10-QPeriod: Q2 FY2005

SEMPRA Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 3, 2005For Securities:SRESREA

Summary

Sempra Energy reported consistent net income of $121 million for the second quarter of 2005, matching the prior year's figure. However, net income for the first six months of 2005 saw an increase of 8% to $344 million, driven by the California Utilities segments (Southern California Gas Company and San Diego Gas & Electric). Sempra Commodities experienced a significant decline in net income, down 47% for the six-month period due to changes in margin and unrealized revenues. Operating revenues for the quarter rose to $2.27 billion from $1.99 billion in the prior year, primarily reflecting higher natural gas costs passed through to customers and increased trading activity. The company is actively managing its litigation risks, particularly those stemming from the 2000-2001 California energy crisis, with significant accrued liabilities. Capital expenditures remain robust, with a focus on utility infrastructure and energy generation projects.

Key Highlights

  • 1Net income for Q2 2005 was $121 million, unchanged from Q2 2004.
  • 2First six months net income increased by 8% to $344 million in 2005, driven by California Utilities.
  • 3Operating revenues increased by 14% to $2.27 billion for the quarter, largely due to higher natural gas prices.
  • 4Sempra Commodities' net income significantly decreased by 47% for the first six months of 2005.
  • 5The company has accrued $255 million for litigation and regulatory matters, primarily related to the California energy crisis.
  • 6Capital expenditures for the first six months of 2005 were $585 million, a 17% increase year-over-year.
  • 7Sempra Energy announced plans to purchase the Palomar generating facility for SDG&E in early 2006.

Frequently Asked Questions

The primary driver of the revenue increase was higher natural gas costs, which are passed through to customers. Increased trading activity at Sempra Commodities and higher power and natural gas sales from Sempra Generation also contributed.

Sempra Energy has accrued $255 million to cover estimated costs for ongoing legal proceedings and regulatory matters, with $241 million specifically related to the 2000-2001 California energy crisis. The company is actively involved in various lawsuits and investigations, with outcomes being uncertain and potentially material.

Sempra Commodities experienced a significant decline in net income for the first six months of 2005. The company noted that earnings variability is expected to continue due to the nature of its trading activities, particularly with certain inventories and contracts not being marked to market, while offsetting derivative instruments are marked to market.

For 2005, Sempra Energy expected capital expenditures of $1.6 billion. Key areas include plant improvements for the California Utilities ($900 million), the Palomar plant ($150 million), and development of LNG regasification terminals and related pipelines (over $400 million).