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1991 Annual Rept,San Diego Gas & Electric
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Site:	San Onofre
Issue date:	12/31/1991
From:	John Thomas; SAN DIEGO GAS & ELECTRIC CO.
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In thousands of dollars except per share amounts 1991 1990 Change San Diego Gas & Electric is an investor-owned Operating revenues

$1,789,012

$1,771,868

+ 1.0%

energy management company, founded in 1881.

More than 90 percent of the company's revenues Operating expenses

$1,473,498

$1,457,895

+ 1.1%

come from electric and natural gas sales. The Net income (before preferred remainder flow primarily from Wahico Environ dividend requirements)

$ 208,060

$ 207,841

+0.1%

mental Systems, a subsidiary that markets air Average common shares pollution controls worldwide.

outstanding (thousands) 55,994 55,921

+0.1%

SDG&E provides electric service to 1.1 million Number of common customers in all of San Diego County and the stock shareholders*

61,581 62,431

-1.4%

southern portion of Orange County. Gas is pro Earnings per common share 3.53 3.52

+0.3%

vided to 680,000 customers in San Diego County.

Dividends declared per common share 2.775 2.70

+2.8%

The company's headquarters is based in San Retail energy sales Diego, which has an international reputation as Electric (billions of a destination city. Besides the city of San Diego, kilowatt-hours) 14.2 14.3

- 0.7%

pod utilitysohrcte Gas (millions of therms) 663 613

+8.2%

in San Diego County and to 7 cities in Orange Number of utility employees*

4,215 4,175

+1.0%

County.

Return on equity 14.9%

15.4%

-3.2%

Visitors to SDG&E's service territory enjoy the

At ecemer 1, 191.region's mild climate and its attractions, such as 1991De990br3ange9nthe world-famous San Diego Zoo and Sea World.

More than 90eg peret ofntcmaysrvne remaind merica's Cup Sailing Races MORENO COMPRESSOR STATION Off Point Lorda 5

5 2

+ 0I1 t y Hollywood, Disneyland/ SDG&E Shareholder Meeting C 0 n

ty Holywod DsneyandApril 28 Mission San Diego Convention Center San JuanA 6158v e r s i d e O

erum on the Pacific Rim Capistrano RC u n t y 6800 del Coronado Mount Palomar Responsive Energy Technologies NehObservatory a

Symposium and international Misson Sn

~Exhibition, hosted by SDG&E u

ARLuis Rey June 3-5 S13IcySan Diego Marriott Hotel

( All-Star Game S)

July 14 Jack Murphy Stadium 6 N San Diego County Anza-Sorrego PAtRDec eDesert state C

PLAN Park Animal Park0 Wineries Cuyamaca CS Rancho Sea State Park S

E h Not World MissionA MisinEaGDeojonotin eSannteego an Diego Zoo 0

CapitGenraino RitsduimonSan Diego a-lL~t il 'nArea su B

Trolley untntynHutelrealsCoronCd N@RATINGJuneA3A (M Jul 14 II

Contents 00 0 0 0

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Reducing Air Pollution in 2 Chairman's Letter 3 President's Letter 0000000000000000000000000000000 On the Cover:

r 4 Teamwork Achieves Skipper Dennis Record Results Combined Conner and his Repowering crew navigate 4 Customer Growth and Desalting ocean waters Project along San 7 New Resource Plan Diego's coast.

Page 6They are 8 Energy Conservation practicing for competition 11 Electric System with crews of New Campus America3 for 12 Power Purchases Includes Energy-defend the. United States 12~~f WaerCosevaio in the 1992 international 12 Water Conservation Maue 12 Electric and Magnetic Fields Center America's Cup races.

Page 8(Photograph by Sally Samins.)

15 Natural Gas System and Supplies from Canada Biotech 15 Natural Gas Vehicles nology Firm Conserves 16 New Strategic Goals Energy 18 Environmental Subsidiary Page 10 21lFinancialReview ClCaRepwering iJAir with 28 Responsibility Report for the Natural Gas Consolidated Financial Statements Vehicles Page 13 29 Consolidated Financial Statements 36 Notes to the Consolidated Financial Statementse Compressor 41 Auditors' ReportStio Connrtionhi 0

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Page 14 42 Selected Financial Data 44 Officersoa International 45 Board of Directors Fusion Energy 46 Shareholder Reference Guide Research Project 49 Glossary Page 17

2 SAN DIEGO GAS & ELECTRIC Thomas A. Page, CHAIRMAN'S LETTER March 2, 1992 chairman and chief executive "Here's the windup," says the baseball officer, visits announcer,"... it's a fastball hit deep to San Diego's right! This could be it! Holy cow, he did it!"

Jack Murphy Stadium, where Veteran sports announcer and former New payers will York Yankee star Phil Rizzuto shouted those compete in the words into the microphone on October 1, All-Star Game 1961. He was describing the exciting moment 1

4 when Yankee Roger Maris hit home run number 61 for that season, breaking the0 0 0 0 0

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0 0 0 previous record set by the legendary Babe Like a talented baseball team, SDG&E was Ruth in 1927. Maris' impressive record still prepared to deal with the sudden changes stands today.

that created a whole new ball game for us in In an instant, a home run can change 1991. Coached by a group of capable officers, the fate of a baseball game or put another SDG&E employees displayed excellent entry into the record books.

teamwork throughout this latest "season."

Well, 1991 wasn't just an instant, but They gave an all-star performance that the world changed dramatically in an amaz-enabled your company to set new records:

ingly short span of time. So did life for o o o In 1991, we achieved record annual SDG&E:

shareholder earnings for the second consecu o oo Throwing us an unexpected curve, the tive year. Earnings for 1991 were $3.53 per California Public Utilities Commission on common share. We also increased the May 8, 1991 ruled 5-0 against our proposed annual dividend to a record $2.80 per merger with Southern California Edison, a coimon share during 1991. In February merger that had been in progress for nearly 1992, we raised the annual dividend again, three years. A week later, after Edison and to $2.88 per share.

SDG&E decided not to appeal the CPUC o o For the third year in a row, SDG&E's decision, the merger was history.

electricity prices were the lowest among o oo On June 5, 1991, the ground rules that California's investor-owned utilities, a sharp California utilities must follow as they plan contrast from the situation a few years ago, future additions to generating capacity when ourprices were among the highest not changed significantly. The new rules give only in the state, but also in the nation.

considerable weight to the cost to society of 0 0 0 Wahlco Environmental Systems, our air emissions from generating facilities, and subsidiary company that helps solve air effectively put an end to the least-cost pollution problems worldwide, also turned planning methodology that had been used in an outstanding performance for 1991. Net for years.

income was $11.6 million, up 28 percent o 0oo On June 27, 1991, SDG&E manage-from 1990's net income of $9.0 million.

ment announced a new set of strategic goals, a detailed game plan for future success in employees have honed their individual skills fwhile displaying excellent teamwork. But

1991 ANNUAL REPORT 3

we're not hanging up our spikes or resting on the bench.

Now our focus is on a comprehensive We've established new and higher goals set of new goals that involve every SDG&E for the future. Unlike the home run record of employee and every facet of our business. All Roger Maris, our latest achievement records of our goals are important. However, the probably won't stay on the books for long.

three goals foremost in my mind as I oversee the utility's day-to-day business operations are: maintaining the lowest electricity prices among California's regulated utilities, increas oing shareholder value and continuing to AO; 02000improve customer service.

THOMAS A. PAGE As part of our tradition of setting and Chairman and Chief Executive Officer working toward goals, we make them public.

You will find them listed on page 16 of this PRESIDENT'S LETTER March 2, 1992 SDG&E's future direction is clear. I'm In sports and in business, setting goals is confident our employee team will meet the a key to achieving success. As San Diegan new challenges they face, as they have been Dennis Conner, the world's best-known doing for 111 years.

sailor, said in his book The Art of Winning:

To quote Dennis Conner again, "Once "You have to make your goals central to your direction becomes clear to you and fully everything you do."

visible to others, all the elements of winning That's sage advice from a skipper who led attitude, performance, teamwork and crews to capture sailing's coveted America's competition -

begin to come together."

Cup three times. Now he's competing against another U.S. team, America3, for the chance to represent our nation again during 1992's America's Cup races along San Diego's coast.

JACK E. THOMAS Like Conner, SDG&E has a tradition of President and Chief Operating Officer creating and achieving goals. During the past dozen years, this tradition helped transform a troubled utility with high prices, poor shareholder earnings and low employee Jack E. Thomas, morale into a successful energy business with president and competitive prices, solid earnings and a chief operating officer, aboard productive team of employees.

Dennis Conner's 1986 Stars and o oo During 1991, we reached, and in many Stripes yacht.

cases exceeded, key performance goals. For Ae Cup example, 93 percent of customers surveyed races are being said they were "very satisfied" with held in SDG&E's service, surpassing our customer San Diego.

satisfaction goal of 89 percent by a signifi cant margin.

4 SAN DIEGO GAS & ELECTRIC 00 0 0

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0 0 0 Pcst oers ySaifid TEAMWORK ACHIEVES 100 RECORD YEAR FOR CUSTOMER SATISFACTION AND SHAREHOLDER EARNINGS. WE ALSO MAINTAINED 80 Low ELECTRICITY PRICES 70 SDG&E's team of employees set new records 60 in 1991 for shareholder earnings and cus tomer satisfaction, while also maintaining the 1986 1987 1988 1989 1990 1991 company's position as the low-price provider of electricity among California's regulated utilities.

The numbers:

from November 1988 until May 1991, an o 0 o Annual earnings reached $3.53 per ultimately disapproved merger between common share, surpassing 1990's record of SDG&E and Southern California Edison was

$3.5 percommn shre.in progress. Despite the distraction of the

$3.52 per common share.

oo 0 Altogether 93 percent of customers merger process, our team of 4,200 employees surveyed during 1991 said they were "very focused on the work at hand and continued satisfied" with SDG&E's service, up from 89 efforts to minimize costs.

percent in 1990.

16,000 NEW CUSTOMERS ADDED IN o oo The system average price for electricity 1991, 244,000 MORE EXPECTED BY THE was 9.3 cents per kilowatt-hour in 1991, the YEAR 2000: Customer growth was low in lowest among California's investor-owned 1991, but we expect stronger customer utilities.

growth from 1992 through the year 2000.

SDG&E's 1991 achievements are all the The company added 16,000 new customers more impressive when you consider that for the year in our 4,100-square-mile service area, which includes the nation's sixth largest city, San Diego, all of San Diego County, and the southern portion of Orange County. The customer growth rate was 1.5 percent.

For the period from 1992 through the year 2000, SDG&E expects to add a total of 244,000 new customers. This equals an average of about 27,000 new customers per 7

70 yermrngta Novem e

periodntil Man91 avean anualogrowth Despte of2.he srcto.fh

SDG&E and the San Diego County Water Authority are considering a joint project that Steam may seem like a magical answer to the region's energy and water Turbine needs. An SDG&E repowering project to increase the power Fresh Water output at our South Bay power plant, shown here, could be combined with a CWA desalting facility for purifying ocean water.

ressure Stated simply, repowering is similar to installing a new, larger and more COMBINED efficient REPOWERING AND engine in an older car.

DESALTING Recent PROJECT MAY advances in PROVIDE ENERGY natural gas turbine technology SUPPLIES L.

make it possible to increase capacity at relatively low costs by adding new turbines to existing power plants. The new turbines have very low air emission levels, an important environmental consideration.

An SDG&E/CWA feasibility study, completed in March 1992, estimates that the facility could provide up to 30 million gallons per day of fresh water, about 4 percent of San Diego County's needs. The region lacks natural water resources and California is facing its sixth year of drought conditions.

The joint feasibility study concluded that combining an electric generation project with a desalting facility is not only feasible, but also cost-effective.

If SDG&E receives required regulatory approvals for the repowering project, and the CWA decides to go ahead with the desalting plant, the com bined facility is expected to be in operation during 1997.T

1991 ANNUAL REPORT 7

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NEW RESOURCE PLAN FOCUSES ON REPOWERING EXISTING PLANTS, A Low-COST WAY TO INCREASE CAPACITY Within weeks after the May 1991 ending of the proposed merger with Southern Califor nia Edison, work began on plans for meeting the growing energy needs of our customers.

In August 1991, SDG&E filed with the California Public Utilities Commission our preferred new resource plan for meeting future customer energy needs. We expect the commission to complete its review early this year.

The company's preferred resource plan relies on a mix of resources to provide approximately 1,600 megawatts of additional capacity to meet growing customer demands capacity by the year 2000. Under that and to replace expiring power purchase proposed plan, repowering projects would contracts.

meet about 46 percent of those needs; Demand Side Management (energy efficiency adopted in 1991 require California's investor and conservation), about 25 percent; power owned utilities to give additional consider purchases, about 23 percent; and geothermal, ation to the environmental costs to society of a renewable resource, about 6 percent.

residual air emissions from all energy Following are key factors we considered projects, even those located outside of during the resource planning process:

California. These environmental costs must 0 0 0 By the year 2000, SDG&E will need be part of the decision on how best to meet approximately 1,600 megawatts of new future power needs.

n Other utilities and independent power producers have indicated they can supply a total of about 6,000 megawatts of capacity to Geothe SDG&E, based on bids solicited as part of the New Capacity 6%

planning process. That's far in excess of our Additions 1992-2000 needs.

Power R

6 0

0 Recent advances in natural gas turbine Purchases46 23%e Re technology make it possible to add capacity, for relatively low costs, at SDG&E's existing Ma 25%/

8 SAN DIEGO GAS & ELECTRIC applied toward shareholder earnings for 1991 DSM achievements. The exact amount of the 1991 reward will be determined by the CPUC late in 1992, after it reviews program results.

The company expects the reward for 1991 DSM achievements to come close to the

$12 million maximum allowed.

From the time property was first purchased for a new campus in northern San Diego County, SDG&E representatives began reuti me eworking with officials of California fro aMU gvnaState Univer ENERGYDE CONSEVATIO INCENTIVE power plants. Repowering existing plants EFCNT Marcos to with new gas turbines also makes sense from explore various SHAREHOLDE RE Renergy an environmental standpoint. The new options Now turbines produce very low emission levels, F

the first new campus in resulting in more energy and less pollution California to from a given amount of fuel.

be built from the ground up in 25 years will likely be one of the energy~mos efficiencyien prgrm ththaebeni 0 0 0

0 0

0 00,000 0

0 0

ENERGY CONSERVATION INCENTIVES ms nryefceti h PRODUCE CUSTOMER SAVINGS AND SHAREHOLDER REWARDS Demand Side Management programs achieve demand reductions. These reductions are just as important to our resource planning effortssah as adding new capacity. Conservation and energy efficiency programs that have been in place for the past five years are already saving 200 megawatts, enough to meet the needs of 200,000 homes.

The CPUC recognizes that DSM pro-nation when its doors officially grams can benefit everyone, and help the open in August 1992.

This artist's environment at the same time, so it has SDG&E works in partnership rendering with customers during the design shows Craven established methods for rewarding sharehold-phase of new buildings, such as Hall, the ers if SDG&E exceeds program goals. A these campus facilities, to planned incorporate energy-efficient administra measures and the latest energy tion building technologies, for the new It's an approach that helps campus.

customers exercise better control over their energy use while

1991 ANNUAL REPORT 9

Stimulated by financial incentives offered through our DSM programs, residen-savings: more than 7 million kilowatt-hours tial and business customers conserved energy of electricity.

and improved energy efficiency during 1991.

o oo More than 85,000 compact fluorescent Key examples of 1991 DSM achieve-light bulbs were provided to customers for ments:

use in homes and in apartments throughout o oo Residential customers purchased nearly our service area. Compact fluorescent lights 55,000 high-efficiency refrigerators. Annual produce the same amount of light as conven m-reducing SDG&E's need to build features such as an energy new power plants. For the efficient chiller for the air customer, including energy-conditioning system, variable-air saving features during the volume equipment that reduces construction phase is also much heating and cooling expenses, TAI

,,easier and less costly than retrofit and occupancy sensors that energy conservation projects.

automatically turn lights on and 9_

SDG&E's review of architec-off in building areas, depending tural designs helped Albert on whether they are in use.

