ML13329A119
| ML13329A119 | |
| Person / Time | |
|---|---|
| Site: | San Onofre  |
| Issue date: | 12/31/1985 |
| From: | Page T SAN DIEGO GAS & ELECTRIC CO. |
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| NUDOCS 8612160047 | |
| Download: ML13329A119 (18) | |
Text
Beginnings L
when why where what who 1985 Annual Report I
San Diego Gas & Electric 8612160047 861202 PDR ADOCK 05000206 I
PDR I
Operating t
ff t
expenses were f
kept in check in fA test of natural gas asafuelfor cars and trucks 1985. One factor was begun in 1985 when 30 company vehicles were was the company's converted to be able to use either natural gas or improved worker-to-gasoline. The objecties: to provide documentation imprvedworer-t-f ftft f ftt f ~ f 1 t f
- f 9 t f fton fleet experience, to determine potential markets customer ratio.
tand to assess thefuture value to the company of The ratio has slowly been marketing thefuelfor vehicle use (page 9).
declining during the past fIt It t
Lookingaheada three years as a result of aft 1 I I ft f m
decade, an electric theeyer a areut f t Itf t t f ft t f ff
- ee ae resource plan was pub company policy to decrease the fin lished in November number of employees through 1985. It projects how ties
~~
mc Comsint ene y 995 wher retirement and voluntary pre-1eery may be retirement departures and curtailment it could come from and ft tft f I ft t tic expeses.The what the most cost of hiring new employees.
effective ways of pro The current ratio, one employee for about ft t
efJn yv every 300 customers, is the lowest of the fig e Nergy 25 largest combination gas and electric utilities.
r t
task, some 2,000 alter willion in1985 natives were analyzed However, contractors are used to supplement toin the process (page 6).
this work force, especially for construction projects.d The Heber geother mkal plant, a renew able energy research project, was com pleted on schedule in May and dedicated, with considerable ceremony, in De
_,will cember 1985. A con sortium of public and
'~private organizations, including SDG&E, is funding the research project. Heber is attracting visitors froni around the world who t p are interested in learning how the plant's methodology, using 360-degree brine from deep in the earth, produces energy that will serve the needs of 45000 people (page 7).
The Heber geothermal re search plant, completed in 1985, is a plant without walls. The red pipes are part of the safety system.
1985:*The Beginning Point B
eginnings are a most exciting time, San Diego Gas & Electric's structure was changed in early whether it is the entry into the world of 1985. Pacific Diversified Capital Company, a subsidiary cre a new life, the first drive in a brand ated in 1983, was activated and its management was given the new car or the start of a new business responsibility for managing all nonutility operations (page 4).
enterprise. With that excitement goes an in-The management of the utility's gas and electric operations creased sense of responsibility toward that new life, was realigned and given the challenge of finding ways to use new possession or new investment. 1985 was such the utility's facilities and energy resources to greater advan a beginning point for the company.
tage (pages 6-e).
Shareholders overwhelmingly aproved the formation of a holding company at a special mee f shareholders held November], 1985.
Hearings before the Cabgfornia Public Utilities Commission on the holding company proposal and on the companys diversification plans were heldfrom October to December 1985. The commission was to announce its decision during the first quarter of 1986.
For the third year in a row, the company's bond rating was im-One hundred million dollars in industrial de proved. In June 1985, Moody's Investors Service, Inc. boosted velopment bonds and $35 million in pollution the rating by two levels, from A2 to Aa3. T his change gave the control bonds were sold during 1985. Of the company an unusual three company's total debt, tax-exempt bonds rep tier rating from the na-resent about 50 percent. This is one of the tion's leading financial highest percentages in the gas and electric rating agencies.
utility industry (page 5).
Standard & Poor's rates the company's More high-interest bonds were redeemed in bonds at A+ and 1985. For example, in April, $13.2 million of Duff & Phelps 16 percent bonds (Series 5) were called and rates them at 7, in August, $75 millionof13.625 percent both lower than bonds (Series T) were called. Both series Moody's rating.
were issued in 1980 when the cost of money was high and the company's bond ratings The combined gas and electric bill for the typical residential were low. By comparison, the two 1985 tax customer declined again in 1985. Lowering rates continues exempt bond issues, which have much im as apri may coporte gal page5).proved ratings, carry interest rates of 5.625, as a primary corporate goal (page 5).a variable rate, and 9.25 percent. This means
$72 75 a multi-million dollar savings in future fi S$72.75 nance charges for customers.
66*3'----,-
xtensive hearings before the California
_0L(Oe Pubi Utilities Commission began in De crcember 1985 on the reasonableness of the Sconstruction costs for San Onofre Nuclear Gener
$62.40 ating Station units 2 and 3. The hearings are scheduled to end in May 1986. A decision is ex pected in late 1986. Southern California Edison, 1which is the majority owner and developing part
$er in the project, A
u presentingtn625 eercen dence to show that the costs incurred during December31 1981
-January.1,1986 construction were justified.
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Prodictingcustomer growth re quires a good crystal ball these days. More than 40,000 new electric customers were added during the year (many with gas service, too), establishing a sin gle year record for the company.
