10-QPeriod: Q3 FY2010

SEMPRA Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 9, 2010For Securities:SRESREA

Summary

Sempra Energy's (SRE) 10-Q filing for the period ending September 30, 2010, indicates a challenging quarter with a significant decrease in net income driven by a substantial write-down of its investment in RBS Sempra Commodities LLP. While the utility segments (SDG&E and SoCalGas) showed stable performance driven by regulated margins and cost recovery mechanisms, the Sempra Global segment, particularly Sempra Commodities, experienced a significant negative impact. The company also detailed its ongoing capital expenditures, new credit facilities, and various regulatory matters, including the Sunrise Powerlink project and wildfire litigation cost recovery. Investors should note the strategic divestiture from the commodities business and the ongoing capital investments in infrastructure and renewable energy projects.

Financial Highlights

26 data points
Beta

Net Income

$131.00M

EPS (Diluted)

$0.27

Cash & Equivalents

$547.00M

Free Cash Flow

$295.00M

Financial Statements
Beta
Interest Expense$111.00M
Net Income$131.00M
EPS (Basic)$0.27
EPS (Diluted)$0.27
Shares Outstanding (Basic)493.34M
Shares Outstanding (Diluted)499.62M

Key Highlights

  • 1Net income for the quarter significantly decreased to $131 million from $317 million in the prior year's comparable quarter, primarily due to a $139 million after-tax write-down of the investment in RBS Sempra Commodities.
  • 2Sempra Energy completed the divestiture of significant portions of its RBS Sempra Commodities business, expecting total proceeds of $1.8 billion to $1.9 billion.
  • 3Capital expenditures for the nine months totaled $1.35 billion, with significant investments planned for utility infrastructure, natural gas storage, pipelines, and renewable energy projects.
  • 4SDG&E and SoCalGas continued to show stable operating performance, with earnings influenced by regulated margins and cost recovery mechanisms. SDG&E's earnings were impacted by wildfire litigation reserves and higher insurance premiums.
  • 5The company entered into new, longer-term credit facilities in October 2010, replacing previous agreements, and maintained substantial unused credit capacity.
  • 6Significant litigation related to the 2007 wildfires continued, with SDG&E establishing reserves and a regulatory asset for costs exceeding insurance coverage, with an expectation of customer rate recovery.
  • 7Sempra Generation's earnings were impacted by litigation expenses and lower operational earnings, partially offset by renewable energy tax credits.

Frequently Asked Questions

The primary driver for the substantial decrease in net income during the quarter ending September 30, 2010, was a non-cash charge of $139 million (after-tax) related to a write-down of Sempra Energy's investment in its joint venture, RBS Sempra Commodities LLP.

Sempra Energy has secured new, longer-term revolving credit facilities in October 2010, replacing existing agreements. The company maintains significant available unused credit capacity. They also expect cash flows from operations, distributions from investments, and potential security issuances to adequately fund capital expenditures, dividends, and other obligations.

SDG&E continues to settle wildfire claims, and its reserves and payments have exceeded its $1.1 billion in liability insurance coverage. However, SDG&E has recorded a regulatory asset for costs exceeding insurance and expected recoveries from responsible parties, anticipating recovery from utility customers through future regulatory actions. While this is expected to have no significant earnings impact, it will affect cash flow due to timing differences in recoveries.

The Sempra Global segment saw mixed results. Sempra Commodities experienced a significant loss due to the investment write-down, driven by the ongoing divestiture of its joint venture with RBS. Sempra Generation's earnings were affected by litigation expenses and lower operational earnings, partially offset by renewable energy tax credits. Sempra LNG showed improvement due to new terminal operations and marketing activities.