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): February 16, 2001
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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 code 619-696-2034
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(Former name or former address, if changed since last report.)
FORM 8-K
Item 5. Other Events
Set forth below is the text of a discussion of recent
developments affecting San Diego Gas & Electric Company
(SDG&E), a subsidiary of Sempra Energy, contained in
supplemental information distributed in connection with
the remarketing from short-term to long-term of City of
Chula Vista Industrial Development Revenue Bonds (San
Diego Gas & Electric Company) 1997 Series A. The bonds are
supported by a Loan Agreement with SDG&E providing for
payments by SDG&E to the City of Chula Vista of amounts
sufficient to make payments when due in respect of the
bonds.
SDG&E Rate Ceiling and Undercollected Costs
SDG&E is subject to a legislatively imposed temporary
rate ceiling of 6.5 cents/kwh on its cost of electricity
that it may pass on to residential and small business
customers on a current basis. The rate ceiling continues
through the end of 2002 and the California Public
Utilities Commission (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. Legislation has also
been introduced that, if enacted, would extend the rate
ceiling to SDG&E's larger business customers.
The legislation imposing the rate ceiling and related
decisions of the CPUC specifically affirm SDG&E's right
ultimately to recover in rates its prudently incurred
costs of purchasing electricity for its customers. The
legislation also authorizes the CPUC to adjust the ceiling
rate if it finds it is in the public interest to do so
following the completion of a CPUC examination of the
reasonableness of SDG&E's electricity purchases that is
expected to be completed in the third quarter of 2001.
As a result of the rate ceiling, SDG&E has been
unable to pass through to customers the full cost of the
electricity that it purchases for them. SDG&E has
accumulated the amount that it paid for electricity in
excess of the rate ceiling, or "undercollected costs," in
an interest bearing regulatory balancing account. These
undercollected costs are reflected in SDG&E's financial
statements as a non-current asset to be collected in
future rates charged to customers.
In each month since June 2000, when the rate ceiling
retroactively became effective, SDG&E received
insufficient revenues through the 6.5 cents/kwh rate
ceiling to cover its costs of purchasing electricity for
customers. Current published prices for future deliveries
of electricity suggest that wholesale prices will continue
substantially to exceed the ceiling rate. SDG&E's
undercollected costs were $254 million at September 30,
2000, and had grown to $447 million at December 31, 2000
and $605 million at January 31, 2001.
California recently enacted legislation that is
intended to halt or substantially slow the growth of cost
undercollections by SDG&E and other California investor-
owned utilities. Consequently, SDG&E believes that its
continued accumulation of undercollected costs will depend
primarily upon the effects of this legislation and other
legislative and regulatory developments.
Recent Legislation
On February 1, 2001, the California legislature
passed and the Governor signed into law emergency
legislation authorizing the California Department of Water
Resources (CDWR) to purchase electricity for resale to all
California investor-owned utility retail end-use customers
(including customers of SDG&E) through local utility
distribution systems. CDWR electricity purchases are to be
financed from revenues derived from the resale of
electricity to the utilities' customers and the issuance
by the CDWR of up to an estimated $10 billion of revenue
bonds supported by these resale revenues.
The legislation provides for rates for CDWR resales
of electricity to be set at levels sufficient to cover the
revenue requirements of the CDWR's electricity purchasing
program as determined by the CDWR. However, the
legislation prohibits the CPUC from increasing residential
customer rates for electricity usage of less than 130% of
existing "baseline" quantities until the CDWR has
recovered its costs of procuring electricity for a
utility's customers. The CDWR's authority to contract for
additional electricity will expire at the end of 2002 but
the expiration of its contracting authority will not
affect its authority to sell electricity under contracts
entered into prior to that time.
The legislation contemplates regulatory and other
implementing actions by the CDWR and the CPUC that have
yet to be taken. Consequently, it is difficult to predict
accurately the effect of the legislation on SDG&E and
continuing cost undercollections. SDG&E believes, however,
that the effect of the legislation will depend largely
upon and vary with the extent to which the CDWR replaces
SDG&E as the purchaser of electricity for SDG&E's
customers.
The CDWR has advised SDG&E that it intends to
purchase and resell to SDG&E's customers SDG&E's "full net
short position," all of the electricity that SDG&E would
otherwise purchase for its customers. It began doing so on
February 7, 2001.
SDG&E believes that the CDWR's purchase of SDG&E's full
net short position would end material growth in SDG&E's
cost undercollections. To the extent that the CDWR does
not purchase SDG&E's full net short position, SDG&E may be
required to begin again making purchases and purchase any
shortfall at market prices for resale to its customers at
SDG&E's ceiling rate (which remains unchanged by the
legislation) with any related undercollections continuing
to increase SDG&E's total undercollected costs.
The California legislature continues to remain in
emergency session to address the California energy crisis.
