Sempra Energy Reports Increased Third-Quarter Earnings

 Three months ended 

 Nine months ended 

September 30,

September 30,

(Unaudited; Dollars, except EPS, and shares, in millions)

2016

2015

2016

2015

GAAP Earnings

$ 622

$ 248

$ 991

$ 980

Gain Related to Gasoductos de Chihuahua Acquisition

(350)

-

(350)

-

Gain on Sale of EnergySouth

(78)

-

(78)

-

Loss Related to Termoeléctrica de Mexicali Held For Sale

65

-

91

-

Loss Related to Sale of Investment in Rockies Express Pipeline

-

-

27

-

Permanent Releases of Pipeline Capacity

-

-

123

-

Tax Repairs Adjustments Related to General Rate Case (GRC)

-

-

80

-

Adjustment to Loss on SONGS Plant Closure

-

-

-

(13)

Gain on Sale of Mesquite Power Block 2

-

-

-

(36)

Adjusted Earnings⁽¹⁾

$ 259

$ 248

$ 884

$ 931

Diluted weighted-average shares outstanding

252

251

252

251

GAAP EPS

$2.46

$0.99

$3.93

$3.91

Adjusted EPS⁽¹⁾

$1.02

$0.99

$3.51

$3.72

(1) Sempra Energy adjusted earnings and adjusted earnings per share (EPS) are non-GAAP financial measures. See appendix for information regarding non-GAAP financial measures and descriptions of adjustments above. Adjusted earnings and adjusted EPS for the three months and nine months ended Sept. 30, 2015, have been revised to include after-tax LNG development expenses of $2 million and $7 million, respectively, for consistency with the comparable periods in 2016. LNG development expenses are included in adjusted earnings in 2016. Amounts excluded from GAAP earnings are after-tax and, if applicable, after noncontrolling interests.

SEMPRA ENERGY

Table A

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended
September 30,

Nine months ended
September 30,

(Dollars in millions, except per share amounts)

2016

2015

2016

2015

(unaudited)

REVENUES

Utilities

$

2,264

$

2,213

$

6,700

$

6,768

Energy-related businesses

271

268

613

762

Total revenues

2,535

2,481

7,313

7,530

EXPENSES AND OTHER INCOME

Utilities:

Cost of natural gas

(208)

(201)

(702)

(786)

Cost of electric fuel and purchased power

(604)

(666)

(1,680)

(1,645)

Energy-related businesses:

Cost of natural gas, electric fuel and purchased power

(95)

(91)

(213)

(262)

Other cost of sales

(32)

(34)

(293)

(111)

Operation and maintenance

(703)

(701)

(2,109)

(2,072)

Depreciation and amortization

(328)

(315)

(970)

(925)

Franchise fees and other taxes

(108)

(111)

(315)

(314)

Impairment losses

(132)

—

(154)

—

Plant closure adjustment

—

—

—

21

Gain on sale of assets

131

—

131

62

Equity earnings, before income tax

12

33

4

79

Remeasurement of equity method investment

617

—

617

—

Other income, net

26

12

98

88

Interest income

7

6

19

23

Interest expense

(136)

(143)

(421)

(416)

Income before income taxes and equity earnings of certain unconsolidated subsidiaries

982

270

1,325

1,272

Income tax expense⁽¹⁾

(282)

(15)

(284)

(276)

Equity earnings, net of income tax

19

27

69

64

Net income

719

282

1,110

1,060

Earnings attributable to noncontrolling interests

(97)

(34)

(118)

(79)

Preferred dividends of subsidiary

—

—

(1)

(1)

Earnings⁽¹⁾

$

622

$

248

$

991

$

980

Basic earnings per common share

$

2.48

$

1.00

$

3.96

$

3.95

Weighted-average number of shares outstanding, basic (thousands)

250,386

248,432

250,073

248,090

Diluted earnings per common share

$

2.46

$

0.99

$

3.93

$

3.91

Weighted-average number of shares outstanding, diluted (thousands)

252,405

251,024

251,976

250,665

Dividends declared per share of common stock

$

0.76

$

0.70

$

2.27

$

2.10

(1)

The nine months ended September 30, 2016 reflects increased earnings of $34 million from the prospective adoption of Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, as of January 1, 2016.

