8-KOther EventsExhibits & Filings

SEMPRA 8-K Report, Corporate Update (Mar 27, 2014)

Filed March 27, 2014For Securities:SRESREA

Summary

This 8-K filing announces a significant settlement agreement entered into by San Diego Gas & Electric Company (SDG&E), a subsidiary of Sempra Energy, on March 26, 2014. The agreement, if approved by the California Public Utilities Commission (CPUC), aims to resolve all issues related to the Steam Generator Replacement Project (SGRP) at the San Onofre Nuclear Generating Station (SONGS) and its subsequent outage and shutdown. The settlement outlines how SDG&E's investment and costs associated with SONGS will be treated, including significant disallowances and limitations on rate recovery. This aims to provide a clearer path forward for the company and its ratepayers regarding the financially impactful SONGS closure. Key terms include SDG&E removing approximately $160 million of its SGRP investment from rate base and refunding related collections to customers. The company will be authorized to recover its remaining SONGS investment and certain operational costs over a ten-year period at a reduced rate of return (SONGS ROR) of 2.75% for 2012 and 2.35% for 2014, with future rates subject to adjustments. The settlement also addresses the allocation of potential future recoveries from third parties like NEIL and Mitsubishi Heavy Industries (MHI), with ratepayers generally receiving a larger share of these recoveries. SDG&E anticipates recording an additional after-tax impairment charge of approximately $9 million in Q1 2014 as a result of this settlement.

Key Highlights

  • 1SDG&E entered into a settlement agreement to resolve CPUC proceedings related to the San Onofre Nuclear Generating Station (SONGS) outage and shutdown.
  • 2If approved by the CPUC, SDG&E will remove approximately $160 million of its Steam Generator Replacement Project (SGRP) investment from rate base and refund related customer collections.
  • 3SDG&E will be authorized to recover its remaining SONGS investment and certain operational costs over 10 years at a reduced rate of return (SONGS ROR).
  • 4The SONGS ROR will be 2.75% for 2012 and 2.35% for 2014, with future periods subject to fluctuation.
  • 5The settlement details the allocation of potential third-party recoveries (from NEIL and MHI), with ratepayers typically receiving a larger share.
  • 6SDG&E expects to record an additional $9 million after-tax impairment charge in Q1 2014 due to the settlement.
  • 7CPUC approval is required for the settlement to become effective and is not guaranteed, with potential for modifications or rejection.

Frequently Asked Questions

The main purpose of the settlement agreement is to provide a complete and final resolution for the California Public Utilities Commission (CPUC) proceedings concerning the Steam Generator Replacement Project (SGRP) at the San Onofre Nuclear Generating Station (SONGS) and the subsequent outage and shutdown of the facility. It aims to resolve disputes regarding the financial impact on SDG&E and its customers.

If approved, SDG&E will remove approximately $160 million of its SGRP investment from rate base and refund customer collections related to it. SDG&E will recover its remaining SONGS investment and certain operational costs over a ten-year period, but at a significantly reduced rate of return (SONGS ROR) compared to previous expectations.

The settlement allocates potential recoveries from third parties like NEIL (insurance) and Mitsubishi Heavy Industries (MHI). Generally, costs incurred to pursue these recoveries will be reimbursed first. After that, ratepayers will receive the majority share of any recoveries, with SDG&E receiving a smaller percentage, depending on the amount recovered.

No, the settlement agreement is subject to the approval of the California Public Utilities Commission (CPUC). There is no assurance that the CPUC will approve the agreement as presented, and it could be modified or rejected. The parties have agreed to use their best efforts to obtain approval, but the final decision rests with the CPUC.

SDG&E expects to record an additional after-tax impairment charge of approximately $9 million in the first quarter of 2014 as a result of this settlement. The total estimated impairment charge related to the early retirement of SONGS Units 2 and 3 is now approximately $128 million after-tax.