Amado, assistant vice president of physical planning and campus aconstruction, to incorporate

When it comes to biotechnology, Hybritech, founded in 1978 University of California, San combining biological research and purchased by Eli Lilly &

Diego (UCSD).

with advances in monoclonal Company in 1986, was a pioneer The area's biotechnology antibody technology to create and continues to be a leader in industry continues to grow, new medical diagnostic products, the development of medical thanks to efforts such as UCSD's the people at Hybritech Incorpo-diagnostic test kits that use CONNECT program, which rated are experts. They rely on monoclonal antibody technology sponsors activities that seek to SDG&E's expertise when it comes to produce rapid and accurate link the area's high-tech entre to selecting the latest energy-patient results.

preneurs with venture capital saving equipment.

During the past year, SDG&E firms, major health-related In the representatives worked as energy corporations and the university.

BIOTECHNOLOGY photo here, partners with officials of Hybritech Hybritech, the largest of San This process, researcherscalled chroma-Purifying Monoclonal ABOUTrENERGY monitor a pilot iegs 1 biehno

tography, Antibodies TECHNOLOGIES scale purifica-improve energy efficiency and ponifi na

. *ti on process reduce energy costs. Energy anodiesa FROM SDG&E tio processdie for monoclonal saving projects carried out during from crude antibodies 1.991 enable Hybritech to save a protein before it is used on a large-total of 691,000 kilowatt-hours mixtures.

production scale in Hybritech's annually and reduce the firm's Buffer manufacturing area. Monoclonal yearly energy costs by $52,000.

Reservoir antibodies are highly specific San Diego has the nation's biochemical molecules produced fifth largest concentration of by cells. Doctors use monoclonal biotechnology and biomedical antibody-based test kits to check firms, in part because of the a patient's blood or serum,

major scientific research institu-Column sample for conditions such as tinloaehrsuhste cancers, cardiovascular disease SakIsiuethScps Recorder ZU Produc Collectio andcotinesto e

lede i th7evlpen-fme-a digotctsLista s

1991 ANNUAL REPORT 11 tional bulbs while using about one-fourth the amount of electricity. Annual savings:

more than 5 million kilowatt-hours.

o o o A total of 625 business and industrial customers participated in SDG&E's various lighting programs during 1991, resulting in the removal of more than 600,000 of the standard four-foot fluorescent tube lamps common in offices. Annual savings: more than 75 million kilowatt-hours.

0000000000000000000000000000000 ELECTRIC SYSTEM MEETS CUSTOMER NEEDS WITH A MIX OF RESOURCES; GENERATION FROM OIL ONLY ABOUT A

3 PERCENT SDG&E met 1991 customer power needs with a mix of resources: SDG&E's two fossil-fuel power plants provided 23 percent of power refueling and had a 1991 capacity factor of needs, San Onofre Nuclear Generating 91.9 percent. Its superior performance is Station provided 21 percent, power purchases expected to earn shareholders a reward of from other utilities totaled 50 percent, and about $2 million if its 21-month fuel cycle purchases from other power producers ends on schedule in March 1992.

supplied 6 percent.

Unit 2 operated at a 73 percent capacity During the year, the primary fuel for factor for the 23-month fuel cycle that ended our Encina and South Bay power plants was on November 7, 1991. The performance of natural gas. At those power plants, oil Unit 2 was within a target range established accounted for slightly more than 3 percent of in cooperation with the CPUC, and will result total generation. Since the early 1980s, we in neither a shareholder reward nor a penalty.

have decreased the use of oil in our power Unit 1 operated at a 44 percent capacity plants and have increased the use of natural factor for the 22-month fuel cycle that ended gas. Oil supplies are more dependent on February 6, 1991. During that fuel cycle the foreign sources, which are susceptible to unit was out of service for an extended disruption, and natural gas produces fewer period, resulting in an expected penalty of air emissions than oil.

about $500,000. The unit returned to service San Onofre Nuclear Generating Station, in March 1991 and has since operated at an which is 20 percent owned by SDG&E, has average capacity of about 70 percent.

had an excellent performance record. Unit 3 Unit 1, which began operation in 1968, operated throughout the year without may be taken out of service sometime in 1993 if the CPUC approves a settlement agreement its Division of RatepayercAdvocates reached with the owners of the plant, Southern California Edison and SDG&E.

12 SAN DIEGO GAS & ELECTRIC The U.S. Nuclear Regulatory Commis sion requires additional safety-related up grades before Unit 1 can operate beyond WATER CONSERVATION EFFORTS 1993. Because of the high cost of these SUCCESSFUL; REPOWERING AND DESALT upgrades, the DRA has recommended a ING FEASIBILITY STUDY COMPLETED:

permanent shutdown of Unit 1. Under the Southern California lacks natural water proposed agreement with the DRA, both resources and faces its sixth consecutive year SDG&E and Edison would recover their of drought conditions.

respective investments with a fair return. In While SDG&E has been conserving the event of a shutdown, SDG&E anticipates water at its power plants since 1987, the no difficulties in replacing the 87 megawatts company significantly expanded water of power now supplied by Unit 1.

reduction efforts during 1991. The result?

POWER PURCHASES HELP KEEP We achieved about a 23 percent reduction CUSTOMER RATES LOW: While power from 1990 water use levels, for an annual purchases from other utilities met 50 percent savings of more than 59 million gallons.

of customer power needs, the purchases were That's enough water to meet the needs of made as a result of economic decisions, not families in 460 homes in our service area for out of necessity. We could have generated an entire year.

most of the power we needed to serve SDG&E also joined with the San Diego customers during 1991. However, we chose County Water Authority in 1991 to begin a to buy available supplies of surplus power feasibility study on a joint repowering and because we obtained them at prices lower desalting project that could produce both than our own costs for generating power.

energy and fresh water. The study, completed Obtaining power supplies at the least avail-in March 1992, concluded the project could able cost helps keep electricity prices lower purify ocean water at a fairly reasonable cost, for our customers.

$ 1, 000 to $ 1, 100 per acre foot. See page 6 for more details on the project.

SDG& E ESTABLISHES ELECTRIC AND MAGNETIC FIELDS CENTER: In response to concerns expressed by some customers and employees, during 1991 the company established a center to respond to questions about electric and magnetic fields (EMF).

EMF are invisible lines of force sur rounding anything that conducts electricity, from power lines to common electrical appliances, such as electric clocks, hair dryers and TV sets.

Some research results, highlighted by the media, have led to public concerns about the possibility that exposure to EMF poses

S G & a s j d wiC4 continued on page 15

LL San Diego-area residents can the results, will purchase five Looking to the future, it may now ride buses fueled by natural more natural gas buses for its be common for motorists with gas, and purchase natural gas for fleet during 1992.

NGVs to fill the tanks of their cars, trucks and vans at some It now costs about $3,500 to cars overnight, using home local service stations. That's good convert a car, a van or a pickup compressors. A home compres news because natural gas truck so it can use natural gas.

sor links to the home's natural vehicles, or Through the company's NGV gas service lines, and a hose C

NGVs, produce program, companies in SDG&E's carries natural gas to the car's T

significantly service area that operate vehicle fuel tank. SDG&E is working with fewer air fleets can obtain incentives to commercial customers to test this those using In December 1991, SDG&E two locations.

gasoline, and helped finance the first of 300 they can help fleet vehicle conversions planned clear away clouds of vehicle over the years.

Some service.

exhaust from the skies of San As part of the NGV program stations in San Diego and other cities.

the company also supported the Diego County Vehicles fueled by natural gas construction of six natural gas offer compressed produce 50 percent fewer fueling stations during 1991, and natural gas, ozone-forming pollutants and 10 more are planned through a vehicle fuel 90 percent less carbon monoxide 1993.

that can help than gasoline. Natural gas also By the end of 1993, NGVs will costs about 70 cents per gallon, comprise about 8 percent of the Compres significantly less than gasoline, company's cars, vans and pick-up Gas and natural gas reduces engine trucks. SDG&E already has wear.

converted 40 of its vehicles, and During 1991, SDG&E leased plans 100 more vehicle conver the natural gas-fueled bus shown sions through 1993. In 1992, the in the above photo to the North company will take delivery of 18 San Diego County Transit District.

new NGV trucks produced by The transit district, pleased with General Motors Corp.

its

A major new compressor unit The compressor station boosts (see photo at right) was installed pressure to the level needed to at the Moreno compressor transport gas supplies to San station (see photo below)

Diego County.

during 1991. The new "Unit Moreno lies within the 10" compressor provides jurisdiction of the South Coast increased gas transmission Air Quality Management District, capacity to meet the greater the same agency which sets air needs of quality rules for the Los Angeles NEW GAS natural gas area, where air pollution is a customers on major problem. Therefore, cold winter Moreno's compressors must STATION days, our peak meet the nation's most stringent INCREASES GAS use periods.

air quality standards.

SYSTEM Unit 10 To meet these standards also enhances SDG&E installed emission control CAPACITY AND reliability for technology that is the first of its RELIABILI the entire gas kind used anywhere in the world.

system, and The 3,200-horsepower Unit 10 improves the features a highly effective company's ability to transport emissions control system that natural gas to our Encina and combines a catalytic converter, South Bay power plants.

clean burn technology and SDG&E's Moreno compressor computer controls.

station is located near Riverside, California, north of the company's service territory. It is adjacent to a major east-west highway of gas transmission pipelines that bring natural gas supplies to the Southern California region.

WEu

1991 ANNUAL REPORT 15 health risk. Most scientists, however, agree there is no sound scientific basis for conclud-pending before Canadian governmental ing there is a cause-and-effect relationship agencies. Construction has begun on the U.S.

between exposure to EMF and human health.

portion of the pipeline project. The PG&E/

Representatives at SDG&E's EMF Center PGT pipeline is expected to be in operation in talk to customers and to employees about November 1993.

EMF research results and health issues. The SDG&E signed its first contract for firm representatives also provide written informa-capacity on an interstate transmission tion and, on request, measure magnetic field pipeline in 1991. The agreement with El Paso levels in and near customers' homes. Al-Natural Gas provides SDG&E with 10 million though there is no scientific basis for inter-cubic feet per day of capacity.

preting these measurements, most customers NEW PROGRAM ENCOURAGES USE who have requested the service have ex-OF NATURAL GAS VEHICLES: The company pressed appreciation for it.

gained regulatory approval in July 1991 for a SDG&E contributes to, participates in, natural gas vehicle (NGV) program to stimu and monitors the results of EMF research.

late the use of natural gas as a vehicle fuel.

0 0 0 0 00 00 0 0 0 0 0a 00 0 0 0 00 00 0Since reducing airernissions will benefit PLENTIFUL NATURAL GAS SUPPLIES everyone, the CPUC approved a two-year AND Low PRICES EXPECTED FOR THE

$6.7 million NGV program and authorized a LONG TERM; COMPANY NEGOTIATES less than 1 percent increase in customer gas CANADIAN CONTRACTS prices to pay for it. (See page 13 for more On the natural gas side of our business, we details about NGVs.)

expect long-term gas supplies to be plentiful and prices to remain relatively low. Changes in state and federal regulations in recent years have led to increased competitiveness among suppliers, and we anticipate no difficulties in meeting future customer demands.

We expect to obtain about 15 percent of our future natural gas supplies from Canada.

During 1991, we negotiated long-term gas supply contracts ranging up to 12 years with four Canadian suppliers at prices competitive with those of alternative suppliers in the Southwestern U.S. These Canadian supplies are contingent on the successful completion of a pipeline expansion project planned by Pacific Gas and Electric Company of San Francisco and one of its subsidiaries, Pacific Gas Transmission.

The PG&E/PGT project received needed approvals from state and from federal agen a

es in 1991, and additional approvals are

16 SAN DIEGO GAS & ELECTRIC CREATING A BRIGHT FUTURE:

0 0 0 Increase Shareholder Value Continue THROUGH TEAMWORK, MANAGEMENT to increase shareholder value by improving AND EMPLOYEES EXPECT TO ACHIEVE AND MPLOEESEXPET T ACHEVEearnings per share. This will be accomplished NEW STRATEGIC GOALS by meeting or beating our annual budgets SDG&E management developed a new set of and earning our authorized return on equity.

strategic goals in 1991 to guide the company's future direction.

0 0 0 Improve Electric Reliability and Management is committed to providing Reduce Outages By 1995, reduce the average employees with the resources necessary to system outage duration per customer to 60 achieve our new goals and is confident that, minutes per year. Work to reduce both the through teamwork, we can attain them.

number of outages and the length of time Our tratgicgoal areto:they occur. Place a high priority on meeting Our strategic goals are to:

the needs,of specific customer classes.

0 0 0 Remain the Lowest-Cost Energy Continue to improve our ability to communi Supplier Work to maintain our position as cate with customers when an outage occurs.

the state's lowest-priced major regulated sup plier of energy. Continue to work to control costs and become more efficient in all areas.

natural gas supply, transportation and storage 0 o 0 Improve Service to Customers Continue services for our customers. Design and to improve quality service to all customer operate a system with the reliability and classes. Exceed expectations in the areas of flexibility to meet our customers' needs.

service customers value most highly. Maintain a 93 percent "very satisfied" rating from 0 0 0 Build Relationships with customers, as measured by our Customer Constituencies Build alliances with all of our Service Monitoring System, through 1995.

constituencies on issues of mutual interest.

Provide pro-active leadership dealing with these issues while being responsive to the needs and desires of others.

0 0 0 Environmental, Health and Safety Guidelines We are committed to responsible leadership and stewardship in the protection and enhancement of the environ ment. We strive to conduct our business in a manner that protects the health and the safety of our fellow employees and of our community, and preserves the quality of life that we enjo.y in our service territory.

t 0 0 Improve Service to Fellow Employees In order to continue to improve service to all customers, we must continue to improve servicinternal customer service. Achieve a 93 percent rating on our Quality of Internal Customer Service survey by 1995.

The fusion reactor shown here at General Atomics Corp., San Diego, shares a similar design with a much larger one planned as part of an international research effort. Fusion reactors hold promise for producing abundant electricity supplies to meet the world's future energy needs.

A communitywide effort spearheaded by General Atomics and supported by the city of San Diego, civic leaders-and by companies like SDG&E-helped convince the g

A A

project's F O leaders to base the headquar ters of the

H International T F Thermonuclear W I ER Experimental Reactor Engineering Design Activity (ITER-EDA) project in San Diego.

ITER-EDA is a $1.2 billion collaborative effort among scientists throughout the world to study fusion's potential for producing electricity and to design the next generation fusion reactor. In addition to the fusion research center planned for San Diego, satellite research facilities will be established in Japan and in Germany.

Fusion is the process that occurs when hydrogen atoms fuse to make helium, similar to the natural process the sun uses to produce energy. Commercial development of fusion energy could occur in about 25 years if planned research efforts prove succesful.international Thermonuclear successful.

Experimental Reactor)

Fusion is considered a safe and clean energy resource.

