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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): December 5, 2000
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SEMPRA ENERGY
(Exact name of registrant as specified in its charter)
California 1-14201 33-0732627
(State of (Commission (I.R.S. Employer
incorporation or File Number) Identification No.
organization)
101 Ash Street, San Diego, California 92101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area 619-696-2034
code --------------
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(Former name or former address, if changed since last report.)
FORM 8-K
Item 5. Other Events
Sempra Energy has distributed a Preliminary Prospectus
Supplement dated December 1, 2000, relating to the
offering of $300 million of its Notes due in 2005. The
information contained under the caption "Recent
Developments" in the Preliminary Prospectus Supplement is
attached to this Current Report on Form 8-K as Exhibit
99.1. As used in such exhibit, unless otherwise stated or
the context otherwise requires, references to "we," "us"
and "our" should be read to refer to Sempra Energy and its
subsidiaries.
Item 7. Financial Statements And Exhibits.
(c) Exhibits
99.1 Excerpt entitled "Recent Developments" from
the Preliminary Prospectus Supplement dated
December 1, 2000.
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.
SEMPRA ENERGY
(Registrant)
Date: December 5, 2000 By: /s/ F. H. Ault
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F. H. Ault
Vice President and
Controller
EXHIBIT 99.1
RECENT DEVELOPMENTS
California Electric Industry Deregulation. In 1996, California enacted
legislation restructuring California's investor-owned electric utility
industry. The legislation and related decisions of the California
Public Utilities Commission, or CPUC, were intended to stimulate
competition and reduce electric rates.
As part of the framework for a competitive electric generation market,
the legislation established the California Power Exchange, also known
as the Cal PX. The Cal PX serves as a wholesale power pool to which
the California investor-owned utilities are required to sell all of
the electricity they generate and, except to the extent otherwise
authorized by the CPUC, from which they are required to buy all of the
electricity needed to serve their retail electric power consumers. The
Cal PX also purchases electric power from non-utility generators
through an auction process intended to establish competitive market
prices for the power that it sells to the investor-owned utilities.
The restructuring legislation also established a transition cost rate
freeze on amounts that the investor-owned utilities could charge their
customers. The rate freeze was purposely designed to generate revenue
levels assumed to be sufficient to provide the investor-owned
utilities with a reasonable opportunity to recover the above-market
``stranded'' costs of their investments in electric generating assets.
The legislation did not make any provision for an investor-owned
utility to recover costs of purchased electricity that exceeded the
rates that could be charged under the rate freeze. The rate freeze was
to end as to each investor-owned utility when it recovered its
stranded costs, but in no event later than March 31, 2002.
San Diego Gas and Electric Company (``SDG&E''), our subsidiary
delivering electricity to customers in San Diego County and portions
of Orange County, completed the recovery of its stranded costs in June
1999, and therefore is no longer subject to the transition cost rate
freeze imposed by the restructuring legislation. As a result, unlike
other California investor-owned utilities, SDG&E is no longer subject
to the risk that rates charged to customers under the transition cost
rate freeze would be insufficient to recover the cost of the purchased
electricity that it distributes to customers.
With the transition cost rate freeze no longer applicable, SDG&E
lowered its base rates (the portion of its rates not attributable to
purchased electricity costs) and began to pass through to its
customers, without mark-up, the cost of electricity purchased from the
Cal PX. Initially, SDG&E's overall rates were lower than during the
transition cost rate freeze, but they also became subject to
fluctuation with the actual cost of electricity purchases.
Beginning in June 2000, the price of electricity purchased from the
Cal PX increased dramatically. During the summer, the average cost of
power was about 14 cents/kwh compared to 4.34 cents/kwh during the
prior summer, and the wholesale cost of electric power continues to
remain abnormally high.
These higher electricity prices were initially passed through to our
customers and resulted in customer bills that in most cases were
double or triple those from the prior year. This has resulted in
legislative and regulatory responses.
