Focused on Core Strengths and Values
The past year has been a challenging one in the financial and commodity markets for our industry. Share prices in the energy and utility sectors fell with lower natural gas and oil prices, and the prospect of higher interest rates.
Additionally, in late October, a natural gas leak was discovered at the SoCalGas Aliso Canyon natural gas storage facility outside Los Angeles. SoCalGas successfully stopped the leak in February 2016 and continues to work with regulators, public officials and the local community to mitigate the impacts. We recognize the disruption the leak caused to the community surrounding the Aliso Canyon facility. SoCalGas has been committed to helping local residents return to their normal lives as quickly as possible and supports forward-looking regulations to help ensure the safety of natural gas storage operations in the future.
Despite these challenges, we are executing successfully on our five-year performance plan. On an annual basis, we review our growth strategy with our board of directors. Under our five-year plan, within our three primary growth platforms — U.S. utilities, international utilities and long-term, contracted energy infrastructure (including liquefied natural gas [LNG], pipelines and renewable energy) — we already have identified and contracted for projects that should yield compound annual earnings growth about twice the utility industry average. Beyond five years, we also have an abundance of opportunities, with potential expansion of our LNG facilities, new natural gas and electric transmission in Mexico and South America, and organic growth in our U.S. and international utilities.
Our strategy of growing our utilities and long-term-contracted infrastructure businesses allows us to weather cycles and still produce strong financial results. In 2015, our adjusted earnings of $1.3 billion, or $5.21 per diluted share ($1.35 billion, or $5.37 per diluted share, on a GAAP basis), exceeded our earnings guidance. We also raised our 2016 dividend by 8 percent. We were able to do this because we have high visibility and confidence in our future earnings streams and cash flows.
Our strategy of growing our utilities and long-term-contracted infrastructure businesses allows us to weather cycles and still produce strong financial results.
Over the past five years, we have delivered a total shareholder return of 110 percent, putting us in the top echelon of our industry. This compares with a total shareholder return during the same period for the Standard & Poor’s 500 Utilities Index of 69 percent and, for the Standard & Poor’s 500 Index, 81 percent. Additionally, since 2010, we have nearly doubled the size of our dividend.
I believe strongly that our success is sustainable in the long term, by focusing on these four activities:
- Keeping safety a top priority throughout our operations;
- Maintaining reliable, excellent customer service;
- Executing on a sound growth strategy; and
- Living our core values with high ethical standards and a commitment to corporate responsibility.
These are our organizational strengths and continue to be our focus as we move forward.
In 2015, SDG&E and SoCalGas filed with the California Public Utilities Commission (CPUC) a multi-party settlement in their General Rate Cases for the years 2016-18. We expect the CPUC to issue a final decision in the second quarter of 2016.
SDG&E and SoCalGas plan to spend $12 billion over the next five years to reinforce their natural gas and electric infrastructure, enhance system safety and reliability, and support California’s ambitious environmental policies.
Additionally, SDG&E is promoting equitable rate reform. During the state’s energy crisis in 2000-01, California legislators froze rates for certain residential customers. This created significant cost-shifting among customer classes over the years where SDG&E customers in the higher rate tiers have been subsidizing customers in the lower tiers by more than $300 million annually. In July, the CPUC approved a five-year transition plan to a new electric rate structure that will reduce the number of rate tiers in half by the end of 2016 and create more equitable rates among customers. In January 2016, the CPUC also issued a ruling revising rates for rooftop solar customers. Currently, only 5 percent of SDG&E’s customers have rooftop solar systems and they are being subsidized by SDG&E’s other customers.
In 2015, SDG&E became the first major California utility to procure 33 percent of its power needs from renewable energy resources — five years ahead of the state deadline. California Gov. Brown signed Senate Bill 350 into law in October, expanding California’s renewable energy mandate to 50 percent by 2030.
Nationwide, 29 states now have adopted renewable portfolio standards, creating a $36 billion market for wind, solar and other clean energy sources. Sempra U.S. Gas & Power continues to expand its portfolio of renewable assets. Sempra U.S. Gas & Power and its joint-venture partners now have more than 2,000 megawatts (MW) of solar and wind power in operation or under construction in 10 states. In 2015, Sempra U.S. Gas & Power entered into long-term power-purchase contracts with customers to develop two more expansion phases — totaling 250 MW — of the company’s Mesquite Solar complex in Arizona. Additionally, last year, Sempra U.S. Gas & Power acquired a 78-MW wind farm under development in Minnesota.
Our largest capital project is the Cameron LNG liquefaction-export facility in Louisiana. We and our Cameron LNG joint-venture partners are developing a facility that can process up to 1.7 billion cubic feet per day of natural gas for export to international markets, primarily Japan. The facility is contracted for 20 years. We expect earnings of $300 million to $350 million in 2019, the first full year of operations. Also, depending on market interest, we have the opportunity to expand the facility and already are in the process of obtaining the necessary regulatory permits.