This robust growth of 4.7 per cent far surpassed expectations for 1985. While the customer growth rate should decline to an average of three percent during the rest of the decade, the ser vice area will still be one of the fastest-growing in the country.
Accommodating the new cus tomers' needs will be quite a challenge. Meanwhile, a renais sance of downtown San Diego is in full swing (pages 12-15).
Parks, promenades, marinas and res taurants line the shore of San Diego Contents:
Bay adjacent to the downtown area.
Lunch-time joggers are afrequent sight.
Who. What. Where. Why. When. How.
In his five years as chief executive, Thomas Page The price of the common stock led the company through a difficult financial reached an all-time high of $28.375 recovery and restructured the company.
on June 6, 1985. It remained above What's next?
Page 2 the 1984 high of $23.75 throughout Richard Korpan proved he knew how to manage the remainder of the year.
tough jobs as SDG&E's chief financial officer.
The annual dividend on the com-He was given a new challenge in 1985.
Page 4 mon stock was increased in May Goals achieved: Customer bills were lowered and A,_ veal rtun t sarhod-1985 by 6.7 percent to $2.24 per the company's financial profile improved in 1985.
verall return to sharehold-share, the ninth consecutive year Lee Haney, vice president and treasurer, ers reached 31 percent, the dividend has been increased, explains how these were achieved.
Page 5 placing the company in the top 12 percent of the 80 largest elec tricandcominaionutiitis.
his that the increase was greater than Operations, assesses the problems 'of a changing tric and combination utilities. Thisof inflation marketplace for energy and discusses how the financial performance measurement company is responding.
Page 6 compares the average compounded Earnings in 1985 were a record dividend return, plus stock price
$3.25 per share. Another vital mea-A revitalized Gas Operations group takes appreciation, during a five-year sure of financial health, funds re-advantage of new opportunities. Alton Davis, period (Shareholder Reference invested, increased seven percent senior vice president, tells how research and tmarketing are helping to do this.
Page 9 Guide,985gey 6.74p)rctot$254$million.
Just a few years ago, the future of downtown San Dicgo was as uncertain as that of San Diego Gas &
The California section of the Southwest Power/ink transmis-Electric. But people of vision and determination have sion line between San Diego and Arizona was upgraded in 1985 renewed the city and the company. Jack Thomas, to increase the line's capacity from 700 to 1,000 executive vice presiden-tility Operations, megwats.discusses these changes.
Page 12 Upgrading of the Arizona section is expected to be completed FnnilRve ae1 in early 1986. The 280-mile-long line gives the company rdlvPe sureania oftmet finacia helhfnd9e access to several energy sources inv the United States and Mexico.
T Notes to thc Financial Statements Page 26 During 1985, the company im-Supplementary Information on the ported 44 percent of its total S ef Changing Prices Page 32 energy reque en fro a
r Corporate Information Page 34 to increa een's caaiyfrm70to,0oegwts other utilities over the Responsibility Report for the Financial Statements expanding transmission and Auditors' Opinion Page 37 line network.nh Shareholder Reference Guide Page 38
The future is designed by those who have financial means, imagination and discipline. In 1985, the management of your company sketched in bold strokes the outlines of the company's future.
Today, your company has the financial strength, the resource strength and the organizational strength it must have to succeed in a competitive marketplace.
In 1986, and for many years ahead, this company will be using these strengths, gained from a five-year, company-wide renewal effort, to take advantage of many new opportunities.
Financial strength: In 1985, the company had record earnings of $3.25 per share and its cash flow position improved as well.
In early January 1986, there was more good news.
The company sold all of its stockholdings in Energy Factors, Inc. for $24.6 million. The stock sale will contribute 25 cents a share to the company's 1986 earnings. That's a nice start for the year.
However, San Diego Gas & Electric will be involved with a California regulatory proceeding in 1986 that could result in a disallowance of some of the costs it is charging to customers. This may affect future earnings.
This proceeding is the reasonableness review of the construction costs of San Onofre nuclear units 2 and 3, of which your company owns 20 percent. These units were built faster and at lower cost than many other units under construction at the same time and we are supporting the efforts of Southern California Edison, growing energy needs of customers and the interests of the majority owner and project manager, to prove that shareholders best by improving transmission links to the construction costs were reasonable. We think we other regions of the country instead of building large have a very strong case.
generating plants. We have achieved, and intend to These "hindsight" reasonableness reviews of opera-maintain, a safe, diversified resource mix through a tions by the California Public Utilities Commission combination of generation and transmission of energy.
have added an element of unpredictability to utility I believe that improved electric energy transmission company earnings in the past few years.
systems must be built to serve many regions of this In 1985, the cost disallowances for SDG&E from country, not only San Diego.
reasonableness reviews were $19 million. While this The Organization of Petroleum Exporting Countries was substantially less than the 1984 disallowances, it has not lost its potential for harming this country, and was the sole factor that prevented SDG&E from earn-this company, in the future as it did in the mid-1970s.
ing its allowed rate of return, as it also was in 1984.
