1.0.0.3falseSEMPRA UTILITIES' REGULATORY MATTERSfalse1$falsefalse20sre_NotesToConsolidatedFinancialStatementsAbstractsrefalsenadurationstringNo definition available.falsefalsefalsefalsefalsetruefalsefalsefalse1falsefalse00falsefalseNo definition available.false31us-gaap_PublicUtilitiesDisclosureTextBlockus-gaaptruenadurationstringNo definition available.falsefalsefalsefalsefalsefalsefalsefalsefalse1falsefalse00<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>NOTE 9. SEMPRA UTILITIES' REGULATORY MATTERS</P></FONT></DIV><DIV><FONT size="2"><P>POWER PROCUREMENT AND RESOURCE PLANNING</P></FONT></DIV><DIV><FONT size="2"><P>Sunrise Powerlink Electric Transmission Line<BR/>In December 2008, the California Public Utilities Commission (CPUC) issued a final decision authorizing SDG&E to construct a 500-kilovolt (kV) electric transmission line between the Imperial Valley and the San Diego region (Sunrise Powerlink). This line is designed to provide 1,000 MW of increased import capability into the San Diego area. The decision allows SDG&E to construct the Sunrise Powerlink along a route that would generally run south of the Anza-Borrego Desert State Park. The decision also approves the environmental impact review conducted jointly by the CPUC and the Bureau of Land Management (BLM) and establishes a total project cost cap of $1.883 billion, including approximately $190 million for environmental mitigation costs. In January 2009, the BLM issued its decision approving the project, route and environmental review. We provided the details of the CPUC's decision in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.<BR/>After the issuance of the CPUC final decision, applications for rehearing before the CPUC were filed by the Utility Consumers Action Network (UCAN) and the Center for Biological Diversity/Sierra Club (CBD). The CPUC issued a final decision in July 2009 denying the requests for rehearing. These parties may still appeal to the California Courts of Appeal and/or to the California Supreme Court on or before August 12, 2009.<BR/>The Sunrise Powerlink route crosses federal land and requires approvals from the BLM and the United States Forest Service (USFS). Three appeals of the BLM decision approving the segment of the route in its jurisdiction were filed by individuals, a community organization, and the Viejas Indian tribe in March 2009. A request to stay the BLM's decision was also filed. The Interior Board of Land Appeals has dismissed the appeal filed by the individuals and issued a ruling in July 2009 denying the request for stay. In addition, the Viejas Indian tribe withdrew its appeal in July 2009. The BLM is still reviewing the one remaining appeal. SDG&E expects the USFS to issue a decision approving the segment of the route in its jurisdiction in 2009. The USFS decision is also subject to administrative and judicial appeals.<BR/>SDG&E commenced procurement activities in the first quarter of 2009, but before construction can begin, additional agency permits, subject to administrative and judicial appeals, must be obtained. The total amount invested by SDG&E in the Sunrise Powerlink project as of June 30, 2009 was $154 million, which is included in Property, Plant and Equipment on the Condensed Consolidated Balance Sheets of Sempra Energy and SDG&E. SDG&E expects the Sunrise Powerlink to be in commercial operation in 2012. </P></FONT></DIV><DIV><FONT size="2"><P>Renewable Energy<BR/>Certain California electric retail sellers, including SDG&E, are required to deliver 20 percent of their 2010 retail demand from renewable energy sources. The rules governing this requirement, administered by both the CPUC and the California Energy Commission, are generally known as the Renewables Portfolio Standard (RPS) Program.<BR/>In February 2008, the CPUC issued a decision defining flexible compliance mechanisms that can be used to defer compliance with or meet the RPS Program mandates in 2010 and beyond. The decision established that a finding by the CPUC of insufficient transmission is a permissible reason to defer compliance with the RPS Program mandates. The CPUC is also expected to implement a renewable energy credits trading system in 2009, which would provide another mechanism to better enable SDG&E to meet its RPS goals. <BR/>SDG&E continues to aggressively secure renewable energy supplies to achieve the RPS Program goals. A substantial number of these supply contracts, however, are contingent upon many factors, including: <BR/><UL><LI>access to electric transmission infrastructure (including SDG&E's Sunrise Powerlink transmission