8-KOther Events

SEMPRA 8-K Report, Corporate Update (Dec 3, 2004)

Filed December 3, 2004For Securities:SRESREA

Summary

Sempra Energy (SRE) filed an 8-K on December 3, 2004, reporting on two significant California Public Utilities Commission (CPUC) decisions impacting its California utilities, Southern California Gas Company and San Diego Gas & Electric Company (SDG&E). The first decision reduces the utilities' annual rate revenues by approximately $56 million, effective retroactively to January 1, 2004. While most of this reduction aligns with previously reported settlements, SDG&E intends to seek a rehearing regarding a specific $10 million reduction related to nuclear electric rate revenues, which it believes is a computational error. The second CPUC decision concerns the allocation of costs incurred by the California Department of Water Resources (DWR) in procuring power. This decision will shift $790 million of DWR costs to SDG&E's customers between the decision's implementation and 2013. Importantly, while this cost shift will negatively impact customer rates, it is not expected to affect Sempra Energy's net income, as previously reported. Investors should note that the reduced rates will be in effect through 2007, subject to annual adjustments, and that further CPUC decisions regarding attrition allowances and other mechanisms are anticipated in early 2005.

Key Highlights

  • 1CPUC decision reduces annual rate revenues for Sempra's California utilities by approximately $56 million, effective retroactively to January 1, 2004.
  • 2SDG&E plans to seek a rehearing for a $10 million reduction related to nuclear electric rate revenues, citing a potential computational error.
  • 3The reduced rates are set to remain in effect through 2007, with adjustments for annual attrition allowances.
  • 4A separate CPUC decision will shift $790 million in California Department of Water Resources (DWR) power procurement costs to SDG&E customers between the decision's implementation and 2013.
  • 5The DWR cost shift is expected to negatively impact customer rates but not Sempra Energy's net income.
  • 6Sempra and its California utilities have generally recorded revenues consistent with the anticipated reduced rates, with an exception for pension cost recovery that will have a favorable non-recurring impact on net income.

Frequently Asked Questions

The CPUC decision reduces the annual rate revenues for Sempra's California utilities by approximately $56 million, effective retroactively from January 1, 2004. While this impacts customer rates, Sempra has generally recorded revenue consistent with these reduced rates. A specific $10 million reduction related to nuclear electric rate revenues is being contested by SDG&E, which may affect the net impact if the rehearing is successful.

The CPUC's decision to shift $790 million of DWR power procurement costs to SDG&E's customers over several years will adversely affect customer rates. However, as previously reported, this specific cost shift is not expected to impact Sempra Energy's net income directly.

The reduction in rate revenues is effective retroactively to January 1, 2004. Sempra has largely accounted for this by recording revenue and net income in a manner consistent with these reduced rates. An exception is the recovery of pension costs provided by the CPUC's decision, which, when recorded, will have a favorable non-recurring effect on net income.

The reduced rates from the cost of service decision will remain in effect through 2007, subject to annual attrition allowances. Further decisions on attrition allowances and performance-based mechanisms are expected in the first quarter of 2005. The DWR cost allocation will be implemented over the period between the decision's implementation and 2013. Applications for rehearing of these CPUC decisions must be filed within thirty days of the decisions being mailed.