1.0.0.3 false SEMPRA UTILITIES' REGULATORY MATTERS false 1 $ false false 2 Notes to Condensed Consolidated Financial Statements 0 sre_NotesToConsolidatedFinancialStatementsAbstract sre false na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false No definition available. false 3 Sempra Utilities' Regulatory Matters Disclosure 1 us-gaap_PublicUtilitiesDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <div style="font-size:12pt">NOTE 9. SEMPRA UTILITIES' REGULATORY MATTERSPOWER PROCUREMENT AND RESOURCE PLANNINGSunrise Powerlink Electric Transmission Line 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. 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. UCAN and CBD jointly filed a petition with the California Supreme Court in August 2009 challenging the CPUC's decision with regard to implementation of the California Environmental Quality Act (CEQA). UCAN also filed a petition with the California Court of Appeal challenging the decision on other legal grounds. The CPUC, the California Independent System Operator (ISO) and SDG&E filed separate motions with the California Supreme Court requesting transfer of the UCAN petition to the California Supreme Court. Responses to both petitions will be filed once the California Supreme Court has ruled on the transfer requests. 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 (IBLA) 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 IBLA is still reviewing the one remaining appeal. The Sunrise Powerlink also requires approval from the United States Forest Service (USFS). SDG&E expects the USFS to issue a decision approving the segment of the route in its jurisdiction in the first quarter of 2010. The USFS decision is also subject to administrative and judicial review. SDG&E commenced procurement activities in the first quarter of 2009, but before construction can begin, additional agency permits must be obtained. The total amount invested by SDG&E in the Sunrise Powerlink project as of September 30, 2009 was $184 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. Renewable Energy Certain California electric retail sellers, including SDG&E, are required to deliver 20 percent of their retail demand from renewable energy sources beginning in 2010. The rules governing this requirement, administered by both the CPUC and the California Energy Commission (CEC), are generally known as the Renewables Portfolio Standard (RPS) Program. In September 2009, the Governor of California issued an Executive Order which requires California utilities by 2020 to procure 33 percent of their electric energy requirements from renewable energy sources. This Executive Order designates the California Air Resources Board (CARB) as the agency responsible for establishing the compliance rules and regulations. In 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. This decision also confirmed that any renewable energy procured in excess of the established targets, currently and in the future, could be applied to any shortfalls in the years 2010 and beyond. 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: <ul><li>access to electric transmission infrastructure (including SDG&E's Sunrise Powerlink transmission line); </li><li>timely regulatory approval of contracted renewable energy projects; </li><li>the renewable energy project developers' ability to obtain project financing and permitting; and </li><li>successful development and implementation of the renewable energy technologies. </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. SDG&E's failure to comply with the RPS Program requirements in 2010, or in any subsequent years, 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.Miramar II Peaking Plant Miramar II is a 48.6-MW natural gas-fired peaking plant in San Diego, located next to an existing SDG&E peaking plant. Built by SDG&E at a cost of $54 million, Miramar II began commercial operation in August 2009.Solar Photovoltaic Program In July 2008, SDG&E filed an application with the CPUC proposing to invest up to $250 million 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). In March 2009, SDG&E, UCAN and other interested parties submitted a settlement agreement 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). 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 constructed in phases from 2010 through 2013.General Rate Case (GRC) The CPUC uses a general rate case proceeding to determine the Sempra Utilities' reasonable level of costs, prospectively, and to set rates sufficient to allow the Sempra Utilities the opportunity to recover their costs and realize an acceptable rate of return on their investment.In November 2009, SDG&E and SoCalGas, jointly with the Division of Ratepayer Advocates (DRA), a division of the CPUC representing the interests of customers, filed petitions with the CPUC to delay the filing of SDG&E's and SoCalGas' next GRC applications by one year. If approved by the CPUC, both SDG&E and SoCalGas would file their next GRC application in late 2011 for test year 2013. The petitions propose methodology to determine the 2012 revenue requirements for each company which would result in SDG&E and SoCalGas receiving an increase of no less than approximately $45 million and $55 million, respectively, in authorized margin, or three percent, above the 2011 authorized margin. The parties also agreed, among other things, to allow the Sempra Utilities to recover the increase, as deemed reasonable, in their annual excess liability insurance premiums in 2012, primarily due to the coverage for wildfire claims. Utility Incentive Mechanisms The CPUC applies performance-based measures and incentive mechanisms to all California utilities. Under these, the Sempra Utilities have earnings potential above authorized base margins if they achieve or exceed specific performance and operating goals. 