A more efficient national energy transmission system Resource strength: San Onofre is proving to be an ex-will help resist the impact of oil cartel policies in the cellent plant. It will serve our electric customers well 1990s. Utilities must be able to move energy from for many decades. While capital costs are high, its fuel where there is a surplus to where there is a need. The cost is very low, about one cent per kilowatt-hour, and Southwest Powerlink, our transmission line to Arizona, it's a domestic energy resource.
is giving us access to many sources of energy today and Nonetheless, the San Onofre units will be the last energy independence for the future.
major generating plants that we will participate in finan-Organizational strength: In 1985, we made some funda cing for the foreseeable future, as we've stated before.
mental corporate changes. A restructuring of the util Because of the utility's geographic location and the ity, early in the year, was designed to make it more area's lack of natural resources for generating energy, competitive in a changing energy marketplace.
we believe that in the future we can meet both the As an important part of the reorganization, manage 2
6 your company has the financial strength, the resource strength and the organizational strength it must have to succeed."
ment took a close look at its natural gas operations and This has become a very strong management team.
its future value to the company. The business has been The officers helped design and achieve the financial and a gem. It hasn't caused us any financial headaches over operations recovery programs of the early 1980s. Some the years; it continually earns its rate of return; and its have been hired within the past few years to add spe service gets excellent ratings from customers.
cial expertise or experience gained from working in We're going to make it an even better business in the other types of businesses.
years ahead. Through marketing the use of natural gas The diversity of the background of the officers has aggressively, the Gas Operations division intends to given us a broad management perspective. We do not expand its business, give more customers an energy always agree. Debate is often vigorous. But, as the 1985 option, and help keep the peak load growth of Electric record shows, everyone at the company worked very Operations in check.
hard. As a result, the typical customer's bill was lower Another fundamental change in the company's oper-and earnings for shareholders were higher.
ations, and a very important decision for future profit-Opportunity, U.S.A.: San Diego is one of the areas of ability, was to diversify into nonutility areas.
highest residential growth in the country. It has become It may take several years before the diversified oper-a center of new information services, biomedical re ations have a continuing significant impact of, say, 50 search development and scientific industries, too.
or even 25 cents per share on the corporation's annual With a strategic location on the Pacific coast, the city earnings, but even a few cents per share a year, for and this company are becoming involved with the coun the near term, from these enterprises will be welcome.
tries to the West and to the South as partners in the Management strength: It's part of my responsibility to growing international Pacific basin trading region.
you, the owners of this corporation, that every member Furthermore, the San Diego area is one of the loveliest of the management group continues to be alert and re-places in the world.
sponsive to opportunity.
Opportunity is at our doorstep.
Thomas A. Page Chairman, President and Chief Executive Officer pFebruary 10, 1986 Financial Highlights (Dollars in Thousands Except Per Share Amounts)
Percent 1985 1984 Change Operating revenues
$1,738,702
$1,620,701
+ 7.3 Operating expenses
$1,450,835
$1,369,151
+ 6.0 Net income (before preferred dividend requirements)
$ 202,722
$ 183,467
+ 10.5 Earnings applicable to common shares
$ 178,925
$ 159,295
+ 12.3 Average common shares outstanding (thousands) 55,125 52,868
+ 4.3 Common stock shareholders (at December 31) 81,471 85,272 4.5 Earnings per common share 3.25 3.01
+ 8.0 Dividends declared per common share 2.205 2.065
+ 6.8 Total energy sales Electric (billions of kilowatt-hours) 11.66 11.13
+ 4.8 Gas (millions of therms) 529 452
+ 17.0 3
Richard Korpan, President, Pacific Diversified Capital Company:
recovery, the utility's chief financial officer.
cc iversification iverificfion"It will require a well thought out plan and a
'D wilgradallydisciplined approach. We will do everything wilgradually
'D
~jillwe must do to be successful."
hange the New companies will be carefully acquired, Korpan promises. "We expect to look at 100 prof ile of SDG& E."
profle o SDG E.11companies for every one we buy. We would like to acquire at least one medium size com pany a year as a new subsidiary of Pacific Diversified," says Korpan. "Of course, we would want the existing management of the acquired companies to stay with them."
What How he need to find new sources of profits n 1985, Pacific Diversified's assets in for shareholders became apparent to cluded cash and stock, which came from management during San Diego Gas &
the 1983 sale of an SDG&E cogeneration Electric's first comprehensive strategic plan-subsidiary to Energy Factors, Inc. The stock ning process, conducted in 1984. Then, in represented a 20 percent interest in Energy 1985, management made diversification a pri-Factors that was part of the sales price. In mary corporate goal. This decision marked a January 1986, Pacific Diversified sold the turning point for the corporation. The re-stock to Energy Factors for $24.6 million, giv sponsibility for developing new sources of ing Pacific Diversified a total equity of $65.7 profits for shareholders through diversifica-million. This equity capital will be used to tion was given to the management of corpo-acquire companies and to develop existing rate strategic planning and of an existing, but subsidiaries:
not-then-active, subsidiary, Pacific Diversi-Real estate: Japatul Corporation, which was fied Capital Company.
a land-holding subsidiary of SDG&E, is now Where the real estate development subsidiary of Pacific Diversified.
he diversification effort will not be lim-
"We will be starting from scratch with Ja ited to Southern California. Acquired patul," says Korpan. "We will participate in or developed businesses may operate all areas of real estate eventually-residen anywhere in the United States or in other tial, commercial and industrial. What we do countries.
will depend upon the market and the opportu Whynities that arise.
