10-QPeriod: Q3 FY2006

SEMPRA Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 2, 2006For Securities:SRESREA

Summary

Sempra Energy (SRE) reported strong financial performance for the nine months ended September 30, 2006, with net income increasing significantly to $1.28 billion from $565 million in the prior year period. This growth was driven by a substantial increase in income from continuing operations, up to $962 million from $556 million, bolstered by significant gains on asset sales, notably the Topaz power plants, and improved performance across its Sempra Global segments, particularly Sempra Commodities and Sempra Generation. The Sempra Utilities, while showing stable overall performance, were impacted by regulatory matters and litigation expense reductions. The company ended the period with a robust cash position, holding $1.5 billion in unrestricted cash and having $6.6 billion in available unused credit lines, indicating strong liquidity. Capital expenditures remain significant, with substantial investments planned for infrastructure development across its various segments. Despite ongoing litigation and regulatory scrutiny, particularly related to the California energy crisis, management expressed confidence in the company's ability to finance its operations and growth initiatives.

Key Highlights

  • 1Net income for the nine months ended September 30, 2006, surged to $1.28 billion, a significant increase from $565 million in the same period of 2005, driven by higher income from continuing operations and substantial gains from asset sales.
  • 2Income from continuing operations more than doubled, rising to $962 million from $556 million year-over-year.
  • 3Sempra Generation reported a significant increase in net income, largely due to a $204 million gain from the sale of Topaz power plants.
  • 4Sempra Commodities showed improved net income, benefiting from increased trading activity and improved margins in North America across natural gas, power, and metals.
  • 5The company maintained a strong liquidity position with $1.5 billion in unrestricted cash and $6.6 billion in available unused committed credit lines as of September 30, 2006.
  • 6Total assets remained relatively stable, at $29.05 billion, while total liabilities and shareholders' equity were also largely unchanged compared to the prior year-end.
  • 7Significant capital expenditures of $1.34 billion were made in the nine-month period, primarily by SDG&E and SoCalGas, indicating ongoing investment in infrastructure.

Frequently Asked Questions

The primary driver was a substantial increase in income from continuing operations, significantly boosted by gains from asset sales, particularly the sale of Topaz power plants by Sempra Generation, and improved trading margins and activity at Sempra Commodities.

Sempra Energy reported a strong liquidity position, with $1.5 billion in unrestricted cash and $6.6 billion in available unused committed credit lines as of September 30, 2006. Management believes these resources are adequate to meet its financial obligations and capital expenditure requirements.

Litigation expense decreased significantly in the nine months ended September 30, 2006, to $43 million from $341 million in the prior year period, primarily due to lower California energy crisis litigation expenses. The company had reserves of $616 million for ongoing litigation matters, including settlements related to the energy crisis.

Yes, the Sempra Utilities, SoCalGas and SDG&E, are involved in various regulatory matters with the CPUC. These include general rate cases, decisions on revenue requirements for facilities like SONGS, and ongoing proceedings related to affiliate transactions and renewable energy mandates. While some regulatory items have positively impacted earnings, these proceedings are critical to future rate recovery and operational frameworks.