TOROIDAL Deuterium, a plentiful.and proD tmnii inexpensive form of hydrogen which cnfines the plasma) present in ordinary water, fuels the fusion process. While fusion pLNET produces some radioactive and consorts fusion energy 050 hot, high pressure fluid) waste, the amount could be less than 1 percent of that produced PLASM by the fission process used at wHoMEt L)(Internatioahe rmus on ula nuclear power plants.

reactions occur)

Height:

10FL fot Diameter:

100 feet Fuaion Power:

1100 megcwatto n Cfusion ene

18 SAN DIEGO GAS & ELECTRIC 0000000000000000000000000000000 ENVIRONMENTAL SUBSIDIARY IMPROVES ITS ABILITY TO SOLVE 1990 revenues of $58 million. Net income for INTERNATIONAL AIR POLLUTION 1991 was $11.6 million, up from $9.0 million PROBLEMS in 1990.

Wahlco Environmental Systems strengthenedour environ its international manufacturing, sales and marketing operations in 1991, expanding the by losses suffered in our real estate business ability of this SDG&E subsidiary to provide operations during the recessionary market of effective solutions to the global problem of 1991. Nevertheless, PDC's 1991 consolidated air pollution. The company also markets net income of $6 million, or 10 cents in products that improve power efficiency.

earnings per share for SDG&E common stock Wahlco Environmental has earned shareholders, represented a significant recognition as a leading supplier of air pollution control products for utilities and for tions of $4.5 million, or 8 cents per share.

industrial companies throughout the United Total net income in 1990 was $12 million, or States. Domestic sales revenues continue to 22 cents per share, boosted by Wahico grow, in part because the company offers a PDC will continue in 1992 to increase relatively low-cost solution for utilities to comply with the Clean Air Act Amendments is asi o enrone ts a nd of 1990, which requires significant emissions esand to dec isnact al reductions over the next 10 years.

1991 sales showed results of an in creased focus on the international market.

achieving SDG&E's corporate goal of increas Non-U.S. revenues represented 60 percent of ing earnings per share.

the total annual revenues for this SDG&E Because PDC owns 80 percent of subsidiary.

Wahlco Environmental, SDG&E shareholders will benefit from its future sales of products 00 0

00 0 0 0

0 0 0

0 00 0 00 00 0

00 0

0 00 00 0 0 0

PDC CONTRIBUTES 10 CENTS and services in both the U.S. and interna PER SHARE TO 1991 SDG&E EARNINGS; WAHLCO ENVIRONMENTAL SEEKS TO INCREASE ITS CONTRIBUTIONS TO EARNINGS GROWTH By far the largest of SDG&E's unregulated subsidiary businesses, Wahlco Environmental operates under the umbrella of Pacific Hen a

Diversified Capital, SDG&E's wholly-owned Chief Executive subsidiary. During 1991, Wahlco Officer of Pacific Environmental's revenues reached Diversified Capital and of Wahico

$89 million, a 53 percent increase over Environmental Systems

Wahco Environmental flue gas conditioning (FGC) systems were purchased by China Light &

Power for its Castle Peak coal fired power plant, located near Hong Kong. The two chimneys in this photograph each contain four boiler exhaust stacks. When the photograph was taken, the last of eight FGC systems was not yet operating, and emissions of that un-conditioned boiler are seen rising from the chimney on the right.

Wahlco Environmental's FGC systems H N K

reduce air N

L_

pollution from coal-fired boilers by modifying the character of the ash to minimize the power station's particulate emissions.

years Wahlco Environmental has opened a new sales office in The SDG&E subsidiary's FGC increased sales in other parts of Kuala Lumpur, Malaysia. During systems have been used for years the world. In 1991, the company 1992, an office will be estab by utilities and industrial firms in expanded marketing efforts in lished to serve markets in the the United States, and in recent Western and Eastern Europe and Middle East.

Wahico Environmental has facilities located throughout the world.

000000000000000000000000*

WAHLCO ENVIRONMENTAL a

PLANS TO INCREASE WORLDWIDE MARKETING EFFORTS WWahlco Environmental Wahico Environmental Systems Headquarters, completed three European Sales and Manufacturing eSales acquisitions in 1991: Metro-

Manufacturing

Sales/Manufacturing Flex Companies of Baar, Switzerland, Pentney Engineering, Ltd. of Chesterfield, England and Teddington future opportunities for sales of air pollution Bellows, Ltd. of Swansea, Wales. All three control equipment companies market products used in utility Growing energy needs throughout the power plants and industrial facilities. These world are expected to result in the construc acquisitions increase Wahlco Environmental's tion of new energy facilities. This, coupled overseas marketing abilities. Altogether with increased international concern for the 75 percent of its manufacturing capacity and environment, creates new opportunities for 65 percent of its employees are located Wahlco Environmental and other companies outside of the U.S., where there are greater that can provide air pollution control tech nologies and services.

20 SAN DIEGO GAS & ELECTRIC That solid experience enabled Wahlco Wahico Environmental continues Environmental, acquired by SDG&E's PDC research and development projects aimed at subsidiary in 1987, to respond effectively in creating new products that offer technologi-recent years to the increasing worldwide cal solutions to control air pollution emis-demand for air pollution control and energy sions, in particular for products that can saving equipment and services. The result has minimize nitrogen oxide, sulfur oxide and been tremendous growth for the company.

other toxic emissions.

Listed below are year-end comparative 0

0 0

0 00 0

000000000000000 0 0 0

0 0

figures for 1988 and 1991:

WAHLCO ENVIRONMENTAL 1988 1991 ACHIEVED SIGNIFICANT GROWTH Manufacturing facilities:

60,000 sq. ft.

500,000 sq. ft.

FROM 1988 TO 1991 Number of employees:

137 787 Although Wahlco Environmental was first Innaal saes established as a corporation with stock as a % of total sales:

10%

60%

pubicy raedontheNe YrkStckAnnual after-tax profits:

$4 million

$12 million publicly traded on the New York Stockmillion

$145 million Exchange in 1990, the company has been Number of products:

6 50 providing environmental products, mainly for coal-fired power plants, since 1972.

KEY WAHLCO PRODUCTS Air heater components include a a

ybaskets, rotors, plates, seals and subsdiar in 19other components used in a IF -

boiler's air preheater. Air preheaters warm the air return savndMarketiJ ing to the boiler.

been_ tremen Dampers restrict the flow of i

gases in ductwork in after-boiler S

Be o

systems. By closing completely, Pr

, I.

C s

Inera ta dampers isolate ductwork passages.

Expansion joints allow for the Officers expansion and contraction of Wahico Environmental Systems, Inc.

ductwork or tubing, which occur Henry N. Huta Barry S. Southamn A. Noel DeWinter when gases change temperature.

President and Chief Senior Vice President, Inter-Vice President, Corporate Flue gas conditioning (FGC)

Executive Officer national Sales and Marketing Planning and Analysis systems condition the gases in Charles F. Wilson James Ferrigan Frederick Johnson utility boiler systems by intro Senior Vice President and Senior Vice President, North Vice President, Financial ducing trace amounts of sulfur Chief Financial Officer American Sales and Marketing Accounting and Tax trioxide, which causes a benefi Wahicociavichnmicallchangemin Ihe W. Clay Matthews Lawrence E. Logue Michael J. Lowell thaluem g

Senior Vice President, Vice President, General Counsel Treasurer Operations and Secretary Gas flow diverters are used Ch swith gas turbines in combined Vice President, Technologies cycle cogeneration plants.

and Research

1991 ANNUAL REPORT 21 In millions of dollars except per share amounts For the years ended December 31 1991 1990 1989 1988 1987 1986 Operating revenues

$1,789.0

$1,771.9

$1,669.5

$1,620.5

$1,562.2

$1,634.2 Operating income 315.5 314.0 284.8 274.6 261.1 282.4 Net income (before preferred dividend requirements) 208.1 207.8 187.1 189.4 196.8*

167.3 Earnings per common share 3.53 3.52 3.15 3.18 3.28*

2.59 Dividends declared per common share 2.775 2.70 2.70 2.60 2.50 2.345 At December 31 Total assets 3,747.6 3,656.6 3,546.5 3,532.7 3,551.5 3,409.2 Long-term debt and preferred stock subject to mandatory redemption (excludes current portion) 1,331.2 1,337.1 1,287.2 1,357.0 1,388.4 1,333.2

Includes $17.7 million from the cumulative effect of change in accounting principle.

- Includes $0.32 for cumulative effect of change in accounting principle.

The Six-Year Summary should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and statistical data contained elsewhere in this report In thousands of dollars except per share amounts Quarter ended March 31 June 30 September 30 December 31 1990 Operating revenues

$445,749

$403,285

$452,127

$470,707 Operating expenses 366,643 337,477 373,407 380,368 Operating income 79,106 65,808 78,720 90,339 Other income (expense) 2,345

.11,122 3,382 (14,239)

Net interest charges 25,310 27,942 27,429 28,061 Net income (before preferred dividend requirements) 56,141 48,988 54,673 48,039 Preferred dividend requirements 2,774 2,743 2,673 2,673 Earnings applicable to common shares

$ 53,367

$ 46,245

$ 52,000

$ 45,366 Average common shares outstanding 55,919 55,918 55,918 55,929 Earnings per common share 0.95 0.83 0.93 0.81 1991 Operating revenues

$447,995

$406,829

$451,715

$482,473 Operating expenses 367,160 342,109 374,114 390,115 Operating income 80,835 64,720 77,601 92,358 Other income (expense)

(906) 15,418 2,458 (18,111)

Net interest charges 26,579 26,507 26,587 26,640 Net income (before preferred dividend requirements) 53,350 53,631 53,472 47,607 Preferred dividend requirements 2,673 2,648 2,607 2,607 Earnings applicable to common shares

$ 50,677

$ 50,983

$ 50,865

$ 45,000 Average common shares outstanding 55,944 55,942 55,942 56,149 Earnings per common share 0.91

$40.91 091 0.80 These amounts are unaudited, but in she opinion of the company reflect all adjustments necessary for a fair presentation.

22 SAN DIEGO GAS & ELECTRIC 00 0 0 0 0 0 0

0 0

0 0 0

0 0

0 0 0 0 0

0 0

0 0 0 The total after-tax gain to SDG&E from the Wahlco RESULTS OF OPERATIONS Environmental offering was approximately 24 cents per Earnings In 1991, earnings per common share were SDG&E common share. There are no plans for further offer

$3.53 compared to.earnings of $3.52 in 1990. The 1-cent ings of Wahico Environmental stock. The Mock Resources sale increase was due to several large, offsetting factors. Among the resulted in an after-tax loss of approximately 5 cents per factors that increased earnings were the $15 million merger SDG&E common share.

termination fee paid to SDG&E by Southern California Edison In 1991, Wahico Environmental continued to expand its Company in the second quarter of 1991, and the resultant environment-related businesses. In August 1991, Wahico income tax deductibility of the merger expenses SDG&E Environmental acquired the businesses of the European incurred in prior years. The effect of those positive factors on Metro-Flex and Pentney groups. The two new subsidiaries the year-to-year comparison was partly offset by the favorable design, manufacture and market gas flow diverters and impact from the public offering of 20 percent of Wahlco dampers for electric utility and industrial power plants Environmental Systems, Inc. in 1990.

principally in Europe, Southeast Asia and the Far East.

Earnings for 1990 increased 37 cents over 1989 to $3.52 Also in August 1991, Wahlco Environmental acquired all per share. The increase was primarily due to the gain from the the outstanding stock of Teddington Bellows, Ltd., located in public offering of 20 percent of Wahlco Environmental, the United Kingdom. Teddington Bellows manufactures previously a wholly-owned subsidiary, and the California specialized high-performance metallic expansion joints for the Public Utilities Commission's 1989 Southwest Powerlink electric utility, petrochemical and steel industries.

disallowance, partly offset by expenses related to the proposed Purchased Power As discussed in Note 7 of the notes to merger with Edison.

consolidated financial statements, the CPUC issued a 1989 decision that disallowed certain costs of power transported ANSover the Southwest Powerlink transmission line. The principal 0accounting effects of the disallowance were recorded in the first quarter of 1989, reducing pretax income by approxi mately $25 million, or 28 cents per share after tax. This was partially offset in the third quarter of 1989 when the company filed for a credit of $5 million, which was approved in 1990.

In 1989, the CPUC Division of Ratepayer Advocates issued a report on the reasonableness of the company's entering into its 75-megawatt long-term purchased power contract with Portland General Electric. The DRA identified Subsidiary Operations and Activities In 1991, the company's nonutility subsidiaries contributed approximately sevenonia once havn aeentt pressprn v e

ommo 10 cents per SDG&E common share to consolidated earnings, the benefits of the contract to SDG&E's customers during the compared with 22 cents per share in 1990. The decrease in earnings is primarily due to the Wahlco Environmental public In November 1991, the CPUC found that the company's offering in 1990. The gain on the public offering was partlye offst i 190 b loseson he ale f Mck esorce, Ic.

5-mgsoaattconrcvithmeas reasabl.

The k eucisonl offst i 199 byloses o th sae ofMoc Reourcs, nc.

stated that the PGE contract would likely produce substantial and by the real estate investment activities of Phase Onee SDent coon&'

stmersoet 5ya ie Development, Inc.

Resource Planning In June 1991, the CPUC made EnIn 1989 the subsidiaries achieved a consolidated net several landmark changes to the required Biennial Resource incoe o appoxiatel seen entsperSDG comon plancipaly pnEroeing.theas BRPU proceedin Far Eatneda share. The 15-cent increase in 1990 earnings, compared toTe os t

ed a blueprint to help state regulators better plan for California's over9theaSouhwestrPowerduk transmisionoline.anesprincipa

1991 ANNUAL REPORT 23 energy needs over the next decade. The biggest change is that technology have allowed SDG&E to consider more efficient California's investor-owned utilities must now consider the and cost-effective alternatives that could be developed on a cost to society of air emissions caused by generating facilities much larger scale.

after existing environmental requirements have been met.

The company and the San Diego County Water Author These costs are in addition to fuel expenses and construction ity are investigating a joint power generation and desalting costs. The CPUC is looking at the environment in a global project at the South Bay power plant. The project would sense, and assessing the impact wherever the source of the involve a repowering of an existing steam unit to add approxi generation is located, including locations not in California.

mately 455 megawatts of power to SDG&E's system genera In August 1991, SDG&E filed its testimony and resource tion. In addition, the desalting plant would produce 10 to 30 plans for the BRPU proceeding with the CPUC. The million gallons of fresh water per day.

company's preferred plan would increase the company's Revenues The CPUC controls the company's prices and, generating capacity by upgrading and repowering existing by that, its revenues, generally by two mechanisms: base generating units. In addition, qualified independent power prices and balancing accounts.

producers that cogenerate or use renewable energy technolo-Base prices provide a return on capital and compensate gies would be encouraged to bid on supplying additional the company for operating andmaintenance costs, taxes and power beginning in mid-1992. The company's planned depreciation. Base prices are normally set in a general rate case resource mix also includes continued use of cost-effective every three years. Between rate cases, the commission makes purchased power from other utilities and reliance on natural annual adjustments for inflation, system growth and rate of gas and nuclear power. Customer rates are anticipated to be return. The next three-year cycle starts January 1, 1993.

lower than under other resource options, due to the expected The company uses balancing accounts for both electric fuel savings from the use of cleaner, more energy-efficient and gas fuel costs. The commission sets balancing account repowered generating units, and due to savings realized by rates based on estimated costs. Differences between actual and reducing the need for building new power plants.

estimated costs are accumulated in the balancing accounts.