WhyComputer services: Integrated Information slower growth rate is predicted for Systems is a new company. It already has utility-based profits:
completed several contracts and has begun a
- Risk in the investment has in-feasibility study for Malaysia Electric Coi creased. Regulatory agencies have been un-pany. "This company could benefit not only willing to allow utilities to be fully repaid in shareholders but utility customers," says rates for the costs of some major construc-Korpan, "because Integrated Information tion projects and this means that investors Systems will pay a royalty to the utility for nay not be fully compensated.
some of the products it markets."
- In the energy marketplace there is excess Energy technology investments: Pacific En generating capacity available. SDG&E new ergy, another subsidiary, will watch for capital investment will be primarily on trans-companies achieving technological break mission and distribution system projects.
throughs in the energy business and invest in Whenthose companies.
When "It's likely to take several years before the Pacific Diversified will complete its own diversification efforts begin to have a signi multi-year strategic plan in the spring ficant impact on earnings," says Korpan.
of 1986. "Diversification is a difficult "Diversification is not a short-term effort but thing to do successfully," says Richard Kor-a long-term commitment by management pan, president of Pacific Diversified and, that will gradually change the profile of throughout the period of SDG&E's financial SDG&E."
4
M eeting goals is important to manage-interest rates ranged from 55/8 to 8 percent.
Finance and ment and in 1985 four of the five To further reduce its cost of financing, in Ratemaking current financial goals were met and 1985 SDG&E repurchased more than $100 Terminology progress was made toward meeting the fifth million in higher cost debt. This included the Cash flow by 1987.
call of the rest of its 16 percent Series S bonds This is a measure of a "I'm particularly pleased that the company and all of its 135/8 percent Series T bonds.
company's financial generated all of its construction funds from in-The utility has about 50 percent of its debt health. The progress ternal sources in 1985," says Lee Haney, who now in tax-exempt issues, a percentage ex-SDG&E has made can is vice president and treasurer. "That's quite a ceeded by few others in the United States.
be seen in the "Funds change from just a few years ago.
"The cost savings to customers are signifi-Reinvested" line of "The company now is ranked among the top cant," says Haney. "They will add up to more the financial state 25 percent of the largest electric and combina-than $400 million during the lives of the var-ments page called tion utilities in its ability to generate funds ious bond issues."
"Sources of Funds for from internal sources, a key indicator of a Reducing rates: "The combination of a lower Construction."
good cash flow. A very important measure of a cost of debt, rate reductions and other rate de-General Rate Case company's financial health is its cash flow,"
cisions by the California Public Utilities Coi-A proceeding before says Haney.
mission combined to reduce utility rates for the California Public Internal generation measures how much of the second year in a row for a typical residen-Utilities Commission a construction budget is funded with the com-tial customer using gas and electricity during that sets the allowed pany's cash flow. There were two important 1985."
rate of return and the elements in reaching this goal in 1985.
Further electric and gas rate reductions were other non-fuel costs a
- The percentage of capital spent on con-announced by the CPUC in December 1985 utility is allowed to re struction: A company goal is to keep construc-for 1986. At the same time, the CPUC an-cover. The 1986 Gen tion costs limited to no more than 10 percent nounced that the General Rate Case increase eral Rate Case allows of capitalization. The company achieved this in for 1986 is limited to $14 million. The net re-a rate of return on rate 1984 and 1985 because its major construction duction to the monthly bill of the typical resi-base of 12.37 percent, projects have been completed.
dential customer was another $3.79.
tnon of1 Nonetheless, in 1985 the utility spent about "The General Rate Case decision set the percent.
$240 million on construction. It probably will company's allowed rate of return on equity at spend about the same amount for several more 15 percent for 1986. This rate is less than the 16 Internal generation years to upgrade and extend facilities.
percent the company formerly was allowed to of funds
- Depreciation: This element shows how earn. It's a disappointment and lower than The percentage of the quickly the company can recover its original other California utilities' rates of return,"
cost of utility plant ad capital investment in generation, transmission Haney noted.
ditions that is financed and distribution. In 1985, depreciation in-
"It's still comparable with other companies by the cash flow of the creased, thereby providing more funds be-nationally and we are determined to earn that company.
cause the Southwest Powerlink transmission rate of return.
line and San Onofre Nuclear Generating The five financial performance goals are dis Station were fully included in the utility's cussed more on pages 17, 18 and 38.
rate base.
"Finding ways to limit increases in costs is important to us," says Haney. "We have been doing this, in part, through issuing lower-cost R. Lee Haney, financings."
