1.0.0.3 false SEMPRA UTILITIES' REGULATORY MATTERS false 1 $ false false 2 Notes to 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 Electric Industry Regulation and Other 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 15. ELECTRIC INDUSTRY REGULATION Background California's legislative response to the 2000 - 2001 energy crisis resulted in the DWR purchasing a substantial portion of power for California's electricity users. In 2001, the DWR entered into long-term contracts with suppliers, including Sempra Generation, to provide power for the utility procurement customers of each of the California investor-owned utilities (IOUs), including SDG&E. The CPUC allocates the power and its administrative responsibility, including collection of power contract costs from utility customers, among the IOUs. Effective in 2003, the IOUs resumed responsibility for electric commodity procurement above their allocated share of the DWR's long-term contracts. Power Procurement and Resource Planning Effective in 2003, the CPUC: <ul><li>directed the IOUs, including SDG&E, to resume electric commodity procurement to cover their net short energy requirements, which are the total customer energy requirements minus supply from resources owned, operated or contracted; </li><li>implemented legislation regarding procurement and renewable energy portfolio standards; and </li><li>established a process for review and approval of the utilities' long-term resource and procurement plans. </li></ul>This process is intended to identify anticipated needs for generation and transmission resources in order to support transmission grid reliability and to better serve customers. Sunrise Powerlink Electric Transmission Line In December 2008, the 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 $1.9 billion, including approximately $190 million for environmental mitigation costs. In January 2009, the BLM issued its decision approving the project, route and environmental review. Three community groups and an individual have filed a lawsuit in Federal District Court in Sacramento, California, for Declaratory and Injunctive Relief regarding Sunrise Powerlink. The complaint alleges that the BLM failed to properly assess the environmental impacts of the approved Sunrise Powerlink route and the related potential development of renewable resources in east San Diego County and Imperial County. The complaint requests a declaration that the BLM violated Federal law in approving Sunrise Powerlink and an injunction against any construction activities.  Sunrise Powerlink costs will be recovered in SDG&E's Electric Transmission Formula Rate, where SDG&E must demonstrate to the FERC that such costs were prudently incurred. The CPUC decision requires SDG&E to adhere to certain commitments it made during the application process, as follows: <ul><li>not to contract, for any length of term, with conventional coal generators to deliver power via the Sunrise Powerlink; </li><li>if any currently approved renewable energy contract that is deliverable via the Sunrise Powerlink fails, to replace it with a viable contract with a renewable generator located in the Imperial Valley; and </li><li>voluntarily raise SDG&E's RPS goal to 33 percent by 2020. </li></ul>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 (Court of Appeal) challenging the decision on other legal grounds. The CPUC, the ISO and SDG&E filed separate motions with the California Supreme Court requesting transfer of the UCAN petition to the California Supreme Court, which denied the transfer requests. Responses to the UCAN petition before the Court of Appeal were filed in January 2010. After a ruling by the Court of Appeal, the California Supreme Court will address the UCAN/CBD petition regarding CEQA. 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 for the project in 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 December 31, 2009 was $235 million, which is included in Property, Plant and Equipment on the 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 a CPUC-imposed penalty 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 approximately $50 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 half of 2010. If approved, SDG&E expects to install its portion of the panels in phases from 2011 through 2015. San Onofre Nuclear Generating Station (SONGS) SONGS is jointly owned by Edison (78.21%), SDG&E (20%) and the city of Riverside (1.79%). In March 2009, as part of Edison's 2009 General Rate Case, the CPUC granted SDG&E's request for an approximate $116 million base revenue requirement for 2009 (an approximate $10 million increase from its 2008 base revenue) to recover costs for its 20-percent ownership in SONGS. The final decision also grants SDG&E's request for approximately $13 million, a decrease of $2.7 million, for its share of SONGS refueling outage expenses (per refueling outage) in 2009. Edison is in the process of replacing the steam generators at SONGS. Project completion is expected in 2010 and 2011 for Units 2 and 3, respectively. Total estimated capital expenditure for the project, in 2004 dollars, is $671 million, excluding AFUDC. SDG&E's current expected share is $169 million, of which it has incurred $95 million through December 31, 2009, and there are $38 million of firm commitments at December 31, 2009. In 2006, the CPUC approved SDG&E's participation in the replacement project as well as providing SDG&E with full recovery of current operating and maintenance costs via balancing account treatment effective January 1, 2007. Spent