The plan also must comply with proposed San Diego Air Periodically, the company adjusts prices to blend the balances Pollution Control District regulations requiring existing plants into future prices. The company also uses balancing accounts to reduce emissions to meet current air quality standards.

to compensate for the differences between actual and esti Further reductions of emissions are required to offset increased mated sales volumes.

emissions that would result from the proposed additions to In August 1990, the CPUC issued an order suspending existing plant generating capacity. Reductions may be the incentive mechanism that otherwise rewards or penalizes achieved by reducing emissions from other sources. Allow-the utilities to the extent of eight percent of the actual cost of ances from the pollution control district also may be available their electric fuel compared to the forecasted cost. The suspen for repowering projects.

sion was ordered in anticipation of higher fuel costs due to the A series of public hearings was held in October 1991. The war in the Middle East. The incentive mechanism was adopted CPUC is expected to give final approval of the company's by the CPUC in 1980 to encourage the utilities to manage future energy resource plan in 1992.

effectively their electric fuel and purchased power expenses.

Power Plant Construction SDG&E suspended work on The suspension has not had any significant effect on the two power plant projects because Southern California Edison, company's earnings. The CPUC plans to investigate the with which the company was proposing to merge, had a effectiveness of this incentive mechanism and will consider surplus of power. SDG&E signed two options for firm pur-alternative incentive systems.

chased power with Edison to ensure the availability of future Electric revenue increased less than one percent in 1991 additional power that would be needed because of the suspen-and two percent in 1990. The slight increase in 1991 was due sion. Although the merger agreement was terminated, SDG&E to higher authorized costs, partially offset by decreased no longer is pursuing these projects and has canceled the two volume. The 1990 increase was due to increased volume, the options with Edison. Recent advances in combustion turbine

24 SAN DIEGO GAS & ELECTRIC 1989 Southwest Powerlink regulatory disallowance and Other operating expenses increased in 1991 and in 1990 slightly higher authorized costs, partially offset by decreases in primarily because of the increase in the company's cost of new prices for electric fuel and purchased power. Gas revenue regulatory requirements and the nonutility subsidiaries' costs decreased five percent in 1991 and was up 18 percent in 1990.

of sales. The increased costs of sales for the nonutility subsid The decrease in 1991 was due to lower authorized costs, lanes is due to higher sales by Wahico Environmental.

partially offset by increased sales to cogenerators. The 1990 000000000000000000000000000000 increase was due to increases in total authorized costs and in LIQUIDITY AND CAPITAL RESOURCES sales to cogenerators.

Utility operations are a major source of liquidity for the company. In addition, a wide range of external capitaire R

N E

sources continues to be available. In December 1991 the ecompany issued $14.4 million of 24-year first mortgage bonds at 6.8 percent interest through the California Pollution reurControl Authority. The tax-exempt bonds were issued to finance part of the construction of pollution and solid waste disposal facilities. In 1990, the company issued $100 million

.o of taxable 30-year first mortgage bonds to pay off short-term borrowings. The company also plans to issue approximately fAR Wahlco99$100 million in long-term debt during 1992.

In October 1991 the company began issuing common Revenues in 1990 also increased due to an increase in stock to fund its employee savings and dividend investment the company's authorized return. The increase was due to the plans. This replaced the company's policy of purchasing CPUC's increasing the company's common equity component outstanding shares on the open market. The company issued from 48 percent to 49.5 percent. The change in the equity approximately $12 million of common stock in 1991 and ratio was partially offset by the decrease in the authorized plans to issue about $35 million of common stock during return on equity from 13 percent in 1989 to 12.9 percent in 1992 in connection with these plans.

1990. The net effect of the changes in rate of return and in the The company conducts a continuing review of its equity component was that the overall authorized return to construction and financing programs in response to changes common shareholders for 1990 exceeded that for 1989 by 0.2 in system growth, inflation, rate relief, environmental and percent of equity.

regulatory requirements, and availability and cost of capital.

Most of the revenues from diversified operations arise The utility's capital structure is one factor that has from Wahico Environmental, which had increased revenues enabled it to obtain long-term financing at attractive rates.

in'1991 and in 1990. Wahlco Environmental's 1991 increase The following table shows the percentages of capital repre was primarily due to higher sales of flue gas conditioning and sented by the various components.

desulfurization ("scrubber") systems resulting from the o

987 1988 1989 1990 1991 Goal enactment of the Clean Air Act Amendments of 1990..WahICO Common equity 44%

46%

45%/

45%

47%

45-48%

Environmental's revenues increased in 1990 due to the sales of Preferred stock 6

6 6

6 5

5-7 Wahlco Power Products, Inc., formed in September 1989, and Debt and leases 50 48 49 49 48 46-49 of Bachmann Companies, Inc., acquired in March 1990.

Total u

100%

Costs The total cost of electric fuel and purchased power The percentage of funds for construction that the decreased in 1991 and in 1990. The decreases were primarily c

due to lower costs for natural gas and purchased power. The comuidtyp rovancya o

te ontrnl is aote golideasteo 199 dereae ws ffst prtill byinceass nvlum, lqditysa proiites. by 1990,atioshe companys goal ilion exceed 65 percent. The following chart shows the company's success in achieving that goal.

1991 ANNUAL REPORT 25 MAINTAIN INERA GEEAINO COSRCTO0 storage capability. The 1990 increase in accounts payable and NTEother current liabilities was due primarily to the December or ore 6

1990 receipt of a $25 million supplier refund. The $25 million n

cin is being refunded to the company's customers, although a exediture portion may be returned to the company at a later date.

The mercent)

Significant changes in cash flows from financing activi S

Uoae ties in 1991 compared to 1990 are discussed below in connec b

oal n ation with 1990's financing activities.

flow1In financing activities, the cash flow related to issuances of long-term debt was higher in 1990 due to the issuance of Another measure of the company's ability to obtain

$100 million of 30-year first mortgage bonds. The repayment financing is pretax interest coverage The company's goal is to of long-term debt increased in 1990 due primarily to the exceed 3.75. The chart shows the company s results retirement of $30 million of 30-year first mortgage bonds. The high level of short-term borrowings in 1989 was due primarily MAINAIN3.75 PRTAX NTEEST OVEAGE

,00 to the issuance of short-term debt to fund capital expendi tures, pending the $100 million bond issue.

gaas l

heajor cas4f.h0910hnentecahfo efet)Additions to utility plant, excluding nuclear fuel and the mallowance for funds used during construction, were $252 emillion in 1991 and are estimated to total $2.4 billion for the Ioae next five years. Included in the 1992 to 1996 additions to

" acu plant is $390 million for new generating facilities and$240 re tmillion for installation of pollution control equipment at existing generating facilities. The additions are expected to be funded from internal generation and issuances of stock and The major changes in operational cash flows in 1991 debt. Management believes ample external sources of long compared to 1990 have been related to inventories, regulatory term and short-term financing will continue to be available.

balancing accounts and income taxes. The change in cash 0 0 0

0 0 0

00 0

0 0 0 0 0 0 0

0 0

0 0 0 0

0 0 0 0 0 0

0 flow related to inventories was due primarily to the absence of THE FUTURE fuel oil purchases in 1991, and to a decrease in the cost of Several trends and factors are expected to affect future natural gas. The 1990 regulatory balancing accounts were a operating results and liquidity.

use of cash, as previous overcollections were returned to 0 0 r

Public and regulatory concern regarding environmental, customers by means of prices lower than the related costs. In health and safety issues is increasing.

1991, the regulatory balancing accounts were a source of cash, 0 0 0 The cost to society of air emissions caused by generating as the amounts collected in prices temporarily exceeded the facilities is now a mandatory part of resource planning.

related costs, primarily because of the decrease in the cost of 0 0 0 The company's nonutility operations are expanding.

gas. The major cause of the 1991 change in the cash flow 0 0 0 San Diego's population growth is slowing, and energy effect of income taxes was the timing of tax deductions arising sales have decreased slightly; but peak demand continues to from balancing account activity.

grow.

The major changes in operational cash flows in 1990 0 0 0 New energy-efficiency and conservation programs will compared to 1m989 have been related to inventories and affect rates, system requirements and future earnings.

accounts payable and other liabilities. The change in cash flow 0 0 0e Partial deregulation and competition are continuing.

related to inventories was due primarily to increased purchases 0 0 0 San Onofre Nuclear Generating Station Unit 1 may be and reduced usage of fuel oil and the increased natural gas shut down.

26 SAN DIEGO GAS & ELECTRIC A short description of each of these follows.

While all California investor-owned utilities eventually Environmental, Health and Safety Issues There is will be affected by these changes, it is believed thatSDG&E increasing public concern over a variety of environmental will be affected the most of any utility since it has the earliest issues that are related to the company's operations. These need for new electric resources.

issues include hazardous wastes, air quality, water quality and Nonutility Operations In 1991, the company's principal the possibility that electric and magnetic fields cause adverse nonutility subsidiary, Wahico Environmental, continued to health effects.

expand into environment-related businesses. Wahico Environ The company has made a commitment to responsible mental acquired three European businesses in 1991 and its leadership and stewardship in the protection and enhance-annual revenues were $89 million, up 53 percent from 1990's ment of the environment. The company strives to conduct its revenues of $58 million.

business in a way that protects the health and safety of its Wahico Environmental now has manufacturing facilities employees and those within the community, and that pre-in the continental United States, Puerto Rico, Canada, the serves the quality of life that those within the company's United Kingdom, Australia and India. In 1991, Wahico service territory enjoy.

Environmental opened an engineering and sales subsidiary in Compliance programs necessary to meet current and Germany and a sales office in Malaysia.

future environmental laws and regulations may increase the Wahlco Environmental's expansion and diversification cost of electric and gas service by requiring changes to the plans for the 1990s include additional acquisitions and company's operations or facilities.

product development. This could include joint ventures, Although research conducted to date has found no licensing agreements and strategic alliances in foreign coun conclusive evidence that electric and magnetic fields affect tries. The company plans to continue its focus of diversifica health, a few studies have suggested a possible conhection tion in environment-related businesses.

with cancer. The company and the utility industry are fund-System Growth The company's new customer additions ing additional studies. The ultimate impact of this issue on the continues to slow, primarily due to the economic recession. In company and the utility industry is impossible to predict.

1990 the customer growth rate was two percent for both Resource Planning Balancing the costs of residual electric and gas customers. For 1991, the rate of growth was emissions with the costs of capital improvements and the about one percent for both electric and gas customers. By costs of energy production is now a mandatory part of re-comparison, in 1988 and 1989 the rate was about four percent source planning for investor-owned utilities in California. To for electric and three to four percent for gas. 1991 electric sales do this, the CPUC has assigned environmental cost factors to volume decreased one percent due to a mild summer, and gas air emissions. The CPUC has asked the utilities to calculate sales volume increased eight percent due to higher cogenera these environmental costs using two different approaches, and tion sales. 1990 electric and gas sales volumes increased sevn will decide which approach to adopt in 1992. The more likely and five percent, respectively. In 1991, the company's system method is to evaluate the emissions from each new resource, peak demand increased by less than one percent over the 1990 despite its physical location, as though the energy was gener-record system peak.

ated in the Los Angeles air basin, which has among the most restrictive environmental standards in the nation. The other method would evaluate the cost of emissions from each new resource based on environmental values that have been adopted by local jurisdictions in the area where the resource is located.

NEm The CPUC's environmental emphasis in the Biennial a Electric Resource Plan Update currently focuses solely on air pollution, EG although it is possible that regulators may include other environmental concerns in the future.

cniu to

1991 ANNUAL REPORT 27 Energy Efficiency and Conservation The company intense due to the availability of surplus energy from other received approval from the CPUC for a $50 million package of utilities, projected low prices for natural gas and the existence energy efficiency and conservation (Demand-Side Manage-of cogenerators, independent power producers and self ment) programs for 1992. These programs continue the generators as competing energy sources.

expansion of DSM activities which took place in 1990 and Due to the economic recession and lower customer 1991 as a result of a statewide effort that re-evaluated the growth rates in the Southwest, the availability of surplus status of DSM programs in California.

energy probably will continue into at least the mid-1990s.

Customers who participate in these programs benefit by Still, the company believes that due to increasing energy realizing energy savings and reducing their bills. And all requirements, the supply of surplus energy in the Southwest customers benefit because the energy savings resulting from will diminish, resulting in upward pressure on long-term the programs allow the company to delay or avoid more wholesale power prices. Also, the impact of considering the costly new energy supplies. In 1992, the company has the cost to society of air emissions caused by generating facilities, opportunity to earn a 13.5 percent share of the dollar benefits is still unknown. Therefore, despite cost-reduction efforts, of certain programs, if specific goals are met, up to a maxi-power prices are expected to increase.

mum of $9 million. However, the company faces a financial The company believes that gas prices will remain low penalty if program goals are not met.

due to the abundant supplies. The company has signed Partial Deregulation and Competition The electric and agreements with four Canadian natural gas suppliers to natural gas utility industries are experiencing competition and purchase a total of about 50 million cubic feet of gas per day, partial deregulation. Deregulation could result in increased and has signed a 30-year agreement for firm interstate capacity volatility in electric and gas prices. Proposals are now being for the transmission of this supply. This amount represents considered at the state and federal levels that will require more than a sixth of the company's anticipated natural gas utilities to open up their electric transmission systems to needs for a typical day in the mid-1990s. The agreements are independent power producers and independent buyers. The contingent on U.S. and Canadian regulatory approvals, and proposals may cause the company to lose some planning and completion of planned pipeline expansion projects.

operational use of the transmission system for its own custom-San Onofre Nuclear Generating Station Unit 1 The ers to third parties.

Nuclear Regulatory Commission's operating license for Unit 1 As of January 1, 1992, the company's electricity prices is subject to the NRC's requirement for additional safety averaged 9.7 cents per kilowatt-hour, but probably will upgrades. SDG&E's share of the upgrades through 2007 would decrease slightly in May 1992 due to a recent settlement cost $79 million. The company (20 percent owner of Unit 1) agreement with the DRA. While still higher than many other and Southern California Edison Company (operator and utilities, the company's average electricity prices have de-majority owner of Unit 1) have requested future rate recovery creased from their peak of 12.7 cents in 1985 and for the of the expenditures required for the upgrades.

fourth year will be lower than those of the other major, In September 1991, the DRA issued a report recommend investor-owned California utilities. The lower prices have ing three alternative proposals for Unit 1. In order of DRA made the company more competitive with the alternative preference, Unit 1 would be removed from service and sources of electricity available to its customers and reduced the decommissioned on the basis that the proposed capital amount of bypass of the company's electric system.

expenditures are not cost-effective, qualified independent The company continues to pursue methods to lower power producers would be allowed to bid on replacing Unit 1 prices. However, the company has been required to increase capacity as a lower-cost alternative to upgrading the plant, or its rates in both 1990 and 1991. The increases were due to rate recovery of the proposed expenditures would be subject to inflation, higher taxes, and the fact that previous performance guidelines to be developed for Unit 1.

overcollections have now been completely refunded. Price In February 1992, the company and Edison reached an competition in the western market is expected to remain agreement with the DRA to shutdown Unit 1 at the end of

28 SAN DIEGO GAS & ELECTRIC the current fuel cycle, estimated to occur between late-1992 In addition, the utilities would earn a return on the and mid-1993. The agreement, which requires CPUC ap-investment, equal to the currently authorized rates of return proval, would not result in any write-off of SDG&E's invest-while the unit is operating, and equal to the utilities' embed ment in the unit. The agreement would allow the utilities to ded costs of debt for the remainder of the four-year period.

recover through rates the remaining net investment in the SDG&E's authorized rate of return is 10.75 percent, and the unit, approximately $100 million for SDG&E, over a four-year current embedded cost of debt is approximately 9.1 percent.

amortization period.