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: <ul><li>employee safety </li><li>energy efficiency programs </li><li>natural gas procurement </li><li>natural gas unbundled storage and system operator hub services </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. Below are updates to these incentive mechanisms for activity during the first three quarters of 2009. We provide additional information regarding these incentive mechanisms in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report. Energy Efficiency 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 percent. 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. Natural Gas Procurement 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. 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. In October 2009, the DRA completed their review of SoCalGas' GCIM application and issued a report to the CPUC recommending approval of the full award. A final decision is expected in the first quarter of 2010.Cost of Capital 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. SoCalGas In July 2009, the CPUC denied SoCalGas’ petition, which was filed 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 that the 30-year U.S. Treasury Bond yield metrics as specified in the MICAM were 150 basis points below the benchmark, is $18 million for 2010. 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 because the index used for the MICAM does not provide a strong correlation with utility risks, making it an inaccurate metric for use as a triggering mechanism. Given the CPUC’s decision and the disconnect between the MICAM benchmarks and the natural gas distribution business risks and associated cost of capital, should the MICAM trigger, SoCalGas intends to request a change in the MICAM benchmarks to defer any resultant change in its cost of capital and propose a more indicative index associated with the natural gas distribution business.SDG&E SDG&E is currently required to file its next full cost of capital application in April 2010. SDG&E and the DRA reached an agreement to pursue a joint petition to delay this application for two years. Approval of the request, filed in October 2009, would be consistent with the CPUC's recent decision to defer this review for Southern California Edison (Edison) and Pacific Gas and Electric (PG&E). If SDG&E's petition is approved, SDG&E would file its next cost of capital application in April 2012. Advanced Metering Infrastructure In September 2008, SoCalGas filed an application with the CPUC for approval to upgrade approximately six million natural gas meters with an advanced metering infrastructure at an estimated cost of $1.1 billion (including approximately $900 million in capital investment). We expect a final CPUC decision in early 2010. If approved, installation of the meters is expected to begin in 2012 and continue through 2017.2007 wildfires Cost Recovery SDG&E filed an application with the CPUC in March 2009 seeking to recover 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 DRA 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. SDG&E and the DRA have reached an agreement in principle regarding the cost recovery request whereby SDG&E will recover $43 million. SDG&E filed a formal settlement agreement with the CPUC in October 2009, with a CPUC decision on the settlement likely in early 2010. 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. In regard to the 2007 wildfire litigation discussed in Note 10, if SDG&E's ultimate liability, net of amounts recoverable from other defendants, were to exceed the remaining amounts 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. INSURANCE COST RECOVERY SDG&E filed an application with the CPUC in August 2009 seeking authorization to recover higher liability insurance premium and deductible expenses which SDG&E began incurring on July 1, 2009. SDG&E made the filing under the CPUC’s rules allowing utilities to seek recovery of significant cost increases resulting from unforeseen circumstances. SDG&E is requesting a $29 million revenue requirement for the 2009/2010 policy period for the incremental increase in its liability and wildfire insurance premium costs above what is currently authorized in rates. The CPUC’s rules allow a utility to recover costs that meet certain criteria, subject to a $5 million deductible per event. SDG&E is requesting CPUC approval of its request by the second quarter of 2010. Through September 30, 2009, SDG&E has expensed $8 million of incremental insurance premiums associated with this wildfire coverage.FUTURE EXCESS claims COST RECOVERY SDG&E and SoCalGas filed an application with the CPUC in August 2009 proposing a new mechanism for the full recovery of future wildfire-related claims, litigation and insurance premium expenses that are in excess of amounts authorized by the CPUC for recovery in rates. The filing was made jointly with Edison and PG&E. The utilities are asking the CPUC to approve their joint request by the second quarter of 2010. The DRA and others have filed protests to the joint application.</div> NOTE 9. SEMPRA UTILITIES' REGULATORY MATTERSPOWER PROCUREMENT AND RESOURCE PLANNINGSunrise Powerlink Electric Transmission LineIn December 2008, the California false false No definition available. No authoritative reference available. false false 1 2 false UnKnown UnKnown UnKnown false true