Vice President The cost of financing: The utility has few peers and Treasurer:
in obtaining and placing low-cost, tax-exempt very important financings. Several years ago San Diego Gas &
Electric became one of only a few utilities to measure qualify for tax-exempt industrial development bonds. Since then the utility has taken maxi-a company's mum advantage of this. Between 1983 and 1985, the city of San Diego issued $400 million in industrial development bonds on behalf of i its cash flow.
SDG&E at rates of 9.25 to 10 percent. And, in 1984 and 1985, SDG&E also qualified for, and issued, $115 million in variable rate pollution control bonds. As of December 31, 1985 the 5
Gary Cotton, Senior Vice President Electric Operations:
ransmission of electricity is vital to ourffuture.11 What Electric is taking advantage of it to develop he primary basis of the corporation's long-term purchased power contracts.
growth, for more than 60 years, has 0 Non-regulated consortiums of plant finan been the growth of the company's ciers, builders and operators may develop electric system, especially of its own generat-power plants in the Southwest. If they do, ing capacity. This is changing.
they will sell the energy to utilities. Those that have transmission capability will be able Where to take advantage of the new energy sources.
S an Diego no longer is an electric island,When isolated from resources located else where. Today, because of transmission ooking ahead to 1995, and beyond, links, it is part of the western power region, Electric Operations' computers di which extends from Mexico to the south, gested about 2,000 different possibili New Mexico to the east and Canada to the ties. From this effort a new resource plan north. Still, additional resources to meet was developed and announced to the public growing customer needs are required and in the fall of 1985.
SDG&E's Electric Operations plans to ex tend its access via transmission lines to new sources of energy in the Northwest and the he resource plan predicts that about 35 Southwest.
percent of the electric system's energy Whyneeds in 1995 will be provided by Why power purchased from other utilities. In No he marketplace is growing rapidly; it vember 1985, 175 megawatts was secured un is changing in character even more der two long-term purchase contracts. To
.k rapidly.
take advantage of opportunities like these,
- In 1985, Electric Operations added 4.7 the Southwest Powerlink's transmission ca percent more customers, mostly residential, pacity has been increased.
one of the highest growth rates of any elec-A successful beginning: 1985 was the first full tric utility. This should simmer down to year of an operating relationship between about three percent annually for the next five SDG&E and Mexico's national electric util years, but it still will be one of the highest ity, Comisi6n Federal de Electricidad. The growth rates in the country.
two utilities routinely bought and sold power
- An offsetting trend to this customer to and from each other to mutual advantage.
growth forecast is that existing large com-It was transmitted on the Southwest Power mercial and industrial customers are instal-link and two interconnections, completed in ling cogeneration systems to generate some 1984. "We consider San Diego and Mexico to or all of their own power. In each month of be part of a common operating region now,"
1985, Electric Operations lost some of the says Gary Cotton, senior vice president of business of a large commercial customer.
Electric Operations.
- Pressure is mounting to allow one com-Future links: The company will participate in mercial customer to sell electric energy building a third transmission line to Oregon directly to another by using Electric Opera-and in 1985 it helped pay for initial studies. Li tions' distribution lines. This is called retail censing hearings before the California Public wheeling and it is opposed by utilities be-Utilities Commission will begin in 1986.
cause it would cause the rates of other cus-The line is expected to be completed in 1990.
tomers to go up.
The customer generation potential: One alter
- On the supply side, there is a surplus of native resource that is potentially important power in the West and San Diego Gas &
to Electric Operations, but may also pose a 6
problem, is cogeneration by customers. Co-load off peak that's already being promoted generation now accounts for about three per-by Electric Operations is thermal energy cent of the utility's energy resource plan and storage. The company is offering cash in it is expected to increase rapidly to eight to ducements to offset the initial higher cost of ten percent in the 1990s.
the thermal energy storage equipment. This Still, there is the mandated utility respon-program encourages commercial and indus sibility, from the California Public Utilities trial customers to run air conditioning equip Commission, for SDG&E to serve these cus-ment at night to benefit from off-peak rates tomers in the event their self-generation units don't perform, and these costs must not Electric System Energy Mix be unfairly allocated to the company's re maining customers.
Achieving a diversified re "These are complex issues and will have to 64%
Oil source mix has been a pri be worked out, over time, between the com-14%
Purchased Power mary company goal. The pany, its customers and the commission,"
change from dependence Cotton explains. "We want to create a rate upon fossil fuel generating 15%
Gas-units in 1975, to more nu structure that will reflect our true cost so clear and purchased en cogenerators will pay for the benefits they ergy in 1985, shows the receive."
success of the program.
Getting the most out of the system: Marketing By 1995, other sources of is a word that hasn't appeared much in plans energy will be available.
for electric utilities in recent years. But mar-1985 keting techniques are being used to help 5% Oil Electric Operations make its existing gener-31%
Gas ating system operate more efficiently by lev-44%
Purchased Power eling out its peak load, shifting some demand into its off-peak valleys.
