SEMPRA ENERGY DEAL ANNOUNCED.... FINALLY!

OFFICE OF THE GOVERNOR
PR01:295
FOR IMMEDIATE RELEASE
06/18/2001
GOVERNOR DAVIS ANNOUNCES AGREEMENT WITH SDG&E, SEMPRA ENERGY
$400-$12,000 Per Customer Balloon Payment Eliminated, No Additional Rate
Increases Required to Pay Off Undercollection
SACRAMENTO
Governor Gray Davis today announced an agreement with San Diego Gas &
Electric and the utility's parent company, Sempra Energy, that will erase a
$747 million balloon payment facing the utility's three million customers.
"The balloon is burst," Governor Davis said. "Under this agreement, the
undercollection is eliminated, without any increase in rates. This is a
massive benefit to the San Diegans, the first Californians to bear the brunt
of our state's energy crisis last summer."
The Memorandum of Understanding (MOU), signed by the Department of Water
Resources for Gov. Davis with Sempra Energy and SDG&E executives while a
group of San Diego ratepayers, and State Senators Steve Peace (D-El Cajon)
and Dede Alpert (D-Coronado) looked on, includes a number of provisions to
eliminate the undercollection that could have cost each customer
approximately $750 (as much as $400 for each residential customer, $1,400
for each small-commercial customer and $12,000 for each medium-sized
commercial customer).
In addition, it would settle several regulatory cases before the California
Public Utilities Commission (PUC), gives the State the opportunity to
purchase 15,780 acres of environmentally-sensitive lands owned by the
company along the Colorado River, and provides below-market power to the
State through December 2010 from the San Onofre nuclear power plant. The
regulatory provisions are subject to PUC approval.
It also calls for the purchase of SDG&E's transmission lines for
approximately $1 billion, or 2.3 times book value. However, the deal is not
contingent on that purchase of SDG&E's transmission network, which includes
170 electric lines exceeding 69 kilovolts in capacity and spans
approximately 1,800 circuit miles from southern Orange County to the Mexican
border. The system also includes about 135 electric substations and
transmission interties with Southern California Edison's system at the San
Onofre Nuclear Generating Station.
"Throughout these long and complex negotiations, Governor Davis and we have
had the mutual objective of reducing the financial impact of California's
crisis on SDG&E's customers and helping the State gain more control over its
energy destiny," said Stephen L. Baum, chairman, president and chief
executive officer of Sempra Energy. "Today's agreement represents a winning
proposition for our customers, the State and our company: it reduces the
future financial burden on our customers, protects the State's economic
future, and creates a clear path for future growth and profitability for our
company. Going forward, we are committed to working with Governor Davis and
the State to implement his recovery plan."
The MOU signed today is the second with California's investor-owned
utilities. An agreement with Southern California Edison is pending approval
before the State Legislature. Unlike the Edison agreement, however, the MOU
with Sempra Energy does not need legislative approval (except for the
acquisition of transmission lines).
"This is an example of the good that can come when parties are responsible
and remain at the bargaining table," Governor Davis said. "This is a
balanced business transaction that benefits ratepayers and provides a stable
environment for the State's third largest utility."
Governor Davis said the MOU will not result in any additional
electric-base-rate increases for SDG&E customers to recover the $750 million
undercollection. Without the MOU, future balloon payments to recover this
sum could have been as much as $750 per customer.
The regulatory balancing account for SDG&E's undercollected power costs had
grown to approximately $750 million since September 2000, when the State
imposed a retail rate cap of 6.5 cents per kilowatt-hour, retroactive to May
2000. California state law AB 265, signed by Governor Davis last year,
provided for SDG&E's recovery of all its prudently incurred power costs, but
delegated responsibility to the PUC for determining the method and timeline
for recovery.
The agreement includes a complex package of elements to eliminate the
balloon payment, such as the settlement of the reasonableness-review case
SDG&E had with the PUC. To settle that case, the utility has agreed to
forego collecting $100 million of the balancing account.
In addition, the agreement notes that:
SDG&E agrees to give back 90 percent of the profits on two long-term power
contracts earned since the energy crisis flared last June. That means SDG&E
will forego collecting another $219 million in the balancing account. (The
California Department of Water Resources will purchase those contracts as of
June 1.);
SDG&E and its sister utility, SoCalGas, will invest at least $3 billion over
six years into capital improvements. In addition, if the State decides not
buy the transmission lines (and
SDG&E builds the Valley Rainbow line) the utility, backed by Sempra Energy,
will put another $500 million into transmission line improvements, subject
to PUC approval). Excluding the transmission system improvements, this is an
increase of $600 million more than the utilities invested in capital
improvements in the previous five years; and
SDG&E will drop all legal claims against the State.
"We know that many of our customers are extremely concerned about the
potential of large balloon payments looming in the future to address our
past undercollections," said Edwin A. Guiles, group president of Sempra
Energy's regulated business units and chairman of SDG&E. "We are pleased
that today's agreement provides the framework to resolve major regulatory
issues to the benefit of our customers. Many challenges remain, but, this
agreement demonstrates that, by working together, we can surmount these
challenges in a way that benefits all the key stakeholders in California's
energy future."
The MOU also calls for the Department of Water Resources (DWR) to continue
to buy power for SDG&E through the agency until certain conditions are met.
DWR has been purchasing power for SDG&E customers since early February.
SDG&E is a regulated utility operating in San Diego and southern Orange
counties. Sempra Energy (NYSE: SRE), based in San Diego, is a Fortune 500
energy services holding company with annualized 2001 revenues of about $13
billion. Through its eight principal subsidiaries - Southern California Gas
Company, San Diego Gas & Electric, Sempra Energy Solutions, Sempra Energy
Trading, Sempra Energy International, Sempra Energy Resources, Sempra
Communications and Sempra Energy Financial - the Sempra Energy companies'
12,000 employees serve more than nine million customers in the United
States, Europe, Canada, Mexico, South America and Asia.