Various other legislative proposals as well as regulatory
and other proposals (including those of consumer groups)
that would significantly affect the structure of the
California investor-owned utility industry, the rates that
SDG&E and other investor-owned utilities may charge their
customers and the ability of the utilities (including
SDG&E), to purchase electricity for their customers, and
to finance and recover undercollected costs have been
advanced and additional proposals are likely to be
advanced. However, SDG&E will vigorously oppose, through
regulatory proceedings and otherwise, any action that does
not assure the ultimate and timely collection of its costs
of providing electric service.
PX/ISO Billings
Although it has experienced substantial
undercollections of its costs of purchasing electricity
for its customers, SDG&E has nonetheless remained current
in paying for its electricity purchases as well as its
other payment obligations. However, on February 9, 2001,
SDG&E received a "charge-back" billing of $29 million
relating to a default by another California utility in
paying for power purchased by the other utility from the
California Independent System Operator (ISO) from which
SDG&E and other California investor-owned utilities have
purchased electricity. SDG&E believes the charge-back is
improper under applicable tariffs. SDG&E and other
recipients of the charge-back billings have obtained a
temporary restraining order preventing their collection
pending the outcome of litigation contesting the charges.
SDG&E may receive additional charge-back billings in
respect of defaults in electricity purchase payments by
other California utilities in paying for electricity
purchased from the ISO and California Power Exchange (PX),
from which SDG&E and other California utilities previously
also purchased power. It also expects that it may receive
billings for its own purchases of electricity from the PX
that do not reflect proper compliance by the PX with
wholesale price caps ordered by the Federal Energy
Regulatory Commission. SDG&E will contest any such
billings to the extent that it believes they are
inconsistent with applicable tariffs and orders.
SDG&E Liquidity and Capital Resources
The rate ceiling has materially and adversely
affected SDG&E's revenue collections and its related cash
flows and liquidity. SDG&E has fully drawn upon
substantially all of its short-term credit facilities. Its
ability to access the capital markets and obtain
additional financing have been substantially impaired by
the financial distress being experienced by other
California investor-owned utilities as well as lender
uncertainties concerning California utility regulation
generally and the rapid growth of utility cost
undercollections.
Continued purchases by the CDWR for resale to SDG&E's
customers of substantially all of the electricity that
would otherwise be purchased by SDG&E or dramatic
decreases in wholesale electricity prices, favorable
action by the CPUC on SDG&E's electric rate surcharge
application discussed below and SDG&E access to the
capital markets, are required to manage and finance
SDG&E's cost undercollections and enable it to continue to
fulfill its public service obligations.
Electric Rate Surcharge Application
As previously reported, on January 24, 2001, SDG&E
applied to the CPUC to implement a 2.3 cents/kwh (subject
to adjustment) electric rate surcharge. SDG&E requested
that the surcharge become effective on an interim basis on
March 1, 2001, and on a permanent basis on October 1,
2001. The surcharge is intended to provide SDG&E with
access to financing by managing the growth of its cost
undercollections and providing for the amortization of the
undercollections in customer rates. As discussed above,
the legislation imposing SDG&E's rate ceiling and related
CPUC decisions specifically affirm SDG&E's right
ultimately to recover its prudently incurred costs of
purchasing electricity for its customers. However, SDG&E
cannot predict when the CPUC will act on its electric rate
surcharge request, whether any surcharge will be
authorized at all, or if any authorized surcharge would be
sufficient to enable SDG&E to obtain any necessary
financing..
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This report contains statements that are not
historical fact and constitute forward-looking statements
within the meaning of the Private Securities Litigation
Reform Act of 1995. The words "estimates," "believes,"
"expects," "anticipates," "plans," "intends," "may" and
"should" or similar expressions, or discussions of
strategy or plans are intended to identify forward-looking
statements. Forward-looking statements are not guarantees
of performance. They involve risks, uncertainties and
assumptions. Future results may differ materially from
those expressed in the forward-looking statements.
Forward-looking statements are necessarily based upon
various assumptions involving judgments with respect to
the future and other risks, including, among others,
local, regional, national and international economic,
competitive, political, legislative and regulatory
conditions, actions by the CDWR, the CPUC, the California
legislature and the Federal Energy Regulatory Commission;
the financial condition of other investor-owned utilities;
inflation rates and interest rates; energy markets,
including the timing and extent of changes in commodity
prices; weather conditions; business, regulatory and legal
decisions; the pace of deregulation of retail natural gas
and electricity delivery; the timing and success of
business development efforts; and other uncertainties, all
of which are difficult to predict and many of which are
beyond the control of the company. Readers are cautioned
not to rely unduly on forward-looking statements and are
urged to review and consider carefully the risks,
uncertainties and other factors which affect the company's
business described in this report and other reports filed
by the company from time to time with the Securities and
Exchange Commission.
Item 7. Financial Statements And Exhibits.
None.
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: February 16, 2001 By: /s/ F. H. Ault
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F. H. Ault
Vice President and
Controller