line); <BR/></LI><LI>timely regulatory approval of contracted renewable energy projects; <BR/></LI><LI>the renewable energy project developers' ability to obtain project financing and permitting; and <BR/></LI><LI>successful development and implementation of the renewable energy technologies. <BR/></LI></UL>As previously noted, SDG&E expects the Sunrise Powerlink transmission line to be in operation in 2012. This would be too late to provide transmission capability to meet the RPS Program requirements for 2010 and 2011. However, SDG&E believes it will be able to comply with the RPS Program requirements based on its contracting activity and application of the flexible compliance mechanisms. Without the application of the flexible compliance mechanisms, SDG&E's failure to attain the 20-percent goal in 2010, or any subsequent years' goals, could subject it to CPUC-imposed penalties of 5 cents per kilowatt hour of renewable energy under-delivery up to a maximum penalty of $25 million per year.</P></FONT></DIV><DIV><FONT size="2"><P>Solar Photovoltaic Program<BR/>In July 2008, SDG&E filed an application with the CPUC proposing to install solar photovoltaic panels in the San Diego area. These panels could generate approximately 50 MW of direct current power (approximately equivalent to 35 MW of power to the electric grid). We estimate the cost of the program as filed in the application to be $250 million. SDG&E, UCAN and other interested parties submitted a settlement agreement in March 2009 which, if approved by the CPUC, would, among other provisions, reduce SDG&E's investment in the program to the lesser of $125 million or 26 MW (direct current). The CPUC will decide if hearings on the settlement are necessary and, if so, a CPUC decision is expected in the first quarter of 2010. If approved, we expect the installation of SDG&E's portion of the panels to be completed by 2013.</P></FONT></DIV><DIV><FONT size="2"><P>Utility Incentive Mechanisms <BR/>The CPUC applies performance-based measures and incentive mechanisms to all California utilities. Under such measures or mechanisms, the Sempra Utilities have earnings potential above authorized base margins if they achieve or exceed specific performance and operating goals, rather than relying solely on expanding utility plant to increase earnings. Generally, for performance-based awards, if performance is above or below specific benchmarks, the utility is eligible for financial awards or subject to financial penalties. There are four general areas that operate under an incentive structure: <BR/><UL><LI>employee safety <BR/></LI><LI>energy efficiency programs <BR/></LI><LI>natural gas procurement <BR/></LI><LI>natural gas unbundled storage and system operator hub services<BR/></LI></UL>Incentive awards are included in our earnings when we receive any required CPUC approval of the award. We would record penalties for results below the specified benchmarks in earnings when we believe it is more likely than not that the CPUC would assess a penalty. All award amounts discussed below are on a pretax basis.<BR/>Below are updates to these incentive mechanisms for activity within the first half of 2009. We provide additional information regarding these incentive mechanisms in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.<BR/>Energy Efficiency<BR/>In December 2008, the CPUC approved energy efficiency awards of $10.8 million for SDG&E and $5.2 million for SoCalGas for 2006 and 2007 energy efficiency results, which were net of a holdback of 65%. In May 2009, SDG&E and SoCalGas filed a partial party settlement agreement regarding the appropriate method to determine incentive awards for the 2006 – 2008 program period. If approved, this settlement would result in 1) awards of $10.7 million for SDG&E and $12.5 million for SoCalGas; and 2) upon conclusion of the CPUC's assessment and audit process, awards of up to $11.6 million for SDG&E and $9.5 million for SoCalGas for the remaining holdback amounts. We expect a CPUC decision regarding the settlement in 2009 and the completion of the CPUC assessment and audit process in 2010. <BR/>Natural Gas Procurement<BR/>In February 2009, the CPUC approved a SoCalGas gas cost incentive mechanism (GCIM) award of $6.5 million for core natural gas procurement activities in the 12-month period ended March 31, 2008, which SoCalGas recorded in the first quarter of 2009. <BR/>In June 2009, SoCalGas filed an application with the CPUC requesting approval of a $12 million GCIM award for its procurement activities in the 12-month period ended March 31, 2009. A decision is expected in the first quarter of 2010.