SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[..X..] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 31, 2001
For the quarterly period ended.......................................
Or
[.....] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________________ to _________________
Name of
Commission Registrant IRS Employer
File as specified State of Identification
Number in its charter Incorporation Number
---------- -------------- -------------- --------------
1-40 Pacific Enterprises California 94-0743670
1-1402 Southern California
Gas Company California 95-1240705
555 West Fifth Street, Los Angeles, California 90013
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(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (213) 244-1200
-------------------
No Change
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Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes...X... No......
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock outstanding:
Pacific Enterprises Wholly owned by Sempra Energy
Southern California Gas Company Wholly owned by Pacific Enterprises
ITEM 1. FINANCIAL STATEMENTS.
PACIFIC ENTERPRISES AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Dollars in millions
Three months ended
March 31,
-----------------
2001 2000
------- -------
Operating Revenues $ 1,548 $ 698
------- -------
Operating Expenses
Cost of natural gas distributed 1,151 346
Operation and maintenance 188 150
Depreciation and amortization 65 64
Income taxes 42 44
Other taxes and franchise payments 34 28
------- -------
Total operating expenses 1,480 632
------- -------
Operating Income 68 66
------- -------
Other Income and (Deductions)
Interest income 17 8
Regulatory interest - net (5) -
Allowance for equity funds used
during construction 1 -
Taxes on non-operating income (2) (2)
Other - net (4) -
------- -------
Total 7 6
------- -------
Income Before Interest Charges 75 72
------- -------
Interest Charges
Long-term debt 17 19
Other interest 9 2
Allowance for borrowed funds used
during construction (1) (1)
------- -------
Total 25 20
------- -------
Net Income 50 52
Preferred Dividend Requirements 1 1
------- -------
Earnings Applicable to Common Shares $ 49 $ 51
======= =======
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in millions
Balance at
---------------------------
March 31, December 31,
2001 2000
----------- --------------
ASSETS
Property, plant and equipment $6,379 $6,337
Accumulated depreciation (3,632) (3,571)
-------- --------
Property, plant and equipment - net 2,747 2,766
-------- --------
Current assets
Cash and cash equivalents 474 205
Accounts receivable - trade 604 589
Accounts receivable - other 27 83
Income taxes receivable 4 --
Due from affiliate 37 214
Deferred income taxes 74 43
Fixed price contracts and other derivatives 2,475 --
Inventories 19 67
Other 40 84
----- -----
Total current assets 3,754 1,285
----- -----
Other assets
Regulatory assets 94 108
Notes receivable - affiliates 403 617
Fixed price contracts and other derivatives 1,226 --
Other 59 52
------ ------
Total other assets 1,782 777
------ ------
Total assets $8,283 $4,828
====== ======
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in millions
Balance at
---------------------------
March 31, December 31,
2001 2000
----------- --------------
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock $1,282 $1,282
Retained earnings 74 165
Accumulated other comprehensive income (loss) (1) (1)
-------- --------
Total common equity 1,355 1,446
Preferred stock 80 80
Long-term debt 821 821
-------- --------
Total capitalization 2,256 2,347
-------- --------
Current liabilities
Accounts payable - trade 390 368
Accounts payable - other 134 43
Regulatory balancing accounts - net 395 463
Income taxes payable -- 50
Deferred income taxes 31 --
Dividends and interest payable 31 28
Current portion of long-term debt 120 120
Due to affiliates 157 365
Regulatory liabilities arising from fixed price
contracts and other derivatives 2,444 --
Other 345 300
-------- --------
Total current liabilities 4,047 1,737
-------- --------
Deferred credits and other liabilities
Customer advances for construction 15 16
Post-retirement benefits other than pensions 95 97
Deferred income taxes 233 224
Deferred investment tax credits 52 53
Regulatory liabilities 9 --
Regulatory liabilities arising from fixed price
contracts and other derivatives 1,226 --
Deferred credits and other liabilities 330 334
Preferred stock of subsidiary 20 20
-------- --------
Total deferred credits and other liabilities 1,980 744
-------- --------
Contingencies and commitments (Note 2)
Total liabilities and shareholders' equity $8,283 $4,828
======== ========
See notes to Consolidated Financial Statements.
PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Dollars in millions
Three Months Ended
March 31,
------------------
2001 2000
------ -----
Cash Flows from Operating Activities:
Net income $ 50 $ 52
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 65 64
Deferred income taxes and investment
tax credits 9 13
Other - net 10 (6)
Net changes in other working capital components 132 282
----- -----
Net cash provided by operating activities 266 405
----- -----
Cash Flows From Investing Activities
Capital expenditures (46) (40)
Loans repaid by (paid to) affiliates 190 (219)
----- -----
Net cash provided by (used in) investing
activities 144 (259)
----- -----
Cash Flows from Financing Activities
Common dividends paid (140) --
Preferred dividends paid (1) (1)
----- -----
Net cash used in financing activities (141) (1)
----- -----
Increase in cash and cash equivalents 269 145
Cash and cash equivalents, January 1 205 11
----- -----
Cash and cash equivalents, March 31 $ 474 $ 156
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income tax payments - net $ 102 $ --
===== =====
Interest payments, net of amounts capitalized $ 21 $ 41
===== =====
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Dollars in millions
Three months ended
March 31,
-----------------
2001 2000
------- -------
Operating Revenues $1,548 $ 698
------ ------
Operating Expenses
Cost of natural gas distributed 1,151 346
Operation and maintenance 186 150
Depreciation and amortization 65 64
Income taxes 44 44
Other taxes and franchise payments 34 28
------ ------
Total operating expenses 1,480 632
------ ------
Operating Income 68 66
------ ------
Other Income and (Deductions)
Interest income 9 4
Regulatory interest - net (5) -
Allowance for equity funds used
during construction 1 -
Taxes on non-operating income (2) (2)
Other - net (1) -
------ ------
Total 2 2
------ ------
Income Before Interest Charges 70 68
------ ------
Interest Charges
Long-term debt 17 17
Other 3 2
Allowance for borrowed funds used
during construction (1) (1)
------ ------
Total 19 18
------ ------
Earnings Applicable to Common Shares $ 51 $ 50
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in millions
Balance at
--------------------------
March 31, December 31,
2001 2000
---------- ------------
ASSETS
Utility plant - at original cost $6,356 $6,314
Accumulated depreciation (3,618) (3,557)
------ ------
Utility plant - net 2,738 2,757
------ ------
Current assets
Cash and cash equivalents 474 205
Accounts receivable - trade 604 589
Accounts receivable - other 26 83
Due from affiliates 37 214
Deferred income taxes 74 74
Fixed price contracts and other derivatives 2,475 --
Inventories 19 67
Other 38 80
------ ------
Total current assets 3,747 1,312
------ ------
Other assets
Regulatory assets -- 12
Fixed price contracts and other derivatives 1,226 --
Other 45 35
------ ------
Total other assets 1,671 47
------ ------
Total assets $7,756 $4,116
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
Dollars in millions
Balance at
--------------------------
March 31, December 31,
2001 2000
---------- ------------
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 835 $ 835
Retained earnings 364 453
Accumulated other comprehensive income (loss) (1) (1)
------ ------
Total common equity 1,198 1,287
Preferred stock 22 22
Long-term debt 821 821
------ ------
Total capitalization 2,041 2,130
------ ------
Current liabilities
Accounts payable - trade 390 368
Accounts payable - other 135 44
Regulatory balancing accounts - net 395 463
Income taxes payable 38 90
Interest payable 30 26
Current portion of long-term debt 120 120
Regulatory liabilities arising from fixed price
contracts and other derivatives 2,444 --
Other 344 300
------ ------
Total current liabilities 3,896 1,411
------ ------
Deferred credits and other liabilities
Customer advances for construction 15 16
Deferred income taxes 322 314
Deferred investment tax credits 52 53
Regulatory liabilities 9 --
Regulatory liabilities arising from fixed price
contracts and other derivatives 1,226 --
Deferred credits and other liabilities 195 192
------ ------
Total deferred credits and other liabilities 1,819 575
------ ------
Contingencies and commitments (Note 2)
Total liabilities and shareholders' equity $7,756 $4,116
====== ======
See notes to Consolidated Financial Statements.
SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Dollars in millions
Three Months Ended
March 31,
------------------
2001 2000
------ ------
Cash Flows from Operating Activities
Net income $ 51 $ 50
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 65 64
Deferred income taxes and investment tax credits 8 12
Other - net 13 (15)
Net changes in other working capital components 135 277
------ ------
Net cash provided by operating activities 272 388
------ ------
Cash Flows from Investing Activities
Capital expenditures (46) (40)
Loan repaid by (paid to) affiliate 183 (101)
------ ------
Net cash provided by (used in) investing
activities 137 (141)
------ ------
Cash Flows from Financing Activities - dividends (140) (100)
------ ------
Increase in cash and cash equivalents 269 147
Cash and cash equivalents, January 1 205 11
------ ------
Cash and cash equivalents, March 31 $ 474 $ 158
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income tax payments - net $ 90 $ --
====== ======
Interest payments, net of amounts capitalized $ 15 $ 14
====== ======
See notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
This Quarterly Report on Form 10-Q is that of Pacific Enterprises (PE
or the Company) and of Southern California Gas Company (SoCalGas).
PE's common stock is wholly owned by Sempra Energy, a California-
based Fortune 500 energy services company. SoCalGas' common stock is
wholly owned by PE. The financial statements herein are, in one case,
the Consolidated Financial Statements of PE and its subsidiary,
SoCalGas, and, in the second case, the Consolidated Financial
Statements of SoCalGas and its subsidiaries.
The accompanying Consolidated Financial Statements have been prepared
in accordance with the interim-period-reporting requirements of Form
10-Q. Results of operations for interim periods are not necessarily
indicative of results for the entire year. In the opinion of
management, the accompanying statements reflect all adjustments
necessary for a fair presentation. These adjustments are only of a
normal recurring nature. Certain changes in classification have been
made to prior presentations to conform to the current financial
statement presentation.
The companies' significant accounting policies are described in the
notes to Consolidated Financial Statements in the companies' 2000
Annual Reports. The same accounting policies are followed for interim
reporting purposes.
Information in this Quarterly Report is unaudited and should be read
in conjunction with the companies' 2000 Annual Reports.
As described in the notes to Consolidated Financial Statements in the
companies' 2000 Annual Reports, SoCalGas accounts for the economic
effects of regulation on utility operations in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS No. 71).
2. MATERIAL CONTINGENCIES
NATURAL GAS INDUSTRY RESTRUCTURING
The companies' 2000 Annual Reports discuss various proposals and
actions related to this topic. As discussed therein, no significant
impacts on the companies are expected when the various issues are
finalized, which is not expected to occur before late 2001.
LITIGATION
A 2000 lawsuit, which seeks class-action certification, alleges that
Sempra Energy, SoCalGas, SDG&E and El Paso Energy Corp. acted to
drive up the price of natural gas for Californians by agreeing to
stop a pipeline project that would have brought new and less-
expensive natural gas supplies into California. Management believes
the allegations are without merit.
Except for the above, neither company nor their subsidiaries are
party to, nor is their property the subject of, any material pending
legal proceedings other than routine litigation incidental to their
businesses. Management believes that these matters will not have a
material adverse effect on the companies' results of operations,
financial condition or liquidity.
QUASI-REORGANIZATION
In 1993, PE divested its merchandising operations and most of its oil
and gas exploration and production business. In connection with the
divestitures, PE effected a quasi-reorganization for financial
reporting purposes effective December 31, 1992. Management believes
the remaining balances of the liabilities established in connection
with the quasi-reorganization are adequate.
