SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Date of Report
(Date of earliest event reported): April 30, 2002
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SEMPRA ENERGY
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(Exact name of registrant as specified in its charter)
CALIFORNIA 1-14201 33-0732627
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(State of incorporation (Commission (I.R.S. Employer
or organization) File Number) Identification No.
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 696-2034
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(Former name or former address, if changed since last report.)
ITEM 5. OTHER EVENTS
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Equity Units Offering
On April 30, 2002, Sempra Energy closed the sale of its publicly traded
equity units that include a senior debt security with a term of five years and
an equity purchase contract that obligates the holder to purchase, and obligates
Sempra Energy to sell, a number of shares of Sempra Energy common stock based on
an agreed upon rate on May 17, 2005.
In the Prospectus Supplement, dated April 24, 2002, filed with respect to the
equity units, Sempra Energy reported the following recent developments:
Recently Announced Results of Operations for First Quarter of Fiscal 2002
On April 23, 2002, Sempra Energy reported unaudited earnings for the quarter
ended March 31, 2002 of $146 million, or $0.71 per diluted share. Sempra
Energy's unaudited earnings for the quarter ended March 31, 2001 were $178
million, or $0.88 per diluted share, which included a one-time gain of $0.10 per
diluted share for the sale of Sempra Energy's interest in Energy America, a
retail energy marketing firm.
California Department of Water Resources Contract Dispute
Sempra Energy Resources ("SER") has an agreement with the California
Department of Water Resources ("CDWR") to supply the CDWR with up to 1,900
megawatts of electricity over a ten-year period ending in September 2011. As
previously reported, the California Public Utilities Commission and the
California Electricity Oversight Board have filed complaints with the Federal
Energy Regulatory Commission ("FERC") alleging that the agreement, as well as
other agreements entered into by the CDWR with other electricity suppliers, do
not provide just and reasonable rates, and seeking to abrogate or reform the
agreements. On April 24, 2002, the FERC ordered hearings on the complaints. The
order requires the complainants to satisfy a "heavy" burden of proof to support
a revision of the contracts, and cited the FERC's long-standing policy to
recognize the sanctity of contracts from which it has deviated only in "extreme
circumstances." A date for the hearing has not been set pending the completion
of settlement judge proceedings but the FERC order announced that it expects to
issue a final decision by May 2003.
In addition, the CDWR has recently asserted that SER has materially
defaulted in its obligations under the agreement by failing to use commercially
reasonable efforts to achieve simple cycle operation at SER's Elk Hills power
project. SER is continuing to construct the Elk Hills project for combined
cycle operations as well as other power projects sufficient to provide the
electricity to be delivered under the agreement. However, Sempra Energy believes
that the agreement permits SER to fulfill its delivery obligations through
market sources rather than SER owned or operated power plants and, accordingly,
that the CDWR assertions are without merit.
Argentina
Sempra Energy International ("SEI") has a $350 million investment in
Argentina through its ownership of approximately 40% of two natural gas
operating utilities. As a result of the continuing decline in the value of the
Argentine peso, SEI recorded a $94 million currency adjustment reduction to
shareholders' equity for these investments during the first quarter of 2002. A
similar $155 million reduction in shareholders' equity was recorded during the
fourth quarter of 2001. These non-cash adjustments did not affect net income,
but did reduce comprehensive income and increase accumulated other comprehensive
loss.
The related Argentine economic decline and government responses (including
Argentina's recent unilateral, retroactive abrogation of utility agreements) are
continuing to adversely affect the operations of SEI's two Argentine utilities.
SEI has notified the Argentine government that SEI intends to file under the
1994 Bilateral Investment Treaty between the United States and Argentina for
recovery of the diminution of the value of SEI's investments resulting from the
government actions. If it were to become probable that SEI would not recover at
least the difference between SEI's pre-currency-adjustment carrying value of
these investments over their diminished value, SEI would at that time record a
charge against net income equal to the shortfall. However, the effect on
shareholders' equity of any such charge would be reduced or eliminated to the
extent of previously recorded currency adjustments relating to Sempra Energy's
Argentine investments.
Credit Rating Changes
In April 2002, Fitch, Inc. confirmed its prior ratings of Sempra Energy's
senior unsecured debt at A with a stable outlook as well as confirming its
prior ratings of Sempra Energy's other debt and that of its subsidiaries;
Standard & Poor's reduced its ratings of Sempra Energy's senior unsecured debt
from A with a negative outlook to A- with a stable outlook, and made
corresponding adjustments in the ratings and outlook of Sempra Energy's other
debt and that of its subsidiaries; and Moody's Investors Service, Inc., which
currently rates Sempra Energy's senior unsecured debt at A-2 with a negative
outlook, confirmed its prior ratings of the debt of Southern California Gas
Company and the short-term debt and variable rate demand bonds of San Diego Gas
& Electric Company, but placed its ratings of the debt of Sempra Energy and the
other debt of Sempra Energy's subsidiaries under review for possible downgrade.
