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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): May 22, 1995
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SAN DIEGO GAS & ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
CALIFORNIA 1-3779 95-1184800
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
101 ASH STREET, SAN DIEGO, CALIFORNIA 92101
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(Address of principal executive offices) (Zip Code)
(619) 696-2000
Registrant's telephone number, including area code------------------
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(Former name or former address, if changed since last report.)
FORM 8-K
Item 5. Other Events
On May 22, 1995 SDG&E's board of directors appointed David Kuzma,
49, senior vice president and chief financial officer. Kuzma was
formerly vice president and treasurer of Florida Progress
Corporation in St. Petersburg and prior to that was a vice president
and general manager of Consolidated Natural Gas Company of
Pittsburgh.
On May 24, 1995 the California Public Utilities Commission proposed
two plans for electric industry restructuring. Additional
information is included in the attached CPUC press release.
On May 25, 1995 SDG&E announced the retirement of Nad Peterson as
senior vice president, general counsel and corporate secretary effective
May 31, 1995. Until a new general counsel and corporate secretary
is appointed, Greg Barnes and Dave Clark will act as co-managers of
the Legal Division.
Item 7. Financial Statements and Exhibits
(c) Exhibits
28.1 May 24, 1995 California Public Utilities Commission News Release
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SAN DIEGO GAS & ELECTRIC COMPANY
(Registrant)
Date: May 30, 1995 By: /s/ F.H. Ault
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F.H. Ault, Vice President and Controller
EXHIBIT 28.1
California Public Utilities Commission News Release
505 Van Ness Avenue, Room 5301 San Francisco, CA 94102
CONTACT: Dianne Dienstein May 24, 1995 CPUC - 45
415-703-2423 (R.94-04-031/I94-04-032)
CPUC OFFERS ELECTRIC RESTRUCTURING PROPOSALS FOR COMMENT
California Public Utilities Commission (CPUC) President
Daniel Wm. Fessler and Commissioners P. Gregory Conlon and Henry
M. Duque today proposed to restructure California's electric
industry by virtual direct access through a voluntary wholesale
pool with retail competition through physical, bilateral
contracts not sooner than two years after the pool begins.
Commissioner Jessie J. Knight, Jr. offered an alternative
proposing consumer choice through direct access whereby consumers
can enter directly into individual agreements with power
producers. Fessler and Knight are coassigned commissioners for
this proceeding.
The Commission will work with the Legislature, Governor,
other western jurisdictions, and Federal Energy Regulatory
Commission (FERC) to facilitate restructuring.
The proposals cap an effort the Commission began in April
1992 to assess the changing electric services industry, and in
April 1994 with an initial proposal to restructure the industry
to give customers choice among competing generation providers and
replace cost-of-service regulation with performance-based
regulation.
Parties must file written comments by July 24 and reply
comments by August 23. The Commission will schedule Full Panel
Hearings in a future ruling. The Commission will issue, no
sooner than 90 days from today, its final policy decision with a
schedule of steps for implementation.
Competition is shaping a dynamic electric industry where
large buyers can generate their own power, and/or negotiate
price contracts for power with utilities and non-utility
suppliers. Californians pay an average of 10.28 cents/kWh of
electricity, almost 50 percent higher than the national average.
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The Commission seeks to restructure the industry to take
advantage of and foster competition to lower electric rates for
all customer classes, and replace traditional cost-of-service
utility regulation with performance-based regulation.
The Commission reaffirms its regulatory commitment to
continued safe, reliable, environmentally sensitive electric
service available to all consumers in a restructured industry.
It also intends implementing restructuring in a manner that
honors past commitments, provides utilities with the opportunity
to earn a fair profit, and does not compromise utility financial
integrity.