3. COMPREHENSIVE INCOME
The following is a reconciliation of net income to comprehensive
income.
Pacific Enterprises SoCalGas
------------------- -------------------
Three-month periods Three-month periods
ended March 31, ended March 31,
------------------- -------------------
(Dollars in millions) 2001 2000 2001 2000
---------------------------------------------------------------------
Net income $ 50 $ 52 $ 51 $ 50
Change in unrealized gain
on marketable securities -- 34 -- 34
Minimum pension liability
adjustments -- 2 -- 3
-----------------------------------------
Comprehensive income $ 50 $ 88 $ 51 $ 87
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4. FINANCIAL INSTRUMENTS
Adoption of SFAS 133
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities" as amended by SFAS No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." As amended, SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position, measure those instruments at fair value and
recognize changes in the fair value of derivatives in earnings in the
period of change unless the derivative qualifies as an effective
hedge that offsets certain exposures.
The adoption of this new standard on January 1, 2001, did not have a
material impact on the Company's earnings. However, $982 million in
current assets, $1.1 billion in noncurrent assets, and $4 million in
current liabilities, were recorded as of January 1, 2001, in the
Consolidated Balance Sheet as fixed-priced contracts and other
derivatives. Due to the regulatory environment in which SoCalGas
operates, regulatory assets and liabilities were established to the
extent that derivative gains and losses are recoverable or payable
through future rates. As such, $982 million in current regulatory
liabilities, $1.1 billion in noncurrent regulatory liabilities, and
$4 million in current regulatory assets were recorded as of January
1, 2001, in the Consolidated Balance Sheet. The ongoing effects will
depend on future market conditions and the Company's hedging
activities.
Market Risk
The companies' policy is to use derivative financial instruments to
manage its exposure to fluctuations in interest rates and energy
prices. Transactions involving these financial instruments are with
credit-worthy firms and major exchanges. The use of these instruments
exposes the companies to market and credit risk which may at times be
concentrated with certain counterparties, although counterparty
nonperformance is not anticipated.
Energy Derivatives
SoCalGas utilizes derivative financial instruments to reduce exposure
to unfavorable changes in energy prices which are subject to
significant and often volatile fluctuation. Derivative financial
instruments are comprised of futures, forwards, swaps, options and
long-term delivery contracts. These contracts allow SoCalGas to
predict with greater certainty the effective prices to be received
and delivered to its customers.
Due to the regulatory environment in which SoCalGas operates,
regulatory assets and liabilities are established to the extent that
derivative gains and losses are recoverable or payable through future
rates. As such, SoCalGas does not apply hedge accounting to energy
derivatives. However, such contracts continue to be effective in
achieving the risk management objectives for which they were
intended.
Accounting for Derivative Activities
At March 31, 2001, $2.5 billion in current assets and $1.2 billion in
noncurrent assets were recorded in the Consolidated Balance Sheet as
fixed priced contracts and other derivatives. Due to the regulatory
environment in which SoCalGas operates, regulatory assets and
liabilities were established to the extent that derivative gains and
losses are recoverable or payable through future rates. As such, $31
million in regulatory balancing accounts - net, $2.4 billion in
current regulatory liabilities, and $1.2 billion in noncurrent
regulatory liabilities were recorded in the Consolidated Balance
Sheet as of March 31, 2001.
Fair Value
The fair value of the Company's derivative financial instruments
(fixed-priced contracts and other derivatives) is not materially
different from their carryings amounts. The fair values of fixed-
priced contracts and other derivatives were estimated based on quoted
market prices. Information regarding the fair value of the Company's
non-derivative financial instruments is provided in Note 8 of the
notes to Consolidated Financial Statements in the 2000 Annual Report
on Form 10-K.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements contained in this Form 10-Q and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained in the companies' 2000 Annual Report.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that are not
historical fact and constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. The
words "estimates," "believes," "expects," "anticipates," "plans,"
"intends," "may," "would" and "should" or similar expressions, or
discussions of strategy or of plans are intended to identify forward-
looking statements. Forward-looking statements are not guarantees of
performance. They involve risks, uncertainties and assumptions.