While the market for LNG is sufficiently supplied in the short term, we believe additional supplies will be needed after 2020. LNG liquefaction-export projects on the U.S. Gulf Coast are among the most cost-competitive in the world. In addition to increasing liquefaction capacity at Cameron LNG, we have the opportunity to develop another liquefaction-export facility on the Gulf Coast at Port Arthur, Texas, where we currently own an ideal site on a major shipping channel. We have initiated the federal regulatory review process and, in February 2016, announced a joint-development agreement with an affiliate of Woodside Petroleum Ltd. for the proposed Port Arthur project. We have a similar agreement in place with PEMEX, Mexico’s state-owned oil company, to explore developing liquefaction facilities at our Energía Costa Azul LNG terminal in Baja California, Mexico. Energía Costa Azul currently is fully contracted as an import facility through 2028.
We also have other exciting growth opportunities internationally, especially in Mexico, where the federal government has opened its energy markets to privatization. IEnova, our Mexican subsidiary, already has secured seven pipeline projects. These pipelines are fully contracted for 20 to 25 years and have potential for expansion to provide future growth opportunities. Along with new pipelines, IEnova may bid on electric transmission projects that are expected to be tendered in 2016. Additionally, in June, IEnova and its joint-venture partner completed the initial 155-MW phase of the Energía Sierra Juárez wind facility in Baja California. The facility is producing clean energy for SDG&E under a 20-year power-purchase agreement.
The key to our future growth continues to be the disciplined execution of our strategy. We have built a deep, talented management team that spends considerable time charting the best path forward to create long-term value for our shareholders, while prudently managing our risks. We also have a board of directors with diverse expertise that actively reviews our strategy and monitors our execution of the strategy, challenging us to proactively consider opportunities and risks.
I believe the value proposition we offer investors remains unique: robust growth with a risk profile that is commensurate with that of the utility industry.
On behalf of our 17,000 employees, I want to thank you for continuing to invest in Sempra Energy. We are committed to profitable and sustainable growth and adhering to the values we believe are the cornerstone of our success.Download Letter
Sempra Energy Companies
Sempra Energy®, based in San Diego, is a Fortune 500 energy services holding company with 2015 revenues of more than $10 billion. The Sempra Energy companies’ 17,000 employees serve more than 32 million consumers worldwide.
Southern California Gas Company
Southern California Gas Co. (SoCalGas) has been delivering clean, safe and reliable natural gas to its customers for more than 145 years. It is the nation’s largest natural gas distribution utility, providing service to 21.6 million consumers connected through 5.9 million meters in more than 500 California communities. The company’s service territory encompasses approximately 20,000 square miles from Visalia to the Mexican border.Learn More
Sempra U.S. Gas & Power
Sempra U.S. Gas & Power is a leading developer of renewable energy and natural gas solutions, with a focus on zero- and low-emission fuels. Together with its affiliates and joint-venture partners, the company owns, operates and has under construction more than 2,000 megawatts of solar and wind capacity. These facilities collectively generate enough power for nearly 600,000 homes annually. Sempra U.S. Gas & Power companies also operate natural gas storage facilities, pipelines and distribution utilities.Learn More
San Diego Gas & Electric
Founded in 1881, San Diego Gas & Electric (SDG&E) is a regulated public utility that provides safe and reliable energy service to 3.6 million consumers through 1.4 million electric meters and 873,000 natural gas meters in San Diego and southern Orange counties. The utility’s service area spans 4,100 square miles.Learn More
Sempra International develops, owns and operates energy infrastructure assets, and distributes energy in Latin America. In Mexico, the company owns a controlling interest in IEnova, the first energy firm to be listed on the Mexican stock exchange and one of the largest private energy companies in the country. Sempra International also operates electric utilities in Chile and Peru.Learn More
From 2016 through 2020, Sempra Energy expects compound annual earnings growth about twice the utility industry average.
In 2015, Sempra Energy’s charitable contributions totaled $18.9 million and employees volunteered more than 15,000 hours in their communities.
World's Most Admired Companiesin 2015 by Fortune magazine.
94%increase in Sempra Energy’s dividend since 2010
Over 2,000 megawattsof wind and solar energy in solo and
110%total shareholder return 2011-2015
Safety & Reliability
Over the next five years, SDG&E and SoCalGas are expected to invest about $12 billion in reinforcing infrastructure and enhancing system safety and reliability.
Sempra Energy is an ethical, respectful, high-performing, forward-looking, responsible partner.
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News and Information
Sempra Energy’s Annual Report on Form 10-K filed with the Securities and Exchange Commission is available to shareholders at no charge by writing to Shareholder Services. This information, as well as our corporate governance guidelines, code of ethics and standing board committee charters, is also available on the company’s website at Sempra.com.