THE MAJORITY VIEW (Commissioners Fessler, Conlon, and Duque)
The majority prefers a policy that would use competition
through a wholesale power pool with virtual direct access to
lower rates for all consumers. The pool is expected to begin not
later than 1/1/97. After two years, if jurisdictional and market
power issues are resolved and transition cost recovery mechanisms
are in place, retail consumers would be able to buy electricity
directly from specific generators. The CPUC would use
performance-based ratemaking for services not subject to
competition.
While Commissioners favor a system like that operating in
England and Wales, that system has been criticized for an
inherent flaw of market domination by two large generation
companies, limiting competition and producing high prices in the
"horizontal" market.
One option for addressing such market power leads the
Commission to seek comment upon corporate separation or
divestiture of a portion or all of utility generation assets into
smaller generating firms, none of which can dominate the market.
The Commission also solicits additional suggestions for
addressing market power, including whether potential remedies
need to be in place before the pool begins to operate or whether
they should be developed after and if market dominance occurs.
In order to address vertical market power, pool participants
would transfer operation of their transmission assets to an
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independent system operator subject to FERC jurisdiction.
Commissioners commit the CPUC to "cooperative federalism" with
the FERC to resolve federal-state jurisdictional issues, and
suggest this proposed structure would be useful in solving
difficulties in valuing uneconomic assets/costs. Transmission and
distribution assets may be reorganized into separate wholly-owned
affiliates to better avoid self-dealing issues for transmission
entities, and jurisdictional issues for distribution entities.
Pacific Gas & Electric, Southern California Edison, and San
Diego Gas & Electric, with formal CPUC support, would seek FERC
approval to establish the wholesale pool to function as an
independent system operator. They would transfer operating
control of their transmission assets to that operator. All other
power suppliers including municipal utilities, power marketing
agencies, independent power producers, and out-of-state
generators would be invited to participate through sales or
purchases and would be given nondiscriminatory access to
transmission services.
The independent system operator will ensure the most
efficient mix of power plants and network facilities are in use
at any given time, coordinate planning and operating activities
among electric suppliers and users, determine which bids best
match supply and demand, maintain system reliability, manage
emergency responses, reserves and grid congestion, and be
responsible for providing backup services to avoid disruption of
service throughout the network. System reliability would be
governed by NERC and WSCC standards.
Under the wholesale pool with virtual direct access, the cost
of generation is determined by an economically efficient auction
conducted by the independent pool system operator in real time
and revealed to the market each day. In this way, it works much
like the New York Stock Exchange.
All successful bidders into the pool - those who bid to
supply electricity at the lowest price - would receive a uniform
market clearing price. A utility purchasing electricity from the
pool would pay that price, and will face minimal CPUC review of
its procurement activities. Utilities would have to purchase
generation resources from this competitive market and this will
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lower prices and give better price signals in the near term to
all market participants than retail, physical contracts.
Utilities would continue to distribute electricity to end users
under CPUC rate-setting jurisdiction.
Customers would be given a choice of a rate scheme which
reflects real time pricing or one which averages the cost of
electricity multiplied by the monthly consumption. This will
require the phase-in of real-time metering over the next six
years. Virtual direct access allows consumers with real-time
meters to better control their energy use and the price they pay.
Such meters allow them to track their energy use hour-by-hour.
Combined with the publicly available price information from the
pool, customers can tell what their hourly energy costs and usage
are and adjust accordingly. Virtual direct access also allows
customers to lock in energy prices through financial contracts
(contracts for differences) with energy producers, marketers, or
brokers. Thus, customers are allowed to control their overall
energy costs by constructing a portfolio of short-term energy
purchases from the pool, long-term fixed price purchases through
financial contracts and appropriate energy conservation and load-
shifting.
As Commissioners see it, "Over time, the price conscious
market will exert downward pressure on prices as it rewards cost
containment, operating efficiencies and the adoption of enhanced
technologies. A customer of any class can follow this market by
noting daily quotations for each hour and half hour reported in
news media as well as by finding the electricity component
clearly defined on the utility bill."