Future results may differ materially from those expressed in these
forward-looking statements.
Forward-looking statements are necessarily based upon various
assumptions involving judgments with respect to the future and other
risks, including, among others, local, regional, national and
international economic, competitive, political, legislative and
regulatory conditions; actions by the CPUC, the California
Legislature, and the FERC; the financial condition of other investor-
owned utilities; inflation rates and interest rates; energy markets,
including the timing and extent of changes in commodity prices;
weather conditions; business, regulatory and legal decisions; the
pace of deregulation of retail natural gas and electricity delivery;
the timing and success of business development efforts; and other
uncertainties -- all of which are difficult to predict and many of
which are beyond the control of the Company. Readers are cautioned
not to rely unduly on any forward-looking statements and are urged to
review and consider carefully the risks, uncertainties and other
factors which affect the Company's business described in this
quarterly report and other reports filed by the Company from time to
time with the Securities and Exchange Commission.
See also "Factors Influencing Future Performance" below.
CAPITAL RESOURCES AND LIQUIDITY
Working capital requirements currently are expected to be met through
the issuance of short-term and long-term debt.
On February 9, 2001, SoCalGas' $200 million credit line expired and
was replaced on February 27, 2001, with a $170 million, one-year
agreement. This agreement bears interest at various rates based on
market rates and SoCalGas' credit rating. On April 18, 2001, PE
entered into a $500-million revolving line of credit which bears
interest at various rates based on market rates and PE's credit
rating. Cash and cash equivalents at March 31, 2001 are available for
investment in utility plant, the retirement of debt and other
corporate purposes. Major changes in cash flows not described
elsewhere are described below.
CASH FLOWS FROM OPERATING ACTIVITIES
For the three-month period ended March 31, 2001, the decrease in cash
flows from operations compared to the corresponding period in 2000 is
primarily due to lower accrued income taxes in 2001 reflecting tax
payments made during the first quarter of 2001 (none were made during
the same period in 2000).
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment are estimated
to be $300 million for the full year 2001 and are being financed
primarily by internally generated funds. Construction, investment and
financing programs are continuously reviewed and revised in response
to changes in competition, customer growth, inflation, customer
rates, the cost of capital, and environmental and regulatory
requirements.
CASH FLOWS FROM FINANCING ACTIVITIES
For the three-month period ended March 31, 2001, cash flows from
financing activities decreased from the corresponding period in 2000
due primarily to an increase in common dividends paid during 2001.
RESULTS OF OPERATIONS
The companies' net income remained flat for the three-month period
ended March 31, 2001, compared to the same period in 2000. Increased
interest income on increased short-term investments was offset by
increased regulatory interest expense.
The table below summarizes natural gas volumes and revenues by customer
class for the three-month periods ended March 31, 2001 and 2000.
(Volumes in billion cubic feet, dollars in millions)
Gas Sales Transportation & Exchange Total
--------------------------------------------------------------
Volumes Revenue Volumes Revenue Volumes Revenue
--------------------------------------------------------------
2001:
Residential 104 $1,096 1 $ 2 105 $1,098
Commercial and industrial 28 265 60 56 88 321
Electric generation plants -- -- 100 26 100 26
Wholesale -- -- 52 9 52 9
--------------------------------------------------------------
132 $1,361 213 $ 93 345 1,454
Balancing accounts and other 94
--------
Total $1,548
------------------------------------------------------------------------------------------
2000:
Residential 89 $ 625 1 $ 6 90 $ 631
Commercial and industrial 25 160 83 73 108 233
Electric generation plants -- -- 30 11 30 11
Wholesale -- -- 41 14 41 14
--------------------------------------------------------------
114 $ 785 155 $104 269 $ 889
Balancing accounts and other (191)
--------
Total $ 698
------------------------------------------------------------------------------------------
The increase in natural gas revenues was primarily due to higher
natural gas prices and increased transportation for electric
generation plants.