RESPONSIBILITY REPORT FOR THE CONSOLIDATED FINANCIAL STATEMENTS The company is responsible for the consolidated finan-as to whether the company's consolidated financial state cial statements and other data in this annual report. To meet ments are presented fairly, in all material respects, in accor its responsibility for the reliability of the consolidated finan-dance with generally accepted accounting principles.

cial statements, the company has developed a system of The audit committee discusses with the company's internal accounting controls and engages a firm of indepen-internal auditors and the independent auditors the overall dent auditors. The board of directors of the company carries scope and specific plans for their respective audits. The out its responsibility for the consolidated financial statements committee also discusses the company's consolidated finan through its audit committee, composed of directors who are cial statements and the adequacy of the company's internal not officers or employees of the company.

controls. The committee met twice during the fiscal year with Management maintains the system of internal account-the internal auditors and the independent auditors without ing controls, which it believes is adequate to provide reason-management present, to discuss the results of their examina able, but not absolute, assurance that its assets are safe-tions, their evaluations of the company's internal controls, guarded, transactions are executed in accordance with its and the overall quality of the company's financial reporting.

objectives, and the financial records and reports are reliable The internal auditors and the independent auditors have full for preparing the consolidated financial statements in accor-and free access to the committee throughout the year.

dance with generally accepted accounting principles.

Company management has prepared the consolidated The concept of reasonable assurance recognizes that the financial statements and other data in this annual report. In cost of a system of internal accounting controls should not the opinion of the company, the consolidated financial exceed the benefits derived and that management makes statements, which include amounts based on estimates and estimates and judgments of these cost/benefit factors. The judgments of management, have been prepared in conformity system of internal accounting controls is supported by an with generally accepted accounting principles.

extensive program of internal audits, selection and training of qualified personnel, and written policies and procedures.

The company's independent auditors, Deloitte &

Touche, are engaged to audit the company's consolidated financial statements in accordance with generally accepted FRANK H. AULT auditing standards for the purpose of expressing their opinion Controller

[}gg jag 1991 ANNUAL REPORT 29 In thousands except per share amounts For the years ended December 31 1991 1990 1989 Operating Revenues Electric a

$1,357,554

$1,356,448

$1,324,891 Excerpts from the Gas b

338,161 355,069 300,397 Financial Review Diversified operations c

93,297 60,351 44,183

a. 1989 revenues Total operating revenues 1,789,012 1,771,868 1,669,471 and earnings were Operating Expenses reduced by the Electric fuel and purchased power 455,845 483,019 509,720 Southwest Power link regulatory Gas purchased for resale 183,274 199,040 155,400 disallowance.

Maintenance 68,134 62,868 67,645

b. Gas revenue Depreciation and decommissioning 195,360 185,901 175,867 fluctuations result Property and other taxes 44,795 42,827 40,440 from increasing sales to cog enera Other c

395,449 337,811 299,891 tors and changes in Income taxes 130,641 146,429 135,744 authorized costs (an Total operating expenses 1,473,498 1,457,895 1,384,707 increase in 1990; a Operating Income 315,514 313,973 284,764 cae an coss)o

c. Sales and costs of Other Income and (Deductions) diversified opera Allowance for equity funds used during construction 6,083 5,098 7,386 tions increased in Gain on subsidiary sale of stock d

22,559 1990 and in 1991 Taxes on nonoperating income (473)

(10,488) 822 due to acquisitions

)by Wahico Other-net e

(6,751)

(14,559)

(4,393)

Environmental Total other income and (deductions)

(1,141) 2,610 3,815 Systems, Inc. and Income Before Interest Charges 314,373 316,583 288,579 Wahico's increasing sales, resulting Interest Charges partly froml990's Long-term debt 98,802 97,894 87,962 Clean Air legislation.

Short-term debt and other 10,705 14,766 16,404

d. 1990 earnings Allowance for borrowed included the gain funds used during construction (3,194)

(3,918)

(2,913) from a public Net interest charges 106,313 108,742 101,453 offering of 2o percent of Wahlco Net Income (before preferred Environmental dividend requirements) 208,060 207,841 187,126 Systems, Inc.

Preferred Dividend Requirements 10,535 10,863 11,202

e. 1991 earnings Earnings Applicable to Common Shares

$ 197,525

$ 196,978

$ 175,924 included the merger Average Common Shares Outstanding 55,994 55,921 55,895 termination fee; Earnings Per Common Share 3.53 3.52 3.15 merger costs.

Dividends Declared Per Common Share 2.775 2.70 2,70 See notes to consolidated financial statements.

1991 REVENUE DOLLAR Source Disposition 75.90 Electric Sales 35.7g Fuel and Purchased Energy 18.99 Gas Sales 17.69 Other Operating Expenses 5.2g Diversified Operations 10.9g Depreciation/Decommissioning 9.8g Total Taxes 9.39 Dividends to Shareholders 8.7g Salaries and Benefits Diversified operations consist f

primarily of sales by Wahico Environmental Systems, Inc.

2.49 Reinvested in Business

30 SAN DIEGO GAS & ELECTRIC In thousands of dollars Balance at December 31 1991 1990 Assets Utility plant -

at original cost

$4,823,190

$4,594,253 Accumulated depreciation and decommissioning (1,791,391)

(1,606,438)

Financial Review Utility plant -

net a

3,031,799 2,987,815

a. Unit 1 at San Investments and other property b

226,296 188,284 Onofre may be shut Current assets down in about one Cash and temporary investments 16,916 11,529 year and the invest Receivablesment recovered Recevabls 17,07 166067 within the next four Inventories 94,215 101,164 years.

Regulatory balancing accounts undercollected -

net 40,765

b. Nuclear decom Other 16,941 15,969 missioning trust Total current assets 325,149 3

f $117 bmllnc Goodwill C

58,777 47,979 December31, 1991.

Deferred charges and other assets 105,535 97,065

c. Goodwill arose Total

$3,747,556

$3,656,637 from acquisitions by I

Pacific Diversified Capitalization and Liabilities Capital and is being Capitalization (see Statements of Consolidated amortized over 40 Capital Stock and Long-Term Debt) years.

Common equity d

$1,357,678

$1,303,307

d. In October 1991, Preferred stock 139,493 142,493 issuances of Long-term debt 1,164,224 1,167,089 common stock to fund the employee Total capitalization e

2,661,395 2,612889 savings and dividend Current liabilities reinvestment plans Short-term borrowings 43,907 63,729 replaced open Long-term debt redeemable within one year 115,000 115,000 market purchases.

Current portion of long-term debt 21,597 18,064

e. The company's capital structure Accounts payable 139,462 131,594 continues to meet Dividends payable 41,963 40,439 its goal and to Taxes accrued 53,319 56,993 comply with regula Interest accrued 26,460 26,650 Regulatory balancing accounts overcollected net 18,021 Other 102,412 83,067 Total current liabilities 562,141 535,536 Customer advances for construction 60,069 67,088 Accumulated deferred income taxes -

net 251,086 226,676 Accumulated deferred investment tax credits 124,403 129,367 Deferred credits and other liabilities 88,462 85,081 Contingencies and commitments (Notes 7 and 8)

Total

$3,747,556

$3,656,637 See notes to consolidated financial statements.

@~1991 ANNUAL REPORT 31 In thousands of dollars For the years ended December 31 1991 1990 1989 Cash Flows from Operating Activities Net Income

$208,060

$207,841

$187,126 Excerpts from the Adjustments to reconcile net income to net cash Financial Review provided by operating activities

a. Balancing Depreciation and decommissioning 195,360 185,901 175,867 accounts were a Amortization of deferred charges and other assets 1,402 1,554 1,251 source of cash in

- Allowance for funds used during construction (9,277)

(9,016)

(10,299) 1991 as collections Deferred income taxes and investment tax credits (11,377) 26,773 24,471 toedecin nu Deferred merger costs

-11,083 (3,709) gas prices.

Gain on subsidiary sale of stock (22,559)

b. Cash flow Other -

net 764 7,788 4,793 changes related to inventory resulted Changes in working capital components net from increased of effects from purchases and sale of subsidiaries storage of fuel oil Receivables (25,340)

(8,259) 11,380 and natural gas in Regulatory balancing accounts a

58,786 (49,158)

(62,891) 1990 and the partial Inventories

b.

9,857 (24,631) 673 depletion thereof in 1991.

Other current assets 681 6,903 (1,603)

Accrued interest and taxes 26,959 15,758 5,289 company issued Accounts payable and other current liabilities 17,984 21,334 (13,104)

$100 million of Net cash provided by operating activities 473,859 371,312 319,244 sore an Cash Flows from Financing Activities plans to issue Dividends paid (164,436)

(161,874)

(160,777) approximately $100 Short-term borrowings -

net (22,138)

(8,745) 72,474 million of bonds in Issuances of long-term debt c

38,792 107,185 1,615 1992.

Sale of common stock 11,712 137 116 ti epntue Repayment of long-term debt (20,595)

(66,064)

(10,337) are expected to total Proceeds from subsidiary sale of stock

-38,120

$339 million in 1992 Redemption of preferred stock (3,000)

(4,500)

(3,000) and $2.4 billion over the 1992-1 996 Net cash used by financing activities (159,665)

(95,741)

(99,909) period.

Cash Flows from Investing Activities Utility construction expenditures d

(251,759)

(235,356)

(236,738)

Contributions to decommissioning funds (22,038)

(22,038)

Purchase of assets and subsidiaries (16,115)

(18,644)

(20,054)

S3le of assets and subsidiary

-(2,151) 2,269 Other -

net (18,895)

(5,886) 2,906 Net cash used by investing activities (308,807)

(284,075)

(273,655)

Net increase (decrease) 5,387 (8,504)

(54,320)

Cash and temporary investments, beginning of period 11,529 20,033 74,353 Cash and temporary investments, end of period

$ 16,916

$11,529

$ 20,033 Supplemental Schedule of Noncash Investing and Financing Activities Acquisition of subsidiaries Assets acquired

$ 23,747 Cash paid (6,917)

Liabilities assumed

$ 16,830 Noncash real estate transactions Real estate disposed 24,624 Debt discharged (21,300)

Noncash proceeds

$ 20784

$3,324 See notes to consolidated financial statements.

32 gD

@G7 MU c" Jjo-

~

ii)

~

SAN DIEGO GAS & ELECTRIC Preferred Stock In thousands of dollars Su toto IthuadofdlasMandatory Mandatory Common Premium on Retained For the years ended December 31, 1989, 1990, 1991 Redemption Redemption Stock Capital Stock Earnings Balance, December 31, 1988

$87,493

$62,500

$279,492

$467,610

$482,835 Net Income 187,126 Common stock sold (23,163 shares) 116 Vesting of previously restricted shares 1,071 Current sinking fund requirement (3,000)

Dividends declared Preferred stock (11,192)

Common stock (150,945)

Balance, December 31, 1989 87,493 59,500 279,608 468,681 507,824 Net Income 207,841 Common stock sold (27,417 shares) 137 Vesting of previously restricted shares 1,062 Preferred stock retired (15,000 shares)

(1,500)

Current sinking fund requirement (3,000)

Dividends declared Preferred stock (10,847)

Common stock (150,999)

Balance, December 31, 1990 87,493 55,000 279,745 469,743 553,819 Net Income 208,060 Common stock sold (299,116 shares) 1,495 10,217 Vesting of previously restricted shares 559 Current sinking fund requirement (3,000)

Dividends declared Preferred stock (10,524)

Common stock (155,436)

Balance, December 31, 1991

$87,493

$52,000

$281,240

$480,519

$595,919 See notes to consolidated financial statements.

~ ~

i~xi

~1991 ANNUAL REPORT J33 In thousands of dollars except voluntary redemption price Balance at December 31 1991 1990 Common Equity Common stock, without par value, authorized 170,000,000 shares, outstanding: 1991, 56,248,038 shares; 1990, 55,948,922 shares 281,240

$ 279,745 Premium on capital stock 480,519 469,743 Retained earnings 595,919 553,819 Total common equity

$1,357,678

$1,303,307 Preferred Stock Voluntary Not subject to mandatory redemption Redemption

$20 par value, authorized 1,375,000 shares Price 5% Series, 375,000 shares outstanding

$ 24.00

$ 7,500

$ 7,500 41/2% Series, 300,000 shares outstanding 21.20 6,000 6,000 4.40% Series, 325,000 shares outstanding 21.00 6,500 6,500 4.60% Series, 374,650 shares outstanding 20.25 7,493 7,493 Without par value*

$7.80 Series, 200,000 shares outstanding 101.00 20,000 20,000

$7.20 Series, 150,000 shares outstanding 101.00 15,000 15,000

$2.475 Series, 1,000,000 shares outstanding 28.35 25,000 25,000 Total not subject to mandatory redemption

$87,493

$87,493 Subject to mandatory redemption Without par value*

$8.25 Series, outstanding: 1991, 55,000 shares; 1990, 65,000 shares

$103.58

$ 5,500

$ 6,500

$9.125 Series, outstanding: 1991, 45,000 shares; 1990, 65,000 shares 103.20 4,500 6,500

$7.05 Series, 450,000 shares outstanding 104.70 45,000 45,000 Current sinking fund requirement**

(3,000)

Total subject to mandatory redemption________

$52,000

$55,000

Authorized 10,000,000 shares total (both subject to and not subject to mandatory redemption).

- Future sinking fund requirements include $4.8 million in 1993, $3.3 million in 1994, $2.8 million in 1995 and $2.8 million in 1996.

See notes to consolidated financial statements.

34

@ (

0 E

SAN DIEGO GAS & ELECTRIC in thousands of dollars Balance at December 31 1991 1990 First mortgage bonds 51/2% Series 1, due March 1, 1997 25,000 25,000 7% Series J, due December 1, 1998 35,000 35,000 8/4% Series K, due February 1, 2000 40,000 40,000 8% Series L, due September 1, 2001 45,000 45,000 8/8% Series M, due January 15, 2004 75,000 75,000 834% Series Q, due March 15, 2007 50,000 50,000 9/4% Series R, due May 1, 2008 50,000 50,000 5'/2% Series U-2, due September 1, 1994 9,268 9,668 10% Series AA, due June 1, 2018 150,000 150,000 10% Series BB, due September 1, 2018 150,000 150,000 4.9% Series CC, due May 1, 2008 53,000 53,000 4.7% Series DD, due December 1, 2008 27,000 27,000 9 % Series EE, due September 1, 2020 100,000 100,000 5.2% Series FF, due December 1, 2007 35,000 35,000 7%% Series GG, due July 1, 2021 44,250 44,250 7%% Series HH, due December 1, 2021 81,350 81,350 8%/%

Series II, due March 1, 2023 25,000 25,000 9%% Series JJ, due April 15, 2020 100,000 100,000 6.8% Series KK, due June 1, 2015 14,400 Total 1,109,268 1,095,268 Capitalized leases Nuclear fuel 44,283 56,085 Generating facility 84,805 89,390 Other 18,420 21,168 Total 147,508 166,643 Other long-term debt 59,662 54,410 Unamortized discount on long-term debt (15,617)

(16,168)

Long-term debt redeemable within one year (115,000)

(115,000)

Current portion of long-term debt (21,597)

(18,064)

Total

$1,164,224

$1,167,089 See notes to consolidated financial statements.