Because demand for electricity varies throughout a day, the
pool reveals the true cost of electricity as it is used, and
customers can better manage their use through shifting to a time
of day when rates are lower or improving their energy efficiency.
The result, according to Commissioners, is a fourfold benefit for
any individual consumer who is able to reduce costs by shifting
load [demand], for the society at large which defers the demand
for new generation, for investors in existing plant and equipment
who see it put to more productive use, and for individual
customers who can arrange for financial contracts with generators
long-term fixed prices if they desire.
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Commissioners acknowledge that in the short term, virtual
direct access would be limited by access to real time meters to
monitor electricity use, and suggest a meter implementation
schedule based on a customer's maximum demand: 500 kW (already
installed), 400 kW - one year after the pool begins, 300 kW - two
years after the pool begins, 200 kW - three years after the pool
begins, 100 kW - four years after the pool begins, 50 kW - five
years after the pool begins, below 50 kW - six years after the
pool begins. Customers can opt to install real time meters
sooner.
For utility assets subject to competition, compensation
either to shareholders, if negative, or ratepayers, if positive,
would be based on the difference between market value and book
value. Transition cost compensation - the cost of paying off
utility assets which become uneconomic in a competitive
environment - would be separate on customer bills from energy
pricing through the pool mechanism. Positioning utilities as the
distribution provider for all customer classes ensures that cost
shifting between customer classes does not occur and that each
class will pay a fair share of the costs of transitioning to a
more competitive market. No transition cost compensation would
occur until the pool begins to operate. Nuclear power plants will
receive enough revenue through a transition charge to ensure a
fair return. Contracts with independent power producers will not
be disrupted.
Commissioners will work with the Legislature to explore other
ways to improve, deliver and fund mandated low income, economic
development, environmental, and diverse energy source programs.
In the interim, the programs would continue as they are with the
costs for each distinctly identified on customer bills.
AN ALTERNATIVE VIEW (Commissioner Knight)
Commissioner Jessie J. Knight, Jr. offered an alternative
proposal to streamline regulation and grant consumer choice
through direct access by relying on direct, principal-to-
principal arrangements between buyers and sellers of electricity.
Knight stands by his proposal, stating, "I remain convinced that
the views expressed in this proposal will be embraced by a
majority of Californians, who want lower cost electric service."
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Commissioner Knight's proposal would grant California's
electric consumers the option of purchasing electric and other
services from a provider other than the utility, in much the same
way that consumers of telecommunications service select long
distance telephone service, yet calls are completed by the local
utility. Under this alternative, all consumers would have access
to the benefits of a more competitive industry in a manner that
maintains reliability, service, and safety. This proposal offers
as well a reformed regulatory approach which rewards utility
management and employees for efficiency and performance, not
dollars spent.
This proposal adheres to two strict guidelines: first, there
will be no cost shifting among consumers, and second, rates will
not rise in the transition to a more competitive market. Knight
states, "The forces of competition are well underway in this
industry. Those forces and consumer through direct access cannot
be quarantined. They must be tapped for the benefit of
California's consumers and its economy."
Beginning in two years, consumers would have access to the
competitive market for generation and other services. This
proposal builds on commercial arrangements and market mechanisms
already in place to ensure the reliable delivery of power over
the transmission and distribution network. It specifically
rejects subjecting California to the substantial risks of a
centralized, government-mandated market structure in which all
buyers and sellers are forced to participate.
The direct access model allows consumers to choose to remain
with the utility, to tap the competitive market through direct
access, to participate voluntarily in power pools, or to elect
any other market mechanism to ensure delivery of power.
Consumers electing to enter the competitive market are termed
direct access consumers. Consumers electing to remain with the
utility are termed utility service consumers.
