asked Questions
How significant is the Aliso Canyon gas leak to Sempra's financial outlook?
It is the most significant risk disclosed. SoCalGas has recorded about $330 million of estimated costs, with $274 million reserved for payments expected in 2016 and a $325 million insurance receivable. Management says insurance may not cover all costs, that fines, penalties, and damages are not estimable, and that uninsured costs or insurance delays could materially affect cash flows and results. Investors should monitor insurance recoveries, litigation outcomes, and whether the facility returns to injection service.
What drove the increase in Sempra's 2015 earnings?
Earnings rose $188 million (16%) to $1.349 billion. Key drivers included SDG&E's higher earnings from CPUC base operations and electric transmission, SoCalGas's lower effective tax rate and higher CPUC-authorized margin, and Sempra Mexico's $37 million increase in pipeline earnings. A $36 million after-tax gain on the sale of the remaining Mesquite Power block also contributed. Partly offsetting these were lower LNG marketing results and foreign currency effects in South America.
What are the main capital commitments and growth projects?
Sempra expects about $5.1 billion of 2016 capital expenditures and investments, including $2.7 billion at the California Utilities and about $2.4 billion at other subsidiaries, the latter including the planned purchase of PEMEX's 50% interest in Gasoductos de Chihuahua. Major projects include the Cameron LNG liquefaction expansion (about $7 billion incremental, expected full operations in 2019), Mexican pipelines such as Sonora, Ojinaga, and San Isidro, and renewable projects like Mesquite Solar 2 and 3. Completion of these depends on regulatory approvals and financing.
How strong is Sempra's liquidity and credit position?
Liquidity is solid. Available unused credit totaled $3.7 billion across the primary facilities at year-end 2015, plus $889 million at foreign operations, and the company reports ready access to long-term debt markets. Credit ratings remain investment grade: Sempra Energy at BBB+ (stable) and SDG&E and SoCalGas at A1 (stable). Risks include potential rating downgrades, which would increase borrowing costs, and the Cameron LNG completion guarantees, which could require large repayments if the project fails to reach financial completion.
What regulatory decisions could affect future earnings?
Several CPUC decisions matter. The 2016 General Rate Case settlements (SoCalGas revenue requirement of $2.219 billion, SDG&E of $1.811 billion) await a final decision expected in Q2 2016, while a proposed adjustment could reduce revenue requirements. SDG&E seeks recovery of about $379 million in 2007 wildfire costs, and a disallowance could trigger an after-tax charge of up to $213 million. The SONGS settlement faces petitions to reopen, and the Pipeline Safety Enhancement Plan's $2.1 billion cost recovery is subject to reasonableness review.
06—Continue