Security analysts, portfolio managers and other members of the financial community should contact: Kendall Helm Director – Investor Relations Telephone: 619-696-2901 Fax: 619-696-1868
Stock Exchange Listings
Sempra Energy Common Stock: Ticker Symbol: SRE New York Stock Exchange
Direct Common Stock Investment Plan
Sempra Energy offers a Direct Common Stock Investment Plan as a simple, convenient and affordable way to invest in the company. Cash dividends from a participant’s account can be reinvested automatically in full or in part (but not less than 10% of each dividend) to purchase additional shares, or participants may choose to receive all or a portion of their cash dividends electronically or by check. Participation in the Plan requires an initial investment of as little as $500. The Plan allows additional cash investments of as little as $25 up to a maximum of $150,000 per calendar year. Brokerage commissions incurred in the purchase of shares will be paid by Sempra Energy. The Plan is offered only by the means of a prospectus, which can be obtained by calling the Plan Administrator, American Stock Transfer & Trust Company, LLC, at 877-773-6772, or through the Internet at Amstock.com.
Sempra Energy’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, which includes as exhibits the certifications filed by Sempra Energy’s chief executive officer and chief financial officer under the Sarbanes-Oxley Act of 2002, is available to shareholders at no charge by writing to the company’s Shareholder Services Department.
Information Regarding Forward-Looking Statements
We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of our 2015 Annual Report on Form 10-K. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
In this report, when we use words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “contemplates,” “intends,” “assumes,” “depends,” “should,” “could,” “would,” “will,” “confident,” “may,” “potential,” “possible,” “proposed,” “target,” “pursue,” “goals,” “outlook,” “maintain,” or similar expressions, or when we discuss our guidance, strategy, plans, goals, opportunities, projections, initiatives, objectives or intentions, we are making forward-looking statements.
Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include local, regional, national and international economic, competitive, political, legislative, legal and regulatory conditions, decisions and developments; actions and the timing of actions, including general rate case decisions, new regulations, issuances of permits to construct, operate, and maintain facilities and equipment and to use land, franchise agreements and licenses for operation, by the California Public Utilities Commission, California State Legislature, U.S. Department of Energy, California Division of Oil, Gas, and Geothermal Resources, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, California Energy Commission, U.S. Environmental Protection Agency, Pipeline and Hazardous Materials Safety Administration, California Air Resources Board, South Coast Air Quality Management District, Mexican Competition Commission, cities and counties, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate; the timing and success of business development efforts and construction, maintenance and capital projects, including risks in obtaining, maintaining or extending permits, licenses, certificates and other authorizations on a timely basis and risks in obtaining adequate and competitive financing for such projects; deviations from regulatory precedent or practice that result in a reallocation of benefits or burdens among shareholders and ratepayers, and delays in regulatory agency authorization to recover costs in rates from customers; the availability of electric power, natural gas and liquefied natural gas, and natural gas pipeline and storage capacity, including disruptions caused by failures in the North American transmission grid, moratoriums on the ability to withdraw natural gas from or inject natural gas into storage facilities, pipeline explosions and equipment failures; energy markets; the timing and extent of changes and volatility in commodity prices; the impact on the value of our natural gas storage assets from low natural gas prices, low volatility of natural gas prices and the inability to procure favorable long-term contracts for natural gas storage services; the resolution of civil and criminal litigation and regulatory investigations; risks posed by decisions and actions of third parties who control the operations of investments in which we do not have a controlling interest, and risks that our partners or counterparties will be unable or unwilling to fulfill their contractual commitments; capital markets conditions, including the availability of credit and the liquidity of our investments, and inflation, interest and currency exchange rates; cybersecurity threats to the energy grid, natural gas storage and pipeline infrastructure, the information and systems used to operate our businesses and the confidentiality of our proprietary information and the personal information of our customers and employees; terrorist attacks that threaten system operations and critical infrastructure; wars; the ability to win competitively bid infrastructure projects against a number of strong competitors willing to aggressively bid for these projects; weather conditions, natural disasters, catastrophic accidents, equipment failures and other events that may disrupt our operations, damage our facilities and systems, cause the release of greenhouse gases, radioactive materials and harmful emissions, and subject us to third-party liability for property damage or personal injuries, some of which may not be covered by insurance; disallowance of regulatory assets associated with, or decommissioning costs of, the San Onofre Nuclear Generating Station facility due to increased regulatory oversight, including motions to modify settlements; expropriation of assets by foreign governments and title and other property disputes; the impact on reliability of San Diego Gas & Electric Company’s (SDG&E) electric transmission and distribution system due to increased amount and variability of power supply from renewable energy sources and increased reliance on natural gas and natural gas transmission systems; the impact on competitive customer rates of the growth in distributed and local power generation and the corresponding decrease in demand for power delivered through SDG&E’s electric transmission and distribution system; the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements due to insufficient market interest, unattractive pricing or other factors; and other uncertainties, all of which are difficult to predict and many of which are beyond our control.
We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and other reports that we file with the Securities and Exchange Commission.