What was the outcome of the arbitration between SDG&E and MHI?

The International Chamber of Commerce (ICC) International Court of Arbitration found Mitsubishi Heavy Industries (MHI) liable for breach of contract regarding the failed replacement steam generators at SONGS. A total of $125 million in damages was awarded to the SONGS co-owners. However, due to contractual limitations and awarded arbitration costs to MHI, the net award was reduced to approximately $66.9 million for all co-owners. SDG&E's net share amounts to $13.4 million.

What is the financial impact of this arbitration decision on Sempra Energy?

The company expects the earnings impact of recording this arbitration decision to be immaterial to both Sempra Energy and its subsidiary SDG&E.

How will SDG&E's share of the award be allocated between ratepayers and shareholders?

The allocation is governed by a settlement agreement related to a CPUC investigation. Generally, SDG&E's share will first reimburse its legal costs incurred in pursuing the arbitration. Any remaining amount is expected to be split 50% to ratepayers and 50% to SDG&E's shareholders. However, this is subject to ongoing proceedings and potential modification by the CPUC.

Is the arbitration decision the final resolution of the matter?

The decision is final from the ICC's perspective. However, it may be challenged in court on limited grounds, and enforcement proceedings can be initiated if a party refuses to comply with the award. The parties are also conferring regarding the public release of the decision, subject to redaction of confidential information.

SRE/SREA 8-K SEC Disclosure

Summary

Sempra Energy's subsidiary, San Diego Gas & Electric Company (SDG&E), received a final decision from the International Chamber of Commerce (ICC) International Court of Arbitration regarding claims against Mitsubishi Heavy Industries (MHI) concerning the failed replacement steam generators (RSGs) at the San Onofre Nuclear Generating Station (SONGS). The Tribunal found MHI liable for breach of contract, awarding $125 million in damages to the SONGS co-owners. However, due to a contractual limitation of liability and MHI being awarded 95% of its arbitration costs, the net award to the co-owners is approximately $66.9 million. SDG&E's net allocation is $13.4 million. The financial impact of this decision is expected to be immaterial to both Sempra Energy and SDG&E. The allocation of SDG&E's share between ratepayers and shareholders is subject to ongoing proceedings with the California Public Utilities Commission (CPUC) under a prior settlement agreement. This agreement generally dictates that SDG&E's share will first reimburse legal costs, with the remainder split 50% to ratepayers and 50% to shareholders. The CPUC is actively reviewing the matter to determine the final division. While the arbitration decision is final from the ICC's perspective, it may be subject to limited court challenges.

Key Highlights

1ICC arbitration decision reached on March 13, 2017, regarding failed SONGS replacement steam generators supplied by MHI.
2MHI found liable for breach of contract, with an initial damage award of $125 million to SONGS co-owners.
3Contractual limitations and MHI's awarded arbitration costs reduced the net award to approximately $66.9 million for co-owners.
4SDG&E's net recovery from the arbitration is $13.4 million.
5The financial impact on Sempra Energy and SDG&E's earnings is expected to be immaterial.
6Allocation of SDG&E's recovery between ratepayers and shareholders is pending CPUC review and subject to a prior settlement agreement.
7The arbitration decision is final per the ICC but may be subject to limited legal challenges.

SEMPRA 8-K Report, Corporate Update (Mar 14, 2017)

Summary

Key Highlights

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