CPUC Investigation
As previously disclosed, the California Public Utilities Commission ("CPUC")
has initiated an investigation into the relationship between California's
investor owned utilities and their parent holding companies. Among the matters
to be considered in the investigation are utility dividend policies and
practices and obligations of the holding companies to provide financial support
for utility operations under the agreements with the CPUC permitting the
formation of the holding companies. On January 11, 2002, the CPUC issued a
decision to clarify under what circumstances, if any, a holding company would
be required to provide financial support to its utility subsidiaries. The CPUC
broadly determined that it would require the holding company to provide cash to
a utility subsidiary to cover its operating expenses and working capital to the
extent they are not adequately funded through retail rates. This would be in
addition to the requirement of holding companies to cover their utility
subsidiaries' capital requirements, as the utilities had previously
acknowledged in connection with the holding companies' formations. On January
14, 2002, the CPUC ruled on jurisdictional issues, deciding that the CPUC had
jurisdiction to create the holding company system and, therefore, retains
jurisdiction to enforce conditions to which the holding companies had agreed.
Sempra Energy has requested a rehearing on the issues and is unable to predict
the outcome of that request or any possible rehearing, or what effects the
CPUC's investigation, the CPUC's asserted jurisdiction over holding companies or
other actions by the CPUC may have on Sempra Energy or Sempra Energy's
securities, including the Equity Units.
Acquisitions
On February 4, 2002, Sempra Energy Trading announced that it had completed
its acquisition of Enron Metals Limited, a metals trader on the London Metals
Exchange, for approximately $145 million in cash. The company has been renamed
Sempra Metals Limited.
On March 18, 2002, Sempra Energy Trading announced an agreement to buy
Enron's New York-based metals-concentrates trading business for $43.5 million
in cash. The purchase is subject to approval by the U.S. Bankruptcy Court. On
April 2, 2002, Sempra Energy Trading announced an agreement to buy Henry Bath
Ltd., Enron's U.K.-based metals-storage business, for $24 million.
Sempra Energy believes these acquisitions will enable it to leverage its
existing trading skills to different commodities and help to mitigate volatility
by diversifying its trading portfolio.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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The following exhibits are filed with reference to the Registration
Statement of Form S-3 (File No. 333-70640) of Sempra Energy
EXHIBIT
NUMBER DESCRIPTION
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1.1 Purchase Agreement, dated April 24, 2002, between Sempra Energy and
the several underwriters named therein.
1.2 Pricing Agreement, dated April 24, 2002, between Sempra Energy and the
several underwriters named therein.
4.1 First Supplemental Indenture, dated as of April 30, 2002, between
Sempra Energy and U.S. Bank Trust National Association, as Trustee.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Purchase Contract Agreement, dated as of April 30, 2002, between
Sempra Energy and U.S. Bank Trust National Association, as Purchase
Contract Agent.
4.4 Form of Income Equity Units (included in Exhibit 4.3).
4.6 Form of Growth Equity Units (included in Exhibit 4.3).
4.7 Pledge Agreement, dated as of April 30, 2002, among Sempra Energy, U.S.
Bank Trust National Association, as Purchase Contract Agent, and U.S.
Bank Trust National Association, as Collateral Agent.
4.8 Form of Remarketing Agreement (included in Exhibit 4.3).
8.1 Tax Opinion of Latham & Watkins.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMPRA ENERGY
Date: April 30, 2002
By: /s/ Frank H. Ault
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Name: Frank H. Ault
Title: Senior Vice President and Controller
EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
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1.1 Purchase Agreement, dated April 24, 2002, between Sempra Energy and the
several underwriters named therein.
1.2 Pricing Agreement, dated April 24, 2002, between Sempra Energy and the
several underwriters named therein.
4.1 First Supplemental Indenture, dated as of April 30, 2002, between
Sempra Energy and U.S. Bank Trust National Association, as Trustee.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Purchase Contract Agreement, dated as of April 30, 2002, between
Sempra Energy and U.S. Bank Trust National Association, as Purchase
Contract Agent.
4.4 Form of Income Equity Units (included in Exhibit 4.3).
4.6 Form of Growth Equity Units (included in Exhibit 4.3).
4.7 Pledge Agreement, dated as of April 30, 2002, among Sempra Energy, U.S.
Bank Trust National Association, as Purchase Contract Agent, and U.S.
Bank Trust National Association, as Collateral Agent.
4.8 Form of Remarketing Agreement (included in Exhibit 4.3).
8.1 Tax Opinion of Latham & Watkins.