20%
Nuclear In San Diego, the peak demand time for electricity is during the day. At night, the system may be operating at only 50 percent of capacity. The initial thrust of the market ing program, developed in 1985, is to find 1995 ways to reduce the growth rate of that day-30%
Oil and Gas time peak without reducing total energy 4% Alternates sales.
sals.8%
Cogeneration Lower off-peak rates offered: As of January 1, 1986, there are new commercial and indus trial off-peak rates of less than 6 cents per 14%
Coal and Hydro (off peak) kilowatt-hour, 54 percent less than on-peak 11%
Geothermal rates.
ld19%
Nuclear One promising program designed to shift The Heber geothermal plant, completed in 1985, is initially a research facil ity, so monitors, sensors and probes are located throughout the plant site.
They gather data and feed it to computers that pro Eervide extensive reports.
This is the control room at the Heber plant.
7
and store the energy as chilled water, ice or tensions will be short-term construction proj cool salt for cooling the building during the ects, most likely in partnership with other day.
utilities. Meanwhile, Electric Operations' Testing electric vans: A research program new marketing efforts are being designed that began in early 1986 is using three elec-with the objective of keeping the utility prof tric-powered vans as fleet vehicles to deter-itable through improved use of the system.
mine how commercial customers might use them to their advantage. Performance and Peak demand decreased cost data are being carefully documented.
slightly in 1985 due, in Electric vans can be recharged in the evening part, to milder weather when the electric system is being under used 1
and costs are lower.
J 1.
area "We have to look well into the future and identify ways to use our system more effi ciently," says Cotton. "Some projects, like 1982 thermal energy storage, may begin to help within five years while others, like the elec tric van project, may take 10 years."
L] Net Capability How the plans affect shareholders' financial N Peak Demand interest: The company's strategy of not build-(in megawatts) ing major generating plants will help mini-Although work in progress mize capital requirements and the risks increased in 1985, this associated with building these plants.
E C
W r i program is in line with The company plans to invest in a number 1985 27 corporate goals and far of transmission facilities between now and smaller than the 1981-1983 the year 2000 that will slowly add to the asset period when SDG&E was growth of the utility. These transmission ex-1983 2598 mission and nuclear unit
_1 construction.
Electric Terminology Cogeneration Electric Utility Plant Cogeeraton Prchaed pwer Electric Construction Work in Progress The production and In 1985, this included (in millions of dollars, at December 31) use of thermal and coal, geothermal electrical energy from and hydropower, The number of customers one primary fuel.
amounting to 44 per-who rely upon SDG&E cent of the system's to-for electric service contin Megawatt tal energy, transmitted 1985 ues to increase dramati One million watts or from sources in Mex-cally as evidenced by roughly the amount of ico, Canada, Arizona, 1984 P54 1985's record 40,300 new electricity that meets Oregon, Washington 1983 the needs of 1,000 and California.
people.
Retail wheeling Net resource The use of a utility's capability distribution system, by (in thousands, at December 31)
Enough energy, plus a nonutility company, a reserve, to meet to transmit energy to Sales of electricity in 1985 anticipated peak selected customers of represented an increase of demand.
the utility. This is not five percent over 1984.
allowed in California.
18 Peak demand The time, or season, when there is the greatest customer de mand for energy. For 1982 Electric Operations, 1981 this occurs during the day in the summer.
(in billions of kilowatt-hours) ta8nry rnmte
Alton Davis, Senior Vice President Gas Operations:
What here aren't In 1985, natural gas was plentiful, the re verse of the situation just a few years ago. The outlook: ample supplies of nat ural gas, at least until the year 2000. As a of opporuares corollary to this ample supply, the price of natural gas came down sharply, particularly in 1985, and the rates charged to SDG&E customers were lowered four times in the past two years as a result. Historically, nat ural gas has been less expensive than elec tricity for SDG&E customers. Today, this difference is greater than ever.
How Where esidential us of gas: Natural gas is An additional opportunity to purchaseused to heat about 73 percent of the natural gas at competitive prices on R
homes in the region served by Gas the spot, or noncontract, market was Operations. This does not include the Or made possible by decisions announced dur-ange County section of the service territory ing 1985 by the Federal Energy Regulatory or some of the outlying areas of San Diego Commission and the California Public Utili-County.
ties Commission.
In 1986, the company will develop new For Gas Operations, this means that the programs to make customers more aware of The SDG&E service terr company's sole supplier, Southern California the lower life cycle energy cost of gas. This tory covers 4,100 square Gas Company, will be required to transport educational effort began in late 1985.
miles. Gas service, avail through its system any natural gas that Gas Operations' management is also as-able in only part of the ten SDG&E's Gas Operations may purchase sessing whether it would be cost effective to ritory, will be extended to from other suppliers outside of California.
expand the natural gas territory in the future.
additin ara pat This ability to tap the spot market for gas is "We must let our customers know that will give customers an en expected to result in further cost savings to there is ample natural gas, that the price is ergy alternative.
customers and to make natural gas more de sirable to them as an energy source. South-Orange ern California Gas, however, will remain the County Gas Distrbution Area company's major supplier, for at least the near term.
u OrangeCout Riverside County Se yceCenter Why Why Saln ofre Nuc[,-
ea hy not take advantage of the lower L
cost and greater availability of natu W
ral gas to develop the sales of G asE
'inaP P l Operations, help manage the growth in peak ral gas to d tsloGs electric demand, and offer more customers ortheastServiceCenter the economical option of natural gas?