Nuclear Fuel SONGS owners are responsible for interim storage of spent nuclear fuel generated at SONGS until the DOE accepts it for final disposal. Spent nuclear fuel has been stored in the SONGS Units 1, 2 and 3 spent fuel pools and in the ISFSI. Movement of all Unit 1 spent fuel to the ISFSI was completed in 2005. <ul><li>Spent fuel for Unit 2 is being stored in both the Unit 2 spent fuel pool and the ISFSI. </li><li>Spent fuel for Unit 3 is being stored in both the Unit 3 spent fuel pool and the ISFSI. </li></ul>A second ISFSI pad, completed in 2009, will provide sufficient storage capacity to allow for the continued operation of SONGS through 2022. NOTE 16. OTHER REGULATORY MATTERSGeneral Rate Case (GRC) The CPUC uses a general rate case proceeding to prospectively set rates sufficient to allow the Sempra Utilities to recover their reasonable cost of operations and to provide the opportunity to realize an acceptable rate of return on their investment. The Sempra Utilities are scheduled to file their next rate case with the CPUC with a 2012 test year. 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 methodologies 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. In December 2009, The Utility Reform Network, UCAN and Aglet Consumer Alliance filed a joint response opposing the requested increase. In February 2010, due to the lack of progress by the CPUC in responding to the joint request to delay the GRC filings by one year, SDG&E and SoCalGas filed with the CPUC to withdraw the request for delay. If the withdrawal requests are approved by the CPUC, SDG&E and SoCalGas will each file in the third quarter of 2010 a Notice of Intent to file a GRC with a 2012 test year.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>operational incentives </li><li>energy efficiency/demand side management </li><li>natural gas procurement </li><li>unbundled natural gas 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. We provide a summary of the incentive awards recognized below.<table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="342">UTILITY INCENTIVE AWARDS 2007-2009</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="18"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="18"> </td><td height="17" style="border-top: 1px solid #000000;" align="right" width="20"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22"> </td><td height="17" style="border-top: 1px solid #000000;" align="right" width="23"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="14"> </td></tr><tr><td height="17" width="342" align="left">(Dollars in millions)</td><td height="17" width="18" align="right"> </td><td height="17" width="64" align="left"> </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right"> </td><td height="17" width="64" align="left"> </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right"> </td><td height="17" width="64" align="left"> </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left"> </td><td width="307" align="center" colspan="9" style="border-bottom: 1px solid #000000;" height="17">Years ended December 31,</td></tr><tr><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="342"> </td><td width="100" align="center" colspan="3" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="17">2009 </td><td width="106" align="center" colspan="3" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="17">2008 </td><td width="101" align="center" colspan="3" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="17">2007 </td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="342">Sempra Energy Consolidated</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="18"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="18"> </td><td height="17" style="border-top: 1px solid #000000;" align="right" width="20"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22"> </td><td height="17" style="border-top: 1px solid #000000;" align="right" width="23"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64"> </td><td height="17" style="border-top: 1px solid #000000;" align="left" width="14"> </td></tr><tr><td height="17" width="342" align="left">Natural gas procurement</td><td height="17" width="18" align="right">$</td><td height="17" width="64" align="right"> 7 </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right">$</td><td height="17" width="64" align="right"> 12 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right">$</td><td height="17" width="64" align="right"> 12 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Operational incentives</td><td height="17" width="18" align="right"> </td><td height="17" width="64" align="right"> 1 </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right"> </td><td height="17" width="64" align="right"> 12 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right"> </td><td height="17" width="64" align="right"> 10 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Energy efficiency and demand side management</td><td height="17" width="18" align="right"> </td><td height="17" width="64" align="right"> 2 </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right"> </td><td height="17" width="64" align="right"> 28 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right"> </td><td height="17" width="64" align="right"> 12 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Unbundled natural gas storage and hub services</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="18"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 19 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="18"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="20"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 