10-QPeriod: Q3 FY2016

SEMPRA Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 2, 2016For Securities:SRESREA

Summary

Sempra Energy (SRE) reported solid financial results for the nine months ended September 30, 2016. The company saw an increase in diluted earnings per share to $3.93 compared to $3.91 in the prior year period, driven by a significant non-cash gain from the remeasurement of an equity interest in Gasoductos de Chihuahua (GdC) and a gain on the sale of EnergySouth. However, the company also recorded a substantial impairment loss on assets held for sale at Termoeléctrica de Mexicali (TdM) and a significant loss on the permanent release of pipeline capacity within its Sempra Natural Gas segment. The Aliso Canyon natural gas leak continues to be a significant event, with SoCalGas incurring substantial costs, partially offset by insurance receivables, and facing ongoing regulatory scrutiny and litigation. The company's utility segments, SDG&E and SoCalGas, are navigating rate case decisions and safety regulations, which are impacting their near-term earnings. Overall, investors should note the impact of both significant positive (GdC remeasurement, EnergySouth sale) and negative (TdM impairment, pipeline capacity release, Aliso Canyon costs) non-recurring items on reported earnings. The core utility operations are demonstrating stable performance, but regulatory and operational challenges, particularly for SoCalGas, warrant close monitoring.

Financial Highlights

46 data points
Beta

Revenue

$2.54B

Net Income

$622.00M

24.5% Net Margin

EPS (Diluted)

$1.23

Total Assets

$45.53B

Cash & Equivalents

$518.00M

Free Cash Flow

-$306.00M

Financial Statements
Beta
Revenue$2.54B
Interest Expense$136.00M
Net Income$622.00M
EPS (Basic)$1.24
EPS (Diluted)$1.23
Shares Outstanding (Basic)500.80M
Shares Outstanding (Diluted)504.80M

Key Highlights

  • 1Sempra Energy reported a 9-month diluted EPS of $3.93, a slight increase from $3.91 in the prior year, driven by a significant non-cash gain of $350 million from remeasuring its equity interest in Gasoductos de Chihuahua (GdC).
  • 2The Sempra Natural Gas segment experienced a $123 million loss on the permanent release of pipeline capacity and a $27 million impairment on its investment in Rockies Express.
  • 3SoCalGas incurred $763 million in estimated costs related to the Aliso Canyon natural gas leak, with $73 million reserved and $664 million recognized as an insurance receivable.
  • 4SDG&E's electric revenues increased slightly year-over-year, but operation and maintenance expenses rose due to CPUC-authorized refundable programs and higher base operating margins.
  • 5Sempra Mexico completed the acquisition of GdC for $1.144 billion and is also acquiring the Ventika wind power generation facilities for an estimated $852 million.
  • 6The company recorded a $131 million impairment loss on assets held for sale at Termoeléctrica de Mexicali (TdM) within Sempra Mexico.
  • 7Sempra Energy's consolidated cash provided by operating activities decreased by $398 million year-over-year, largely due to increased insurance receivables for the Aliso Canyon leak and lower net income.

Frequently Asked Questions

Sempra Energy's earnings for the first nine months of 2016 were primarily driven by a $350 million non-cash gain from the remeasurement of its equity interest in Gasoductos de Chihuahua (GdC), a $78 million gain on the sale of EnergySouth, and a $78 million gain on the sale of EnergySouth. These were partially offset by a $90 million impairment of assets held for sale at Termoeléctrica de Mexicali (TdM) and a $123 million loss on the permanent release of pipeline capacity within Sempra Natural Gas.

SoCalGas incurred estimated costs of $763 million related to the Aliso Canyon leak by September 30, 2016, with $73 million reserved and $664 million recognized as an insurance receivable. The company is facing significant ongoing legal, regulatory, and operational challenges due to the leak, including potential for material adverse effects on cash flows and results of operations if insurance coverage is insufficient or delayed.

Sempra Mexico's acquisition of the remaining 50% interest in GdC for $1.144 billion on September 26, 2016, resulted in a $350 million non-cash gain from the remeasurement of its previously held equity interest. This significantly boosted Sempra Mexico's reported earnings for the period.

Yes, SDG&E and SoCalGas are impacted by the CPUC's final decision on their 2016 General Rate Case (GRC), which retroactively adjusted revenue requirements and included charges related to prior years' income tax benefits being reallocated to ratepayers. SoCalGas also faces ongoing regulatory scrutiny and potential cost impacts from new pipeline safety regulations and the Aliso Canyon leak.