~i~iJ~~~

Au*

off JJ0D

§ 1991 AN NUAL RE PORT 35 In thousands of dollars At December 31 or for the years then ended 1991 1990 1989 Operating revenues*

$1,789,012

$1,771,868

$1,669,471 Operating Income Electric operations

$ 266,402

$ 268,460

$ 242,064 Gas operations 37,405 37,371 36,093 Diversified operations 11,707 8,142 6,607 Total

$ 315,514

$ 313,973

$ 284,764 Depreciation and Decommissioning Electric operations

$ 164,194

$ 156,606

$ 149,400 Gas operations 25,536 25,183 23,188 Diversified operations 5,630 4,112 3,279 Total

$ 195,360

$ 185,901

$ 175,867 Utility Plant Additions**

Electric operations

$ 208,265

$ 190,794

$ 194,637 Gas operations 43,494 44,562 42,101 Total

$ 251,759

$ 235,356

$ 236,738 Identifiable Assets Utility plant -

net Electric operations

$2,692,492

$2,667,923

$2,652,349 Gas operations 339,307 319,892 297,631 Total 3,031,799 2,987,815 2,949,980 Inventories Electric operations 65,358 68,416 58,554 Gas operations 19,508 22,229 17,979 Diversified operations 9,349 10,519 Total 94,215 101,164 76,533 Other identifiable assets Electric operations 303,333 282,333 209,037 Gas operations 41,211 52,802 36,641 Diversified operations 188,712 146,873 161,621 Total 533,256 482,008 407,299 Other Assets 88,286 85,650 112,684 Total Assets

$3,747,556

$3,656,637

$3,546,496

The detail to operating revenues is provided in the Statements of Consolidated Income. The gas operating revenues shown therein include $10 million in 1991, $6 million in 1990 and $5 million in 1989, representing the gross margin on sales to the electric segment. These margins arose from interdepartmental transfers of $116 million in 1991, $112 million in 1990 and $150 million in 1989, based on transfer pricing allowed by the California Public Utilities Commission in tariff rates.

- Excluding allowance for funds used during construction.

See notes to consolidated financial statements.

The company is an operating public utility engaged principally in the generation, purchase, distribution and sale of electrical energy and the purchase, distribution and sale of natural gas. Income taxes and corporate expenses are allocated to departments in accordance with regulatory accounting requirements. Diversified operations consists primarily of environment-related businesses serving power generation and other industries.

36 la Go R

t g

M SAN DIEGO GAS & ELECTRIC 00 00 00 00 00 00 00 00 00 00 00 00 00 00 0 00 Goodwill Goodwill arose from the acquisition of certain 1

SUMMARY

OF ACCOUNTING POLICIES businesses by Pacific Diversified Capital. It is being amortized Consolidation The consolidated financial statements include the accounts of San Diego Gas & Electric and its amortization at December 31, 1991 was $4.5 million ($3.1 subsidiary, Pacific Diversified Capital Company,.the holding million in 1990).

company for the nonutility subsidiaries. The nonutility Statements of Consolidated Cash Flows Temporary subsidiaries are Wahlco Environmental Systems, Inc. (80 investments are highly liquid investments with original percent owned) and Phase One Development, Inc. (wholly maturities of three months or less.

owned).

Other Certain prior year amounts have been reclassified Utility Plant and Depreciation Utility plant represents for comparability.

the buildings, equipment and other facilities used to provide electric and gas service. The cost of utility plant includes labor, LONGTERM DEBT material, contract services and other related items and an 2

Due dates of long-term debt are shown on the State allowance for funds used during construction. The cost of depreciable retired utility plant, plus removal expenses minus leases, which are described in Note 8, combined aggregate salvage value is charged to accumulated depreciation.

maturities and sinking fund requirements of long-term debt Depreciation expense reflects the straight-line remaining are $11 million for 1992, $7 million for 1993, $12 million for useful life method. The provisions for depreciation approxi-1994, $1 million for 1995, and $18 million for 1996.

mated 3.98 percent of average depreciable utility plant in First mortgage bonds are secured by a lien on substan 1991, 3.97 percent in 1990, and 3.96 percent in 1989.

tially all utility plant. Additional first mortgage bonds may be Inventories At December 31, 1991, inventories include issued upon compliance with the provisions of the bond

$55 million of materials and supplies ($54 million in 1990),

indenture.

and $39 million of fuel oil and natural gas ($47 million in Certain first mortgage bonds have variable interest rate 1990). Materials and supplies are valued at average cost, and provisions. Bondholders may elect to redeem their bonds at fuel oil and natural gas are valued by the last-in first-out, or the interest adjustment dates of August 1 for Series FF and LIFO, method.

Allowance for Funds Used During Construction The Se ter 1fSees Cnd DD.

allowance represents the cost of funds used to finance the term borrowings, amounted to $ 110 million in 1991, $114 construction of utility plant and is added to the cost of utility million in 1990, and $102 million in 1989.

plant. AFUDC also increases income, partly as an offset to The company issued $100 million of first mortgage financing costs shown in the Statements of Consolidated bonds in April 1990 and $14.4 million of first mortgage bonds Income, although it is not a current source of cash.

in December 1991. The company has CPUC authorization to Revenues and Regulatory Balancing Accounts Revenues issue an additional $85.6 million in debt by December 31, from utility customers consist of deliveries to customers and 1993.

the changes in regulatory balancing accounts. Earnings fluctuations from changes in the costs of fuel oil, purchased SHORT-TERM BORROWINGS energy and gas, and consumption levels for electricity and the 3

At December 31, 1991 and 1990, short-term borrowings majority of gas are eliminated by balancing accounts autho-and weighted average interest rates for the balances outstand rized by the California Public Utilities Commission. The balances of these accounts represent amounts that will be recovered from, or repaid to, customers by adjustments to Balance Interest Rate Balance Interest Rate future prices. The CPUC reviews the reasonableness of the Commercial paper

$37.3 5.6%

$53.0 8.1%

amounts in these accounts.

Subsidiaries' bank credit line 6.6 6.5%

10.7 10.0%

Total

$43.9

$63.7

1991 ANNUAL REPORT 37 As of December 31, 1991, SDG&E had various bank lines thousands of dollars 1991 1990 1989 aggregating $100 million, available to support commercial Cost related to current service

$17,054

$14,221

$13,370 papr.SDGE' susiiareshada ankcrditlie tatInterest on projected benefit obligation 24,725 21,589 1 8,670 paper. SDG&E's subsidiaries had a bank credit line that(50,703) provided for borrowings up to $14 million at the prime rate. A Other 35,199 (45,362) 20,008 commitment fee is paid on the unused portion of the lines.

Net Cost

$ 5,590

$ 2,790

$1,345 There were no requirerhents for compensating balances.

0 0 0 0 0 0 0 0 0 00 00 00 00 00 00 00 0The plan's status at December 31 is as follows:

4 FACILITIES UNDER JOINT OWNERSHIP In thousandsof dollars 1991 1990 The Southwest Powerlink transmission line and the San Accumulated benefit obligation:

Vested

$231,951

$203,422 Onofre nuclear power plant are jointly owned with other Nonvested 5,814 5,441 utilities. The company's interests at December 31, 1991 were:

Total

$237,765

$208,863 In millions of dollars Project Southwest Powerlink San Onofre Plan assets at fair value

$385,197

$319,865 Ownership interest (%)

89 20 Projected benefit obligation 353,794 315,580 Utilty pantin srvic $29

$1210 Excess of plan assets over projected Utility plant in service

$209

$1,210obligation 31,403 4,285 Accumulated depreciation

$ 52

$ 328 Unrecognized effect of accounting change (2,293)

(2,522)

Construction work in progress 15 Unrecognized prior service cost 9,183 Each participant in the projects must provide its own Unrecognized actuarial gains (38,293)

(1,763) financing.

Amount recognized as an asset The company's share of operating expenses is included The projected benefit obligation assumes an 8 percent in its Statements of Consolidated Income.

The ompny'sshae offutre ismatlig an deon-actuarial discount rate and a 6 percent average annual salary The company's share of future dismantling and decon tamination costs for the San Onofre units is estimated to be is 8.5 percent.

$200 million. These costs are considered in setting rates and are expected to be fully recovered in rates over the estimated eligi e p ay mke contritio n fo1 lives of the plants. In December 1987, the company began peent ir ba pay o h coman savng pa for placing in externally managed trust funds the amounts collected in rates. At December 31, 1991, the trust funds had a balance of $117 million, which is included in "Investments participant's base compensation for investment in the and Other Property" on the Consolidated Balance Sheets.

company's common stock. Accrued contributions to the Additional information regarding San Onofre Unit 1 is pension and savings plans were approximately $9 million in included in Note 7.

1991, $6 million in 1990, and $4 million in 1989.

The company has a long-term incentive stock compensa 0 EMLOE BEEI PLANS 00 tion plan that provides for aggregate awards of up to 5EMPLOYEE BENEFIT PLANS The company has a defined benefit pension plan which 1,350,000 shares of common stock over a 10-year period covers substantially all utility employees. Benefits are related to the employees' compensation. Plan assets consist primarilystock to tof them m plsoyees' cnompnsato.

Plnast co itprm iy officers for $5 per share. These shares were issued subject to of common stocks and bonds.

The company funds the plan based on the aggregate cost buy-back if certain corporate goals are not met.

actuarial method, subject to full-funding limitations. Net penson ost onssts f te folowng:benefits to retired utility employees. The annual benefits paid and expensed amounted to $3 million in 1991, 1990 and 1989. In December 1990, the Financial Accounting Standards Board issued a rule that would require a major change in the

38 SAN DIEGO GAS & ELECTRIC way retiree benefits other than pensions will be accounted for Components ofIncome Tax Expense beginning in 1993.

In thousands of dollars 1991 1990 1989 The company's current expense for retiree health and Current federal income tax

$107,959

$102,683

$ 86,017 life insurance premiums represents premiums paid during the Current state franchise tax 34,532 27,461 24,434 year for existing retirees. The new rule will require an accrual Total current taxes 142,491 130,144 110,451 Deferred federal and state taxes of health and life insurance premiums for each employee. This Tax over book depreciation 29,778 24,189 32,247 projected benefit will be expensed over each employee's years Regulatory balancing accounts (16,869) 15,992 27,334 of service, up to the year of benefit eligibility. The present Construction projects (8,059)

(15,765)

(8,929) value of these projected premiums is expected to be about $60 Unbilled revenue (4,251)

(7,487)

(10,267) million. This accounting change is not expected to affect State franchise tax 1,055 5,247 company profit or net worth significantly because most Gain on subsidiary sale of stock 9,024 employee benefits have been consistently recovered in rates.

other-net (8,067) 794 (3,154)

Total deferred taxes (6,413) 31,994 37,231 0 o 0 0 0 0 0 0 0

0 0 0 0

0 0 0 0 0 0 0 0

0 0 0 0 0

0 Deferred investment tax credits-net (4,964)

(5,221)

(12,760) 6INCOME TAXES 6 NOM AXSTotal income tax expense

$131,114

$156,917

$134,922 Deferred income taxes arise from including income or Federal and state income taxes are allocated between operating income and other deductions in the company's income tax returns in a year income.

different from the year they are reported in the financial Reconciliation of Statutory Federal Income Tax Rate statements. However, deferred taxes are not provided for those to Effective Rate timing differences that are reflected in customer rates. At In thousandsof dollars 1991 1990 1989 December 31, 1991, the cumulative net amounts of timing Income before federal income taxes $312,161

$331,739

$295,394 differences for which deferred taxes have not been provided Statutory federal income tax rate 34.0%

34.0%

were approximately $290 million for federal purposes and Depreciation 3.9 1.9 4.6

$720 million for state purposes. In addition, tax reductions Deferred investment tax credits-net (2.1)

(1.8)

(4.3) that arose from investment tax credits had been deferred and Other-net (2.5) 3.2 Effective federal income tax rate 33.3%

37.3%

36.5%

are recognized over the useful lives of the related property.

The Financial Accounting Standards Board recently 0000000000000000000000000000000 issued a rule that will require a major change in the way tax REGULATORY PROCEEDINGS AND LITIGATION expense will be computed in future years. Implementation of 7 Southwest Powerlink In February 1989, the California the new rule will be required in 1993.

Public Utilities Commission issued a decision ordering a This new rule is not expected to affect the company's disallowance of approximately $25 million of costs associated profits or net worth significantly because most tax increases or with long-term purchased power contracts using the South reductions are reflected in rates. However, deferred taxes on west Powerlink. This decision had the effect of reducing pre the balance sheet will increase by a substantial, but not yet tax income for the first quarter of 1989 by $25 million, or quantified amount and a new regulatory asset will be reported

$0.28 per share after tax. The decision also provided for a for the estimated amount collectible from customers.

possible reduction of the disallowance through an energy Income tax payments totaled $115 million in 1991, credit based on cost savings from energy purchased under

$104 million in 1990, and $108 million in 1989.

these contracts. In September 1989, SDG&E filed for this credit, increasing pre-tax income for the third quarter by $5 million, or $0.05 per share after tax. In 1990, the CPUC approved the credit.

In March 1989, seeking to reduce the disallowance, the company filed an application for rehearing with the CPUC.

The application challenged the CPUC's authority to disallow

1991 ANNUAL REPORT 39 expenses resulting from paying rates approved by the Federal Springerville Litigation In December 1990, Philip Morris Energy Regulatory Commission. The application also chal-Capital Corporation filed a lawsuit against SDG&E, Century lenged various premises supporting the CPUC's decision. In Power Corporation and two other defendants alleging liability September 1989, the CPUC denied the application for rehear-for unspecified compensatory damages, including the loss of ing. Also in September 1989, the company challenged the tax benefits and losses sustained from the adverse tax conse CPUC's rejection of its application in U.S. District Court in quences of defendants' alleged acts, and punitive damages for San Francisco. The company requested an injunction from the various improprieties relating to the sale and leaseback of court reversing the CPUC's action.

Springerville Unit 1. In March 1991, Chrysler Capital Corpora Management cannot predict the ultimate outcome of tion and four others filed a substantially identical lawsuit.

this matter or when a decision will be reached.

A portion of the electricity generated by Unit 1 was Portland General Electric In July 1989, the CPUC purchased by the company. The sale and leaseback transaction Division of Ratepayer Advocates issued a report on the reason-was entered into between Century and the six investors ableness of the company's entering into its 75-megawatt long-referred to above.

term purchased power contract with Portland General Electric.

Plaintiffs assert that the company unlawfully agreed to The potential disallowances identified by the DRA had an delay its claim that it was entitled to rate relief as a result of estimated net present value of $28 million.

the sale and leaseback transaction until after the transaction In 1989 and 1990, the company participated with PGE was completed in December 1986. According to the lawsuits, in negotiating new coal and rail contracts related to the SDG&E allegedly participated in a plan with the other defen company's contract with PGE. As a result, energy costs from dants to conceal the expected rate relief.

PGE have been reduced.

According to the lawsuits, Philip Morris's investment In November 1991, the CPUC found that the company's in the Springerville unit is $90 million and the combined purchased power contract with PGE was reasonable and that investment of Chrysler Capital and the other investors is no disallowances were appropriate.

$110 million. The plaintiffs do not specify that the invest San Onofre Unit 1 In February 1992, SDG&E and ments represent a loss or damage.