T Those questions were answered during the company's 1984-1985 strategic planning pro cess. The strategic planning effort made it L
clear that it would be beneficial to investors and to customers to expand and develop Gas Operations, rather than to sell it, as some an e
other combination utilities have done.
" n i S When S
e Southwest powerink ow. In 1985, Gas Operations adopted StBaPw a marketing plan that is premised on extensive research of customer needs.
g 9
coming down, and that they can benefit by maktnthsprdcsoevirulyn this," says Alton Davis, senior vice presidentthUnedSasashegsupl-rcsi of Gas Operations. "The marketplace is not ainhscagd yet fully aware of the change in the gas price-SGEwl ewrigwt ules availability situation," notes Davis. "In 1985,arhtcsndegersoecuae we turned our own Gas Operations around te oisalgs ahrta lcrc i because we foresaw many new opportunities codtnig for us. Now, we have to let our customersSaDig' yfotcneincner know how they may benefit, too. Therefowhcgrudasbkein18,il aren't many problems for us; there are lots ofusgaaicodtnngsareltfGs opportumities.OprtosmaktnefotThcmay "Our own operational interest is to in-etmtsta h
iymysv oeta crease gas sales during our gas distribution
$5,0 e
eri prtn otcm
'valley' times-that's the summer season or prdwt lcrcarcniinnoc h
daytime hours. If we use our existing facili-cneto etri ul prtoa.O ties more efficiently, we will be able to lower custi ildpn pntecmaa the cost of gas to customers.
tv ae fgsadeetiiyi h
er "Just as important, we want to give more aed customers the option of choosing between Ti rga svr odfrEeti p
electricity and gas where it is economically possible to do so."
sse eet eisaldised"sy An ideal solution: Gas air conditioning for Dvs i
ol d
ormgwtso e
commercial and industrial customers is gain-madFute oriwulbenopain ing acceptance in San Diego, as it is else-drn h
lcrcsse' umrpa e
where in the United States. Japanese mn ie yuiggsarcniinn companies have perfected the technology i hshg aiiy twl epdw h
comig dwnandtha the ca beefi by marketing these products more vigorously in this" sys ltonDavs, enir vie pesient the United States as the gas supply-price situ of Gs Oeraions "Te mrketlac isnot ation has changed.
yetfuly aareof he hane i th ga prce-SDG&E will be working with builders, avalablit siuaton, noes avi. "n 185,architects and engineers to encourage wedurn te ourt on Gars Oations arthem to install gas, rather than electric, air nconditioning.
for s. owwe aveto lt or cstoersSan Diego's bayfront convention center, knowhowthe ma benfit to. Terefor which ground was broken in 1985, will arent mny roblms or s; herearelot ofuse gas air conditioning as a result of Gas oppotuniies.Operations' marketing effort. The company "Ourownopertioal iterst i toin-estimates that the city may save more than creae gs saes urin ou gasdisribuion
$250,000 per year in operating costs, com
'valey'tims-tht'sthesummr saso or pared with electric air conditioning, once the daytme our.
I weuse ur xisingfacli-convention center is fully operational. Of tie moe eficenty, e wll e ale o lwer course, this will depend upon the compara the ostof as t cutomrs.tive rates of gas and electricity in the years "Jus asimprtat, e wnt o gve ore ahead.
custmerstheoptin o chosin beteenThis program is very good for Electric Op elecricty ad gs whre t isecoomiclly erations, too. "If an electric air conditioning possble o doso."system were to be installed instead," says An iealsoluion Ga airconitioingfor Davis, "it would add four megawatts of de commrcil ad idusria cutomrs s gin-mand. Furthermore, it would be in operation ing ccetanc inSanDieg, a it s ese-during the electric system's summer peak de wher in he nite Staes.Japaesemand time. By using gas air conditioning compnie hav pefectd te tehnoogy in this huge facility, it will keep down the during the past 15 years and they have begun growth in our electric peak and improve the 10
Construction began in use of our gas system. It's an ideal solution."
In 1985, 30 of the company's fleet vehicles 1985 on San Diego's con-Natural gas for vehicles: In Canada, natural were converted to run on either compressed vention center, adjacent to aenpark antoerlookin t gas is gaining general acceptance as a vehicle natural gas or gasoline. Natural gas has a a park and overlooking San Diego Bay. It will use fuel and service stations are installing pumps higher octane rating than gasoline. It burns a gas air conditioning sys-to accommodate customers. SDG&E, along cleaner and thus maintenance costs are tem, as a result of market-with a number of other U.S. utilities, is re-lower.
ing efforts by SDG&E's searching this potential market.
The company's own experience will help it Gas Operations division.
to assess whether this is a market that can be During the summer Pdeveloped in San Diego, based on a cost months, gas demand is analysis of the actual experience of operating low. Through marketing, the vehicles.