15 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="23"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 26 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="14"> </td></tr><tr><td height="18" style="border-bottom: 2px solid #000000;" align="left" width="342">Total awards</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="18">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 29 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="18"> </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="20">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 67 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="22"> </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="23">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 60 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="14"> </td></tr><tr><td height="17" style="border-top: 2px solid #000000;" align="left" width="342">SDG&E</td><td height="17" style="border-top: 2px solid #000000;" align="right" width="18"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="64"> </td><td height="17" style="border-top: 2px solid #000000;" align="left" width="18"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="20"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="64"> </td><td height="17" style="border-top: 2px solid #000000;" align="left" width="22"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="23"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="64"> </td><td height="17" style="border-top: 2px solid #000000;" align="left" width="14"> </td></tr><tr><td height="17" width="342" align="left">Natural gas procurement</td><td height="17" width="18" align="right">$</td><td height="17" width="64" align="right"> - </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right">$</td><td height="17" width="64" align="right"> 3 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right">$</td><td height="17" width="64" align="right"> 2 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Operational incentives</td><td height="17" width="18" align="right"> </td><td height="17" width="64" align="right"> 1 </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right"> </td><td height="17" width="64" align="right"> 10 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right"> </td><td height="17" width="64" align="right"> 9 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Energy efficiency and demand side management</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="18"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> - </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="18"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="20"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 23 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="23"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 12 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="14"> </td></tr><tr><td height="18" style="border-bottom: 2px solid #000000;" align="left" width="342">Total awards</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="18">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 1 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="18"> </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="20">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 36 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="22"> </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="23">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 23 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="14"> </td></tr><tr><td height="17" style="border-top: 2px solid #000000;" align="left" width="342">SoCalGas</td><td height="17" style="border-top: 2px solid #000000;" align="right" width="18"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="64"> </td><td height="17" style="border-top: 2px solid #000000;" align="left" width="18"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="20"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="64"> </td><td height="17" style="border-top: 2px solid #000000;" align="left" width="22"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="23"> </td><td height="17" style="border-top: 2px solid #000000;" align="right" width="64"> </td><td height="17" style="border-top: 2px solid #000000;" align="left" width="14"> </td></tr><tr><td height="17" width="342" align="left">Natural gas procurement</td><td height="17" width="18" align="right">$</td><td height="17" width="64" align="right"> 7 </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right">$</td><td height="17" width="64" align="right"> 9 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right">$</td><td height="17" width="64" align="right"> 10 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Operational incentives</td><td height="17" width="18" align="right"> </td><td height="17" width="64" align="right"> - </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right"> </td><td height="17" width="64" align="right"> 2 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right"> </td><td height="17" width="64" align="right"> 1 </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Energy efficiency and demand side management</td><td height="17" width="18" align="right"> </td><td height="17" width="64" align="right"> 2 </td><td height="17" width="18" align="left"> </td><td height="17" width="20" align="right"> </td><td height="17" width="64" align="right"> 5 </td><td height="17" width="22" align="left"> </td><td