SEMPRA ENERGY

Table A (Continued)

RECONCILIATION OF SEMPRA ENERGY GAAP EARNINGS TO SEMPRA ENERGY ADJUSTED EARNINGS (Unaudited)

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Share exclude items (after the effects of taxes and, if applicable, noncontrolling interests) in 2016 and 2015 as follows:

Three months ended September 30, 2016:

•

$350 million noncash gain from the remeasurement of our equity method investment in Gasoductos de Chihuahua (GdC), a 50-50 joint venture between our Mexican subsidiary, IEnova, and Petróleos Mexicanos (PEMEX), in connection with IEnova's September 2016 acquisition of PEMEX's 50-percent interest in GdC

•

$78 million gain at Sempra Natural Gas on the September 2016 sale of EnergySouth Inc., the parent company of Mobile Gas and Willmut Gas

$(90) million impairment of assets held for sale at Sempra Mexico's Termoeléctrica de Mexicali (TdM) natural gas-fired power plant

•

 $25 million reduction of deferred income tax liability related to the impairment in carrying value of TdM's assets

Nine months ended September 30, 2016:

• 

$350 million noncash gain from the remeasurement of our equity method investment in GdC

• 

$78 million gain on the sale of EnergySouth

• 

$(123) million losses from the permanent release of pipeline capacity at Sempra Natural Gas

• 

$(80) million adjustments related to tax repairs deductions reallocated to ratepayers as a result of the 2016 General Rate Case Final Decision (2016 GRC FD) at the California Utilities

• 

$(27) million impairment charge related to Sempra Natural Gas' investment in Rockies Express Pipeline LLC (Rockies Express)

• 

$(90) million impairment of TdM assets held for sale

• 

$(1) million deferred income tax expense related to our decision to hold TdM for sale

Nine months ended September 30, 2015:

• 

$36 million gain on the sale of the remaining block of Sempra Natural Gas' Mesquite Power plant

• 

$13 million reduction in the plant closure loss related to the San Onofre Nuclear Generating Station (SONGS) due to California Public Utilities Commission (CPUC) approval of a compliance filing related to San Diego Gas & Electric Company's (SDG&E) authorized recovery of its investment in SONGS

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Share are non-GAAP financial measures (GAAP represents accounting principles generally accepted in the United States of America). Because of the significance and nature of these items, management believes that these non-GAAP financial measures provide a more meaningful comparison of the performance of Sempra Energy's business operations from 2016 to 2015 and to future periods, and also as a base for projection of future earnings-per-share compound annual growth rate (EPS CAGR) from 2016 to 2020. Non-GAAP financial measures are supplementary information that should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. The table below reconciles for historical periods these non-GAAP financial measures to Sempra Energy Earnings and Diluted Earnings Per Common Share, which we consider to be the most directly comparable financial measures calculated in accordance with GAAP.

Pretax
amount

Income tax
expense

(benefit)⁽¹⁾

Non-
controlling
interests

Earnings

Pretax
amount

Income tax
expense⁽¹⁾

Non-
controlling
interests

Earnings

(Dollars in millions, except per share amounts)

Three months ended September 30, 2016

Three months ended September 30, 2015

Sempra Energy GAAP Earnings

$

622

$

248

Exclude:

   Remeasurement gain in connection with GdC

$

(617)

$

185

$

82

(350)

$

—

$

—

$

—

—

   Gain on sale of EnergySouth

(130)

52

—

(78)

—

—

—

—

  Impairment of TdM assets held for sale

131

(20)

(21)

90

—

—

—

—

   Reduction of deferred income tax liability associated with TdM

—

(31)

6

(25)

—

—

—

—

Sempra Energy Adjusted Earnings

$

259

$

248

⁽²⁾ 

Diluted earnings per common share:

   Sempra Energy GAAP Earnings

$

2.46

$

0.99

   Sempra Energy Adjusted Earnings

$

1.02

$

0.99

⁽²⁾ 

Weighted-average number of shares outstanding, diluted (thousands)

252,405

251,024

Nine months ended September 30, 2016

Nine months ended September 30, 2015

Sempra Energy GAAP Earnings

$

991

$

980

Exclude:

   Remeasurement gain in connection with GdC

$

(617)

$

185

$

82

(350)

$

—

$

—

$

—

—

   Gain on sale of EnergySouth

(130)

52

—

(78)