Gas Operations intends How the plans affect shareholders' financial to increase its summer volume.
iinterest:
By using the gas system to greater advantage, the company will continue to shave a profitable gas business. The comple mentary effect on the electric business, how
- hever, may provide the greater benefit: the gas Smarketing efforts will help the company to (in millions of therms) manage its growth in peak electric load, thus delaying the need to build costly new electric The cost of gas to the com-generating plants. Since new plants have pany decreased in 1985 for been a source of increasing financial risk for the second year in a row.
electric utilities throughout the United 39T8 States, Gas Operations will be playing a vital role for the company by postponing the need to add new electric generating capacity.
1983 44B Additional gas transmission and distribu 19tion lines may have to be built in the future to tap into new sources, such as importing t
natural gas from Mexico, or to extend cus tomer service beyond the present limited (in cents per therm) boundaries. These projects would require SDG&E provided gas ser-additional capital expenditures but, unlike vice to approximately G
building generating plants, they would be 24,000 more customers in relatively short-term, low-risk projects.
1985 than in 1984.
isss 1984 47*
Gas Terminology l
93Cmpressed Life cycle energy costs 508-natural gas The cost of operating a High pressure natural gas or electric appli gas, commonly con-ance during the typical (in thousands, at December 31) taed in cylinders, useful life of the LuIUSOU~,dtwhich is now being appliance.
used on a test basis in Sales of natural gas to modified SDG&E fleet Spot market SDG&E customers vehicles.
The noncontract mar reached a record high in ket, formerly open 1985, surpassing 1984 fig 195 srasig 94 i-1985~
2 Cost of gas only to wholesalers ures by 17 percent.
ure by17 ercnt.In 1985, the wholesale and distributors with 19844 1984modity cost of nat-transmission access.
1983 gas delivered to SDG&E declined
~1982 478 from $3.81 to $3.31 per 1 9 -
81 million Btu, a 13 per cent drop.
(excludes interdepartmental transfers)
(in millions of therms) wereconvrte to un o eiher omprsse
Jack E. Thomas Executive Vice President Utility Operations:
he growth, renewal and changes were especially dramatic in 1985.
Many new restaurants S
aDigisgoigrewnchgn.
have opened through-I 95 h aeaclrtdadarc out the downtown area.
od4,0 e
utmr eeaddt Some cater to business SnDeoGs&Eeti' ytm people who wish to meet for an early break-I fast. Piret's is one of Many nan Diego is growing, renewing, changing.
have pene thrugh-In 1985, the pace accelerated and a rec out he owntwn rea.~.Jord 40, 300 new customers were added to Somecate tobusiessSan Diego Gas & Electric's system.
peope wo wih t
'~In the downtown area, the growth, renewal meetfor n erly rea-1iL Iand changes were especially dramatic in 1985.
thesemeetng sots.Your company is involved in every project, in many different ways, and it's helping to bring about this downtown renaissance.
There's a parallel between what's happening in the city and at SDG&E. In 1985, we reorgan ized our utility operations to meet the needs of a changing marketplace. These changes will help us offer improved quality of services.
We provide ideas to help customers avoid unnecessary energy costs; schedule work to meet customers' convenience; continue to im prove the quality of electric service and to ex pand the range of the gas service.
It's an exciting beginning point for the city 1/4/f/I rand for the company."
Horton Plaza, an un usual shopping area that opened in mid 1985, is important to the entire downtown re newal effort. It's prov ing to be the magnet A
that's drawing people Vl back to the city's center for shopping, dining and entertainment.
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A century after it first opened, a very elegant U.S. Grant Hotel was re opened in 1985 after an
$80 million renovation.
In acnty afwtern atfres SDG&E's New Business Design SDG&E is replacing low Review program has already voltage circuits with ones helped 62 customers save nearly that can accommodate one million dollars annually in the increasing electric energy costs. J.W. Robinson energy demand. Close co Company took advantage of the ordination with the city's service for its new Horton Plaza store. SDG&E energy analysts Cororat D
pivt evaluated the store's blueprints companies is part of before construction began and SDG&E's customer ser made recommendations for say-vice orientation. Often ing energy.>
times, SDG&E employees olmust work on weekends to meet customer deadlines or to minimize service disruption to other customers, especially in commercial districts.
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The San Diego Sym phony inaugurated its new home, a totally re furbished downtown theater that was de signed in 1929, with a gala opening celebration in November 1985. San Diego Gas & Electric contributed $50,000 to the renovation effort and offered $75,000 as a challenge grant to en courage development of the San Diego Sympho ny's contributor base.
The William Heath Davis house is the old est structure in down town San Diego, so it's an appropriate home for a museum that shows the lifestyles be tween 1850 and 1900.
Its little park is a quiet spot, just a short walk from many high rise office buildings. >
Many projects are just be ginning and there are entire blocks that renewal has yet to touch. One unusual res toration approach is the Horton Grand Hotel. It's being created using parts of two Victorian era hotels that were moved to this downtown site.>
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