height="17" width="23" align="right"> </td><td height="17" width="64" align="right"> - </td><td height="17" width="14" align="left"> </td></tr><tr><td height="17" width="342" align="left">Unbundled natural gas storage and hub services</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="18"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 19 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="18"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="20"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 15 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="23"> </td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64"> 26 </td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="14"> </td></tr><tr><td height="18" style="border-bottom: 2px solid #000000;" align="left" width="342">Total awards</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="18">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 28 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="18"> </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="20">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 31 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="22"> </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="23">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64"> 37 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="14"> </td></tr></table>Operational Incentives The CPUC has established operational incentive mechanisms that have been based on measurements of safety, reliability and customer satisfaction. The 2008 GRC proposed modified performance measures for customer satisfaction for both SDG&E and SoCalGas, and electric reliability for SDG&E. The Sempra Utilities filed responses in September 2008 rejecting the electric reliability and customer satisfaction measures. As a result, effective in 2008, the Sempra Utilities are no longer eligible for awards or subject to penalties for electric reliability and customer satisfaction. The Sempra Utilities plan to submit their employee safety results and incentive awards claims in May 2010 for performance in 2009.Energy Efficiency and Demand Side Management The CPUC established incentive mechanisms that are based on the effectiveness of energy efficiency and demand side management programs. The CPUC-approved energy efficiency awards in 2008 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. The settlement, if approved by the CPUC, would have resulted 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. The CPUC issued a decision in December 2009 rejecting the settlement agreement and instead awarding $0.3 million and $2.1 million to SDG&E and SoCalGas, respectively. The decision held back 35 percent of the program incentive awards pending a final true-up in 2010. In the first quarter of 2010, the Sempra Utilities expect to file a petition for modification of the December 2009 decision to address errors identified in the decision. In September 2009, the CPUC approved the Sempra Utilities' energy efficiency programs through 2012 and will use a similar annual review process to determine any utility incentive awards. The CPUC is also considering future enhancements to the overall incentive award process and mechanism, and a draft decision on possible changes will likely be issued in the first half of 2010.Natural Gas Procurement The Sempra Utilities procure natural gas on behalf of their core natural gas customers. The CPUC has established incentive mechanisms to allow the Sempra Utilities the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above market-based monthly benchmarks. Beginning April 1, 2008, the SDG&E and SoCalGas core natural gas supply portfolios were combined, and SoCalGas now procures natural gas for SDG&E's core natural gas customers' requirements. All SDG&E assets associated with its core natural gas supply portfolio were transferred or assigned to SoCalGas. Accordingly, SDG&E’s incentive mechanism for natural gas procurement awards or penalties ended as of the effective date of the combination of the core natural gas supply portfolios, and SoCalGas' gas cost incentive mechanism (GCIM) is applied on the combined portfolio basis going forward. In January 2010, the CPUC approved a SoCalGas GCIM award of $12 million for its procurement activities in the 12-month period ended March 31, 2009, which will be recorded in the first quarter of 2010. Unbundled Natural Gas Storage and System Operator Hub Services The CPUC has established a revenue sharing mechanism which provides for the sharing between ratepayers and SoCalGas of the net revenues generated by SoCalGas' unbundled natural gas storage and system operator hub services. In 2008, the CPUC adopted an uncontested settlement agreement in Phase I of the Sempra Utilities' Biennial Cost Allocation Proceeding (BCAP) which, among other things, established that the annual net revenues (revenues less allocated service costs) be shared on a graduated basis, as follows: <ul><li>the first $15 million of net revenue to be shared 90 percent ratepayer/10 percent shareholders; </li><li>the next $15 million of net revenue to be shared 75 percent ratepayer/25 percent shareholders; </li><li>all additional net revenues to be shared evenly between ratepayer and shareholders; and </li><li>the maximum total annual shareholder-allocated portion of the net revenues cannot exceed $20 million.