—

—

—

—

   Permanent release of pipeline capacity

206

(83)

—

123

—

—

—

—

   SDG&E tax repairs adjustments related to 2016 GRC FD

52

(21)

—

31

—

—

—

—

   SoCalGas tax repairs adjustments related to 2016 GRC FD

83

(34)

—

49

—

—

—

—

   Impairment of investment in Rockies Express

44

(17)

—

27

—

—

—

—

  Impairment of TdM assets held for sale

131

(20)

(21)

90

—

—

—

—

   Deferred income tax expense associated with TdM

—

1

—

1

—

—

—

—

   Gain on sale of Mesquite Power block 2

—

—

—

—

(61)

25

—

(36)

   SONGS plant closure adjustment

—

—

—

—

(21)

8

—

(13)

Sempra Energy Adjusted Earnings

$

884

$

931

⁽²⁾ 

Diluted earnings per common share:

   Sempra Energy GAAP Earnings

$

3.93

$

3.91

   Sempra Energy Adjusted Earnings

$

3.51

$

3.72

⁽²⁾ 

Weighted-average number of shares outstanding, diluted (thousands)

251,976

250,665

(1)

Income taxes were calculated based on applicable statutory tax rates, except for adjustments that are solely income tax. Income taxes on the impairment of TdM were calculated based on the applicable statutory tax rate, including translation from historic to current exchange rates.

(2)

Adjusted earnings and adjusted earnings per share for the three months and nine months ended September 30, 2015 have been revised to include after-tax LNG development expenses of $2 million and $7 million, respectively, for consistency with the comparable periods in 2016. LNG development expenses are included in adjusted earnings and diluted earnings per common share in 2016.

SEMPRA ENERGY

Table A (Continued)

RECONCILIATION OF SEMPRA ENERGY 2016 ADJUSTED EARNINGS-PER-SHARE GUIDANCE RANGE TO SEMPRA ENERGY 2016 EARNINGS-PER-SHARE GUIDANCE RANGE (Unaudited)

Sempra Energy 2016 Adjusted Earnings-Per-Share Guidance Range of $4.60 to $5.00 excludes items (after the effects of taxes and, if applicable, noncontrolling interests) as follows:

• 

$350 million noncash gain from the remeasurement of our equity method investment in GdC recorded in September 2016;

• 

$78 million gain from the September 2016 sale of EnergySouth;

•

$123 million charge recorded in the second quarter of 2016 from Sempra Natural Gas' permanent release of pipeline capacity;    

• 

any earnings impact from any transaction to sell TdM in Mexico, including the $90 million impairment charge and the $1 million deferred income tax expense recorded in the nine months ended September 30, 2016;

• 

$80 million from adjustments related to tax repairs at the California Utilities as a result of the 2016 GRC FD; and

• 

$27 million Rockies Express impairment charge recorded in the first quarter of 2016.

Sempra Energy 2016 Adjusted Earnings-Per-Share Guidance is a non-GAAP financial measure. Because of the significance and nature of the excluded items, management believes this non-GAAP measure provides better clarity into the ongoing results of the business and the comparability of such results to prior and future periods and also as a base for projected earnings-per-share compound annual growth rate. Sempra Energy 2016 Adjusted Earnings-Per-Share Guidance should not be considered an alternative to Earnings-Per-Share Guidance determined in accordance with GAAP. The table below reconciles Sempra Energy 2016 Adjusted Earnings-Per-Share Guidance Range to Sempra Energy 2016 Earnings-Per-Share Guidance Range, which we consider to be the most directly comparable financial measure calculated in accordance with GAAP.

Full-year 2016

Sempra Energy GAAP Earnings-Per-Share Guidance Range

$

5.00

to

$

5.40

Exclude⁽¹⁾:

Remeasurement gain in connection with GdC

(1.38)

(1.38)

Gain on sale of EnergySouth

(0.31)

(0.31)

Permanent release of pipeline capacity

0.49

0.49

Losses related to TdM held for sale

0.36

0.36

Tax repairs adjustments related to 2016 GRC FD

0.33

0.33

Impairment of investment in Rockies Express

0.11

0.11

Sempra Energy Adjusted Earnings-Per-Share Guidance Range

$

4.60

to

$

5.00

Weighted-average number of shares outstanding, diluted (thousands)

252,700

(1)

The effects of taxes and noncontrolling interests for excluded items are provided above in the reconciliation
of Sempra Energy GAAP Earnings to Sempra Energy Adjusted Earnings.

