8-KOther Events

SEMPRA 8-K Report (Jun 19, 2001)

Filed June 19, 2001For Securities:SRESREA

Summary

This 8-K filing from Sempra Energy (SRE) on June 18, 2001, details a significant Memorandum of Understanding (MOU) entered into by Sempra and its subsidiary San Diego Gas & Electric Company (SDG&E) with the California Department of Water Resources (CDWR). The primary objective of the MOU is to resolve numerous issues stemming from the California energy crisis that have impacted SDG&E and its customers. Key to this agreement is the proposed elimination of approximately $750 million in undercollected costs from SDG&E's rate ceiling balancing account, thereby shielding customers from these charges in future rates. The MOU also outlines the sale of SDG&E's transmission system to the CDWR, subject to legislative and regulatory approvals, which is seen as a crucial step in stabilizing SDG&E's financial position.

Key Highlights

  • 1Sempra Energy and SDG&E entered into a Memorandum of Understanding (MOU) with the California Department of Water Resources (CDWR) to address issues arising from the California energy crisis.
  • 2The MOU proposes eliminating approximately $750 million in undercollected costs from SDG&E's rate ceiling balancing account, preventing these costs from being passed on to customers.
  • 3SDG&E's transmission system is slated for sale to the CDWR or another state agency for approximately 2.3 times its net book value, subject to legislative and regulatory approvals.
  • 4The CDWR will continue to procure power for SDG&E customers through December 31, 2002, under revised terms, with conditions for earlier termination to ensure SDG&E's cost recovery.
  • 5The agreement includes settlements for reasonableness reviews and intermediate term electricity purchase contracts, reducing undercollected costs by $100 million and $219 million respectively.
  • 6Sempra Energy Resources (SER) signed an agreement with CDWR to supply electricity up to 1,900 megawatts by 2011, with CDWR assuming natural gas price risk from June 2003 onwards.
  • 7Sempra Energy Trading Corp. (SET) is involved in a contractual dispute with PG&E regarding natural gas deliveries, with PG&E claiming significant imbalance charges.

Frequently Asked Questions

The primary goal of the MOU is to resolve many of the financial and operational issues affecting SDG&E and its customers that arose from the California energy crisis of 2000-2001. This includes mitigating customer impact from undercollected costs and stabilizing SDG&E's financial position.

Customers are expected to benefit as the MOU aims to eliminate approximately $750 million in undercollected costs from SDG&E's rate ceiling balancing account. This means these substantial costs will not be recovered through future customer rates. Additionally, the sale of the transmission system and continued power procurement by CDWR are intended to create a more stable energy supply and cost structure.

For Sempra and SDG&E, the MOU offers a path to resolve significant financial uncertainties. The elimination of undercollected costs, settlement of contract disputes, and potential sale of the transmission system are expected to improve SDG&E's financial position and liquidity. The commitment for substantial capital investments ($3.0 billion+) by Sempra's utility subsidiaries also signals a long-term focus on infrastructure development.

The MOU contemplates the sale of SDG&E's transmission system to the CDWR for approximately 2.3 times its net book value. This sale is not a prerequisite for other parts of the MOU to proceed but is conditional on the implementation of other MOU elements. The sale requires California enabling legislation and various regulatory approvals, including from the CPUC and FERC. If completed, it would remove significant assets from SDG&E's balance sheet.