What is the primary reason for the permanent retirement of the San Onofre Nuclear Generating Station (SONGS)?

The primary reason for the permanent retirement is the considerable uncertainty surrounding the Nuclear Regulatory Commission's (NRC) timeline and decision-making process for allowing a restart of Unit 2. This uncertainty arose after issues with steam generators in both units, leading to shutdowns and regulatory reviews.

What is the financial impact of this retirement on Sempra Energy and its subsidiary SDG&E?

Sempra Energy and SDG&E anticipate an after-tax charge of $30 million to $110 million in the second quarter of 2013 due to the write-down of SDG&E's net book investment in SONGS. Additionally, SDG&E will no longer receive approximately $15 million per year in after-tax net earnings previously generated by its investment in SONGS.

Will SDG&E recover its investment in SONGS?

SDG&E management believes it is probable that a substantial portion of its investment in SONGS and associated costs will be recovered through rate recovery proceedings by the California Public Utilities Commission (CPUC). However, the final amount is subject to regulatory approval and could be significantly less than management's estimate. SDG&E also intends to pursue recovery from other responsible parties and insurance carriers.

What was SDG&E's net book investment in SONGS?

As of March 31, 2013, SDG&E's net book investment in SONGS, excluding decommissioning assets and liabilities, was approximately $519 million. This included $393 million in net property, plant, and equipment, $10 million in materials and supplies, and $116 million in nuclear fuel.

SRE/SREA 8-K: Financial Events

Summary

Sempra Energy (SRE) reported via an 8-K filing on June 7, 2013, that Southern California Edison (Edison), the majority owner and operator of the San Onofre Nuclear Generating Station (SONGS), has decided to permanently retire SONGS Units 2 and 3. This decision was driven by significant uncertainty surrounding the Nuclear Regulatory Commission's (NRC) approval for a timely restart of Unit 2, following a leak in Unit 3's steam generator in early 2012 and subsequent discovery of unexpected tube wear in Unit 2. Sempra's indirect subsidiary, San Diego Gas & Electric Company (SDG&E), holds a 20% ownership interest in SONGS. This permanent retirement will result in a material impairment charge for Sempra Energy. SDG&E anticipates an after-tax charge of $30 million to $110 million in the second quarter of 2013 related to the write-down of its net book investment in SONGS, which was approximately $519 million as of March 31, 2013. While SDG&E expects to recover a substantial portion of its investment through regulatory rate recovery proceedings by the California Public Utilities Commission (CPUC), the exact amount remains uncertain and subject to regulatory decision. The retirement also ceases the approximately $15 million per year in after-tax net earnings SDG&E previously recognized from its SONGS investment.

Key Highlights

1Permanent retirement of San Onofre Nuclear Generating Station (SONGS) Units 2 and 3 announced by operator Southern California Edison.
2SDG&E, a subsidiary of Sempra Energy, holds a 20% ownership interest in SONGS.
3The decision stems from persistent uncertainty regarding NRC approval for a restart, particularly for Unit 2, following steam generator issues.
4Sempra Energy/SDG&E expects to record an after-tax charge of $30 million to $110 million in Q2 2013 related to this impairment.
5SDG&E's net book investment in SONGS was approximately $519 million as of March 31, 2013.
6Regulatory proceedings by the CPUC will determine the extent of recovery for SDG&E's investment and associated costs.
7The cessation of SONGS operations will result in the loss of approximately $15 million in annual after-tax net earnings for SDG&E.

SEMPRA 8-K Report, Material Impairment (Jun 7, 2013)

Summary

Key Highlights

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