</li></ul>Cost of Capital A 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 SoCalGas' authorized return on equity (ROE) is 10.82 percent and its authorized return on rate base (ROR) is 8.68 percent. These rates continue to be effective until market interest rate changes are large enough to trigger an automatic adjustment or until the CPUC orders a periodic review. SoCalGas' current authorized capital structure is <ul><li>48.0 percent common equity </li><li>6.4 percent preferred equity </li><li>45.6 percent long-term debt </li></ul>In July 2009, the CPUC denied SoCalGas’ petition seeking to suspend its cost of capital Market Index Capital Adjustment Mechanism (MICAM). SoCalGas believes that the index used for the MICAM does not provide a strong correlation with utility risks and that further government actions to manage interest rates could increase the likelihood of triggering the MICAM in the future. Although the MICAM did not trigger in 2009, SoCalGas may eventually seek 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's authorized ROE is 11.10 percent and its authorized ROR is 8.40 percent. SDG&E's current authorized capital structure is <ul><li>49.00 percent common equity </li><li>5.75 percent preferred equity </li><li>45.25 percent long-term debt </li></ul>In January 2010, the CPUC approved SDG&E's and the DRA's joint petition to delay SDG&E's next scheduled cost of capital application for two years. With this approval, SDG&E's next cost of capital application is scheduled to be filed in April 2012, consistent with the schedule for cost of capital applications for each of Edison and Pacific Gas and Electric (PG&E).Advanced Metering Infrastructure SDG&E 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 approximately 1.4 million electric meters and 850,000 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. SoCalGas 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 (AMI) at an estimated cost of $1.1 billion (including approximately $900 million in capital investment). The administrative law judge's (ALJ) preliminary decision and an assigned commissioner's alternate decision (AD) were both issued in February 2010. While the ALJ draft decision finds a gas-only AMI system is consistent with the state's energy policy goals and that the AMI system is technically feasible, the ALJ draft decision finds that the gas-only AMI system is not cost effective. The AD approves the project and finds that the proposal provides reasonable assurance that the project can be cost effective for ratepayers, provided that adequate safeguards are put in place. We expect a final CPUC decision in mid-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 17. SDG&E and the DRA have reached an agreement in principle regarding the cost recovery request which, if approved by the CPUC, would result in SDG&E recovering $43 million. A formal settlement agreement is being finalized, but no specific filing date has been established. SDG&E also incurred $30.1 million of incremental costs for the replacement and repair of company facilities under FERC jurisdiction, which are currently being recovered in SDG&E's electric transmission rates. In regard to the 2007 wildfire litigation discussed in Note 17, if SDG&E's liability were to exceed the remaining amounts recoverable from its insurers, SDG&E will file with the FERC and the CPUC for recovery of the excess costs from utility customers. SDG&E is continuing to evaluate the likelihood, amount and timing of any such recoveries.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. Evidentiary hearings are scheduled for April 2010 and a final CPUC decision is expected by the end of 2010. 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. Through December 31, 2009, SDG&E has expensed $15 million (pretax) 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. Several parties protested the request and a proceeding schedule has not yet been established.Greenhouse Gas Regulation Legislation was enacted in 2006, including California Assembly Bill 32 (AB 32) and California Senate Bill 1368, mandating reductions in greenhouse gas emissions. The CARB is the lead agency in developing a plan to meet these requirements and is in the process of developing rules and market mechanisms that will be implemented on January 1, 2012. The CPUC and CEC are also in the process of making recommendations to the CARB regarding the rules that should apply for the electricity and natural gas sectors. The CARB's formal AB 32 Scoping Plan was adopted in December 2008. The U.S. Environmental Protection Agency (EPA) has announced that it will complete a review of the national ambient air quality standards by the end of 2011 for ozone (nitrogen oxide and volatile organic chemicals), particulate matter, carbon monoxide, nitrogen dioxide, sulfur dioxide, and lead. This review could result in more stringent emissions limits on fossil-fired electric generating plants.  These legislative mandates could affect costs and growth at the Sempra Utilities and at Sempra Generation's power plants. Any cost impact at the Sempra Utilities is expected to be recoverable through rates. As discussed in Note 17 under "Environmental Issues," compliance with this and similar legislation could adversely affect Sempra Generation. However, such legislation could also have a positive impact on Sempra Generation because of an increasing preference for natural gas and renewables for electric generation, as opposed to other sources.</div> NOTE 15. ELECTRIC INDUSTRY REGULATION BackgroundCalifornia's legislative response to the 2000 - 2001 energy crisis resulted in the DWR purchasing a substantial false false No definition available. No authoritative reference available. false false 1 2 false UnKnown UnKnown UnKnown false true