The increase in the cost of natural gas distributed was primarily due
to higher natural gas prices. Under the current regulatory framework,
the cost of natural gas is passed on to customers without markup and
changes in core-market natural gas prices do not affect net income
since, as explained more fully in the 2000 Annual Report, current or
future core customer rates normally recover the actual cost of
natural gas on a substantially concurrent basis.
FACTORS INFLUENCING FUTURE PERFORMANCE
Performance of the companies in the near future will depend primarily
on the ratemaking and regulatory process, electric and natural gas
industry restructuring, and the changing energy marketplace. These
factors are discussed in this section and in Note 2 of the notes to
Consolidated Financial Statements.
Performance-Based Regulation (PBR)
To promote efficient operations and improved productivity and to move
away from reasonableness reviews and disallowances, the CPUC has been
directing utilities to use PBR. PBR has replaced the general rate
case and certain other regulatory proceedings for the California
utilities. Under PBR, regulators require future income potential to
be tied to achieving or exceeding specific performance and
productivity goals, as well as cost reductions, rather than relying
solely on expanding utility plant in a market where a utility already
has a highly developed infrastructure.
SoCalGas' PBR mechanism is in effect through December 31, 2002, at
which time the mechanism will be updated. That update is described in
the companies' 2000 Annual Reports.
Cost of Capital
For 2001, SoCalGas is authorized to earn a rate of return on common
equity (ROE) of 11.6 percent and a 9.49 percent return on rate base
(ROR), the same as in 2000 and 1999, unless interest-rate changes are
large enough to trigger an automatic adjustment as discussed in the
companies' 2000 Annual Reports.
NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS
No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." The adoption of this new standard on January
1, 2001, did not have a material impact on the Company's earnings.
For further information regarding the companies' implementation of
SFAS 133, see Note 4 above.
ITEM 3. MARKET RISK
There have been no significant changes in the risk issues affecting
the companies subsequent to those discussed in the Annual Report for
2000. As noted in that report, SoCalGas may, at times, be exposed to
limited market risk in its natural gas purchase, sale and storage
activities as a result of activities under SoCalGas' Gas Cost
Incentive Mechanism. The risk is managed within the parameters of the
Company's market-risk management and trading framework. However, to
lessen the impact on customers from the recent unprecedented natural
gas price volatility at the California border, during the first
quarter of 2001, SoCalGas began hedging a larger portion of its
customer natural gas requirements than in the past. As of March 31,
2001, the VaR of the hedges was $1.8 million. This amount represents
the 50-percent shareholder portion under the PBR mechanism and
excludes the 50-percent portion subject to rate recovery. In
addition, certain fixed price contracts that traditionally have not
been considered derivatives, but now meet the derivative definition
under SFAS 133 (see "New Accounting Standards" above), are excluded
from the above-mentioned VaR amounts due to the offsetting regulatory
asset or liability also recorded by SoCalGas.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as otherwise described in this report, neither the Company nor
its subsidiaries are party to, nor is their property the subject of,
any material pending legal proceedings other than routine litigation
incidental to their businesses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 - Computation of ratios
12.1 Computation of Ratio of Earnings to Fixed Charges of PE.
12.2 Computation of Ratio of Earnings to Fixed Charges of
SoCalGas.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed after December 31, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly cause this report to be signed on their
behalf by the undersigned thereunto duly authorized.
PACIFIC ENTERPRISES
-------------------
(Registrant)
Date: May 3, 2001 By: /s/ F. H. Ault
----------------------------
F. H. Ault
Vice President and Controller
SOUTHERN CALIFORNIA GAS COMPANY
-------------------------------
(Registrant)
By: /s/ E.A. Guiles
---------------------------
E.A. Guiles
President
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