10-QPeriod: Q1 FY2016

SEMPRA Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 4, 2016For Securities:SRESREA

Summary

Sempra Energy (SRE) reported a decrease in net income to $319 million for the first quarter of 2016, down from $437 million in the same period last year, with diluted EPS falling to $1.27 from $1.74. This decline was primarily driven by higher non-refundable operating costs at its California utilities (SDG&E and SoCalGas) due to delayed General Rate Case decisions, a plant closure adjustment recorded in the prior year, and an impairment charge related to an investment in Rockies Express Pipeline LLC. Sempra Mexico also incurred a deferred tax expense on its Termoeléctrica de Mexicali power plant due to its classification as held for sale. The company is managing significant environmental and regulatory challenges, most notably the ongoing impact of the Aliso Canyon natural gas leak. SoCalGas has incurred substantial costs related to the leak, remediation, and community mitigation efforts, which are partially covered by insurance receivables. The company is actively involved in legal and regulatory proceedings concerning the leak, with potential for significant future costs and impacts on operations. Despite these challenges, Sempra Energy continues to advance its strategic capital projects, including pipeline development in Mexico and renewable energy projects in the U.S. The company maintains strong liquidity with substantial available credit facilities and expects its operating cash flows to fund capital expenditures and dividends.

Financial Highlights

48 data points
Beta

Revenue

$2.62B

Net Income

$353.00M

13.5% Net Margin

EPS (Diluted)

$0.70

Total Assets

$41.84B

Cash & Equivalents

$376.00M

Free Cash Flow

-$345.00M

Financial Statements
Beta
Revenue$2.62B
Interest Expense$143.00M
Net Income$353.00M
EPS (Basic)$0.70
EPS (Diluted)$0.70
Shares Outstanding (Basic)499.40M
Shares Outstanding (Diluted)503.00M

Key Highlights

  • 1Net income decreased by 27% to $319 million for Q1 2016, with diluted EPS falling to $1.27.
  • 2Higher operating costs at California utilities (SDG&E and SoCalGas) due to delayed rate case decisions and an impairment charge impacted earnings.
  • 3Sempra Mexico recorded a $24 million deferred tax expense related to the planned sale of its Termoeléctrica de Mexicali power plant.
  • 4SoCalGas is managing significant costs and potential liabilities associated with the Aliso Canyon natural gas leak, including relocation programs and legal/regulatory investigations.
  • 5The company is advancing major capital projects, including pipeline development in Mexico and renewable energy projects in the U.S.
  • 6Sempra Natural Gas is selling its investment in Rockies Express Pipeline LLC for approximately $440 million, expecting to close in Q2 2016.
  • 7Liquidity remains strong with $3.16 billion in available unused credit facilities across Sempra Energy and its California utilities.

Frequently Asked Questions

The decrease in earnings was primarily due to higher non-refundable operating costs at SDG&E and SoCalGas related to delayed General Rate Case decisions, an impairment charge on the Rockies Express investment, and a deferred tax expense at Sempra Mexico related to an asset held for sale. The Aliso Canyon natural gas leak also contributed to increased costs and potential liabilities for SoCalGas.

SoCalGas has recorded estimated costs of $665 million related to the leak as of March 31, 2016, primarily for temporary relocation programs, leak remediation, and legal costs. While a significant portion is covered by insurance receivables, any costs not covered by insurance or significant delays in recoveries could materially adversely affect the company's financial condition and results of operations.

Sempra Natural Gas has entered into an agreement to sell its 25% interest in Rockies Express Pipeline LLC for approximately $440 million, with an expected closing in the second quarter of 2016. Additionally, the company has agreed to sell the parent company of Mobile Gas and Willmut Gas, expecting to receive approximately $323 million in proceeds and recognize an after-tax gain of approximately $70 million.

The California Utilities (SDG&E and SoCalGas) filed settlement agreements for their 2016 General Rate Cases, but a final decision from the CPUC is still pending, leading to higher non-refundable operating costs without corresponding rate increases in the current quarter.