SEMPRA ENERGY

Table B

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

September 30,
2016

December 31,
2015⁽¹⁾

(unaudited)

Assets

Current assets:

  Cash and cash equivalents

$

518

$

403

  Restricted cash

14

27

  Accounts receivable, net

1,233

1,473

  Due from unconsolidated affiliates

8

6

  Income taxes receivable

28

30

  Inventories

302

298

  Regulatory balancing accounts – undercollected

248

307

  Fixed-price contracts and other derivatives

53

80

  Assets held for sale

181

—

  Other

339

267

      Total current assets

2,924

2,891

Other assets:

  Restricted cash

12

20

  Due from unconsolidated affiliates

195

186

  Regulatory assets

3,424

3,273

  Nuclear decommissioning trusts

1,068

1,063

  Investments

1,840

2,905

  Goodwill

2,150

819

  Other intangible assets

397

404

  Dedicated assets in support of certain benefit plans

439

464

  Insurance receivable for Aliso Canyon costs

664

325

  Deferred income taxes

211

120

  Sundry

715

641

      Total other assets

11,115

10,220

Property, plant and equipment, net

31,487

28,039

Total assets

$

45,526

$

41,150

Liabilities and Equity

Current liabilities:

  Short-term debt

$

2,869

$

622

  Accounts payable

1,298

1,275

  Due to unconsolidated affiliates

9

14

  Dividends and interest payable

357

303

  Accrued compensation and benefits

298

423

  Regulatory balancing accounts – overcollected

146

34

  Current portion of long-term debt

904

907

  Fixed-price contracts and other derivatives

94

56

  Customer deposits

153

153

  Reserve for Aliso Canyon costs

73

274

  Liabilities held for sale

35

—

  Other

558

551

      Total current liabilities

6,794

4,612

Long-term debt

13,522

13,134

Deferred credits and other liabilities:

  Customer advances for construction

153

149

  Pension and other postretirement benefit plan obligations, net of plan assets

1,199

1,152

  Deferred income taxes

3,326

3,157

  Deferred investment tax credits

34

32

  Regulatory liabilities arising from removal obligations

2,878

2,793

  Asset retirement obligations

2,508

2,126

  Fixed-price contracts and other derivatives

413

240

  Deferred credits and other

1,508

1,176

      Total deferred credits and other liabilities

12,019

10,825

Equity:

  Total Sempra Energy shareholders' equity

12,346

11,809

  Preferred stock of subsidiary

20

20

  Other noncontrolling interests

825

750

      Total equity

13,191

12,579

Total liabilities and equity

$

45,526

$

41,150

(1)

Derived from audited financial statements.

SEMPRA ENERGY

Table C

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30,

(Dollars in millions)

2016

2015

(unaudited)

Cash Flows from Operating Activities

Net income

$

1,110

$

1,060

Adjustments to reconcile net income to net cash provided by operating activities:

  Depreciation and amortization

970

925

  Deferred income taxes and investment tax credits

170

179

  Impairment losses

154

—

  Plant closure adjustment

—

(21)

  Gain on sale of assets

(131)

(62)

  Equity earnings

(73)

(143)

  Remeasurement of equity method investment

(617)

—

  Fixed-price contracts and other derivatives

39

(20)

  Other

50

28

Net change in other working capital components

224

260

Insurance receivable for Aliso Canyon costs

(339)

—

Changes in other assets

(4)

(112)

Changes in other liabilities

138

(5)

  Net cash provided by operating activities

1,691

2,089

Cash Flows from Investing Activities

Expenditures for property, plant and equipment

(3,087)

(2,227)

Expenditures for investments and acquisition of businesses, net of cash and cash equivalents acquired

(1,212)

(183)

Proceeds from sale of assets, net of cash sold

761

347

Distributions from investments

23

14

Purchases of nuclear decommissioning and other trust assets

(418)

(407)

Proceeds from sales by nuclear decommissioning and other trusts

486

431

Increases in restricted cash

(53)

(81)

Decreases in restricted cash

71

68

Advances to unconsolidated affiliates

(12)

(24)

Repayments of advances to unconsolidated affiliates

11

74

Other

(2)