</P></FONT></DIV><DIV><FONT size="2"><P>Cost of Capital<BR/>The cost of capital proceeding determines the Sempra Utilities' authorized capital structure and the authorized rate of return that the Sempra Utilities may earn on their electric and natural gas distribution and electric generation assets. <BR/>In July 2009, the CPUC denied SoCalGas’ petition, which was filed with the CPUC in April 2009, seeking to suspend its cost of capital Market Index Capital Adjustment Mechanism (MICAM) due to the uncertainty of whether the MICAM would trigger an adjustment to SoCalGas’ return on equity. SoCalGas believes that the benchmarks used to determine whether the MICAM is triggered are not indicative of the risks and interest rates associated with the natural gas distribution business. Actions taken by the U.S. Government to halt the collapse of the banking and financial system dramatically reduced U.S. Treasury yields which, at the time, increased the likelihood of causing the MICAM to trigger in 2009. The estimated adverse impact to net income of such an adjustment, assuming the 30-year U.S. Treasury Bond yield metrics as specified in the MICAM were 150 basis points below the benchmark, is $18 million annually. <BR/>While U.S. Treasury yields have recently increased, such that we now believe that it is unlikely that the MICAM will trigger in 2009, the potential of further government intervention to stimulate the economy could result in reductions in U.S. Treasury yields in the future, increasing the likelihood of triggering the MICAM. SoCalGas believes this would be inappropriate given the rising cost of debt in prevailing tight credit markets. Given the CPUC’s decision and the disconnect between the MICAM benchmarks and the natural gas distribution business risks and associated cost of capital, SoCalGas is planning, along with the other major investor-owned utilities in the state, to file a cost of capital application with the CPUC in April 2010 which, if approved, would be effective January 2011. This application would reset the benchmarks to a more indicative index associated with the natural gas distribution business.</P></FONT></DIV><DIV><FONT size="2"><P>Advanced Metering Infrastructure <BR/>In April 2007, the CPUC approved SDG&E's request to install advanced meters with integrated two-way communications functionality, including electric remote disconnect and home area network capability. SDG&E estimates expenditures for this project of $572 million (including approximately $500 million in capital investment). This project involves replacing 1.4 million electric meters and 900,000 natural gas meters throughout SDG&E’s service territory. SDG&E began mass installation of the advanced meters in March 2009, and is on schedule to complete the project by the end of 2011. </P></FONT></DIV><DIV><FONT size="2"><P>2007 wildfires Cost Recovery <BR/>SDG&E filed an application with the CPUC in March 2009 seeking to recover $49.8 million for the incremental cost incurred to replace and repair company facilities under CPUC jurisdiction damaged by the October 2007 wildfires. This application was filed in accordance with the CPUC rules governing incremental costs incurred as a result of a declared emergency or catastrophic event. The Division of Ratepayer Advocates (DRA), a division of the CPUC representing the interests of customers, filed a protest to SDG&E's request for recovery of the incremental costs, requesting that the CPUC stay the proceeding until completion of the fire investigations, which we describe in Note 10.<BR/>SDG&E also incurred $30.1 million of incremental costs for the replacement and repair of company facilities under Federal Energy Regulatory Commission (FERC) jurisdiction, which are currently being recovered in SDG&E's electric transmission rates.<BR/>In regard to the 2007 wildfires litigation discussed in Note 10, if SDG&E's ultimate liability, net of amounts recoverable from other defendants, were to exceed its $1.1 billion recoverable from its insurers, SDG&E would request authorization from the FERC and the CPUC to recover the excess amounts in utility rates. SDG&E is unable to reasonably predict the degree of success it may have in pursuing such requests or the timing of any recovery. </P></FONT></DIV></BODY></HTML>NOTE 9. SEMPRA UTILITIES' REGULATORY MATTERSPOWER PROCUREMENT AND RESOURCE PLANNINGSunrise Powerlink Electric Transmission LineIn December 2008, the CaliforniafalsefalseNo definition available.No authoritative reference available.falsefalse12falseUnKnownUnKnownUnKnownfalsetrue