To ensure a fair and competitive market for generation and
other services, and to accurately determine transition costs, the
utilities would separate power plants from transmission,
distribution and other assets, using approaches that promote
shareholder indifference. This could occur through an auction, a
"spinoff" to shareholders, or some combination, allowing the
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value for the utilities' power plants to be set by the market,
not by government forecasting and regulatory processes. The
remaining utility, or Electric Distribution Company (EDC), would
procure power for its consumers in the open market for
electricity. Utilities would have two years to complete their
reorganizations. The EDC would continue to honor existing
contracts to purchase power from independent generators and would
be fully compensated for any above-market cost of this power.
In addition, to ensure a safe and reliable network that
treats all buyers and sellers equally, the proposal establishes
an independent system coordinator or "OPCO" to provide the
coordination and reliability services necessary to sustain the
flow of electrons, and do so in a way that neither advantages not
disadvantages any participant in the market.
Many utility assets, including some contracts and power
plants, are not economic in today's market. This proposal would
promote shareholder indifference by allowing the utilities to
recover costs associated with these assets in the transition to a
more competitive market. For utility-owned power plants,
utilities may recover 90 percent of the uneconomic portion of
their generating assets. The remaining 10 percent of the
uneconomic portion of utility generating assets would be returned
to ratepayers in lower rates. The costs associated with
uneconomic contracts for power purchased from independent power
providers is fully recovered, as are the costs associated with
existing balances in regulatory accounts. These uneconomic
utility assets and obligations are included in rates today, but
in the future would be separately identified on all consumers'
bills as a Competition Transition Charge, or CTC.
This proposal would maintain a reasonable opportunity to earn
for utility shareholders and a fair opportunity to compete in a
restructured industry. The utility would enjoy, through
performance ratemaking, an opportunity to earn based on
successful management; the utility would not be at risk for the
costs of the transition; and the utility would have the
opportunity to compete to serve consumers as an effective and
successful "portfolio manager."
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The Electric Distribution Company retains the obligation to
serve all utility service consumers, and retains the obligation
to transmit power to direct access consumers. However, the
obligation to serve is substantially modified for direct access
consumers. Direct access consumers wishing to return to the EDC
for service will no longer enjoy the protection of regulated,
tariffed rates.
This proposal's approach to continued funding for public
purpose, energy efficiency, and environmental programs is similar
to that proposed by the other Commissioners. In the near term,
these programs continue at their current funding levels through
current funding mechanisms. However, unlike the current
practice, the cost of these public purpose programs would be
stated explicitly on each customer's bill.
For the longer term, the direct access proposal recognizes
that in order to sustain these programs in a more competitive
market, their funding mechanisms must be altered. This proposal
offers for the Legislature's consideration recommendations on how
to ensure continued funding for these programs. In addition,
this alternative recommends for consideration by the Governor and
Legislature the formation of a broad-based task force composed of
interested stakeholders. The task force would design ways to
fund these programs in the future. The programs under discussion
include low income rate discounts, special economic development
rates, research and development programs, energy conservation
programs, special utility procurement programs to ensure a
diverse energy supply, and many others.
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BACKGROUND
These proposals result from six days of Commission Full Panel
Hearings over the course of a year, comments by 140 parties and
hundreds of individuals participating in 16 Public Participation
Hearings statewide or responding to parties' comments and
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transcripts available to them via the Internet and broadcasts of
the hearings on the California Channel. The proposals also
reflect information obtained from evidentiary hearings on issues
related to uneconomic assets, dialogue with other state and
federal agencies and legislators on cooperative solutions to
jurisdictional issues, dialogues with other nations which have
restructured their electric industry, and recommendations of the
Working Group Report on how to continue public purpose programs
under various market models.
HOW TO OBTAIN THE PROPOSALS
1. Internet access either through gopher.cpuc.ca.gov or
ftp.cpuc.ca.gov.
2. Call 415-703-2045. After the recording, state you want the
proposals on electric restructuring, docket R.94-04-031,
issued on May 24. You will receive the proposals and a bill
for the cost of reproducing them at 20 cents/page.
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