Under California Assembly Bill 265, enacted in September 2000, a
ceiling of 6.5 cents/kwh has been imposed on the cost of electricity
that SDG&E may pass on to its customers on a current basis. The
ceiling was made retroactive to June 1, 2000 and extends through the
end of 2002. In addition, the CPUC is authorized to extend the ceiling
through the end of 2003 if it determines that it is in the public
interest to do so. In accordance with AB 265, the CPUC is also
conducting a review into the prudence of our electric power purchasing
practices. As a result of the new ceiling rate, even though SDG&E is
no longer subject to the transition cost rate freeze, it is not
currently able to pass through to its customers the full purchase cost
of electricity that it provides.
SDG&E accumulates the amount that it pays for electricity in excess of
the ceiling rate, or undercollected costs, in a balancing account.
SDG&E expects to amortize these amounts, together with interest, in
rates charged to customers following the end of the ceiling period.
These undercollected costs are reflected in our financial statements
as a non-current asset.
Our undercollected costs were $254 million at September 30, 2000, and
we expect that our aggregate undercollected costs will continue to
grow for as long as the ceiling rate is in effect. The rate at which
we continue to accumulate undercollected costs will vary depending
upon many factors, including the wholesale prices for available
electric power, variations in the volume of electricity demanded by
SDG&E's customers (which is significantly impacted by abnormal
temperatures), regulatory decisions, and the availability and use of
hedging transactions and other firm price commitments. Because of
these and many other factors, the amount of undercollected costs that
we will accumulate in future periods cannot be estimated with any
reasonable certainty. However, based on recent NYMEX futures prices,
SDG&E's present purchasing policies and typical customer demand,
accumulated undercollections would be $420 million at December 31,
2000, $630 million at December 31, 2001, $840 million at December 31,
2002 and, if the rate ceiling is further extended by the CPUC through
2003, $1,060 million at December 31, 2003. Because of the number of
factors that will determine our actual experience, our aggregate
undercollections will be different from these amounts, and could vary
significantly.
In October 2000, we requested that the CPUC freeze the commodity rate
we can charge our customers at 6.5 cents/kwh instead of using that
rate as a ceiling. Under a rate freeze, in those months when the
electric commodity cost is less than 6.5 cents/kwh, we would be able
to collect more revenue than our current cost of electricity to offset
the undercollection incurred when wholesale power prices are above
that rate. It is unlikely that the CPUC will act on our application
until it has completed its review of the prudence of our electricity
purchases.
We expect the CPUC to complete its review of our electricity purchases
in the third quarter of 2001. Based upon our historical experience
with the CPUC, we recorded an after-tax charge of $30 million during
the third quarter of 2000 related to the recent legislative and
regulatory actions associated with power acquisition costs.
While AB 265 and related CPUC decisions to respond to the high
electricity rates will adversely affect the timing of revenue
collections by SDG&E and related cash flows, they also affirm SDG&E's
right to recover all of its prudently incurred costs of purchasing
electricity for its customers.
The Federal Energy Regulatory Commission is investigating the electric
bulk power markets and California's attorney general is investigating
whether there has been market manipulation. Other investigations are
also in process by the CPUC and the U.S. Attorney General's office. In
addition,
the California Joint Legislative Audit Committee recently approved an
audit of the Cal PX. Consequently, additional legislative, regulatory
and other proposals, including those of consumer groups, may be
advanced or enacted that could significantly affect the rates that
SDG&E may charge its customers. However, we will vigorously oppose,
through regulatory proceedings and otherwise, any action that does not
assure the ultimate collectibility of our costs of providing electric
service.
Announced Litigation. Various news organizations have reported that a
class action lawsuit has been filed against a number of energy
generating, marketing and trading companies, including our
subsidiaries Sempra Energy Resources and Sempra Energy Trading. The
lawsuit reportedly alleges conspiracy and other anti-competitive
conduct to raise wholesale electric prices in the California market.
We have not been served with the lawsuit, but regard any allegations
that our subsidiaries have engaged in unlawful conduct to be without
merit.