Southern California Edison reached an agreement with the In October and November 1991, the federal claims of CPUC's Division of Ratepayer Advocates to shut down Unit 1 Philip Morris and Chrysler Capital and the other investors of the San Onofre Nuclear Generating Station. Edison owns 80 were dismissed on statute of limitations grounds. The Philip percent of SONGS 1 and operates the unit; SDG&E owns the Morris state law claims were dismissed for jurisdictional remaining 20 percent. The agreement would lead to closure of reasons, and the Chrysler Capital state law claims remain the unit at the end of the current fuel cycle, estimated to pending in federal court. In November 1991, Philip Morris occur between late-1992 and mid-1993. The agreement, which moved for reargument on the grounds that the state law requires CPUC approval, would not result in any write-off of claims should not have been dismissed. In February 1992, SDG&E's investment in the unit. The agreement would allow Philip Morris's motion for reargument was granted.

the utilities to recover through rates the remaining net All of the plaintiffs have moved for reinstatement of the investment in the unit, approximately $100 million for federal claims based on December 1991 legislation which SDG&E, over a four-year amortization period.

attempts to nullify a recent Supreme Court decision upon In addition, the agreement would allow the utilities to which the dismissal of the federal claims was partially based.

earn a return on the investment, equal to the currently The company intends to oppose these motions vigorously.

authorized rates of return while the unit is in operation, and If the cases were to be reinstated, the company faces the equal to the utilities' embedded costs of debt for the remain-exposure of joint and several liability with the other defen der of the four-year period. SDG&E's currently authorized rate dants. An involuntary petition for bankruptcy has been filed of return is 10.75 percent and the current embedded cost of against co-defendant Century Power Corporation.

debt is approximately 9.1 percent.

Since the Federal Energy Regulatory Commission has not ruled that SDG&E is entitled to the expected rate relief, it is

40 SAN DIEGO GAS & ELECTRIC the company's position that the plaintiffs have not been Coverage is provided also for property damage and damaged by SDG&E's alleged actions.

replacement power costs at San Onofre. Coverage is provided The company believes it has meritorious defenses against for primary property damages and for up to $500 million the claims and intends to defend the lawsuits vigorously.

additional decontamination liability and excess property Management cannot predict the ultimate outcome.

damage of $2 billion. Replacement power insurance provides Subsidiary Shareholder Litigation In June 1990, an indemnity payments for up to two years, after a waiting action was instituted against Wahlco Environmental Systems, period of 21 weeks. These three insurance coverages are Inc., certain directors and officers as well as the underwriters provided primarily through mutual insurance companies for Wahlco Environmental's initial public offering. In Novem-owned by utilities with nuclear facilities. If losses at any of the ber 1990, a substantially similar action was filed, naming nuclear facilities covered by the risk-sharing arrangements SDG&E as an additional defendant. The two lawsuits have were to exceed the accumulated funds available for these been consolidated into one action. The complaint, which insurance programs, the company could be assessed retrospec seeks unspecified compensatory and punitive damages, alleges tive premium adjustments of up to $7.8 million per year. The various violations of federal and state securities laws and preceding does not contemplate changes that may result from various state law claims based upon alleged misrepresentations a pending CPUC decision concerning the future status of San and material omissions made in connection with Wahlco Onofre Unit 1 (see Note 7).

Environmental's initial public offering, first quarter 1990 Construction Approximately $339 million, excluding 10-Q press releases, and other documents and statements.

nuclear fuel and AFUDC, is planned to be spent for utility The case is in the discovery phase, with discovery set to plant construction in 1992.

close in 1992. However, a trial date has not been set. SDG&E Environmental Issues The company's operations are and Wahlco Environmental believe they have meritorious conducted in accordance with federal, state and local environ defenses to the claims and intend to defend the lawsuit mental laws and regulations governing hazardous wastes, air vigorously. Management cannot predict the ultimate outcome quality, water quality, land use and solid waste disposal.

of the litigation.

Compliance programs necessary to meet existing and future Other Litigation The company is involved in various environmental laws and regulations will increase the cost of legal matters arising out of the ordinary course of business.

electric and gas service by requiring changes to the company's Management believes that these matters will not have a operations or facilities. The costs of compliance with environ material adverse effect on the company's financial position.

mental laws and regulations are normally included in rates.

00 00 00 00 00 00 00 00 00 00 00 00 00 00 0 00 Leases Nuclear fuel, an office building and agenerating 8

OTHER CONTINGENCIES AND COMMITMENTS facility are financed by long-term capital leases. Utility plant Nuclear Insurance Public liability claims that could arise includes $297 million at December 31, 1991 and $285 million from a nuclear incident are limited by law to $7.8 billion for at December 31, 1990 related to these leases.

each licensed nuclear facility. The company and the co-The minimum rental commitments payable in future owners of the San Onofre units have purchased primary years under all noncancellable leases are:

insurance of $200 million for this exposure, the maximum In millions of dollars Operating Leases Capitalized Leases amount available. The remaining $7.6 billion is provided by 1992

$14

$ 38 secondary financial protection required by the Nuclear 1993 12 33 Regulatory Commission. This secondary coverage provides for 1994 9

12 loss sharing among utilities owning nuclear reactors if a costly 1995 8

12 accident occurs. The company could be assessed retrospective 1996 Thereafter 19 93 premium adjustments of up to $40 million in the event of a Total future rental commitments

$68 200 nuclear incident involving any of the licensed, commercial Imputed interest (6 to 9 percent)

(52) reactors in the United States, if the amount of the loss exceeds Net Commitment

$148

$200 million.

1991 ANNUAL REPORT 41 Rental payments totaled $58 million in 1991, $58 Total payments, including energy payments, under the million in 1990, and $62 million in 1989.

contracts were $245 million in 1991, $236 million in 1990, Purchased Power Contracts The company buys electric and $247 million in 1989.

power under several long-term contracts. The contracts expire Natural Gas Contract The company has a contract with on various dates between 1993 and 2019.

Southern California Gas Company that provides SDG&E with At December 31, 1991, the future minimum payments capacity on interstate gas pipelines and storage capacity in under the contracts were:

SoCal Gas' facilities. The future minimum payments under In millions of dollars the contract are $80 million for each of the years 1992 to 1994 1992

$ 136 and $53 million for 1995. These costs are based on CPUC 1993 137 authorized rates effective January 1, 1992, and are subject to 1994 138 review in the next biennial gas ratemaking proceeding in 1995 136 1993. Payments under the contract were $83 million in 1991, 1996 119 1996 119 1990 and 1989.

Thereafter 1,330 Total minimum payments

$1,996

~to its customers, substantially all of whom are located in its These payments are fixed charges. The company is service territory, which covers all of San Diego County and the required to pay additional amounts for actual deliveries of southern portion of Orange County.

energy under the contracts. The company has exercisable options to extend two long-term contracts.

INDEPENDENT A UDITORS' REPORT To the Shareholders and Board of Directors of San Diego Gas & Electric Company:

We have audited the accompanying consolidated accounting principles used and significant estimates made by balance sheets and the consolidated statements of capital management, as well as evaluating the overall financial stock and long-term debt of San Diego Gas & Electric Coi-statement presentation. We believe that our audits provide a pany and its subsidiaries as of December 31, 1991 and 1990, reasonable basis for our opinion.

and the related consolidated statements of income, changes in In our opinion, such consolidated financial statements capital stock and retained earnings, and cash flows for each of present fairly, in all material respects, the financial position of the three years in the period ended December 31, 1991. These San Diego Gas & Electric Company and its subsidiaries as of financial statements are the responsibility of the company's December 31, 1991 and 1990 and the results of their opera management. Our responsibility is to express an opinion on tions and their cash flows for each of the three years in the these financial statements based on our audits.

period ended December 31, 1991 in conformity with generally We conducted our audits in accordance with generally accepted accounting principles.

accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance

~

about whether the financial statements are free of material ini misstatement. An audit includes examining, on a test basis, DELOIflE & TOUCHE evidence supporting the amounts and disclosures in the San Diego, California financial statements. An audit also includes assessingthe February 21, 1992

42 AkDf M

SAN DIEGO GAS & ELECTRIC At December 31 1991 1990 1989 1988 1987 1986 Current assets*

325.1 335.5 299.2 319.9 336.4 299.7 Current liabilities*

562.1 535.5 555.2 510.1 533.7 450.2 Working capital*

(237.0)

(200.0)

(256.0)

(190.2)

(197.3)

(150.5)

Working capital ratio

.6

.5

.6

.7 Long-term debt*

1,164.2 1,167.1 1,112.7 1,179.5 1,204.6 1,193.9 Common shareholders' equity*

1,357.7 1,303.3 1,256.1 1,229.9 1,197.4 1,159.9 Number of utility customerst 1,111.3 1,095.2 1,069.6 1,032.6 990.4 940.7 Number of utility employees 4,215 4,175 4,209 4,420 4,612 4,815 Common shares outstanding 56,248,038 55,948,922 55,921,505 55,898,342 55,872,602 55,847,822 Book value per common share 24.14 23.29 22.46 22.00 21.43 20.77 Price/Earnings ratio 12.8 12.7 14.3 12.0 9.1 9.9 For year ended December 31 Operating Revenues*

Electric 1,357.5 1,356.4 1,324.9 1,300.0 1,261.3 1,333.5 Gas 338.2 355.1 300.4 285.4 293.8 299.2 Diversified operations 93.3 60.4 44.2 35.1 7.1 1.5 Pretax income/revenue 19.0%

20.6%

19.3%

18.7%

21.7%

21.6%

Return on equity 14.9%

15.4%

14.2%

14.6%

15.6%

12.3%

Effective federal tax rate 33.3%

37.3%

36.5%

32.5%

39.1%

47.8%

Earnings per common share 3.53 3.52 3.15 3.18 3.28tt $

2.59 Dividends declared per common share 2.775 2.70 2.70 2.60 2.50 2.345 Dividend payout ratio (declared) 78.6%

76.7%

85.7%

81.8%

76.3%

90.4%

Price range of common shares

$46%/8-$36%

$ 461/4-$39

$45%-$36/

$ 39i/-$30

$ 37/-$28/

$42/2-$26%

In millions of dollars.

fln thousands.

ttincluding $0.32 for cumulative effect of change in accounting principle.

Financial return on equity is measured by I

earnings M

applicable to common shares divided by average common equity.

1991 ANNUAL REPORT 43 Compound Annual Compound Annual Growth Rate Growth Rate 5 Years 1985 1984 1983 1982 1981 10 Years 1.6%

366.2 393.8 267.3 303.9 302.4 0.7%

4.5%

404.8 352.2 429.7 443.6 453.4 2.2%

(38.6) 41.6 (162.4)

(139.7)

(151.0)

.9 1.1

.6

.7

.7 (0.5)%

1,208.6 1,277.5 1,275.4 1,007.2 925.0 2.3%

3.2%

1,153.0 1,052.9 957.6 817.4 672.4 7.3%

3.4%

893.9 853.6 823.2 804.5 792.4 3.4%

(2.6)%

4,860 4,841 4,917 5,084 4,909 (1.5)%

0.1%

55,822,762 54,063,592 51,693,662 48,266,144 41,499,034 3.1%

3.1%

20.65 19.48 18.52 16.94 16.20 4.1%

8.3 7.6 6.1 5.9 5.3 0.4%

1,395.7 1,292.8 1,207.1 1,137.9 948.6 3.7%

2.5%

343.0 327.9 323.1 293.0 211.0 4.8%

22.7%

19.8%

18.7%

15.3%

10.2%

16.2%

15.8%

18.2%

17.5%

14.5%

44.5%

38.7%

31.2%

24.0%

4.7%

6.4%

3.25 3.01 3.20 2.90 2.34 4.2%

3.4%

2.205 2.065 1.925 1.785 1.64 5.4%

68.1%

68.8%

60.7%

62.4%

71.1%

$28/8-$21/2

$23/4-$17/8 22-$17

$17/8-$1114 14-$11 1991 1990 First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Market price High 453/4 452 41/8 46/8 453/

433/4 443/s 46/4 Low 42 37 361/2 41/8 40/4 391/2 39 39%/

Dividends declared 67.5a 70a 70q 70q 67.5a 67.5q 67.5e 67.5v

44 SAN DIEGO GAS & ELECTRIC Thomas A. Page, 58 Jack E. Thomas, 59 Chairman and Chief President and Chief Executive Officer Operating Officer Thomas Page was elected Jack Thomas was elected chairman in 1983. He has president effective January been chief executive officer 1992 after having served as since 1981. He was president chief operating officer since from 1981 through 1991. He 1986. He has been a group joined SDG&E in 1978 as a vice president since 1980, senior officer.

and a vice president since Chi 1972. He joined SDG&E as an engineer in 1957.

Stephen

1.

Baum, 51 Gary D. Cotton, 51 R. Lee Haney, 52 Donald E. Felsinger, 44 Senior Vice President-Senior Vice President-Senior Vice President-Senior Vice President Law and Corporate Affairs Customer Services Finance and Chief Marketing and Resource and General Counsel Gary Cotton was elected to Financial Officer Development Stephen Baum was elected to his present position effective Lee Haney was elected senior Donald Felsinger was elected his present position effective January 1992, after serving as vice president-finance in senior vice president effective January 1992. He was elected senior vice president-January 1990. He was elected January 1992 after serving as senior vice president in 1987 engineering and operations vice president-finance in a vice president since 1983.

after serving as a vice presi-since 1986. He was elected 1986 and became chief He was appointed vice dent since 1985, when he senior vice president in 1985 financial officer in 1988. He president of marketing in joined SDG&E as a vice after serving as a vice presi-was elected a vice president in 1986. Resource development president and general counsel.

dent since 1979. Cotton 1983 after serving as treasurer was added to the division in He formerly was senior vice joined SDG&E in 1975.

for two years. He joined 1989. Felsinger joined SDG&E president and general counsel SDG&E in 1972.

in 1972.

for the Power Authority of the State of New York.

Ronald K. Fuller, 54 Edwin A. Guiles, 42 Margot A. Kyd, 38 George A. F. Weida, 55 Vice President-Governmental Vice President-Engineering Vice President-Vice President and Regulatory Services and Operations Administrative Services Human Resources Ronald Fuller was elected vice Edwin Guiles was elected to Margot Kyd was elected vice George Weida joined SDG&E president-regulatory services his present position effective president-administrative in 1983 as a vice president in 1983. Governmental January 1992 after serving as services in December 1988 and was named head of the services was added to the vice president-corporate after serving as treasurer since human resources division in division in 1984. He joined planning since 1990. He 1986. She served as manager-1984. Previously, he was head the company in 1974. Prior to served as director-business financial services and assistant of human resources for other that he served in the executive planning from 1987. He treasurer the previous year.

major U.S. corporations.

office of the president of the joined SDG&E as an engineer Kyd joined the company United States.

in 1972.

in 1980.

Frank H. Ault, 47 Malyn K. Malquist, 39 Delroy M. Richardson, 53 Controller Treasurer Corporate Secretary Frank Ault was elected Malyn Maquist was elected Delroy Richardson was elected controller in May 1986 after treasurer in January 1990 secretary in 1986 after serving serving as director-internal after serving as director-as assistant secretary since auditing since 1981. Ault finance and assistant treasurer 1983. He joined SDG&E as an joined SDG&E in 1969.

since 1988. He was named attorney in 1971.

director-information services during 1987 following service as manager-financial services. He joined the company in 1978.

1991 ANNUAL REPORT 45 The seven-person board of Main Burnham*

Ralph R. Ocampo Committees of the Board directors consists of six outside Mr. Burnham is chairman and Dr. Ocampo is a San Diego Audit This committee selects an directors and the chief executive a director of John Burnham &

physician and surgeon. He independent auditor and reviews the officer of SDG&E, who serves as Co., a mortgage loan, real is 60 years old and has been a overall plan of the audit, financial its chairman. The directors estate and insurance firm. He director of SDG&E since 1983.

statements, audit results, scope of provide a broad perspective is chairman and a director of Committee memberships:

internal audit procedures and the because of their diverse busi-Burnham Pacific Properties, chairman of the Finance auditors' evaluation of internal ness, professional and civic Inc. He is chairman of the Committee and a member of controls.

backgrounds.

board and a director of First the Audit Committee.