9

  Net cash used in investing activities

(3,432)

(1,979)

Cash Flows from Financing Activities

Common dividends paid

(510)

(468)

Preferred dividends paid by subsidiary

(1)

(1)

Issuances of common stock

40

41

Repurchases of common stock

(55)

(74)

Issuances of debt (maturities greater than 90 days)

2,013

2,058

Payments on debt (maturities greater than 90 days)

(1,298)

(1,316)

Increase (decrease) in short-term debt, net

1,636

(201)

Deposit for sale of noncontrolling interest

78

—

Net distributions to noncontrolling interests

(43)

(57)

Tax benefit related to share-based compensation

—

56

Other

(12)

(9)

  Net cash provided by financing activities

1,848

29

Effect of exchange rate changes on cash and cash equivalents

8

(12)

Increase in cash and cash equivalents

115

127

Cash and cash equivalents, January 1

403

570

Cash and cash equivalents, September 30

$

518

$

697

SEMPRA ENERGY

Table D

SEGMENT EARNINGS (LOSSES) AND CAPITAL EXPENDITURES, INVESTMENTS AND ACQUISITION OF BUSINESSES

Three months ended
September 30,

Nine months ended
September 30,

(Dollars in millions)

2016

2015

2016

2015

    (unaudited)

Earnings (Losses)⁽¹⁾

California Utilities:

  San Diego Gas & Electric

$

183

$

170

$

419

$

443

  Southern California Gas

—

(8)

198

276

Sempra International:

  Sempra South American Utilities

46

43

127

129

  Sempra Mexico

332

63

407

160

Sempra U.S. Gas & Power:

  Sempra Renewables

17

15

43

47

  Sempra Natural Gas

77

1

(104)

43

Parent and other

(33)

(36)

(99)

(118)

Earnings

$

622

$

248

$

991

$

980

Three months ended
September 30,

Nine months ended
September 30,

(Dollars in millions)

2016

2015

2016

2015

    (unaudited)

Capital Expenditures, Investments and Acquisition of Businesses

California Utilities:

  San Diego Gas & Electric

$

357

$

235

$

959

$

835

  Southern California Gas

299

343

949

946

Sempra International:

  Sempra South American Utilities

51

39

133

105

  Sempra Mexico

1,226

65

1,366

185

Sempra U.S. Gas & Power:

  Sempra Renewables

261

26

739

67

  Sempra Natural Gas

44

53

136

222

Parent and other

9

22

17

50

Consolidated Capital Expenditures, Investments and Acquisition of Businesses

$

2,247

$

783

$

4,299

$

2,410

(1)

The nine months ended September 30, 2016 reflects the prospective adoption of ASU 2016-09 as of January 1, 2016.

SEMPRA ENERGY

Table E

OTHER OPERATING STATISTICS (Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

UTILITIES

2016

2015

2016

2015

California Utilities - SDG&E and SoCalGas

Gas Sales (Bcf)⁽¹⁾

56

55

242

227

Transportation (Bcf)⁽¹⁾

185

200

477

500

Total Deliveries (Bcf)⁽¹⁾

241

255

719

727

Total Gas Customers (Thousands)

6,799

6,762

Electric Sales (Millions of kWhs)⁽¹⁾

4,377

4,474

11,662

11,950

Direct Access (Millions of kWhs)

967

987

2,573

2,683

Total Deliveries (Millions of kWhs)⁽¹⁾

5,344

5,461

14,235

14,633

Total Electric Customers (Thousands)

1,432

1,424

Other Utilities

Natural Gas Sales (Bcf)

  Sempra Mexico

7

6

22

19

  Mobile Gas^{(2) (3)}

9

11

33

35

  Willmut Gas⁽³⁾

—

—

2

2

Natural Gas Customers (Thousands)

  Sempra Mexico

117

110

  Mobile Gas^{(2) (3)}

84

85

  Willmut Gas⁽³⁾

19

19

Electric Sales (Millions of kWhs)

  Peru

1,771

1,854

5,607

5,695

  Chile

680

676

2,161

2,172

Electric Customers (Thousands)

  Peru

1,071

1,048

  Chile

684

668

ENERGY-RELATED BUSINESSES

Sempra International

Power Sold (Millions of kWhs)

  Sempra Mexico

1,059

1,139

2,191

2,782