Executive This committee is National Corp. of San Diego empowered to act in place of the full Thomas A. Page*

and a director of Pacific board, except in certain transactions Mr. Page has been chairman Diversified Capital Company for various board responsibilities that and chief executive officer of and Wahlco Environmental Mr. Stalder is a private are reserved for the board.

the company since February Systems, Inc. Mr. Burnham investor. He formerly was 1983. mpage is tebchar-is president of the America's president, chairman of the Executive Compensation This man and a ie ofabot Cup Organizing Committee, board and chief executive committee reviews the salaries and Pacific Diversified Capital the non-profit corporation officer of Central Federal other forms of compensation of Company and Wahlco that conducts and manages Savings and Loan Association.

company oficers and makes CopnyadWalothe nation's participation in He is 71 years old and has compensation recommendations Environmental Systems, Inc.

the international yachting been a director of SDG&E to the board.

He is 58 years old and has competition. He is 64 years since 1969. Committee Finance This committee counsels been a director of SDG&E old and has been a director of memberships: Audit, Execu-management, helps plan the since 1979. Committee memberships: Chairmno SDG&E since 1967. Commit-tive Compensation ad company's capital requirements, themExecutive: coaimitand tee memberships: chairman Nominating committees.

proposed financing programs and theof the Audit Committee and capital risk exposure analyses, and a member of the Nominating a member of the Executive reviews the general investment policy Committee.

Committee.

Catherine Fitzgerald Wiggs performance for the Pension Plan and Ms. Wiggs is vice president, the Savings Plan.

Clair W. Burgener human resources develop-Nominating This committee Danie W.ge haerbeen ment and a member of the considers and recommends nominees Mr. Burgener has been M.D president of Burgener Proper-eres is president of Management Executive to the board, criteria for board and ties, Inc., a real estate and Signal Ventures. From Novem-Committee of the Security Life committee composition and property development firm, ber 1985 until December 31, of Denver, a wholly owned membership.

since January 1958. He is a 1988, he was president of subsidiary of Nationale-Neder former member of Congress, Allied-Signal International, landen N. V. She formerly was U.S. House of Representatives, Inc. and executive vice executive vice president, 43rd District (California),

president of Allied-Signal, human resources, and 43rdInc.,

a multi-national ad-member of the management 1973-1982. Mr. Burgener is a vanced technologies com-executive committee of The director of San Diego Trust pany. He is a director of Oak Broadway Stores, Inc Divi and Savings Bank, TCS Enterprises, and Blue Shield Industries, Inc., of WD-40 Co.

sion of Carter Hawley Hale ofECalifria He Seo and of Pacific Diversified Stores, Inc., a retail depart the California State Personnel Capital Company and Wahlco ment store chain. She Board,thoa of Mane Environmental Systems, Inc.

is 58 years old and has been a Boadth Bar o Mnae-He is 61 years old and has director of SDG&E since 1979.

ment Analysis Co. and the been a director of SDG&E Committee memberships:

Board of Regents of the University of California. He since 193 cCm ie chaiom an o Eete is 70 years old and has been a membershi Eectv and Co mpesto Commit director of SDG&E since Fommittee 1983. Committee member ships: chairman of the "Member of the Executive Committee Nominating Committee and a member of the Finance and the Executive Compensation committees.

46 0)i~l)0(ah;

(

SAN DIEGO GAS & ELECTRIC SHAREHOLDER SERVICES OFFICE STOCK TRANSFER AGENT AND REGISTRAR San Diego Gas & Electric The company's transfer agent and not the company has Office of the Secretary the primary responsibility for stock transfers and the cancella Post Office Box 1831 tion and issuance of stock certificates. First Interstate Bank is San Diego, CA 92112-4150 the Transfer Agent and Registrar for the common, preferred 0000and preference stocks. You can contact the agent directly.

WHERE TO CALL FOR INFORMATION Mailing Address:

Shareholders may call every business day, between First Interstate Bank, Ltd.

8:00 a.m. and 4:45 p.m. (Pacific time), to inquire about Stock Transfer Department stock holdings:

Post Office Box 54261 Within California:

1 (800) 826-5942 Los Angeles, CA 90054 Outside California:

1 (800) 243-5454 1 (800) 522-6645 To hear a tape recorded corporate news report First Interstate Bank, Ltd.

and stock update:

120 Broadway, 33rd Floor Within California:

1 (800) 443-SDGE New York, NY 10271 Outside California:

1 (800) 521-NEWS Common Stock Investment Plan Agent:

Inquiries from the financial community should First Interstate Bank, Ltd.

be directed to:

Dividend Reinvestment Service Lisa Ewbank:

(619) 696-2901 Post Office Box 60975 To call SDG&E Headquarters: (619) 696-2000 Los Angeles, CA 90060 (same mailing address as above) 1 (800) 522-6645 00 00 0

0000 0

000000 00000 0

00 0000000 SHAREHOLDER HANDBOOK ANNUAL MEETING SDG&E has prepared a helpful shareholder's handbook The annual meeting of shareholders will be held on providing information on the company's shareholder services, Tuesday, April 28 at 11 a.m. at the San Diego Convention stock certificates and stock transfer systems. Copies are Centr, Sn DegoCaliorna 9201.available from the Shareholder Services office.

theer Trasfe Agent, andfoni Reitrrfo1hecmmn1peere Therecorddatefor shareholders eligibletovoteatthe 0 0 0 0 0 00000000000000000000000000 annual meeting is March 2, 1992.

STOCK LISTING AND TRADING INFORMATION Common stock: Listed on the New York and Pacific stock exchanges under the ticker symbol SDO. Shareholders can find the previous day's closing price in the New York Stock Exchange listing table of daily newspapers under the Fsymbol SDieGs or SanDieGE.

Preferred and Preference Stocks: Listed on the Ameri can and Pacific stock exchanges under the ticker symbol SDO.

Previous day closing prices are listed in the American Stock Exchange listing table under the symbol SDGO. The 4.60%

preferred series and the $7.05, $8.25 and $9.125 preference series are not listed.

1991 ANNUAL REPORT 47 Where to Buy and Sell Stock: You can purchase the 0000000000000000000000000000000 listed common, preferred and preference stocks through any MULTIPLE DIVIDEND CHECKS AND brokerage firm. Some firms specialize in selling the unlisted DUPLICATE MAILINGS series, and they can be located through your broker.

Some shareholders hold their stock on our records in Stock Held in Brokerage Accounts ("street name"):

similar but different names (e.g. Robert A. Johnson and R. A.

When you purchase your stock and it is held for you by your Johnson). When this occurs, the law requires that we create a broker, it is listed with the Company in the broker's name, or separate account for each name. Even though the mailing "street name." SDG&E does not know the identity of indi-addresses are the same, we are required to mail separate vidual shareholders who hold their shares in this manner -

dividend checks and annual and interim reports to each we simply know that a broker holds a certain number of account.

shares which may be for any number of customers.

How to Consolidate Accounts: If you want to consoli If you hold your stock in street name, you are not date your separate accounts into one account, you should eligible to participate in SDG&E's Common Stock Investment contact the Shareholder Services office to obtain the necessary Plan. Also, you receive all dividend payments, annual and forms and instructions. When accounts are consolidated, it quarterly reports, and proxy materials through your broker.

may be necessary to reissue the stock certificates.

Therefore, if you are receiving unwanted duplicate mailings, How to Eliminate Duplicate Mailings: If you want to you should contact your broker, not SDG&E, to eliminate the maintain more than one account but eliminate additional duplications.

mailings of quarterly reports, you may do so by sending the Lost or Stolen Certificates: If your stock certificate has labels (or a copy of the labels) from a Company mailing to the been lost, stolen or in some way destroyed, you should notify Shareholder Services office, indicating the names you wish to the Shareholder Services office in writing immediately.

keep on the mailing list for quarterly reports and the names How to Transfer Stock: A transfer of stock is required you wish to delete. This will affect only these mailings; whenever there is a change in the name or names in which dividend checks, annual reports and proxy materials will the stock certificate is registered. This can happen when you continue to be sent to each account.

sell the stock, make a gift of stock, or add or delete owners of 0 000000000000000000 0

0 0 0 0 0 0 0

0 0 0 0 the certificate. The transfer can be made by filling in the stock REPLACEMENT OF DIVIDEND CHECKS assignment form on the back of the stock certificate and If you do not receive your dividend check within seven signing it exactly as the name or names appear on the front of business days after the payment date, or if a check is lost or the certificate. The signatures of the individuals transferring destroyed, you should notify the Shareholder Services office so the stock must be guaranteed by either a commercial bank that payment may be stopped on the check and a replacement (not a savings and loan association) or a brokerage firm that is issued.

a member of a major stock exchange. A notary's acknowledg ment is not acceptable. The certificate can then be sent to the COMMON STOCK INVESTMENT PLAN transfer agent for transfer. It is recommended that certificates Please call or write the Shareholder Services office for a be sent registered or certified mail.

prospectus on how SDG&E common stock shareholders can 0000000000000000000000000000000 purchase additional shares by investing all or a portion of DIVIDEND POLICY their quarterly dividends in additional shares. The plan also The board of directors recognizes the need to provide allows optional cash investments of as little as $25 per invest attractive dividend growth for shareholders. One of the ment up to a maximum of $5,000 per calendar quarter. Shares purposes of our corporate goal of increasing earnings per share purchased under this plan are free of any brokerage fees.

is to also allow healthy dividend growth at or above the industry average. The board reviews the dividend on at least an annual basis, which typically occurs prior to the annual meeting in April.

48 SAN DIEGO GAS & ELECTRIC SHAREHOLDER PROFILE

(

As of December 31, 1991, there were 61,581 common D

m 3

stock shareholders of record and 4,530 preferred and prefer ence stock shareholders. There are thousands of other stock holders whose shares are held in street name by securities I

brokers and nominees.

li Common Stock Shareholders 10 By account registration:

Joint accounts 18,492 Women 17,534 Men 12,851 Fiduciaries 11,938 Securities brokers, nominees, others 766 By geographic area:

United States, except California 31,700 California, except SDG&E service area 18,780 SDG&E service area, including employees 10,973 Foreign countries 128 By shares owned:

1-99 13,536 100-300 29,139 301-500 8,148 CMO S

P 501-1000 6,557 1001 or more 4,201 40 PUBLICATIONS AVAILABLE TO SHAREHOLDERS Annual Report: Inquiries about this annual report should be directed to Tom Murnane, Corporate Commu-nications, Post Office.Box 1831, San Diego, California YA

19.

19 92112-4150.

Investors Report: Reports of current activities, recent 0000000000000000000000000000000 results and features of interest to shareholders are issued PROPOSED COMMON STOCK SPLIT periodically during the year.

On February 24, 1992, the board of directors proposed Form 10-K: The annual report to the Securities and that common stock be split two for one, subject to approval Exchange Commission.

by the California Public Utilities Commission and by share Shareholder Handbook: (See page 46.)

holders at the April 28 annual meeting. The board believes the split will make SDG&E's stock attractive to a greater number of individual investors.

1991 ANNUAL REPORT 49 GLOSSARY Fusion: Fusion is the process Peak (or on-peak), Off-Peak:

(of terms used at SDG&E) that occurs when hydrogen atoms A peak (or on-peak) time occurs S

fuse to make helium, similar to the when overall customer demand for Capacity: The maximum energy natural process that the sun uses to electricity or natural gas is at or near output of an electric or natural gas produce energy. An international the system's highest capacity.

system, or of an electric or a natural project to study fusion energy will be on the electric system, peak (or on gas facility. For electrical generating based in San Diego. See page 17.

peak) times occur during afternoons facilities, capacity is expressed in megawatts. See "megawatt" below.

Geothermal Energy: The process of using natural steam or hot water afternoons and early evenings in Demand Side Management from below the earth's surface in winter months. On the gas system, (DSM): This term refers to efforts combination with steam turbine peak times occur during winter aimed at helping customers to generators to produce electricity, mornings.

conserve electricity and natural gas SDG&E plans to develop geothermal off-peak refers to times when overall energy, to use energy more energy to meet about 6 percent of customer demand for energy is efficiently, or to shift energy use new generating capacity needs lowest, and the electric or gas system away from "on-peak" times. See between now and the year 2000.

is far from reaching maximum "peak." For details on SDG&E's DSM See page 7.

capacity. For electrical use, off-peak programs, see pages 7-9 and 11.

Also see pages 8 to 10 for informa-Kilowatt: A measure of electric es oring ateeens tion on DSM projects carried out at a power equal to one thousand watts.

ear monings and o

ds.iFo biotechnology firm and at a new See "watt" below, suse, o ti o

n university campus.

Kilowatt-hour: The use of one Desalting (or desalination):

thousand watts for one hour.

aepowaaitg th proess o The process of separating fresh water Kilowatt-hour is the most common ang capaciy tom esipoer from a saline water source such as measure of how much electricity a pat bywr oe equip the ocean, a bay or brackish customer uses. In SDG&E's service wit n eweroe ffiiente groundwater. In the desalting pro-territory, the typical home uses 400 cess, part of the water is recovered as kilowatt-hours per month.

gaslties to eisting owe fresh water. The dissolved impurities Megawatt: A measure of electric capacity needs. For more details, see are concentrated in a brine that is power capacity equal to one pages 6 and 7. See "turbine" below.

discharged from the desalting thousand kilowatts. In SOG&E's system. SDG&E and the San Diego service area, one megawatt is County Water Authority are enough capacity to meet the needs considering a joint project that would of 1,000 typical households. See Units (Btu), or the amount of heat combine a repowering project at an "capacity" above.

existing SDG&E power plant with a 100 cubic feet of natural gas. In clealtng aclit. Se pge 6 nd 2.

Natural Gas: A naturally occurring SDG&E's service area, the typical desalting facility. See pages 6 and 12.

mitrofsplhyocbn See repwerig."mixure f smpl hydocabonhousehold uses 40 therms of natural Seecompounds, primarily methane.

gas per month.

Electric and Magnetic Fields Natural gas is usually found in deep (EMF): Invisible lines of force that underground reservoirs, either by surround anything that conducts itself or in combination with crude high-pressure steam to mechanical electricity, including power lines and oil. There are no natural gas exhaust gas tormecn

ergy, common electrical appliances such as resources within SDG&E's territory, ust gas o oil s erfel hair dryers, electric clocks and TV and the utility purchases natural gas Mechaical gy froit tpe sets. SDG&E established an EMF supplies from throughout the information center in 1991. See Southwesterh U.S. and from Canada.

of turbine is then used to turn Sgenerators to produce electricity. See apage 6 for information on SDG&E's Natural Gas Vehicles (or proposal to install new turbines at an NGVs): Vehicles that use com-existing power plant to increase pressed natural gas as a fuel. See power output.

pages 13 and 15 for details on SDG&E's efforts to encourage the use Watt: A basic unit of electric power.

of natural gas for vehicle fuel.

One horsepower equals 746 watts.

Annual Report production ittformation Copy: Tom Murnae Editiog: Palin e McKnight Desig: Tom Gould Design Printed on recycled paper Photog raphy: Chief photographers:

Rich la1alle and Steve Simpson Additional photography:

lim Coit ano Pocky Thies Cover photo: Cadillac Cop, a limited editin photo shot hy Sally Samios.

it is available at Dennis Conner Gallery, located at the Stars And Stripes ease Camp. 505 W. Harbor Drive, Sao Diego. Califotnia g2101. Contact Roth Gallegos at (619f 239-7234.

Photo on page 5 from Geopic'" Eash Satellite Corporation.

Photo oo page 17 coertesy of Genetal Atomics Cotpotation6 Printing:

gaeaic Atts Centet

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